external resources in dynamic competitive environments
So far, I have provided an overview of the dominant theoretical framework on explaining intraindustry performance variations and sustained competitive advantage, namely the RBV. Taking into account initial contributions (Amit & Schoemaker, 1993; Barney, 1991; Barney, 1986; Conner, 1991; Dierickx &
74 Cool, 1989; Peteraf, 1993; Wernerfelt, 1984), I have highlighted limiting conditions for resources to be a source of sustained competitive advantage. Following Barney’s original model (1991), resources can be a source of
competitive advantage when they are valuable, rare, costly-to-copy, and hard to substitute (VRIN conditions). In turn, competitive advantage is sustained when resources are heterogeneously distributed among competing firms (resource heterogeneity) and non-tradeable into (perfect) strategic factor markets (purchased for a specific price).
As it has been illustrated above, scholars have significantly extended the theoretical basis of RBV by illustrating mechanisms where network- and alliance- specific resources can contribute to firm competitive advantage. Whilst these contributions shed important light to the applicability of the RBV in competitive environments where firms compete in an interconnected way, they fail to account for dynamic environment conditions that competing firms are faced with. It is under such competitive conditions, where understanding the interplay between external resources and sustained competitive advantage becomes even more important. Recently scholars have attempted to expand the theoretical boundaries of the RBV by taking into account environment conditions such as uncertainty, and munificence. A recent example is the study of Sirmon and colleagues (2007) which connects uncertainty and munificence (as environmental contingencies) with managing resources. Specifically, the authors focus on three environmental contingency factors that may produce uncertainty such as industry structure, the stability of market demand, and environmental shocks. Under high uncertainty, the authors argue, firms will seek to acquire a broader set of resources in order to seize environmental
75 opportunities and increase their flexibility towards competitors’ actions.
Environmental uncertainty, in terms of resources, holds several implications for firm strategic behaviour. First, uncertainty can be seen as one dimension of perceived competitive action among rival firms. Second, uncertainty may affect the management of a firm’s resources but also competitive actions
towards the occupation of environmental opportunities. Third, resource uncertainty highlights the strategic importance of competitors’ actions on the focal firms’ strategic behaviour. The relationship between uncertainty and
resources can be seen as an outcome of Schumpeterian competition. In his early attempt to provide theoretical implications of how firms strategize under Schumpeterian competition, Barney (1986) argued:
―...certain firms in the industry may have the unique skills required to be the source of revolutionary changes in that industry... Other firms may have the unique ability to rapidly adapt to whatever evolutionary changes may occur ... However, as long as some irreducible uncertainty remains in the industry, firms will be unable to anticipate perfectly which particular changes in an industry will cause a revolution, or which firm or firms will be the sources of this change...‖
―If it were possible to anticipate a Schumpeterian revolution with certainty, then most firms will be able to respond accordingly by acquiring the appropriate resources and implementing the necessary strategies. However, Schumpeterian revolutions can only can be imperfectly anticipated, the effects of Schumpeterian revolutions of defining some organizations’ abilities and assets as newly valuable, are partially stochastic in nature... Firms that have what turn out to be newly valuable skills and assets are, to some extent, lucky. These lucky firms may be able to retain their resource and skills advantages for a substantial period of time, thereby becoming dominant actors in their newly defined industry.‖ (: 796-797)
Barney brings out some important implications for ERA that unfortunately does not fully incorporate in his theory of strategic factor markets. Such dynamic conditions, such as uncertainty, hold important implications specifically for the differential expectations that competing firms must build on if any value can be appropriated when acquiring resources in strategic factor
76 markets. More generally, in line with the argument of Dierickx and Cool (1989) on the (non)tradability of strategic resources, Denrell et al (2003: 985) suggest that competing firms can seize opportunities in strategic factor markets when the future value of the resource to be acquired is contingent to already owned resources. It is not hard to imagine that such strategic opportunities will be greater when competing firms are faced with high environmental26 uncertainty.
It follows from the above discussion that resource uncertainty both enables and constrains strategic action. Competing firms can take strategic actions to seize opportunities in strategic factor markets. Such (resource) opportunities are created due to competitive imperfections that firms try to exploit (Alvarez & Barney, 2007). Of course, such imperfections suggest that some firms are more prepared to seize resource acquisition opportunities than others. Denrell and colleagues argue that internal resources (that are idiosyncratic) can either enable or constrain firms to capitalize on strategic factor market inefficiencies. Either way, they prescribe that internal resources ―is a necessary component of a successful search of strategic opportunities‖ (Denrell et al., 2003: 989).
In terms of exploiting opportunities, internal resources may be of little help when firms are faced with high environmental uncertainty. One important factor that may hinder the value of internal resources is their path-dependent nature. Firms with a very rigid development trajectory may be unable to put such resources into use (develop value-creating strategies) to exploit resource
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The link between strategic opportunities and uncertainty in the context of the RBV has been also captured on the theory of the entrepreneurial firm (Langlois, 2007). To be consistent with previous sections, and my main concern with ERA, I do not extend my conversation to that literature.
77 opportunities. Another factor that may further hinder the value of internal resources is the causal ambiguity of putting such resources into new uses. As (Dierickx & Cool, 1989: 1508) point out, the accumulation of resources in dynamic environments can be described as stochastic and discontinuous. As such, high causal ambiguity will further hinder the value of internal resources to appropriate any opportunities.
Competing firms however, may act to acquire resources in strategic factor markets for other strategic reasons. As it has been illustrated earlier, one necessary condition for sustaining competitive advantage is the scarcity (rare condition) of resources. Resource imitation may eradicate the scarcity of resources (Peteraf & Barney, 2003: 1038). For firms to sustain competitive advantage must not only acquire superior resources faster than their competitors, to sustain scarcity, but also be able to deploy them. In the presence of uncertainty, firms may also seize opportunities to strategic factor markets to decrease the competitive positions of their competitors. For example, Makadok’s (2001) resource-picking resource-deploying model suggests that competing firms may participate in strategic factor markets in order to pre-empt strategic resources. The pre-emption of strategic resources can lead competing firms to gain a first mover advantage (Lieberman & Montgomery, 1988) or decrease the value of competitors’ resource profiles (Capron & Chatain, 2008).
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