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The degree of available R&D resources is one of the most relevant aspects for innovation performance. The literature and studies show a broad range of indicators, which in general include the R&D expenditure and R&D personnel. Cohen and Levinthal present that the level of internal R&D investment is an important parameter of the absorptive capacity of a firm (Cohen & Levinthal 1990, Faems 2010). For example, Robin and Schubert reveal that a higher level of innovation expenditures (per employee) is associated with a higher probability to innovate and this is consistent with the framework of an "innovation production function". Here the main inputs are innovation expenditures, containing above all R&D expenditures (Robin & Schubert 2010).
Financial barriers A lack of internal financial resources can limit the firms´ capacity to support its R&D activities and consequently the development of new products and processes. In addition, these companies are forced to compensate this deficit by being closer to the innovation activity of other firms in the same sector and therefore to the diffusion of informal knowledge in the sector (Garcia-Torres et al. 2009). But surprisingly the outcome of Garcia-Torres and Hollanders is that firms which are hampered by high innovation costs or financial barriers tend to innovate more (Garcia-Torres et al. 2009).
Percentage of R&D- employees Another possible indicator, mentioned in the literature, is the number of R&D employees. In this context Broekel and Brenner (2009) conclude that “professional R&D employees are the innovative entity in industrial innovation processes. They search for and recombine existing knowledge in order to generate innovative products”.
Several empirical studies use this kind of variable (for example Broekel & Brenner 2009, Faems 2010) and detect predominantly a positive influence on innovation performance.
Faems (2010) uses the relative number of R&D employees as a proxy for the internal innovation efforts of the firm (Faems 2010). He observes a positive significant interaction effect between competitor collaboration and the internal R&D efforts in terms of a new-to-the-market innovation performance. Also Broekel and Brenner (2009) confirm that R&D employment is a necessary component in innovation processes. But concerning new-to-the-firm innovation performance this positive effect could not be detected. Relating to firm cooperation in innovation, Lenz-Cesar and Heshmati (2009) identified that the variable R&D intensity (measured as the proportion of employees involved in innovation activities) is highly significant for cooperation with customers, suppliers, institutions and competitors (Lenz-Cesar & Heshmati 2009).
According to Cohen and Levinthal (1990: 128) the absorptive capacity requires the "ability to recognize the value of new information, assimilate it, and apply it to commercial ends". Therefore it determines the company's ability to internalize external knowledge for economic use in the development of product and process innovations.
One has to bear in mind that this absorptive capacity also indicates the internal innovation capacity of a firm. Empirical studies refer to different measures of absorptive
capacity, among others:
In-House Development In this aspect an enterprise which creates its innovation through in-house development should have sufficient absorptive capacity as a critical factor for a successful cooperation performance. In-house development might affect innovation outcomes positively by enabling firms to absorb and develop knowledge and skills related to the innovation in greater depth than might be possible though outsourcing. Due to this it provides a higher potential for capabilities, which can be extended or redirected into new products and processes. Moreover, firms with in-house development fully exploit their capabilities within the organization, because an integration of existing with new technology and capabilities is easier and crucial in order for firms to fully leverage their potential (Weigelt 2005). "Substantial in-house capacity is needed to recognize, evaluate, negotiate, and finally adapt the technology potentially available from others" (Dosi 1988: 1132). Aside in-house development involves higher resource allocation costs in comparison to outsourcing and therefore these firms are expected to be more committed to innovation, which results in a broader scope of implementation of innovations (Weigelt 2005).
Another important factor, which supports a positive influence of the in-house development of firms, is the degree of prior innovation-related experiences. Firms with routines within the innovation process and past innovation experience should easier adopt advanced innovations.
Percentage of graduates A larger stock of higher educated human capital within the firm allows a higher knowledge production and contributes to a faster diffusion of knowledge. These two aspects are important requirements of the innovation process (Soete et al. 2002).
Therefore human capital is seen as a crucial input factor for R&D and thus for the innovation performance. Following these considerations, an innovative company has to dispose of higher qualified staff. Furthermore a high percentage of graduates might promote the absorption and diffusion of informal knowledge (Garcia-Torres et al. 2009).
An important activity in the innovation process is the search for new ideas that have commercial potential. Firms invest extensive amounts of resources like money and time in order to increase the ability to create, use, and recombine new and existing knowledge. Innovative firms have changed the way they search for new ideas and knowledge, adopting open search strategies that involve the use of a wide range of external actors and sources to help them achieve and sustain new products and processes. In this context knowledge sources especially networks, communities, linkages and cooperation have become important for innovative performance. Different studies suggest that the network of relationships between the firm and its external environment can play an important role in shaping performance (Laursen & Salter 2006).
Number of important transfer-channels Firms are searching for ways to connect their internal with external knowledge resources. The knowledge and technology transfer activities between firms and other enterprises or scientific institutions is conducted in various forms. They range from joint research to the support of PhD-theses as well as the participation in workshops or the establishment of a new company. According to the diversity of individual transfer forms there is also a variety of systematizations.
The literature uses classifications based on the nature of the transfer object (e.g.
personnel, technology and research, basic transfer) or on the intensity of personal contacts (e.g. infrastructure, indirect and direct transfer).
With regard to knowledge transfer processes many studies adopt the transfer model of Bozemann (2000) (e.g. Schmoch et al. 2000, Hilliger 2006, Timm & Gundrum 2007).
Based on a comprehensive review of the literature Bozemann developed an aggregated model of knowledge and technology transfer. The model incorporates important parameters of the transfer process such as transfer donor, transfer recipient, transfer objects, transfer media and demand environment in context with each other.
Number of important transfer partners Cooperative relationships can help to overcome innovation barriers, such as cost
barriers and legal restrictions. The motivation for cooperation is justified for instance by:
the reduction of innovation costs through economies of scale and specialization benefits, the dispersion of innovation risk by participating partners as well as access to material, such as capital and intangible resources, e.g. external knowledge (Henke 2003, Rammer & Bethmann 2009). However, there are also some negative aspects of cooperation, e.g. an unintentional drain of knowledge, transaction and monitoring costs (Rammer & Bethmann 2009). These arguments hold with regard to a number of partners involved.
Some studies deal with the effect of R&D cooperation on innovation performance depending on the different partner types. The studies show confusing results (Belderbos et al. 2004, Fritsch & Franke 2004). For instance Belderbos, Carree and Lokshin (2004) analyse that R&D collaboration with competitors has a positive effect on product innovation. In contrast, Aschhoff and Schmidt (2008) could not confirm this positive effect in their study, Nieto and Santamaria (2007) report a negative relationship and Kang et al. (2009) show an inverted-U shape relationship. Faems (2010: 16) observes that “firms can benefit from competitor collaboration in terms of new-to-themarket innovation performance only if they implement such external innovation activities with internal innovation efforts”. Garcia-Torres and Hollanders (2009) find that suppliers are the relevant sources of information for product innovation.
Importance of scientific transfer partners The advantage of a firm`s cooperation with scientific institutions is the access to the results of research that is cutting edge of contemporary knowledge and technology.
The majority of studies deal with university-firm linkages and conclude that this kind of collaboration positively influences firm´s innovation performance (Kang & Kang 2009).
For example, Belderbos et al. observe a positive impact of firm`s university cooperations and the growth of new-to-the-market sales (Belderbos et al. 2004). In the field of collaboration with research institutes, Robin and Schubert (2010) observe a positive effect of cooperation with public research on the intensity of product innovation (measured by the share of innovative sales) in France and Germany. Faems (2010) integrates the variable “explorative collaboration” in his examination, which takes the value of 1, if the respondents had collaborated with universities, consultants or other knowledge institutes. On the contrary, his result shows no impact of this variable on firm`s innovation performance.
cost leadership/quality leadership The strategy of any business establishment is a crucial setting, because it defines how the long-term objectives of a company should be reached. Cost and quality leadership are two basic strategies. Both strategies, irrespective of their focus on potential savings as to operations, raw materials and intermediate goods or the quality of the products can only be realized successfully through the development of innovations (Disselkamp 2005).
In addition to the different internal factors, the performance of an enterprise depends on general economic trends and political regulations. The literature underlines that the degree of competition within a market is an important determinant of the innovation activity (Zimmermann 2003) and that especially legal regulations are important impediments to innovation.
intensity of competition An important driver of firm innovation is the intensity of competition. On the one hand, companies, which are subject to a high competitive pressure and high speed of innovation, are forced to continuously improve processes and products. The same effects can occur when a threat of substitution by other goods exists. Also suppliers or customers with a high bargaining power can act as a driver of innovation.
legal barriers Not only global markets, but also the increasing number of existing regulations and requirements confronts the enterprises with new challenges. So the development and launch of new products and processes is connected with a higher investment of time and money. Thus an enterprise facing strong regulations may decrease its innovation activities. However, the opposite effect could also be the case. If, for example, already existing products and processes of a firm have to be replaced because of new regulations, this results in more innovations.