Joint influence of R&D strategy and environmental uncertainty on innovation performance: Insight from transaction cost economics

This study aims to extend transaction cost economics (TCE) to explain the effects of the strategies of internal and external R&D on innovation performance under two types of environmental uncertainty, namely dynamism and complexity. As a departure from conventional TCE wisdom that internally focused R&D strategy is more efficient under environmental uncertainty, this study proposes that such a strategy can be less efficient under environmental dynamism, which is another important type of uncertainty. The results from a sample of manufacturing firms in China from 2002 to 2007 show that externally focused R&D strategy leads to better innovation performance under environmental dynamism, whereas internally focused R&D strategy results in better innovation performance under environmental complexity.