Substitutability and complementarity of technological knowledge and the inventive performance of semiconductor companies

This paper analyses whether complementarity and substitutability of knowledge elements are key determinants of the firm's inventive performance, in addition to the more conventional measures of knowledge stock and diversity. Using patent data from 1968 to 2002 in the semiconductor industry, we find that the overall level of complementarity between knowledge components positively contributes to firms’ inventive capability, whereas the overall level of substitutability between knowledge components generally has the opposite effect. Yet a relatively high level of substitutability is found to be beneficial for explorative inventions. These results suggest that a firm's inventive capacity significantly depends on its ability to align its inventive strategies and knowledge base structure.