Growth Logics: Market vs. Technological Relatedness and the Direction of Organizational Growth
Sungyong Chang, J.P. Eggers, and Daniel Keum
Columbia Business School NYU Stern School of Business
How do technological and market knowledge drive organizational expansion decisions? Extending research on knowledge, resources, and organizational growth, we suggest that the relatedness of the firm’s market resources and knowledge to a potential market for entry will better predict entry behavior than technological relatedness. Using cross-industry data with granular product entry information covering over 2,681 product segments, we find robust evidence that market relatedness is an independent and significant predictor of product market entry, while technological relatedness does not predict entry. Due to the valuable but non-tradable nature of market resources, firms must enter new markets to capture that value, while firms can capture the value of technological resources without entry. These findings contribute to ongoing discussions about the directions of organizational growth within the Resource Based View of the firm and the role that markets for technology are playing in reshaping organizational boundaries.
Key words: firm knowledge; product market entry; diversification; resource-based view; markets for technology
Figure 1. Histogram of Technological Relatedness
between Firms and Product Categories