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Relatedness and market exit

Author: Lee, Gwendolyn ; Folta, Timothy B. ; Lieberman, Marvin B.INSEAD Area: Strategy Series: Working Paper ; 2010/39/ST Publisher: Fontainebleau : INSEAD, 2010.Language: EnglishDescription: 40 p.Type of document: INSEAD Working Paper Online Access: Click here Abstract: Researchers in corporate strategy have long argued that resource "relatedness" contributes to a firm's competitive advantage. One implication is that entries made by a firm into businesses that are closely related to its existing businesses should have higher survival rates than those into unrelated businesses. In contrast to this traditional view, we offer a distinct perspective in which relatedness increases a firm's likelihood of abandoning new businesses. Using a sample of more than 1,200 market entries in the U.S. telecommunications sector in 1989-2003, we show that the rate of market exit increased with the relatedness of the new business to the firm's existing businesses.
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Researchers in corporate strategy have long argued that resource "relatedness" contributes to a firm's competitive advantage. One implication is that entries made by a firm into businesses that are closely related to its existing businesses should have higher survival rates than those into unrelated businesses. In contrast to this traditional view, we offer a distinct perspective in which relatedness increases a firm's likelihood of abandoning new businesses. Using a sample of more than 1,200 market entries in the U.S. telecommunications sector in 1989-2003, we show that the rate of market exit increased with the relatedness of the new business to the firm's existing businesses.

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