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Profiting from technological innovation: Implications for integration, collaboration, licensing and public policy
David J. TEECE *
School of Business Administration,

of California, Berkeley, CA 94720, U.S.A.

Final version received June 1986

This paper attempts to explain why innovating firms often fail to obtain significanteconomic returns from an innovation, while customers, imitators and other industry participants benefit. Business strategy particularly as it relates to the firm’s is shown to be an decision to integrate and collaborate important factor. The paper demonstrates that when imitation is easy, markets don’t work well, and the profits from innovation may accrue to the owners of certain complementaryassets, rather than to the developers of the intellectual property. This speaks to the need, in certain cases, for the innovating firm to establish a prior position in these complementary assets. The paper also indicates that innovators with new products and processes which provide value to consumers may sometimes be so ill positioned in the market that they necessarily will fail. The analysisprovides a theoretical foundation for the proposition that manufacturing often matters. particularly to innovating nations. Innovating firms without the requisite ing and related capacities may die, even though they are the best at innovation. Implications for trade policy and domestic economic policy are examined.

Harvey Brooks, Chris * I thank Raphael Therese Flaherty, Richard Gilbert, Heather MelCarl Jacobsen, Michael Porter, Horwitch, David Richard Rumelt, Raymond Vernon and SidGary ney Winter for helpful discussions relating to the subject matter of this paper. Three anonymous referees also provided valuable criticisms. I gratefully acknowledge the financial support of the National Science Foundation under grant no. SRS-8410556 to the Center for Research in Management, University ofCalifornia Berkeley. Earlier versions of this paper were presented at a National Academy of Engineering Symposium titled “World Technologies and National Sovereignty,” February 1986, and at a conference on innovation at the University of Venice, March 1986. Research Policy 15 (1986) 285-305 North-Holland

It is quite common for innovators those firms which are first to commercialize a new productor to lament the fact that process in the market competitors/imitators have profited more from the innovation than the firm first to commercialize it! Since it is often held that being first to market is a source of strategic advantage, the clear existence and persistence of this phenomenon may appear perplexing if not troubling. The aim of this article is to explain why a fast second or even aslow third might outperform the innovator. The message is particularly pertinent to those science and engineering driven companies that harbor the mistaken illusion that developing new products which meet customer needs will ensure fabulous success. It may possibly do so for the product, but not for the innovator. In this paper, a framework is offered which identifies the factors which determine whowins from innovation: the firm which is first to market, follower firms, or firms that have related capabilities that the innovator needs. The follower firms may or may not be imitators in the narrow sense of the term, although they sometimes are. The framework appears to have utility for explaining the share of the profits from innovation accruing to the innovator compared to its followers andas well as for explaining a suppliers (see fig. variety of interfirm activities such as joint ventures, coproduction agreements, cross distribution arrangements, and technology licensing. Implications for strategic management, public policy, and international trade and investment are then discussed.

Elsevier Science Publishers B.V. (North-Holland)

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What determines the share of...