DO INNOVATION BARRIERS DRIVE A FIRM TO ADOPT OPEN INNOVATION? INDONESIAN FIRMS' EXPERIENCES.

Author:Hartono, Arif
 
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INTRODUCTION

Since the term Open Innovation (OI) was coined, it has gained a strong increase in scholarly attention. Although previous studies on OI have been conducted extensively, however, existing studies that link innovation barriers to OI in developing countries context are relatively scarce, with the exception studies performed by Fu et al. (2014) and Savitskaya et al. (2010). Fu et al. (2014) argue that the most important questions for firms in developing countries are why and when firms should implement OI practices. One of the reasons for firms in developing economies to adopt OI practices is that such practice is natural choice for firms in emerging countries to overcome constraints to innovation (Fu et al., 2014).

In the context of developed economy (i.e. Switzerland), using "exploration-exploitation" dichotomy as theoretical framework, Keupp & Gassmann (2009) studied how barriers to innovation influence the breadth and depth of OI. While, in an emerging country context, i.e. China, Fu et al. (2014) use "push-pull" framework to link innovation barriers to OI. This study aims to extend these studies by using Indonesia Innovation Survey (IIS) 2011 data that covers innovation activities performed by Indonesian manufacturing firms during 2009-2010. Following Laursen & Salter's (2006) study, OI practices in this study consist of the width sources of external information (breadth) and the depth sources of external information (depth) use for innovation.

In the case of Indonesian firms, currently, very few insight on OI studies that use data from innovation survey, with the exception a study that investigates the impact of OI on innovation performance (Hartono & Kusumawardhani, 2018). Hence, empirical evidence on what innovation barriers faced by Indonesian firms and its linkage on OI practices remain unexplored. This study attempts to narrow this research gap. The research question that is addressed " To what extent innovation barriers experienced by Indonesian manufacturing firms influence external knowledge search breadth and depth?"

LITERATURE REVIEW AND HYPOTHESES DEVELOPMENT

Innovation Barriers: Indonesian Firms Context

According to Dahlander & Gann (2010), a starting point for the idea of firm openness is that "a single organization cannot innovate in isolation"" and hence, firms should engage with different external partners to absorb knowledge and resources beyond the firm boundary to win competition (Chesbrough, 2006; Laursen & Salter, 2006). OI is defined as "the use of purposive inflows and outflows of knowledge to accelerate internal innovation and expand the market for external use of innovation" (Chesbrough, 2006). Internal and external factors may drive firms to open up their innovation process. In this study, drivers of OI are linked to any internal and external factors that hamper firms' innovation activities. Following Fu et al. (2014), this study uses "push-pull"" factor framework to explain internal and external barriers that motivate firms to adopt OI.

A variety of internal barriers may "push"" firms to open up the innovation process. For example, internal barriers faced by Swiss firms consist of information-and capability-related barriers and risk-related barriers (Keupp & Gassmann, 2009). In the same vein, internal barriers of Chinese manufacturing firms are divided into financial- and risk-related barriers and knowledge- and skill-related barriers (Fu et al., 2014). While "pull" factors external to firms are also varies such as pressure and change from external environment; availability of skilled workers, knowledge, or venture capital; greater competition intensity (Chesbrough, 2006); technology intensity and fusion (Gassmann, 2006); knowledge transfer and leveraging of spillovers (Chesbrough et al., 2006; De Bondt, 1997), and partner advantages (Hagedoorn, 2002) that motivate firms to externalize their R&D activities beyond firm boundary.

In the case of Indonesia, based on Indonesia Innovation Survey (IIS) 2011 data, a previous study has grouped innovation barriers into internal (i.e. financial- and risk-related barriers; employee-and organization attitudes-related barriers; and knowledge-and cooperation-related barriers) and external (i.e. market-and institution-related barriers) (Hartono, 2017). This study also employed similar groups of innovation barriers to measure the impact of innovation barriers on OI practices.

Innovation Barriers and OI Practices

Any factors that hamper, delay or block innovation are known as innovation barriers (Hueske & Guenther, 2015). Other scholars, Sandberg & Stenroos (2014) define an innovation barrier as "an issue that either prevents or hampers innovative activities in the firm"". The majority of innovation barrier literature discusses the influence of financial constraints on innovation performance (Canepa & Stoneman, 2002:2007; Efthyvoulou & Vahter, 2013; Mohnen et al., 2008; Savignac, 2006) and the factors influencing perceptions of constraints (Baldwin & Lin, 2002; Galia & Legros, 2004; Iammarino et al., 2007). However, only a few existing studies that link innovation barriers to OI practices. Previous studies tend to link externalization of R&D activities beyond the boundary of the firm to various firm-external factors such as partner advantages (Hagedoorn, 2002), spillovers (De Bondt, 1997), or environmental pressures (Belderbos et al., 2004).

Previous studies in the context of developed and emerging economies show that there are positive and significant associations between different constraints to innovation and OI. Using large-scale panel data of Swiss Innovation Survey, Keupp & Gassmann (2009) investigate how impediments to innovation influence the breadth and depth of OI. They grouped innovation barriers into information-and capabilities-related impediments and risk-related impediments. They found that both innovation barriers groups positively and significantly influence both the breadth and depth of OI. Using similar innovation survey data (i.e. Swiss Innovation Survey), Garriga et al. (2013) found that constraints related to firms' resources positively affect external search breadth and negatively affect external search depth.

In an emerging country context, using Chinese firm-level survey of the manufacturing sector, Fu et al. (2014) examine the determinants of OI as a response to the constraints and risks of innovation. They grouped constraints to innovation into finance/risk, knowledge/skills, and institute/market. Their study shows that Chinese firms that suffer from the three groups of innovation barriers are more likely to engage with OI in greater breadth and depth. However, the strength such response varies across ownership types, firm size, and technology intensity. Fu et al. (2014) argue that OI is a natural choice for firms in emerging countries that tend face substantial institutional, resources, and capability constraints in innovation than firms operating in developed economies. Based on the four innovation barrier groups from our previous study, hence, the following hypotheses are proposed:

Market and institution-related barriers deal with external environment of the firms. Previous studies also have classified innovation constraints related to external environment (Hadjimanolis, 1999; Madrid-Guijarro et al., 2009). However, the studies did not link innovation constraints to open innovation. A relevant study that links market and institution barriers with external...

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