Nature versus nurture in resources and capabilities on the firm growth

Abstract

The present research seeks to clarify factors affecting firm growth with regard to resources and capabilities (R&Cs). Specifically, this thesis focuses on two classes of R&Cs that influence firms growth prospects: pre-entry R&Cs and post-entry R&Cs. The relationship between the state of firms upon market entry and the future growth of firms is also analyzed. This study divides the R&Cs that are crucial to a new firms growth into two categories analogous to the concepts of nature and nurture in human developmental studies: (1) inherited natural R&Cs that are present before the firms market entry and (2) cultivated, nurtured ones that are acquired after the entry. The study seeks to verify whether and to what extent each has an effect on the long-term growth of the firm. This nature/nurture approach is considered and elaborated in a literature review of selected theories and related empirical findings, which are integrated to derive a novel methodology for the analysis of growth-affecting factors through time for new market entrants. This is applied in two research efforts. The first research element (Chapter Four) is focused on the effect of pre-entry experience. The aim of the first research element is to examine whether de alio or de novo firms achieve faster sales growth, and how long the effects of these respective entrance conditions persist, when they enter the new and renewable energy industry. Firms that have just entered new markets can be distinguished as either those with pre-entry experience in other areas (de alio), or those without such pre-entry experience (de novo). De alio firms tend to enter markets under conditions that are advantageous in light of their pre-entry experience

on the other hand, de novo firms tend to enter markets with innovation capabilities. Therefore, this study identifies and compares growth patterns of de alio and de novo firms over a period following market entry. This is undertaken by means of panel data for global companies that entered the new and renewable energy industry after the 1990s. The results show that de alio firms achieved higher growth rates than de novo firms in the initial stages following entrance but that the entry types contribution to sales growth gradually decreased, disappearing within four years after entrance. The results indicate that previously accumulated resources and new entrants former experiences in other industries have positive effects, helping them achieve initial success (for a limited time) after entry into an industry. This suggests that firms adapt the R&Cs that are appropriate for their new environments derived from pre-entry experience for the sake of sustainable development. The aim of the second research element (Chapter Five) is to compare the effects of pre-entry experience and post-entry effort. Findings demonstrate that nurtured (i.e., post-entry) R&Cs affect a firms growth rate more than inherited/natural (i.e., originating pre-entry) R&Cs do. The results of the empirical analysis demonstrate that pre-entry experience and post-entry effort have various impacts on the growth of firms. This research provides important clues in understanding whether the R&Cs that lead to growth of firms are from the pre-entry or post-entry effort. The positive impact of natural R&Cs diminishes as time goes by, which indicates that pre-entry experience is more effective on the short-term growth rate than on the long-term growth rate. In other words, natural R&Cs can be effective on short-term results, but as time goes by and environmental changes occur, the firms dependent only on inherited R&Cs do not eventually adapt to these changes, and consequently tend to generate insufficient result in the long-term. On the other hand, nurtured R&Cs do not lose their validity and have long-term positive effects on the firm, which indicates that post-entry effort influences both short-term and (to a an increasing extent) long-term growth rates. Depending on the type of efforts, the post-entry efforts show different impacts on short and long-term results. Some are more favorable for short-term performance but unfavorable for long-term performance, and vice versa. Most R&D activities are unfavorable for short-term performance but favorable for long-term performance. However, the efforts for increasing human resources, for example, have the opposite effect. In high-tech industries, the discrepancy of this effect is obvious, because natural R&Cs gained from pre-entry experience are likely to be unsuited to the market or the competing environment. Conversely, nurtured R&Cs (by post-entry effort) are likely to be well-suited to the evolving market environment, competitors trends, and firms situations. The results of the research indicate that firms management executives, when considering pre-entry experience and post-entry effort in strategizing and forecasting growth, should focus on establishing and maintaining good structural inertia more than increasing organizational size. In addition, the findings can inform the decision-making processes of policy-makers. Since the incubation period, when firms can conduct trial and error-based development, is very important, government support should be designed to augment the future growth of firms by facilitating effective post-entry effort.