Make-or-buy decisions in R&D: small technology based firms in the United States and Japan

This paper examines key factors which affect make-or-buy decisions in research and development (R&D) settings-whether technology is developed in house or acquired from external sources (e.g., through licensing or R&D contracts). The paper constructs several hypotheses from the literature survey and discussions and tests these hypotheses by using data from small technology based firms in the United States and Japan. Our analyses show external technology acquisitions are more likely to be practiced when the number of rivals expected to develop a similar product is greater, and the needed technology is less related to a firm´s core technology. Our analyses also imply two qualitatively different goals in external technology acquisitions: to shorten development time, and thereby reap short-term profits (short-term strategy), and to maximize long-term profits over the life of the innovation (long-term strategy). Our analyses suggest the dominance of the former strategy