Exploitation and Exploration: Learning through Key Buyers and Overseas Subsidiaries

Abstract

The learning dichotomy of exploitation and exploration offers a parsimonious framework to describe the complex interplay between innovation and efficiency. This study examined the effects of three antecedents on this pair of learning dichotomy: knowledge flow, buyer relations, and transnational strategy. We surveyed a group of manufacturing firms in Taiwan where contract manufacturing is prevalent. The results showed that exploitation learning from the focal firm's key buyer was positively related to all three independent variables: knowledge transfer from the buyer, buyer relations between the two firms, and the focal firm's own transnational strategy. On the other hand, exploration learning from the key buyer was positively related to only buyer relations and transnational strategy. Furthermore, while buyer relations and transnational strategy had about equal effect on exploitation, the effect of transnational strategy on exploration was almost twice that of buyer relations on exploration. The prevailing effects of transnational strategy confirm the absorptive capacity view that effective learning requires internal capability. Particularly for exploration learning, this internal capability happens to be transnational strategy in this study.