INTRODUCTION
Although previous studies have documented how companies develop competitive advantages, relatively little is known about how new ventures do so. How do startups develop a competitive advantage? Some say the stork brings it, while others say it is luck (Rumelt, Reference Rumelt and Teece1987). New ventures (new firms) are often overlooked by researchers developing strategy theory (Larrañeta, Zahra, & González, Reference Larrañeta, Zahra and González2012; Zahra, Reference Zahra2007), and empirical research on this issue is rather scarce. Theories that explain how established companies develop competitive advantages may not extend to new ventures (Short, McKelvie, Ketchen Jr., & Chandler, Reference Short, McKelvie, Ketchen, David and Chandler2009), as their competitive positions often differ from those of their older counterparts.
New ventures are usually smaller than established companies, which limits their access to resources and markets. All else being equal, new ventures lack legitimacy and reputation (Larrañeta et al., Reference Larrañeta, Zahra and González2012), and have limited connections to other actors in the market, which undermines their ability to compete (Freeman, Carroll, & Hannan, Reference Freeman, Carroll and Hannan1983). However, newness also brings flexibility and the ability to integrate resources creatively without being hindered by ill-suited organizational routines and structures (Henderson & Clark, 1990; Tushman & Anderson, 1986). In the Chinese context, there are additional factors that must be taken into account when analyzing new ventures’ strategies for establishing a competitive advantage. In addition to characteristics common to most startups, dependence and passivity also mark Chinese new ventures. Most new ventures in China place their hope in others and tend to overemphasize the role of the external environment. Erikson (2002) defines new ventures’ competitive advantage as the possession of a unique value-creating strategy. Similar to the resource-based view of the firm, this approach suggests that the ability of new ventures to integrate their resources optimally may be the main source of their competitive advantage (Erikson, 2002).
There are two principle approaches to resource integration: the stabilizing approach and the pioneering approach (Sirmon, Hitt, & Ireland, Reference Sirmon, Hitt and Ireland2007). Both may be used by Chinese startups, and they may be manifested in ways that are systematically different from the ways in which they are manifested in established companies. Due to initial resource scarcity and the need to rely on others to acquire resources, Chinese new firms may excessively use bricolage (Baker & Nelson, 2005). Accordingly, some researchers suggest that new ventures are passive when it comes to resource integration. In contrast, established companies have abundant resources and it is easier for them to leverage their resource position to obtain and integrate new resources into their existing resource base. Therefore, the effect of resource integration strategies on competitive advantage is different in new and established companies. Previous research in this area has often been limited to samples from Western economies. There is little systematic knowledge about how Chinese new ventures build competitive advantages through resource integration.
Environmental dynamism is seen as a defining characteristic of the Chinese entrepreneurial environment during its economic transition. In general, environmental dynamism makes markets more uncertain, institutions less stable, and technological changes more rapid (Li & Mitchell, Reference Li and Mitchell2009; Su, Peng, Shen, & Xiao, Reference Su, Peng, Shen and Xiao2013). Although some scholars consider environmental dynamism to be helpful for new ventures, as it improves competitive advantage overall (Wiklund & Shepherd, Reference Wiklund and Shepherd2005), other studies show that environmental dynamism reduces exploratory innovation in new ventures (Jansen, Vera, & Crossan, Reference Jansen, Vera and Crossan2009), leading to poorer performance (Ensley, Pearce, & Hmieleski, Reference Ensley, Hmieleski and Pearce2006).
Why are these results contradictory? Studies show that environmental dynamism with low munificence is substantially different from that environmental dynamism characterized by high munificence (Stoel & Muhanna, Reference Stoel and Muhanna2009). This study examines the relationships between stabilizing and pioneering approaches to resource integration and competitive advantage in these two clearly distinct environmental contexts.
THEORETICAL BACKGROUND AND HYPOTHESES
The environment of new ventures in China is characterized by high dynamism and low munificence. For example, market trends are highly uncertain (Goll & Rasheed, Reference Goll and Rasheed2004), government policies are unstable (Peng & Luo, Reference Peng and Luo2000; Tan, Reference Tan1996), and state-owned monopoly enterprises control many key resources (Jing & McDermott, Reference Jing and McDermott2013; Li, Xia, Long, & Tan, Reference Li, Xia, Long and Tan2012). Furthermore, new ventures need many resources during their creation and early growth (Lichtenstein & Brush, Reference Lichtenstein and Brush2001), but this is the period when they face difficulties in acquiring resources. Therefore, Chinese new ventures face the challenge of acquiring scarce resources and integrating them effectively in an unfavorable and dynamic environment.
Previous research indicates that environmental factors and firm resource-related strategies are intertwined. For instance, research has found environmental factors influence new ventures’ competitive advantage (Bradley, Aldrich, Shepherd, & Wiklund, Reference Bradley, Aldrich, Shepherd and Wiklund2011; Morse, Fowler, & Lawrence, Reference Morse, Fowler and Lawrence2007; Mudamb & Zahra, Reference Zahra2007; Short, McKelvie, Ketchen Jr., & Chandler, Reference Short, McKelvie, Ketchen, David and Chandler2009; Song, Wang, & Parry, Reference Song, Wang and Parry2010). It has also been established that managing resources effectively significantly improves a new firm's competitiveness (Aspelund, Berg-Utbya, & Skjevdal, Reference Aspelund, Berg-Utby and Skjevdal2005; Bradley et al., Reference Bradley, Aldrich, Shepherd and Wiklund2011; West III & Noel, Reference West III and Noel2009). We suggest that it is at this intersection of the external and internal factors that key insights into their effect on new ventures’ competitive advantage could be developed.
According to the resource-based view, valuable, rare, inimitable, and non-substitutable resources are necessary for a sustainable competitive advantage. However, it is not easy for new ventures to access such resources. They must therefore integrate available resources appropriately to generate unique capabilities (Newbert, Gopalakrishnan, & Kirchhoff, Reference Newbert, Gopalakrishnan and Kirchhoff2008). Resources can be integrated in different ways to improve a firm's competitive advantage (Grande, Reference Grande2011). Generally, the stabilizing approach to resource integration involves making minor changes to a firm's current resource bundles to enable incremental improvements in its existing capabilities (Sirmon et al., Reference Sirmon, Hitt and Ireland2007). The pioneering approach addresses competitive pressures by creating new capabilities rather than updating old ones (Sirmon et al., Reference Sirmon, Hitt and Ireland2007). Below, we argue that the effectiveness of either approach will depend on the nature of the environment.
Moderating Effect of Environmental Dynamism
New ventures do not operate in a vacuum (Song, Podoynitsyna, Der Bij, & Halman, Reference Song, Podoynitsyna, Van Der Bij and Halman2008). The ability to effectively and efficiently integrate resources in a given environment ultimately determines whether a company will establish a competitive advantage (Cai, Liu, Zhu, & Deng, Reference Cai, Liu, Zhu and Deng2014; Ireland & Webb, Reference Ireland, Webb, Cooper, Alvarez, Carrera, Mesquita and Vassolo2006). Thus, to better understand the effect of internal resource integration strategies on competitive advantage, it is necessary to consider the joint effect of the different approaches to resource integration and key environmental factors, specifically environmental dynamism and resource munificence (Boyne & Meier, Reference Boyne and Meier2009; Stoel & Muhanna, Reference Stoel and Muhanna2009; Tan & Litschert, Reference Tan and Litsschert1994).
Due to the rapid technological changes and unpredictable development trends of high environmental dynamism (Goll & Rasheed, Reference Goll and Rasheed2004), it is disadvantageous for a new venture to pursue the stabilizing resource integration approach (Voss, Sirdeshmukh, & Voss, Reference Voss, Sirdeshmukh and Voss2008). The slow and stable approach prevents firms from keeping up with their competitors’ innovations and taking advantage of emerging trends; this results in the new venture losing its competitive position (Voss et al., Reference Voss, Sirdeshmukh and Voss2008). In addition to rapid changes in technology, high environmental dynamism in China means uncertain market demand (Jansen, Van Den Bosch, & Volberda, Reference Jansen, Van Den Bosch and Volberda2006) which is ill-articulated or constantly shifting. In such environments, new ventures that subscribe to a stabilizing philosophy and do not experiment with more radical ideas to produce new capabilities may be unable to meet uncertain and changing demands (Voss et al., Reference Voss, Sirdeshmukh and Voss2008).
The stabilizing approach to resource integration traps firms in a path dependent dilemma, and thus may keep new ventures from achieving the flexibility necessary for success. Furthermore, institutional changes (such as new laws or regulations, changes in industrial or governmental policies, or changes in residual values) in a transitional economy make the environment particularly dynamic (Yang & Li, 2008). Therefore, organizational routines developed under the stabilizing approach, which tend to favor a very stable and conforming institutional context (Sirmon et al., Reference Sirmon, Hitt and Ireland2007), may cause new ventures to lose their competitive advantage in different contexts. Therefore, we put forward the following hypothesis:
Hypothesis 1: The positive relationship between stabilizing approach to resource integration and new venture's competitive advantage will be weaker under a high than a low level of environmental dynamism.
Similarly, environmental dynamism inhibits the positive effects of the pioneering approach to resource integration on competitive advantage. Under high environmental dynamism environmental shocks are quite likely (Stoel & Muhanna, Reference Stoel and Muhanna2009). When technological upgrades are fast and unpredictable, innovative capabilities devised by new ventures via the pioneering approach may be rendered useless. As new firms try to neutralize the competitors they perceive as threats, other firms may develop new technology more quickly. It is increasingly difficult for new ventures to predict customer and competitor behavior in periods of economic transition. Furthermore, under such conditions, identifying opportunities is likely to be serendipitous (Denrell, Fang, & Winter, Reference Denrell, Fang and Winter2003). That is, a new venture that invests in developing new capabilities through the pioneering approach may end up with capabilities of questionable use.
Environmental dynamism is also characterized by unpredictable changes in government policies and regulations (Bruton & Ahlstrom, 2003). Without clarity about government policies and regulations, it is difficult for new ventures to decide what capabilities they need. Therefore, environmental dynamism negatively moderates the positive relationship between the pioneering approach and competitive advantage.
Hypothesis 2: The positive relationship between pioneering approach to resource integration and new venture's competitive advantage will be weaker under a high than a low level of environmental dynamism.
Moderating Effect of Environmental Munificence
Environmental munificence is the degree of competitive intensity and resource abundance (Castrogiovanni, Reference Castrogiovanni1991; Jing & McDermott, Reference Jing and McDermott2013; Stoel & Muhanna, Reference Stoel and Muhanna2009). In China, environmental munificence influences new ventures’ decisions about resource allocation (Tan, Reference Tan2005). For example, Chinese governmental agencies still control key resources and projects, which makes it difficult for new ventures to acquire these resources (Aidis, Estrin & Mickiewicz, 2008; Park & Luo, 2001). In addition, although the private business sector is thriving nowadays, new ventures still find it difficult to compete with established companies. The joint effects of the alternative resource integration approaches and environmental dynamism discussed above become more pronounced under different degrees of environmental munificence (Stoel & Muhanna, Reference Stoel and Muhanna2009). Environmental dynamism combined with high munificence differs sharply from environmental dynamism combined with low munificence (Stoel & Muhanna, Reference Stoel and Muhanna2009). In China's economic transitional period with a high degree of environmental dynamism, the problem of asymmetrical access to information is severe, and new ventures have limited ability to gather complete and accurate information about resources. Therefore, under a high level of environmental dynamism with a low level of environmental munificence, stable and slow approach to resource combination may fail to provide an adequate response in time.
When high environmental munificence is coupled with a low level of environmental dynamism, the stabilizing approach to resource integration may be effective in establishing and maintaining a competitive advantage. In such circumstances, new ventures can obtain accurate information about market trends and institutional policies and can better predict technological upgrades. High environmental munificence provides new ventures with sufficient resources and opportunities (Tang, Reference Tang2008). In this case, the stabilizing approach may be sufficient, as conditions remain relatively stable and the process of change is relatively slow (Bigley & Roberts, Reference Bigley and Roberts2001). In fact, the stabilizing approach has been suggested as appropriate for new ventures that operate in such environments (Adler, Goldoftas, & Levine, Reference Adler, Goldoftas and Levine1999). Therefore, we put forward the following hypothesis:
Hypothesis 3a: The positive relationship between stabilizing approach and competitive advantage will be the weakest under a high level of environmental dynamism and a low level of environmental munificence.
Hypothesis 3b: The positive relationship between stabilizing approach and competitive advantage will be the strongest under a low level of environmental dynamism and a high level of environmental munificence.
Environmental dynamism with high munificence differs sharply from environmental dynamism with low munificence (Stoel & Muhanna, Reference Stoel and Muhanna2009). As hypothesized above, the pioneering approach to resource integration is less likely to positively affect a firm's competitive advantage when environmental dynamism is high (H2). If, in addition to high dynamism, the environment is characterized by high munificence, this relationship may become even more pronounced. When resources are easy to get, competitors tend to be more active (Capron & Chatain, Reference Capron and Chatain2008). Similarly, competitors with abundant resources are less predictable because they have fewer limitations (Capron & Chatain, Reference Capron and Chatain2008). Moreover, other ventures can enter the environment relatively easily when resources are abundant, which increases competitive pressure in such environments (Rasheed, Reference Rasheed2005). When many players supported by environmental munificence act simultaneously, the pioneering approach to resource integration may fail to respond.
When low environmental munificence is coupled with low environmental dynamism, the effect of the pioneering approach to resource integration is likely to be most visible. Low munificence implies difficulty of entry into the market, and low dynamism makes it relatively easy to determine market trends, changes in technology, and institutional policies. Furthermore, the pioneering approach may play an important role in a resource-constrained context; it may enlarge this advantage when resources are scarce. At the same time, new ventures in such an environment may face limited rivals that are likely to have clear ideas of market developments and the ability to build their own capabilities to lure easily understood customers. Therefore, we put forward the following hypothesis:
Hypothesis 4a: The positive relationship between pioneering approach and competitive advantage will be the weakest under a high level of environmental dynamism and a high level of environmental munificence.
Hypothesis 4b: The positive relationship between pioneering approach and competitive advantage will be the strongest under a low level of environmental dynamism and a low level of environmental munificence.
Figure 1 summarizes our conceptual development.
Figure 1. Research framework
METHOD
Data and Sample
Following previous studies, we defined eight years as the cut-off age to designate ventures as ‘new’ (Bamford, Dean, & Douglas, Reference Bamford, Dean and Douglas2004; Gilbert, McDougall, & Audretsch, Reference Gilberta, McDougall and Audretsch2008; Li & Zhang, Reference Li and Zhang2007). The sampling frame was drawn from three regions of China–Jilin province, Fujian province, and the city of Beijing. A questionnaire was mailed to 700 randomly selected entrepreneurs (300 in Jilin province, 200 in Fujian province, and 200 in Beijing). Four hundred and ten usable questionnaires were returned, giving a response rate of 60.14%, which is comparable to similar studies conducted in China. All of the respondents, who were managers or entrepreneurs, were assured of their anonymity.
To assess the non-response bias, we used t-tests to compare late respondents to early respondents, as suggested by Armstrong and Overton (Reference Armstrong and Overton1977). No significant differences were found in the independent variables, dependent variables, or control variables. Thus, we concluded that non-response bias was not a significant problem in this dataset. Our sample included a balanced representation of the new ventures in terms of age (about 40% of the firms in the sample were under three years, about a third were between three and five years, and the remaining firms were between six and eight years). Similarly, the distribution of firms in the selected industries was also balanced, with about 20 percent of the firms from manufacturing industries and the remaining firms equally split between IT services and general services. Finally, with respect to firm size, roughly one in six firms employed fewer than 20 individuals, about 40 percent of the ventures had between 21 and 50 employees, a little over a third had between 51 and 200 employees, and fewer than 10% of firms had more than 200 employees.
Measures
Dependent variable
We used Newbert's (Reference Newbert2008) approach to operationalize competitive advantage with four items. We used a 7-point Likert scale (1= strongly disagree, 7= strongly agree) to assess how well a firm is positioned relative to the industry average with respect to 1) speed in responding to the market; 2) production efficiency; 3) product quality; and 4) innovation speed. The variable demonstrated high reliability (Cronbach's alpha = 0.84, composite reliability = 0.84; both above the suggested cut-off values of 0.70) (Carter & Carter, Reference Carter and Carter1998; Fornell & Larcker, Reference Fornell and Larcker1981).
Independent variables
The stabilizing approach to resource integration was measured with three indicators drawn from Sirmon, Hitt, and Ireland (Reference Sirmon, Hitt and Ireland2007). A 7-point Likert scale (1= strongly disagree, 7= strongly agree) captures the extent to which a company 1) made incremental modifications in its current resource bundle; 2) added identical or highly similar resources to the current resource bundle; and 3) maintained the state of its current resources (e.g., human and technical). The Cronbach's alpha equaled 0.73 and the composite reliability was 0.75, indicating acceptable fit. The pioneering approach to resource integration was also measured with a 7-point Likert scale (1= strongly disagree, 7= strongly agree) with the items modeled after Sirmon, Hitt, and Ireland (Reference Sirmon, Hitt and Ireland2007). In particular, we captured the extent to which a company 1) integrated new resources; 2) integrated existing resources in innovative ways; or 3) integrated both new and existing resources creatively. The reliability indicators were again acceptable (Cronbach's alpha = 0.83; composite reliability = 0.83).
Moderating variables
Environmental dynamism was measured using Miller's (Reference Miller1987) instrument, which measures 1) the speed with which core products are replaced in the industry; 2) the rate of innovation in the industry; 3) the speed of change in marketing; and 4) the difficulty in predicting competitors’ behavior and customers’ needs. The items use a 7-point scale (1= strongly disagree, 7= strongly agree). The Cronbach's alpha was 0.79 and the composite reliability was 0.80, suggesting an acceptable fit. Our measure for environmental munificence was based on Miller (Reference Miller1987) and Castrogiovanni (Reference Castrogiovanni2002), and captures whether 1) customer demand was diversified; 2) the speed of industry growth was high; 3) the long-term (5-year) perspective for market growth was high; and 4) the profits in the industry were high. The items use a 7-point scale (1= strongly disagree, 7= strongly agree). Both the Cronbach's alpha (0.72) and composite reliability (0.74) were above the cut-off value, suggesting the measure was reliable and had good internal consistency.
Control variables
To address potential confounding effects, we partialled out the variance shared by all of the measurement items with control variables of firm age, firm size, industry, and location. Firm age was calculated according to the year of registration and the year of survey. Firm size referred to the number of full-time employees measured by a six-point scale (from 1 = less than 20 to 6 = more than 1,000). Industry included IT-service, manufacture, service and others. Locations referred to Beijing, Fujian, and Jilin.
Analytical Procedures
We used structural equation modeling (SEM) to test the hypotheses. SEM modeling generally requires a two-stage process. First, a measurement model is specified and fit. Then, one or more structural models are fit to the data (Anderson & Gerbing, Reference Anderson and Gerbing1988). Confirmatory factor analysis (CFA) can be used to establish the validity and reliability of a hypothesized measurement model. The structural model specifies the causal relationships amongst the latent constructs, describes the causal effects, and assigns the explained and unexplained variance (Tseng & Goo, Reference Tseng and Goo2005).
Validity Assessment of the Measurement Model
We assessed the validity of our measurement model in three ways. First, to enhance content validity, we discussed our constructs with leading entrepreneurs and pilot-tested our instrument extensively. Second, we estimated the convergent validity by reviewing the t-tests for the factor loadings (Chiu, Chien, Lin, & Hsiao, Reference Chiu, Chien, Lin and Hsiao2005). As all of the factor loadings for the indicators measuring the same construct were statistically significant (see Table 1) (Anderson & Gerbing, Reference Anderson and Gerbing1988), and the fit indices met the usual criterion (χ2 = 375.76, d.f. = 137, RMSEA = 0.065, GFI = 0.916, AGFI = 0.88, NFI = 0.89, CFI = 0.93), we conclude the measures have convergent validity (the lowest t-value was 10.89–substantially larger than the cut-off value of 1.96). Third, we examined the discriminant validity of the factors using the procedures suggested by Fornell and Larcker (Reference Fornell and Larcker1981). Table 2 shows that the square root of the average variance extracted (AVE) by each factor was larger than the correlation coefficient of that factor with other factors in the model. This suggested that all of the factors in the measurement models possess strong discriminant validity. Based on these results, we conclude that there is sufficient evidence of content validity, convergent validity, and discriminant validity.
Table 1. Reliability and validity assessments of measures
Table 2. Descriptive statistics and correlations
Notes: *p<0.1; **p<0.05; ***p<0.01
The numbers on the diagonal represent the square root of average variance extracted (AVE)
Common Method Bias and Model Fit
We collected our data with a single survey, and this can create a common method bias. To reduce interference from the bias, we assured the respondents’ of the confidentiality of the survey, and encouraged them to answer the questions frankly by telling them there were no right or wrong answers (Lyles, Li, & Yan, Reference Lyles, Li and Yan2014; Podsakoff, MacKenzie, Lee, & Podsakoff, Reference Podsakoff, MacKenzie, Lee and Podsakoff2003). We also enhanced the quality of the questionnaire by making each item clear and easy to understand.
After collecting the data, we conducted Harman's one-factor test (Podsakoff et al., Reference Podsakoff, MacKenzie, Lee and Podsakoff2003), and an un-rotated factor analysis, which showed that there was no general factor or single factor. Furthermore, the items for the variables loaded on different factors, as expected. Finally, we conducted a confirmatory factor analysis to detect the extent of the common method bias (shown in Table 1) (Sanchez & Brock, Reference Sanchez and Brock1996; Su, Peng, Shen, & Xiao, Reference Su, Peng, Shen and Xiao2013). We compared a one-factor model with a five-factor model (measurement model) (Podsakoff & Organ, Reference Podsakoff and Organ1986; Sanchez, Korbin, & Viscarra, Reference Sanchez, Korbin and Viscarra1995). The one-factor model (χ2 = 1271.55 with 152 degrees of freedom) was significantly worse than the five-factor model (χ2 = 375.76 with 137 degrees of freedom), meaning that common method bias was not a serious problem (Slater, Olson, & Hult, Reference Slater, Olson and Hult2006).
As the fit indices referred to above have recently been criticized on methodological grounds (e.g., Williams & O'Boyle Jr., Reference Williams and O'Boyle2011), we also computed two alternative indices for our models (NSCI-P and RMSEA-P) to ensure the fit was acceptable. The results were consistent with those reported above: NSCI-P varied from 0.80 to 0.85, whereas RMSEA-P (as low as 0.07) suggested a better fit. Of primary interest to us was the significance of the individual coefficients and their stability across varying environments. We address this issue below.
RESULTS
The common method for testing the moderating effects in SEM is to divide the dataset into two groups (high and low values of the candidate moderating variable) and to compare the model fit across groups (Im, Kim, & Han, Reference Im, Kim and Han2008). For example, the dataset can be divided into two sub-sets according to the level of environmental dynamism, and then SEM is applied to one of the two groups (the high dynamism group, for example). Once the model for the high dynamism group is identified, the statistics generated by the model are used to conduct tests on the low dynamism group. Two models for the low dynamism group are then compared–one without any constraints and one using the coefficients for the high dynamism group. If the model without any constraints is significantly better (smaller χ2) than the constrained model, the low dynamism group's coefficients differ from those of the high dynamism group. If the changes in χ2 are significant, a moderating effect exists. Table 3 shows the results of these moderation tests.
Table 3. Parameter estimates for moderating effect of environmental dynamism
Notes: *p< 0.1; **p< 0.05
Model 1 is default model; Model 2 constrains the relationship between stabilizing approach and competitive advantage; Model 3 constrains the relationship between pioneering approach and competitive advantage.
Table 3 shows that environmental dynamism negatively moderated the relationship between the stabilizing approach and competitive advantage (Model 1, β = 0.27* versusβ = -0.09, χ2 = 313.51, d.f. = 66, GFI = 0.88, NFI = 0.8, CFI = 0.83, RMR = 0.15). In Model 2, we constrained the relationship between the stabilizing approach and competitive advantage. Results show that Model 1 was significantly better (smaller χ2) than Model 2. This confirmed H1 and the interaction effect is plotted in Figure 2. Model 1 shows that environmental dynamism also negatively moderated the relationship between the pioneering approach and competitive advantage (β = 0.40** versusβ = 0.19**, χ2 = 313.51, d.f. = 66, GFI = 0.88, NFI = 0.8, CFI = 0.83, RMR = 0.15). In Model 3, we constrained the relationship between pioneering approach and competitive advantage. Results show that Model 1, which was not constrained, was significantly better (smaller χ2) than Model 3. This confirmed H2 and the interaction effect is plotted in Figure 3.
Figure 2. Stabilizing approach to resource integration and competitive advantage*
Figure 3. Pioneering approach to resource integration and competitive advantage*
To examine the joint moderation of environmental munificence and environmental dynamism (H3 and H4), we divided the dataset into four groups (low munificence, low dynamism; low munificence, high dynamism; high munificence, low dynamism; high munificence, high dynamism). The results in Table 4 show that the positive relationship between stabilizing approach and competitive advantage is the strongest under a low level of environmental dynamism and a high level of environmental munificence(β = 0.62*) in Model 1 (χ2 = 413.67, d.f. = 132, GFI = 0.84, NFI = 0.74, CFI = 0.80, RMR = 0.15). This confirms H3b. However, the relationship between stabilizing approach and competitive advantage under a high level of environmental dynamism and a low level of environmental munificence is not significant(β = -0.06). To examine H3a and H3b further, we constrained the relationship between the pioneering approach and competitive advantage in the four groups in Model 3 (χ2 = 418.6, d.f. = 135, GFI = 0.84, NFI = 0.74, CFI = 0.80, RMR = 0.15). The results also confirm H3b(β = 0.62*). Results of both Model1 and Model 3 showed that the negative moderation effect of dynamic environments on the relationship between stabilizing approach and competitive advantage was positively magnified by environmental munificence. We could infer that the relationship between stabilizing approach and competitive advantage is the weakest under a high level of environmental dynamism and a low level of environmental munificence. Therefore, H3a was partially supported. The effect is plotted in Figure 4.
Table 4. Moderating effect of environmental munificence
Notes: *p< 0.1; **p< 0.05
Model 1 is default model; Model 2 constrains the relationship between stabilizing approach and competitive advantage; Model 3 constrains the relationship between pioneering approach and competitive advantage.
Figure 4. Stabilizing approach to resource integration and competitive advantage under low- and high-environmental munificence context*
Table 4 also shows that the relationship between pioneering approach and competitive advantage is the strongest under a low level of environmental dynamism and a low level of environmental munificence (β = 0.40**). This confirms H4b. However, it may not be the weakest under a high level of environmental dynamism and a high level of environmental munificence (β = 0.16**), because the coefficient under a high level of environmental dynamism and a low level of environmental munificence is not significant (β = 0.09). In order to examine H4a, we constrained the relationship between stabilizing approach and competitive advantage in the four groups in Model 2 (χ2 = 422.35, d.f. = 135, GFI = 0.84, NFI = 0.73, CFI = 0.80, RMR = 0.15). The results also confirm H4b(β = 0.45**). According to Model 1 and Model 2 we could infer that environmental munificence negatively influenced the moderating role of environmental dynamism on the relationship between the pioneering approach and competitive advantage when compared Group 1 to Group 2 and Group 3 to Group 4. Furthermore, we already observed that the relationship between pioneering approach and competitive advantage is the weakest under a high level of environmental dynamism and a high level of environmental munificence. This could support H4a. The effect is plotted in Figure 5.
Figure 5. Pioneering approach to resource integration and competitive advantage under low- and high-environmental munificence context*
DISCUSSION
The results generally support the negative moderating effect of environmental dynamism on the relationships between the stabilizing approach and competitive advantage, and the pioneering approach and competitive advantage. In the case of the stabilizing approach, the moderation is strong enough to change the positive relationship under high environmental dynamism into a negative relationship under low environmental dynamism. In the case of the pioneering approach, environmental dynamism affects the strength of its association with competitive advantage.
The results demonstrate the role that environmental munificence plays in strengthening or weakening the moderating effects of environmental dynamism on the relationships between the stabilizing and pioneering approaches and competitive advantage. In general, both approaches to resource integration help new ventures establish a competitive advantage. However, environmental dynamism makes developing a competitive advantage significantly harder. High environmental munificence would magnify the moderation effect of environmental dynamism on the relationship between the stabilizing approach and competitive advantage. In contrast, high environmental munificence would shrink the moderation effect of environmental dynamism on the relationship between the pioneering approach and competitive advantage.
This study on the effects of environmental dynamism and environmental munificence in the Chinese context provides several novel findings according to Model 1 in Table 4. First, both the stabilizing and pioneering approaches to resource integration positively influence new ventures’ competitive advantage under the condition of low environmental dynamism and low environmental munificence and the condition of high environmental munificence and low environmental dynamism. Second, neither the stabilizing nor pioneering approach has a significant effect on new ventures’ competitive advantage under the condition of low environmental munificence and high environmental dynamism. Third, only the pioneering approach has a positive effect on new ventures’ competitive advantage under the condition of high environmental munificence and high environmental dynamism. These results are markedly different from those of previous studies (e.g., Sirmon et al., Reference Sirmon, Hitt and Ireland2007), which have often focused on just one kind of environmental context–one characterized by low environmental munificence and high environmental dynamism. Our study, by exploring the wide variety of environmental contexts in today's transitioning China, suggests that new ventures there face unique challenges in resource integration, and that the lessons learned from incumbents operating in more stable environments may not apply to the Chinese context.
Limitations and Future Research Directions
The results of this study need to be considered in light of its limitations. First, we only use environmental dynamism and munificence to capture the Chinese environmental context. However, alternative environmental dimensions would provide a more detailed picture of the contextual influences on new venture strategies. Second, in addition to resource bricolage and the resource-based view of the firm, other theoretical lenses may be used to provide new insights into the relationship between resource integration strategies and the competitive advantage of new ventures. In particular, this relationship may be analyzed from the dynamic capabilities perspective. Future research should investigate such alternative conceptual lenses, which may provide different insight about the phenomenon. Third, the extent to which our results are generalizable to other populations of new ventures is unknown. Further, Chinese firms may differ systematically from firms operating in Western contexts and thus the findings may not apply to firms in the Western contexts. The data were collected at one point in time, we cannot rule out abnormalities related to the timing of the data collection. Furthermore, our measures were taken directly from existing Western literature, and we have not ‘contextualize’ them in the local context. Thus, there might be some measurement error if the items suffer from conceptual equivalence.
Theoretical Implications
Our research makes three distinct contributions. First, previous studies of competitive advantage have usually focused on established companies, and we still know little about how new ventures develop a competitive advantage. In fact, how some of the unique characteristics of new ventures, such as a small scale, young age, lack of legitimacy and reputation, and so on (Larrañeta et al., Reference Larrañeta, Zahra and González2012) develop their strategic selection to establish a competitive advantage remains an open question. Theories about competitive advantage based on established companies are not suitable for explaining how new ventures’ strategies can develop a competitive advantage. This study tries to close this research gap by studying how new ventures integrate resources to establish competitive advantage. Although not directly tested by this study, our results suggest that new ventures in China may integrate resources passively and not proactively, which has implications for resource bricolage theory. Future research should explore these issues in finer detail.
Second, although previous studies have recognized the contextual nature of the relationship between resource integration and competitive advantage, empirical studies investigating this contextual dependence remain limited. This study empirically examined the concurrent effect of environmental dynamism and environmental munificence on the relationship between resource integration and competitive advantage. Accordingly, the results of our study have implications for the broader strategic management literature.
Third, previous studies have explored the relationship between resource integration and competitive advantage in Western economies, focusing on high environmental dynamism with low environmental munificence. This is inadequate to describe the situation in China, where environmental contexts are far more diverse. This implies that Chinese new ventures face complex environmental contexts with limited guidance from past studies. To that end, we have provided both conceptual development and empirical evidence on the relationship between two generic resource integration strategies and competitive advantage of new firms. These results make some contributions to understanding how entrepreneurial management theories must be modified in the Chinese context.
Managerial Implications
This study offers some suggestions for Chinese new ventures that are developing strategies for resource management. First, our results show that both the stabilizing and pioneering approaches to resource integration enhance new ventures’ competitive advantage, but their effects are constrained by environmental dynamism. This suggests that to build a competitive advantage, Chinese new ventures should not only integrate their internal resources, but should also be sensitive to environmental conditions. Second, our results suggest that Chinese new ventures should consider the environmental conditions when making a strategic choice about resource integration. China is a large country with unbalanced regional development. Therefore, new ventures should select different approaches to resource integration depending on the region in which they are operating. For example, ventures in regions with low environmental munificence and low environmental dynamism should select the pioneering approach to resource integration. However, those facing high environmental munificence and low environmental dynamism could select the stabilizing approach to build a competitive advantage.
CONCLUSION
Our study synthesizes resource management and competitive advantage theories to examine the relationship between resource integration approaches and competitive advantage. We extended current theories to explain how new ventures can acquire a competitive advantage in different environments. By examining the above model in the Chinese context, we identified the differential effects of environmental dynamism and environmental munificence on the ability of the stabilizing and pioneering approaches to resource integration to help new ventures establish a competitive advantage. As such, our theoretical model, supported by empirical evidence, sets the stage for further research into the connections between resource integration strategies and competitive advantage.
