ROLES OF FIRM KNOWLEDGE RETENTION WHEN OUTSOURCING CORE COMPONENT AMID TECHNOLOGICAL CHANGE

When the technology of a core component is radically changing, a number of firms opt to outsource the core component to mitigate various risks. Some firms choose to retain the knowledge regarding their outsourced core component while others do not. This study examines the effect of firm in house knowledge related to the outsourced core component (i.e., retaining the related knowledge while outsourcing the core component) on product performance during such radical technological change. Drawing on the behavioral theory of the firm, we hypothesize that, before a dominant technology of the core component emerges, firms operate under a high technological uncertainty, and the firms' in-house knowledge related to the outsourced core component can predispose the firms to cognitive biases in the solution search process. Thus, their eventual product performance is compromised. We also hypothesize that prior exploratory experience in a technologically related but outside domain and the external knowledge about the core component from suppliers can moderate such negative influence of the firms' in-house knowledge on product performance during the pre-dominant technology phase. After a dominant technology has emerged, the clarity of key technological features arguably become established. The firms' in-house knowledge related the outsourced core component is hypothesized to have a positive effect on their product performance as it enables the firms to advance the development of their unique firm-specific features in differentiating their products from those of the rivals. We further hypothesize that the moderating effects of prior exploratory technological area experience and external knowledge about the core component from suppliers are fading away after the dominant technology has emerged. We empirically test our hypotheses in the context of U.S. Hybrid Electric Vehicles market, and our hypotheses are largely supported.