How do pre‐entrants to the industry incubation stage choose between alliances and acquisitions for technical capabilities and specialized complementary assets?

Abstract

Research summaryFocusing on the incubation stage of a potential new industry, this article addresses a gap at the intersection of the external sourcing and market entry literatures by examining pre‐entry external sourcing of new resources. Besides drawing on their legacy resources, pre‐entrants during industry incubation commonly use alliances and acquisitions to obtain technical capabilities and complementary assets, thereby creating a portfolio of sourcing modes that collectively shapes the firms' paths to potential market entry. We identify a key pattern at the intersection of type of sourcing mode and type of resource: pre‐entrants to the incubation stage are more likely to use alliances to source technical capabilities, while using acquisitions to source specialized complementary assets. Our empirical context is the agricultural biotechnology industry.Managerial summaryFirms typically seek new resources when they begin exploring potential industries, before any products have reached the market, yet the needed investments face substantial uncertainties. This article highlights a pattern in how firms use alliances and acquisitions for technical capabilities and complementary resources during the incubation stage of the agricultural biotechnology industry. We focus on two key features of the external sourcing activity, differing based on the type of resource: developing new core technologies, which often starts early, tends to leverage external alliance partners; by contrast, establishing complementary assets tends to start later through acquisitions. The logic underlying these patterns can help managers make effective decisions about their external sourcing strategies during the incubation stage of a new industry.

A new perspective on open innovation: established and new technology firms in UK bio‐pharmaceuticals

“…Distinguishing between upstream and downstream activities adds to Gassmann and Enkel's (2004) framework, by highlighting that OI can make a different impact depending on the context of its application; for instance, inbound OI appears with a different sign for upstream compared to downstream activities for both ETFs and NTFs. Our findings are aligned with existing research showing that external sourcing strategy depends on the nature of competences sources, technical or complementary (Moeen and Mitchell, 2020).…”

“…Our results echo research showing that NTFs which engage in commercialisation alliances better understand market needs, which enhances in turn their success in patents (Shan et al, 1994;Khilji et al, 2006;Fernald et al, 2015). Broadly this reflects the need for close coordination between upstream and dowsntream activities for effective communication and technology commercialisation (Moeen and Mitchell, 2020). Our results confirm part of hypothesis 1a (inbound dowstream OI) and contradict part of hypothesis 3a (coupled upstream).…”

“…Our results reflect the difficulties in identifying suited technologies under technological uncertainty and of integrating unfamiliar external sources of knowledge that may be disconnected with existing thinking and processes (Lavie, 2006;Hopkins et al, 2007;Stanko et al, 2017). They also reflect that adapting complementary capabilities to the exploitation of new technologies requires closer coordination and communication across their interface, which is more effectively organised through tighter coordination (Moeen and Mitchell, 2020). The negative association between downstream outbound and ETF innovation performance reflects the barriers in dissentangling and externalising intermediate outputs of the NPD process that are interelated with other NPD projects.…”

“…We collect data on firm-specific characteristics influencing innovation performance, such as investments in R&D and firm size, to account for the amount of investments in innovation and resource endowments, respectively. Firm size is captured by number of employees, as due to the nature of the technology and long gestation periods, firms may not immediately generate sales (Rothaermel and Boeker, 2008;Birkinshaw et al, 2018;Moeen and Mitchell, 2020).…”

Whom do nascent ventures search for? Resource scarcity and linkage formation activities during new product development processes

“…Yet nascent ventures differ in many respects from established ventures, most prominently with regard to their resource scarcity, i.e., managerial, financial, and informational scarcity (Ahuja 2000;van Burg et al 2012). As early strategy choices have a long-lasting imprint on ventures (Mathias et al 2015;Grilli et al 2014;Bamford et al 2000), these insights matter for strategic management scholars as it casts doubt on the implicit assumption that alliances are used to mobilize relevant resources by combining exploration and exploitation (Moeen and Mitchell 2020;Rothaermel and Deeds 2004;Shi and Prescott 2011;Stettner and Lavie 2014;Koza and Lewin 1998;Holmqvist 2004;Greve 2007;Hill and Birkinshaw 2008;Russo and Vurro 2010), a strategy which Desa and Basu (2013: 28) have called an "optimization approach." This is why Hoang and Antoncic (2003) in their overview on linkage formation have called for more research to better understand the linkage formation process of nascent ventures (what they call the "network development processes"), and why Shi et al (2012) argue that more work is needed on "what order or sequences" (p 182) are formed.…”