Firm Survival and the Dynamic Capability to Balance Internal Development and External Sourcing

Recent arguments in the dynamic capabilities literature suggest that firms need to develop skills with both internal development and external sourcing to be able to thrive over time. We have a limited understanding of the conditions that best suit internal and external sourcing, however, while no largescale study has examined the extent to which firms’ ability to form coherent portfolios of internal development and external sourcing projects improves their ability to renew their capabilities and survive in dynamic environments. This study examines the role of capability and institutional constraints in shaping firms’ choices of capability sourcing modes and, in turn, their ability to successfully create new capabilities and survive in their industries. Thus, the research focuses on an under-emphasized form of dynamic capability: the ability to identify appropriate modes of capability sourcing. We test the arguments with a detailed survey and longitudinal study of the international telecommunications industry. We find intriguing variations in the way that heeding capability constraints and various forms of institutional constraints influences firms’ ability to change successfully.