How a firm’s knowledge base influences its external technology sourcing strategy: the case of biopharmaceutical firms

It is widely accepted in innovation management literature that a firm can increase its competitive advantage by recombining knowledge and that knowledge recombination requires engagement in external sourcing activities. What is less known, however, is how a firm’s external sourcing strategy – notably its propensity to engage in acquisitions or alliances – is influenced by its internal knowledge base. In this paper, we examine how two critical characteristics of a firm’s knowledge base, namely, scientific orientation and technological diversity, influence the extent to which it engages in alliances or acquisitions. We find that both explanatory variables increase firms’ likelihood of engaging in external technology sourcing and favouring alliances over acquisitions. Our analyses are based on a sample of European firms operating in the biopharmaceutical industry.