When does inward technology licensing facilitate firms’ NPD performance? Evidence from China

Increasingly, many firms have found inward technology licensing a relatively quick and inexpensive way for new product development (NPD) as compared to internal R&D started. Although the literature on NPD has suggested some advantages and disadvantages regarding NPD by means of inward technology licensing, the relationship between inward technology licensing and licensee firms’ subsequent NPD performance has not yet found convincing evidence. Since our understanding, shared with many other likeminded scholars and practitioners, about the dynamics between resource, institutions and firm performance has reached a stage that is way beyond simple linear relationships, the appropriate question to ask is perhaps not whether inward technology licensing has a positive effect on firms’ NPD performance; instead, it is more sense-making to ask under what conditions inward technology licensing better facilitates firms’ NPD. Drawing on a contingency perspective, the study posits that a firm’s propensity to develop new products through inward technology licensing is dependent on three categories of contingency factors: the characteristics of the licensed technology, the absorptive capacity of the licensee firms, and factors regarding licensees’ external environment. Using a unique longitudinal dataset containing information about 141 Chinese firms’ licensing activities, we find support for our hypotheses that there is a positive relationship between inward technology and NPD performance. This positive relationship is moderated by technology origin (foreign versus domestic), firms’ absorptive capacity, and the appropriability regime and knowledge endowment of the region where the licensee firms operate.