In 1980s, most of large enterprises were not willing to share R&D with other competitors. They implemented complete control for innovation. They developed products internally for intellectual property and retained within the firm until they released these new products on the market. This process can be regard as the closed innovation paradigm (Almirall and Masanell, 2010). It led the fact that large firms’ core research division monopolized industry innovation activities, and it also established that the number of America large enterprises received 64% of the total number of patents in the US in 1964. However, this schema of over-emphasis on self-research and strict control by closed innovation is leading to barriers faced by firms that relying on internal resources to implement high cost innovation activities is difficult to adapt rapid development of market demand and increasingly fierce competition among enterprises. Companies cannot be closed and expect to grow. According to this system, open innovation gradually becomes predominant model to enterprises innovation. This is to ensure that there is a healthy balance.
Chesbrough (2003) emphasizes that one of most essential factors to develop open innovation is knowledge workers’ mobility and sharp increases. These make proprietary ideas and expertise hard to control by companies, especially for larger companies. Besides, when employees change new jobs, their knowledge gap would arise. These would impact the knowledge flows between companies. In addition to these, increasing private venture capital are found to be beneficial to finance new companies and achieve to commercialize ideas that have overflowed outside the silos of corporate research labs. As Chesbrough notes that open innovation provides a prospect of the opportunity to share risks with others, lower costs for innovation, quick speed to market and lower costs for innovation.
The idea of open innovation was coined by Henry Chesbrough (2003), who stated that firms must encourage and should employ an eclectic mix of external ideas as well as internal ideas, and internal and external paths to market; this is because the companies are eager to improve their technology. This initial comprehension was further discussed by Chesbrough et al. (2006), which refers to open innovation. This is done to accelerate internal innovation by using intended inflows and outflows of knowledge. These are then expanded into the markets for external use of innovation respectively (Chesbrough, Vanhaverbeke & West, 2006, p. 1).