Asset Stock Accumulation and Sustainability of Competitive Advantage (Part 1)

Introduction

In the journal “Asset stock accumulation and sustainability of competitive advantage” by Dierickx and Cool (1989), we learn that critical resources are accumulated rather than acquired in “strategic factor markets” and sustainability of a firm’s asset position hinges on how easily can be substitute or imitated.  It also stated that there are lots of scholars have expressed the concern that much of the strategy literature focuses too narrowly on privileged product market positions as a basis for competitive advantage and above-normal returns.

Dierickx and Cool (1989) differentiate this paper into 3 (three) concepts:

1. To discuss some of the limitation inherent in the concept of “strategic factor markets”,
2. To put forward a complementary frame-work based on the notion of asset stock accumulation, and
3. To develop guidelines for assessing of a firm’s competitive advantage

Incomplete vs Imperfect Factor Markets

Dierickx and Cool (1989) used Barney focuses on market “imperfection” to required assets to implement a given strategy are actually traded in not examine. Instead, it is assumed that all required assets can be bought and sold.

Dierickx and Cool (1989) stated the implementation of a strategy may require assets which are non appropriable and furthermore, the successful implementation of a strategy often requires highly firm specific assets as opposed to undifferentiated inputs. Firms may, of course, acquire imperfect substitute for the desired strategic input factor(s) and adapt them, at a cost, to the specific use it intends. Dierickx and Cool (1989) also stated that a complete factor markets, competitor can replicate any asset bundle, and dispose of it at will, merely by purchasing and selling the required components at going market prices. Thus, a complementary framework is required to gauge the sustainability of the stream of quasi rents generated the deployment of nontradeable assets.

Accumulation of Asset Stocks

Dierickx and Cool (1989) defined when asset is nontradeable, the option to realize its value in a factor market is not available to tap its rent earning potential, the owner of such an asset has to deploy it in product markets where, owing to the factor’s nontreadability but it may remain in fixed. Supply. Dierickx and Cool (1989) also defined the fundamental distinction between stocks and flows may be illustrated by the “bath-up” metaphor: at any moment in time, the stock of water is indicated the level of water in the tub; it is the cumulative result of flows of water into the tub. It follows that a key dimension of strategy formulation may be identified as the task of making appropriate choice about strategic expenditures, whereby critical or strategic asset stocks are those assets which are nontreadeable.

References

Dierickx, I. & Cool, K. (1989), Asset Stock Accumulation and Sustainability of Competitive Advantage, Management Science, Vol. 35, No. 12, December.