Strategy scholars have investigated how import competition affects different types of firms’ strategies like corporate social responsibility (Flammer, 2015), internationalization (Wiersema and Bowen, 2008), and diversification (Becerra, Markarian, and Santaló, 2020). This manuscript focuses on the impact of import competition on technology search strategies. […] We propose a theoretical insight that has been overlooked in these prior contributions. That is, we concur that exploration is riskier and costlier than exploitation (He and Wong, 2004; McGrath, 2001), but we highlight that it also requires a longer time horizon to produce results (March, 1991), due to its slower learning pattern.
we argue that when companies face tight profit margins and increased risk of failure as a consequence of import penetration, they might favor technology search strategies (exploitation) that yield results before they run out of business, while turning away from technology search strategies (exploration) that entail benefits in the future.
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Our empirical analysis provides causal evidence that firms react to competition due to import penetration by focusing on technological exploitation; the strength of the reaction increases with greater firm vulnerability. Furthermore, we show that the shift toward technological exploitation is temporary, and firms recover their exploration level about three years after the competitive shock. This behavior also appears beneficial, in that it characterizes firms that have survived the competitive shock but not those that have succumbed to it.
Morandi Stagni, R., Fosfuri, A., & Santaló, J. (2021) A Bird in the Hand is Worth Two in the Bush: Technology Search Strategies and Competition Due to Import Penetration. Strategic Management Journal.