When Do Acquisitions Facilitate Technological Exploration and Exploitation?

Abstract

Previous research has suggested that firms need to balance exploitation and exploration. Acquisitions can be used as a way to explore (i.e., develop new areas of technological expertise) or exploit (i.e., reinforce existing technological capabilities). This article examines acquisitions in the semiconductor industry to answer the following question: Under what conditions do acquisitions facilitate exploitation and/or exploratory activity by the acquirer firm? The authors posit that an acquirer firm’s ability to develop such exploratory innovation is a function of three key factors: opportunity available to the acquirer firm for exploration, ability of the acquirer firm to effectively assimilate and establish innovations in new technologies, and extent of control of target firm postacquisition. The results demonstrate strong support for the hypotheses indicating the benefits of target technological uniqueness and for the moderating effects of commonality between acquirer and target firms in geographic bases for exploration. However, the findings contradict expectations about the effects of mergers and suggest that merger enables the acquirer to engage in effective exploration. For exploitation, the authors find negative effects of target technological uniqueness and positive effects of commonality of geographic bases.