1.  We have limited direct experience of the respective roles of Government-funded research, Foresight Programme or Research Councils in the development of new products and processes, but base our response on our own research in this area [1,2], and understanding of others research.

  2.  The optimal technology acquisition strategy in any specific case will depend on the maturity of the technology, the firm's technological position relative to competitors and the strategic significance of the technology. Some form of collaboration is normally necessary where the technology is novel, complex or scarce. Conversely, where the technology is mature, simple or widely available, market transactions such as sub-contracting or licensing are more appropriate.

  3.  The acquisition of external technology should be used to complement internal research and development, rather than being a substitute for it. In fact, a strategy of technology acquisition is associated with diversification into increasingly complex technologies.

  4.  There is also a growing realisation that exposure to external sources of technology can bring about other important organizational benefits, such as providing an element of "peer review" for the internal R&D function, reducing the "Not-Invented-Here" syndrome, and challenging in-house researchers with new ideas and different perspectives.

  5.  No single form of collaboration is optimal in any generic sense. In practice technological and market characteristics will constrain options, and company culture and strategic considerations will determine what is possible and what is desirable.

  6.  Our study of how 23 UK and 15 Japanese firms acquired technology identified the conditions under which each particular method is favoured. In terms of the frequency of projects, universities were found to be the most common external source of technology, followed by alliances, and then licensing. However, the size and structure of the sample do not allow inferences to be made about the population of UK-based firms. We review each method in turn.

UNIVERSITIES

  7.  In the UK universities are a widely used external source of technology. These relationships range from support for PhD candidates, extra mural research awards for post-doctoral staff to carry out research in a specified area, to more formal contract research and collaborative schemes such as the LINK scheme jointly funded by the DTI and a number of companies to conduct pre-competitive research in a specified area. Firms use university research for a number of reasons: to access specialist technical support; to extend in-house research; and to provide a window on emerging technologies.

  8.  Extensions to existing in-house research typically involve using universities to conduct either fundamental research, aimed at gaining a better understanding of an underlying area of science, or more speculative extensions to existing in-house programmes which cannot be justified internally because of their high risk, or because of limited in-house resources. University-funded research can also be used as windows on emerging or rapidly advancing fields of science and technology. Companies view access to such information as being critical in making good decisions about if or when to internalise a new technology.

ALLIANCES AND JOINT VENTURES

  9.  Industry structure and technological and market characteristics result in different opportunities for joint ventures across sectors, but other factors determine the strategy of specific firms within a given sector. At the industry level, high levels of R&D intensity are associated with high levels of technologically oriented joint ventures, probably as a result of increasing technological rivalry. This suggests that technologically oriented joint ventures are perceived to be a viable strategy in industries characterised by high barriers to entry, rapid market growth and large expenditures on R&D. However, within a specific sector, joint venture activity is not associated with differences in capital expenditure or R&D intensity.

  10.  A study of joint ventures in the US found that technologically oriented alliances tend to increase with the size of firm, capital expenditure and R&D intensity [3]. Similarly, the number of marketing and distribution oriented joint ventures increase with firm size and capital expenditure, but are not affected by R&D intensity. At the level of the firm, different factors are more important. For example, there are significant differences in the motives of small and large firms. In general, large firms use joint ventures to acquire technology, while smaller firms place greater emphasis on the acquisition of market knowledge and financial support.

  11.  Joint venture activity is high in the chemical, mechanical and electrical machinery sectors, as firms seek to acquire external technological know-how in order to reduce the inherent technological uncertainty in those sectors. In contrast, joint ventures are much less common in consumer goods industries, where market position is the result of product differentiation, distribution and support. Surveys of alliances in so-called high-technology sectors such as software and automation appear to confirm that access to technology is the most common motive. Market access appears to be a more common motive for collaboration in the computer, microelectronics, consumer electronics and telecommunications sectors.

  12.  Collaboration between firms in different industries appear to raise much less concern about proprietory positions. In most cases, they are viewed as an attractive means of leveraging in-house skills by working with organizations possessing complementary technical capabilities. Intra-industry collaborations are more important in non-competitive areas, such as in the areas of health, safety, and the environment, and in setting new standards or influencing legislation.

  13.  Overall, the number of alliances has increased over time, and networks of collaboration appear to have become more stable, being based around a number of nodal firms in different sectors. The nodal firms are relatively stable, but their partners change over time. Contrary to the claims of globalisation, the number of domestic alliances has increased faster than international alliances. The primary motive for collaborating with domestic firms is access to technology, but market access is more important in the case of cross-border alliances.

  14.  Collaboration is an inherently risky activity, and less that half achieve their goals. A study of almost 900 joint ventures found that only 45 per cent were mutually agreed to have been successful by all partners [4]. Reasons for failure include strategic divergence, procedural problems and cultural mismatch. It is difficult to assess the success of a collaborative venture, and in particular termination of a partnership does not necessarily indicate failure if the objectives have been met. For example, around half of all alliances are terminated within seven years, but in some cases this is because the partners have subsequently merged. It is common for a collaborative arrangement to evolve over time, and objectives may change. For example, a licensing agreement may evolve into a joint venture. Any measure of success must be multi-dimensional and dynamic in order to capture the different objectives as they evolve over time.

  15.  Factors which contribute to the success of an alliance include:

—  the alliance is perceived as important by all partners;

—  a collaboration "champion" exists;

—  a substantial degree of trust between partners exists;

—  clear project planning and defined task milestones are established;

—  frequent communication between partners, in particular between marketing and technical staff;

—  the collaborating parties contribute as expected;

—  benefits are perceived to be equally distributed.

LICENSING

  16.  In theory, licensing-in a technology has a number of advantages over internal development, in particular lower development costs, less technological and market risk, and faster product development and market entry. Potential drawbacks to licensing-in include restrictive clauses imposed by the licensor, loss of control of operational issues such as pricing, production volume and product quality, and the potential transaction costs of search, negotiation and adaptation.

  17.  In practice, the relative costs and benefits of licensing-in will depend on the nature of the technologies and markets and strategy and capability of the firm. A survey of more than two hundred firms in the chemical, engineering and pharmaceutical industries found that the most important reasons for licensing were related to the speed of access, rather than cost [5]. Factors such as quickly acquiring knowledge required for product development, keeping pace with competitors and increasing sales were found to be most important, and factors such as the cost of development least important. Difference in emphasis exist across sectors, for example, pharmaceutical firms experience higher search costs than engineering firms, and engineering firms place greater emphasis on the potential for reducing the cost and improving the speed of market entry.

  18.  The most significant problems associated with licensing-in are entry costs such as the choice of suitable technology and licensor, and the loss of control of decision-making. In some cases, however, there is a reluctance to license-in technology which may adversely affect the differentiation of end products, if customers became aware of the fact. Many firms express concerns regarding the constraints imposed by international licensing agreements, specifically the common requirement to "grant-back" any improvements made to the technology. For these reasons an increasing number of firms are careful to license only components of any process or product in order to allow scope for subsequent improvement and differentiation. However, this approach to licensing is only viable where the technology can be easily "unbundled".

REFERENCES

  1.  J Tidd & M Trewhella (1997) "Organizational and technological antecedents for knowledge acquisition and learning", R&D Management, 27(4), 359-375.

  2.  J Tidd, J Bessant & K Pavitt (1997) Managing Innovation: Integrating technological, market & organizational change (Wiley).

  3.  S Berg, J Duncan & P Friedman (1982) Joint Venture Strategies and Corporate Innovation (Gunn & Hain).

  4.  K R Harrigan (1986) Managing for Joint Venture Success (Lexington Books).

  5.  K Atuahene-Gima & P Patterson (1993) "Managerial perceptions of licensing as an alternative to internal R&D in product development", R&D Management, 23(4), 327-336.

24 April 1998