Offshore manufacturing and firm innovation: the moderating role of technological capabilities

Scholars have recently suggested that offshoring may favour firm innovation, as it allows firms to gain access to a broad and varied array of information and knowledge sources. However, we still know little about whether some firms are better suited than others to benefit from the learning opportunities that offshoring presents. Therefore, in this paper, we analyse whether and how firm heterogeneity - in the form of technological capabilities - moderates the impact of offshoring (specifically, intermediate manufacturing offshoring) on firm-level innovation. Utilising data for 1359 Spanish manufacturing firms from 2006 to 2011, we find that, although both technologically leading and lagging firms apply for more patents and utility models subsequent to offshoring, the positive impact of offshoring on firms' innovative output is greater for the former than for the latter. Our results, thus, suggest that firm-specific capabilities play an important role in order to take advantage of the innovation benefits that offshoring may provide.