Search breadth and the cost of search

We draw attention to an overlooked, yet key theoretical determinant of innovation search ' the cost of search. We address the question of why firms may not conduct broad search despite its many benefits. We argue that the costs of broadening search may inhibit exploration and identify two cost-leveraging strategies that can help firms overcome this constraint: (1) locating some of their activities in foreign countries (offshoring), and (2) joint development with other firms (partnering). Our model takes into account the costs of search on innovative activities and we find that by applying these cost-leveraging strategies, firms can 'afford' to conduct more exploratory search than if they did not use such strategies. Moreover, the degree to which offshoring and partnering benefit the firm is likely to be contingent on the firm's level of R&D spending, such that firms with lower amounts of R&D spending will enjoy greater benefits from offshoring and partnering than firms with greater amounts of R&D spending. Hypotheses were tested with longitudinal data from the U.S. pharmaceutical industry. The main contribution of this research is to show that that firms' search behaviors are driven not just what they can do (competencies), but also by what they can afford to do (costs). Though underemphasized by prior research on learning and exploration, costs matter and have implications for search and innovation activities.