Asset Stock Accumulation and Sustainability of Competitive Advantage

Examines the concept "strategic factor markets"--a market where the resources necessary to implement a strategy are acquired. A framework based on the notion of asset stock accumulation is established and guidelines for assessing the sustainability of a firm's competitive advantage are developed. The limitations of the strategic factor markets concept are particularly visible in incomplete factor markets, where critical resources are accumulated rather than acquired and some factors are not traded in open markets. The framework gauges the sustainability of the income stream generated through the deployment of non-tradable assets. It is shown that the sustainability of a firm's asset position is directly influenced by the ease with which these assets can be substituted or imitated. The imitation of these assets is linked to five characteristics of the asset accumulation process: (1) time compression diseconomies--if a firm develops a resource quickly the result is usually a lower quality resource and a higher development cost; (2) asset mass efficiencies--sustainability of a resource is enhanced to the extent that adding increments to an existing asset stock is facilitated by owning high levels of that stock; (3) interconnectedness of asset stocks--accumulating increments in an existing stock may depend not just on the level of that stock, but also on the level of other stocks; (4) asset erosion--all asset stocks decay in the absence of adequate maintenance expenditures; (5) causal ambiguity--the levels of a firm's stocks will determine each firm's probability of success. (SFL)