Dynamics of industry consolidation and sustainable competitive strategy: Is birthright irrevocable?

Abstract

We investigate how a firm's birthright can determine its competitive advantage and its ability to survive an industry shakeout, especially when caused by non-disruptive technological innovations. Birthright is defined as the firm's superior endowment of resources, both tangible and intangible, vis-a-vis competitors', stemming either from its earlier entry into the market or from prior experience in a related market. Using a system dynamics simulation case analysis, we show that, consistent with the literature, birthright was indeed the determining force during the consolidation of the Korean mobile telecom industry case, and that firm's reputation or brand was the significant factor. We then consider a deeper question, whether it is possible for newcomers without strong birthrights to survive such industry turmoil. We use the simulation model to conduct a 'what-if' analysis on one of the 'victim' firms which failed in the Korean telecoms shakeout, and conclude that targeted investment in reputation building would have enabled it to survive. (c) 2006 Elsevier Ltd. All rights reserved.