Search and technological
diversification through licensing:
New insights from the
licensee’s point of view
Maria Isabella Leone
According
to Arora, Fosfuri and Gambardella (2001), the traditional model of organizing innovation —where
R&D and the complementary assets required for innovation are largely
integrated inside the firm (Teece, 1988) — is now challenged by a growing exchange of
technology among firms. The emergence of markets for technologies has indeed increased
the opportunity costs of the not-invented-here attitude (Katz & Allen, 1982), by favoring those firms that are more open to the
outside and that are engaged in permanent activity of search (Arora et al., 2001a;
Laursen & Salter, 2006). In this context, decisions to in-license
technologies can play a crucial role in firms’ technology strategy as a way to
undertake search in the available technological space. However, the links
between licensing and the patterns of firms’ technological search and diversification
are still underdeveloped in the economics and management literature. Also, with
few exceptions (e.g. Atuahene-Gima, 1993;
Atuahene-Gima & Patterson, 1993; Cesaroni, 2004;
Lowe & Taylor, 1998), extant literature on
licensing has tended to emphasize the licensor’s perspective (e.g., Arora & Ceccagnoli, 2006; Arora, Fosfuri, & Gambardella, 2001;
Fosfuri, 2006; Kim & Vonortas, 2006; Silverman, 1999), while neglecting the
demand side of the matter.
This
paper aims to fill part of this research lacuna — following the lead of Killing
(1978) and Caves, Crookell and
Killing (1983) — by seeing technology licensing-in as an important
mode of technological diversification. However, while Killing and colleagues
linked licensing-in and related diversification, they did not examine the
conditions under which firms may chose to license-in technologies with varying
degrees of relatedness to their own technological base. In this paper, we want
to explain the degree of technological “unrelatedness”
between the licensed technologies and firms’ existing technological background as
an expression of the degree of a firm’s explorative technological search
through licensing-in. We develop the argument — based on the resource based
view of the firm and the theory of general purpose technologies — that
licensees’ degree of technological specialization (i.e., technological
concentration in a few technology classes) and the licensed technology’s
generality should be respectively negatively and positively related to the
degree of unrelated technological
diversification by licensing.
In order to test our hypotheses we rely on patent
and licenses data. Based on a sample of 224 licenses involving almost 900 USPTO
patents, we analyzed the effect of licensee’s patent portfolio composition and
licensed technology generality on the degree of un/relatedness characterizing
the choice of technological diversification through licensing. By controlling for several
factors affecting the nature of technological diversification in general (e.g.,
business proximity between licensor and licensee), we find overall support for
these ideas. In addition, in order to account for a potential selection bias, we construct a control sample consisting of
firms that has not licensed a technology, rather they
have patented in the same time span considered for the analysis, and are very similar in terms of geographical
region, industry and patent stock to our treatment sample. We still find
support for our results.
Based on these findings, we believe that our study
extends previous research in three new directions. First, it makes a contribution
to the literature on technological search and open innovation (e.g., Katila and Ahuja,
2002; Laursen and Salter, 2006) by shedding new
light on the role of licensing-in as a strategy to capture new technological
opportunities outside the boundaries of the firm. Second, it matches this
literature with that centered on the functioning of markets for technology (Arora
et al., 2001; Fosfuri, 2006) by focusing on the
demand-side of this market, an issue that has been generally overlooked so far.
Third, it advances our understanding of the features of firms’ technological diversification strategy — a strategy that has been subject to increased attention
over recent years (e.g.,
Granstrand et al., 1997; Gambardella and Torrisi, 1998; Cantwell et al., 2004).
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