Vertical Relations between Firms and Innovation: An Empirical Investigation of German Firms

Joint ventures between firms as part of innovation projects can be seen as a strategy to deal with market failure and other insufficiencies of technology markets. It is the objective of this paper to examine empirically the occurrence and significance of types of joint ventures between innovative companies, customers and suppliers within the German industry. The analysis is based on a written survey of 3.122 enterprises, carried out by ZEW in 1994. The most important results can be summarized as follows:84% of those surveyed state that as part of innovation projects they cooperated either with customers or suppliers or both. This percentage is even higher (99%), when only companies with a formal R&D department were taken into account."Informal exchange of technical knowledge"is regarded to be the most significant form of cooperation between innovative firms, customers and suppliers, followed by formal types such as "joint development teams" and "R&D-cooperation by contract agreement". "Joint ventures"and "R&D orders" on the other hand are regarded as the least important types of cooperation.The occurrence and significance of different types of vertical cooperation between innovative firms, customers and suppliers vary from one industry to the other.The different forms of vertical cooperation can - in accordance with multi-variate statistical methods - be reduced to two subgroups: While one subgroup includes formal cooperation types, the other group includes informal types of cooperation. The latter form of cooperation is of more importance to those surveyed than the former.

Harabi, N. (1997), Vertical Relations between Firms and Innovation: An Empirical Investigation of German Firms, ZEW Discussion Paper No. 97-10, Mannheim.