Technological exploration through licensing: new insights from the licensee’s point of view

The market for technology plays a crucial role in firms’ technology strategy as a way to undertake search in the available technological space. Drawing on innovation search theory and the literatures on licensing and absorptive capacity (AC) we address the issue of the factors that affect how technologically distant from the existing technological portfolio in-licensing firms are able to move when they in-license externally developed technologies. We posit that a long technological distance reflects the outcome of more exploratory search, while a short distance reflects the outcome of exploitative search. We conjecture two distinct dimensions of AC in terms of the firms’ stock of knowledge (“assimilation capacity”) and the degree to which firms have searched broadly in the past (“monitoring ability”) to affect the distance of exploration from the existing technological portfolio. Furthermore, we compare firms that explore through licensing and firms which do not explore through licensing, but do so through search reflected in own patenting activities. We propose that the effects of assimilation capacity and monitoring ability should be more pronounced for licensees. Combining data on 176 license agreements and related patent information and while using a control sample of non-licensing firms we find—with exceptions—support for these ideas.