Technological outsourcing and product diversification: do markets for technology affect firms’ strategies?

Abstract

This paper analyses how the existence of competitive technology markets affects firms' technology sourcing decisions, and their propensity to enter into new product markets. While the division of innovative labour has received increasing attention within the economic literature, this paper focuses on its managerial implications. By means of a specialised database, we assess how patterns of technology trade influence firms' technology and diversification strategies in the chemical industry. We find that, the larger the market for technology, the stronger the advantages to substitute internal R&D with outsourcing, and to increase the degree of product diversification.