Who Co-Operates For Innovation, and Why An Empirical Analysis

Research Policy 31 (2002) 947967
Who co-operates for innovation, and why An empirical analysis

Bruce S. Tether
ESRC Centre for Research on Innovation and Competition (CRIC), University of Manchester and UMIST, Manchester M13 9QH, UK Received 4 August 2000; received in revised form 30 January 2001; accepted 31 August 2001
Abstract In recent years, there has been growing interest in co-operative arrangements for innovation, with some commentators arguing innovation is no longer the province of individual rms, but depends increasingly on collective action. This paper examines the response to the UKs version of the second European community innovation survey (CIS-2) to investigate the patterns of co-operation between innovating rms and external partners. The analysis shows the relationship between innovation and co-operation is not straightforward. From a subjective (i.e. rm based) perspective, it is clear that most rms still develop their new products, processes and services without forming (formal) co-operative arrangements for innovation with other organisations. However, rms that engage in R&D and that are attempting to introduce higher level innovations, i.e. new to the market rather than new to the rm innovationsare much more likely to engage in co-operative arrangements for innovation. Consequently, if an objective (i.e. innovation-based) perspective is taken, which weighs innovations by their signicance, then it is likely that a signicant proportion of high-level innovations are developed through co-operative arrangements, although unfortunately the CIS-2 does not indicate the direct signicance of these arrangements to the development of the innovations. In summary, the extent of co-operative arrangements for innovation appears to depend on the type of rms being considered and on what is meant by innovation. 2002 Elsevier Science B.V. All rights reserved.
Keywords: Innovation; CIS-2; Co-operation
1. Introduction In recent years, there has been growing interest in co-operative arrangements for innovation. Some commentators, such as Teece (1992), have argued that the rise of these relationships has overturned our existing understanding of the organisation of innovation. Innovation is seen as becoming increasingly distributed, as fewer rms are able to go it alone in technological development. This in turn means the old debates about rm-size, market structure and innovation are becoming outmoded, as the boundaries of the rm are becoming increasingly fuzzy.
E-mail address: bruce.tether@man.ac.uk (B.S. Tether).
This paper examines these arguments through an analysis of the pattern of co-operation arrangements for innovation amongst the innovating rms that responded to the UKs version of the second European community innovation survey (CIS-2). The CIS-2 was the UKs rst successful wide-scale and ofcial survey of rms innovation activities. In this paper, we are concerned with mapping the presence or absence of co-operative arrangements for innovation between rms and various types of external partner, and with investigating the features of the rms that relate to their participation in such relationships. Unfortunately, data restrictions mean we are not able to directly assess how signicant these relationships were to the innovation activities of the rms, nor how
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successful the co-operations were. Moreover, we can also only indirectly understand the motives the rms had in establishing these relationships. On the positive side, however, we are able to extend the analysis beyond manufacturing to include service rms. The paper is structured as follows. Section 1 provides an introduction to the data and the headline ndings from it with respect to co-operation arrangements between innovating rms and external partners. Section 2 then provides an overview, from existing research, of the motivations for entering into co-operative arrangements for innovation. Section 3 discusses the range of factors available from the survey that might be expected to inuence engagement in these arrangements, whilst multivariate analyses of the data are undertaken in Section 4. Finally, some conclusions are provided.
to various innovation activities. 2 Both questionnaires focused on technological innovation, 3 although innovation was dened as new to the rm, rather than necessarily new to the market. Most of the innovations introduced by the rms were, therefore, imitations of products and services already available from other rms, or internal process innovations. The survey was postal and voluntary. The sampling excluded rms with fewer than 10 employees and was conned to sections CK of the 1992 Standard Industrial Classication (SIC 92), 4 with sampling stratied by rm size and by sector. Thus, large rms were
2 The manufacturing questionnaire asked whether the rm had introduced, between 1994 and 1996, a technologically new or improved product (i.e. product innovation), and whether it had introduced, over the same period, a technologically new or improved process (i.e. process innovation). The service questionnaire asked whether the rm had introduced, between 1994 and 1996, any new or signicantly improved services or methods to produce or deliver them (i.e. service innovation). A service rm could indicate that it introduced only new services, only new methods, or both. Note that manufacturing rms were not asked whether they had introduced any service innovations. 3 Manufacturing questionnaire: Technological innovations comprise implemented technologically new products and processes and signicant technological improvements in existing products and processes. A technological innovation has been implemented if it has been introduced onto the market (product innovation) or used within a production or delivery process (process innovation). The product or process should be new (or signicantly improved) to the enterprise. It does not have to be new to the relevant market. Technological innovation requires an objective improvement in the performance of a product or in the way in which it is produced or delivered. Services questionnaire: Technological innovations comprise implemented new or signicantly improved services and new or signicantly improved ways of producing or delivering a service. A technological innovation has been implemented if it has been introduced onto the market (service innovation) or used within a production or delivery process (process innovation). The service or process should be new (or signicantly improved) to the enterprise. It does not have to be new to the relevant market. The introduction of a new or signicantly improved service or production or delivery method can require the use of radically new knowledge or a combination of existing technologies or new knowledge. The technologies involved are often embroiled in new or improved machinery, equipment or software. The new knowledge involved could be the result of research, acquisition or utilisation of specic skills and competencies. 4 Thus, mining and quarrying were included, as was the whole of the manufacturing sector and most of the private services sector. Agriculture, shing and forestry, public administration, defence, education, and health and safety at work were excluded.
2. The data and the headline ndings The data-set examined here is the UK response to the second CIS-2, which was based on the revised version of the OECDs Oslo Manual (OECD, 1996). The survey was carried out in 1997 for the UK Government by the Ofce for National Statistics (ONS) and according to a common European framework. The survey covered both manufacturing and services, with similar questionnaires sent to rms in both sectors. Firms engaged in mining and quarrying, construction, recycling, and the water, gas and electricity utilities were surveyed using the manufacturing sector questionnaire. 1 The unit of analysis was the enterprise, which for the UK was dened as the smallest combination of legal units which have a certain degree of autonomy within an enterprise group (Craggs and Jones, 1998). Apart from the frequent substitution of the word service for the word product, the differences between the service and manufacturing questionnaires were conned to the basic innovation questions and to questions about the resources (i.e. innovation expenditures) devoted
1 As a shorthand, in this paper, manufacturing rms are all the rms that responded to the manufacturing sector questionnaire, whilst service rms are all those that answered the service sector questionnaire.
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sampled more heavily than small rms, and rms in the more technologically interesting sectors effectively the high technology sectors (Butchart, 1987; OECD, 1992)were also more heavily sampled. Consequently, the sampling was biased in favour of large high tech rms, and against smaller low tech rms. The survey was also biased towards manufacturingpossibly reecting the widespread assumption that manufacturing is the primary domain of technological innovation (see Craggs and Jones, 1998, for further details of the sample). 5 Despite these biases, the survey provides rare evidence on innovative activities in low technology manufacturing and service rms, including, for our purposes, the extent of co-operation agreements for innovation with external partner organisations amongst these rms. Most existing analyses of these arrangements have focused on high technology (manufacturing) activities. A total of 2342 rms responded to the survey. Of these, 1598 (68%) responded to the manufacturing sector questionnaire (a response rate of 41%) and 744 (32%) to the service sector questionnaire (a response rate of 36%). 6 A non-response analysis was conducted by ONS which did not detect any bias between innovators and non-innovators in their response to the survey (Craggs and Jones, 1998). Of the 2342 respondents, 1159 (49.5%) explicitly claimed to have introduced an innovation (i.e. a new product, process or service), with a further 116 (5%) indicating that whilst they had not successfully innovated they had been engaged in unsuccessful or yet to be completed innovation projects over the 19941996 period. For the analysis of co-operative arrangements in this paper, we restrict the analysis to the sample of 1270 rms that claimed to have been engaged in
5 Only 2045 of the 94,268 (2.2%) service rms with ten or more employees on the Governments inter-departmental business database (IDBD) were sampled, compared with 3925 of the 61,268 (6.4%) manufacturing rms (SIC 92 sections C, D, E and F) with 10 or more employees on the dataset. Amongst manufacturing proper (Section D), 3647 of the 47,862 (7.6%) possible rms were sampled. 6 The response rate varied somewhat by rm size being highest (at 49%) amongst manufacturing rms with 5099 employees, and lowest (at 24%) amongst manufacturing rms with 5000 or more employees. Amongst services, the response rate also tended to decline with rm size, being highest (at 47%) amongst rms with 2049 employees, and lowest (at 30%) amongst those with 10004999 employees.
innovation activities and which provided details on whether or not they had co-operative arrangements for innovation with external partners. 7 The analysis is restricted to those engaged in innovation activities rather than embracing all of the responding rms because the question about engaging in co-operative agreements was only relevant to the rms that recognised themselves as innovating. That question asked: Did your enterprise have any co-operation arrangements on technological innovation activities with other enterprises or institutions between 1994 and 1996? A denition of innovation co-operation was also provided: Innovation co-operation means active participation in joint R&D and other technological innovation projects with other organisations. It does not necessarily imply that both partners derive immediate commercial benets from the venture. Pure contracting out work, where there is no active participation is not regarded as co-operation. For those answering yes to this question, the survey then asked about the type(s) of partner(s) with which they had co-operative arrangements, and the location of those partners. 8 Unfortunately, the survey did not ask about the number of these linkages, how successful the co-operations had been, nor (directly) about the motivations for establishing the linkages. This places restrictions on the possible analysis. Consequently, we are essentially concerned with mapping the presence or absence of co-operative arrangements for innovation between the innovating rms and external partners, both in general and of various types. This said, despite the considerable attention paid to co-operative innovation activities (including strategic alliances) remarkably few papers exist which assess this activity across a broad range of rms by size, sector and other characteristics (for exceptions, see Keinknecht and Reijnen, 1992; Fritsch and Lukas, 2001).
7 Five rms that engaged in innovation activities did not provide full answers to the co-operation question. 8 That is, whether they were local, national, in the European Union, North America, Japan or elsewhere. Space restrictions mean we do not analyse the location of external partners in this paper.
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2.1. The headline ndings on the extent of co-operative arrangements for innovation Of the 1275 rms identied as innovating, nearly half (575, 45%) claimed to have some form of co-operative arrangement for innovation. Of these, 29 only had co-operative arrangements with other parts of their enterprise groups, but 541 (42%) had co-operative arrangements for innovation with external partners. Suppliers and customers were the most widely engaged co-operation partners, but signicant proportions also engaged competitors, consultants, universities and other organisations as partners in these arrangements (Table 1). The above analysis is based simply on the response to the survey, which, as mentioned, was biased towards larger rms operating in the more technologically interesting sectors. If the survey is adjusted to represent the population of innovating rms in the UK, then, according to Craggs and Jones (1998), less than a fth had co-operative arrangements for innovation with other organisations. This proportion is higher amongst manufacturers (25%) than amongst service rms (15%), and also higher amongst large enterprises (52%) than amongst SMEs (19%). This suggests co-operative arrangements for innovation are far from the norm amongst innovating rms. However, as large rms are more likely to have these arrangements than small rms, the economic signicance of these relationships may be greater than that suggested by the proportion of innovating rms with them. Secondly, these links may be associated
with the development more signicant, higher level innovations (Tether, 1998), so again the proportion of innovating rms with these arrangements may understate their signicance. For simplicity, and because we believe it is doubtful that the rms which responded to the survey are representative of all other rms in their patterns of innovative activity when matched only by size and sector, the remainder of this paper analyses the UK CIS-2 data as a simple sample. No attempt has been made to adjust the response to make it representative of businesses in the UK.
3. An overview of research on co-operative arrangements for innovation Co-operative arrangements for innovation, including strategic technological alliances, became the focus of considerable theoretical and empirical attention during the 1980s and 1990s, and many analysts assume these arrangements represent new ways of organising (technological) innovation. However, Dodgson (1994; see also Freeman, 1991) points out that formal collaborative arrangements for innovation have a long history. Moreover, studies of innovation have long recognised innovation is to some extent an interactive and, thus, distributed process (e.g. Carter and Williams, 1957; Cooper, 1980; Rothwell, 1977; Von Hippel, 1976, 1988; Lundvall, 1992). It was, nevertheless, only from the mid-1980s that considerable attention was paid to distributed forms of innovation, including strategic technology alliances (e.g. Doz and Hamel, 1997), collaborative arrangements for R&D (e.g. Fusfeld and Haklisch, 1985; Brockhoff et al., 1991), and innovation networks (Freeman, 1991; Beimans, 1992). As mentioned in the introduction, Teece (1992) argues the growing number of these co-operations and alliances mean the standard relationships between, for example, rm size and innovation, are becoming outmoded, because the boundaries of the rm are becoming increasingly fuzzy. A variety of reasons are given in the literature for the apparent growth in innovation and technology alliances, but, at a basic level, rms enter into collaborative arrangements for innovation because they do not have internally all of the necessary resources
Table 1 Innovating rms with co-operation arrangements for innovation Type of partner N Amongst the innovating rms (%) 42 22 23 15 16 16 16
Any external partner Suppliers Customers or clients Competitors Universities Consultants (N = 195) and private research institutes (N = 51) Others (government institutes and research associations and research and technology organisations)
541 283 298 188 207 206 206
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(including knowledge) and/or because they wish to reduce the risks associated with innovation (including the risk of technological spillovers). Not only may both of these motives be present at once, but they may be inter-related. For example, working with customers increases the likelihood that other customers will also accept the innovation. Consequently, rms that collaborate for innovation with their customers are, concomitantly, reducing their ignorance of customer needs, increasing users condence in their offerings and, thereby, reducing the risk associated with bringing an innovation to market. However, the motivations for engaging in cooperative arrangements for innovation can be complex, and we cannot provide a thorough review of the literature here. Instead we begin with some notes from the literature concerning the benets of entering into co-operative arrangements for innovation with different types of organisation. The aim of this section is simply to highlight some of the main motivations for these arrangements with different types of partner. After this, Section 3 discusses the range of factors (which the CIS-2 provides information on) that may have some inuence on whether or not rms entered into these arrangements, both in general and with different types of partner. 3.1. Co-operations for innovation within the supply-chain The importance of lead customers in helping to dene innovations and, therefore, reduce the risk associated with their market introduction, has been recognised since at least the 1970s (Von Hippel, 1976, 1988; Rothwell, 1977; Gardiner and Rothwell, 1985; Quinn, 1985; Kline and Rosenberg, 1986). Shaw (1994) summarises the advantages of working closely with customers (or users) as: 1. Providing complementary knowledge, possibly including the users technical know-how. 2. Helping to nd the right balance between performance and price. This can also be important for standard setting. 3. Providing an understanding of user behaviour that can be important for renements to the innovation. 4. And enhancing the chances that the innovation will be accepted and adopted by other rms within the
same user community. This is particularly signicant if the user is respected within its community, and if the supplier is relatively unknown. It is also likely to be particularly important when the innovation is more radical, rather than a minor incremental change. It follows from the above that co-operating with customers in the development of innovations is likely to be most common when the innovation under development is more novel or complex, or when the market for the innovation is poorly dened. Co-operative relations with suppliers share many of the features of relations with customers (due to their being in the same vertical relationship), but, beyond these, relationships with suppliers have been widely examined in the context of make or buy decisions and the inadequacies of the transaction costs framework to deal fully with these in the context of technological knowledge and innovation, where knowledge or information is usually incomplete. 9 Make or buy decisions are also inuenced by strategic implications in the sense of balancing (and resolving the conict between) short-term efciencies against the long term competitive position of the rm. Tidd et al. (1997) contend that, overall, strategic considerations (including joint learning and trust) rather than transaction costs (and cost-minimisation) are more signicant in terms of whether and how the rm accesses external technology. Interest in co-operative arrangements for innovation with suppliers grew out of the success, especially during the 1980s, of Japanese automobile and electronics rms. The success of these rms has been attributed to their close supplier relations (amongst other factors), with suppliers being closely involved in the innovation process (Sako, 1994; Liker et al., 1996; Bidault et al.,
9 In relation to transaction costs, make or buy decisions are based on how dependent the principal is on the component or machinery supplied, and how widely available this component or machine is on the market. If supply is uncertain, or subject to opportunistic behaviour, the theory suggests the principal will tend to produce the component or machine in house. In the absence of the danger of opportunistic behaviour, Sako argues: The logic of the value-added chain (Porter, 1980) ultimately implies keeping processes which create high value added in house and sub-contracting out all operations with low value-added (Sako, 1994, p. 272). In this paper, we are concerned with relationships between rms that extend beyond pure outsourcing.
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1998). In the West, and especially in the US and UK, the recent tendency of large rms to downsize and focus on their core competencies has also encouraged greater collaborative activity with suppliers (as well as pure outsourcing). Within this context, co-operations for innovation with (long term and trusted) suppliers tend to complement internal R&D efforts rather than a substitute for them. 3.2. Co-operations for innovation beyond the supply-chain Customers and supplies apart, rms can engage in co-operative arrangements for innovation with several other types of partner. These include competitors, universities, consultants, research institutes, research and technology organisations, and other associations. Without doubt, co-operations with competitors raise the greatest suspicions, because of the potential for anti-competitive behaviour. But motivations for alliances with competitors need not be (directly) anti-competitive, and can be complex (Fusfeld and Haklisch, 1985; Hamel et al., 1989). Below we give some examples of motivations that are not simply anti-competitive, nor simply associated with cost saving. Collaborations may relate to standard setting, whereby rms agree to introduce products or services based on a jointly developed, common standard. This can be about establishing the basis of competition, and these agreements are particularly important where new products or services are relatively easily copied, but costly to develop, i.e. where there is a rst mover disadvantage. Rapid copying of innovations is thought to be a common problem in services. Standard sharing can also be aimed at encouraging the market, which can be reluctant to take up a new technology when there is only one provider; it also encourages suppliers of peripheral products and services to support the innovation. Agreeing on common standards is a strategy frequently used by newer and smaller rms seeking to challenge a dominant incumbent. Firms frequently do not compete across the whole range of their activities; they may be competitors in some product or service markets, but not in others. Through the competitive process, however, partially
competing rms build an understanding of each others strengths and weaknesses. They may nd areas where their strengths are complimentary for the development of a new range of products or services. As these strengths reect competencies that can be difcult, time-consuming and costly to develop, it makes sense to collaborate rather than seek to replicate the other rms strengths, especially in the face of other competitors, or consortiums, that have all the required competencies, or where the collaboration is aimed at developing high risk innovations. This said, rms frequently seek to collaborate with competitors to learn more about their rivals competencies (Hamel et al., 1989). Thirdly, competitors collaborate when they face common problems, and especially where these problems are seen as being outside the realms of competition and/or when by collaborating they can inuence the nature of the regulatory environmentan example would be dealing with regulations and regulatory change with respect to pollution controls. Universities and government research institutes are important contributors to the supply of new scientic and technological knowledge (Lundvall, 1992; Nelson, 1993), but in recent years UK universities (and government research institutes) have been under considerable pressure to move closer to industry, as governments have sought to encourage these institutions to undertake more industrially relevant research, in order to assist the competitiveness of UK industry. Combined with the signicance of research to the prestige of universities and individual researchers, pressure on funding has encouraged academia into greater collaboration with industry, and a shift from traditional scientic knowledge generation (Gibbons et al., 1994Mode 1 knowledge) to knowledge production based on problem solving (Mode 2 knowledge). As a consequence, higher education institutions have increased both their level and their share of R&D conducted in the UK (Howells and Nedeva, 2001). 10 Meanwhile, within UK industry business
10 Howells and Nedeva (2001) point out that in 1997 higher education research and development (HERD) accounted for almost 20% of gross UK expenditure on R&D, up from 14% in 1981, and, adjusted for ination, HERD almost tripled between 1981 and 1997.
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funded civilian R&D has remained at and even declined in recent years. 11 As research grows increasingly expensive, industry has looked to leverage external knowledge, including that in academia and government research institutes, to access to specialist technical support (including experts and specialist equipment) and to complement internal R&D, not least in providing a window on emerging technologies (Tidd et al., 1997). Universities are seen as especially useful for basic and long-term strategic research, particularly in pre-competitive technologies; the sorts of research that many rms regard as excessively expensive to undertake alone, using only their own resources. When coupled with the available funding opportunities, including those from the European Commission, co-operation arrangements with academia are increasingly seen as an inexpensive and low risk source of specialist knowledge. Yet universities (and other public sector research institutes) are often seen as slow to act and unresponsive to industry needs. Private sector consultancies and research institutes are alternative sources of information and knowledge for innovation. These can provide fundamental scientic or technological knowledge, but more commonly provide applied knowledge, specialist skills and information. During the 1980s and 1990s the number of consultancies grew dramatically in the UK, particularly as rms looked to downsize and outsource specialist activities (e.g. information systems design and implementation). The advantages of working with consultants rather than relying wholly on internal capabilities was also increasingly appreciated, and not just for cost saving. For example, Bruce and Morris (1998) argue in relation to design consultants that internal designers, though familiar with the companys approach and products, often become complacent and fail to provide innovative ideas. External design consultants provide fresh ideas and, while this can be achieved on a one-off basis, on-going collaborations with consultant designers tend to be more effective as
11 Recorded business funded civilian R&D amongst UK rms declined in real terms between 1993 and 1997. However, there may be an increasing problem of undercounting, as services expand and manufacturing contracts, as what constitutes R&D in services is less clear. Moreover, the R&D undertaken by the growing share of small rms in the economy is also more likely to go unrecorded, as this is often undertaken on an occasional or informal basis, rather than in distinct R&D departments.
this provides more opportunity to build valuable contextual knowledge about the rm and its products. More generally, Bessant and Rush (1995) argue co-operating with consultants can provide a variety of inputs to the innovation process, in roles that go beyond the traditional provision of expertise. These include: experience sharing, whereby consultants act like bees in cross-pollinating ideas between rms; playing a diagnostic role in helping rms to articulate and dene their particular needs for innovation; and acting as marriage brokers, pairing companies with needs and solutions.
4. The variables for the multivariate analysis Having provided an overview of the general motivations for co-operation agreements with external partners, we now introduce the various characteristics of the innovating rms (that the UK CIS-2 enquired about), and consider how these might relate to the propensities of rms to enter into co-operative arrangements for innovation. 4.1. Using co-operations to reduce difculties with the innovation process We mentioned earlier that, at a basic level, rms enter into collaborative arrangements for innovation because they do not have internally all of the necessary resources (including knowledge) and/or because they wish to reduce the risk associated with innovation. To an extent we can identify the rms that lacked internal resources and/or considered the risk or cost of innovation to be excessive by the answers given to the question on whether they experienced difculties with their innovation projects between 1994 and 1996. Experiencing difculties meant at least some of the rms innovation projects were seriously delayed, terminated after being started and/or not even started. The rms experiencing difculties were then asked what factor(s) were responsible. Amongst these were the economic or nancial risk of innovation, the availability and cost of nance for innovation, organisational rigidities or inadequacies (including a lack of skilled technical and/or managerial personnel), difculties with regulations or standards, customers responsiveness to innovation, and a lack of information,
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on technologies and/or markets. Collaborations may be used to reduce any of these. By including in the regressions variables identifying rms hampered for these reasons we are assuming the collaborations may have been entered into to reduce them (and the collaborations were not themselves the source of difculty). Of particular interest is the behaviour of the rms that claimed to have encountered difculties with customers responsiveness to innovation, for this difculty suggests the rm may have been striving to introduce higher level innovations. If this is the case, we might expect the rms that experienced difculties with customers responsiveness to innovation to be more likely to co-operate with customers, and perhaps other external partners. 4.2. Engagement in R&D and co-operative arrangements for innovation The second factor we consider is engagement in R&D. Given the explicit mention of R&D in the denition of innovation co-operation we can expect conduct of R&D to impact positively on entering into these arrangements. Past research has also found that rms that undertake R&D are more rather than less likely to enter into these arrangements (with suppliers, customers and other organisationse.g. Fritsch and Lukas, 2001). One of the reasons for this is that rms conduct R&D partly in order to raise their absorptive capacity, that is their ability to learn effectively from their environment and from the work of others (Cohen and Levinthal, 1989, 1990). We can, however, go beyond simply identifying the rms that conducted R&D and those that did not; we can also differentiate between various levels of R&D by intensity. First, there are those that conducted R&D only on an occasional basis, as opposed to those that undertook R&D continuously, whilst amongst the latter we can identify rms that undertook R&D at particularly high intensity, i.e. those that spent over 2500 per employee on internal R&D activities in 1996. 12 If the greater intensity of R&D activities relates to the development of more complex or novel (i.e. higher level) innovations, which are more likely to require
12 Unfortunately, the question which provides this data asked only about this single year.
close interactions between the innovator, its suppliers, customers and possibly other innovation partners, then we would expect that not only will the conduct of R&D impact positively on participation in co-operative arrangements for innovation, but the propensity to engage in these will also increase with the intensity of R&D activities. 4.3. The type of innovation being developed In relation to the level of innovation, we can assess whether the type of innovation introduced had an impact on the rms participation in co-operative arrangements for innovation. All of the rms examined here were innovators in the sense that they had introduced (or were developing) between 1994 and 1996, new products or processes (in the case of manufacturers) or services, including new methods to produce/deliver services (amongst services). Beyond this, however, rms could declare that they had introduced an innovation that was not only new to the rm, but also new to the market. 13 A problem with this variable is the direction of causation. New to the market innovations might be an outcome, not a cause, of collaborations. We consider, however, that the introduction of new to the market innovations is not accidental, but reects the strategic intent (Hamel and Prahalad, 1989) to innovate at a higher level. This intent is likely to be related to seeking collaborations with external partners, not least because new to the market innovations are likely to require greater inputs and/or greater novelty of inputs, and involve greater market uncertainty. These expectations are supported by recent empirical research by Fritsch and Lukas (2001), who found that amongst a set of innovating German rms those that engaged in higher levels of product innovation were more likely to have co-operative arrangements for innovation (especially with their customers). Meanwhile, rms that introduced only process innovations, 14 which implies a cost orientation, might be less likely to have co-operative
13 The question asked: between 1994 and 1996, did your enterprise introduce technologically new or improved products (services in the services survey) new to your enterprise and new to your enterprises market. 14 In servicesnew methods to produce/deliver services.
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arrangements for innovation, apart, perhaps from with suppliers. 15 4.4. Investments in externally developed technologies Apart from the intensity of R&D activities, we can also examine whether the intensity of rms investments in externally developed technologies impacted upon their propensities to collaborate. Here, expenditures on externally developed technologies (directly linked to innovation) includes expenditures on acquired machinery, equipment and other technologies (including software), and acquired R&D services, although the latter normally accounts for only a very small proportion of the total. As such, we might expect high levels of technological acquisition to be associated with collaborations, especially with suppliers, but also with consultants and others. Such collaborations may simply be related to reducing the risks associated with acquiring externally developed technologies, but high levels of expenditure may also signal the acquisition of bespoke rather than standard technologies. Firms are more likely to collaborate (especially with suppliers) for the development of non-standard technologies, because of the greater information ow and risk associated with these developments. 4.5. Other background characteristicsrm size, age, sector, and ownership The variables discussed above are behavioural or experiential in the sense that they relate directly to the innovation related activities and experiences of the rms. We now consider the background characteristics of the rms; these are not directly related to innovation, but rm size and sector of activity are classic variables of innovation studies, having been found by numerous studies to relate to the nature and pattern of innovative activity (Cohen, 1995). Although the growing number co-operative arrangements and strategic alliances for innovation may be breaking down the standard relationships (Teece, 1992), it would be re15 Fritsch and Lukas (2001) found that rms that emphasised a cost reduction orientation to their innovation activities were more likely to co-operate with suppliers, but not with other types of partner.
miss not to consider these background factors in our analysis. On the one hand, new and small rms might have the greater need for co-operative agreements, because in general they have fewer internal resources. But whilst large rms have greater internal resources, they are also likely to engage in a wider range of activities, including some that might benet from co-operation. Firm size itself therefore gives little guidance as to whether or not rms might engage in co-operative arrangements for innovation. Rather, it is because rm size proxies for (market) power that it is likely to inuence the pattern of such arrangementsparticularly as not all of these co-operative arrangements will be entered into freely by all parties (Dussauge et al., 1992). Especially with suppliers, large rms are often in a position where they can, should they wish to, (virtually) compel the participation of suppliers in joint innovation projects. Although there are many occurrences in which suppliers (of all sizes) enter into these arrangements entirely willingly, some small rms try to avoid these arrangements for fear of losing their autonomy, particularly to dominant customers, and in general smaller rms tend to have less inuence over their suppliers. On this basis we would expect engagement in co-operative arrangements for innovation with suppliers to increase with rm size. The inuence of size on co-operations with other partner types is less obvious. However, concerning customers, both small and large rms often seek co-operations with customers (to learn more about their needs, etc.), but, in the reverse of the relations with suppliers, there are cases in which (small) rms are (virtually) forced by large or powerful customers to co-operate in innovation projects. Yet customers may prefer to work closely with larger rms, especially if one or a few relationships substitute for numerous relationships with smaller rms. Other factors, such as the greater prestige and inuence that can arise through co-operating with a large renowned rm may also play a role, and these factors are also likely to inuence the pattern of co-operations amongst competitors. However, whilst we would expect the propensity to collaborate with customers and competitors to increase with size, we also expect the relationship with size to be weaker than that for suppliers. Co-operations with universities, consultancies and other research organisations are likely to increase
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with size partly because larger rms have greater resources with which to engage in collaborations, but also because they tend to have greater awareness of the capabilities of these research orientated organisations. Ownership may disturb the size relationships outlined above. Firms that belong to wider company groups are, on the one hand, able to draw on resources from within their wider groups and might, therefore, not need to seek as many resources externally, but on the other hand these group rms are able to draw on at least some of the power, security and prestige of their wider groups in seeking partners for innovation. Group rms may also be better informed of the capabilities of potential partners due to knowledge pooling and the activities of other members of their group. These reasons suggests that, controlling for size, group rms are more likely to have co-operative arrangements for innovation with external partners than are independent rms. We can also divide group rms between those that are part of domestically owned groups and those that are foreign owned. Foreign owned rms tend to be amongst the most dynamic in the economy and, with the globalisation of markets, these rms may seek to collaborate, especially with domestic customers, in order to adapt their global products to local markets (Dussauge et al., 1992). They also tend to be particularly prestigious rms with which various types of innovation partner are eager to work. We anticipate, therefore, that (after controlling for rm size and other factors) group rms will in general be more likely to have co-operative arrangements for innovation than independent rms, but amongst group rms those that are foreign owned are expected to be the most likely to have these arrangements, especially with customers. Finally, sectors, which are a rst proxy for technological opportunity. Sectors with high technological opportunity are associated with high technology activities, and rms in higher technology activities can be expected to be more frequent innovators than those in the low technology activities. But it is less clear that amongst innovators and once other factors are taken into account (such as the conduct and intensity of R&D), that rms in higher technology activities will be more likely to have co-operative arrangements for innovation. We include sectors in the analysis by using a simple sectoral classication based on technological intensity. This divided rms into those in
high, medium and low technology manufacturing sectors, and those in high and low technology services, all according to the denitions provided by Butchart (1987) and the OECD (1992). An additional sector utilities, etc. is also included for the electricity, water and gas utilities, mining, construction and recycling rms that responded to the (manufacturing version of the) survey.
5. The multivariate analysis For the multivariate analysis, the variables for which are summarised in Table 2, we began with a logistic regression identifying the rms amongst the whole sample of respondents which engaged in innovation activities (as dened in Section 1). This regression includes only the background characteristics of the rms (i.e. size, age, ownership and sector of activity) as the explanatory variables (Table 3). It shows that, as expected, the propensity to engage in innovation activities increased with enterprise size, but also varied with sector of activity, and with ownership. For a given size, rms active in high technology manufacturing were the most likely to engage in innovation, followed by those in medium technology manufacturing. High technology service rms were only marginally more likely to be innovators than were low technology manufacturers (i.e. those in the base sector) of the same size, whilst those in low technology service activities and the utilities, etc. rms were signicantly less likely to have engaged in innovation activities. Firms newly established between 1994 and 1996 were more likely to be innovators, which is understandable given the denition of innovation is new to the rm, not new to the market or industry. Finally, ownership had an inuence. For a given size, rms that were part of a wider company group were more likely to engage in innovation than single entity, independent rms, whilst those that were part of foreign owned groups were the most likely to engage in innovation. This greater propensity of group rms to innovate is understandable as these may draw on the resources of their wider groups, and may have introduced new products, processes or services that were developed elsewhere in their company groups. Having identied the innovators, we now investigate participation in co-operative arrangements for inno-
B.S. Tether / Research Policy 31 (2002) 947967 Table 2 Description of the variables included in the logistic regressionsa Variable name D NewFirm Ln(Employment 94) D UK-group D Foreign D Utilities D HT-Manufacturing D MT-Manufacturing D HT-Services D LT-Services D RD D RD-Continuous D RD-Cont HighInt D Ext-IE Med/High D D D D D D D D D Ext-IE High I-Market-Novel I-Process-Only H-Market-Info H-Customer-Resp H-MktInf-and-CustR H-MktInf-/-CustR H-Tech-Info H-Internal Description
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D H-Regulations D H-Risk/Cost-Only D H-Finance-Only D H-Risk-and-Finance

a
Dummyrms established between 1994 and 1996 (N = 128) Natural log of the rms employment in 1994 (set to 0 for new rms) Dummyrms that were part of a wider, UK owned, group (N = 753) Dummyrms that were foreign owned (N = 239) Dummyrms in the utilities, etc. sector (N = 53) Dummyrms in high technology manufacturing sectors (N = 215) Dummyrms in medium technology manufacturing sectors (N = 297) Dummyrms in high technology service sectors (N = 122) Dummyrms in low technology service sectors (N = 229) Dummyrms that conducted R&D at least on an occasional basis (N = 921) Dummyrms that conducted R&D on a continuous basis (N = 591) Dummyrms that conducted R&D on a continuous basis and that spent over 2500 per employee on internal R&D activities in 1996 (N = 181) Dummyrms that spent at least 500 per employee in 1996 on the purchase for innovation of externally provided technologies and services (N = 698) Dummy as D Ext-IE Med/High, but for rms that spent 2500+ per employee (N = 318) Dummyrms that introduced new to the market innovations (N = 548) Dummyrms that only introduced process innovations (N = 199) Dummyrms hampered by a lack of information on markets (N = 119) Dummyrms hampered by customers responsiveness to innovation (N = 207) 1 if D H-Market-Info =1 and D H-Customer-Resp = 1 (N = 52) 1 if D H-Market-Info = 1 or D H-Customer-Resp = 1 (N = 222) Dummyrms hampered by a lack of information on technology (N = 117) Dummyrms hampered by organisational rigidities and/or by a lack of qualied personnel within the rm (N = 348) Dummyrms hampered by regulations or standards (N = 66) Dummyrms hampered by perceived economic risk &/or cost of innovation but not by the availability and/or cost of nance for innovation (N = 126) Dummyrms hampered by availability and/or cost of nance for innovation but not by the perceived economic risk and/or cost of innovation (N = 116) Dummyrms hampered by both the perceived economic risk and/or cost of innovation and by the availability and/or cost of nance for innovation (N = 154)
N: number of rms amongst the 1275 engaged in innovation activities with the described characteristic.
vation amongst the rms engaged in innovation activities. Our primary concern is whether or not rms engaged in these arrangements. To this extent it does not matter which type of organisation(s) they co-operated with. However, by assessing the co-operations with particular types of partner organisation we are likely to gain a better understanding of the motivations for these relationships than if we only look at co-operations in general. We began, therefore, with the estimation of a general model for co-operations with any partner, but also estimated models for co-operations with each of six different types of partner (i.e. suppliers, customers, competitors, universities, consultants and others i.e. government institutes, research and technology organisations and research associationsthus, others
is admittedly a rather miscellaneous grouping). With the exception of the customers model, which incorporated a minor variation (detailed below), we estimated the same model for both co-operations in general and for co-operations with each of the particular types of partner. In each case we began by estimating the Full Model, from which we then gradually eliminated the insignicant factors and those that did not contribute to the overall strength of the model, to provide the Reduced Model. Table 3 provides the Full and Reduced models for engaging in co-operation arrangements in general, whilst Table 4 provides these models for engaging in co-operations with each of the six types of partner. Below we discuss the ndings of the general model, but also how the ndings for the specic
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Table 3 Logistic regressions identifying innovators and, amongst innovators, those with co-operation arrangements for innovation Variable name Constant D NewFirm Ln(Employment 94) D UK-Group D Foreign D Utilities D HT-Manufacturing D MT-Manufacturing D HT-Services D LT-Services D RD D RD-Continuously D RD-Cont HighInt D Ext-IE Med/High D Ext-IE High D I-Market-Novel D I-Process-Only D H-Market-Info D H-Customer-Resp D H-Tech-Info D H-Internal D H-Regulations D H-Risk/Cost-Only D H-Finance-Only D H-Risk-&-Finance N (observations) Initial 2LL Model Chi-square (d.f.) Nagelkerke pseudo R2
a b
Identifying innovators 1.781 0.841 0.343 0.329 0.588 0.736 1.014 0.640 0.283 0.594 -X-b -X-X-X-X-X-X-X-X-X-X-X-X-X-X2342 3228.2 372.0 (9) 0.196
Co-operations Model 1 2.129 0.131 0.231 0.438 0.787 0.824 0.511 0.400 1.078 0.493 -X-X-X-X-X-X-X-X-X-X-X-X-X-X-X1270 1732.6 124.4 (9) 0.125
Co-operations Model 2 (M2) 3.402 0.157 0.168 0.464 0.727 1.087 0.166 0.119 0.790 0.030 1.057 0.261 (12%) 0.512 0.458 0.098 0.399 0.112 0.044 0.670 0.060 0.053 0.137 0.283 0.171 0.395 1270 1732.6 293.7 (24) 0.275
Co-operations M2, reduced 3.254 a 0.146 0.460 0.759 1.048 0.693 1.094 0.265 0.569 0.486 0.402 0.691 0.256 0.373 1270 1732.6 290.6 (13) 0.275
Variable removed in the model reduction process. Not included in the model. Identies signicance at 10%. Identies signicance at 5%. Identies signicance at 1%.
models differed from this. We begin by discussing the behaviouralexperiential factorsi.e. those that reected the innovation related activities and experiences of the rms, after which we shall discuss the background factors of size, age, ownership and sector of activity. 5.1. Co-operations and the behaviouralexperiential factors Engagement in R&D had a clear and consistently positive effect on whether or not a rm had co-operative arrangements for innovation. Quite
simply, those that engaged in R&D were more likely have co-operative arrangements for innovation than those that did not undertake R&D. This was true in general and for co-operations with each of the six different types of partner. Moreover, the intensity of R&D also had an impact, such that rms that undertook R&D on a continuous basis were more likely to have co-operation arrangements than those that only engaged in R&D occasionally, whilst those that spent most (per employee) on internal R&D were the most likely to have these arrangements. For co-operations with each individual types of partner the intensity of R&D also impacted positively
B.S. Tether / Research Policy 31 (2002) 947967 Table 4 Logistic regressions for co-operation agreements with particular partner types Variable name With suppliers Full Constant D NewFirm Ln(Employment 94) D UK-Group D Foreign D Utilities D HT-Manufacturing D MT-Manufacturing D HT-Services D LT-Services D RD D RD-Continuously D RD-Cont HighInt D Ext-IE Med/High D Ext-IE High D I-Market-Novel D I-Process-Only D H-Market-Info D H-Customer-Resp D H-MktInf-&-CustR D H-MktInf-/-CustR D H-Tech-Info D H-Internal D H-Regulations D H-Risk/Cost-Only D H-Finance-Only D H-Risk-&-Finance N (observations) Initial 2LL Model Chi-square (d.f.) Nagelkerke pseudo R2 4.227 0.040 0.291 0.094 0.253 1.018 0.333 (16%) 0.187 0.094 2.352 1.095 0.062 0.621 0.483 0.354 0.405 0.437 (11%) 0.041 0.514 -X-X0.547 0.066 0.468 (16%) 0.311 0.244 0.472 1270 1347.4 266.3 (24) 0.289 With universities Full Constant D NewFirm Ln(Employment 94) D UK-Group D Foreign D Utilities D HT-Manufacturing D MT-Manufacturing D HT-Services D LT-Services D RD D RD-Continuously D RD-Cont HighInt D Ext-IE Med/High D Ext-IE High 5.434 0.491 (17%) 0.297 0.560 0.398 1.379 0.520 0.321 (17%) 0.618 (11%) 2.149 1.493 0.096 0.938 0.237 0.195 Reduced 5.446 0.510 (15%) 0.308 0.535 0.365 1.393 0.540 0.346 (13%) 0.642 (11%) 2.197 1.601 0.978 Reduced 4.161 a 0.290 1.081 0.277 (16%) 2.308 1.026 0.617 0.477 0.385 0.409 0.403 (13%) 0.439 -X-X0.569 0.432 (19%) 0.493 1270 1347.4 261.4 (14) 0.284 With customers Full 3.654 0.050 0.055 0.350 (12%) 0.893 0.700 0.392 0.300 (16%) 0.685 0.194 0.819 0.391 0.220 0.244 (16%) 0.024 0.534 0.309 -X-b -X0.780 0.476 0.158 0.142 0.280 0.022 0.139 0.429 1270 1383.7 190.3 (24) 0.210 With consultants Full 5.250 0.176 0.173 0.448 (11%) 0.563 1.306 0.412 (16%) 0.107 1.830 1.355 0.857 0.549 0.091 0.610 0.111 Reduced 5.102 0.168 0.427 (13%) 0.539 1.342 0.464 2.003 1.477 0.889 0.584 0.554 Reduced 3.705 0.057 (18%) 0.369 0.942 0.604 0.431 0.293 (12%) 0.655 0.811 0.457 0.265 0.593 -X-X0.818 0.485 0.482 1270 1383.7 184.9 (14) 0.204 With competitors Full 5.333 0.086 0.172 0.252 0.307 1.478 0.101 0.091 2.446 1.636 0.787 0.479 0.146 0.185 0.389 0.340 0.043 0.364 0.614 -X-X0.098 0.154 0.275 0.267 0.429 (18%) 0.773 1270 1065.0 215.2 (24) 0.275 With others Full 6.123 0.851 0.337 0.260 0.141 1.945 0.136 0.428 1.800 0.346 1.407 0.590 0.262 0.257 0.228 Reduced 5.960 0.828 0.326 1.951 0.506 1.819 1.477 0.758 0.362 Reduced
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5.039 0.181 1.563 2.469 1.639 0.800 0.523 0.523 0.336 0.457 (11%) 0.642 -X-X 0.668 1270 1065.0 210.1 (11) 0.269
960 Table 4 (Continued) With universities Full D D D D D D D D D D I-Market-Novel I-Process-Only H-Market-Info H-Customer-Resp H-Tech-Info H-Internal H-Regulations H-Risk/Cost-Only H-Finance-Only H-Risk-&-Finance 0.179 0.178 0.038 0.318 0.469 0.342 0.179 0.143 0.225 0.400
With consultants Reduced 0.213 0.347 (11%) 0.387 0.281 0.349 (16%) 1270 1129.3 231.8 (16) 0.283 Full 0.214 0.242 0.193 0.177 0.229 0.018 0.263 0.406 (15%) 0.322 0.594 1270 1126.0 180.4 (24) 0.225 Reduced 0.336 0.552 1270 1126.0 174.2 (12) 0.218
With others Full 0.210 0.153 0.132 0.091 0.127 0.257 0.153 0.248 0.015 0.662 1270 1126.0 230.7 (24) 0.282 Reduced 0.663 1270 1126.0 220.1 (9) 0.271
(16%) (14%) (11%)
(14%)
N (observations) Initial 2LL Model Chi-square (d.f.) Nagelkerke pseudo R2

a b
1270 1129.3 234.7 (24) 0.286
Variable removed in the model reduction process. Not included in the Model. Identies signicance at 10% Identies signicance at 5%. Identies signicance at 1%.
on these arrangements, although in slightly different ways. 16 Secondly, rms that spent highly (per employee and in 1996) on acquired technologies and services were more likely to have co-operation arrangements, both in general and with each of the individual types of partner except universities, than rms that spent little or nothing on acquired technologies in 1996. This is understandable, assuming the co-operations related directly to at least some of the technologies acquired. The fact that this factor had greatest inuence on co-operations with suppliers suggests this was the case. Those rms that spent at least 500 per employee on acquired technologies in 1996 were signicantly more likely to have co-operative arrangement with suppliers than those that spent less than 500, whilst those that spent
16 Firms that undertook R&D continuously were more likely to have co-operations with customers, competitors, consultants and others, than those that undertook R&D occasionally, but the propensity to collaborate with these partners was not higher still amongst those that spent especially highly on R&D. By contrast, for co-operations with suppliers and universities the division appeared between those that spent especially highly on R&D and others that undertook R&D, rather than on whether R&D was undertaken on a continuous or an occasional basis.
over 2500 were even more likely to have these arrangements. This is also understandable, especially if this high spending is associated with the acquisition of customised, bespoke, or more complex technologies, for which co-operations are likely to increase the information ow and reduce the risk associated with these developments. Suppliers apart, those rms that spent highly on innovation were also more likely to have co-operation arrangements with customers, competitors, consultants and others. Consultants and others may be sources of acquired technologies or services, but customers and competitors are unlikely to be. However, co-operations with customers and competitors may also relate to reducing the risk associated with high cost innovation, for when rms are investing heavily in new technologies they will want reduce the chance they are making the wrong bets, and co-operations with customers and competitors are one way of achieving this. The nding that rms that invest heavily in acquired technologies are not more likely co-operate with universities suggests universities are not a signicant source these technologies, nor inuential in helping rms place bets with respect to high cost acquired technologies.
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The type of innovation introduced by the rms impacted on their propensity to engage in co-operative arrangements for innovation. In particular, those that claimed to have introduced new to the market innovations were more likely to have these arrangements than were the rms that claimed only new to the rm innovations (i.e. imitations of products or services already available on the market). This is understandable, as more radical innovation requires greater information exchange, particularly between the innovator, its customers and suppliers. It is notable, therefore, that particularly with these partner types the rms that introduced new to the market innovations were more likely to have co-operations than were other rms. There was also weaker evidence that new to the market innovators were more likely to co-operate with their competitors. This may reect the sharing of resources to achieve higher-level innovations and/or to the combining of market presence to push forward more novel innovations. It is notable, though, that co-operations with consultants, universities and others were not more common amongst those that introduced new to the market innovations, suggesting co-operations with these partners tended not to be related directly to the introduction of higher-level innovations. Also notable is that those rms that only introduced process innovations were not signicantly less likely to have co-operative agreements for innovation. In the specic cases of co-operations with customers and suppliers, however, the signs on this variable were negative, which was also weakly signicant in the Reduced Model for co-operations with suppliers. Next, we consider the factors hampering innovation. One factor in particular stands out; rms that stated they had encountered difculties with customers responsiveness to innovation were more likely to have engaged in co-operation arrangements for innovation than those that did not identify this as a problem. If co-operations were used as a means by which to better understand customers requirements and objections to innovations, we would expect this factor to be signicant in the model relating specically to co-operations with customers. And indeed this was the case. However, we also found that rms that complained of a lack of market knowledge were also (and understandably) more likely to have these arrangements with customers, although this factor did not
signicantly inuence the pattern of co-operations in general. Indeed, the rms that claimed they had difculties either because of a lack of market knowledge or because of customers responsiveness to innovation were more likely to have these arrangements with customers, but those rms that identied both of these factors as causing difculties were even more likely to have co-operative arrangements with customers. The slightly different specication used for the model for co-operations with customers was introduced to highlight this nding. 17 Customers apart, the models also indicate that rms that encountered difculties with customers responsiveness to innovation were more likely to co-operate with their suppliers and competitors. 18 These patterns of co-operation suggest these arrangements relate to the introduction of higher-level (i.e. more radical or complex) innovations, because customer resistance to such innovation tends to be greater. Firms frequently join forces with competitors and suppliers to introduce such innovations, rstly, because such innovation may require greater resources than the rm has alone, secondly, because collaborating helps spread the cost and risk of such innovation and, thirdly, in the case of competitors, because the existence of at least two suppliers can encourage customers of the merits of the innovation. Apart from problems with customers responsiveness to innovation the only other difculties that were related to rms engaging in co-operative arrangements for innovation were a combination of the economics and nancing of innovation. Here, the economics of innovation includes the perceived economic risk of innovation and/or the direct cost of innovating, whilst the nancing of innovation relates to either or both the availability and cost of nance for innovation. Firms that complained of both of these were more likely to engage in co-operations than were other rms that did not highlight these factors. 19 This nding is not interpreted easily. It may reect difculties encountered by rms seeking to develop higher-level
17 We also tried this specication with the other models, but found it did not improve on the original. 18 There was weaker evidence that they were also more likely to co-operate with universities. 19 To a lesser extent rms that only complained of the economics of innovation were also more likely to enter into co-operative arrangement for innovation than were otherwise similar rms.
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innovations, or some types of innovation that are difcult to appropriate, but it may also relate to particularly risk averse and/or reluctant innovators. Yet it is difcult to see why these risk averse or reluctant innovators would be attractive partners for innovation, and it is notable that the rms that complained of difculties with both the economics and nancing of innovation were signicantly more likely to engage in co-operative arrangements with all six of the individual types of partner. If these rms were only more likely to co-operate with suppliers we might infer this behaviour was an attempt to shift the cost and risk of innovation down the supply chain, but the fact that all six partner types were more likely to be engaged by these rms suggests these difculties and co-operations may be associated with higher-level innovations (or with particular types of innovation), rather than with greater risk aversion and/or cost saving. None of the other difculties with innovation were in general associated with rms participating in co-operative arrangements for innovation, although a few were associated with collaborations with particular partner types. We have already discussed the inuence of a lack of market knowledge on co-operations with customers, but this also had a positive inuence on co-operations with competitors, whilst a lack of information on technologies had an inuence on co-operations with suppliers (and a weak inuence on co-operations with universities). A lack of information on technologies might have been expected to increase the propensity of rms to co-operate, particularly with suppliers. However, we nd the rms that complained of this were less, not more, likely to have these arrangements. This unexpected result perhaps suggests a needing to know what you need to know argument, which relates to absorptive capacity (Cohen and Levinthal, 1989, 1990). Thus, the rms that did not know what technological knowledge they required (especially from suppliers) were less likely to co-operate with suppliers than those that knew what they needed to know. 20
5.2. Co-operations and the background characteristics of the rms Having examined the behaviouralexperiential factors and their inuence on participation in co-operative arrangements for innovation, we now turn to the inuence of the background characteristics of the rms, including their size, age, ownership and sector of activity. Overall, and as expected, the propensity to engage in co-operative arrangements for innovation increased with enterprise size. Furthermore, this positive relationship with size existed for collaborations with each of the individual partner types, although the inuence of size on these collaborations varied widely. Enterprise size was most inuential in co-operations with suppliers, universities and others. With suppliers this may well reect the power of larger rms over their supply-chains, such that they can virtually compel participation in joint innovation projects. With universities and others it perhaps reects the greater resources of larger rms, which makes them attractive to these organisations, but also to the greater awareness of larger rms as to the services available from universities and other institutes. The relationship was weaker for co-operations with competitors and consultants, but was especially weak for co-operations with customers. Apart from reecting the benet to all sizes of enterprises of working with customers, this may be partially because, in the reverse of relations with suppliers, small rms are often compelled to work with large customers in joint innovation projects. Meanwhile, newly established rms were not in general more or less likely to have these agreements, although they were more likely to co-operate with others, with weaker evidence that they were also more likely to co-operate with universities. Speculation suggests at least two motivations. Firstly, a signicant share of these collaborating new rms may be spin-outs from universities or research institutes, and as such are likely to maintain links with their parent at least for the rst few years. Secondly, universities and others are more open, and cheaper, sources of expertise than consultants, which would make them attractive to cash strapped new rms, which have a strong incentive to seek out such expertise. Regarding ownership, group rms were more likely to have co-operation arrangements for innovation than were independent rms, and foreign owned rms were
20 Other than this there was weak evidence that those experiencing difculties with regulations or standards were more likely to co-operate with suppliers.
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the most likely to have these arrangements. This may be because group rms tend to have more information about potential collaboration partners, but also because they tend to be better resourced and more prestigious partners with which to collaborate. In particular, group rms were more likely to have co-operation arrangements with customers, universities and consultants, with foreign owned rms in particular being more likely to have co-operation arrangements with customers. This nding concerning foreign rms and customers supports the view that foreign rms form co-operative arrangements with domestic customers in order to learn more about the requirements of the local market. Interestingly, group rms, whether foreign or not, were not signicantly more likely to have these arrangements with suppliers, competitors or others. Finally, we consider the broad sectors of activity the rms were engaged in. We employed a simple sectoral classication based on technological intensity (or opportunity) and divided between manufacturers and service enterprises, with a nal residual category for utilities, construction and recycling companies utilities, etc.. Overall, and before the behaviouralexperiential variables were taken into account, the propensity to have co-operative arrangements for innovation increased with the technological intensity of the sectors in which the rms were active, with especially large differences being found between the two service groupings (see Model 1 in Table 3). After the incorporation of the behaviouralexperiential variables (Model 2 in Table 3) the coefcients on the dummies for high and medium technology manufacturing activities, and that for low technology service activities, ceased to be signicant, showing that the different innovation behaviours and experiences rather than sectors of activity accounted for most of the differences in co-operation behaviour. However, high technology service rms and the utilities, etc. rms remained more likely to have these arrangements even after the behaviouralexperiential variables were taken into account. The nding for utilities, etc. rms was not anticipated, although overall these rms are less likely to be innovators and previous research has found that utility rmsand particularly energy rmsare more likely than rms generally to co-operate for R&D (Fusfeld and Haklisch, 1985; Brower and Kleinknecht, 1992). Beyond this, the privatisation of UK utilities rms in
the 1990s may have led them to change their behaviour with respect to innovation, becoming less self-reliant and instead sourcing knowledge from a wide array of other rms and organisations. However, in this analysis this is a small and somewhat miscellaneous group of rms, so the signicance of these ndings should be seen in that context. The nding that high technology service rms are more likely than other rms to co-operate for innovation is in keeping with the existing literature on knowledge-intensive and technology based services. These rms are known to often engage in collaborative innovation projects (Miles, 1996; den Hertog and Bilderbeek, 2000; Sundbo and Gallouj, 2000), especially with customers with which they develop customer specic technologies. Reecting this, it is particularly notable that these rms were more likely than others (with otherwise similar characteristics) to have co-operative arrangements for innovation with their customers. High and medium technology manufacturers were also more likely to have co-operations with customers, as well as with universities and, for high technology manufacturers, with consultants. These ndings suggest greater interaction between these innovators, their customers, universities and consultants, perhaps because they are engaged in less dened or faster moving technologies and markets (as opposed to the more settled technologies and markets of the low technology manufactures, which were the base category for the regressions). However, the most marked differences between sectors were found between services and manufacturers, and between high and low technology services. As mentioned earlier, high technology services were more likely than otherwise similar rms to co-operate with customers, but they were also much more likely than manufacturers to co-operate with competitors, consultants and others. However, they were less likely to co-operate with universities. Meanwhile, low technology services were not more likely than manufacturers to co-operate with customers, but were more likely to co-operate with competitors and consultants; they were also signicantly less likely to have these agreements with universities and, surprisingly, suppliers. The nding regarding suppliers perhaps suggests these low technology service rms, which are known to be heavy users of acquired technologies, were acquiring
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standard rather than customised or bespoke technologies for their innovation activities. The nding that all services are less likely to collaborate with universities was unexpected, but may indicate that universities are geared towards industry (and industrial problems) rather than services (and service problems). The greater collaboration with consultants and competitors may indicate something about the nature of innovation in servicesparticularly the supposed low appropriability of service innovations, which would encourage collaborations with competitors. Consultants, meanwhile, may be drawn upon for expertise, as well as for fresh insights, experience sharing and problem solving (Bessant and Rush, 1995; Bruce and Morris, 1998).
to innovation also tends to be associated with more radical innovations, and that higher levels of innovation also tend to be associated with higher levels of investment in externally developed technologies and services (suggesting investments in bespoke or customised rather than standard technologies), then there is further evidence that co-operations are associated with higher level innovations. To illustrate this in a simple way, we identied from the general model of co-operations the principal features which differentiated rms with, from rms without these arrangements. These features were the following: The rm introduced at least one innovation that was not only new to the rm, but also new to its market. The rm engaged in R&D (at least on an occasional basis). The rm engaged in R&D on a continuous basis. The rm engaged in R&D on a continuous basis and at a high intensity, spending over 2500 per employee on internal R&D activities in 1996. The rm spent relatively highly on externally developed technologies and services for innovation spending at least 500 per employee on these in 1996. The rm complained that difculties with customers responsiveness to innovation imposed difculties on its innovation projects. The rm complained that its innovation activities were hampered by both the economics and nancing of innovation. Here, economics is the perceived risk and/or direct cost of innovation, whilst nancing is the availability and/or cost of nance for innovation. Each of these features is individually associated with the development of higher level innovations, and the more of these features a rm had the greater is the association with higher level innovation. All of the responding rms could have between none and all seven of these features. Table 5 shows how the propensity to have co-operative arrangements for innovation varied with the presence of these features. Only 8% (11 of 136) of the innovating rms that had none of these characteristics had co-operative arrangements for innovation with external partners, compared with 75% (125 of 166) of the rms that had at least ve of these characteristics (and all of the 12 rms with all the seven features). The table also shows how
6. Concluding discussion We began this paper with the observation that some commentators now argue innovation is no longer the province of individual rms, but is a matter of collective action, with rms acting together with suppliers, customers, competitors, consultants and/or universities in co-operative arrangements for innovation. However, in direct contrast, recent empirical evidence suggests such collaborations are far from the norm. Craggs and Jones (1998) report that less than a fth of the innovating rms in the UK had these arrangements, and the CIS-2 studies for other countries show the UK is not unusual, but around average in the proportion of innovators with these arrangements (European Commission, 2001; Tether et al., 2001). The purpose of this paper was, therefore, to dig deeper into the UK CIS-2 data to investigate the patterns of co-operation arrangements for innovation amongst the innovators identied by the survey. The analysis found that co-operative arrangements for innovation were more common amongst rms that introduced innovations that were not only new to the rm, but also new to the market, and found that both the conduct and intensity of R&D activities tended to increase the likelihood that a rm had co-operative arrangements for innovation with external partners. If we consider that R&D is associated with the development of higher-level innovations (i.e. more novel and/or more complex innovations), this suggests co-operations are associated with higher-level innovations. If we consider that greater customer resistance
B.S. Tether / Research Policy 31 (2002) 947967 Table 5 Proportion of rms with co-operation agreements by the number of characteristics associated with co-operations Percentage of rms co-operating by number of characteristicsa (%) None All innovators Utilities, etc. High technology manufacturers Medium technology manufacturers Low technology manufacturers High technology services Low technology services Independent rms Firms that are part of a UK owned group Foreign owned rms Small rms (049 employees in 1994) Medium rms (50249 employees in 1994) Large rms (250 + employees in 1994) 8 10 17 5 5 0 11 4 8 17 3 11 13 1 or 2 30 57 33 27 30 37 24 18 32 41 18 35 36 3 or 4 54 80 52 55 46 68 54 40 56 62 44 48 62 5, 6 or 7 75 100 69 79 71 74 100 60 77 82 57 77 85
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a The count of the following characteristics: (1) engaging in R&D; (2) engaging in R&D continuously; (3) engaging in R&D continuously and spending at least 2500 per employee on R&D in 1996; (4) introduction of a new to the market innovation; (5) spending at least 500 per employee in 1996 on acquired technologies and services; (6) claiming innovation activities were hampered by customers responsiveness to innovation; (7) claiming innovation activities were hampered by both the economic risk and/or cost of innovation and by the availability or cost of nance for innovation.
the propensity to have co-operative arrangements for innovation increased with the increasing number of these behaviouralexperiential characteristics within each sector and within each group of rms by ownership and size. This suggests that the rms that were developing higher level (i.e. more radical or complex) innovations were more likely to have co-operative arrangements for innovation with external partners. This reects the reasons given in the existing literature on these arrangements, which suggests that it is the growing complexity of technologies, in conjunction with increasing speed to market and the globalisation of markets, that are the underlying reasons for the growing number of these relationships. Teece (1986, p. 293), for instance, notes: It is well recognised that the variety of assets and competencies which need to be accessed (for innovation) is likely to be quite large, even for modestly complex technologies. To produce a personal computer, for instance, a company needs access to expertise in semiconductor technologies, display technology, disk drive technology, networking technology, keyboard technology and several others. No company can keep pace in all of these areas by itself. According to this complexity thesis, collaborations are particu-
larly common when the technologies being developed are new or rapidly evolving, complex and/or expensive to develop, and when the market is poorly dened. Collaborations are engaged in to reduce the uncertainties inherent in the innovation process, but also to expand the market. As the technology/market matures, uncertainty declines and collaborative activity between rms tends to recede, giving way to transactions based on conventional market relations (Koenig and Thitart, 1990; Saxenian, 1991; Tidd et al., 1997). Thus, if an objective (i.e. innovation based) perspective is taken (Archibugi, 1988), particularly one that weighs the innovations by their signicance, then our analysis suggests co-operations are considerably more common when rms are developing higher level innovations. Strictly speaking we can only state that the rms that had the features associated with high-level innovation (i.e. the seven factors identied above) were considerably more likely to have co-operative arrangements for innovation with external partners. We cannot conclude the co-operative arrangements were directly related to the introduction of new to their market or other higher-level innovation activity. It does seem reasonable, however, to assume that there is a link between co-operations
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and these higher levels of innovation activity. Arguably it is these rms developing this sort of high level innovation that commentators have had in mind when discussing innovation as a collaborative activity. Consequently, if we consider only the proportion of innovating rms that had these arrangements we are in danger of underestimating the importance of this phenomenon. But engaging in higher levels of innovation activity is relatively uncommon; the characteristics related by our analysis to engaging in co-operative arrangements for innovation are (thought to be) much less common in the general population of rms than in the sample of respondents to the UK CIS-2 (because the sampling and response were biased towards larger rms operating in the more technologically interesting sectors). For example, Craggs and Jones (1998) report that, adjusted to the population, the CIS-2 suggests about half of UK rms with 10 or more employees were innovators, but only 9% (i.e. less than a fth of innovators) introduced new to the market innovations. This compares with 43% of the innovators in the data-set when examined as a simple sample. Similarly, when adjusted to the population of rms the proportion of innovators engaged in R&D is considerably smaller than that in data-set as a simple sample. In other words, most rms in the economy have few of the characteristics we have associated with developing higher level innovations; characteristics that in turn have been found to relate to engaging in co-operative arrangements for innovation. Consequently, from a subjective (i.e. rm-based) perspective (Archibugi, 1988), co-operative arrangements for innovation are far from the norm, and most rms still develop their (essentially imitative) new products, processes and services without (formal) co-operative arrangements with other rms or other organisations. In summary, our analysis suggests the extent of co-operative arrangements for innovation depends on the type of rms being considered and what is meant by innovation. Clearly, it would be interesting to know whether similar patterns to those found here arise in other countries, and similar studies would be possible for other European countries using their CIS-2 data. Although there may be some peculiarities, especially in the pattern of collaborations with particular types of partner (e.g. with universities or consultants) there is no reason to suppose that overall the pattern of collaboration found here will be peculiar to the UK.
It is notable, for example, that our results are similar to those of Fritsch and Lukas (2001) who examined innovation co-operations using a similar dataset for Germany. Especially if the ndings are replicated by other studies from across Europe, the ndings of this paper suggest some changes should be incorporated into future versions of the community innovation survey. As co-operations appear to be associated with higher levels of innovation it would be useful to know more about these arrangements, and especially how signicant they are for the rms innovation activities, such as whether or not they are indeed related directly to rms more radical innovations. Another issue that deserves further attention is whether (and why) the patterns of collaboration differ between services and manufacturing, and between high and low technology services, or whether (and why) these results are peculiar to the UK.
Acknowledgements I would like to thank the UK Governments Department of Trade and Industry (DTI), and in particular Dr. Ray Lambert, for access to the UK CIS-2 data which is examined in this paper. I am also grateful to Rod Coombs and two anonymous referees for comments on previous versions. Responsibility for the interpretation of the data, and any remaining errors, is solely mine. References
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Research Policy 31 (2002) 947967

Who co-operates for innovation, and why An empirical analysis

B.S. Tether / Research Policy 31 (2002) 947967

B.S. Tether / Research Policy 31 (2002) 947967

B.S. Tether / Research Policy 31 (2002) 947967

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B.S. Tether / Research Policy 31 (2002) 947967

B.S. Tether / Research Policy 31 (2002) 947967

B.S. Tether / Research Policy 31 (2002) 947967

B.S. Tether / Research Policy 31 (2002) 947967

B.S. Tether / Research Policy 31 (2002) 947967

B.S. Tether / Research Policy 31 (2002) 947967

D H-Regulations D H-Risk/Cost-Only D H-Finance-Only D H-Risk-and-Finance

B.S. Tether / Research Policy 31 (2002) 947967

B.S. Tether / Research Policy 31 (2002) 947967

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N (observations) Initial 2LL Model Chi-square (d.f.) Nagelkerke pseudo R2

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B.S. Tether / Research Policy 31 (2002) 947967

B.S. Tether / Research Policy 31 (2002) 947967

B.S. Tether / Research Policy 31 (2002) 947967

B.S. Tether / Research Policy 31 (2002) 947967

B.S. Tether / Research Policy 31 (2002) 947967

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