Going far to go further: Offshoring, exploration, and R&D performance

Despite its many benefits, firms may not conduct exploration because of inhibitive costs. We maintain that offshoring provides a cost-leveraging strategy that can help firms overcome this constraint, and enhance their R&D performance with increased exploration. Empirical evidence supports our thesis: first, firms that offshore more of their R&D activities to developing countries engage in greater exploration; second, the degree to which firms benefit from offshoring is contingent on their R&D intensity, such that firms with lower levels of R&D intensity enjoy greater benefits from offshoring for exploration than those with higher levels; and third, greater exploration confers an R&D performance advantage to firms where greater exploration increases firms' successes in preclinical trials. Our study offers two implications: (1) what drives firms' exploration is not just what they can do (competencies), but also what they can afford to do (costs); and (2) offshoring enhances exploration, which, in turn, increases R&D performance.