Sourcing Technological Knowledge Through Foreign Inward Licensing to Boost the Performance of Indian Firms: The Contingent Effects of Internal R&D and Business Group Affiliation

Stefano Elia,Vittoria G Scalera,Surender Munjal

doi:10.1007/s11575-020-00419-6

Stefano Elia, Vittoria G Scalera + Show 1 more

Open Access

https://doi.org/10.1007/s11575-020-00419-6

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Abstract

Sourcing technological knowledge from abroad is becoming a popular strategy among emerging market firms (EMFs). Combining the Knowledge-Based View and the Resource Dependence Theory, we argue that augmenting technological knowledge through foreign licensing enables EMFs to access state-of-the-art technological knowledge, reduce operational costs and risks associated to the innovation process, and develop a knowledge-based competitive advantage, ultimately boosting their financial performance. Using data about Indian firms observed from 2001 to 2013, we find that firms with a higher share of foreign inward technology licenses report better financial performance. However, the positive impact of technological knowledge accessed through inward licensing on firm performance is contingent upon: (1) the internal knowledge developed through R&D activity, and (2) the affiliation with business groups. While Indian firms with higher level of internal R&D are able to better leverage the value of foreign technological knowledge, thus reaching higher performance, firms affiliated to business groups gain fewer benefits from licensed foreign technological knowledge than non-business-group affiliated firms.

Highlights

Rapid evolution and rising presence of emerging market firms (EMFs) in an array of global industries have attracted significant attention
Given the relatively lower technological knowledge base of EMFs, we argue that the combination of internal R&D with the external technological knowledge sourced through inward licenses from abroad triggers a positive interaction mechanism that boosts the EMFs’ financial performance, by making the technological catch-up process more effective and efficient
We acknowledge that our study is affected by the idiosyncrasies of Indian firms, meaning that it may not be generalizable to the context of EMFs from other countries (Tsang and Williams 2012), we believe that it still provides relevant contributions to the literature at the intersection of international business and innovation management, which we invite future scholars to investigate in other emerging countries’ context

Summary

Introduction

Rapid evolution and rising presence of emerging market firms (EMFs) in an array of global industries have attracted significant attention. Little attention has been devoted to alternative forms of technological knowledge sourcing strategies, such as inward licensing, which are potentially beneficial, but most importantly faster and easier to be implemented, and comparatively less expensive (e.g., Sikimic et al 2016). Addressing this gap, in this paper we focus on EMFs’ strategy to use inward licensing to access foreign technological knowledge, and its impact on their financial performance. The core research question of our paper is: How does foreign technological knowledge acquired through inward licenses affect the financial performance of EMFs?

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