Innovation and survival in Korean SMEs: the moderating effect of competitive strategy

This study investigates the effects of innovation on firm survival. We conceptualise the innovation type as exploration and exploitation and test the hypotheses on balancing these two contradictory innovation activities. We further explore the congruence between a firm's competitive strategy and its innovation activities because the strategy can influence the way in which a firm deploys its resources to innovation activities. An analysis of 255 Small and Medium-sized Enterprises (SMEs) in Korean IT industry indicates that (1) the extent of exploratory innovation has inverted U-shaped relationship with firm survival, providing support for the ambidexterity perspective; (2) the differentiation strategy moderates the exploratory innovation – firm survival relationship. These findings contribute to the organisational ambidexterity literature. First, the study provides clear empirical evidence that the exploration–exploitation balance plays an important role in the SMEs’ survival. Despite the theoretical assumption and common belief that balancing exploration and exploitation is important for long-term performance and survival, most empirical studies have focused mainly on the short-term financial performance outcomes. Second, the results suggest a need for a good fit between a firm's competitive strategy and its innovation orientations, providing a contingency approach to underscore the effectiveness of a firm's exploratory and exploitative innovation under different contexts.