Exploration, Exploitation and Second-order Learning on R&D Investment : Evidence from Korea

Since the publication of March’s seminal work (1991), the terms exploration and exploitation have increasingly come to dominate organizational analyses of technological innovation, organizational learning, competitive advantage and organizational survival. Despite the growing use of those constructs, the results of empirical study on exploration and exploitation remain in inconsistency. Based on previous review studies, this study raised the necessity of comprehending exploration and exploitation as learning process to understand two concepts more precisely. Applying exploration and exploitation on R&D activities of Korean firms, this study tries to suggest how exploitative R&D inputs are related to explorative outcomes. Especially, applying second-order learning suggested by Lant and Mezias (1992) on R&D process, this study tries to see the changes of overall R&D process. In addition, considering most firms focus on exploitation-orientated R&D activities in emerging market, this study also tries to analyze how exploitative inputs might be related to explorative outcomes. For empirical studies, this paper limited its sample to top 100 companies with largest amount of sales and with record of R&D activities among KOSPI 200 companies. Empirical results show that exploitative R&D activities are negatively related to explorative outcomes. In contrast, when second-order learning is moderating the relationship between exploitative R&D inputs and explorative outcomes, the study shows that even exploitative inputs could be related to explorative outcomes. This study provides useful implications to firms, especially conducting R&D activities to acquire continuous competitive advantage in emerging markets. Understanding the fact that input itself does not produce same kind of outcome in R&D process gives implication for both exploration and exploitation theory and practices.