TECHNOLOGICAL RESOURCES
AND THE DIRECTION OF
CORPORATE DIVERSIFICATION:
TOWARD AN INTEGRATION OF
THE RESOURCE-BASED VIEW AND
TRANSACTION COST ECONOMICS
Silverman –
1999, MS
OVERVIEW
 A study of how a firm’s resource base af fects the choice of
industries into which the firm diversifies
 Silverman (1999) integrates principles of both the
Resource-based View (RBV) and Transaction Cost Economics (TCE)
to develop a theory of firm diversification
 Looks beyond methodologies used at the time to develop new
sources of insight into firm behavior
RBV AND DIVERSIFICATION
 RBV describes the firm as a “collection of sticky and
imperfectly imitable resources or capabilities that enable it to
successfully compete against other firms” (see Penrose, 1959)
 These same characteristics prevent firms from “transplanting”
resources into new contexts
 It is assumed that more “related” diversification supports
more extensive exploitation of resources
 Studies use SIC system to measure degree of industry relatedness
 It is also assumed that R&D intensity, advertising intensity,
etc. serve as proxies for underlying resources and that firms
will diversify into industries with relative intensities
RBV AND DIVERSIFICATION
 However, current studies depend on strong assumptions
regarding the ordering and applicability of the SIC system as
well as the fungibility of R&D and advertising intensity
 Popular studies on diversification using RBV characterize
resources at the industry level, and leave open the ef fects of
firms’ repositories of expertise or technology
 Identification of individual firms’ resources allows for greater
insights into the role of resources in diversification
HYPOTHESES
 Hypothesis 1: Ceteris paribus, a firm is more likely to diversify into a
business the more applicable its existing technological resources are to
that business (in absolute terms )
 Hypothesis 2 : Ceteris paribus, a firm is more likely to diversify into a
business the more applicable its existing technological resources are to
that business, relative to other oppor tunities facing the firm
 Hypothesis 3. Ceteris paribus, a firm is more likely to diversify in to a
business the more likely that contracting out its technological
resources in that business is subject to high contractual hazards .
 A: A firm is more likely to diversify into a business as the feasibility of licensing
its technological resources in that business decreases
 B: A firm is more likely to diversify into a business as the need for secrecy to
appropriate returns to its technological resources in that business increases
 C: A firm is more likely to diversify into a business as the degree of tacit
knowledge associated with its technological resources in that business increase
METHODOLOGY
 The empirical test of the hypotheses entailed estimating the
entry of existing firms into new SICs during the three-year
window 1982-1985 as a function of firm, industry, and
resource characteristics in 1981
 Each firm’s resource base was determined through the use of
patent data
 Issues arise where firm knowledge is not patented due to ineligibility
or firm choice
 It should also be noted that differences in the comprehensiveness of
patenting may exist across firms, industries, and time
VARIABLES
 Dependent Variable
 Div ij = 1 where firm (i) enters industry (j) during allotted time
 Independent variables
 AbsTech ij = absolute level of firm (i) patent portfolio applicable to
industry (j)
 RelTech ij = applicability of firm (i) patent portfolio to industry (j)
relative to other industries
 Royalty j
= the feasibility of licensing innovations in industry (j)
 Secrecy j
= the importance of secrecy to appropriating returns to
innovation in industry (j)
 Learning j = the importance of learning curve advantages to
appropriating returns to innovation in industry (j)
VARIABLES
THE MODEL SPECIFICATION
CORRELATION TABLE
RESULTS
 Hypothesis 1 was corroborated ( AbsTech = significant & positive)
 Hypothesis 2 was corroborated ( RelTech = significant & positive)
 Hypothesis 3a was corroborated (Royalty = significant & negative)
 Hypothesis 3b was not supported (Secrecy = not statistically
significant)
 Hypothesis 3c was corroborated (Learning = significant & positive)
CONTRIBUTIONS
 This paper has many firsts:
 Measures effects of firm heterogeneous technological resources via
patent data on diversification
 Examines empirically the hypothesis that firms prioritize their
diversification options according to the relative applicability of their
resources
 Examines empirically the role of transaction costs on diversification
in an RBV context
 This study integrates TCE with RBV and suggests that “while
conflicts between the two theories exist, the strong
complementarities between them should not be ignored ”
CONTRIBUTIONS
 The measure developed by this study links a firm’s position to
product markets where its technological strength is likely to
of fer commercial advantage
 The results of this study suggest that a firm’s technological
resource base significantly influences its diversification
decisions (as seen through a patent portfolio lens)
 Firms elect to enter markets where it can exploit its existing
technological resources to the strongest extent
 Firms’ diversification decisions are influenced by the severity of
hazards surrounding contractual alternatives
 The source of innovation in an industry indicates the direction of
likely diversifying entry into that industry