Age, Experience and Corporate Synergy: When Are They Sources of Business Unit Advantage?
| Published date | 01 December 1992 |
| Date | 01 December 1992 |
| DOI | http://doi.org/10.1111/j.1467-8551.1992.tb00047.x |
British Journal
of
Management,
Vol.
3,221-235 (1992)
Age, Experience
and
Corporate Synergy: When Are
They Sources
of
Business Unit Advantage?
Peter
J.
Williamson* and Paul
J.
Verdin?
*Associate Professor, London Business School, London, United Kingdom
Assistant Professor, INSEAD,
F77305
Fontainebleau, Cedex, France
SUMMARY When do older businesses have a competitive advantage over new startups? When do
the corporate subsidiaries have advantages over independent firms? This paper tackles
these questions by comparing the performance of businesses classified according to
age and affiliation in the game of competitive survival. The research is based on an
analysis of
377,000
United States business units between
1978
and
1984.
Our results
suggest that age confers substantial advantages in competitive environments where
intangible assets, accumulated through experience, are critical to success. These include
industries with high-labour intensity, high skill levels and heavy reliance on push market-
ing. For other industries, e.g., where competitive advantage can be built through superior
service or media hype, age advantage is generally much more limited. Affiliation with
a corporate group, meanwhile, allows young businesses to overcome some of their handi-
cap by ‘borrowing’ experience through their parent. Once
a
business is well established,
however, affiliation is immaterial.
Faced with a~ salesman extolling the benefits of his
company’s long experience, the buyer’s retort was
swift and effective:
‘I’m not impressed by mere history. Some compa-
nies in your industry have spent their last 200 years
becoming progressively fatter, lazier and more iso-
lated from their customers’ needs. Their local sub-
sidiaries still know nothing about our market. The
newcomers bring the art of listening
to
customers
as part
of
their corporate culture and are playing
the game with a new cadre of maybe better peo-
ple’.’
This anecdote brings into sharp focus the question
of when business units derive competitive advan-
tage from their age and continuity. It makes one
think twice about justifying acquisitions as a way
of ‘capturing the advantages of experience’. It also
reminds us that we cannot assume a parent corpor-
ation’s accumulated experience will automatically
benefit its new subsidiaries.
I
Authors’ interviews in Europe.
In addressing these issues, this paper examines
the conditions under which age and experience are
sources of competitive advantage. We also seek to
characterize the industry environments in which
the new subsidiary of a diversifying, corporate
group has an edge over an independent startup.
Our analysis is based on data extracted from the
U.S.
Small Business Administration (1984a, 1984b)
(itself drawing on Dun and Bradstreet data). This
contains information on over 377,000
US
establish-
ments and their ownership links, classified into
120
manufacturing industries and four different age
classes for the period 1978 and 1984.* These data
allow us to analyse cross-industry differences in the
way businesses perform in that ultimate game of
advantage
-
continued survival
-
according to their
age and corporate affiliation.
*
For a full description see U.S. Small Business Adminis-
tration
(1984a,
1984b), MacDonald (l985), Phillips
(1985),
Verdin (1989) and references therein.
1045-3 172/92/040221-15U2.50
0
1992 by John Wiley
&
Sons, Ltd. Received
17
October 1990
Revised
25
February
1992
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