Location, shared suppliers and the innovation performance of R&D outsourcing agreements

Abstract

The location of an international supplier constitutes a crucial variable when outsourcing research and development (R&D) services, especially if the supplier also serves competitors. Even though shared suppliers have refined capabilities, they may act as hubs for knowledge transfers, exposing their clients to the risk of knowledge leakages to their competitors. Building on Transaction Cost Theory, we argue that a client’s ability to benefit from having a shared supplier will be dependent on the appropriability regime of the outsourcing location, whose effectiveness depends on the Intellectual Property Rights (IPR) protection within the country, and the tacit and specific nature of the service outsourced. Using primary data at the transaction level from a survey to 170 technology-intensive firms from the EU and the U.S., we find that sharing R&D suppliers with competitors appear to mimic some of the advantages and disadvantages of being collocated with them, especially in countries offering weak IPR protection.