Introduction
Human beings have for centuries exploited science to their benefit. By increasing their knowledge in various scientific fields, they have been able to come up with innovations that have greatly benefited man and led to the advancement of human civilization. Biotechnology has emerged as the youngest of the sciences being exploited by human beings. Despite being a relatively young field, biotech is advancing at an unprecedented rate with the discipline gaining information at a very high rate each year. The biotechnology industry has demonstrated significant growth over the last few decades. This significant gain in knowledge has been attributed to the high level of collaboration and alliances among biotech firms. This paper will set out to explore why networks and alliances are important for biotech firms and how they might affect biotech firms innovation output
Main Activities done by Biotech Firms
Biotechnology is defined as the “application of science and technology to living organisms, as well as parts for the production of knowledge, goods, and services” (Uecke 2012, p.84). Biotech companies look for ways to modify biological organs to make them more useful to human beings. Powell (1998) declares that in technologically intensive fields such as the biotechnology industry, there are “large gains from innovation and steep losses from obsolescence” (p.228). Biotech firms are therefore always looking for innovations mostly in the fields of agriculture and medicine.
In the medical sector, biotech firms are engaged in research into more efficient pharmaceutical products. The firms engaged in genetic testing and research into how genes affect drug interaction in individuals (Koyin 2008). Biotech firms are engaged in research and development work to come up with ways to optimize the delivery of conventional drugs. The firms are also researching drugs that will use the unique genetic makeup of a person to ensure optimized efficiency.
Biotech firms are also active in the agricultural sector. In this area, the firms manipulate animal and plant genes to come up with improved livestock and crop products. Through R&D, biotech firms can come up with food crops that have special attributes such as increased resistance to pests and diseases or increased productivity (Uecke 2012). The traits of individual crops or animals can also be altered to develop hybrid products.
Why Biotech Firms Collaborate
Collaborative networks present a forum through which firms can increase their knowledge base and therefore succeed in the competitive industry. Collaborative efforts expose a firm to new knowledge and expertise. When firms work collaboratively, they are required to share information. Demirkan and Sebahattin (2012) note that through networks and alliances, biotech firms can gain access to novel resources that may not be available through the market. Powell (1998) confirms that through collaboration, biotech firms are provided with access to emerging technological opportunities that the partner might possess. These novel resources are in the form of knowledge, which is a prime commodity in biotechnology. Aggarwal (2009) declares that the acquisition of novel knowledge is crucial to a firm’s improved performance. By gaining new knowledge from each other, firms gain a competitive edge since they have access to original knowledge that may not be available to their competitors.
Financial considerations encourage collaboration among biotech firms. Koyin (2008) asserts that collaborative networks present one of the most inexpensive ways for individual firms to increase their knowledge base and gain new ideas. Unlike other industries where the level of uncertainty is relatively low, the biotechnology industry is characterized by high levels of uncertainty. Most of the products developed fail to make it to the market since they are of a novel nature (Koyin 2008). This increases the costs of operating biotech firms since product success cannot be guaranteed. Gopalakrishnan, Scillitoe, and Santoro (2008) state that alliances allow small biotech firms to obtain the needed financial capital in exchange for sharing knowledge.
Collaboration helps to increase the innovativeness of the firm by fostering creativity. Specifically, collaborative networks increase firm innovativeness by bringing together talented individuals who can brainstorm and engage in joint problem solving (Aggarwal 2009). The networks also facilitate the movement of information and resources between or among the collaborating firms, therefore, increasing the likelihood of the development of innovative products. Innovation is crucial for the continued success of biotech firms. Rodolphe (2008) notes that in the biotechnology industry, innovativeness is mandatory for the firm’s productivity, and without it, the firm’s future survival cannot be guaranteed.
Finally, collaboration enables firms to make use of the expertise and competencies in different fields contained by various firms. The biotech industry makes use of complex knowledge from several fields including engineering, medicine, and computing. Sytch and Philipp (2008) reveal that biotech emerged from a confluence of many disciplines. For a firm to be successful in biotech, it must maintain competencies in these diverse and complex fields. In most cases, individual firms do not have comprehensive knowledge and competencies in all the necessary fields. Despite this inadequacy, the biotech firm still needs significant knowledge on all the relevant subjects. To make up for these inadequacies, the firms collaborate with other firms in a complementary fashion. Powell (1998) confirms that collaboration is at times needed by the strategic motive of filling in missing pieces of the value chain.
How Biotech Firms Choose Partners
Selecting the most suitable partner is crucial for biotechnology firms to attain the greatest benefit from collaborative networks and alliances. Firms select partners who have a history of high innovation. Innovative firms typically have a greater talent pool and more resources. By selecting such firms as partners, a biotech firm is more likely to benefit from the great talent and knowledge base possessed by the partner. Firms also look at the performance of the prospective partner firm. A partner that has impressive past performances are desirable since past success indicates that the firm possesses the resources needed to bring about tangible benefits in the partnership.
Obtaining well-established partner firms has a positive impact on the image of the firm. Powell (1998) confirms that the collaborative partners act as a signal to markets on the quality of products or services provided by the firm. An emerging biotech company that has partnerships with well-renowned pharmaceutical corporations and universities will benefit from a positive perception by potential investors and the market. Demirkan and Sebahattin (2012) contend that in addition to looking at the overall reputation of the prospective partner, a firm should also carry out an in-depth analysis of the characteristic of the individual members from the partner firm who will be part of the network.
As has been noted, collaborative networks play a crucial role in the innovative performance of biotech firms. However, for the collaborative network to be beneficial to the firms involved, the characteristic of the network members must be assessed. Demirkan and Sebahattin (2012) declare that before a firm chooses a collaborative partner, it should research the nature of the knowledge possessed by the partner. The firm should also assess the quality of the knowledge held by the partner. In some cases, a biotech firm seeks partners to satisfy a specific knowledge deficiency it might have. In this case, it is important to ensure that partner firms possess different knowledge bases from those already in the custody of the firm seeking collaboration.
Young Biotech Firms as Knowledge Brokers
Knowledge is the most crucial commodity traded among biotech companies. Possessing novel knowledge is guaranteed to increase the innovation output of a firm. Many young biotech firms are in the business of seeking this knowledge and then transferring it to the larger and well-established biotech firms (Koyin 2008). The young biotech firms fulfill this brokerage role in the following way. These firms maintain close formal and informal relations with universities, which engage in research work into areas that are of interest to the biotech industry. To begin with, these firms can represent individual scientists who are engaged in novel research. The firms can then play a gate-keeping role by deciding which major biotech firms have access to the research work possessed by the scientists they represent (Stuart, Ozdemir & Ding 2007). The young biotech firms often represent the interests of scientists since they can identify and monitor prominent scientists working in academic circles. They are also able to follow any promising research work by these scientists and assist in commercializing research discoveries made.
In addition to this, young biotech companies are also able to identify different biotech firms that can work in a complementary fashion. The young biotech firms can inform two firms that can complement each other of each other’s interests. This can foster the creation of a beneficial partnership for the two biotech firms. To fulfill this role, the young biotech firms need to be well informed of the resources, expertise, and interests of individual biotech firms. By possessing this information, the young firms can facilitate the formation of mutually beneficial partnerships between well-established biotech firms.
Finally, biotech firms can play a brokerage role by linking well-established biotech firms with intellectual property from universities. Young biotech firms are best placed to acquire novel knowledge due to their close relationship with universities where research takes place. Stuart et al. (2007) document that about 50% of biotech firms are founded by university scientists who continue to serve in the academic circles even after founding their firms. The close association between young biotech firms and the academic world makes them best suited to serve as liaison brokers.
Effects of Network Characteristics on Innovation Output
Partner quality increases innovation output by increasing the public profile of the collaborating firms. The high profile brought about by high-quality partners increases the likelihood that a firm will attract potential investors. With access to many investors, the firm can acquire the financial resources needed to fund ambitious projects and therefore develop novel products. The diversity of partners increases the likelihood of coming up with novel knowledge. However, diversity might negatively affect output since there will be little knowledge overlap among the collaborating partners. Without knowledge overlap, it might be hard for the firms to come up with feasible inventions. Innovation output, therefore, requires diversity and some knowledge overlap between the collaborating firms.
The intensity of the partnership affects the innovation output in several ways. If the partnership is intense, the collaborating firms will have strong ties. This relational strength increases the likelihood that the firms will exchange complex knowledge with each other. In addition to this, strong ties increase a firm’s willingness to offer novel information and know-how to its partner (Criscuolo 2009). As such, strong ties promote innovation by facilitating a greater flow of knowledge and resources among the network members. Novel creations are therefore likely to be obtained from such relationships. In intense partnerships, the perception of the various participants from different firms is transformed. Instead of viewing themselves solely as competitors, the various collaborating partners view themselves as learners who are seeking out novel knowledge that will benefit them all (Powell, 1998). On the other hand, weak relations lead to a lack of willingness of network members to transfer complex knowledge or equip their partners with new information and know-how. This hampers innovation in the biotech firm since new information and a great volume of resources transfer is mandatory for novel innovations to be produced.
Conclusion
This paper set out to explore the importance of networks and alliances in the biotech industry. It began by noting that the biotech industry, while relatively young, has made significant advances over the last few decades. It has attributed these significant gains in knowledge to the collaborations made by biotech firms. The paper has noted that firms collaborate to take advantage of the knowledge possessed by their partners and enhance innovativeness. Financial considerations also play a part in the decision to collaborate especially in small biotech firms. Owing to the positive outcomes facilitated by collaboration and alliances, it can be expected that collaboration will continue to characterize the biotech industry for decades to come.
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