R&D investment and interfirm absorptive capacity

Student: Gabriela Marulea First Supervisor: Dr. Hans J. Berger Second Supervisor: Dr. Martijn M. Keizer

R&D investment and interfirm absorptive capacity

Master Thesis, Marketing Management

University of Groningen, Faculty of Economics and Business

Agenda

1. Introduction

2. Theoretical background 3. Conceptual model

4. Methodology

5. Data analysis and findings 6. Discussion

7. Limitations and future research proposals

Introduction

› Absorptive capacity:

 Refers to one of the firm’s fundamental learning processes.

 Interfirm alliances:

 Aim to sustain their competitive advantage by investing in learning activities:

R&D

spending Absorptive

capacity

“

Innovation and Learning: The Two Faces of R&D” (Cohen and Levinthal, Economic Journal, 1989)

”

Introduction

1. To empirically test the relationship between R&D spending and absorptive capacity.

 Is R&D related to the inter-organizational learning capabilities?

2. To investigate the moderating role of governance mechanisms of the interfirm relationships .

 Distinct mechanisms which govern a relationship have different approaches and implications in achieving external knowledge.

Relational Governance Contractual governance

Introduction

3. To advance our understanding on how absorptive capacity impacts the relationship performance.

 We distinguish between two dimensions, potential and realized absorptive capacity.

4. Two different perspectives, buyer and supplier.

 Are there differences in perceptions about relational benefits?

Research Question: What is the moderating effect of governance mechanisms on the capacity of R&D

spending to access and deploy external knowledge (absorptive capacity), and thereby improve the

relationship performance?

Theoretical framework

› PACAP denotes the explorative learning

(I, II);

› RACAP refers to the exploitative learning

(III, IV).

› Contractual governance:

the use of formal contracts is emphasized in the relationship (Poppo and Zenger 2002).

 Relational governance:

partners rely on personal ties and shared norms rather than explicit contracts (Cao and Lumineau, 2015).

I II III IV

I. Acquisition of new knowledge

II. Assimilation

III. Transformation

IV. Exploitation

Zahra and George (2002)

Relationship performances:

• new expertise

• new product development

• lower costs

• better product quality etc.

Absorptive capacity: multiple learning levels

Theoretical Framework:

Figure 1: Conceptual model

R&D

Buyer

PACAP

RACAP

Contractual governance

Relational governance

Joint performance (explorative learning)

R&D

Supplier

Joint performance (exploitative learning) Distribution of benefits

(explorative learning)

Distribution of benefits (exploitative learning) H1a

H1b H2a H3a

H4b H5b

H6a

H6b H7a

H7b

H2b H3b

H4a H5a

Method

 Data

› 166 dyadic buyer-supplier relationships.

› Data gathered by Berger (2015) from key informants.

› Hypotheses are tested for the buyer and supplier database separately.

 Statistical Procedure- PLS-SEM, using SmartPLS software:

1. First tests the outer model:

o Formative constructs o Reflective constructs

2. Consequently, the inner model.

Data Analysis

I. Missing values:

o 20% missing values for the variable R&D;

o treated by mean replacement.

II. Outer model:

o assesses the existing relationships between the latent constructs and the associated measurement items.

III. Inner model:

o allows us to examine the relationships between the latent constructs, hence we can

test the hypothesized relationships.

Findings:

Independent => Dependent

Buyer Hypothesis Buyer Supplier Hypothesis

Supplier

R&D => PACAP

R&D x Relational Norms => PACAP R&D x Contracting=> PACAP

H2a H4a

Rejected Rejected

H_1a H_2b H_4b

Rejected Rejected Rejected

R&D => RACAP

R&D x Relational Norms=> RACAP R&D x Contracting => RACAP

H_1b H_3a H_5a

Rejected Rejected Rejected

H_3b H_5b

Rejected Rejected

PACAP => Explorative Learning Performance PACAP => Distribution of Benefits

H_6a H_7a

Accepted Accepted

H_6a H_7a

Accepted Rejected

RACAP => Exploitative Learning Performance RACAP => Distribution of Benefits

H_6b H_7b

Accepted Accepted

H_6b H_7b

Accepted Rejected

Discussion

• No link between R&D and ACAP dimensions;

• Buyers and suppliers don’t reveal any dissimilarity in the proposed relationships.

1.R&D spending and absorptive capacity:

• Neither contractual nor relational governance affects the strength and/or direction R&D investment has on PACAP and RACAP.

2.The moderating effect of governance, between R&D and ACAP:

• PACAP positively influences joint explorative learning performance;

• RACAP positively impacts joint exploitative learning performance.

3. ACAP and relationship performance:

• Insignificant values for the supplier side

• Differences in perceptions among buyers and suppliers regarding the appropriation of benefits

.

4. ACAP and the distribution of performances:

Limitations, implications and future research proposals

 Managerial implications:

• enhance the partnering firm’s accessibility to knowledge;

• capitalize on explorative and exploitative capabilities to ensure a competitive advantage for the firm;

• account for dissimilarities between buyers and suppliers perspectives’ regarding the drivers of relationship’s performance;

• suppliers perceive to appropriate less benefits, thus focus on how to increase the supplier’s incentives.

 Scientific Implications:

• there are perceptual differences about relational benefits;

 Limitations:

• the R&D measure (firm’s three years average R&D spending as a percentage of sales) represents an imperfect indicator of R&D efforts, as the measure may fluctuate quite widely as sales vary (Oxley, 1997);

• missing values approach;

• R&D variable captures only partially the dyadic construct.

Limitations, implications and future research proposals

 Future research:

• future research should focus on the drivers of the relationship performance and how these are differently perceived by alliance partners.;

• studies should explore what determines the pattern of the distribution of the relationship benefits;

• to further examine the moderating role of the governance structure, future research should include the cooperative R&D spending.

Appendix 1: Results of the multi-group analysis

Independent

Dependent Buyer

Beta: p-value:

Supplier

Beta: p-value:

Welch-Satterthwait Test t-value: p-value:

R&D

PACAP RACAP

0.094 0.042

0.178 0.434

0.015 0.040

0.828 0.556

1.044 1.708

0.298 0.727 PACAP

Explorative LP 0.332 0.000 0.368

0.000 0.362 0.717

Distribution

of Explorative LP

0.181 0.040 0.086 0.664 2.319 0.007

RACAP Exploitative LP

0.675 0.000 0.546 0.000 1.615 0.108

Distribution

of Exploitative LP

0.323 0.000 0.170 0.562 2.105 0.020

Moderating Effect:

R&D x Contracting R&D x Relational N

PACAP PACAP

0.110 -0.105

0.106 0.108

-0.053 -0.069

0.485 0.668

1.600 0.543

0.114 0.587

R&D x Contracting R&D x Relational N

RACAP RACAP

0.094 -0.055

0.142 0.336

-0.005 -0.070

0.950 0.509

0.976 0.117

0.330 0.906

Appendix 2: The distribution of benefits

Likert-scale value 1-3(Appropriated less) 4(Equal Benefits) 5-7(Appropriated more) Total Explorative

learning

20,8 % 49,8 % 29,4 % 100%

Exploitative learning

14,28% 45,7% 38,7% 100%

Likert-scale value 1-3 (Appropriated less) 4 (Equal Benefits) 5-7(Appropriated more) Total Explorative

learning

33% 48% 19% 100%

Exploitative learning

35,8% 47,4% 16,8% 100%

Distribution of benefits (buyer’s perception).

Distribution of benefits (supplier’s perception).