Entry‐Timing Advantages in Renewable Natural Resources Industries

• Author: Alejandro F. Mac Cawley,Roberto S. Vassolo,José Ignacio Sepúlveda Vargas,Ángel Sevil
• Date: 01 November 2019
• DOI: http://doi.org/10.1111/joms.12436
• Published date: 01 November 2019

© 2019 Society for the Adv ancement of Management Stud ies and John Wiley & Son s, Ltd.

Entry-Timing Advantages in Renewable Natural

Resources Industries

Alejandro F. Mac Cawleya, Ángel Sevilb,

Roberto S. Vassoloa,b and José Ignacio Sepúlveda Vargasa

aDepartme nt of Industrial and Systems E ngineer ing, School of Engineer ing, Pontifici a Uni versidad

Católica de Chil e; b Department of Busin ess Policy, IA E Business Sch ool, Universi dad Austral

ABST RACT In this paper, we explore the cond it ions of ent ry-timing advantage s in renewable

natural resou rce industries. Drawing from behav iou ral theory of the firm , we classify fir ms in

two groups dependi ng on the different heuristics used to m ake entry decisions when facing the

cyclical endogenous nat ure of these industries: crowd fir ms are procyclical, mak ing decisions

based on the current phas e of t he industry cycle, whereas anti-crowd f irms follow a countercy-

clical str ateg y, ma king uncertain, and r isky decisions by estimation of the nex t pha se of the

cycle. Therefore, anti-crowd f irms anticipate the deployment of resource s each cycle, poten-

tially g aining entry-timi ng advantages beyond those provided by trad itional competitive

isolating mecha nisms. Through a mathematical s imulation of a performance feedback model,

we reveal that the entr y-timing advantage of t he anti-crowd group becomes possible when the

rivalr y in the industry and the price sen sitivity of competitors are high, and when t he t ime

required to deploy the resour ces is short.

Keywords: entry t iming, mathematical simu lation, natural resource industr ies, performance

feedback, strateg ic decision-making

INTRODUCTION

Scholars in the strateg ic management field have long been concerned with the question

of whether firms can create advantages by strateg ically tim ing their entry into new

markets (Lieberma n and Montgomery, 2013; Mak adok, 1998; Zachary et al., 2014). A

signif icant body of research arg ues that order of entry advantage emerges from competi-

tive isolating mechan isms, or from fir m-level resources and capabilities ( Fuentelsaz et al.,

Journal of Man agement Studi es 56:7 November 2019

doi:10. 1111/j om s. 124 36

Address for repr ints: Alejan dro F. Mac Cawle y, Department of Indu strial a nd System Engi neering, School of

Engineer ing, Pontificia Univer sidad Católica de Chile, Avda. V icuña Mackenna 4860 , Macul, Santiago,

Chile (amac @ing.puc.cl).

Entry-Timing Advantages 148 3

© 2019 Society for the Adv ancement of Management Stud ies and John Wiley & Son s, Ltd.

2002; Teece et al., 1997), which are contingent on contextual condit ions (Lieberman and

Montgomery, 1988; Mueller, 1997; Suárez and Lanzolla , 2007). Recent studies in the

field have attempted to build an integr ative view of entry-timing advantages ( Fosfuri et

al., 2013; Zachary et al., 2014) or considered new contingent factors ( Markides and Sosa,

2013; Markman and Waldron, 2014). We add to this literature examining under what

conditions fir ms get superior performance based on entry-t iming decision-mak ing in a

specific sett ing: renewable natural resource industries. Supported on the behavioura l

theory of the fi rm, we propose that competitors’ heuristics, a s a cognitive capabilit y,

is the key determinant for getting entr y-timing advantage, beyond those grounded in

structura l properties of the industry or product char acteristics (Zacha ry et al., 2014).

Natural resource industries have received limited attention to date and consequently

represent a rich area for enquiry (George et al., 2015). They represent 25 per cent of

global exports (World Trade Organization, 2015), and national economic activity in most

emerging economies and several developed countries (e.g., Australia, Canada, and the

Northern European countries) depends heavily on natural resource industries. Following

Wu (2014), we define natural resource industries as those whose main purpose is to re-

produce, explore, and utilize nature, converting natural resources into useful resource

commodities. That is, natural resource industries depart from other industries in the fact

that the product does not suffer a commoditization process, since it is and remains a com-

modity. Besides, these industries also present extremely low levels of product innovation,

since the product remains unaltered for decades or centuries. Therefore, competitive

evolution diverges from that of differentiated product industries (Cruz Novoa et al., in

press), offering a unique setting for analysis.

Two boundary conditions apply for our study. First, we restrict the study to renewable

natural resource industries. We exclude sectors based on exhaustible resources, subject

to depletion. Second, we consider natural resource industries that evaluate investment

decisions along the commodity price cycle, i.e., industries with non-zero marginal costs,

and where there is a significant lag time between the decision to invest and the time full

production is reached (hereafter this time period is referred to as setup time ). This latter

condition implies the exclusion of renewable energy industries.

The theoretical need for a conceptual approach to studying entry timing in natural

resources is justified by a number of factors. First, natural resource industries are cyclical,

providing a unique setting to test entry-timing advantages with successive entries and

exits. Second, due to the absence of product differentiation, firms in natural resource

industries seldom emerge from radical product innovation. Instead, production technol-

ogy that is developed by third parties and widely available for all fir ms in the market is

standard. Therefore, capabilities and resources used by fir ms are quite homogeneous,

and establishing an entry-timing advantage on product technological leadership is sel-

dom a viable strategy. Third, these industries face a highly competitive commodity mar-

ket in which the product is decoupled from the producer when consumers purchase it.

Commodities like oil, copper, grapes, cattle, or soybeans are totally or partially fungible,

meaning that the market will trade them and they will be priced the same, regardless of

the producer, as long as they meet a specified minimum standard known as basis grade.

Thus, the possibility of establishing demand-side isolating mechanisms is minimal.