Open innovation, knowledge creation and capability building: the case analysis of transformational entrepreneurship at Alibaba & SHOP.COM

Based on the resource and knowledge-based theory of the firm, this chapter discusses the importance of open innovation and knowledge creation for market-based firms to gain and sustain their competitive advantage in the global marketplace. Drawing from two streams of literature on open innovation processes and practices, and competencies and capabilities required for open innovation, we conduct a comparative case analysis of two internet-based online marketing firms, Alibaba Group and SHOP.COM/Market America. It is found that both companies have utilized a combination of inside-out and outside-in open innovation processes, but with differentiated open innovation practices. A conglomerate group of Alibaba with many associated global partners signifies its choice of using strategic interfirm alliance, joint venture and collaborative open innovation practices, whilst a single entity SHOP.COM relies on out-licensing to its elite online shop consultants and seeking ongoing feedback from its unfranchised business owners to get involved in the open innovation and knowledge creation process. Alibaba’s organizational capacity building is largely firm-focused through organizational learning to build inside-out capability and collaborative ability, in contrast to SHOP.COM’s customer-oriented capacity building approach to develop more outside-in capabilities with a strong emphasis on constructing a distinctive learning organization. These differences were identified to be closely associated with the nature of business, size, structure and culture. Implications of our findings to other international market-based firms are discussed.