1042-2587
© 2010 Baylor University
E T&P
The Determinants of
Commercialization
Strategy: Idiosyncrasies
in British and German
Biotechnology
Carolin Haeussler
The intention of this paper is to investigate whether market-related factors have a stronger
influence on the strategic decision making of ventures in “liberal market economies” than on
that of their counterparts in “coordinated economies.” Thereby, I focus on a particularly
important strategic decision that firms face—the commercialization choice. Using a unique
survey data set on the commercialization of British and German biotechnology firms, I
analyze the determinants of commercialization strategy, paying particular attention to
national idiosyncrasies. Together, the findings indicate that the commercialization strategy
follows distinct patterns in the British “liberal market economy” and the German “coordinated economy.”
Introduction
The institutional perspective emphasizes the impact of the systems that surround
organizations and shape their processes and decision making (Scott, 2001). Institutions
provide formal and informal rules of the game that guide the behavior of human actors and
organizations (North, 1990). Part of the explanatory power of institutions is due to the
belief that institutional factors affect strategic decisions of companies (Hitt, Ahlstrom,
Dacin, Levitas, & Svobodina, 2004; Hoskisson, Eden, Lau, & Wright, 2000; Scott). Given
the heterogeneity of national institutional settings, there is a need to shed light on
intercountry differences in companies’ strategic decisions. Previous studies have examined the effect of various institutional environments on strategic choices. Researchers
analyzed, for example, the strategic actions in different institutional settings such as
research and development (R&D) specialization (e.g., Casper, 2000), selection of alliance
partners (Hitt et al.), diversification (Kogut, Walker, & Anand, 2002), internationalization
(Coeurderoy & Murray, 2008), foreign direct investment and ownership levels (Delios &
Henisz, 2000), and venture capital (VC) financing (Ahlstrom & Bruton, 2006; Bruton
& Ahlstrom, 2003; Zacharakis, McMullen, & Shepherd, 2007). These studies found
country-specific patterns that have been attributed to institutional differences.
Please send correspondence to: Carolin Haeussler, tel.: +49 (0) 89 2180 5833; e-mail: [email protected].
May, 2010
DOI: 10.1111/j.1540-6520.2010.00385.x
etap_385
1..29
1
One important but underinvestigated aspect where national institutional frameworks
differ is in their market orientation. The “varieties of capitalism” perspective differentiates
between two major alternative economies that vary in their market orientation, the “liberal
market economy” and the “coordinated economy” (e.g., Hall & Soskice, 2001; Whitley,
1999). The intention of this paper is to investigate whether companies that make strategic
decisions in more market-based economies put greater weight on market-related criteria
than companies operating in “coordinated economies.”
An important strategic choice that companies in all countries have to make is how to
commercialize technology. The dramatic increase in licensing in the last two decades
questioned the paradigm of the fully integrated firm. Companies have to calculate whether
they are likely to make more profit by introducing a technology into the market on their
own or by entering cooperative commercialization agreements (Gans, Hsu, & Stern, 2002;
Teece, 1998). In the rest of the paper, I shall refer to the choice that companies make
between cooperative and independent commercialization as the “commercialization
choice.” In particular, entrepreneurial firms often show strong invention capabilities but
encounter difficulties in successfully commercializing their technology. Rosenberg,
Landau, and Mowery (1992) argue that the efficacy with which innovations are utilized in
the economy is a key variable affecting the rate of economic growth. The OECD (2005a)
corroborates this argument and bemoans the fact that firms in several OECD countries lag
behind US firms in their ability to commercialize national biotechnology efforts.
This study contrasts the commercialization choice of biotechnology firms in two
European countries, the U.K. and Germany. After the United States, these two countries
accommodate the largest number of biotechnology firms but provide very different ecosystems. I suggest that the British economy is organized around liberal market institutions
that are supposed to accommodate market-oriented decision making more readily, while
the highly regulated and predominantly “coordinated” German economy is expected to
decrease the importance of market-related criteria in companies’ decision making.
I analyze the strategic choice of commercialization of 151 German and 95 British
biotechnology firms and test whether the two market-related determinants mentioned in
the literature by Teece (1998) and Gans et al. (2002), i.e., the level of IP protection and the
difficulty with which important complementary assets are accessible, influence the companies in the two countries in different ways. The statistical results imply that even in the
high-technology sector, where firms target international markets and globalization forces
are at work, country-specific differences shape the commercialization choice. I find that
British firms rely on market-related criteria to a greater extent than German firms.
This study makes the following contributions: First, it demonstrates that a firm’s
commercialization choice determines how much a firm profits from its innovation (Teece,
1998); understanding a firm’s decision-making process is at the core of firm strategy.
Existing literature has identified the level of IP protection (Gans et al., 2002), costeffectiveness (Aggarwal & Hsu, 2009; Gans et al.), and whether a firm is VC financed or
not (Hsu, 2001, 2006) as determinants of technology commercialization strategies. I add
the institutional system in which a firm is embedded to this list. Second, in doing so, I not
only emphasize the impact of institutional arrangements on the type of strategy that is
selected but also investigate the impact of these institutional arrangements on how the
strategy is selected. Here, I add to recent contributions by Hitt et al. (2004) on alliance
partner selection and by Zacharakis et al. (2007) on VC investment decisions. These
studies provide evidence that the importance that firms attach to specific decision criteria
varies due to differences in the institutional framework. This study reveals that the market
orientation of the institutional system determines how strongly firms take market-related
criteria into account when making a decision. Third, this study extends the varieties-of2
ENTREPRENEURSHIP THEORY and PRACTICE
capitalism perspective. Whereas proponents of this perspective have concentrated on how
differences in two institutional systems, the “liberal market economy” and the “coordinated economy,” generate different incentives for firms to pursue distinctive innovation
strategies (e.g., Casper, 2000; Whitley, 2002), I show that firms in these systems also differ
as to the weight they put on market-related decision criteria.
The results not only extend the literature but also have important implications for
policy makers and practitioners. This paper is a first step toward understanding countryspecific patterns in the selection of commercialization strategies and thus in the development and attractiveness of a market for ideas. The results of this analysis are relevant to
public policy, since only a precise understanding of the interplay between country-specific
patterns and market-related determinants opens up ways for effective policy making. With
regard to biotechnology ventures, as well as advisers and investors, the findings point to
a particular logic behind the process of selecting a commercialization strategy, which
varies depending on the country in which a firm is based. In particular, they imply that
even in the high-technology sector, where firms target international markets, firms in
“coordinated economies” pay less attention to market-related factors when making a
commercialization choice compared with firms in “market-based economies.”
Conceptual Framework
Cooperative Commercialization: Literature and Empirical Predictions
Among the first who conceptualized the role of cooperative commercialization for
firm strategy, Teece (1988) presents a framework that identifies market-related factors that
determine who profits from an innovation.1 He highlights the presence of enforceable
intellectual property rights, which generates a new environment for innovation management where the focus is on how to capture value. Teece (1986) argues that the decision on
whether or not to exploit the innovation in-house or via cooperative commercialization
depends on two central elements: (1) the extent to which intellectual property can effectively be protected; and (2) the distribution of complementary assets and the costs of
building up these assets.
IP Protection. In a strong appropriability environment with enforceable intellectual property rights, the innovators gain more from their innovation (Teece, 1986). Property rights
can be traded on markets and reduce the risk of expropriation. This reduction of risk is
important, since releasing pre-contract data may force the innovator to share valuable
proprietary information, which makes it more likely that competitors may discover and
copy sensitive research-and-development information. The problem of information disclosure can be amended when well-defined enforceable patents are available. Using the
incomplete contracting framework (Hart & Moore, 1990), Merges (1999) highlights that
in a strong appropriability environment with precise patents, transaction costs are reduced,
which helps increase technology trading. Empirical studies provide evidence for the
importance of IP protection in supporting cooperative commercialization. Arora and
1. Although Teece argues in his early papers that the appropriation of returns from innovation through
licensing is rather the exception than the rule, more recently (1998) he recognized that the formation of
markets for ideas expressed in the upsurge of licensing and cooperative commercialization might change this
view. In the 1980s, Teece (1988) argued that innovation is to a large extent the outcome of organizational
routines, and therefore upstream as well as downstream processes are more effectively performed within
organizations.
May, 2010
3
Gambardella (1998) report that there is a well-functioning market for technology in
chemical processes and engineering services. Gans et al. (2002) find that the probability
of cooperation increases with the innovator’s control over intellectual property rights. In
a recent study, Gans, Hsu, and Stern (2008) report that the date of a patent grant raises the
probability of closing a licensing deal.
Access to Complementary Assets. The distribution of ownership and control over specialized complementary assets is another determinant of commercialization strategy.
When specialized complementary assets are controlled by other players, the innovator
generally gets a smaller share of the created value (Teece, 1986). The difficulty of
acquiring complementary assets may suppress the market entry of a product by increasing
the attractiveness of technology trading. If specialized assets are costly to acquire or even
owned by the rival, a firm will probably prefer cooperative commercialization as opposed
to in-house expropriation. An effective market for technology trading supports complementarities between firms and moves away from the long-time dominant paradigm of
integration. In contrast, if the firm’s capabilities to provide these assets internally are
superior to those of its rivals, the firm will surely favor an integration strategy.
The basic premise of the present paper is that the institutional system in which
managers are embedded impacts the role that IP protection and access to complementary
assets play in shaping a company’s commercialization choice. In the following, I first
review the literature on institutional systems and then present my rationale with regard to
the commercialization strategies that companies develop.
Institutional Context and Decision Making
Institutional Embeddedness and Economic Systems. Uzzi (1997, p. 1) refers to embeddedness as being “a puzzle that, once understood, can furnish tools for explicating not
only organizational puzzles but market processes.” In each society there are political,
judicial, fiscal, and other regulatory norms that shape organizational behavior (Hollingsworth, 2000). Hence, variations in national institutional systems are assumed to affect
various processes that take place in organizations (e.g., North, 1990; Whitley, 2002). The
idea that it is possible to study systems unites two traditions. The first is the view of
the embeddedness of economic action, which was introduced by Granovetter (1985) and
inspired a large number of studies (e.g., DiMaggio & Powell, 1991; Uzzi). The second is
the perspective of distinct institutional frameworks that coordinate economic action (e.g.,
Hall & Soskice, 2001; Nelson, 1993). The underlying idea of these traditions is that
distinct predictable and understood structures shaping economic exchange emerge as
responses to societal conditioning (e.g., Redding, 2005). While scholars agree that “institutions matter,” the question of how they matter remains to a large extent open (Deeg &
Jackson, 2008). In this paper, I refer to the country as the “context” and analyze the
influence of country-specific systems on companies’ strategic decision making.
The “Liberal Market Economy” and the “Coordinated Economy.” The literature on
national systems of innovation (Lundvall, 1992; Nelson, 1993) and the varieties-ofcapitalism perspective (Hall & Soskice, 2001; Whitley, 1999) emphasize the heterogeneity among institutional arrangements across countries. Economies differ as to the extent to
which nonmarket institutions, e.g., the government, are involved in the coordination of
economic behavior (Scott, 2001). According to the varieties-of-capitalism perspective,
there are two major alternative economies, the “liberal market economy” and the
4
ENTREPRENEURSHIP THEORY and PRACTICE
“coordinated economy” (e.g., Hall & Soskice; Whitley). Whereas “liberal market economies” (e.g., the United States and the U.K.) operate along roughly laissez-faire principles,
“coordinated economies” (e.g., Germany and Japan) are comfortable with nonmarket (i.e.,
governmental) forms of resource allocation (Luk et al., 2008). Overall, government intervention is much less common in “market economies” than in “coordinated economies”
(Casper & van Waarden, 2005; Hoffmann, 2004). In “market economies,” there is little
coordination of market relationships, and, overall, state intervention in the economy is
limited to setting rules that support competition. In contrast, the state’s role in “coordinated economies” is so strong that much of the institutional fabric retains that influence
(Bartholomew, 1997). The main difference between the two economies is the extent of
formal regulation and the importance of nonmarket institutional structures, which influence key institutional features: the legal system, labor market, company law, and the
financial system (e.g., Casper, 2000; Casper & van Waarden).2 In the following I present
differences between the two types in the orientation of these key institutional features and
relate them to the U.K. and Germany, which serve, respectively, as prototypes of market
economies and coordinated economies.
Legal system. From a regulatory perspective, the two types of economies originate
from two quite different traditions: coordinated economies are closely related to civil law,
whereas market economies are closely related to common law. La Porta, Lopez-deSilanes, and Shleifer (1999) argue that “English” common law sprung from the Parliament’s efforts to protect the citizenry against the sovereign’s power. In contrast, the
“French” and “German” systems of civil law developed as means of legitimizing the
power of the sovereign as chief architect of the political and economic life. Thus, there is
greater protection of the individual’s property rights in common law than in civil law
countries (La Porta et al.), although regulation is much denser in a coordinated economy.
Labor market. A key distinguishing feature of the market orientation of labor markets
is the extent to which companies share authority with industry associations and unions that
coordinate and police market behavior (Hall & Soskice, 2001). Whereas the coordinated
economy is more strongly coordinated by these nonmarket institutional structures, the
liberal market economy emphasizes individual wage bargaining, allowing fast employee
turnover and mobility. Streek (1997) argues that this results in lower labor mobility in
Germany than in the U.K. Since human resource competencies are more long term and
cannot be shifted quickly, firms in a coordinated economy are limited in their ability to
quickly adapt to changes in the environment.
Company law. Whereas the liberal market economy is shareholder oriented and has
a corporate law that is primarily enabling in nature, the coordinated economy is stakeholder oriented and places much stronger legal constraints on company organization
(Casper, 2000). These two models of corporate governance have important implications
for patterns of company organization. The stakeholder system, for example, constrains
unilateral decision making and promotes consensus seeking, which in turn limits a firm’s
adaptiveness to changes in technology and in market conditions. Franks and Mayer (1995)
2. There is no general consensus among scholars of the varieties-of-capitalism perspective on the main
institutional features that characterize the two types of economies. For example, whereas Casper (2000) and
Casper and van Waarden (2005) discuss the labor market, company law, and financial system, others
have also elaborated on differences in the legal systems of market-based and coordinated economies. Hall
(1986) discusses two additional institutional components: the organization of the political system
(e.g., electoral practices) and the position of the nation within the international economy. Since these
additional factors are less relevant to the aim of this study, I restricted my analysis to the main institutional
components.
May, 2010
5
call the German corporate governance system an insider-controlled and stakeholderoriented system. While U.K. managers are mainly influenced by stock prices and shareholders, stakeholders control managers’ decisions in Germany. British firm managers are
appointed to deliver shareholder-defined performance. Nondelivery leads to their replacement. Due to the German law requiring “codetermination” at the corporate level, the
members of the supervisory board are shareholders, banks, and labor representatives. This
two-tier board system ensures that managers do not merely take the interest of shareholders but also the interest of various stakeholders into account (Sanders & Tuschke, 2007).
Financial system. Furthermore, in a coordinated economy the financial system is
bank dominated, whereas liberal market economies are based on the principles of the
capital market. Even though the German economy is, for example, about 1.2 times larger
than that of the U.K. in terms of the gross domestic product, its market capitalization is
substantially smaller (World Bank, 2007). Moreover, ownership and concentration of
control of publicly traded companies differ to a large extent between the two countries. In
Germany, block holding by other big corporations or families occurs frequently and
reveals a network of interlocking participating interests (Schmidt & Tyrell, 2004). In the
U.K., institutional shareholders hold most of the voting rights, and firms are more widely
held, with a high proportion of a firm’s stock in “free float.” The banking dominance and
stakeholder orientation of the German system directly influence information disclosure.
Whereas insiders such as employees, banks, and interlocking shareholders are well
informed, overall information availability and disclosure are quite limited and rather
private compared with the U.K.
Hypotheses
The routines and logic of the institutional frameworks in market-based and coordinated economies are a source of both incentives and constraints for companies embedded
in either type of system. How companies perceive such incentives and constraints leads to
a specific market logic, which then influences the decision making and, thus, countryspecific capacities and weaknesses of firms (Hollingsworth, 2000). Figure 1 presents the
proposed relationship between market-related determinants, the impact of the institutional
system, and commercial strategy.
IP Protection. As outlined above, it is presumed that the strength of IP protection is
positively related to the likelihood of cooperative commercialization being chosen over
independent commercialization. However, in a coordinated economy, the high regulation
and heavy coordination by nonmarket institutional structures are expected to downplay
the importance of market-related criteria, like patent protection, in companies’ decision
making. With regard to IP protection, the features of the legal system determine the
importance of patents for protecting firms’ advances. La Porta et al. (1999) argue that
common-law countries (market-based economies) give owners stronger protection than
civil-law countries (coordinated economies). For patent protection, this implies that
enforceable patents decrease the risk of an invention being disclosed to a potential
collaboration partner and enable trading on markets. In this context, Lemley and Shapiro
(2005) emphasize that uncertainty associated with litigation implies that patent grants are
best characterized as probabilistic rights. Germany, for example, is the most important
venue for patent litigation in Europe. Approximately 60% of all European patent infringement proceedings are dealt with in German courts (von Meibom & Meyer, 2008). Von
Meibom and Meyer, p. 29) argue that this is a result of Germany’s ongoing efforts to
balance the “patentee’s interest in obtaining a reasonable reward for its invention [. . .] and
6
ENTREPRENEURSHIP THEORY and PRACTICE
Figure 1
Market-Related Determinants, Commercial Strategy, and the Impact of
Institutional Systems
Market-related
Institutional system
determinants
Role of nonmarket institutional
structures
Decision
IP protection
Legal system
Difficulty of building
important
complementary
capabilities
Commercialization
strategy
• Labor market
• Company law
• Financial system
the interests of the general public in the free movement of goods.” This statement again
reflects the strong coordinative character of the German system, which I argue decreases
the power of patents to support cooperative commercialization agreements. A recent study
by CJA (2006) for the European Commission shows that the costs of litigation in Germany
are much higher than in the U.K. and therefore insurance for patent litigation would
demand a premium cost for the German patent owner (being more than twice as high as
the insurance for a U.K. patent). Thus, I presume that IP protection has a stronger effect
in a market-based economy than in a coordinated economy:
Hypothesis 1: The strength of IP protection is positively related to the likelihood of
firms choosing cooperative commercialization over independent commercialization.
This relation is stronger among firms in market-based economies (U.K.) than among
firms in coordinated economies (Germany).
Difficulty in Building Important Complementary Assets. As already mentioned above,
the degree of difficulty in building complementary assets internally is considered to be one
of the main factors that determine a company’s opting for or against cooperative commercialization. I argue that the impact of this factor is stronger when a firm is free to
operate and not restricted in its organizational maneuvers. In a “liberal market economy,”
firms are typically less restricted in their maneuvers and activities than in a “coordinated
economy” (e.g., Luk et al., 2008). In the following, I discuss how nonmarket institutional
structures, with regard to the labor market, company law, and the financial system,
downplay the accessibility of complementary resources as a determinant of commercialization strategy.
In a coordinated economy, the labor market is typically restricted due to (1) active
labor-market policy programs; (2) legislation for employment protection; (3) the welfare
benefits system; and (4) a centralized system of wage bargaining (Redding, 2005).
In particular, a coordinated system with wage bargaining through strong unions and
May, 2010
7
employment protection legislation limits employee turnover and mobility. Thus, firms are
often unable to use the mechanisms of hiring and firing in order to make rapid changes in
the areas of scientific and engineering skills because they are restricted by legislation, the
power of unions, and bargaining conventions. In market-based economies, “authority
based on labor-market relationships enables managers to coordinate economic activities in
more flexible ways than contractual arrangements do” (Whitley, 1999, p. 73), and so in
principle improves their ability to take market-related considerations of capability building into account. In addition, the rigid labor markets in coordinated economies motivate
employees to acquire skills that are often primarily useful with relation to a single firm,
while flexible labor markets promote the acquisition of general, non-firm-specific qualifications (Herrmann, 2008; Lange, 2009). However, the ability of firms to assemble
externally or internally teams of highly skilled individuals determines significantly the
degree to which they can change the internal build-up or the external acquisition of
capabilities and the speed with which this is done.
Moreover, company law puts legal constraints on company organization. Whitley
(1999, p. 70) points out that the level of authority sharing with various interest groups
determines “the extent to which managerial decision-making is constrained.” The strong
involvement of workers and various interest groups in stakeholder-oriented concepts of
corporate governance limits the leeway of firm managers in coordinated economies. This
involvement presumably makes managers less responsive to changing opportunities with
regard to the accessibility of important complementary assets. For example, the German
codetermination law requires that firms establish staff councils, which have consultation
rights with the management over a number of organizational issues (Casper, Hollingsworth, & Whitley, 2005). In contrast, firm managers in market-based economies are
under pressure to put shareholders first and to constantly reassess market opportunities.
Furthermore, as mentioned above, the financial system in a coordinated economy
favors innovating firms that build long-term organizational competences with business
partners and employees (Whitley, 2002). Whereas, for example, the British system is more
outsider based, facilitating the rapid reallocation of capital between firms and sectors, the
German system is more insider based, promoting relatively long-term relationships
between banks, families, and other investors and firms (Tylecote & Conesa, 1999;
Whitley, 2002). Therefore, a “lock-in” in the way that a firm accesses important capabilities (through internal build-up or external acquisition) is more likely in a coordinated
economy than in a market-based economy. In light of the above:
Hypothesis 2: The difficulty with which important complementary assets can be
built internally is positively related to the likelihood of firms choosing cooperative
commercialization over independent commercialization. This relation is stronger
among firms in market-based economies (U.K.) than among firms in coordinated
economies (Germany).
A Framework for the Interaction of IP Protection and Complementary Assets. In the
following, I introduce a four-field matrix to gain further insight into the relationship
between institutional systems, market-related determinants, and commercialization decisions. Table 1 shows the matrix with its central elements: the level of IP protection and the
difficulties that innovators have in developing complementary assets in-house. The cells
present four different commercialization situations. The matrix is based on the Gans and
Stern (2003) framework, which was introduced to investigate the venture’s decision on
market entry with regard to the position of established firms. Whereas the study uses the
incumbent’s contribution to the value proposition through innovation as a central element,
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ENTREPRENEURSHIP THEORY and PRACTICE
Table 1
Four-Field Matrix of Commercialization
Internal development of
important complementary assets
IP protection
Difficult
Easy
Weak
A—Ambiguous situation
B—In-house
Strong
C—Cooperative commercialization
D—Ambiguous situation
this study uses the difficulty of innovators to develop the complementary assets in-house.
This refinement is necessary, as I do not restrict my analysis to the incumbent–venture
relation but elaborate on the determinants that make cooperative commercialization preferable to in-house expropriation.
My basic premise is that firms in a “market-based economy” differentiate more
strongly between the situations that figure in my matrix than firms in a “coordinated
economy.” The likelihood with which they prefer cooperative commercialization depends
on the specific situation. Two obvious and two ambiguous situations emerge. In a situation
where it is neither costly nor complex to develop the complementary assets internally but
where the protection of the innovation is weak (B), the framework predicts integration. In
contrast, in a situation with difficult internal development of necessary assets and strong
IP protection (C), the innovator will favor cooperative commercialization.
While situations (B) and (C) have well-defined patterns, the remaining fields exert
competing pressures on a firm with regard to its commercialization choice. Whether a firm
decides in favor of cooperative commercialization depends on the presence of mechanisms that support technology trading. Consider the situation in which it is difficult to
provide necessary assets internally and in which the IP protection is weak (A).3 When
choosing the cooperative commercialization strategy, the innovator risks expropriation by
another firm. A cooperative strategy will only be selected if subtle forces affect the market
attractiveness by diminishing the risk of imitation. The amount of publicly available
information and a firm’s reputation may be powerful forces that induce the trading of
ideas. The more information about a potential partner’s strategy, financial situation, and
past business history is accessible, the more a firm is able to evaluate the threat of
expropriation. In addition, in such outsider-oriented environments, a firm’s reputation
may be of critical importance. If, for example, sanctions are imposed on those who
commit idea theft, e.g., they suffer a loss of reputation as a result, there is little gain for the
potential licensee from capitalizing on the weak IP protection of the innovator (Gans &
Stern, 2003). A licensee will refrain from exploiting a technology supplier if information
3. At this point, I note that this paper does not provide a comprehensive study incorporating all the
mechanisms at work in scenarios A and D. The intention in introducing the four-field matrix is mainly to
substantiate my argumentation regarding the importance of market-related criteria for commercialization in
two different economic systems. I indeed consider a comprehensive study to be a promising avenue for future
research.
May, 2010
9
about fairness is available and if fairness is regarded as a precondition for technology
trading in the industry. The available literature on the varieties-of-capitalism perspective
suggest that a “market-based economy” provides a more outsider-oriented system in
which much more information is publicly available about firms than in a “coordinated
economy” (Whitley, 2002). Furthermore, La Porta et al. (1999) emphasize that in common
law countries (market-based economies), accounting is of higher quality than in civil law
countries (coordinated economies). Moreover, the power of information and reputation is
more strongly supported in a system in which intermediaries facilitate information
exchange and trading (Gans & Stern). Business angels and venture capitalists can play a
crucial role as brokers for ventures and facilitate cooperative commercialization, as they
have repeated interactions with firms in the industry (Hsu, 2006; Robinson & Stuart,
2007). Typically, these intermediaries are much more present and effective in market
economies than in coordinated economies (Bottazzi, Da Rin, & Hellmann, 2009).
In the final field (D) with easy development of complementary resources and strong
excludability, both commercialization strategies, in-house and cooperative, may be effective. Here, my predictions are less clear. However, I presume that compared with situation
(B), firms in a market-based economy might be more likely to prefer cooperative commercialization in such a situation than in a coordinated economy. As already outlined
above, a market-based economy provides a much more flexible environment for firms than
a coordinated economy (e.g., Casper et al., 2005). Compared with situations where longterm partnerships and strategies prevail, in situation (D), a firm might be more likely to try
a cooperative solution, if this is not binding in the long run and if resources can be shifted
quickly. Thus, I presume:
Hypothesis 3: In situations where
1. IP protection is weak and internal build-up of complementary assets is difficult (A)
2. IP protection is strong and internal build-up of complementary assets is difficult
(C)
3. IP protection is strong and internal build-up of complementary assets is easy (D)
firms are more likely to choose cooperative commercialization over independent
commercialization than in a situation where IP protection is weak and internal
build-up of complementary assets is easy (B). This tendency is stronger among firms
in market-based economies (U.K.) than among firms in coordinated economies
(Germany).
Field of Study and Data
The Biotechnology Setting
The research setting of this study is the biopharmaceutical industry. This sector was
chosen because biotechnology is one of the sectors in which cooperative commercialization is regarded as an attractive means of commercialization (Lerner & Merges, 1998).
The development of new drugs is strongly driven by biotechnology ventures. These firms
are responsible for the vast majority of drugs based on biotechnological methods that are
currently in the product pipelines or are already available on the product market. While a
number of these firms have become suppliers in the product market, others are suppliers
mainly to established pharmaceutical firms. McKelvey (1996) argues that the economics
of modern biotechnology can either be a small-firm phenomenon or a complex division of
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ENTREPRENEURSHIP THEORY and PRACTICE
labor, where the ventures exist in conjunction with public-research laboratories and
incumbents.
Sample and Survey Instrument
In 2006 a survey in the British and German biotechnology industries was developed
and administered (see Haagen, Haeussler, Harhoff, Murray, & Rudolph, 2007). I
approached biopharmaceutical firms located in Germany and the U.K. Given the heterogeneity of the biotechnology sector, and in order to control for external effects, only young
biotechnology firms active in the biopharmaceutical sector according to the OECD
(2005b) definition were included in this study. Firms that were not founded in one of the
two countries, firms that are subsidiaries of foreign firms, and firms solely offering
services or supplying products without conducting research were excluded. The sample
was identified through several searches in industry databases (e.g., Biocom, Dechema, Bio
Commerce, as well as regional databases like Erbi, Bio-M) and the Internet. Identified
firms were validated against my selection criteria with the help of biologists and biotechnologists. I ended up with 346 German and 343 British firms that fulfilled the criteria in
2005 and were at least 1 year old. Each firm received a personalized letter addressed to the
head of management, inviting them to participate in the survey. Prior to the field stage, I
interviewed industry experts from biotechnology associations and firms, which helped us
to design the survey instrument. In addition, 12 pretest interviews were conducted to test
the questionnaire; this procedure led to some revisions—mainly a reformulation of certain
questions. I decided to conduct face-to-face interviews, since biotechnology firm managers said that they were reluctant to participate in mail and online surveys but were open to
face-to-face interviews. TNS Global was hired to conduct the interviews on a preformatted and tested questionnaire instrument.
Interviews were successfully carried out with managers in 162 German and 118
British firms. This response rate of 47% for Germany and 34% for the U.K. provided me
with an unusually comprehensive sample of British and German biotechnology firms.
Eighty-nine percent of the German interviews and 96% of the British interviews were
conducted with executive-level interviewees. Eleven German and 23 British responses
were excluded from this study due to missing variables. I tested for nonresponse bias
(Armstrong & Overton, 1977) using the date of the interview to distinguish between early
and late respondents. A series of t-tests for independent samples failed to identify significant differences between early and late respondents, providing evidence that nonresponse
bias was unlikely to be a problem in this study.
Definition of Variables and Descriptive Statistics
Table 2 presents summary statistics of the variables. Column 2 lists the mean for the
entire sample, Column 3 for the British, and Column 5 for the German sample. Columns
4 and 6 report the standard deviations for the British and German samples. In Column 7,
the results of the test for differences in means are presented.
Dependent Variable. Whether a firm commercializes alone or via cooperative agreements
was used as a dependent variable. The variable cooperative commercialization is a dummy
variable equal to 1 if the firm uses cooperative commercialization (either by licensing or
by a marketing or sales partnership) and equal to 0 otherwise. Within the sample, 66% of
the British and 57% of the German firms entered into arrangements with other firms,
May, 2010
11
Table 2
General Characteristics of the Sample
Full sample
(n = 246)
Variable
Cooperative commercialization (d)
Level of IP protection
Ease of providing important
capabilities in-house
VC-financed firm (d)
Product firm (d)
Low-price strategy
Independent firm founding (d)
Team size
Age
German firms
(n = 151)
British firms
(n = 95)
Mean
Standard
deviation
Test for
differences
in means
Mean
Mean
Standard
deviation
0.61
3.41
9.70
0.57
3.36
9.57
—
1.43
4.76
0.66
3.48
9.91
—
1.17
5.24
p = 0.143†
p = 0.757
p = 0.599‡
0.23
0.61
2.59
0.39
3.02
8.89
0.21
0.62
2.72
0.39
2.20
7.44
—
—
1.38
—
1.27
5.99
0.25
0.61
2.39
0.38
4.32
9.64
—
—
1.30
—
2.62
8.64
p = 0.381
p = 0.933†
p = 0.66
p = 0.853†
p = 0.000‡
p = 0.19‡
Note: Last column: unless otherwise specified, the Mann–Whitney test has been used.
If † then c2 test, if ‡ then t-test.
which bring their innovation to the market. The c2 test does not indicate any differences
between countries when comparing the means of the two samples. Hence, I do not infer
that firms in the British “liberal market economy” are more inclined to licensing than firms
in the “coordinated” German economy.
Independent Variables. The level of IP protection was measured by asking the interviewees whether patents protect the innovation from direct competitors. IP protection is
measured on a 5-point Likert scale ranging from “strongly disagree” (1) to “strongly
agree” (5). The variable shows a full sample mean of 3.41. The single scores are 3.48 for
British firms and slightly lower, at 3.36, for German firms. In the pretest interviews, I
learned that this direct measure is the best indicator of the strength of intellectual property.
The interviewees reported that a patent does not automatically mean that the innovation is
sufficiently protected.4
The variable ease of providing important capabilities internally was built as a multiplicative term consisting of two measures: the ease with which complementary assets
can be built internally and the importance of complementary assets. The latter is used to
weight the ease measure. It was calculated by asking the firm managers to appraise the
importance of several assets in generating rents from their innovation. In this study, I
conceptualize the importance of complementary assets as a formative construct consisting
of five indicators (Cohen, Cohen, Teresi, Marchi, & Velez, 1990). The interviewees were
4. Nevertheless, this variable may be biased. Therefore I used an additional measure for IP protection. I report
whether the firm applied at least for one patent to protect the innovation to the commercialization decision. I
tested the robustness of the results with this measure and learned that the core effects remain stable (see
Appendix 4).
12
ENTREPRENEURSHIP THEORY and PRACTICE
asked to assess the importance of five assets for appropriating value from the innovation
that I had identified as necessary for commercialization in the biotechnology sector.5
The construct is specified as a summative index (Barclay, Higgins, & Thompson, 1995).
The linear sum of the component scores was created and then divided by the number
of items (Cronbach’s alpha = 0.75). The mean for the British firms was 3.29; the mean
for the German firms was 3.10. I applied the same procedure to build the measure
indicating the ease with which complementary assets can be built internally (Cronbach’s
alpha = 0.70). This formative construct measured how easy it was or would have been to
provide the necessary complementary assets in-house. The scale ranges from “not easy”
(1) to “very easy” (5). The mean for the German firms was 2.94, slightly higher than for
the British (2.89). The multiplicative term ease of providing important capabilities internally shows a mean of 9.57 for German firms and a mean of 9.91 for British firms.
Some variables were included that are known or expected to influence the commercialization mode, although they are not involved in the hypothesis discussion.
VC-financed firm. I use the variable VC-financed firm to control whether a firm is VC
financed before the commercialization decision or not. Hsu (2001, 2006) suggests that
venture capitalists serve as intermediaries, which results in VC-financed firms being more
likely to enter cooperative commercialization than in-house expropriation. Summary
statistics show that 25% of British firms were VC financed at the time of the commercialization decision compared with only 21% in Germany.
Product firm. The variable product firm has been included in order to control for
differences in the commercialization mode between firms that are mainly active in developing products (diagnostic devices, therapeutics, and vaccines) and firms that specialize in
platform technology. In both countries, about 60% of the sample firms sell biotechnological products.
Low-price strategy. The respondents were asked to rate on a 5-point Likert scale how
strongly the firm differentiates itself from competitors by offering a low-price innovation.
I expected a firm that differentiates itself by a low price to be rather fully integrated. In my
interviews, I learned that these firms try to be independent from (downstream operating)
firms by supplying the market with low-price technology or products. Table 2 shows that
a low-price strategy is more important in Germany than in the U.K. (Germany mean: 2.72;
U.K. mean: 2.39).
Independent firm foundation. I employed the variable independent firm foundation to
investigate whether the firm had been founded independently or founded as either a
spin-off (e.g., of a public research institute or firm) or as the result of a merger. Firms that
are associated with another organization from the beginning are perceived to be more
likely to make use of cooperative commercialization than firms founded independently
(see Gulati, 1995). Within the full sample, about 61% of the firms were founded as
spin-offs or in the course of a merger (36% are university spin-offs, 15% are research
institute spin-offs, 9% are company spin-offs, and 1% were founded in the course of a
merger).
Team size. The number of members comprised in a management team has been
included to account for the effect of team size. It is likely that a firm with more team
members prefers a full integration strategy to specializing in upstream stages of the value
chain. Examining the number of top-level managers per firm reveals interesting
5. The five assets are: the know-how to produce the product or technology, financial resources to develop the
product or technology up to market readiness, experience with regulatory approval, experience with market
entry, and distribution or sales resources to bring the product or technology to the market.
May, 2010
13
differences. There are twice as many senior managers in British firms than in German
firms. On average, British management teams consist of 4.3 persons compared with 2.2
persons in German firms.
Age. Age is measured in number of days from a firm’s inception to December 31,
2005. In the relevant literature, different opinions are expressed on the effect of age on the
commercialization mode. Some scholars argue that young firms are more likely to outlicense technology than older firms because young firms are not fully integrated at the
outset (e.g., Hsu, 2001). In the early stages of a firm’s development, it may be more
efficient to rely on a prominent partner with expertise in the product market to introduce
a product into the market than to invest in a cost-intensive and risky marketing and sales
force. Kollmer and Dowling (2004) show in a recent study that in contrast to that
assumption, the achievement of full integration for biotechnology firms does not depend
on the age of a company. The variable also accounts for potential time-varying market
effects. The average British firm is about 6.6 years old (median), while the age of the
average German firm is 5.9 years.
The bivariate relationships among the independent and control variables are reported
in Appendices 1 and 2. Appendix 1 lists the correlations for the German firms and
Appendix 2 for the British firms.
Empirical Approach and Instrumental Variables
An issue I want to discuss is the possibly endogenous character of IP protection. The
sample firms might patent for strategic reasons, e.g., to facilitate gains from cooperative
commercialization. I introduced a two-step procedure to take the endogeneity of the
variable into account. In the first step, I regressed the endogenous IP protection variable
on all the other independent variables, along with additional exogenous instruments. The
predicted values were then used in the second-stage regression. I used the following two
exogenous variables as instruments for the IP protection variable in the first-step regression: First, the field level of IP protection6 is included (see, for example, Cassiman &
Veugelers, 2002;7 Haeussler, 2010), and second, the level of innovativeness of the technology or product. I perceive that innovations with a rather radical character are more
likely to be patent protected than more incremental innovations. The variable innovativeness is measured on a 5-point Likert scale.8
Multivariate Analysis and Results
Level of IP Protection and Complementary Assets
Table 3 reports the results for the determinants of commercialization strategy separately for the British and the German firms. A robust binary probit model is used, with the
dependent variable being the probability of cooperative commercialization. Models 1 and
2 contain the control variables for the British and German samples. The independent
variables are added in Models 3–8. Models 5 and 6 depict the result with the level of IP
6. I distinguish between the following four main fields: therapeutics, vaccines, diagnostics, and platform
technology. The field average is used for firms that are active in more than one field. The average field level
of the importance of IP for protecting the innovation is 3.6 for British firms and 3.5 for German firms.
7. Moreover, Levin (1988) and Cohen and Levinthal (1989) report that including industry or field means for
qualitative variables reduces the problem of subjectivity.
8. The variable innovativeness scores on average 3.46 for British and 3.66 for German firms.
14
ENTREPRENEURSHIP THEORY and PRACTICE
May, 2010
15
0.092
(0.297)
1.023***
(0.246)
-0.080
(0.084)
-0.687***
(0.237)
-0.088
(0.091)
-0.044**
(0.022)
0.565
(0.370)
151
28.05 (6)
p < 0.001
0.17
-85.16
Germany
(1)
0.015
(0.358)
0.296
(0.329)
-0.228**
(0.113)
-0.473
(0.309)
0.059
(0.066)
-0.058***
(0.021)
1.304***
(0.451)
95
17.71 (6)
p < 0.007
0.17
-50.24
U.K.
(2)
Germany
0.185**
(0.084)
-0.086***
(0.027)
-0.075
(0.310)
0.906***
(0.255)
-0.076
(0.088)
-0.679***
(0.250)
-0.122
(0.092)
-0.038
(0.023)
0.915*
(0.522)
151
42.20 (8)
p < 0.001
0.25
-77.14
(3)
U.K.
0.656***
(0.170)
-0.182***
(0.036)
-0.677
(0.425)
0.964**
(0.449)
-0.330**
(0.136)
-0.685*
(0.381)
0.031
(0.061)
-0.010
(0.020)
0.821
(0.776)
95
48.82 (8)
p < 0.001
0.47
-32.05
(4)
Cooperative
commercialization
-317.85
Germany
0.403** (I)
(0.162)
-0.076***
(0.027)
-0.143
(0.294)
0.758***
(0.277)
-0.057
(0.088)
-0.682***
(0.248)
-0.156*
(0.001)
-0.035
(0.022)
0.165
(0.687)
151
52.64 (8)
p < 0.001
(5)
-163.37
U.K.
0.864*** (I)
(0.259)
-0.170***
(0.040)
-0.675*
(0.398)
0.938**
(0.427)
-0.317**
(0.142)
-0.681*
(0.369)
0.017
(0.066)
-0.001
(0.021)
-0.083
(1.320)
95
61.14 (8)
p < 0.001
(6)
Cooperative
commercialization—
with IP protection
instrumented
Note: Robust standard errors in parentheses; * significant at 10%; ** significant at 5%; *** significant at 1%.
Observations
c2 (DF)
Prop > c2
Pseudo R-squared
Log likelihood
Constant
Age
Team size
Independent firm founding (d)
Low-price strategy
Product firm (d)
VC-financed firm (d)
Ease of providing important capabilities internally
Independent variables
Level of IP protection
Dependent variable
Cooperative
commercialization
Probit Models to Predict Commercialization Mode
Table 3
151
Germany
0.160** (I)
(0.065)
-0.030***
(0.011)
-0.057
(0.117)
0.295***
(0.102)
-0.023
(0.035)
-0.267***
(0.093)
-0.062*
(0.037)
-0.014
(0.009)
(7)
95
U.K.
0.290*** (I)
(0.095)
-0.057***
(0.012)
-0.244*
(0.143)
0.324**
(0.141)
-0.106**
(0.050)
-0.235*
(0.125)
0.006
(0.022)
-0.001
(0.007)
(8)
Cooperative
commercialization—
marginal effects
0.59
1.69
0.00
3.13*
0.01
1.46
3.95**
6.79***
(9)
Wald
test (c2)
protection variable being instrumented and Models 7 and 8 report the marginal effects
for the British and German samples.9 A comparison of the models, calculated using
the noninstrumented and the instrumented IP protection variables, demonstrates that the
correction of endogeneity of the IP protection variable does not change the findings on
signs and only slightly changes the degree of significance of the coefficient of some
variables. In the last column, I examined differences between the British and German
samples for each independent variable. I use a Wald-type test for differences according to
Williams (2009).10
In all models, the variable IP protection is significantly related to the commercialization
choice. Firms with a higher level of IP protection are more likely to use cooperative
commercialization than to commercialize alone in both countries. In addition, the results
show that the Wald test for differences between coefficients in the two models is statistically
significant, indicating that the size of the effect is larger for the British firms. At the margins,
an increase in the strength of IP protection at the mean of the other variables increases the
likelihood of cooperative commercialization by 0.290 (at 1% significance level) for the
British firms and 0.160 (at 5%) for the German firms. Hence, an increase in the strength of
IP protection implies an 81% higher increase in the probability of British firms commercializing through another firm than in that of German firms. I also used an alternative
measure to investigate the effect of IP protection. Whether the firm had applied at least for
one patent to protect the innovation was linked to the commercialization decision. I found
that 68% of the German firms and 76% of the British firms had applied for at least one patent
to protect the innovation. The multivariate model (reported in Appendix 4) shows that this
alternative IP protection variable is significantly positively related to cooperative commercialization for the British firms (at 1%) but not significantly for the German firms. The Wald
test indicates a country difference (at 1%). To sum up, both measures for IP protection
indicate that in their commercialization decision, British firms weight IP protection more
heavily than German firms. This provides support for hypothesis 1.
Testing the influence of the costs associated with providing complementary assets
internally, I found the difficulty with which important complementary assets are provided
internally to be positively related to cooperative commercialization in both countries. This
finding is in line with my expectations and thus supports hypothesis 2. An increase in the
variable ease of providing important capabilities internally decreases the probability of
commercializing the innovation through a third party by 0.057 (at 1%) for the British and
0.030 (at 1%) for the German firms. The Wald test indicates a country difference (at 5%
level).
In the models, I included firm-level variables to control for potential sources of
unobserved heterogeneity. The coefficient of the variable VC-financed firm was not significantly related to the commercialization mode for firms in Germany, and for firms in the
U.K. it was only slightly negatively significant. In an additional model, I included a
variable measuring the intensity with which the venture capitalist is involved in the
9. I calculated the marginal effects at the full sample means of the independent and control variables in order
to make the two-country samples comparable. See Appendix 3 for the first-step regression results from which
the predicted values of the level of IP protection for the main regression in Table 3 are obtained. The first-step
regression reveals that the exogenous instruments, the aggregated field level of IP protection, and the variable
innovativeness have a very significant and positive influence on cooperative commercialization.
10. The method outlined in Williams (2009) provides a novel approach to addressing the problem of
comparing binary regression models. It eliminates the problem that differences in the degree of residual
variation across groups can produce apparent differences in coefficients that are not indicative of true
differences.
16
ENTREPRENEURSHIP THEORY and PRACTICE
Table 4
Commercialization Situations and Distribution of Sample Firms
IP protection
Internal development of
important complementary assets
Difficult
Easy
Weak
A
U.K.: 21%
Germany: 23%
B—Base case
U.K.: 27%
Germany: 27%
Strong
C
U.K.: 29%
Germany: 28%
D
U.K.: 23%
Germany: 22%
commercialization strategy. Here I did not find a significant effect in either the German or
the British model. Whether the object in question is a product or a technology influences
the commercialization in both countries. Products are more likely to be out-licensed or
brought to the market via a partner than a platform technology. As expected, a firm that
strongly differentiates itself from competitors by offering a low price (low-price strategy)
is more likely to be fully integrating than firms that do not pursue a low-price strategy.
However, the effect is only significant for the British sample. I controlled for how a firm
was founded (independent firm founding) to account for heterogeneous firm history. The
results revealed that being independently founded influenced negatively cooperative commercialization for the German firms (at 1%) and the British firms (at 10%). For the
German sample, management team size was significantly positively associated with the
probability of cooperative commercialization (at 10%). The variable age was negatively,
but not significantly, related to cooperative commercialization when the independent
variables were included.
Combinations of IP Protection and Complementary Capabilities:
Four Fields
In the following, I further elaborate on country-specific differences regarding the
impact of market-related determinants by testing the introduced framework (see Table 1).
In doing so, I focus on combinations of the characteristics of the two central marketrelated drivers of commercialization strategy: the level of IP protection and the difficulty
of providing internally important complementary assets. These two central elements
define four commercialization situations. Table 4 depicts the distribution of the sample
firms to the four fields. IP protection was defined as strong if the interviewees “strongly
agreed” and “rather agreed” that their patents protected the innovation from direct competitors.11 I split whether important complementary assets are easy or difficult to develop
internally at the median of the full sample.
11. The median of the variable IP protection is 4 on a scale of 1–5. I split the sample into responses below
4 (weak IP protection) and responses equal to or above 4 (strong IP protection).
May, 2010
17
Table 5
Probit Models for Commercialization Situations
Cooperative
Dependent variable
Independent variables
Situation A (IP weak and capabilities difficult)
Situation B (IP weak and capabilities easy)
Situation C (IP strong and capabilities difficult)
Situation D (IP strong and capabilities easy)
VC-financed firm (d)
Product firm (d)
Low-price strategy
Independent firm founding (d)
Team size
Age
Constant
Observations
c2 (DF)
Prop > c2
Pseudo R-squared
Log likelihood
Cooperative—
marginal effects
(1)
(2)
(3)
(4)
Germany
-0.284
(0.306)
omitted
0.993***
(0.350)
-0.270
(0.332)
0.123
(0.314)
1.002***
(0.261)
-0.053
(0.092)
-0.817***
(0.254)
-0.106
(0.096)
-0.035
(0.022)
0.420
(0.410)
151
42.18 (9)
p < 0.001
0.26
-75.89
U.K.
2.526***
(0.667)
omitted
2.437***
(0.478)
2.476***
(0.770)
-0.730
(0.514)
0.766*
(0.465)
-0.395***
(0.148)
-0.504
(0.389)
0.104
(0.080)
-0.049**
(0.024)
-0.342
(0.516)
95
33.79
p < 0.001
0.48
-31.46
Germany
-0.113
(0.121)
omitted
0.361***
(0.107)
-0.107
(0.132)
-0.049
(0.123)
0.384***
(0.092)
-0.021
(0.037)
-0.317***
(0.094)
-0.042
(0.038)
-0.014
(0.009)
U.K.
0.545***
(0.077)
omitted
0.549***
(0.068)
0.497***
(0.083)
-0.269
(0.191)
0.270*
(0.158)
-0.136***
(0.051)
-0.177
(0.134)
0.036
(0.028)
-0.017**
(0.008)
151
95
Wald test for
difference (c2)
(5)
15.87***
3.64*
17.09***
2.62
10.59
7.81***
0.32
2.31
0.47
Note: Robust standard errors in parentheses; * significant at 10%; ** significant at 5%; *** significant at 1%.
The four field variables were coded as dummy variables. The situation in which a firm
is faced with weak IP protection but with no difficulties in providing important complementary assets internally (B) serves as the reference case. I assumed that in this situation,
a firm will most likely choose to be fully integrated in order to commercialize alone.
External commercialization would force the innovator to disclose sensitive information
without adequately protecting the innovation. However, risking hazardous appropriation
by another firm is not necessary since the complementary assets can easily be provided
internally. In Table 5, the results of the robust probit models are reported. Columns 2 and
3 list the estimated coefficients and Columns 4 and 5 the marginal effects.12 First, I turn to
the results of the situation where the innovation is strongly protected by patents but where
it is difficult for the firm to provide important complementary assets internally (C). As
12. I calculated the marginal effects at the full sample means of the independent and control variables.
18
ENTREPRENEURSHIP THEORY and PRACTICE
hypothesized, the results provide evidence that in this situation, the German as well as the
British firms choose cooperative commercialization. The coefficients in both samples are
highly significant. Turning from the base case to Situation C, I see that the probability of
cooperative commercialization increases by 0.361 in Germany and by 0.549 in the U.K.
The Wald test indicates that the effect is strong for British firms, which supports hypothesis 3(1) (at 10%).
Let us now examine a situation that is difficult for any innovating firm: the innovation
is weakly IP protected and important complementary assets are difficult to provide
internally (A). Although cooperative commercialization might allow the firm to gain from
the innovation without costly and risky investment in downstream assets, entering a
cooperative agreement is accompanied by the threat of expropriation. When I turn from
the base case—weak IP protection and ease of providing important complementary assets
(B)—to the situation with weak IP protection and important complementary assets being
difficult to provide (A), the coefficient is only positive and significant for British firms.
Hence, there is evidence that in such a situation cooperative commercialization is more
attractive for British firms (Wald test for difference at 1%, see hypothesis 3[2]). Finally,
I consider a very favorable situation for biotechnology firms in which the innovation is
strongly IP protected and important capabilities are easy to provide internally (D). The
results suggest that in this case, too, the British firms prefer cooperative to independent
commercialization (1% significance), whereas I do not see a significant effect in the case
of German firms. The Wald test for difference (7.42) indicates significant differences in
the coefficients among the two samples (hypothesis 3[3]).
All in all, I find that firms in the British market-based economy attach more importance to the situations that emerge from a combination of the level of IP protection and the
difficulty of building important complementary assets internally than firms in the German,
coordinated economy. This supports hypothesis 3.
Discussion and Conclusion
Today, a growing number of companies specialize in the generation of ideas. These
companies use cooperative commercialization in order to profit from their innovation.
Given the increasing importance of cooperative commercialization, there is a need to
investigate how firms decide whether to build a novel value chain or to leverage an
existing one. In this paper, I analyze the determinants of the commercialization decision
and relate them to country-specific institutional frameworks. I build on the institutional
perspective, which suggests that strategic actions taken across nations may be a “function
of differences in the existence, saliency, and intensity of particular institutional arrangements” (Hitt et al., 2004, p. 174).
Discussion of Results
According to the institutional systems literature, there are two major alternative
economies that vary with regard to their market orientation, the “liberal market economy”
and the “coordinated economy” (e.g., Hall & Soskice, 2001; Whitley, 1999). How incentives and constraints are perceived in these economies leads to specific market logics of
societies. One might expect their actors to use different commercialization strategies.
However, the results suggest that both the fully integrated firm strategy and the cooperative commercialization strategy are adopted by companies in both countries to
May, 2010
19
approximately equal degrees. At first, this appears to imply that economic systems play a
purely passive role in constraining the choices of decision makers. However, the analysis
reveals that decision makers do not rely on the determinants that govern the commercialization decision in the same way. The purpose of this paper is to determine whether such
differences in decision making exist and, if so, whether they can be explained by differences in economic systems.
I found that a firm is more likely to opt for cooperative commercialization if (1) the
innovation is patent protected; and (2) the firm faces difficulties in providing important
complementary assets internally. While the main effects exist in both countries, economic
institutions apparently influence the degree to which these criteria are relied on in the
process of decision making. I found that both central elements of commercialization
(Teece, 1998), i.e., IP protection and the investment costs associated with the provision of
capabilities, have a significantly stronger influence on the commercialization decision of
companies in the British “market economy” than in the German “coordinated economy”
(hypotheses 1 and 2). I reason that the differences in company law, more specifically in
patent litigation, between “market-based” and “coordinated economies” are what mainly
impact the importance of IP protection for the commercialization choice. In addition, I
argue that the influence of nonmarket institutional structures on the labor market,
company law, and the financial system constrains a firm’s flexibility and thus downplays
the accessibility of complementary resources as a determinant of commercialization
strategy.
In a further analysis, I examine whether the combination of the two central elements
shapes the strategy of the firms in a “market-based economy” to a larger extent than in a
“coordinated economy.” Analyzing the situations that emerge from a combination of the
level of IP protection and the investment costs for providing important capabilities internally, I found that the British firms are more strongly guided by these situations than the
German firms (hypothesis 3).
Theoretical Implications
In this study, I have compared and contrasted the commercialization choices of
companies in market economies and coordinated economies. More specifically, I contrasted the different institutional ecosystems, presented my hypotheses, and tested how the
differences I identified influence the strategic decision processes of firms. While most
other studies relate the strategy outcome to institutional settings, I followed Hitt et al.
(2004) and Zacharakis et al. (2007) and investigated country-specific patterns in how
firms reach their decisions and the criteria they take into account in the process. The
results support the institutional perspective by revealing that there are differences in the
degree to which firms rely on market-related criteria depending on the market orientation
of the systems in which they are embedded.
I further extend the varieties-of-capitalism perspective. Previous studies based on
the idea of two major alternative economies have concentrated on how differences in
these institutional systems generate different incentives for firms to pursue either radical
or incremental innovations (e.g., Casper et al., 2005). However, this study is the first to
test whether the embeddedness of a firm in a “liberal market economy” or a “coordinated economy” impacts the extent to which it weights market-related criteria in strategic decisions. In addition, while previous studies in this field have relied upon case
studies representing different countries and historical eras, this study uses a multivariate
approach based on firm-level data and thus follows the demand of numerous researchers
for a quantitative multilevel approach (e.g., Davidsson & Wiklund, 2001; Luk et al.,
20
ENTREPRENEURSHIP THEORY and PRACTICE
2008; Sorenson, 2007). I find that in a system that favors the free play of market forces,
organizational behavior is more strongly guided by the criteria of market attractiveness
compared with a less market-oriented system. In other words, in a coordinated system,
a cooperative commercialization strategy is not selected simply because it outweighs the
costs of introducing an innovation into the product market on one’s own. The various
nonmarket coordinating mechanisms in a coordinated system leave their mark on the
strategic decision making of firms. Effective strategy making is a fundamental aspect of
entrepreneurial behavior and a necessary precondition of entrepreneurial firm growth
and international competitiveness. While growth is not guaranteed if firms take into
consideration all criteria and all information relevant to their decision, ignoring or
downplaying the importance of such criteria tends to have a negative effect on firm
growth.
Furthermore, this study substantiates the literature on the determinants of cooperative
commercialization. Previous studies have shown that the level of IP protection (Gans
et al., 2002), cost-effectiveness considerations (Aggarwal & Hsu, 2009; Gans et al.), and
VC financing (Hsu, 2001, 2006) determine the commercialization of technology. In this
study, I add the level of IP protection and cost-effectiveness considerations to this list and
also show that the importance that firms attach to these criteria depends on the institutional
system in which they are embedded. Moreover, this study demonstrates that the situations
that emerge from combining the two determinants provide interesting insights into the
decision making and market orientation of firms.
Practical Implications
The results have important implications for public policy, ventures, and venture
advisers. This research is relevant to public policy since only the precise understanding
of the interplay between country-specific patterns and market-related forces opens up
avenues for effective policy making. There has been a long-lasting debate among interest associations in Germany whether to expose more business areas to market forces or
to relax nonmarket restraints (e.g., labor market). The parties arguing in favor of market
coordination point to the effectiveness of market forces, whereas the opponents fear that
social stability will be affected in a negative way by pure market coordination. The
business owners and managers of firms strongly demand the transfer to a more marketbased system, which would give them greater latitude. In particular, the whole public
debate centers on formal rules and laws that bind the actions of firms. However, the
findings of this study suggest that even in areas without explicit restrictions, marketlevel determinants are less important than in “liberal market economies.” Hence, formal
regulations and laws do leave their mark on informal rules that influence strategic
choice.
At this point, I want to emphasize that this study does not yield clear-cut implications
for public policy, with relation to the economic impact that the differences described
above have on market orientation. While some scholars implicitly assume that “more
market oriented” means “more developed” and leads to superior performance, this
assumption is untested (see Krahnen & Schmidt, 2004; Nelson, 2002). It might be true
that managers’ decision making is more successful if it is consistent with the logic of the
institutional country-specific arrangement. However, testing this assumption has to be left
to future research.
For biotechnology ventures and their advisers, the results imply that differences in the
importance of market-related determinants can be traced back to national antecedents.
Although the findings do not provide insights into whether market-force determination is
May, 2010
21
consistently favorable, the results might be thought provoking for firms in “coordinated
economies” that target international markets.
Limitations
As with any empirical study, this analysis and its results come with some caveats.
First, the measures may not represent the concepts correctly and may suffer from
subjectivity. To address this issue, I interviewed industry experts in the design stage of the
study and ran an extensive number of alternative specifications, all of which indicated
robustness. Second, the variable “IP protection” may be endogenous. To elaborate this
issue, I applied an instrumental variables procedure as well as alternative measures, which
suggest the core effects to be robust.
Finally, I address the issue of generalizability. Caution must always be exercised when
extrapolating results from a single industry. The biotechnology industry is a prominent
example of a very dynamic and highly collaborative industry. While I believe that the main
processes do operate in other contexts, researchers should take industry specifics into
account.
Avenues for Future Research
This analysis provides many avenues for future research. Because much work remains
to be done to fully understand the effect of institutional arrangements on the strategic
choices of firms, I list only a few ideas that directly arise from the findings. First, with
regard to specific countries, I feel that it would be very useful to investigate whether a
context-specific system of organizational decision making is influenced by globalization
forces and, if so, how. Second, I would welcome research that examines in greater detail
whether conformity to institutional norms in decision making pays off or even quantifies
this phenomenon. Future research could also identify whether firms that target diverse
markets (for example, in terms of size and level of competition) choose heterogeneous
commercialization modes in different settings. For “coordinated economies,” it would be
worthwhile to know whether firms that seek to generate profits in the large international
market pay greater attention to the key elements of markets than firms that focus on home
or niche markets.
As the commercialization decision directly impacts the extent to which a firm is able
to profit from its innovation, it lies at the core of firm strategy. I hope that by identifying
how institutional arrangements influence and shape commercialization strategy, this study
will provide a useful contribution to the relevant body of theory and helpful practical
insights into how firms decide on a specific mode of commercialization.
22
ENTREPRENEURSHIP THEORY and PRACTICE
Appendix 1
Correlation Matrix for German Sample (n = 151)
Variable
(1)
(2)
(3)
(4)
(5)
(6)
(7)
(8)
(9)
Cooperative commercialization
Level of IP protection
Ease of providing important capabilities internally
VC-financed firm (d)
Age
Product firm (d)
Low-price strategy
Independent firm founding (d)
Team size
(1)
(2)
(3)
(4)
(5)
(6)
(7)
(8)
1
0.222
-0.343
0.071
0.154
0.331
-0.185
-0.263
-0.043
1
-0.122
0.135
-0.042
0.211
-0.104
0.014
0.187
1
-0.176
-0.111
-0.128
0.081
0.171
0.035
1
-0.022
0.088
-0.079
-0.095
0.082
1
-0.170
-0.088
-0.135
-0.252
1
-0.179
-0.009
0.145
1
0.182
-0.079
1
-0.051
Appendix 2
Correlation matrix for British sample (n = 95)
Variable
(1)
(2)
(3)
(4)
(5)
(6)
(7)
(8)
(9)
Cooperative commercialization
Level of IP protection
Ease of providing important capabilities internally
VC-financed firm (d)
Age
Product firm (d)
Low-price strategy
Independent firm founding (d)
Team size
May, 2010
(1)
(2)
(3)
(4)
(5)
(6)
(7)
(8)
1
0.451
-0.501
0.056
0.333
0.025
-0.268
-0.270
0.052
1
-0.220
0.029
0.202
-0.076
-0.098
-0.046
0.057
1
-0.174
-0.420
0.146
0.067
0.183
0.129
1
0.052
0.216
-0.025
-0.055
-0.005
1
-0.206
-0.136
-0.310
-0.284
1
-0.043
0.223
0.254
1
0.168
-0.037
1
0.030
23
Appendix 3
First- and Second-Step Probit
Cooperative commercialization
Dependent variable
(1)
(2)
Independent variables
Second step
Level of IP protection
GER
UK
0.403**
(0.162)
-0.076***
(0.027)
-0.143
(0.294)
-0.035
(0.022)
0.758***
(0.277)
-0.057
(0.088)
-0.682***
(0.248)
-0.156*
(0.091)
0.165
(0.687)
0.864***
(0.259)
-0.170**
(0.040)
-0.675
(0.398)
-0.001
(0.021)
0.938**
(0.427)
-0.317**
(0.142)
-0.681*
(0.369)
0.017
(0.066)
-0.083
(1.320)
-0.003
(0.025)
0.305
(0.221)
0.005
(0.016)
0.473**
(0.221)
-0.001
(0.080)
0.163
(0.226)
0.123
(0.079)
0.745***
(0.117)
0.304***
(0.079)
-1.054*
(0.618)
151
52.64 (8)
-0.010
(0.023)
0.051
(0.262)
-0.018
(0.012)
-0.055
(0.214)
0.073
(0.084)
0.107
(0.218)
0.050
(0.038)
1.108***
(0.149)
0.240***
(0.078)
-1.478
(0.817)
95
61.14 (8)
p < 0.001
-317.85
p < 0.001
-163.37
Ease of providing important capabilities internally
VC-financed firm
Age
Product firm
Low-price strategy
Independent firm founding
Team size
Constant
First step
Ease of providing important capabilities internally
VC-financed firm
Age
Product firm
Low-price strategy
Independent firm founding
Team size
Field level of IP protection
Innovativeness
Constant
Observations
Chi2 (DF)
Prop > Chi2
Log likelihood
Robust standard errors in parentheses. (I) Instrumented variable with instruments: field level of IP protection,
innovativeness. * significant at 10%; ** significant at 5%; *** significant at 1%.
24
ENTREPRENEURSHIP THEORY and PRACTICE
Appendix 4
Probit Models to Predict Commercialization Mode
Cooperative
commercialization
Dependent variable
Independent variables
Patent applied
Ease of providing important capabilities internally
VC-financed firm
Product firm
Low-price strategy
Independent firm founding
Team size
Age
Constant
Observations
Chi2 (DF)
Prop > Chi2
Pseudo R-squared
Log likelihood
(1)
(2)
Germany
0.161
(0.250)
-0.087***
(0.027)
-0.046
(0.319)
0.947***
(0.257)
-0.076
(0.086)
-0.626**
(0.247)
-0.089
(0.091)
-0.038*
(0.022)
1.297***
(0.485)
151
37.88 (8)
p < 0.001
0.23
-79.30
UK
1.302***
(0.370)
-0.185***
(0.036)
-0.547
(0.433)
0.993**
(0.431)
-0.321**
(0.132)
-0.613
(0.373)
0.022
(0.069)
-0.014
(0.022)
2.096***
(0.635)
95
47.11 (9)
p < 0.001
0.42
-35.25
Wald test
(Chi2)
(3)
6.82***
2.63
0.65
0.01
1.51
0.02
1.66
0.52
Robust standard errors in parentheses; * significant at 10%; ** significant at 5%; *** significant at 1%.
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Carolin Haeussler is an Assistant Professor of Innovation Management, Ludwig-Maximilians-Universität
München, Institute for Innovation Research, Technology Management and Entrepreneurship.
I would like to thank Joachim Grammig, Marc Gruber, Dietmar Harhoff, Holger Patzelt, and two anonymous
reviewers for valuable comments on an earlier version of this paper. In addition, I want to thank Candida Brush
and the two anonymous reviewers for their insightful comments and suggestions during the review process.
Financial support from the German Research Foundation (SFB TR 15) and from the Munich Center of Health
Sciences is gratefully acknowledged.
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