Exploration or exploitation R&D? How Firms Respond to Import Competition

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Are companies responding to increased competition by seeking completely new technological solutions (exploration) or are they striving to defend their position by improving current technologies (exploitation)?

Competition from increased import penetration typically results in tight profit margins, low prices, and high efficiency pressures, immediately affecting business results in the form of reduced profits and increased risk of bankruptcy. .

A company’s R&D strategy is one of the fundamental determinants of success or failure in the face of competitive threats. To ensure both short-term performance and long-term survival, companies have two basic options in R&D: exploring new knowledge or exploiting existing knowledge bases.

A new study published in the Strategic Management Review (SMJ) examines how companies are changing the sources of knowledge used in their R&D efforts in response to substantial increases in import penetration in their domestic market. The study was conducted by Raffale Morandi Stagni, Universidad Carlos III de Madrid, Spain, Andrea Fosfuri, Bocconi University, Milan, Italy and Juan Santaló, IE University, Madrid, Spain. They studied a sample of American manufacturing companies during the years 1989-2006.

“Our focus on technology reflects both its growing importance to business survival and its competitive advantage,” write the authors. “Specifically, we study the competition created by import penetration, which has grown steadily in recent years to become a central concern for companies, for example, dealing with imports from China.

“We find that in the years immediately following an increase in import penetration, companies tend to rely more on familiar knowledge in the development of innovations and less on knowledge sources that were not used. before. (reversed in subsequent years), and it is positively associated with an increased likelihood of survival. “

The researchers argue that while exploration is riskier and more expensive than mining, it also requires a longer time horizon to produce results due to its slower learning model.

They also tested the effects of import penetration depending on the type of competition and the type of industry involved. They separated imports from low-tech countries from imports from high-tech countries.

“If technological competition has a different effect on research strategies than price-based competition, we can expect the results to differ,” the researchers write. “Instead, the effects of the two types of import penetration are qualitatively similar.

“We also did a sample allocation of industries in which the main customers are other businesses (B2B) or those in which the main customers are end consumers (B2C). In line with the intuition that import penetration poses a greater threat to the survival of B2B companies. industries, we find that the effect of import penetration on technological exploration and exploitation is stronger for this group than for B2C industries. “

The final variable studied was whether technology research strategies are moderated by factors that may lessen or increase concerns about the survival of the business.

“The results show that the negative relationship between competition and exploration is magnified for companies that are relatively more vulnerable because they have greater operating leverage and a lower degree of product diversification,” the researchers write.

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the SMJ is published by the Strategic Management Society (SMS), composed of 3,000 academics, business practitioners and consultants from 80 countries, focuses on the development and dissemination of information on the strategic management process, as well as on the promotion of contacts and exchanges around the world.

Media contact:

Barbara grobicki

[email protected]

Strategic management company

http: // www.strategic management.report

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