The relationship between internal and external exploration orientation: the moderating role of the vertical scope of a firm

Using data from the biopharmaceutical industry, this study analyzes the relationship between internal and external exploration (exploitation) and the moderating role of firm characteristics. We argue that the characteristics of a firm - in particular a firm's vertical scope - are an important but so far overlooked contingency factor determining the relationship between internal and external exploration (exploitation). Our findings indicate that differences in vertical scope result in alternative combinations of internal and external exploration. While specialized firms tend to focus either on exploration or exploitation both within the firm as well as with their alliance portfolio, vertically integrated firms prefer to balance exploration and exploitation across firm boundaries.