When vicarious learning rewards the originating firm: Exploring the learning opportunities available to the licensor

The increasing environmental uncertainty characterizing current competitive markets encourages firms to rely on other firms’ practices for interpreting their own challenges and situations (Levinthal & March, 1993). The literature defines this phenomenon as vicarious learning, which occurs when firms attempt to collect external knowledge by observing other companies’ strategies, administrative practices, and actions (March, 1991). Research has shown the criticality of vicarious learning processes for a variety of settings (e.g. market entry, product introductions, etc.; Greve, 1998; Srinivasan et al., 2007). More recently, some authors (Yang et al., 2010; Yang & Steensma, 2014) have uncovered the potential of what we can call the “double loop of vicarious learning”, which takes place when the innovator can learn vicariously by observing the imitators which have previously learned from it. Inspired by these insights, we aim to reframe the analysis of licensing agreements in a vicarious learning fashion. We posit that licensing practices may be driven by the desire to exploit the vicarious learning opportunities available to both the originators (the licensors) and the recipients (the licensees). We suggest that licensing-out may allow the licensor to benefit from vicarious learning opportunities spelled out by its downstream technology buyers, in such a way that engaging in licensing–out may be considered a privileged strategy to build a fruitful relationship with imitators. This suggests that, in the first round, the licensor can select its licensees that are more able to vicariously learn from it; in the second round, it can approach the licensee in the reversal situation by acquiring new knowledge – result of the recombination activity performed by the recipient as a consequence of the vicarious learning - to integrate it in its core processes and products. Based on this, we address the following research questions: “Can vicarious learning explain a firm’s decision to license-out its technology in the first round? What kind of rewards (i.e. learning opportunities) can accrue to the licensor in the second round?” The explorative analysis on a longitudinal database on licensing agreements compiled from 1986 to 2014 provides support for our argument.