Paradigm Shift? Open Innovation and the Innovative Performance of EU Firms

It has been suggested that a paradigm shift is taking place, from the old model of product innovation based on in-house R&D, to a new model based on the intensive use of external sources (search depth). We test this using Eurostat CIS4 data for 40 sectors in 18 European countries. The findings of estimated GLM models suggest a more nuanced understanding of the role of external search is required. Internal R&D, rather than external search depth, are found to be the key factors affecting the performance of innovation leaders. Further, we find no evidence of a substitution effect between R&D and external sources for innovation leaders. External search is identified as an important factor affecting the performance of innovation followers. There is also evidence of a substitution effect amongst these particular firms, indicating they replace formal R&D with openness, in order to acquire the information needed to catch-up with innovation leaders. These findings are consistent with the old innovation model, cautioning against the suggestion that a paradigm shift has occurred