Determinants and performance impacts of external technology acquisition

An important issue technology managers face today, and a vital component of any coherent technology strategy, concerns the decision to chose between developing technical capabilities internally or acquiring them through external means. While there is a clear indication in the literature of a greater reliance on external sources of technology, the factors driving this phenomenon and the potential benefit to firm performance have received limited empirical attention. This study addresses these issues by testing the relationships between several potential determinants of external technology sourcing, and the differential impacts of external vs. internal sourcing on firm performance. The study addresses three potential determinants of external technology sourcing: discontinuous technological change life cycle stage (the stage of the resulting life-cycle patterns developed around radical technological changes, or DTC-life cycle), intellectual property protection, and internally available resources. DTC-life cycles, and the industries built around them, are characterized by patterns of competitive behavior and a few key milestones, particularly the emergence of a dominant design. For example, the early stages of the life cycle are characterized by a focus on product technologies, as firms compete to develop the technical standard for the industry, while the later stages are more concerned with process technologies, as firms compete to produce the standard at the lowest cost. We argue that DTC-life–cycle analysis can inform the “internal vs. external” decision and that the evolution from a product-based competition to a cost-based competition will affect not only the focus of that external sourcing but also the benefits received as a result. Further, we suggest that perceived intellectual property protection and the level of resources available internally to the firm will also impact the decision to source technology externally. The growing interest in external technology acquisition would appear to reflect a positive effect on firm performance. The literature, however, is equivocal and often anecdotal, focusing only on a limited perspective of firm performance. We investigate the relationship between external technology acquisition (vs. internal technology development) and firm performance from three perspectives: product-, market-, and finance-based measures of performance. Further, given that the focus of external technology acquisition will be driven in part