Opening Up but Staying Local: Insights from Partnership Formations between Established and Startup Firms

Abstract

In this paper, we combine perspectives on organizational myopia and organizational learning to investigate how success and failure shapes the reaction of established firms to external partnering opportunities. We provide a dynamic model in which the general tendency of firms to search locally is moderated by their history of prior failure and prior success in R&D. We argue that while prior failure is important to firms? consideration of novel technological solutions, prior success can make them more receptive to solutions at an earlier stage of development. We examine potential and realized partnerships between established and startup firms for 889 emerging technological opportunities in the bio-pharmaceutical industry between 1997 and 2006 and find support for our theoretical model. The study provides insights into how established firms notice, interpret, and respond to emerging partnering opportunities and explicates the role of prior success and failure affecting different myopic tendencies in organizational search.