Asset Stock Accumulation and Sustainability of Competitive Advantage

Asset Stock Accumulation and Sustainability of Competitive Advantage Ingemar Dierickx and Karel Cool (1989) Management Science, 35 (12): 1504 -1511 Prepared by: Enrique, Lihong, John, Jongkuk 1

Introduction The strategy literature focuses on privileged market positions for competitive advantage It neglects the idea that resource bundles need to be deployed to achieve and protect these positions It is these bundles of assets that actually give a competitive advantage How can these assets be protected? 2

The Factor Markets Strategic factor market = “a market where the resources necessary to implement a strategy are acquired. ” Firms will not be able to get above average economic returns unless these (input) factor markets are imperfect, the firm has superior information, or they are lucky. (Barney 1986) 3

Limits of the Factor Markets Not all resources can be bought and sold quickly, and many cannot be bought or sold at all: Quality Toughness Trust Loyalty 4

Accumulation of Asset Stocks When assets are non-tradeable it must be deployed to realize its economic value Reputation, R & D, and other firm-specific assets build up over time as “flows, ” and are stored as stocks (e. g. , advertising) These “flows” can be adjusted instantaneously, however stocks cannot 5

What makes a strategic asset? Strategic assets must be: Non-tradeable Non-imitable Non-substitutable 6

Sustainability of Privileged Asset Positions Imitation of an asset depends on: Time compression diseconomies Asset mass efficiencies Inter-connectedness of asset stocks Asset erosion Causal ambiguity Substitution of asset stocks 7

Conclusions What are the economic opportunity costs of privileged market positions? Not all strategic assets are tradeable Many strategic assets must be built over time What makes these strategic assets economically valuable? 8