To Fill a Hollow Core: Roles of Firm Knowledge When Outsourcing Core Component During Technological Change

Abstract

The innovation literature has been marked by contrarian views regarding the roles of firms' knowledge accumulation with regards to outsourced core components. To reconcile these views, we draw on the behavioral theory of the firm and the technological evolution literature in hypothesizing firms' local search as a mechanism by which firms' accumulated knowledge affects their product performance. Firms' in-house knowledge can expose them to an accumulated knowledge trap, as firms' accumulated knowledge tends to escalate their local search for a solution to a new technological challenge, but the impact of the local search on performance is unlikely to be materialized. We maintain that firms' accumulated knowledge can make them more prone to the accumulated knowledge trap before rather than after the dominant technology has emerged. We further hypothesize that prior exploratory experiences and suppliers' outsourced component knowledge can reduce firms' susceptibility to such a knowledge trap before the dominant technology emergence, but their moderating roles fade away after the dominant technology emergence. Data from the U.S. Hybrid Electric Vehicle drivetrain market support our hypotheses. Our findings enrich the current literatures on the behavioral theory of the firm and technological evolution while reconciling the contrarian views in the innovation literature.