Statistics Canada
www.statcan.gc.ca
Common menu bar links
Research and development outsourcing and innovation: Evidence from micro-data
Archived Content
Information identified as archived is provided for reference, research or recordkeeping purposes. It is not subject to the Government of Canada Web Standards and has not been altered or updated since it was archived. Please "contact us" to request a format other than those available.
by Charles Bérubé and Michel Sabbagh, Industrial Research and Analysis, Industry Canada
Recent improvements in information and communications technologies (ICTs), coupled with the rise of new global players such as China and India, have enabled firms to outsource a growing share of their activities. This has allowed them to benefit from cost savings and to focus on their core competencies. While domestic and foreign outsourcing of certain manufacturing functions have been prevalent for decades, only recently has the trend extended significantly to services such as legal, accounting, data entry, and research and development (R&D).
About this article
Context
Findings
Summary
About the authors
About this article
This article is based on data from the Survey of Innovation 2005. More information about the Survey of Innovation 2005 is presented here.
The analysis was restrained to either establishments that outsourced R&D and/or those that had the potential to conduct R&D. The sample is a cross-section of 4,420 manufacturing establishments of which 840 outsourced R&D, either domestically or internationally. In order to ensure that the impact of R&D outsourcing (as opposed to R&D expenditures) was measured, 1,723 establishments that did not conduct R&D were excluded from the analysis. These establishments did not outsource R&D, did not have any R&D employees and did not receive any governmental support for R&D; thus, they were not considered to be in the R&D business.
Moreover, differences in innovation performance between establishments that outsourced domestically versus abroad were not considered, as the framework and the data available only allowed for a comparison of establishments that conducted domestic or foreign R&D outsourcing with those that conducted neither.
The survey covered the reference period 2002 to 2004. This study was done through the Statistics Canada facilitated access program. For more information about facilitated access, contact Frances Anderson (frances.anderson@statcan.gc.ca).
Context
The impact of R&D outsourcing on the performance of firms has attracted some attention in the literature, especially with regard to its impact on innovation. Is the purchase of R&D services from arm's length providers a substitute for R&D conducted in-house, or does it complement internal R&D? If the former is true, then the impact on innovation performance should be neutral; if the latter holds, then establishments that outsource at least some of their R&D should experience a better innovation performance than those that do not. The inclusion of questions related to R&D outsourcing in the 2005 Survey of Innovation allowed for an assessment of this important question using Canadian establishment-level data for the first time.
Over the period 2002 to 2004, 10.7% of Canadian manufacturing establishments outsourced at least a share of their R&D. Of these, 68.4% outsourced within Canada only. In fact, 65.2% outsourced within their own province only and 1.7% outside of Canada only. A further 29.9% had a mixed R&D outsourcing strategy, combining both domestic and foreign suppliers of R&D services.
Findings
Examining the data using a matching estimator
In order to compare the innovation performance of establishments that outsourced R&D with establishments that did not, a matching estimator technique was used. This technique aimed to match each individual R&D outsourcing establishment with another establishment that closely resembled it, but that did not outsource its R&D. After matching, the performance of the two groups of establishments showed similar characteristics with respect to size, industry, geographical location, share of employees with a university degree, etc., and their innovation performance could therefore be directly compared. In a separate analysis, estimations were conducted on innovators only. All estimations were weighted to reflect population figures rather than sample results.
The study found that outsourcing R&D is generally associated with a better innovation performance. Establishments that outsourced R&D produced significantly more innovations than their counterparts. The survey asked whether establishments' new or significantly improved products (goods or services) or processes were a first in their Province, Canada, North America or the World. Establishments that outsourced R&D produced more world-first innovations and were more successful in commercializing their innovations. Nearly three-quarters (73.6%) of R&D outsourcing establishments produced more than one innovation during the reference period (2002 to 2004), compared with 67.3% of non-outsourcing establishments. For those that produced at least five innovations, the difference is even larger; 45.3% of those establishments outsourced R&D compared with 37.4% establishments that did not (Table 1).
Table 1
Outcome measures after matching, 2002 to 2004
Differing results when considering only innovators
Slightly different results emerged when only innovators were considered (Table 2). Within this sub-sample, R&D outsourcing establishments were not found to produce more innovations. However, they certainly produced more world-first innovations than establishments that did not outsource R&D: 24.4% compared with 18.7%. Similar to the full sample, the innovators sub-sample revealed that R&D outsourcing establishments had a greater share of their revenue coming from already-on-market innovations. This suggests that once an establishment is innovating, R&D outsourcing may be more of a strategy to improve competitiveness than to be first on the market. In other words, establishments that already innovate do not produce more innovations when they outsource their R&D, but they do appear to be more competitive; that is outsourcing R&D allows them to concentrate on other activities.
Table 2
Outcome measures after matching innovators only, 2002 to 2004
Summary
Establishments are increasingly relying on external or quasi‑external forms of R&D such as joint ventures, licensing agreements, and R&D outsourcing. Focussing on R&D outsourcing, and using data from the Canadian Survey of Innovation 2005, this study found that establishments that outsourced part or all of their R&D activities were more prone to innovating than establishments that did neither. In addition, establishments involved in R&D outsourcing produced more world‑first innovations than establishments that did not outsource their R&D.
About the authors
Charles Bérubé and Michel Sabbagh are with the Industrial Research and Analysis Division at Industry Canada. For more information about this article, please contact sieidinfo@statcan.gc.ca.
