The Role of University-Industry R&D Collaboration in Firms' Innovative Performance in Greece

The role of University-Industry R&D Collaboration in Firms’ Innovative Performance in the Midst of an economic Crisis: Empirical Evidence from Greece YannisCaloghirou*, Ioannis Giotopoulos ** Efthymia Korra***, Aggelos Tsakanikas**** *Professor, Laboratory of Industrial and Energy Economics, National Technical University of Athens (LIEE/NTUA), Scientific responsible for the Innovation and Entrepreneurship Unit **Assistant Professor, Department of Economics, University of Peloponnese ***Research Fellow, Foundation for Economic and Industrial Research ****Assistant Professor, LIEE /NTUA T2S 2015 Conference, 28-30 October 2015, Dublin

Outline • The topic addressed: research questions • Motivation • Data and Methodology • Empirical results • Conclusions – policy implications

The topic addressed: research questions • The topic • Explore the role of University – Firm R&D collaborations on firms’ innovative performance in times of crisis. • Research questions • How do the potential effects of University – Firm R&D collaborations on innovation evolve as the crisis deepens? • In which way strategic orientation, intention of competition, human capital and financial constraints of firms affect their innovative performance?

Motivation (I) • In today's turbulent economic environment, a firm's ability to catch up with technological progress and continuously innovate is crucial for its survival and growth. • However, it is increasingly difficult for firms to explore new technologies completely on their own as a result of limited expertise and resources, especially in adverse times. • One of the key mechanisms in improving firms’ knowledge and innovative content is by collaborating in R&D projects with Universities.

Motivation (II) • Scholars highlight the role of University – Firm R&D collaborations in transforming academic discoveries into commercial technologies (Faulkner and Senker, 1994; George et al., 2002; Markman et al., 2009). • From a firm's perspective, collaborations with universities are imperative for exploiting scientific knowledge and novel ideas (Caloghirou et al. 2001, Audretsch et al., 2012; Subramanian et al., 2013). • But in which way do the linkages of University – Firm R&D collaborations and firm innovation evolve during a crisis? • The case study of Greece: a developed economy not based on cheap labor cost trying to “innovate” out of a crisis that caused a 25% GDP contraction (2007-2013)

State-of-the-art (I) • Theoretical and empirical work in innovation economics suggests that industry-science relations positively affect innovation performance through the use of scientific knowledge (Kline and Rosenberg 1986, Rosenberg & Nelson 1994, Feller 1990, Mowery 1998, Mansfield 1995, Cohen et al 2002). • Veugelers and Cassiman (2005) argue that R&D cooperation between universities and industry is characterized by • high uncertainty, • high information asymmetries between partners, • high transaction costs for knowledge exchange requiring the presence of absorptive capacity at each side of the market transfer, • high spillovers to other market actors (i.e. a low level of appropriation of benefits out of the knowledge acquired), • and, restrictions for financing knowledge production and exchange activities due to risk-averse and short-term oriented financial markets.

State-of-the-art (II) • Tether (2002) suggests that collaboration with universities is generally aimed at radical breakthrough product innovations that may open up entire new markets or market segments; • Agrawal (2006) found that when firms involve university based inventors in commercializing an invention, they tend to be more successful than when they do not. • Henard and McFadyen (2006) argue that, because universities are venues for a wider range of ideas and multidisciplinary perspectives than most companies, their potential to deliver on multidisciplinary research initiatives is greater. No other organization possesses a comparable breadth of new knowledge. • As Agrawal and Henderson (2002) and Henard and McFadyen (2006) suggest, temporary exchanges of researchers, conference attendance, graduate student internships, and a variety of other creative mechanisms allow universities and companies to connect and exchange knowledge in a mutually profitable relationship.

Contribution • Despite some recent studies examine how the crisis affected the linkages between • innovation and R&D expenditures, size, age, concentration (Berchicci et al., 2013) • innovation and human resources, high-tech specialization, financial development (Filippeti and Archibugi, 2011) • innovation and in-house R&D, financial constraints, explorative and exploitative strategies (Archibugi et al. 2013) • However, few studies as far have explored the role of University – Firm R&D collaborations on firm innovation in times of crisis: the unique case study of Greece

Data used 1st wave: Burst of the crisis 2nd wave: Peak of the crisis • 2 extensive surveys • In the largest Greek firms at the national and regional level (in terms of employment) • In two waves with a structured questionnaire • CATI approach, but also some face to face interviews • Period: 2011 • Total number of firms: 2025 • Period: 2013 • Total number of firms: 2048 • 1500 firms have participated in both waves

Methodology • Two separate equations were estimated by applying binary probit regressions per period (wave) • (1) Product Innovation; • (II) Process Innovation; • f {R&D collaborations, Exploration Strategy, Low Cost Strategy, Differentiation Strategy, Bank financial constraints, Value chain financial constraints, Price competition, Quality competition, Training Program, Education Level, Age, Size, Industry dummies}

Dependent variables • Innovation • Product Innovation: Has the company introduced any new or improved products over the 3-year period covered by the survey (no=0; yes=1) • Process Innovation: Has the company introduced any new or improved processes over the 3-year period covered by the survey (no=0; yes=1)

Independent variables: • University – Firm R&D collaborations : To what extent does your company use universities and research centers as a source of knowledge (not at all: 1, …. 5: to a great extent) • Strategic Factors • Low Cost Strategy: Does the company produce standardized products/services for mass markets? (no=0; yes=1) • Differentiation Strategy: Does the company produce differentiated products/services? (no=0; yes=1) • Exploration Strategy:To what extent does your company ‘s strategy involve the following: (i) entering new markets (ii) increase range of goods or services; (not at all: 1, …. 5: to a great extent)

Independent variables: • Liquidity Constraints • Liquidity Constraints_Bank Credit: To what extent does your company face liquidity constraints due to restricted access to credit lines?(not at all: 1, …. 5: to a great extent) • Liquidity Constraints wrt Trade credit: To what extent does your company face liquidity constraints because of your suppliers and/or customers liquidity problems?(not at all: 1, …. 5: to a great extent) • Competition Pressure • Price competition: To what extent does your company face pressure from cost based competitors? (not at all: 1, …. 5: to a great extent) • Quality competition: To what extent does your company face pressure from quality based competitors? (not at all: 1, …. 5: to a great extent)

Independent variables: • Human Capital • Training Programs: Does your company perform corporate training programs? (no=0; yes=1) • Education Level: What percentage of employees have completed tertiary education? • Firm characteristics: • age(ln) • Size (ln employees) • Sector dummies: 5 categories (1: Extracting, 2: Manufacturing, 3: Construction, 4: Trade, 5: Services)

Notes: The estimations include sector dummies. Marginal effects are presented ***, **, * denote significance on p<1%, 5%, 10%

Discussion of results: on the role of liquidity constraints • Recent crisis led bank credit constrained firms and/or firms with trade credit problems to postpone or cancel their plans to be engaged into innovative activities. BUT only small effect • Credit crunch affects negatively product innovation in the midst of the crisis. • Liquidity constraints related to the supply chain (i.e. customers/suppliers) have a negative impact on process innovation in the midst of the crisis. • These findings are in the same line with: • Savignac (2007) who reveals that financial constraints significantly reduce the likelihood that firms will be engaged to innovative activities. • Paunov (2012) who finds that the recent crisis caused significant innovation project discontinuations possibly related to increased financing constraints. • Silva and Carreira (2011) who insinuate that financial constraints negatively influence the amounts invested in research and development and consequently affecting negatively the innovation process.

Discussion of results: product/process innovation and University-Firm R&D collaboration • Firms amend for lower R&D expenses by developing or strengthening the collaborations with universities • As the crisis deepens, firms rely more heavily on collaborative research • At the beginning of the crisis the probability for firms to introduce product or process innovation: • Is affected in a significant and positive way by University-Firm R&D collaborations • As the crisis deepens product and process innovation • Are both positively related to University-Firm R&D collaborations and to an even greater (stronger significance).

Discussion of results: on the role of human capital • Firms, which invest highly in R&D, are more prone to have absorptive capabilities to learn and interact with universities (Cohen et al., 2002; Fontana et al., 2006) • Training of employees plays a crucial role on product/process innovation in times of crisis • Training facilitates employees' exposure to variety of knowledge and openness to innovative ideas (Brockbank, 1999; Beatty and Schneier, 1997; Jaw and Liu, 2003). • In collaborative research, technical expertise merely comes from the pool of researchers in the university • Employees’ education level has been found significant only for product innovation at the beginning of the crisis

Discussion of results: on the role of strategic factors • In times of crisis (2011-2013) the probability to innovate is positively related to exploration and differentiation strategies. • Large firms seeking new business lines to acquire market share or to open new markets during economic turbulences seem to successfully cope with these difficult conditions through risk taking and experimentation. • Thus, firms in such conditions characterized by market contractions can establish their power and nullify their competitors’ strength by identifying a new segment and serving new customers who have a different value system (Porter 1985). • Low cost strategy matters only for process innovation in the midst of the crisis (2013) • Large firms appear to pay special attention to cost reduction because of the greater pressure from the deep recession: lower demand, contraction of disposable income

Conclusions • Liquidity constraints with respect to bank credit and trade credit hinder product and process innovation respectively, in the midst of the crisis. • Crisis facilitates the transition from a corporate model of knowledge production to a new distributed, inter-organisational, innovation model • In the new distributed model of innovation • Knowledge transfer mechanisms (i.e. training) play an enhanced role • In the midst of crisis when unemployment rates are increasing there is a wider supply of well educated personel • Firms do not differentiate on grounds of employees’ education level • Exploration and differentiation strategies continue to drive innovation even in turbulent economic conditions

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Thank you Aggelos Tsakanikas: atsakanikas@central.ntua.gr

The Role of University-Industry R&D Collaboration in Firms' Innovative Performance in Greece