Capabilities, technologies, and firm exit during industry shakeout: Evidence from the global solar photovoltaic industry

• DOI: http://doi.org/10.1002/smj.2709
• Date: 01 January 2018
• Published date: 01 January 2018

RESEARCH ARTICLE

Capabilities, technologies, and firm exit during

industry shakeout: Evidence from the global solar

photovoltaic industry

Nathan Furr

1

| Rahul Kapoor

2

1

Strategy Area, INSEAD, Fontainebleau, France

2

Management Department, The Wharton School,

University of Pennsylvania, Philadelphia,

Pennsylvania

Correspondence

Nathan Furr, INSEAD, Boulevard de Constance,

77305 Fontainebleau, France.

Email: nathan.furr@insead.edu

Research Summary:Explanations of entrants’survival in

an emerging industry are premised on pre-entry capabili-

ties or technology entry choices prior to the emergence of

the dominant design. We consider how these drivers

interact to strengthen or nullify firms’pre-entry advan-

tage, and facilitate adaptation as the industry evolves. We

also expand the treatment of exit by separating dissolu-

tion from acquisition, in which firms’capabilities con-

tinue to be utilized in the industry. Studying a recent

shakeout in the global solar photovoltaic industry, we

find that pre-entry capabilities and technology choices act

in a complementary manner for some firms, thereby

enhancing survival, and as buffers against exit for others.

Nearly half of exits were via acquisitions, and technology

choice at entry played an important role in determining

how firms exited.

Managerial Summary:New industries are often charac-

terized by intense technology competition that culminates

in a dominant technology followed by industry shakeout.

Although prior research underscores the central role of

technology choice and firm capabilities to survival, we do

not actually know how firms with different capabilities

and who have made competing technology choices sur-

vive an industry shakeout. In this article, we show how

entrants’capabilities and technology choices can act in a

complementary manner for some firms, enhancing their

chance of survival, and as buffers against failure for

others. Moreover, we explain why some firms that do exit

are acquired, when others are dissolved.

KEYWORDS

dominant design, exit mode, industry evolution, pre-

entry capabilities, shakeout, technology competition

Received: 11 July 2016 Revised: 14 April 2017 Accepted: 19 June 2017 Published on: 8 November 2017

DOI: 10.1002/smj.2709

Strat Mgmt J. 2018;39:33–61. wileyonlinelibrary.com/journal/smj Copyright © 2017 John Wiley & Sons, Ltd. 33

1|INTRODUCTION

The emergence of new industries and their subsequent evolution has been studied by manage-

ment scholars for more than 3 decades. A stylized pattern that has been documented across a

range of industries is that the initial period of an industry is characterized by an increasing rate

of entry by both diversifying firms and new start-ups, which is then followed by a period of

shakeout when a large number of firms exit and the industry transitions into a period of matu-

rity (Agarwal & Gort, 2002; Agarwal & Tripsas, 2011; Utterback & Suarez, 1993). In exploring

the drivers of firm exit, scholars have drawn on two distinct theoretical perspectives. Those tak-

ing a technology management perspective have considered the role of firms’entry choice,

explicitly focusing on their entry timing and how the technology-level competition for market

dominance was resolved (Abernathy & Utterback, 1978; Christensen, Suarez, & Utterback,

1998; Suarez & Utterback, 1995). Those taking an evolutionary economics perspective have

considered the role of firms’pre-entry capabilities, explicitly focusing on the difference between

diversifying entrants and start-ups (Bayus & Agarwal, 2007; Helfat & Lieberman, 2002; Klep-

per, 2002). While these modes of inquiry have generated valuable insights, they have remained

isolated from each other, resulting in gaps in our understanding of how firms compete and adapt

in an emerging industry.

On the one hand, firm survival is attributed to the emergence of the dominant design, which

alters the opportunities for value creation for firms competing with different technologies, but

with no explicit consideration of their capabilities as a means to strengthen their competitive

advantage or to adapt to the changing industry landscape. On the other hand, firm survival is

attributed to the capabilities that firms bring to a new industry with no explicit consideration of

differences in their competitive strategies and the value of their capabilities as the industry

evolves. Furthermore, the theoretical and empirical explorations within the literature have focused

primarily on survival versus exit, with exit being treated as a singular event associated with firm

failure. This simplification, while useful and empirically tractable, has masked the fact that not

all exits are equivalent. Although firms may exit via dissolution, which results in the dissolution

of both the firm and its capabilities, firms may also exit via acquisition, which results in the dis-

solution of the firm but the retention of its capabilities within the industry (e.g., Fortune &

Mitchell, 2012). Examining different exit modes is important because they have different implica-

tions for the firm’s stakeholders, and they have a different effect on the industry’s distribution of

capabilities.

In this study, we consider how whether a firm survives industry shakeout or not will not only be

shaped by its pre-entry capabilities or by its technology choice at entry, but also by the extent to

which it can subsequently strengthen its competitive advantage or adapt in the face of the dominant

design emergence. Specifically, we explain when the resolution of technology-level competition for

market dominance may result in a complementary relationship between a firm’s pre-entry capabili-

ties and its technology choice, jointly acting to enhance its survival advantage, and when these fac-

tors may act as buffers against exit through firm’s post-entry evolution. For start-up entrants, we

view post-entry evolution through the lens of capability development, whereas for diversifying

entrants we also consider the important role of their pre-entry capabilities. In so doing, we explain

why firms that are presumed to be disadvantaged at the time of entry (i.e., start-ups lacking pre-entry

capabilities), and those that are presumed to be disadvantaged at the time of the selection of the

industry’s dominant design (i.e., firms that entered with technologies that do not emerge as the dom-

inant design), may continue to survive in the face of industry shakeout. Beyond survival, we also

34 FURR AND KAPOOR