Internalization of R&D Outsourcing : Firm Level Evidience from Korean Manufacturing

1. Internalization of R&D Outsourcing : Firm Level Evidience from Korean Manufacturing Dec. 7. 2011 Sangyun Han (Ph.D Student, Graduate School of Management of Technology,)

2. Innovation largely contributed to the rapid economy growth of Korea • 48% of TFP was attributed to R&D Investment in 1991-2000 (Han, 2004) • Many Korean companies come to world market as a global player 1. Introduction • The gap of innovation competence goes to Polarization between companies • More and more increasing the importance of R&D outsourcing or strategic cooperation(Open Innovation)

3. R&D Expenditure ; Internal Funding Vs. Outsourcing Funding(2002-2007) Outsourcing Funding Mil. USD Internal Funding Mil. USD 1. Introduction Outsourcing Funding Internal Funding Source: Report on the survey of Research and Development in Korea-Manufacturing(2002-2007)

4. Research Question • Does the R&D outsourcing affect to performance of firms?(H1) • Does the features of R&D Organization affect to performance of firms?(H2) • Does the features of R&D Organization affect to performance of firms during Internalization as a moderating variables?(H3) 1. Introduction R&D Outsourcing Firm Performance H1 “Internalization” H3 Features of R&D Organization H2

5. Why are firms doing R&D outsourcing? • The key determinants of R&D mode are the scale of plant and R&D input, and market structure conditions (e.g. Concentration Ratio, Market Share) : James et al. , 2002 • The R&D outsourcing has a positive impact only in case of sufficient internal R&D. And it enhances absorptive capacity and the effective utilization of external : Lokshin et al.(2006), Bayona et al.(2000) Transaction Theory • (Coase, 1973,Tidd and Trewhella, 1997, Howell, 1999, Brusoni et al., 2001, Narula, 2001, Yasuda, 2005) Core Competence • (Prahalad and Hamel, 1990) Cost Advantage perspective Quinn, 1992, 1999, Piachaud, 2002, Kumar and Snavely, 2004, Chesbrough, 2003 2. Literature review

6. The Performance effects of investment in R&D outsourcing vs. Internal R&D • The positive relationship between productivity and the share of R&D outsourcing in total R&D : Bonte(2001) • R&D outsourcing is significant determinant of long-term productivity growth : Guellec et al.(2004) 2. Literature review • Previous literatures focused to determinants and • performance effects of R&D outsourcing • Exploring and analyzing the micro factors in • organization for finding No man’s Land

7. 3. Data and Method • Financial Statement Data • Firm level data from 2002 to 2008 • Obtained from KIS (Korea Information Service) • Includes listed firms in KOSPI & KOSDAQ, statutory audit firms and registered firms • R&D Activity Survey • Firm level data on R&D activity from 2002 to 2007 • Surveyed by Ministry of Education, Science and Technology according to OECD FrascatiManual • Covers the entire companies owning research institute or R&D division

8. 3. Data and Method • DATA SET

9. 3. Data and Method • Panel Data Analysis with Fixed Effect Model using STATA 11 • Unbalanced Panel Data • : Unobserved individual effect, firm-specific effect -> time invariant • : Usual residual • Assuming the correlation between and • Using fixed effect model by Hausman test

10. 3. Data and Method

11. 3. Data and Method • Major Industries

12. 3. Data and Method • Descriptive Statistics

13. 4. Results

14. 4. Results

15. 5. Future Research • Review more previous literature review related Internalization • Sense Making • Absorptive Capability • Diversity in organization • Adding more variables and analysis • Variables related to diversity • Data up-date

16. Thanks!