Customization Strategy’s Limitation and Potential: A Firms’ Innovation View

Abstract

This study analyzes the impact of a firm's customization strategy on its internal and external innovation activities. Specifically, I analyze R&D investment as an internal innovation activity and external knowledge search as an external innovation activity. To do so, I conducted an empirical study using 3,982 firm data from 2020 Korean Innovation Survey. The results show that firms adopting strong customization strategy are likely to have lower R&D intensity because they pursue incremental innovation to meet the needs of existing customers. However, they are likely to increase external knowledge search breadth and depth by acquiring relational capability and external knowledge acquisition experience from customer interactions. Current study not only explain the unique nature of customization strategy, but also provide practical implications for firms choosing customization strategy.