International R&D partnerships: the role of government funding in reducing transaction costs and opportunistic behavior

The innovation management and policy literature suggests that government support generally has a positive effect on SMEs’ R&D, innovation performance, and fostering international links. However, research in this field has mainly examined the outcomes, overlooking the impact during the course of the R&D partnership, especially in an international context. Using longitudinal data and a transaction cost (TC) approach, we conduct an in‐depth case study of a UK–China innovation program aimed at supporting and facilitating R&D partnerships between UK SMEs and Chinese organizations. Examining 11 UK SMEs with 12 R&D partnerships in this program, we identify four stages of the R&D partnership with Chinese organizations, revealing that government support both positively and negatively affects TCs at each stage. Based on these positive and negative effects, we offer empirical and theoretical contributions, as well as managerial and policy implications to support international R&D partnerships.