Learning by exporting: The contingent role of capabilities

Abstract

We explore how differences in process and product R&D capability influence the extent of learning by exporting (LBE). We theorize two processes that simultaneously influence LBE. While absorptive capacity plays a dominant role at lower capability levels, the diminishing returns to R&D take over at higher levels. Using longitudinal data from theIndian pharmaceutical industrywe use aanovel approach toestablish that exportingcontributes positively to technical efficiency, and the effects increase with a firm’s ex-ante R&D capability. However, when we distinguish between firms at the low and high end of the product and process R&D capability spectrum, we find that the role of prior process and product R&D in moderating the extent of LBE is non-monotonic.Leaders gainmore than laggardsat low capability levels, while laggards gain moreat high capability levels. We discuss implications for theory and practice.