1. OM 석사 2 학기 이연주 Markets for technology and their implications for corporate strategy Arora et al. (2001)

2. 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 technologies 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 technology users & suppliers

3. Discussion How is technological knowledge transferred? Is technology transferred efficiently in the ‘market’ for technology? How can we exchange technological knowledge efficiently?

4. 2. Markets for Technology Technology: useful knowledge rooted in engineering and scientific disciplines Markets for technology: transactions for the use, diffusion, and creation of technology

5. 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

6. 3. Markets for Technology and Corporate strategies Dimensions for the appropriability of the returns of firm’s intellectual 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 assets 2)Transaction cost (+Difficulty in valuation) 3)Competition in different markets in the value chain Strategy for appropriating rents

7. 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 additional returns from their R&D efforts by selling their technology 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 additional 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 “Licensing of non-core technologies”  “Central element in technology strategy” Patent protection 2. Intellectual property management

8. 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 incentives given to managers Only limited success. Works best when there are strong strategic links b/w the venture and the parent 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 incentives given to managers Only limited success. Works best when there are strong strategic links b/w the venture and the parent 3. Corporate Venturing

9. 5. Technology Strategies by Small Firms In-house Exploitation Cost of acquiring capital, building capacity, and production Limited bargaining power Inefficiency of asset building & production. In-house Exploitation Cost of acquiring capital, building capacity, and production Limited bargaining power Inefficiency of asset building & production. 1. Cost Comparison Licensing Rents lost/shared in a licensing deal Inefficiency of contracts for technology Differences in bargaining power Licensing Rents lost/shared in a licensing deal Inefficiency of contracts for technology Differences in bargaining power Is it likely to be able to develop & manage operation efficiently? Example of

10. 5. Technology Strategies by Small Firms Discussion ) Do you agree with this argument? Complementary assets live longer than the technology need to develop new technology to ‘feed’ the assets 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 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

11. 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)  Strategy 1)Importance of monitoring external technology developments 2)markets for technology can make it more efficient to ‘customize’ products and technologiesex) service content

12. 7. Industry-level Effects  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

13. Discussion Is technology losing its status of sustainable competitive advantage 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 competitive advantage to the technology, even for general purpose technologies(GPTs)?