This paper aims to provide a new perspective in investigating how internal research and development (R&D) and external knowledge acquisition interact regarding their influence on innovation performance in an emerging market context. Building on an attention-based view (ABV), it argues that internal R&D and external knowledge acquisition can be substitutes for each other in emerging markets. Its contingency factors are also discussed according to the principles of the ABV.
The proposed hypotheses were empirically tested using a Tobit model approach. The data used was from the enterprise survey and the follow-up innovation survey conducted by the World Bank in 10 emerging market countries.
The results indicate that internal R&D and external knowledge acquisition entails a substitute effect among emerging market firms (EMFs). A higher level of manager’s open-mindedness to external knowledge and firm performance and a lower level of firm administrative control help mitigate the substitute effect of internal R&D and external knowledge acquisition. While adequate financial resources may not necessarily mitigate the substitute effect, it is an essential condition for the external knowledge acquisition to play a role in enhancing innovation performance.
The research uses a set of cross-sectional data. A dynamic study will provide a deeper understanding of the long-term effects of innovation investments.
To better use innovation investments, EMFs need to assess their specific conditions and the possible substitute effect of internal R&D and external knowledge acquisition activities.
Previous research discussing the interactive effect of internal R&D and external knowledge acquisition has mostly focused on an absorptive capacity perspective, which represents a firm’s technical ability. This study argues that these investments not only involve in absorbing knowledge technically but also form a challenge for the limited firm resources and can cause cognitive problems in management, especially for EMFs.
