Scandinavian Working Papers in Economics

Papers in Innovation Studies,
Lund University, CIRCLE - Centre for Innovation Research

No 2016/22: Technological Capabilities, Technological Dynamism and Innovation Offshoring

Torben Schubert (), Elisabeth Baier () and Christian Rammer ()
Additional contact information
Torben Schubert: CIRCLE, Lund University, Postal: CIRCLE, Lund University, PO Box 117, SE-22100 Lund, Sweden
Elisabeth Baier: Hochschule für Wirtschaft, Technik und Kultur (HWTK), Postal: Germany
Christian Rammer: Centre for European Economic Research (ZEW), Postal: Germany

Abstract: In this paper we analyze the conditions under which firms decide to offshore innovation. We consider the role of internal technological capabilities and technological dynamism in the firm environment, distinguishing speed and uncertainty of technological change. Using unique data from the German Innovation Survey we find that while high speed of technological change tends to drive innovation offshoring, high uncertainty about future technology developments results in more innovation offshoring only for firms with low internal technological capabilities. Firms with high technological capabilities instead are less likely to offshore innovation when uncertainty is high. We argue that these differences in offshoring behaviour reflect differing strategic objectives. We show that for firms with low technological capabilities asset augmentation is more important while for firms with high technological capabilities asset exploitation is more important. When faced by high technological uncertainty firms with low technological capabilities offshore innovation strategically in order to reduce uncertainty by augmenting their asset base. For firms with high technological capabilities asset augmentation is less important. When faced by high technological uncertainty, they prefer to innovate onshore in order to keep stronger control of their key assets.

Keywords: offshoring; R&D; uncertainty; competition; technological change; speed

JEL-codes: F21; F23; L22; O32

31 pages, July 25, 2016

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