1. INTRODUCTION
When firms enter new markets, by definition they must develop new capabilities or alter existing ones in order to incorporate the new product into its organizational systems and
successfully commercialize it (Penrose, 1959; Teece , Pisano, Shuen, 1997). Recent firm-level research as espoused by the resource-based view (RBV) highlights the path-dependence of the firm’s experiential knowledge accumulation associated with entering into new markets, whence comes the development of adaptive or ―dynamic‖ capabilities that enable a firm to stay ahead of its imitators and consistently earn superior returns (Grant, 1991; Teece et al., 1997). Yet because these studies privilege the uniqueness and inaccessibility of the resources and capabilities
underlying firm entry, they tend to understate the competitive context in which firms often find themselves when they commit to certain strategies (Ndofor, Sirmon, He, 2011). That is, these studies rarely consider the deployment of resources in market entry as a competitive reaction—
whether as a preemptive strike or a deliberate means of reacting to competitors’ actions—even as the act of market entry itself represents a challenge to the status quo of the market process
(Ferrier, 2001).
Consequently, although resource-based research has established the importance of the development of capabilities to the direction of firm growth (Lockett and Thompson, 2001), less is known about how these might weigh against competitive considerations in the form of direct competitors in the marketplace. Given the evidence in favor of this ―capabilities-based postulate‖
with regard to market entry, a broader question that arises is: Do firms always make entry decisions based on their capabilities alone? A separate body of literature has incorporated resource-based logic into the study of competitive dynamics in order to identify direct competitors and to explain firms’ attacks on each others’ markets in terms of similarity of
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resources (Chen, 1996; Gimeno, 1999; Korn and Baum, 1999; Greve, 2000; Chen, Su, Tsai, 2007; Debruyne, Frambach, Moenaert, 2010). This research emphasizes ―the expectation of retaliation‖ (Chen, 1996) as the driving force behind competitive decision-making, such that market expansion can provide only for relative, rather than sustainable, advantage. This
approach contrasts with that of the RBV, where market entry expresses a commitment to a long-run ―learning trajectory‖ (Helfat and Lieberman, 2002). In fact, market expansion reflects not only the result of but serves also as the vehicle for the experiential learning that affects the selection and execution of organizational routines which can lead firms to repeat inimitable strategic choices over time (Levitt and March, 1988; Grant, 1991).
These studies differ in their conceptual development and analytic focus, but retain the organizational resources of the firm as the principal driver of market entry. Taken together, they suggest that there is a point in time when capabilities-based entry is more advantageous to firms strategically than rivalry-based entry and vice versa. Although strategy researchers have done much to elucidate how organizational factors contribute to entry decisions, no one has yet addressed whether capabilities-considerations do in fact take precedence over competitive ones.
The abovementioned resource-based research tends to silently assume that inimitable resources must lead to inimitable actions at any point in time (Miller, 2003). Because of this, it has not yet addressed managerial perspectives on how these resources are deployed (Sirmon, Hitt, Ireland, 2007; Ndofor et al., 2011), even as managerial perspective is key to resource deployment in the Penrosian growth theory of the firm (Mahoney and Pandian, 1992).
To this end, the foundational Awareness-Motivation-Capability (AMC) Model (Chen, 1996) proves useful. The AMC model highlights managerial assessment of competitive relationships (Chen et al., 2007) that develop as a result of past attacks on markets or market
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expansion activity in general. This assessment is based on how competitors’ actions affect the organizational components of the AMC model, an assessment which can lead to retaliatory action by the focal firm in the rival’s market. Because the AMC components derive their theoretical roots from the RBV logic, we can thus compare a so-called capabilities-based perspective of entry considerations versus a rivalry-based perspective to determine whether organizational capabilities take precedence over pressures exerted by the external competitive context.
The purpose of this paper, then, is to compare organizational capabilities and the AMC model as theoretical explanations of entry decisions. This is not the same as comparing the effects of organizational capabilities and firm-specific competitive conditions, which Henderson and Mitchell (1997) have shown to be less than fruitful, as these two are reciprocal. Rather the question is whether the causes of market entry are consistent with the principles of either organizational learning trajectories or with those of confronting and managing competitive relationships, as seen in the competitive dynamics literature, and whether these two can be at odds with each other.
We examine this question empirically by analyzing entry patterns for the top 21 companies in Taiwan’s generic pharmaceutical industry. The generic pharmaceutical industry offers a unique setting in which to test our propositions because market entry is characterized here as simultaneous, as opposed to sequential (Scott Morton, 1999). Generic drug firms must sink significant costs prior to knowing when or if their application for a manufacturing license will be approved, or how many rivals have already applied for the same license. Thus, in the moment that firms begin the application process, they are characterized as simultaneously sinking their fixed costs. Post-patent generic competition, then, depends primarily on
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mover advantages and time-to-market, such that complementary assets in the form of the
establishment of marketing and distribution forces, as well as firm reputation built up over many years, become a generic drug firm’s core resources in terms of new product performance (Nerkar and Roberts, 2004). As a result, our paper includes some unique considerations. As suggested by previous research on the generic drug industry, we emphasize a generic manufacturer’s special relationship with medical institutions as a complementary asset and operationalize this situation as Institutional Match. This measure allows us to examine whether the relatedness between a manufacturer’s portfolio and the institutional venue plays a role in attracting entry.
Additionally, the feature of simultaneous entry allows us to tweak Chen et al.’s (2007) AMC model in order to better compare the two theoretical explanations of entry and to highlight it’s the extent of its applicability in the industry context.
No one has yet considered a context in which entry decisions are made simultaneously and how this might change the incentives previously thought to drive entry. Our core insight is that in the context of simultaneous entry, capabilities tend to dominate entrants’ decisions, whereas the predictions of the AMC model were found to be defective in this industry. This finding, in turn, points to the need to revisit the question of how much organizational capabilities actually determine the direction of firm expansion given different entry game assumptions.
Resource-based studies on market entry principally focus on firms’ previous experiences, entry modes or geographical expansion and never consider the entry game managers face.
Additionally, they take as their context industries in which directed preemption and retaliation are possible, and—analogous to the capabilities-directed expansion postulate—presume that market entry on the part of the focal firm represents the lack of ability by competitors to erode its position, without ever considering the motivation behind firm behavior (Gimeno, 1999). The
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assumption of simultaneous entry eliminates the option of coordinated actions across markets, and thus eliminates market entry as a retaliatory act against a specific competitor. The
conventional RBV postulate of path-dependent capabilities leading to inimitable actions proves adequate in the latter context. Yet this study tentatively suggests that just as the AMC model’s predictions did not hold true for this context, the RBV postulate may not always hold true for different entry games either. Accordingly, this study’s central contribution to the strategic management literature is not only to test the boundaries of the AMC model, but at the same time to bring to the forefront the need to consider entry in resource-based research as part of a
framework in which potential entrants’ and incumbents’ behavior configure into the decision.
This paper is organized as follows. The next section provides a brief overview of the focal industry and the importance of simultaneous entry to this research. The third section delves into the literary background and leads to the development of the hypotheses. The fourth section deals with the data sample and empirical specifications. The results are reviewed in the fifth section and are followed by a discussion and conclusion.