Liability of middleness revisited: The advantages for mid-sized competitors in renewable natural resource industries

Abstract

Size is an important antecedent of firm survival, and several studies theoretically sustain and empirically support a 'liability of middleness'. Indeed, it is widely believed that companies should act strategically to either become large or remain small and occupy a niche position, because mid-sized firms face the strongest market selection pressures. This study challenges that logic in renewable natural resource industries. Measuring size as product-line scale and firm-level portfolio breadth, we argue that in industries characterized by cost competition, the lack of product differentiation, large capital investments, and sharp price oscillation, scale and breadth have a curvilinear effect on survival that favors mid-sized firms rather than penalizing them. An empirical analysis of the US pulp and paper (P&P) industry over the period 1970-2000 strongly supports our arguments. This study is particularly relevant for emerging economies, in which natural resource industries represent an important portion of the total economic activity.