The aforementioned findings would appear to lend empirical support for a marked emphasis on the internal considerations of the generic drug firm when making entry decisions, albeit a very tentative support. The effect of a firm’s organizational experience was highly supported, thus confirming previous research on the generic drug industry (Scott Morton, 1999, 2000; Nerkar and Roberts, 2004; Iizuka, 2009) as well as recent capabilities-based literature on market entry (Lieberman and Helfat, 2002; Thompson, 2007). An important element of the RBV is the assumption that those resources forming the basis of an existing firm’s competitive
advantage are rarely easy to identify from the outside (the causal ambiguity problem) and, if identified, are difficult to replicate, even for the firm’s own managers (Barney, 1991).
Accordingly, Penrose’s resources approach puts emphasis on strategic experimentation in diversification strategy through adaptive and creative responses. Strategic experimentation is a
29
component of the competitive process, and it is often the key to maintaining the existing
capabilities and protection of a current advantage (Kor and Mahoney, 2004). Thus, capabilities-building, although assumed to be an automatic process in the RBV, still denotes reliability in entry decisions, especially when put in contrast to AMC’s competitive relationships, for which the intensity may often ebb and flow.
This assumption might be highly relevant in explaining why Hypotheses 3 and 4 were not supported, as the unpredictability of competitor’s actions is heightened in a context of
simultaneous entry games, which characterize the generic pharmaceutical industry. Even if generic drug firms have the ability to enter a market in response to competitive pressure due to risk to overall profits, accumulating and developing internal efficiency takes precedence in dynamic context of the generic drug industry. A working paper by Gallant et al. (2011) extends Scott Morton’s work with the finding that knowledge spillovers related to drug form potentially applicable to future market profitability rather than the current market opportunity’s profitability configures into firm entry decisions. They point out that while cost advantage of entry dissipates with additional entry rather than the passage of calendar time, additional entry is usually the result of the focal firm’s capacity or resource constraints. When the resources required for entry are strained, expanding the pool of resources that can be devoted to additional projects becomes difficult. For example, a team that is working on formulating a particular drug or guiding it through the manufacturing approval process may only be able to work on a small number of projects at a given time and it may not be easy to hire additional members for the team. Thus, internal efficiency concerns necessarily take precedence in entry considerations of simultaneous nature.
30
Gallant et al.’s (2011) findings may also explain why H2 was not supported. The negative coefficient for Institutional Match is intriguing, as it directly contradicts anecdotal accounts by managers in the generic drug field as well as previous research on the importance of complementary assets in the industry (Nerkar and Roberts, 2004; Graham and Higgins, 2008), especially distribution or reputation economies of scope (Scott Morton, 1999; Iizuka, 2009), in reducing the costs of entry. In fact, with the inclusion of the external competitor considerations in the models, only the reverse sign of the Institutional Match coefficient increased, whereas the explanatory power of the rest of the independent variables trended downward. This tendency would lead us to believe that a firm could either be competent in creating and absorbing knowledge spillovers or competent in serving institutional venues, but perhaps not both at the same time. This is a matter that needs to be further investigated in future research.
Thus, this study’s key contribution is to highlight the boundaries of the AMC model.
Although the resource-based view of the firm (RBV) is concerned with the deployment of existing resources as well as the development of these strategic assets (Penrose, 1959; Grant, 1991), few studies in this field actually address issue of how firms decide to deploy them.
Because the AMC focuses on the organizational drivers of firm actions, we believe the AMC model has useful insights for the RBV take on market entry. First, it provides an action/response framework, such that when undertaking competitive action, firms consider rival responses that such action will elicit. In this way, when making decisions that potentially affect rivals, a firm has to take into account the competitive dynamics the decisions may engender, especially how the ensuing activity will threaten the status of the focal firm (Chen and Miller, 1994) upon entry.
As such, it highlights the relational nature of competition, which RBV tends to neglect, though
31
for organization and strategy management literature, the primary concern is firms and their relationships (Baum and Korn, 1996).
Secondly, competitive dynamics in terms of the AMC framework introduces the notion that any two firms’ actions can be asymmetric—that is, either’s actions can influence entry decisions of either competitor or both, but both need not act (Korn and Baum, 1999). This conceptualization of firm competitive relationships is missing in RBV, which, although it assumes heterogeneity in performance ―in a population of close competitors‖ (Grant, 1991), still treats these firms symmetrically and never actually delineates a firm’s direct competitor. Yet this conceptualization has rather significant implications in terms of weighing entry decisions in terms of competitive reaction. For one, if competitive reaction is the result of a decision-making process, then the absence of or differences in competitive reactions stem from varying
assessments of competitors’ actions (Debruyne et al., 2010). In other words, the AMC model highlights the intentionality behind firm action and lends a competitive assumption to any
analysis of market entry. Although this aspect was not applicable to our industry context, it does go to show that revisiting the issue in the contexts frequently employed in resource-based
research might be in order. The question asked in this case, then, is: how much do organizational capabilities actually determine the direction of firm expansion, as per the Penrosian growth theory of the firm?
Indeed, Penrose (1959) maintained that the interaction between a firm’s resources and a firm’s managers and the reciprocal influence they exert upon each other shape the ―special productive opportunity of a particular firm‖ (Kor and Mahoney, 2004). Because resources ultimately constrain the actions available to a firm (Fuentelsaz et al., 2002; Ndofor et al., 2011), we subscribe to the notion that ―the firm’s current resources influence managerial perceptions
32
and hence the direction of growth‖ (Mahoney and Pandian, 1992), such that underutilized resources and organizational capabilities become obvious via experiential learning (Roberts and McEvily, 2005). Following Lieberman and Montgomery (1998), however, we propose that while a firm’s resource base influences the likelihood of entry, it does so in ways that are complex and poorly understood.
7.1 Limitations and Future Research
Our severest limitation, namely the limitation of the sample size, both in terms of the selection of off-patent active ingredients and the number of local drug manufacturers, owes itself to Taiwan’s relatively small generic pharmaceutical market, and is not as large as we would like in order to ensure the elimination of bias. Consequently, the generalizability of the results may be limited. However, we strongly urge further research comparing both the RBV perspective and the AMC perspective on market entry to be conducted in not simply the generic
pharmaceutical industries of other countries, but also in other industries characterized by sequential entry, in order to further illuminate the antecedents behind entry decisions.