Science Research Management ›› 2019, Vol. 40 ›› Issue (11): 102-110.

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Innovative effect of exploring and exploiting internationalization:A matching test based on contingency theory

Wu Hang1, Chen Jin2   

  1. 1. Business School, East China University of Political Science and Law, Shanghai 201620, China; 
    2. School of Economics and Management, Tsinghua University, Beijing 100084, China
  • Received:2016-11-09 Revised:2018-07-05 Online:2019-11-20 Published:2019-11-25

Abstract:  Entering into international market has become an important strategic choice for Chinese firms to connect with international innovation sources to explore new knowledge and resources, and to exploit technological and market advantages to achieve economies of scale. Although Chinese firms have shown great enthusiasm for globalization, the outcome of implementing internationalization strategy is uneven. In other words, although a group of companies such as Geely and Haier have achieved great success in the international markets and promoted the great development of technological innovation, there are also a large number of firms losing their innovation expectations in the process of internationalization. Therefore, it is theoretically necessary to further study the innovation mechanism of firm’ internationalization.
Existing research has paid great attention to the study on the relationship between internationalization and innovation, but has not reached a consensus conclusion. Empirical studies show that internationalization has a positive, negative, U-type and even no impact on innovation, the reason for which is that there are two theoretical gaps in existing research. On the one hand, existing research regards internationalization as an overall strategy, and there is no empirical test on the impacting mechanism of differentiated internationalization strategies on innovation performance. In fact, Makino et al. (2002) have already pointed out that there are differences in the motives of internationalization, including asset search and asset utilization.Prange and Verdier (2011) further pointed out that the implementation of internationalization strategy is a process of combining exploration and utilization. Awate et al. (2015) believe that firm’s internationalization can be understood from two aspects including capacity creation and capacity utilization. Therefore, it is necessary to further subdivide internationalization and deeply analyze the affecting mechanism of different internationalization strategies on innovation performance.
〖JP3〗On the other hand, scholars explain the influencing mechanism of internationalization on innovation based on resource view and organizational learning theory, both of which do not uncover the affecting conditions of resource and learning on innovation. According to the logic of contingency theory, the innovation effect of internationalization strategy depends on the matching degree of internationalization strategy selection with organization, strategy and environmental factors. In fact, the contingency theory has long been reflected in the field of internationalization. For example, Dunning (1981) believes that the success of enterprise internationalization lies in its ownership advantage, location advantage and internalization advantage.Brouthers et al. (1999) further suggested that the implementation of internationalization strategy needs to match the ownership, location and internalization advantages. However, existing research often regards internationalization as an overall strategy, and does not study the innovative effects of different internationalization strategies under the framework of contingency thinking. Therefore, it is necessary to integrate the theory of internationalization and contingency theory, and explore the conditions for the implementation of different internationalization strategies.
In view of this, this paper firstly divides internationalization into exploratory and exploitative internationalization based on the organizational learning theory. According to the perspective of organizational learning theory, both exploration and exploitation involve organizational learning. The difference is that exploratory learning is a search for new domain knowledge in a large scope, while exploitative learning is deep in the known narrow range. Therefore, exploratory internationalization represents a learning activity that searches extensively for new knowledge in the international market, and exploitative internationalization represents a learning activity that utilizes its own resources and knowledge in the international market. Secondly, based on large sample survey of 227 Chinese manufacturing firms, this paper examines the relationship between exploratory internationalization, exploitative internationalization and innovation performance. Except that, we also test the moderating effect of firm age, host-home country similarity and international environmental dynamism.
The results show that exploratory and exploitative internationalization both have a positive relationship with innovation performance, and exploratory internationalization has greater consequences on innovation performance compared to exploitative internationalization. Otherwise, selection of international strategy must fit the organizational, strategic and environmental factors to maximize innovation. Young firms are better able to improve their innovation performance in the process of implementing exploitative internationalization, and older firms are better able to enhance their innovation performance in the process of implementing exploratory internationalization. When choosing to enter a market with high similarity to the home country, firms can obtain innovative income from exploitative internationalization, and when choosing to enter a market with low similarity with the home country, firms can obtain innovative income from exploratory internationalization. When the international environment is highly volatile, the implementation of exploratory internationalization can enhance innovation performance, and when the international environment is stable, the implementation of exploitative internationalization can improve innovation performance.
This study contributes to the classification theory of internationalization strategies by Makino et al. (2002),Prange and Verdier (2011), further subdivides the internationalization strategy into exploratory and exploitative internationalization, and empirically analyzes the impact of two internationalization strategies on innovation performance. More importantly, this study integrates contingency theory in the traditional framework of the theoretical research on the relationship between internationalization and innovation, and argues that the impact of exploratory and exploitative internationalization on innovation performance depends on the fitness of two internationalization strategies with firm age, the similarity between home country and host country, and the turbulence of the international environment, which responds to the previous contradictory relationship between internationalization and innovation, and makes up for the theoretical gap in previous international studies.
This study has practical guiding significance for business managers. On the one hand, business managers should be aware that the implementation of exploratory and exploitative activities in foreign markets can promote innovation. On the other hand, the implementation of internationalization strategy must match organizational, strategic and environmental factors. For young firms, firms that choose to enter overseas markets similar to those in their home countries, or those firms operating in overseas markets with low environmental turmoil, they should implement exploitative strategy in the international market. In contrast, for older firms, firms that choose to enter overseas markets different to those in their home countries, or those firms operating in overseas markets with high environmental turmoil, they should implement exploration strategies in the international market.

Key words: exploring internationalization, exploiting internationalization, organizational fit, strategic fit, environmental fit