OM 석사 2 학기 이연주

Markets for technology and their implications for corpo-rate strategy Arora et al.

(2001)

1. Introduction

• Resource-based view• sustainable competitive advantage:

1) valuable 2) rare 3) imperfectly mobile• What happens when assets not tradable become tradable?

• Rapid growth in variety of arrangements for the exchange of tech-nologies or technological services• Value and number of transactions increasing

Markets for technology are emerging and developing

• Technological knowledge: tacit & context-specific• The growth and functioning of technology markets might be limited• But when exist, major implications for firm’s corporate

strategies

• Markets for technology affect the role of companies both as technol-ogy users & suppliers

Discussion

How is technological knowledge transferred?

Is technology transferred efficiently in the ‘market’ for technol-ogy?

How can we exchange technological knowledge efficiently?

2. Markets for Technology

• Technology: useful knowledge rooted in engineering and sci-entific disciplines

• Markets for technology: transactions for the use, diffusion, and creation of technology

3. Markets for Technology and Corporate strategies

• When No technology market,• Innovator must exploit the technology in-house• cost↓, returns greater than competitive rate quasi-rents• superior access to complementary assets ↑incentive in

technology• Invest in creating co-specialized assets

• When technology market Exists,• Importance of acquiring complementary assets within firm↓• Provides the innovator with more options

• Sell or license the technology• Buy the technology

• Efficient markets are great levelers: entry barrier↓, competition ↑ The asset cannot be a sustainable competitive advantage

Peteraf (1993). The Cornerstones of Competitive Advantage A Resource Based View. SMJ

3. Markets for Technology and Corporate strategies

• Dimensions for the appropriability of the returns of firm’s intel-lectual capacity (Teece, 1986)• the nature of the technology• The strength of the property rights regime• Complementary assets• The ease of replication• The ease of imitation

Appropriation through licensing: Imitation cost>>replication cost

Technology in-house exploitation or not?1) Distribution of complementary assets2) Transaction cost (+Difficulty in valuation)3) Competition in different markets in the value chain

Strategy for appropriating rents

4. Technology Strategies by Large Firms

• Firms with large product market: In-house technology exploitation

• Licensing is more attractive when the licensee operates in a different market

• Potential of the licensing market ↑• Demand for technologies↑, Globalization Selling opportunity↑• Better functioning and organization of markets

Large firms are refocusing their technology strategy to seek addi-tional returns from their R&D efforts by selling their technology

1. Revenue effect vs. Profit dissipation effect

• “Licensing of non-core technologies” “Central element in technology strategy”

• Patent protection

2. Intellectual property man-agement

4. Technology Strategies by Large Firms

• Large firms are better suited to exploitation than exploration

• Spin-off of new technologies as new ventures.

• Advantage: 1) provide more ‘patient’ capital 2) ability to leverage complementary co-specialized assets 3) ability to learn from failures

• Disadvantage: 1) delays in decision making 2) less high powered in-centives given to managers

• Only limited success. Works best when there are strong strategic links b/w the venture and the parent

3. Corporate Ven-turing

5. Technology Strategies by Small Firms

In-house Exploitation

• Cost of acquiring capital, building capacity, and pro-duction

• Limited bargaining power

• Inefficiency of asset build-ing & production.

1. Cost Compari-son

Licensing

• Rents lost/shared in a li-censing deal

• Inefficiency of contracts for technology

• Differences in bargaining power

Is it likely to be able to develop & manage operation ef-ficiently?

• Example of

5. Technology Strategies by Small Firms

Discussion ) Do you agree with this ar-gument?

• Complementary assets live longer than the technology

• need to develop new technology to ‘feed’ the assets

2. Self-exploitation

• Acquisition of complementary assets firm size ↑ Changes in the culture Changes in speed & fluidity of information flows

• Exploration vs. Exploitation

3. Integration may reduce the innovative potential

6. External Acquisition of Technology and ‘Not Invented Here’ Syndrome• Firm as a user of technology: identify technologies that are available

at a reasonable prices and that will increase the value of existing assets

• Internal and external R&D are complements, not substitutes

• ‘Not Invented Here’ syndrome• Disregarding external technology options completely• Ability to evaluate and use is conditioned by organizational structure• Motivate the firm’s researchers• Markets for technology increase the penalty i.e. reinventing the

wheel• Particularly General Purpose Technologies (GPTs)

Strategy1) Importance of monitoring external technology developments2) markets for technology can make it more efficient to ‘custom-

ize’ products and technologies ex) service content

7. Industry-level Effects

1. Vertical specialization• Translated into greater efficiency in the downstream industry

2. Lower Entry barriers

3. Increase in competition May reduce the importance of technology as a source of competitive advantages Need for other distinctive competitive assets

ex) Heterogeneity of demand distinctive capabilities

The tacit component of the knowledge bases in industry may shift towards information and expertise about what the individual customers want

Discussion

Is technology losing its status of sustainable competitive ad-vantage as the market for technology develop?

Are there any assets that can complement technology to make it a resource that has sustainable competitive advantage? How to solve the problem?

Can other assets such as service provide sustainable competi-tive advantage to the technology, even for general purpose technologies(GPTs)?