Relation-specific investments and the performance of r&d outsourcing agreements

Resumen

We examine the effect of intangible relationship-specific investments—such as trust, formation, and knowledge sharing routines—on the performance of R&D services outsourcing agreements. While we acknowledge that these investments may help to structure the relationship as a self-enforcing agreement, we also argue that they increase appropriability hazards because these investments have the potential of upgrading the provider’s absorptive capacity. Using original survey data on R&D outsourcing agreements by 170 European and U.S. firms operating in technology-intensive industries, we find that intangible relationship-specific investments lead to superior performance when outsourcing standardized services. However, these investments are found to be detrimental to performance when the service outsourced is customized to the firm. This suggests that the appropriability hazards originated in these cases may lead partners not to capturing the full potential value that may be generated within the relationship.