Inward technology licensing and firm performance: a longitudinal study

Abstract

Inward technology licensing (ITL) is often viewed as an important strategy adopted by firms to achieve innovation. However, relatively limited research has focused on evaluating the contribution of ITL to firm performance. The gap is all the more surprising since the benefits of external technology acquisition on innovation output have been emphasized in a lot of the literature. This study therefore sets out to investigate the extent to which the investment of ITL by firms affects their performance. In view of the relative abundance of data on variables for a longitudinal investigation, this analysis concentrates on the electronics‐manufacturing industry. The longitudinal sample allows this examination to control the more extraneous effects and to provide more convincing evidence for examining the relationship of ITL and firm performance. A total of 341 Taiwanese electronics‐manufacturing firms balanced over the period from 1998 to 2002 is taken as the analytical sample. The basic statistics indicate that acquiring technology externally shows an increasing tendency within the firms. The analyses, from the least square dummy variable method, reveal that ITL per se does not provide a significant contribution to firm performance; however, the positive impact of ITL on their performance increases with the level of the firms' internal research and development (R&D) efforts. Both the checks for robustness and the split‐sample analyses validate the results. The findings not only highlight the importance of internal R&D efforts but also suggest that firms had better use ITL as a complement rather than a substitute of internal R&D for their competence.

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