Firm boundary decisions

Despite frequent observations of blurring firm boundaries and broad agreement about the relevance of health-related innovation, little is known about R&D outsourcing in the health care sector and the corresponding market for health-related R&D services. To shed light on this issue, we first point to the strong links between the health care system and the R&D sector and, referring to governance and competence perspectives, suggest an extended classification of R&D services based on organizational flexibility and the transferability of complex knowledge. We then apply a descriptive empirical lens by exploring the market's size and structure. This is accomplished in terms of an exploratory case study of the German market for health-related R&D. We quantify the sector-specific performers and financiers of health-related R&D in 2001 and 2003, indicating that health-related R&D services denote an important element in the health innovation system that accounts for about 16% of total health-related R&D. Furthermore, we document that the value of health-related R&D services sourced from abroad exceeds that of "exported" services by a factor of three in 2001, and by a factor of five in 2003. Our findings suggest that health-related R&D is increasingly outsourced to foreign service providers at the expense of the domestic business enterprise sector. Finally, we discuss the policy implications of these arguments.