Towards an open R&D system: Internal R&D investment, external knowledge acquisition and innovative performance

To cope with fast-changing business environments, firms are increasingly opening up their organizational boundaries to tap into external source of knowledge. By restructuring their R&D system, firms face the challenge of balancing internal and external R&D activities to profit from external knowledge. This paper examines the influence of R&D configuration on innovative performance and the moderating role of a firm's R&D capacity.The findings suggest that firms that increasingly rely on external R&D activities have a better innovative performance, yet up to a point. Beyond this threshold, a greater share of external R&D activities reduces a firm's innovative performance. And such substitution effect is larger for firms with greater R&D capacity. Overall, this paper provides a better understanding of the open innovation paradigm by suggesting that the opportunity cost for further opening up R&D borders is higher for firms with a superior technological knowledge stock.

► I investigate how the degree of R&D outsourcing influences a firm's innovative output.
► A moderate degree of R&D outsourcing leads to a better innovative output.
► Greater degree of R&D outsourcing reduces a firm's innovative output.
► A firm's R&D capacity strongly moderates the effect of R&D outsourcing.
► The substitution effect is larger for firms with greater R&D capacity.