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.

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Keywords Complementarity vs substitution, Innovative performance, Internal and external R&D activities, Manufacturing firms, R&D capacity, R&D configuration, R&D structure
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Series ERIM Top-Core Articles
Journal Research Policy
Berchicci, L. (2013). Towards an open R&D system: Internal R&D investment, external knowledge acquisition and innovative performance. Research Policy, 42(1), 117–127. doi:10.1016/j.respol.2012.04.017