How do pre‐entrants to the industry incubation stage choose between alliances and acquisitions for technical capabilities and specialized complementary assets?

Abstract

AbstractResearch summaryFocusing on the incubation stage of a potential new industry, this article addresses a gap at the intersection of the external sourcing and market entry literatures by examining pre‐entry external sourcing of new resources. Besides drawing on their legacy resources, pre‐entrants during industry incubation commonly use alliances and acquisitions to obtain technical capabilities and complementary assets, thereby creating a portfolio of sourcing modes that collectively shapes the firms' paths to potential market entry. We identify a key pattern at the intersection of type of sourcing mode and type of resource: pre‐entrants to the incubation stage are more likely to use alliances to source technical capabilities, while using acquisitions to source specialized complementary assets. Our empirical context is the agricultural biotechnology industry.Managerial summaryFirms typically seek new resources when they begin exploring potential industries, before any products have reached the market, yet the needed investments face substantial uncertainties. This article highlights a pattern in how firms use alliances and acquisitions for technical capabilities and complementary resources during the incubation stage of the agricultural biotechnology industry. We focus on two key features of the external sourcing activity, differing based on the type of resource: developing new core technologies, which often starts early, tends to leverage external alliance partners; by contrast, establishing complementary assets tends to start later through acquisitions. The logic underlying these patterns can help managers make effective decisions about their external sourcing strategies during the incubation stage of a new industry.