External Technology Supply and Client-Side Innovation

The market for IT outsourcing has extensively grown during the last decade. At the same time the aim of external IT provision has transformed from cost-cutting to following strategic goals. For related types of business services, the literature has identified a potential to build bridges for innovation. The authors employ a stylized theoretical model to derive hypotheses for the empirical analysis of the role of IT outsourcing in product and process innovation. Estimation results based on German firm-level data suggest that IT outsourcing has positive effects on both types of innovation. For product innovation they find a hump-shape.