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The Current State of Open Innovation in the Korean Manufacturing Industry

The Current State of Open Innovation in the Korean Manufacturing Industry

BOK Deuk-Kyu

May 8, 2008

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Originally released on February 29, 2008


In today's business where innovation increasingly matters to all, open innovation is emerging as a new way of improving a firm's bottom line. Open innovation refers to activities that apply the ideas and technologies of other companies, as well as sharing in-house technology resources with outside parties. This study aims to analyze empirically the current trend of open innovation activities throughout the Korean manufacturing sector, while reviewing the impact open innovation has on a firm's innovation performance. To this end, this paper first takes a full glimpse at previous empirical studies which typically divide open innovation activities into three sub-stages (search, R&D and diffusion) and then perform efficacy analysis of the three sub-stages.

At first glance, these studies provide compelling evidence that open innovation leads to higher business performance. However, we find that the effect of open innovation in Korea is much smaller than observed in foreign studies, although Korean manufacturers are as active as foreign peers in open innovation activities. This is primarily because the technological prowess of Korean manufacturers is falling far behind that of their foreign rivals.

Despite the limited effect, open innovation does have some promising aspects. Most notably, it is found that technologically advanced Korean firms can more effectively develop “first to market” products through open innovation, while less-advanced companies can develop “first for company” products or improve already-existing products through open innovation, thereby enhancing their operating profits/sales ratio. Based on such analysis results, several suggestions can be provided for the Korean government and firms. Instead of blindly marching toward open innovation, for example, domestic firms and the government should take into account the target products and capabilities of companies. In addition, instead of simply feeding information about open innovation to businesses, the government should arrange actual collaboration, especially with foreign partners.

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