Firm-Specificity in Corporate Applied R&D

Much corporate research and development (R&D) has characteristics that tie it strongly to the firm in which it takes place, and which may make the process of undertaking R&D or the outcome of the R&D difficult for other firms to duplicate perfectly. That is, the R&D is firm-specific. This is particularly true for more highly applied R&D, which tends to involve incremental technological change and often entails alterations and enhancements to existing firm assets, production processes, and products. The often firm-specific nature of corporate R&D tends to receive relatively little attention in the study of technological innovation. This article outlines the primary characteristics of firm-specificity in R&D, and discusses two interrelated consequences of such firm-specificity: (1) heterogeneity in the R&D applications of firms within an industry, and (2) increased ability of firms to earn returns to R&D (often termed “appropriability”). Both factors have important implications for firm strategy. Empirical evidence from the U.S. petroleum industry is presented that documents differences between firms in their R&D applications. The evidence is consistent with firm-specificity in R&D.