Resource Redeployment through Exit and Entry: Threats of Substitution as Inducements

Abstract

The purpose of this original research is to explore whether firms redeploy the resources that were withdrawn from existing businesses and use them to enter an emerging product market. We studied 244 firms that have exited from at least one business and analyzed whether the firms entered the emerging product market as a new business. The inducements of resource redeployment vary with information cues in media rhetoric about emerging and shifting threats of substitution between the firm’s existing businesses and the new one. Through our hazard rate analysis of entries of firms that exited existing businesses, we examined the hypotheses that resource redeployment through exit and entry may be driven by an interaction of the volume of substitution rhetoric with the resource commitments that the firm had made in the domain of the new business as well as the market relatedness between the firm’s existing businesses and the new one. Our study makes conceptual and methodological contributions to the research on inducements, by theorizing how performance advantages of new over existing businesses vary with product evolution and by characterizing emerging and shifting threats of substitution with content analysis of media rhetoric. Our study suggests that prior work investigating corporate diversification provides an incomplete picture of the contribution of resource relatedness to firm value and firm decision-making.

Citation

Lee, G.K. and Parachuri, S. (2016), "Resource Redeployment through Exit and Entry: Threats of Substitution as Inducements", Resource Redeployment and Corporate Strategy (Advances in Strategic Management, Vol. 35), Emerald Group Publishing Limited, Leeds, pp. 89-124. https://doi.org/10.1108/S0742-332220160000035005