5.1. High R&D intensity and the impact of COVID-19
Similar to several previous studies, this study found that R&D investment up to just before the arrival of COVID-19 weakened the damage to sales after its arrival. From a practical standpoint, it is easy to see how a firm investing in R&D just before the economic crisis hit determines its performance during the crisis. Such firms will be able to respond to sudden changes in demand and launch new products and services ahead of other firms when the crisis hits.
As an interpretation of this result, Biswas (2021) identifies the resource-based view as a theoretical pillar. According to Wernerfelt (1984), R&D investment strengthens a firm's internal core competence, which, in turn, increases the likelihood of winning the innovation race in the market. Thus, R&D investment strengthens a firm's internal core competence, and therefore, increases its likelihood of winning the innovation competition in the market. Even after this research report, many empirical studies have reported a positive relationship between firms' R&D activities and managerial performance (e.g., Hashi & Stojcic, 2013; Raymond et al., 2015).
Furthermore, additional interviews confirmed the following facts about the relationship between R&D investment and COVID-19. [1] “Our firm does not have a break in R&D investment. As a result, we have several development projects that were suspended in the past due to unpredictable demand. However, one of them emerged as a possibility to meet the customer's needs arising from the COVID-19, and we responded to it in a hurry”. (A head of the technology development department) [2] “Because the customer's demand had rapidly decreased or changed, the R&D staff was hastily pasted onto the sales staff to uncover the demand. At that time, we felt that we should do whatever we could, but two of those projects may become the mainstay even after COVID-19”. (A vice president of bio-tech firm)
In this way, rather than simply having a high R&D intensity, the firm's flexible management has been successful in taking advantage of it.
5.2. Relationship between COVID-19 and the realization of innovation in the past
In previous studies, there was little discussion on how innovations realized just before COVID-19 were affected after its arrival. In this study, we hypothesized and tested the hypothesis that firms that realized product innovation before COVID-19 would suffer less damage from COVID-19. However, the results showed the opposite. In other words, the damage caused by COVID-19 may be greater for firms that have just launched a new product or service.
In this study, we conducted an additional analysis using the results of the responses regarding the 14 strategies to examine them in more detail. In the questionnaire, respondents were asked to choose from "achieved the goal," "achieved the goal to some extent," "did not achieve the goal," and "did not adopt the strategy" between 2016 and 2019 for 14 strategies related to innovation. Of these, we set an explanatory variable of 1 when either "achieved the goal" or "achieved the goal to some extent" was selected for the five strategies of new product development, new production methods, new channel development, cross-industry collaboration, and data utilization, and conducted a multiple regression analysis with sales and operating profit set as the dependent variables as before. The results are listed in Table 4.
As a result, the coefficients of new product development and new production methods are both negative and statistically significant. This suggests that product innovation and process innovation, which were realized just before COVID-19, may still have suffered relatively large damage. In other words, at the very least, simply promoting innovation activities was not enough to minimize the damage due to COVID-19; rather, it exposed the vulnerability of innovation activities to the economic crisis.
In contrast, positive and statistically significant results were obtained for data utilization and cross-industry collaboration. Of these, data utilization is a feature of COVID-19 that is different from past global economic crises (McKinsey, 2020). According to a survey by the World Bank, 51% of firms are ramping up DX-related investments in 2020, such as improving IT skills, augmenting network environments, expanding digital platforms, and sharing data in supply chains (Apedo-Amah et al., 2020).
5.3. Relationship between Openness in R&D and COVID-19
Hypothesis 2, which states that the damage from COVID-19 is smaller for innovations realized in collaboration with other firms than for innovations realized by the firm alone, is supported. Table 4 also shows that the damage from COVID-19 is smaller for firms that have realized cross-industrial collaboration. In the previous section, we showed that innovation activities in Japan may be generally vulnerable to the economic crisis. However, there are some cases that have not suffered damage and have even improved their business performance after the arrival of COVID-19. Why are businesses that open up their innovation activities more resilient to crises in this way?
To confirm the results in detail, the relationship between the number of partner institutions and COVID-19 damage is shown in Figure 1. The minimum number of collaboration partners is one, and the maximum is six, specifically suppliers, customers, competitors, universities and public research institutions, consultants, and NPOs. Of these, only two firms collaborated with all six organizations, so we removed them. As a result, the resistance to COVID-19 damage became stronger until the number of collaborators reached about three, and then saturated after the number reached four. The reasons for this result are summarized in the following two points based on the results of interviews with the five firms and previous studies.
The first is the high level of knowledge absorption and utilization in firms that have achieved innovation through cross-industrial collaboration, which has been widely recognized by Cohen & Levinthal (1990). Whether they have complementary assets is also important to search and access new knowledge (e.g. Arora & Ceccagnoli, 2006). All five firms interviewed had steadily accumulated these capabilities, and as a result, were able to demonstrate these capabilities even during the COVID-19 crisis.
Second, by having several collaboration partners, they secured a diversity of markets and sales channels for access. In particular, by collaborating closely with customers and other parties, it is possible that the firm is able to access more markets than it would be able to innovate on its own. As a result, it diversifies risks such as a significant drop in sales. However, even if they collaborate with many institutions, they are likely to be limited by their own organizational capabilities (Nishikawa & Kanama, 2019).
5.4. Open IP management and the impact of COVID-19
Openness in R&D can be broadly classified into "bringing external technology and knowledge into the firm (hereinafter referred to as "technology introduction")" and "sending internal technology and knowledge to the outside world (hereinafter referred to as "technology provision").” It is necessary to manage the innovation process from both perspectives. In the design of this study, there were three items related to IP outbound, three items related to IP inbound, and one item related to cross-license. Therefore, we integrated each of these items as IP outbound, cross-licensing, and IP inbound, and conducted multiple regression analysis with sales and operating profit as the explained variables as before. The results are listed in Table 5.
Regarding research on openness in R&D, it has been suggested that analyses focusing on technology adoption have accumulated richer knowledge than those focusing on technology provision (Felin & Zenger, 2014; Gassmann et. al., 2010). Most analyses of technology adoption have examined the relationship between the adoption of technologies located outside the firm (e.g., at universities, users, or venture firms) and innovation outcomes. As a result, it has been reported that the probability of producing innovation increases through technology adoption, and the quality of innovation also improves—these are becoming standardized facts today (e.g. Darby et al., 2004; Lööf & Brostrom, 2008; Momjon & Walbroeck, 2003; Motohashi, 2005; Robin & Schubert, 2013).
However, empirical studies on technology provision have been somewhat slower. This is because firms have not been able to clearly present their incentives for providing technology to other firms. Providing technology to other organizations creates potential competitors in the market. Therefore, from the perspective of traditional theoretical models that seek incentives to conduct R&D in terms of the benefits of technological anticipation, the provision of knowledge and technology to other firms is a corporate behavior that is difficult to understand (Gilbert & Newbery, 1982; Reinganum, 1983). In this context, recent empirical studies on outbound have increased (e.g., Anado & Khanna, 2000; Takechi, 2008; Nagaoka, 2009; Lichtenthaler, 2010; Dang & Motohashi, 2014). The strength of these firms is that they can create new business models.
One of the strengths of these firms is that they have strong information networks. This enables them to respond quickly in times of crisis and react ahead of their competitors. Prior research has reported many examples of open innovation evolving into business ecosystems, forming systems that are resilient to external disruptive innovation and can be monetized over time (e.g. Siegel et al., 2016). Each actor contributes to the maintenance and expansion of the ecosystem, thereby ensuring a competitive advantage. These robust ecosystems not only increase the number of alliances and outsourcing R&D, but also eliminate many risks by triggering intermittent and sustained innovation and reducing growing technological and social uncertainties (Jacobides, 2019). Specifically, they complement disrupted supply chains, coordinate to meet rapidly changing demands, and replace subsystems. As a result, even in the case of sudden supply disruptions or changes in demand, such as immediately after the arrival of COVID-19, it is possible to supplement this within the ecosystem.
The social capital theory, which assumes that a firm's performance comes not only from the management resources it possesses but also from its social network, has often been used to explain differences in performance among firms. Social capital theory is based on the perspective of "social embedding" that resources are embedded in social structures, and that the actions and products of individuals and organizations are strongly influenced by the characteristics of the relationships and structures of social networks (Burt, 1992). This kind of resource utilization is considered to define the competitiveness in COVID-19.