External R&D and Finance Decisions of Small and Medium Sized Hi-tech Companies

Since 1980s the telecommunication and transportation costs decreased dramatically, which caused great changes in organizational structure and daily practices of firms, more and more firms replaced various kinds of in-house practices including core businesses with external acquisition or outsourcing. In this paper we mainly discuss about the change of R&D mode in high-tech companies from traditional internal R&D activities within in-house research departments to external R&D activities including market transaction, merger & acquisition (M&A) and strategic alliance with other R&D companies. We also discuss the relationship between the R&D mode choice and firm's finance decisions; we found that due to the limitation on finance capability, external R&D are less attractive to Hi-tech companies in Zhejiang Province in China, especially for small and medium sized Hi-tech companies.