Understanding External Technology Sourcing in New Product Development Projects: Bilateral vs. unilateral contracts

Author Name KANI Masayo (Tezukayama University) / MOTOHASHI Kazuyuki (Faculty Fellow, RIETI)
Creation Date/NO. December 2016 16-E-104
Research Project Empirical Studies on "Japanese-style" Open Innovation
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This paper provides empirical analyses to understand the management of external technology sourcing using a novel dataset of new product development (NPD) projects in Japanese firms and focusing on the difference between bilateral and unilateral contract-based alliances. External technology sourcing takes various forms that can be divided into two categories: bilateral alliances, such as joint research and development (R&D), and unilateral alliances, such as licensing and commissioned R&D. The former style involves the dynamic process of joint R&D with a partner, whereas the latter involves the straightforward process of technology acquisition from a partner. In the first analysis in this paper, the determinants of the sourcing strategy for each contract type are investigated, and we find that bilateral contracts are more often used for exploratory projects, whereas in-house development is more often used for exploitation projects. Unilateral contracts are more relevant for projects mitigating contractual hazards. The second analysis looks into the relationship between the type of technology sourcing and its performance. We find that bilateral contract-based technology sourcing is more likely to lead to novel innovation than in-house development, but this difference in performance disappears when controlling for the type of NPD project and the firm's managerial resources.