Bottleneck Resources, Market Relatedness, and the Dynamics of Organizational Growth

Abstract

Entering a new product market requires assembling a bundle of resources. Because missing a single resource can foil the entire entry effort, we argue that bottleneck resources—those most difficult to obtain or sell externally—anchor the direction of firm growth. We characterize market resources as bottlenecks to product market entry, because they are (on average) more challenging to obtain and sell than technological resources, and we articulate why the importance of market resources varies with the strength of external markets for technology. Using cross-industry data linking firms’ product portfolios with patents, we find resource dynamics whereby market resources drive the strategic decision to enter, and firms fill technological gaps using both internal research and development and external acquisitions (joint ventures and alliances). Our study underscores the importance of resources for firm growth dynamics and specifically highlights market resources as the bottleneck that constrains and directs the direction of product market entry.