Resource Redeployment as an Entry Advantage in Resource-Poor Settings

Scarcity of productive factors poses a challenge for firms entering underdeveloped regions. We examine resource redeployment as a strategy to overcome scarcity in factor markets by modeling when expanding firms will internally redeploy versus hire workers via external markets. Our model predicts that redeployment is most valuable when there are large differences in resource scarcity across factor markets and when output is highly sensitive to worker skill and complementarities between labor and other resources. The ability to overcome resource scarcity allows firms with redeployment capabilities to enter markets that other firms would not. Data on sugar mills in Brazil, where a sudden demand boom incentivized expansion, corroborate the predictions. Our research identifies new entry advantages from resource redeployment