Market exit and the potential for resource redeployment: Evidence from the global retail sector

Abstract

Research Summary This study develops a framework providing guidance in examining when exit decisions might be driven by resource redeployment versus divestment. Exploratory analyses of the global retail sector show patterns largely consistent with conventional explanations of exit through divestment. We also provide the first large‐scale empirical evidence consistent with redeployment motives of exit. In particular, by focusing on the potential for redeployment of fixed assets (i.e., physical stores) across portfolio businesses, results show that market exit is more likely when there are combinations of lower resource adjustment costs, higher external transaction costs, and positive inducements. Under the same conditions, we also document a strong correlation between the number of fixed assets of an exiting business and the growth in fixed assets of its surviving siblings. Managerial Summary It is increasingly recognized that multibusiness firms have flexibility advantages over single‐business rivals, because they have the option to redeploy resources across businesses. This flexibility is purported to inspire quicker exit from markets, even if empirical evidence is lacking. We test this conjecture on 3,082 retail chains across 106 countries and find evidence consistent with this view—each additional related sibling in a country raises the hazard of country exit by 11% relative to retail chains without siblings. Since it is difficult to distinguish whether exit occurs through resource redeployment or divestment, we identify a set of unique determinants for each exit mode. Our theoretical framework and empirical findings help managers reconcile when to exit using internal resource markets versus external markets.

Digital sales channels and the relationship between product and international diversification: Evidence from going digital retail MNEs

“…The main source of our data is the PlanetRetail database. Recent empirical studies on the internationalization process in the retail sector have used this database (e.g., Batsakis & Theoharakis, 2021; Oh et al, 2015; Sohl & Folta, 2021; Swoboda, Elsner, & Olejnik, 2014). PlanetRetail sources longitudinal information, such as the number of outlets each retailer has opened and the number of sales of each retailer per product category with the respective format (digital, physical) in a given country and a given year, on the largest retailers in the world.…”

Renewing the resource‐based view: New contexts, new concepts, and new methods

“…In particular, it is important to correctly specify the appropriate counterfactual when examining the benefits of redeployment. The theoretical argument for intertemporal economies of scope rests on the claim that resources may be more efficiently redeployed within the firm than through the market (Helfat & Eisenhardt, 2004; Levinthal, 2017): it follows that empirical work must examine not only whether redeployment of resources is beneficial for performance, but also whether it is more beneficial than if the resources had been redeployed through the market (Sohl & Folta, 2021). Therefore, when extending research on resource redeployment to encompass between‐firm redeployment, scholars must take account of transaction costs among other considerations (McGrath & Singh, 2016).…”

Different people, different pathways: Human capital redeployment in multi‐business firms

“…Much of the resource redeployment literature has focused on redeployment as the outcome of differential growth opportunities between business units (Dickler & Folta, 2020; Sohl & Folta, 2021; Wu, 2013). However, recent literature has begun to examine redeployment as an antecedent of performance outcomes (Giarratana et al, 2021; Stadler et al, 2022).…”