External knowledge sourcing and internal knowledge generation As already mentioned in the previous section, the goals in external

knowledge search may be multiple. The external search for knowledge can be driven by the need to access new ideas, develop a broader knowledge base and acquire complementary assets as inputs in the firm’s race towards innovation (Bierly and Daly, 2007). Also, working with external agents may foster the transfer of knowledge resulting in the generation of resources that would have been difficult to obtain without such interaction (Ahuja, 2000; Das and Teng, 2000). Other times firms are looking to reduce risks by sharing the costs of R&D with other agents (Miotti and Sachwald, 2003; Belderbos et al., 2004; Huang et al., 2009).

The dark side of interacting with external sources of knowledge has also been exposed, such as the promotion of learning races between partners (Larsson et al., 1998; Teece, 2002). Also, unintended knowledge spillovers and the weakening of organizational core technological competences have been underlined as relevant threats concerning external knowledge

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(Coombs, 1996; Howells et al., 2003). In this line of thought, some authors have suggested that internal knowledge generation can be a better alternative (Vega-Jurado et al., 2008b; Vega-Jurado et al., 2009). For instance, these authors show that in-house R&D activities represent a strategic asset in the development of new products and, that developing these activities is more significant than external knowledge search.

Thus the evaluation of external knowledge sourcing risks and benefits is closely related to works dealing with the following question: external knowledge souricng or internal knowledge generation? These studies use the concepts of market and hierarchy developed in the Transaction Cost Theory, which suggests that firms are usually a better context than markets for transactions involving high asset specificity, uncertainty and opportunistic behavior (Williamson, 1985). Through this lens these studies analyze the risks and opportunities regarding the choice of sourcing external knowledge and performing R&D in-house activities (Croisier, 1998; Howells et al., 2003). Findings suggest that in the case of low uncertainty in technological knowledge and the presence of standard assets the costs related to external acquisition are lower than the firm’s internal costs, making the former option preferable to the latter. In this sense, these studies conceptualize the question regarding whether the firm limits its resources to the internal boundaries of the firm or access the pool of knowledge available within the environment (Mowery, 1984; Vega-Jurado et al., 2009). That is, they conceptualize external knowledge sourcing and in-house knowledge generation as trade-offs.

After relevant critics made to the Transaction Costs Theory (for a review see Shelanski and Klein, 1995) the Resource Based View arises as an alternative powerful organizational theory, where the importance of internal resources as a source to competitive advantage is highlighted (Penrose, 1959; Wernefelt, 1984; Barney, 1991; Grant, 1991; Peteraf, 1993).

In the context of external knowledge sourcing the Transaction Costs

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Theory was criticized because of its intensive focus on knowledge attributes (mainly uncertainty and specificity). On the other hand, studies which grounded their theoretical background on the Resource Based View started to offer additional insights, such as the role of firm’s internal resources in shaping the firm’s external search (Oerlemans and Meus, 2001). This idea was supported by evidence of cases in which firms outsourcing an important amount of their research and technical activity experienced the undermining of their internal capacity necessary to integrate the outsourced knowledge (Attuahene-Gima, 1992; Welch and Nayak, 1992). Also, in the case of cooperating, several authors have confirmed that cooperating with insufficient internal knowledge hampers the effective integration of knowledge (Vega-Jurado et al., 2009). This gives rise to the belief that external sourcing is not a substitute but a complement to in-house research activity (Coombs, 1996; Howells et al., 2003).

In this sense, absorptive capacity has emerged as a valuable conceptual approach, which recognizes that the organizations knowledge base is determinant in facilitating learning from external sources of knowledge (Cohen and Levinthal, 1990). Specifically, the original concept of absorptive capacity is defined as the firm’s ability to use prior related knowledge to recognize, assimilate, and use external knowledge for commercial ends⁷. The interest of this concept and its influence over the last years is that it extends the traditional use of firm’s internal knowledge as a generator of innovations to its role in taking advantage from external sources of knowledge.

However, studies considering the combined strategy concerning internal knowledge generation and external technology sourcing have produced mixed findings (See Figure 2.1 for an example of the common model tested within the studies in this tradition). In this sense, some authors have found that internal R&D and external knowledge acquisition are

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complementary in affecting innovation performance (Miotti and Sachwald, 2003; Caloghirou et al., 2004; Cassiman and Veugelers, 2006;

Tsai, 2009; Tsai and Wang, 2009; Sofka and Grimpe, 2010) while other scholars find a substitution effect between internal and external knowledge sourcing (Laursen and Salter, 2006; Haro-Domínguez et al.,

Figure 2.1 R&D intensity moderating effect on collaborative networks and product innovation performance

We argue that these contradictory findings could be resolved by a richer interpretation of absorptive capacity theoretical framework. Even though the seminal paper of Cohen and Levinthal (1990) measures absorptive capacity through the proxy variable of R&D expenditures, their theoretical framework was much more extensive. Cohen and Levinthal (1990) highlight that absorptive capacity, “will depend on the absorptive capacities of its individual members but it is not the sum of the absorptive capacities of its employees” remarking the necessity of considering “what aspects of absorptive capacity are distinctly organizational” (p.131)⁸. However, most of the studies in this tradition follow Cohen and Levinthal’s (1990) modus operandis and focus on internal knowledge content, primarily technological knowledge, considering firms in-house R&D efforts as the main indicator of absorptive capacity. Recently, Koka et

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al. (2006) and McMillan (2008) warn about the problems caused by limiting absorptive capacity concept to knowledge content and neglecting the central role of management in this process. In our view studies in the innovation economic approach have definitely neglected the important role of organizational factors in the process of sourcing and exploiting external knowledge.

However, recently a few exceptions have made an effort in measuring the determinants of organizational absorptive capacity (Van den Bosch et al., 1999; Jansen et al., 2005; Vega-Jurado et al., 2008a; Foss et al., 2010;

Schmidt et al., 2010; Gebauer et al., 2012). In the following section we will describe in detail these studies.