Uncertainty avoidance and the exploration-exploitation trade-off

Abstract

Purpose This study aims to investigate how a firm’s uncertainty avoidance – as indicated by the headquarters’ national culture – impacts firm performance by affecting exploratory (product innovation) and exploitative (brand trademark protection) activities. It aims to show that firms characterized by high levels of uncertainty avoidance may be less competitive in the exploratory product development stage, but may be more competitive in the exploitative commercialization stage by producing more durable brands. Design/methodology/approach The study uses data from US Software Security Industry (SSI) trademarks, registered by firms from 11 countries during 1993–2000, that provide 2,911 trademarks and a panel of 18,213 observations. It uses the SSI database to identify the number of product innovations introduced by firms. Findings Results show that uncertainty avoidance lowers the rate of product innovation, but helps firms to appropriate more value by greater protection of their brands. Uncertainty avoidance thus creates an exploration–exploitation trade-off. Practical implications This study provides useful insights for managers regarding where to locate a firm’s front-end development (product innovation) activities and commercialization (brand trademarking protection) activities. Originality/value This is the first study to demonstrate the influence of a cultural trait on both explorative and exploitative stages simultaneously. As a methodological contribution, it shows how objective, longitudinal brand trademark data can be used to analyze the long-term impact of marketing activities on firm performance.