Industrial and Corporate Change - current issue

Is the division of labor limited by the extent of the market?: evidence from the chemical industry

Arora, A., Vogt, W. B., Yoon, J. W. — Fri, 25 Sep 2009 07:51:06 PDT

In the age of outsourcing, it is easy to forget that outsourcing is simply one manifestation of the division of labor. Adam Smith's dictum that the division of labor is limited by the extent of the market has created difficulties when applied to a division of labor among firms (rather than within a firm). The problems are both for analytical attempts to formalize it and for empirical attempts to test it. Bresnahan and Gambardella show that the Smith–Stigler theorem holds when the extent of the market is defined in terms of the number of users instead of simply the total size of demand; therefore, division of labor is increasing in the number of users and decreasing in the average size of users. This article provides an empirical test of Bresnahan and Gambardella's theoretical argument, using data from the chemical industry. The chemical industry shows systematic variation across technologies and countries in the extent of the division of labor in plant design and engineering. We develop an empirical model in which large firms decide whether to build plants using in-house resources or to contract out, and small chemical firms also decide whether to invest in a plant. The number of specialized suppliers of plant design and engineering services (SEFs) vary with the demand for their services. The empirical results support the predictions of Bresnahan and Gambardella. We find that the number of SEFs increases when the market expands through an increase in the number of potential buyers but not when the market expansion is due to an increase in the average size of buyers. Moreover, an increase in the share of large-firm investment decreases small-firm investment, which decreases the number of SEFs. In turn, this further depresses small firm investment.

Sunk costs, uncertainty and market exit: A real options perspective

O'Brien, J., Folta, T. — Fri, 25 Sep 2009 07:51:07 PDT

In this article, we examine whether the option value of keeping an operation alive will deter firms from exiting an industry. We find that uncertainty dissuades firms from exiting an industry, but only when the sunk costs of entering and exiting that industry are sizeable. Moreover, we argue and find that sunk costs can be influenced by the technological intensity of an industry, by the extent to which a firm competes on the basis of innovation, and by the firm's diversification strategy.

Aligning branding strategies and governance of vertical transactions in agri-food chains

Raynaud, E., Sauvee, L., Valceschini, E. — Fri, 25 Sep 2009 07:51:07 PDT

This article looks at the i\nteractions between branding strategies and governance of vertical transactions. Branding strategy refers to the choice of information provided to consumers through a brand name. Governance refers to contractual agreements organizing transactions in vertical chains. We build on the logic of transaction costs economics to analyze these interactions. We provide an empirical analysis based on case studies to illustrate how governance structures are aligned with branding strategies. We show that the governance will depend on the salience of transactions. Critical or quality-relevant transactions are more tightly controlled than the others. We also explore the consequences of our results for the alignment principle described in Oliver Williamson's work.

Inter-firm reverse technology transfer: the home country effect of R&D internationalization

Criscuolo, P. — Fri, 25 Sep 2009 07:51:07 PDT

One consequence of the internationalization of R&D may be the transfer of foreign technology from the multinational to other firms in its home country. This phenomenon, which can be termed inter-firm reverse technology transfer and which has not been directly analyzed by either the international management or foreign direct investment literature, may have significant implications for policy—particularly in Europe. This article is a first attempt in this direction. Patent citation analysis on a database of EPO patents granted to 17 European chemical and pharmaceutical multinationals over the period 1985–2005 shows that they act as a channel for the transmission of knowledge developed in the United States, to other home country firms; these results are robust to the exclusion of examiner citations. We find that this technology transfer process is explained by the degree of home country embeddedness of the multinational firm, the US subsidiaries’ engagement in asset-augmenting activities, and the presence of a technology gap between the United States and the home country. These results point to an alternative understanding of foreign direct R&D investment and its implications for the home country's technological activity and general competitive performance.

Macroeconomic effects of ownership structure in OECD countries

Gatti, D. — Fri, 25 Sep 2009 07:51:07 PDT

The article investigates the impact of ownership concentration (OC) on GDP growth, for a sample of 18 OECD countries over the period 1980–2004. The econometric analysis shows that more concentrated ownership can speed up growth, for countries approaching the technological frontier, provided that labor market regulation is sufficiently tight. In the absence of employment regulation, the logic of financial markets discipline applies and dispersed ownership appears as more favorable for growth. Based on econometric results, I calculate impact coefficients that allow to evaluate the growth points gained/lost following given variations in OC. This exercise reveals that a reform in the domain of ownership structure would have yielded, over the investigated period, sizeable effects in terms of growth. Importantly, these effects would have been unequally distributed across countries: Anglo-Saxon countries would have taken more advantage of deregulation (i.e. increased dispersion of ownership in a context of deregulated labor markets) while continental European countries would have benefited more from increased concentration of ownership in a context of reinforced labor regulation.

Academic collaboration and organizational innovation: the development of research capabilities in the US pharmaceutical industry, 1927-1946

Furman, J. L., MacGarvie, M. — Fri, 25 Sep 2009 07:51:07 PDT

This article investigates the historical conditions that contributed to the birth of in-house research and development (R&D) capabilities in the early US pharmaceutical industry by examining qualitative and quantitative data on university–industry interaction between the 1920s and 1940s. This evidence suggests that labor markets, collaborative research, and contract research were the principal mechanisms by which early university science contributed to the development of in-house research capabilities in the emerging US pharmaceutical industry. This article further demonstrates a pattern in which firms with lesser R&D capabilities were generally constrained to work with local partners, while firms with greater internal R&D capabilities primarily engaged local partners for smaller-scale projects requiring generalist skills and distant partners for larger-scale efforts and extraordinary projects. We conclude by examining the implications of collaboration for those firms that did engage university academic partners. Our findings suggest that pharmaceutical firms that collaborated with universities during this period achieved higher rates of patenting and laboratory growth.

Information technology and mindfulness in organizations

Valorinta, M. — Fri, 25 Sep 2009 07:51:07 PDT

The concept of mindfulness has lately been applied to organizations that are increasingly attentive to their environment and adaptive to unanticipated events. This article analyzes how information technology impacts mindfulness in organizations. Information technology is proposed to promote mindfulness by engaging organizations in more extensive search processes and by fuelling organizational innovations with a repertoire of routines. However, information technology is also found to decrease mindfulness and impede organizational adoption by promoting cognitive inertia and making the enactment of change more challenging. The article also identifies the practices IT-intensive organizations apply to promote more mindful behavior.

Big causes and small events: QWERTY and the mechanization of office work

Reinstaller, A., Holzl, W. — Fri, 25 Sep 2009 07:51:07 PDT

This article studies the adoption of typewriters in the United States, France, and Germany in the period between 1870 and 1930. The aim of the article is to show how specific problem-solving heuristics and routines, which have been developed to solve technical and social problems on the shop floor, have also shaped the organization of work and complementary technologies at the administrative level. We argue that performance criteria other than pure typing speed were relevant to the adoption of typewriters and the QWERTY keyboard, and reconsider the debates on path dependence surrounding the QWERTY keyboard.