Cooperative innovation with buyers: how subcontractors and non-subcontractors differ

ABSTRACT

This article explores how the likelihood and determinants of cooperative innovation with buyers differ between two types of suppliers (i.e. subcontractors and non-subcontractors) due to heterogeneities in the supplier-buyer relationship and resources. It compares and integrates the relational view and the resource-based view (RBV) within the context of vertical cooperative innovation. It finds that the likelihood of cooperative innovation with buyers is higher for subcontractors than for non-subcontractors by analysing the data of Korean firms in the manufacturing sector. In addition, it finds that the status of subcontractors moderates the impact of factors affecting the likelihood of cooperative innovation with buyers. Specifically, the positive effect of process innovation competence on the cooperation likelihood is relatively greater for subcontractors. In contrast, the positive effects of product innovation competence and innovation appropriability are greater for non-subcontractors.

KEYWORDS:

• Cooperative innovation
• vertical collaboration
• subcontractors
• innovation competence
• appropriability

Disclosure statement

No potential conflict of interest was reported by the author(s).

Notes

1 A few studies investigated the direct impact of such relationship on the supplier’s independent innovation (e.g., Bocquet 2011; Krolikowski and Yuan 2017) or focused only on the subcontractors’ innovation except for non-subcontractors (e.g., Kumar and Subrahmanya 2010). Exceptionally, Jean et al. (2012) found that supplier’s dependence on the buyer has a moderating role in the relationship between the drivers and outcomes of supplier’s independent innovation. However, previous studies have not sufficiently explored how the effects of supplier-specific factors on cooperative innovation with buyers vary across the suppliers with different types of supplier–buyer relationship and resources shaping value creation and appropriation mechanisms (Su and Yang 2017). For example, studies on how supplier–buyer contracts and partner types influence the behaviour of vertical R&D collaboration are lacking (Bäck and Kohtamäki 2015; Martínez-Noya and Narula 2018).

2 Empirical studies on innovation have found that main determinants of firm-level innovation are firm size, market- and industry-related factors (e.g., characteristics of market demand), and innovation-related factors such as technological opportunity (i.e., sources and abundance of knowledge for technological innovation), appropriability (i.e., the extent of protecting returns of innovation), and innovation-specific capability (e.g., technological competence, absorptive capacity, etc.). For a summary of related findings and discussion, refer to Levin et al. (1985), Cohen and Levin (1989), and Cohen (2010).

3 Customer concentration and strong ties, which characterise subcontracting, can have both benefits and costs in supplier innovation. The effect of customer concentration on supplier innovation has been debated in the literature. Some studies have found a positive effect (Krolikowski and Yuan 2017; Chu et al. 2019), which is consistent with the positive impacts of strong ties, social interactions, and tacit knowledge sharing on inter-organisational learning (Kale et al. 2000; Dyer and Nobeoka 2000; Yli-Renko et al. 2001; Inkpen and Tsang 2007; Martínez-Cañas et al. 2012; Ritala et al. 2015). Others have shown a negative effect (Pan et al. 2020), implying hold-up costs of exclusive relations and the benefits of weak ties in learning (Granovetter 1973; McEvily and Zaheer 1999; Nobeoka et al. 2002).

4 Subcontractors’ further orientation toward process innovation, rather than toward product innovation (Bocquet 2011), could be also related to their less dependence on the typical methods of innovation protection. Such methods tend to be less effective for process innovation than product innovation (Dosi et al. 2006; James et al. 2013).

5 To avoid problems in interpreting the magnitude and statistical significance of the interaction variables in the logit regression (Hoetker 2007), this study does not add the interaction terms between Subcon and each of the main explanatory variables (PrdInnov, PrcInnov, and Appro) to Eq. (1) for the entire sample. Instead, it separately estimates the coefficients of Eq. (1) in each subsample and then compares them between the subsamples (Hoetker 2007).

6 It is also notable that the difference of the marginal coefficient’s magnitude between subcontractors and non-subcontractors is much larger for process innovation novelty (i.e., 0.074–0.016) than for product innovation novelty (i.e., 0.021–0.015) in the columns [2] and [3] of Table A1. This result is in line with the previous finding that the positive effect of subcontracting on process innovation is greater than its effect on product innovation (Bocquet 2011; Hervas-Oliver et al. 2016). It is probably because unlike non-subcontractors as independent suppliers, most subcontractors are likely to be process-oriented innovators, rather than product-oriented innovators, seeking production flexibility and cost minimisation as a major source of competitive advantage.

7 This is consistent with the argument of Dyer and Singh (1998) that mechanisms and strategies for preserving profits from relation-specific investments and those from firm-level resources vary. According to the RBV, individual firms should attempt to protect their valuable know-how to prevent knowledge spillovers. However, according to the relational view, firms should share valuable know-how with a small number of alliance partners to make performance-enhancing investments in relation-specific assets (Dyer and Singh 1998).

Additional information

Notes on contributors

Jungho Kim

Jungho Kim is an Associate Research Fellow in Center for SMEs and Venture Business Research at Korea Institute for Industrial Economics and Trade (KIET) in South Korea. He holds a PhD in Management Engineering from Korea Advanced Institute of Science and Technology (KAIST) College of Business. Prior to current employment at KIET, I had been a Research Fellow at Swinburne University of Technology in Australia and an Assistant Professor at Sunchon National University and Konkuk University in South Korea. His research covers a variety of topics on strategic management of innovation from an interdisciplinary perspective of innovation and strategy. He has published articles in peer-reviewed international journals such as Research Policy, Industrial and Corporate Change, Technology Analysis and Strategic Management, Applied Economics Letters, Global Economic Review, and International Journal of Innovation Management.