IMITATION THROUGH TECHNOLOGY LICENSING: STRATEGIC IMPLICATIONS FOR SMALLER FIRMS

Abstract

An important aspect of strategic choice is whether to pioneer or to imitate, that is, whether to be a first-mover or a follower. It has been suggested that this is particularly important for small and medium-size enterprises (SMEs) because of potential disadvantages of scale in design, production and marketing. However, empirical evidence suggests that many SMEs can be successful first-movers and that pioneering strategies enable them to compete against larger firms that have scale advantages and possess important downstream resources. This paper looks at the issue of timing of entry from a different perspective. It is concerned with the role of imitation as a strategy and its success when smaller firms are in competition with larger firms. Acquisition of technology through licensing is a frequently used strategy for firms of all sizes. It is also a classic 'imitation' strategy. The paper reports a study of imitative behaviour in a sample of UK manufacturing firms of varying sizes. A comparison of strategic motives, capabilities and outcomes is examined in the context of technology strategies involving both in-house R&D and that acquired through inward technology licensing. An important distinction is made between licensing that provides a basis for subsequent innovation and licensing for reactive imitative purposes. The study concludes that imitation is a viable policy option for smaller firms, but that complementary assets and appropriate capabilities determine whether such a policy has a major competitive impact or is merely a reaction to unsuccessful in-house innovation. The study calls into question the use of size per se as a competitive indicator, and indicates reasons underpinning imitative behaviour that may influence downstream success.