Institutional Adaptiveness, Technology Policy, and the Diffusion of New Business Models: The Case of German Biotechnology

Abstract

The German economy has been widely seen as failing to develop the commercial innovation competencies necessary to compete in new technologies. Starting in the mid-1990s, the German government instituted a series of new technology policies designed to orchestrate the development of small entrepreneurial technology firms. These policies have fostered several hundred new high-technology start-ups in Germany. This development represents an interesting challenge to prevailing institutional theory, which tends to view the characteristics of organizations as strongly constrained by the orientation of a number of key national institutional frameworks. Focusing on biotechnology, this article examines the relative importance of national institutional frameworks as opposed to sector-specific policies that are presently pervasive in Germany. Analysis of the new firms demonstrates that Germany's new technology policies have facilitated important extensions within the business system that have, for the first time, allowed the systematic promotion of entrepreneurial technology companies. However, the dominant strategies of market specialization and company organizational patterns found within these companies have been strongly influenced by incentives and constraints created by long-established national institutional structures. Technology policy has, however, promoted institutional adaptiveness by providing opportunities for firms to experiment with or reconfigure elements of relatively stable national institutional frameworks to create new business practices.

Descriptors: institutional theory, national systems of innovation, biotechnology, varieties of capitalism, entrepreneurialism

Introduction

Throughout the 1980s and early 1990s, the German economy was widely seen as failing to develop the commercial innovation competencies necessary to compete in new technologies (Soskice 1997; Streeck 1996; Casper and Vitols 1997). In the mid-1990s, however, the German government introduced a series of new technology policies designed to orchestrate the development of small entrepreneurial firms. By the end of the 1990s these policies had fostered several hundred high-technology start-up firms in Germany, many of which are pursuing strategies that differ dramatically from those commonly associated with small- and medium-sized German firms. These developments pose an interesting challenge to prevailing institutional approaches to organization that tend to view the characteristics of organizations as strongly constrained by key national institutional frameworks. Focusing on biotechnology, this article examines the impact of institutions on the development of entrepreneurial technology firms in Germany and the Unit ed States, and by doing so, it attempts to construct an analytical framework that can better understand patterns of institutional adaptation within the economy.

The strong role of government technology policies in the creation of entrepreneurial technology firms in Germany gives empirical support for a new perspective on the role of institutions in the governance of the economy -- what I call the 'resource orchestration' approach. It suggests that government policies can develop financial subsidies, alternative technology transfer mechanisms, and other resources to create customized institutional frameworks to support particular sectors. This view can be effectively contrasted with the 'varieties of capitalism' theoretical perspective, which suggests that differences in national institutional architectures create distinctive patterns of industrial specialization across the advanced industrial economies. According to this view, German institutional frameworks produce obstacles to firms in radically innovative industries, but help the organization of competencies needed for a variety of industries that rely on continuous process innovations and product improvements within sophisticated, but established technologies (Hollingsworth and Boyer 1997; Casper et. al. 1999).

By making comparisons with the United States, this paper examines how national institutional frameworks have combined with resources and incentives created by Germany's new technology policies to encourage particular strategies of commercial innovation by entrepreneurial biotechnology firms. Evidence suggests that German institutions strongly influence both the organizational structures and innovation strategies of Germany's new entrepreneurial firms. State technology policies do not allow firms to circumvent economy-wide institutions, tending instead to promote institutional adaptiveness by providing opportunities for firms to experiment with, or reconfigure elements of, relatively stable national institutional frameworks to create new business practices. Indeed, while German firms face severe organizational hurdles when attempting to develop many radically innovative product market strategies that can be successfully sustained within the US institutional environment, they may develop new business strategies in some high-technology segments that cannot easily be sustained by US firms.