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To compete or to collaborate

Is a collaborative strategy better for start-ups than a competitive strategy to appropriate innovations in the existing market?

Bachelor thesis research by Jasper Knibbeler

 

In December 2016, Jasper Knibbeler graduated from the Tilburg School of Economics and Management at Tilburg University. He followed the bachelor Business Economics and wrote his bachelor thesis in the area of start-ups.

In the competitive conglomerate of start-ups, entrepreneurs explore innovative ideas as avenues to industry leadership. Once proved to be commercially successful, the idea will be used by other firms, in an attempt to enter the industry by imitating the innovator. Since it implies a commercial risk for the technological leadership of the innovator, these innovative start-ups adopt a competitive strategy in order to keep the imitators away and to protect their intellectual property. However, since the potential advantages of a collaborative strategy haven’t been duly explored as an alternative to a competitive one, this thesis will investigate whether the competition between an innovator and a late entrant can actually be fructified by employing a collaborative strategy.

When dealing with innovation appropriation, i.e. the strategic choices that a firm makes in an attempt to capture returns from innovation investments (Holgersson, 2013), the innovator tries to maintain its first-mover advantage (FMA) against late entrants. As patents or copyrights (tight appropriation regime) have proved to be inefficient measures to appropriate innovation, Teece (1986) argues that focusing on complementary assets (weak appropriation regime) could be the best strategy, done in either a competitive or collaborative way. This paper will attempt to answer the following question: “Is a collaborative strategy better than a competitive strategy for start-ups to appropriate innovations in the existing market?” Collaboration is defined here as the relationship between organizations in which the involved parties are committed to invest resources, achieve mutual goals, share information, [...] and solve problems in a collaborative way (Soosay et al. 2008). The problem is approached by conducting a literature review.

In terms of outcomes, this study offers an overview of the advantages of a collaborative strategy to appropriate innovation. A primary benefit is that a monopolistic FMA could be maintained by a collaborative strategy in an industry of high technological development due to a high entry barrier for later entrants. This happens because, in a context of cooperation and mutual trust, economies of scale could appear and innovative technologies could be improved and consequently become more complicated, which makes it for competitors almost impossible to gain the same level of technological development. Ultimately, this could result in domination of the industry. The only way a competitive advantage is able to pay off for the innovator is when the start-up is in the possession of complementary assets and when resources are heterogeneous, because then late entrants will have difficulties finding suppliers and resources. However, this state is especially rare.

In conclusion, this paper implies that since many innovative start-ups owners focus more on production development, a collaborative strategy could be used as a successful alternative to a competitive one in dealing with late entrants.

 

References:

Henttonen, K., Hurmelinna- Laukkanen, P., & Ritala, P. (2016). Managing the appropriability of R&D collaboration. R&D Management, 46(S1), 145-158

Holgersson, M. (2013). Patent management in entrepreneurial SMEs: a literature review and an empirical study of innovation appropriation, patent propensity, and motives. R&D Management, 43(1), 21-36

Soosay, C. A., Hyland, P. W., & Ferrer, M. (2008). Supply chain collaboration: capabilities for continuous innovation. Supply Chain Management: An International Journal, 13(2), 160-169

Teece, D. J. (1986). Profiting from technological innovation: Implications for integration, collaboration, licensing and public policy. Research policy, 15(6), 285-305