Internalizing external technology: A model of governance mode choice and an empirical assessment

Factors such as the rising cost of technological development, global competition, the compression of product life cycles, and rapid technological diffusion are compelling technology-intensive firms to look beyond internal development. Organizations are creating their portfolio of technological capabilities through various external sourcing methods, including joint development, licensing, and the acquisition of other firms. This study examines a number of contingencies that may influence a firm's choice of governance mode for the procurement of external technical know-how. Although theories of inertia maintain that established norms and routines evolving from past procurement efforts will largely explain continued means of sourcing, strategic choice theories (e.g., resource-based view, options theory) suggest that the perceived technological context (imitability, rarity, uncertainty, dynamism) will influence the risk/return dynamics of the sourcing options and determine the governance mode pursued. A stratified sample of 193 recent sourcing arrangements and survey responses from key decision makers was utilized to test the relative explanatory value of these perspectives. The results indicate that both the sourcing history of the firm and technological context significantly influence the governance mode. The perceived imitability, uncertainty, and dynamism of the technology appear to be particularly influential. Implications for theory and practice are drawn and future avenues of research are suggested.