Bottleneck Resources, Market Relatedness, and the Dynamics of Organizational Growth

Abstract

Entering a new product market requires assembling a bundle of technological and market resources. Because missing a single resource may foil the entire entry effort, we argue that bottleneck resources – those most difficult to obtain or sell externally – anchor the direction of firm growth. We characterize market resources as bottlenecks because they are (on average) more challenging to obtain and sell than technological resources, and articulate why the importance of market resources varies with the strength of external markets for technology. Using cross-industry data linking firms’ product information with their patent portfolio, we find resource dynamics whereby market resources drive the strategic decision to enter, and firms use both external and internal development to fill technological gaps in their portfolio.

Keywords: product market entry, diversification, resource-based view, demand-side strategy, markets for technology

JEL Classification: L10, M21, O30