“Rent or Buy or Both?” Exploring New Zealand Firms Innovation via Human Capital Approaches

Despite New Zealand firms having structural issues of being a small-sized country and distance from markets, New Zealand still has standout innovators, such as RocketLab. Using human capital (HC) theory, we focus on internal HC (existing workforce) and external HC, represented by the number of R&D scientists engaged. We argue that each might contribute to innovation but also have a synergistic effect, whereby ‘buying’ and ‘renting’ HC leads to superior innovation. We test this approach using three samples including time-lagged innovation data in sample 3. In sample 1 (n=579 firms) we find both HC internal and HC external are directly related to product/service innovation, and a significant interaction effect. In study 2 (n=510 firms) again we both HC internal and HC external are directly related to product/service innovation, process innovation, and innovation speed. Towards patent success, only external HC is significant and there is no significant interaction effect. In study 3 (n=302 firms) we find both HC internal and HC external are directly related to product/service innovation, process innovation, patent success and patent success over applications. Towards patent success, only external HC is significant, but a significant interaction effect is found with internal HC. Overall, all significant interaction effects are similar, with greater innovation being achieved when both internal and external HC are high. We discuss the implications towards innovation in small economies and the contribution to human capital theory.