Sustaining Competitiveness in the Economic Recession: Exploration and Exploitation in Two Small-and Medium-Sized Enterprises in a Developing Economy

We link the exploration–exploitation framework of organizational learning to small- and medium-sized enterprises (SMEs) in a developing economy. SMEs in a developing economy generally lack abundant resources and capabilities because of an evolving set of industrial and environmental regulations. Studying two SMEs in China, we argue that their approaches to balancing exploration and exploitation depend on the development stages of the SMEs and their industrial and environmental contexts. In particular, we propose a four-stage framework that unfolds via initiation, innovation, transformation, and expansion. In this framework, SMEs balance exploration and exploitation by adopting temporal separation and organizational separation sequentially. We also find that SMEs may benefit from exploring a narrow scope of products and exploiting them in a wide market scope.