Product and Process Innovations in Subcontracting: Empirical Evidence from the French “Sillon Alpin”

This paper investigates the role that subcontracting relationships (collaborative outsourcing vs. traditional subcontracting) can have on a subcontractor's ability to innovate in process and product. In order to measure the “full” impact of subcontracting relationships on innovation, we take into account the possible interaction between process and product innovations. The empirical test is based on 93 small firms operating in “pure subcontracting industries”. Using a bivariate probit model, we give evidence that process and product innovations are not independent choices. The test confirms the positive impact of collaborative outsourcing agreement on the subcontractor's probability to innovate whatever the type of innovation. Finally, the results show that process and product innovations are reinforced by different inter-organizational practices and tools as well as distinct absorptive capabilities. This suggests important implications for subcontractors' competitive position.