Sourcing knowledge for innovation

Researchreport:May2010SourcingknowledgeforinnovationTheinternationaldimensionRobertHuggins,HiroIzushi,NickClifton,SarahJenkins,DanielProkopandChrisWhitfieldExecutivesummaryDrawingknowledgefromexternal–especiallyinternational–sourceshasbecomeincreasinglyimportanttosmallandmedium-sizedfirms(SMEs).Asthesefirmscannotgeneratealltheyneedtoknowtodevelopnewproductsandprocesseswithintheirowncompanies,theyneedtolookelsewherefornewideasandexpertise.Thisiswhatisknownasknowledgesourcing.Inapracticalsense,knowledgesourcingmayinvolvelearningtousenewtechnologyandequipment,especiallythatusedbycustomersorsuppliers.Itmayinvolvedrawingonnewscientificresearchfromuniversitiestofacilitateinnovation.Or,itcanmeanusingexpertmarketingadviceortechnicalorbusinessdevelopmentexpertisethatisnotavailablein-house.Beingabletoeffectivelyaccessknowledgefromexternalsourcesisincreasinglyrecognisedasakeyfactorinafirm’scompetitiveness.Therefore,weneedabetterunderstandingofhowcompaniessourceknowledgeandhowthisimpactsontheirperformance.Wealsoneedtoknowwhichtypesofknowledgesourcingamounttogoodpracticeandbesthelpsmallfirmstolearnnewthings.Thereportprovidesadetailedreviewofpatternsofknowledgesourcing,andthekeyfactorsinfluencingthesepatterns,particularlyfromasmallbusinessperspective.Wepresentkeyfindingsfromasurveyof393UKcompaniesandanalysetheresults.WealsohighlightcasestudiesofUKSMEsthatworkcloselywithoverseaspartnersandagentstowidentheirownknowledge.Oursurveyfoundthat:Mostfirms–approximatelytwo-thirds–accessknowledgefromoverseassourcesWithintheUK,despitetherecentfocusonregionalpolicy,firmsaremorelikelytosourceknowledgefromoutsidetheirownregionthanwithinit.Forthemajorityoffirms,knowledgesourcingnetworkshavebecomeinternational,withovertwo-thirdsoffirmsaccessingknowledgefromoverseassources.ThesesourcesareoftenindevelopedeconomiesinEurope,theUS,andAsia,butincreasinglystretchtodevelopingeconomiessuchasChinaandIndia.NewtechnologyandprofessionalintelligencearethemostfrequentlysourcedformsofknowledgeServicesectorfirmsaremostinterestedingettingprofessionalinformationandintelligence,whereasmanufacturingfirmstendtosourcescientificinformation.Nearlythree-quartersofourrespondents(72.8percent)useintermediaryorganisationstoaccessknowledgeontheirbehalf.Knowledgeflowstwoways:UKfirmsbothexportandimportknowledgeOver80percentoffirmsinthesurveyprovidetheirideasandexpertisetocompaniesoutsidetheUK.Meanwhile,two-thirds(65.1percent)offirmsimportideasfromfirmsinEuropewhilst55.7percentdosofromtheUnitedStates(US)and28.8percentfromAsia.Nearly6percentoffirmsaccessknowledgefromsourceslocatedintenormorecountries.Theinterdependentnatureoftherelationshipswithoverseassourcesshouldstrengthenthedevelopmentofinternationalknowledgesourcingnetworks.2InternationalknowledgesourcingisassociatedwithinnovationandgrowthOverhalftherespondents(53.7percent)boughtsomeoftheirinputsforinnovationsfromoverseas,with11.4percentsourcingoverhalfthoseinputsabroad.Firmswithstronginnovationandsalesgrowtharemorelikelytobeengagedininternationalknowledgesourcingthanpoorperformers.Thereisaclearlinkbetweeninnovationandstrongsalesgrowth,andinternationalknowledgenetworking.High-performingfirmsbothpurchasealargerpercentageofinputsforinnovationactivitiesfromoverseasandactasamorefrequentsourceofknowledgeforoverseascompanies.Themoreactivesourcingofknowledgebybetter-performingfirmsismanifestedbytheirfrequentsourcingofnewtechnology,skillsandexpertise,andaccesstoagreaterrangeofsourcesatdifferentlocations.LevelsofinternationalknowledgesourcingvaryaccordingtothesizeoffirmsThedegreetowhichafirmisengagedininternationalknowledgesourcingvariessignificantlybysizeandindustrialsector.Largerfirmssourceknowledgefromoverseasmorefrequentlyandaccesssourcesinmorecountriesthantheirsmallercounterparts.LargerfirmsalsouseintermediaryorganisationssuchasBusinessLinkoruniversitiesmorefrequentlythantheirsmallercounterpartswhensourcingexternalknowledge.ManufacturingfirmsaremorelikelytoengageinternationallythanservicesectorfirmsManufacturingfirmswiththeirstrongerglobalproductionnetworksandsupplychainsaremorelikelytoengageininternationalknowledgesourcingthanthoseintheservicesectors.Theyarealsomorelikelytoexchangeideaswithoverseasfirms.Manufacturingfirmsaccessknowledgefrommorecountriesthanfirmsinservicesectors.Theyalsouseintermediaryorganisationsmorefrequentlywhensourcingknowledgefromoverseas.Theimpactofafirm’slocationismorelimitedThereislittledifferenceinthedegreeofinternationalknowledgesourcingbetweenfirmslocatedinthecore(London,SouthEast,andEastofEngland)orperipheralregions(restoftheUK).However,firmsinperipheralregionsuseintermediaryorganisationsmoreoftenthanthoseinthecoreregionstoassistintheprocess.CostconsiderationsinhibitknowledgesourcingThecostofsourcingknowledgeisseenasthemostsignificantbarriertoitswiderpractice.Firmsinperipheralregionsconsiderthisabiggerissuethantheircounterpartsinthecoreregions.SmallerfirmstendtobedisadvantagedThefindingssuggestthatsmallerfirmsandthoseoperatinginservicesectorsmaybeatadisadvantage,sincetheyarelessactiveininter