How Do Innovative Firms Commercialize their Technology?

Overcoming the Dichotomy Technology Trade Versus Integration into Products.

ABSTRACT

Research on how firms can profit from their innovations (e.g., Teece, 1986, 2006; Arora, Fosfuri and Gambardella, 2001; Gans, Hsu and Stern, 2002; Gans and Stern, 2003; Gambardella and Giarratana, 2007) has commonly recognized that firms can choose between two distinct technology commercialization strategies (TCS): they can sell the technology itself in the market or embed it in final products.

Furthermore, this research implicitly recognizes that each of these technology commercialization strategies corresponds to a distinct way to get access to downstream assets. Indeed, these studies actually assume that selling the technology itself implies external access to downstream assets whereas embodying the technology into products implies internal control of those assets. Briefly, extant research in this field actually suggests that TCS fit at the poles of the dichotomy Technology Trade (TT) versus Proprietary Integration (PI).

Yet, such a characterization of TCS neglects the case of firms that embed the technology into products through external access to downstream assets. Indeed, an increasing body of research has long been revealing a clear tendency of firms to develop strategic alliances to get access to external manufacturing, marketing and sales facilities and expertises (e.g., Contractor and Lorange, 1988; Hagedoorn, 1993; Powell, Koput and Smith-Doerr, 1996). Other studies demonstrating the tendency of firms to engage in vertical disintegration processes (e.g., Saxenian, 1991; Doz and Hamel, 1998; Lorenzoni and Lipparini, 1999) and the propensity of firms to couple exploration with exploitation alliances (e.g., Lavie and Rosenkopf, 2006) provide an indirect support to the case of firms that leverage on external downstream assets to incorporate their technology into products.

This paper addresses this gap by pursuing a twofold purpose. First, it aims to overcome the dichotomy TT-PI by extending the traditional frame to include the case of Contractual Integration, i.e. the choice of embedding the technology into products through external access to downstream assets. Second, it aims to assess whether and to what extent TT, PI and CI are exclusive or concurrent ways to commercialize firms’ technology.

This study investigates these issues by providing an extensive empirical investigation on a novel and original cross-sectional database referred to the time frame 1996-2001, including 1768 European and US innovative SMEs across all industries. The choice to focus on SMEs is justified by the fact that access to downstream assets represents an especially critical issue for these firms, as they are less likely to possess all the relevant dowsntream assets for commercializing their innovations compared to larger firms (Teece, 1986), and because of their well documented financial constraints (e.g., Carpenter and Petersen, 2002).

Results from the analyses reveal that Technology Trade and Contractual Integration are concurrent – i.e., jointly employed – strategies, while Proprietary Integration strategy is implemented in an exclusive way.

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