Burying the Hatchet for Catch-Up: Open Innovation among Industry Laggards in the Automotive Industry

Abstract

What happens when firms in an oligopolistic industry find themselves lagging behind in a potentially dominant technology? If R&D costs are significant and catch-up is key, technology laggards must turn to each other and open up their innovation processes in order to survive. This article uses a real options framework to explain the motives of bitter rivals to engage in collaborative relationships in order to catch up with industry leaders in specific technologies. It shows that ex ante, their interests converge and this lays the foundation of “catch-up alliances”: competitors open up to catch up. However, they often bring vastly different resources to the alliance and, in the process of cooperation, what they learn may cause their interests to diverge. Furthermore, some participants may discount a technology trajectory on the basis of what they learn, and terminate efforts in that area. Therefore, the “road not taken” may be a valuable outcome of the open innovation alliance. This article uses the case of a global alliance in hybrid electric drivetrain automotive technology as the study context, and it analyzes the implications for managers facing similar decisions.