Abstract
Recent theory and literature suggests that many businesses now innovate based on the adoption and modification of knowledge, technology, and innovations sourced externally rather than developed in-house. Yet, little is known about the value and economic impact of expenditures on outsourced innovation activities, which are often referred to as hidden innovation by many scholars. The issue is due largely to a lack of consistent measurement, available data, and analyses of expenditures on hidden innovation. In contrast, there is a long history of cross-country data collection on in-house research and development (R&D) activities and costs, and much research focuses on innovations involving in-house R&D effort. This study reviews results from a survey aimed at collecting new economy-wide data on external innovation investments in Australia. The results estimate total unmeasured or hidden investment in external innovation activities by Australian businesses at $3.5 to $4 billion in 2014, an amount large enough to stimulate important economic activity and warrant future research. This article discusses the implications of these results for policy, business strategy, and future research on innovation.
Highlights
Over the past decades, empirical innovation research has widened in scope to incorporate a broad definition of innovation that includes the business introduction of new or improved products, processes, organizational, or marketing methods (OECD, 2005)
The survey questionnaire design was based on the national Business Characteristics Survey (BCS) conducted by the Australian Bureau of Statistics (ABS)
The main objective of this article was to examine the issue of "hidden innovation" and provide an empirical picture of the nature and magnitude of hidden innovation investment in Australia. This task was approached by examining new data from a 2015 survey of the innovation investment activities of 1600 randomly selected Australian businesses
Summary
Empirical innovation research has widened in scope to incorporate a broad definition of innovation that includes the business introduction of new or improved products, processes, organizational, or marketing methods (OECD, 2005). Government policies and empirical studies of business innovation investments invariably focus on in-house research and development (R&D) expenditures as the main type of investment (Damanpour & Aravind, 2012; Demirel & Mazzucato, 2012). In-house R&D expenditures cover the internal production of new knowledge and technology by businesses for the development of product and process innovations. Despite non-R&D modes of innovation being dominant in many large industries such as services or traditional low-tech sectors (Hansen & Serin, 1997; Hirsch-Kreinsen, 2008), much of the policy and research focus remains on the production of new technology via R&D, rather than its effective absorption, integration, modification, and use (EBRD, 2014). In Australia, for instance, Government expenditure on business R&D support programs in 2015–16 accounted for approximately $2.9 billion and 30% of the entire science, technology and innovation budget (DIIS, 2015)
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