The impact of external technology acquisition on firm performance of manufacturing industry in vietnam

Nội dung text: The impact of external technology acquisition on firm performance of manufacturing industry in vietnam

1. THE IMPACT OF EXTERNAL TECHNOLOGY ACQUISITION ON FIRM PERFORMANCE OF MANUFACTURING INDUSTRY IN VIETNAM Le Phuong Thao thaolp@tlu.edu.vn Faculty of Economics and Management, Thuyloi University, Hanoi, Vietnam Abstract External technology acquisition has been viewed as an important approach used by firms to achieve higher economic returns. However, only a few studies have been done to evaluate the contribution of external technology acquisition to firm performance, especially in the context of Vietnam. This paper examines the impact of external technology acquisition on firm performance of Vietnamese manufacturing industry by using fixed effects model and random effects model to explore the impact of external technology acquisition, internal R&D activities, and other characteristics of the firm on firm performance. In addition, whether external technology acquisition is complementary or substitutive to internal R&D activities is also examined. The paper implies strategies and policy reforms to enhance the firm performance. Keywords: external technology acquisition, internal R&D activities, firm performance, manufacturing industry, FE and RE 1. Introduction 1.1. The rationale of the study Economic growth models help clarify the role of capital and emphasize the importance of technology for long-term economic growth (Solow, 1956; Romer, 1986 and Lucas, 1988). The problem is that how to get advanced technology to promote economic growth in general and firm performance in particular? For developed countries, internal R&D activities is the main way to innovate, improve technology level and is an indispensable element in the business development strategies. To contrast, the economy in developing countries is not only poor in captital but also in human capital, thereby "making or buying technology" is a strategy that firms must choose to acquire advanced technology applied to the production process of the enterprise? The different options for technology development can be classified according to the importance and level of compromise of technological investments in the firm. Firms can acquire technology by accessing from not only internal sources through efforts R&D activities but also external sources through transfer of technology, 123
2. technical licensing agreements or import of capital goods (Tambunan, 2009). However, firms cannot afford to develop or create all the strategically needed technologies through in-house R&D activities owing to high risk, high cost, and restricted time (Cho and Yu 2000; Whangthomkum et al. 2006). Meanwhile, external technology acquisition is the purchase of technology from domestic enterprises, universities or foreign enterprises. This not only helps firms avoid exposure to the costs and risks associated with domestic development (Jones and Jain, 2002), but also deals with customer requirements for timely and better services, to enhance product complexity, and to sustain competitive advantages under further increased competitive pressures (Jagoda et al. 2010). There are two streams of opinions about the relationship between external technology acquisition and R&D activities. As Rotemberg and Saloner (1994) investegated that the competives caused by external ideas that can inhibit internal innovation. They argue in a context like this: companies want to reward employees who are involved in R&D activities to innovate, but when external ideas can easily be used to achieve their goals, then the company results will only reward employees if that internal idea is applied. However, there is also the opposite idea that the competition of external ideas may motivate employees to make more efforts in R&D activities such as Fossfuri and Roende (2009) have suggested. In fact, many firms utilise external technology acquisition to update and extend their technological knowledge base, choosing a major technology buying strategy to ensure that costs can survive and grow. However, the question is that firms are ability to both purchase external technology and implement R&D activities. Another question is that external technology acquisiton can inhibit the firm of internal R&D activities or the external technology acquisition increases the level of internal R&D efforts. With the above and specific issues in the context of Vietnam, this study aims to consider the impact of external technology acquisiton on the firm performance of Vietnamese manufacturing industry and how this effect is moderated by internal R&D efforts 1.2. Conceptual framework and theoretical prediction This study evaluates the role of external technology acquisition on firm performance in Vietnamese manufacturing industry with the theoretical framework as follows: R&D Firm External technology acquisition performance Figure.1. Conceptual framework 124
3. The above model shows that the firm performance is affected by external technology acquisition and internal R&D activities, and internal R&D is also a control variable in the relationship between external technology acquisition and firm performance. The following sections discuss some hypotheses and their underlying rationale. 1.2.1. External technology acquisition and firm performance: On the one hand, external technology acquisition brings several benefits to firms. Firstly, it helps them to avoid the high costs of internal development (Noori, 1990), to achieve fast growth (Capon and Glazer, 1987; Granstrand et al., 1992). This allows firms to acquire industry standard technologies and complements for existing products, and to unlock existing technology and innovations (Lowe and Crawford, 1984). As a results, firms can gain greater performance through product or process innovation. Secondly, using external technology can acquire background knowledge on new technological areas through external technology acquisition, thereby increasing the ability of adapting new technologies. This leads to take advantage of new business opportunities (Mowery and Rosenberg, 1989). On the other hand, external technology acquisition may have disadvantages. Some factors may lead to inefficiencies of the external technology acquisition process, such as the not-invented-here (NIH) syndrome or the lack of absorptive capacity. People that advocate the NIH syndrome believe that it has absolute knowledge in its field, leading to resistance to external technology acquisition, such as new ideas and knowledge (Katz and Allen, 1982). Moreover, even if this acquisition accepted, successful users of external technology may have the difficult of maintaining significant absorptive capacity for assimilating the external technologies to the firms’ needs (Cohen and Levinthal, 1990; Rosenberg, 1990). Another issue is that the costs of transfer processes may also decrease the efficiency of external technology sources (Williamson, 1985; Lowe and Taylor, 1998). These costs associated with finding relevant technology providers, negotiating with providers, transferring technologies to the firm, and finally transforming them into new innovation. The logic of the arguments above and the evidence provided in existing literature imply that external technology acquisition positively affects firm performance. 1.2.2. The moderating role of internal R&D The impact of external technology acquisition on firm performance may also depend on internal R&D activities. Internal R&D has a distinct impact on demand for external technology. If internal efforts succeed, they will reduce demand for external technology. This can be seen from 125
4. the opposite view. A situation in which companies will acquire external technology if their internal efforts fail. Driven by "making and buying" view, internal R & D is an alternative to external technology (Williamson 1985; Pisano 1990). The reasons can be that using external technology is competitive factor with internal R&D and thus, R&D group was threatened by external technology and could use his political power in the organization to prevent this approach. Therefore, the second theoretical prediction in this study is as follows: The greater the level of a firm's internal R&D efforts, the stronger the negative effect of external technology acquisition on a firm's performance. 1.3. Literature review Recent researchs have evaluated the contribution of external technology acquisition to firm performance. Some studies investigate that external technology acquisition have positive effects on firm. Zahra's (1996b) survey of 112 new U.S.-based biotechnology ventures finds that external technology acquisition is positively associated with firm performance in terms of sales and market growth. Moreover, Jae-Seung Han et al. (2012) investigates the positive impact of external technology acquisition on market value of firms. In contrast, some researches show that external technology acquisition is negatively associated on product and firm performance. For example, Jones et al. (2001) measure the propensity to acquire technology externally by type (product, process and total). Their analysis of 188 subsidiaries shows that external technology acquisition is negatively associated with product, market and financial performance measures (contrary to theoretical expectations), but internally available resources enhance the effect of total external technology acquisition on product performance. Although, this study explore the moderating effects of internally available resources on the relationship between external technology acquisition and firm performance, they have not specified internally available resources, their moderator, as internal R&D efforts. Moreover, Kuen-Hung Tsai and Jiann-Chuyan Wang (2005) use the analytical sample comprising a total of 341 Taiwanese electronics-manufacturing firms over the period from 1998 to 2002. The least square dummy variable analysis method reveals that external technology acquisition does not provide a significant contribution to firm performance per se; however, the positive impact of external technology acquisition on firm performance increases with the level of internal R&D efforts. Verifications for robustness and the split-sample analyses both validate the results in the setting of larger firms. However, this study investigates the moderating role of internal R&D input or the extent to which external technology acquisition effects a firm's performance, and how this effect is moderated by internal R&D efforts. 126
5. Ki H. Kang, Gil S. Jo & Jina Kang (2015) point out that external technology acquisition has an inverted U-shaped relationship with subsequent technology innovation performance, and that is not complementary to internal R&D activities. We thus confirm that external technology acquisition has to be seen as a double-edged sword and that managers need to be aware of the potentially negative effects of strong diversity of the firm’s external technology acquisition sources on internal R&D and subsequent innovation performance. Driven by this "between making and buying" view, internal R & D is an alternative to external technology (Williamson 1985; Pisano 1990), all above studies examines the role of external technology acquisition in creating innovation, affecting on firm performance although may be positive or negative and investigates whether external technology acquisition is complementary or substitutive to internal R&D activities. 1.4. Research question - Is the relationship between external technology acquisition and internal R&D complementary or substitutive? - Using external technology have positive or negative impact on firm performance? - Does the result of above question change if exploring the moderating effects of internal R&D? 2. Methods 2.1. Variable definitions and measures *) Dependent variable – Firm performance Figure 2. Model for Firm Performance 127
6. Indicators used to measure different aspects of performance have already been submitted to factor analysis by several authors who found multidimensional structures (Baum & Wally, 2003; Cho & Pucik, 2005; Combs et al., 2005; Fornell et al., 1996; Johnson & Greening, 1999; Rowe & Morrow, 1999; Sila & Ebrahimpour, 2005; Sila, 2007; Silverman, Nickerson, & Freeman, 1997). A complete analysis of multidimensional constructs needs to explore the existence of second order structures that can group first-order dimensions. Glick, Washburn, and Miller (2005) suggest that firm performance could be conceptually represented by one second-order construct reflect ring itself on its first-order dimensions (Figure 2, model on the left). The Venkatraman and Ramanujam (1986) conceptual model suggests an alternative representation, in which performance would have two second order dimensions: the financial one, represented by profitability, growth and market value; and the operational domain, that includes non-financial competitive aspects, like customer satisfaction, quality, innovation, employee satisfaction and reputation (Figure 2, model on the right). With the main purpose for a firm to acquire external technology is to enhance their growth through value added so in this study, firm performance – the dependent variable is measured by value added. *) Independent variables According to Capon and Glazer, fully external technology activities refer to the acquisition of fully functioning technology from another firm. Thus, the total expenditure of purchasing external technology defines the external technology acquisition in this study. Firms can buy from another firms, research center and universities or schools. This research uses some several important controls into account to provide more conclusive evidence for analysing effect of external technology acquisition on firm performance. These controls include R&D, firm size, the license of technology and transfer contract. In addition, labor and physical capital are often used as a proxy for firm size in empirical studies; in particular, KL – the average of physical capital on labors, indicating the level of capital per labor; VNG – the average of investment on labors, indicating external investment. 128
7. *) Measures For panel data used in the study, the author conducted a Hausman test to determine the regression model as a model of a fixed effect model or an explanation model and a random error exist or not, from which the author chooses to use a fixed effect model or a random effect model. Fixed effect model (FE) Yit = (α + ui) + X’itβ + vit In which, i and t are the indexes according to space i and time t, respectively. (i = 1,2, , N is an index of space units; t = 1,2, , T is an index of time units); ui is a fixed effect according to the observation group i or time period and contained in the intercept coefficient, ui can correlate with other variables in the regression model; vit is a random error with a mean of 0 and a constant variance. In fixed dynamic models, only intercept coefficients according to different groups have the same coefficient of variables. It is possible to estimate the fixed square effect with the dummy variables (LSDV) or the internal impact estimation method (within effect estimation). Random effect model (RE) Yit = α + X’itβ + (uit + vit) The RE model assumes that: ui is not correlated with other variables and it is a component in random error The variance of random error is determined by space units or over time The RE model has the same intercept and slope coefficient according to the observations, the difference is in the error part. 2.2. Sample and data To empirically test the impact of external technology acquisition on firm performance, this study uses a panel dataset carefully integrated from the annual enterprise census data from 2000 to 2016 and the enterprise statistic of technology data from 2012 to 2016 of the Vietnam General Statistics Office (GSO). This panel dataset includes 2490 firms completely balanced over a six-year period from 2012 to 2016 (totaling 14940 observation) Table 1 lists the descriptive statistics of the major variables within the sample and shows the average values and standard deviations of some major variables. 129
8. Table 1: Descriptive statistics of major variables within the sample (n= , 2012-2016) Variables 2012 2013 2014 2015 2016 Lnva 7,3850 7,4032 7,5238 7,6209 7,6797 (1,7756) (1,8119) (1,8261) (1,8629) (1,9257) Lnpurchase 6,5422 6,7875 7,0878 7,2120 7,4080 (2,1329) (2,1746) (2,2606) (2,2576) (2,2208) Patents 0,0064 0,0064 0,01004 0,0141 0,0167 (0,1279) (0,1404) (0,1771) (0,2266) (0,2351) KL 130,5061 133,149 140,8974 162,4944 175,0239 (208,3673) (208,316) (220,1524) (281,3026) (285,7525) LC 11,782 12,047 13,259 14,916 16,692 (9,987) (7,694) (8,873) (11,086) (33,361) VNG 0,5741 0,5750 0,6089 0,5879 0,5768 (0,4414) (0,4220) (1,8611) (0,4622) (0,5833) Source: Author's calculations from the Enterprise Survey data Some points are worthy of mention. In general, all variables tend to increase during this period. For example, the number of value added rises gradually by approximately 1% by year in the sample while the total amount of expenditure spent on external technology acquisition increase by 3,2% each year that is threefold than the former. Moreover, this table also shows that there is a dramatical rise in the number of patents with the average growth rate 38,6%. These suggests that there is an increasing trend toward investing in technology acquisition. Some factors, such as KL, LC and VNG, are invested during the development process of firms. 3. Results 3.1. Research model The specific model to assess the impact of external technology acquisition on firm performance in Vietnam manufacturing industry is proposed as follows: Lnvait = α0 + α1lncpmuait + α2lncpmua*RDit + α3lnqmdnit + α4sangcheit + α5KLit + α6LCit + α7VNGit + cit+uit In which: Lnva is value added of the firm Lncpmua is the total value of purchasing technology Lnqmdn show the size of firm 130
9. Patents is the total number of patents KL = K/L is the capital per peson LC = w/L is the income per person VNG is the external investment 3.2. Result According to Hausman test results, it is accepted by H1 hypothesis at the 1% significance level. This means that the fixed effect model (FE) is preferred in research to the random effect one (RE) Table 2: Regression results of the impact of external technology acquisition on firm performance Fixed effect model Random effect model Independent variable (lnva) Coefficient Coefficient 0,0373 -0,1037 Lnpurchase (0,0098) (0,0109) -0,0199 -0,0116 Lnpurchase*RD (0,0033) (0,0038) 0,8184 2,5057 Lnsize (0,042) (0,0353) Patents -0,0132 -0,0081* (0,0045) (0,0050) -0,0002 0,0002 KL (0,00003) (0,00004) 0,0059 0,0089 LC (0,0003) (0,0004) -0,0109* -0,0146 VNG (0,0062) (0,0069) 6,455942 4,3662 _cons (0,5102) (0,4676) Hausman 7148,63 Notes: ‘ ’, ‘ ’ and ‘*’ show estimated coefficients statistically significant at 1% , 5% và 10% Source: Author's calculations from the Enterprise Survey data 131
10. Using Hausman test for model selection results in the acceptance of fixed- effect analysis. The model employed to evaluate the effect of external technology acquisiton on firm performance is associated with the majority of estimated coefficients statistically significant at 1%. Estimated results with variable coefficient of price equals 0.0373, showing that purchasing technology in manufacturing industry in Vietnam has a positive impact on the added value of firm or enhance the firm performance. In fact, the current technology and machinery in the manufacturing industry as well as the industry in general is considered to be obsolete compared to other countries. This is because of the limit of technology expenditure. Moreover, the current economic growth in Vietnam is growing in width so this kind of technology purchased still increases the firm performace. Meanwhile, the coefficient of variable lncpmua_RD is equal to -0.0199, implying that the purchase of external technology to support internal R&D activities will reduce the performance of enterprises. Moreover, the coefficient of Patents variable also receives negative value, indicating that internal R&D activities has not yet had a positive impact on the firm performance. According to the recent survey results of the FIRST- NASATI project, it also helps to explain the above results when it shows that nearly 85% of enterprises themselves carry out R&D activities but only about 14% of enterprises have activities in coordination with external partners to research and implement product innovation for firms. The number of patents may increase but this R&D activities have not applied or deployed to meet the demand of firms. For other representative variables of firm, the coefficient of the variable LC (per capita income) and size of firm (Lnsize) have positive impacts on the firm performance, although at a low level. In contrast, the coefficient of variable KL - the level of capital per worker and the ratio of external capital - VNG are factors that inhibit the development of enterprises. 4. Discussion and conclusions The above estimation results show that purchasing external technology for enterprises in manufacturing industry in Vietnam has a positive impact on the firm performance. However, this activity does not contribute to the internal R&D activities of enterprises to promote innovation activities. In the near future, acquiring external technology is still the main source of contribution to the technology factor of the enterprises but Vietnam needs the orientation for purchasing high technology products instead of most out-of-date ones. At the same time, firms should promote the cooperation and association with research institutes, universities, research centers and scientists as a channel for technology acquisition to develop the technology market in Vietnam. 132
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