Absorptive Capacity and External Technology Sourcing: Empirical investigation of vertical and horizontal relationships in the research and development process

Firms' decisions regarding external research and development (R&D) sourcing are influenced by their absorptive capacities, as developed through their internal R&D activities. However, it remains to be determined how the effects of absorptive capacity on firms'external sourcing strategies vary among the R&D stages, namely, upstream "research" or downstream "development" in the entire R&D process. Based on a detailed pharmaceutical R&D data set, which allows us to separately identify "research" and "development" activities, we have empirically investigated how the R&D process stage affects the relationship between internal R&D and external technology sourcing. Additionally, we separate efforts from capabilities for the concept of "absorptive capacity" to observe more precisely the aforementioned relationship between internal capacity and external technology sourcing. A complementary internal-external relationship is found more frequently for vertical looks ("R" and "D") and for internal "efforts," while some substitutional relationships exist between the research's internal "capabilities" and external sourcing (horizontal looks).