Industrial and Corporate Change - Advance Access

Frequent Incremental Change, Organizational Size, and Mortality in High-Technology Competition

McKendrick, D. G., Wade, J. B. — Fri, 13 Nov 2009 03:05:12 PST

While radical technological change is often characterized as hazardous, particularly to incumbents, incremental technological change has appeared to be immune from such risks. Little attention has been given to the possibility that under some circumstances incremental technological change can be quite risky. This article argues that there may be tradeoffs to high rates of incremental technological change. The costs are of two kinds: the organizational disruptions associated with frequent technological change and overestimating the advantages and receptiveness of the technological improvement. We argue that larger firms are better equipped than smaller firms to cope with these costs and will reap greater benefits from incremental changes. Using data on the population of worldwide floppy disk drive manufacturers, we find that frequent incremental technical changes decrease organizational mortality for large firms but increase it for smaller firms. We also find that large firms that frequently introduce incremental technological improvements are more potent competitors. This study helps us understand how frequent incremental change affects mortality as organizations grow. Advice to managers to engage in continuous incremental innovation can therefore be misguided because unless firms are large, they may incur costs that are so great that the firm actually "fails" by innovating frequently.

The many faces of absorptive capacity: spillovers of copper interconnect technology for semiconductor chips

Lim, K. — Wed, 04 Nov 2009 04:11:21 PST

A case study of copper interconnect technology suggests that absorptive capacity exist in three forms: disciplinary, domain specific and encoded. Each involves different ways of managing R&D and linking internal to external research. Disciplinary absorptive capacity requires a firm to actively engage with the scientific community, while protecting domain-specific knowledge. Domain-specific absorptive capacity depends upon influencing disciplinary research at universities and consortia, then capturing domain knowledge through collaboration and hiring. As technology develops, it becomes encoded, and absorption depends increasingly upon integrating knowledge from suppliers. Hence, absorptive capacity is a multifaceted construct that is heavily shaped by the type and maturity of technology absorbed.

Knowledge creation, entrepreneurship, and economic growth: a historical review

Carlsson, B., Acs, Z. J., Audretsch, D. B., Braunerhjelm, P. — Tue, 13 Oct 2009 08:01:15 PDT

This article explores the relationship between knowledge creation, entrepreneurship, and economic growth in the United States over the last 150 years. Distinguishing between general knowledge and economically useful knowledge, we examine the changes over time in the locus and content of new knowledge creation: the role of universities, particularly engineering schools and land-grant universities, industrial laboratories, and corporate research and development (R&D) laboratories prior to World War II. The practical orientation of US academic R&D and the close research interaction between academia and industry are noted. We study the unprecedented increase in R&D spending in the United States during and after World War II and how it was converted into economic activity via incumbent firms in the early postwar period and increasingly via new ventures in the last few decades.

The role of investment efficiency in the industry life cycle

Kato, M. — Wed, 07 Oct 2009 22:45:46 PDT

This article studies a dynamic model of an industry life cycle based on increasing returns in the cost of growth whereby large firms can grow more easily. When there are strong increasing returns in the adjustment cost function, the model exhibits multiple rest points, and firms do not necessarily all end up in the same state. The model generates typical life cycle stages including a shakeout. The likelihood of survival is positively correlated with the entering size, an implication that fits empirical findings that exiting firms are small not only just prior to exit but also at the time of entry. The model also explains newer findings on the evolution of moments, an increase in the skewness and the spread of firm-size distribution before the shakeout and a decline in these with the start of the shakeout.

Broadband adoption and firm productivity: evaluating the benefits of general purpose technology

Majumdar, S. K., Carare, O., Chang, H. — Mon, 21 Sep 2009 09:02:44 PDT

We examine the relationship between the deployment of broadband, which we classify as a general purpose technology, and the productivity of the deploying firms using panel data that comprises information on all the major local exchange carriers in the United States telecommunications industry from 1995 to 2000. This relationship is an important indicator of the economic impact of new technology adoption. We provide a comprehensive analysis of the literature on general purpose technologies as well as on the economic consequences of information and communications technology diffusion and develop a framework to empirically assess the impact of broadband deployment on the productivity. Our results find a positive relationship between broadband deployment and the carriers’ productivity and suggest that encouraging the deployment of broadband technologies, in addition to the benefits to consumers and firms at the receiving end of the new technology, create the potential for better technological efficiencies and increased productivity for the deploying firms. The benefits can be enhanced as the firms studied operate in two-sided markets where the network effects brought about by the multitude of interconnections can be substantial because of possible second-order spillovers of productivity.

Cartoon planet: worlds of production and global production networks in the animation industry

Yoon, H., Malecki, E. J. — Mon, 07 Sep 2009 05:35:06 PDT

As more animated films are produced, new "worlds of production" have emerged. The animation production system is distinct from film production, relying on different technologies and labor skills. Its globalization, therefore, has taken place differently, although both are structured by the global production networks of the media conglomerates. We present a framework for understanding the animation industry, its international division of labor, and its diverse markets, enabled by pools of artistic labor, growing demand, and the diffusion of production skills.

Product market regulation, innovation, and distance to frontier

Amable, B., Demmou, L., Ledezma, I. — Thu, 30 Jul 2009 06:44:31 PDT

This article contributes to the literature on competition and innovation. It tests the impact of market regulation on innovation conditional to the closeness to the technological frontier with a panel of 15 industries for 17 OECD countries over the period 1979–2003. One of the main conclusions of this literature is that of a negative impact of regulation growing in intensity with the proximity to the frontier. A simple model of innovation and growth shows that one should not necessarily expect this result. Empirical tests on a variety of specifications show that the impact of regulation can be positive when industries are close to the technological frontier. We argue that this result is in fact line with previous evidence.

How and when should companies retain their human capital? Contracts, incentives and human resource implications

Gambardella, A., Giarratana, M. S., Panico, C. — Tue, 28 Jul 2009 09:06:40 PDT

The increasing competition in the labor market for human capital pushes firms to create better incentives to manage talented individuals. In this article, we model the optimal employment contract when two features of human capital are present: (i) private information of the employee about his skills; and (ii) the inability to contract on the output of the employment activity. Our model shows how firms can use delegation (i.e., the employee's job autonomy) to provide the incentives to a privately informed employee. The model novelty resides in turning a classic source of potential inefficiency like asymmetric information into a factor that firms can use to design incentives. Our model provides a new explanation of why, in technologically dynamic environments, one observes more intense formations of start-ups and a greater inter-firm mobility of human capital. Our setting also suggests how established companies can use their complementary assets to provide better incentives to their skilled employees.

Cluster life cycles--dimensions and rationales of cluster evolution

Menzel, M.-P., Fornahl, D. — Wed, 22 Jul 2009 09:18:34 PDT

We present a model that explains how the very cluster dynamics is both the driver for the movement of a cluster through a life cycle and the reason why this movement differs from the industry life cycle. The model is based on two key processes: the first is that the emergence, growth, decline and renewal of the cluster depend on the technological heterogeneity of firms; the second is that firms have a larger relative absorptive capacity, when they are in the same location, and thus especially localized learning changes heterogeneity: it leads to a technological convergence when learning takes place within the cluster and technological divergence, when learning takes place outside the cluster, yet in the same region. We derive hypothesis from the model regarding different phases of the cluster life cycle.

Competition among entrepreneurs

Spulber, D. F. — Fri, 17 Jul 2009 22:41:32 PDT

I examine a three-stage model of Schumpeterian competition among entrepreneurs. In the initial entry stage, entrepreneurs invest in innovation and establish firms. In the next stage, entrepreneurs choose prices strategically, make irreversible investments, and compete to serve consumers, while faced with asymmetric information about each others’ innovations. In the final creative destruction stage, firms with better technologies remain in the market while firms with inferior technologies exit the market. The model features strategic pricing by firms and the possibility of heterogeneous technologies remaining in the market. The model provides a necessary and sufficient condition for creative destruction.

Text and voice: complements, substitutes or both?

Andersson, K., Foros, O., Steen, F. — Mon, 29 Jun 2009 07:34:49 PDT

Text messaging has become an important revenue component for most mobile operators. We develop a simple model of demand for mobile services incorporating dynamics of information exchange. We show that when incoming communication stimulate outgoing communication, services that initially may be perceived as substitutes, such as mobile text and voice, may evolve into complements in terms of the price effect when the network size becomes large. We estimate the demand for text messaging in the Norwegian market and find that the cross-price effect of voice depends on the network size. Voice is a substitute for text messages for small network sizes, and a complement for large network sizes.

Who profits from innovation in global value chains?: a study of the iPod and notebook PCs

Dedrick, J., Kraemer, K. L., Linden, G. — Mon, 22 Jun 2009 04:06:56 PDT

This article analyzes the distribution of financial value from innovation in the global supply chains of iPods and notebook computers. We find that Apple has captured a great deal of value from the innovation embodied in the iPod, while notebook makers capture a more modest share of the value from PC innovation. In order to understand these differences, we employ concepts from theories of innovation and industrial organization, finding significant roles for industry evolution, complementary assets, appropriability, system integration, and bargaining power.

Is inter-firm labor mobility a channel of knowledge spillovers? Evidence from a linked employer-employee panel

Maliranta, M., Mohnen, P., Rouvinen, P. — Mon, 22 Jun 2009 04:06:42 PDT

An employer–employee panel is used to study whether the movement of workers across firms is a channel of unintended diffusion of R&D-generated knowledge. Somewhat surprisingly, hiring workers from others’ R&D labs to one's own does not seem to be a significant spillover channel. Hiring workers previously in R&D to one's non-R&D activities, however, boosts both productivity and profitability. This is interpreted as evidence that these workers transmit knowledge that can be readily copied and implemented without much additional R&D effort.

Firm growth and type of debt: the paradox of discretion

O'Brien, J., David, P. — Wed, 17 Jun 2009 09:51:42 PDT

According to agency theory, debt is a useful governance mechanism for curbing the tendency of managers to over-invest in firm growth. First, we extend this view by using the theory of rules versus discretion to explain why the ability of debt to constrain excessive growth is contingent upon lenders relinquishing discretion and committing to rigid rules. Next, we draw on the financial intermediation literature to distinguish between two types of debt. We explain that transactional debt (i.e. public securities such as bonds and commercial paper) conforms to a rules regime, and thus can serve as effective governance mechanisms for limiting the agency costs of over-investment in growth. In contrast, relational debt (i.e. private loans from financial intermediaries) is best characterized as a discretionary regime, and therefore is less effective in curtailing these agency costs. Paradoxically, it is the very intention of lenders to act optimally in the future that may result in this governance breakdown. Our empirical analysis of a large sample of Japanese firms confirms that the type of debt influences both firm growth and the performance consequences of that growth.

Firms' transfer strategies with universities and the relationship with firms' innovation performance

Arvanitis, S., Woerter, M. — Fri, 05 Jun 2009 02:44:01 PDT

Based on a representative sample of Swiss firms we empirically investigated strategies for knowledge and technology transfer (KTT) activities between business firms and universities as well as other public research institutions. Based on a cluster analysis of 19 different forms for KTT, three types of KTT strategies were identified. They were significantly correlated mainly to (i) the absorptive capacity of a firm, (ii) several factors hampering KTT activities, and (iii) some characteristics of the transfer process such as the number of partners, the existence of contacts to foreign universities and the utilization of the mediating services of transfer offices. Furthermore, it was found that KTT strategies related to the "core" transfer activities such as R&D contracts are stronger correlated with innovation performance compared to strategies related to "softer" transfer forms.

The two faces of collaboration: impacts of university-industry relations on public research

Perkmann, M., Walsh, K. — Wed, 03 Jun 2009 04:25:16 PDT

We analyze the impact of university–industry relationships on public research. Our inductive study of university–industry collaboration in engineering suggests that basic projects are more likely to yield academically valuable knowledge than applied projects. However, applied projects show higher degrees of partner interdependence and therefore enable exploratory learning by academics, leading to new ideas and projects. This result holds especially for research-oriented academics working in the "sciences of the artificial" and engaging in multiple relationships with industry. Our learning-centred interpretation qualifies the notion of entrepreneurial science as a driver of applied university–industry collaboration. We conclude with implications for science and technology policy.

The persistence of market leadership: evidence from Japan

Kato, M., Honjo, Y. — Thu, 21 May 2009 10:10:29 PDT

This article explores the persistence of market leadership in Japanese manufacturing industries over the period 1975–2004. By applying survival data techniques, we examine how long market leadership persists and how the duration of market leadership varies according to industry-specific characteristics. Our findings indicate that market leaders maintain their leadership positions for, on average, 20 years from 1975 in Japanese manufacturing industries. We provide evidence that market leadership tends to persist in capital-intensive and legally cartelized industries, whereas it is less likely to persist in demand-volatile, R&D-intensive, and import-intensive industries.

The structure of payments as a way to alleviate contractual hazards in international technology licensing

Cebrian, M. — Tue, 19 May 2009 08:22:39 PDT

This article proposes an empirical model in which the option of choosing between royalties, fixed payments or a combination of the two is made to mitigate contractual hazards in licensing contracts. We examine licensing contracts between Spanish and foreign firms during the 1960s and early 1970s using a new data source of 925 contracts. The link between patenting and licensing is also analyzed. The work provides evidence to support the hypothesis that the moral hazard problem truly influences the type of payment established in arm's-length contracts when there is an important technological gap between unaffiliated firms. This study also shows that the payment chosen depends on the size of the licensee firm.