Declining Markets, Resource Specificity, and Redeployment Decisions

Abstract

This essay emphasizes that the key determinants of redeployment decisions—adjustment costs and transaction costs—are illuminated by consideration of the sources of resource specificity. Building on prior work separating the degree of a resource’s firm specificity and usage specificity, we develop a set of novel propositions on the conditions under which headquarters are more likely to withdraw a resource from a declining market and transfer it to a more attractive one. First, we clarify how usage specificity and business relatedness may interact in determining adjustment costs. Second, we examine how firm specificity and market transaction costs may interact in determining the use of resource redeployment. Third, we integrate the dimensions of usageand firm-specificity into our framework explaining redeployment decisions. Overall, this essay contributes to an improved understanding of the self-selection processes of redeployment decisions and provides managers with a framework to evaluate particular resources as potential candidates for internal redeployment in the course of corporate renewal.