Double-edged sword of open innovation for business failure in the post-pandemic era: The moderating roles of industrial embeddedness and absorptive capacity

Abstract

This study aims to contribute to the literature on open innovation by theorizing about the breadth and depth of an external knowledge search as a double-edged sword that can both reduce and increase the business failure risk. In addition, we integrate an extended resource-based view (ERBV) and a knowledge-based view (KBV) into an open innovation perspective to examine how a B2B firm's industrial embeddedness and absorptive capacity moderate the proposed relationships between a firm's external knowledge search (i.e., of both the breadth and depth of the external knowledge search) and business failure. To understand the effect of environmental shock on organizational learning and searching, we found a U-shaped relationship between a firm's external knowledge search and business failure in a sample of B2B firms that experienced COVID-19 in a highly developed “leapfrogging economy” (i.e., South Korea). The industrial embeddedness and absorptive capacity of a firm negatively moderate (flatten) these U-shaped relationships.