Revealing hidden innovation: patterns of external innovation investment in Australian businesses

Recent theory and literature suggests that many businesses now innovate based on the adoption and modification of knowledge, technology, and innovations sourced externally rather than developed in-house. Yet, little is known about the value and economic impact of expenditures on outsourced innovation activities, which are often referred to as "hidden innovation" by many scholars. The issue is due largely to a lack of consistent measurement, available data, and analyses of expenditures on hidden innovation. In contrast, there is a long history of cross-country data collection on in-house research and development (R&D) activities and costs, and much research focuses on innovations involving in-house R&D effort. This study reviews results from a survey aimed at collecting new economy-wide data on external innovation investments in Australia. The results estimate total unmeasured or "hidden" investment in external innovation activities by Australian businesses at $3.5 to $4 billion in 2014, an amount large enough to stimulate important economic activity and warrant future research. This article discusses the implications of these results for policy, business strategy, and future research on innovation.