Make or Buy to innovate in the Software sector

Sectores, Redes, Encadenamientos Productivos y Cluster de Empresas

Red Pymes Mercosur

Año: 2014; p. 6 - 30

The economies of Latin America experienced a profound economic growth in the last decade. In that context, it is important to analyze the extent that emerging catching up processes in high tech sectors, as for example Knowledge Intensive Business Services (KIBS), opens a way to a virtuous developing path. The software and IT services is one of the more important KIBS. Besides that the leaders of the sector have remained in the developed world, over the 1990s many developing countries have catch up and gained a competitive position among the main global actors[1]. Brazil and Argentina, following the Asian model, have recognized the importance of intangible goods - such as software and services in general - for their potential of direct economic impact. Therefore, policy makers and scholars in the region have become interested in the innovation process in the software industry. Nowadays, the understanding of the innovation process implies the recognition that firms do not innovate in isolation but there are external influences by mean of complementary information and knowledge that may become key drivers of firms? performance. Closed innovation views has been losing effectiveness due to a series of aspects (the reduction of the innovations life cycle, the innovation-based competition, etc.), enlarging the necessity of firms to expand their access to new knowledge. The new models of innovation explain the predominance of open firms? strategies that leads to the study of complementarity, underlining the fact that this is a context-specific aspect (A. Arora, Gambardella, & Torrisi, 2004; Cassiman & Veugelers, 2006; Chesbrough, 2003; Laursen & Salter, 2006; Mohnen & Röller, 2005). Successful innovation in firms depends upon the development and integration of new knowledge into the innovation process though diverse innovative activities, internal and external to the firm (Cassiman & Veugelers, 2002). With this background, it became more and more important to establish if these activities are complementaries or substitutes related to the innovation performance of the firm, to approach a better understanding of the nature of innovation processes in diverse production activities. Moreover, the empirical research has been focused on manufacturing sectors. However, the economic literature on services point out that the characteristics of the innovation process is essentially different in this kind of economic activity (Drejer, 2004). Innovation studies on services tends to point out that there are specific aspects on the nature itself of production in these sectors that particularize its innovation processes (Drejer, 2004; Gallouj & Savona, 2009): immateriality, co-production and a profound interactivity with external actors. Software production is a complex activity that involves an essentially creative-stage ?development? which in turn involves conceptualization, requirements analysis and high-level design. Less creative activities are low-level coding design, testing and technical support, which are sometimes outsourced by development firms. On the other hand, software services involve fully customized solutions, and other routinized ones. They involve implementation and customization of third party products, consulting, training, and tasks associated with installation, operation and maintenance of software. In any case, software activities seem to imply certain combination of internal and external knowledge sources. That allows to hypothesize that a complementarity relation could arise between internal and external innovative activities, which is the main working hypothesis of the paper. As the nature of innovation differs in these sectors, there are also reasons to consider that complementarities between innovative activities could differ in this type of sectors, mostly on KIBS. The objective of this paper is to evaluate the existence of complementarity between internal and external sources of knowledge in relation to innovation results, in a KIBS sector from an emerging economy: the software and IT services case from Argentina. The paper intends to be a first step to further ongoing research on the degree that complementarity relations between innovation activities are influenced by diverse characteristics of the firms and contextual aspects. In this paper, we will follow the empirical rigorous method presented by Cassiman and Veugelers (2006) to test the existence of complementarity in the innovation strategies of Argentinean firms from the software sector. It intends to be a first step to further ongoing research on the degree that complementarity relations between innovation activities are influenced by diverse characteristics of the firms and contextual aspects.