Exploration and exploitation: The different impacts of two types of Japanese business group network on firm innovation and global learning

Abstract

This article examines how two types of Japanese business group networks impact on firm innovation and global learning. Both the general network and Japanese business group literature have emphasized the important role this kind of tightly knit and stable network plays in facilitating the innovation of firms. Yet little is known of the different effects of the two types of business groups on innovation: horizontal versus vertical. In this article, we argue that the horizontal business group network, owing to its inter-industry conglomerate structure, promotes innovation of a wider knowledge-exploration type, whereas the vertical business group network, owing to its intra-industry supply chain linkage, promotes innovation of a close knowledge-exploitation type. In terms of global learning, it is hypothesized that the more domestically explorative horizontal business group network imposes a constraint on international innovation, whereas the vertical business group network does not. Empirical results largely support these arguments.