Industrial and Corporate Change - recent issues

Inter-industry differences in profitability: the legacy of the structure-efficiency debate revisited

Lee, C.-Y., Mahmood, I. P. — 2009-05-26

This study presents a simple model on the sources of inter-industry variation in profitability and tests its empirical implications in order to shed new light on the long-lasting debate over industry profitability. The model identifies four key factors that jointly influence an industry's price–cost margin: (i) the intensity of strategic investment (e.g. R&D and advertising), (ii) the skewness of the distribution of market share or market concentration, (iii) the appropriability of strategic investment, and (iv) the extent to which firms’ market shares are determined by the intensity of their strategic investment. These factors are expected to be positively related to industry profitability, and our empirical analysis provides supportive evidence. The model also suggests that the conventional, single-dimensional hypotheses on profitability—the market-power (or market-structure) hypothesis and the efficiency hypothesis—are overly simplified. More importantly, existing empirical results allegedly supporting each of these hypotheses are spurious to the extent that the distribution of firm-specific strategic competence reflects firm heterogeneity in efficiency and, at the same time, underlies the distribution of market share or market concentration.

Measurement of the market power of firms: the Japanese case in the 1990s

Kiyota, K., Nakajima, T., Nishimura, K. G. — 2009-05-26

This article presents a new simple econometric framework for the estimation of individual firms’ markup over their marginal cost, taking account of firm heterogeneity, demand-driven cyclical price changes, and the limited availability of firm-level information. The framework is applied to study markup of Japanese firms in manufacturing and wholesale/retail trade for 1994–2002. The results indicate that, on average, the Japanese markets become more competitive in the 1990s than before even in non-manufacturing industries. We also find sizable heterogeneity and non-negligible pro-cyclicality in the markup of the Japanese firms.

Modeling the diffusion of strategies: an application to exporting

Clerides, S., Kassinis, G. — 2009-05-26

We examine whether the spread of an exporting strategy can be characterized as a diffusion process using a general framework that accounts for attrition and changes in the pool of potential adopters and allows the diffusion rate to vary according to firm and market characteristics. Our findings indicate that the diffusion of exporting is described well by the internal model of diffusion. Thus, this framework may be useful in modeling the spread of other strategies. The diffusion rate is found to be strongly related both to firm characteristics and to past adopter performance.

Champions of revealing--the role of open source developers in commercial firms

Henkel, J. — 2009-05-26

The link between firms engaging in open source software (OSS) development and the OSS community is established by individual developers. This linkage might entail a principal-agent issue due to the developer's double allegiance to firm and OSS community, and expose the firm to the risk of losing intellectual property. Using both interviews and a large-scale survey, I substantiate the importance of the developer's role. However, neither interview data nor regression analysis show indications of commercially harmful revealing behavior induced by "Free Software ideology." Management, on the other hand, sometimes seems to be overly concerned about openness. I conclude that a more positive stance towards openness will allow firms to better share in the benefits of open innovation processes.

The nature of local knowledge and new firm formation

Bae, J., Koo, J. — 2009-05-26

Knowledge spillovers in a region often co-vary with the size of knowledge created in the region, i.e. local knowledge. Local knowledge is, however, open to competition between incumbents and new entrants. Given this competition, the size of local knowledge is not always conductive to new entrants. This study examines which types of local knowledge may increase the potential for knowledge spillovers, and eventually entrepreneurial activities.

Routinization of innovation in German manufacturing: the David-Goliath symbiosis revisited

Falck, O. — 2009-05-26

Small and medium-sized firms frequently are viewed as the drivers of radical innovation. However, they often do not have the focus and commitment necessary for improving and extending the innovation, tasks better accomplished by routinized large firms. Using a uniquely rich industry-level data set for German manufacturing industries during 1991–2004, this article finds evidence for this David–Goliath symbiosis. Although small and medium-sized firm innovation rates can explain the within-industry variation of productivity growth, it is the large firm process innovation rate that explains differences in the level of productivity growth between industries, i.e. differences in the degree of routinization of innovation.

The dynamics of rapid industrial growth: evidence from Sweden's information technology industry, 1990-2004

Zaring, O., Eriksson, C. M. — 2009-05-26

Sweden's information technology (IT) industry expanded through an inflow of new entrants during the 1990s. Its evolution was analyzed using ecological models of organizational founding and disbanding. Controlling for the effects of economic conditions, this study analyzed the effects of density dependence, age, imprinting, rate dependence, and the origin of new entrants on the industry. The results indicate that the inflow was comprised of start-ups that proved to be relatively short-lived. In contrast, new entrants that originated as part of incumbent firms that were diversifying in IT stabilized the industry by depressing its disbanding rate and facilitating the entry of new firms. In explaining the dynamics of the industry, the analysis supports the established models of density dependence, age dependence, imprinting, and organizational origin.

Inter-firm technology transfer: partnership-embedded licensing or standard licensing agreements?

Hagedoorn, J., Lorenz-Orlean, S., van Kranenburg, H. — 2009-05-26

When companies decide to engage in technology transfer through exclusive licensing to other firms, they have two basic options: to use standard licensing contracts or to set-up more elaborate partnership-embedded licensing agreements. We find that broader partnership-embedded licensing agreements are preferred with higher levels of technological sophistication of industries, with greater perceived effectiveness of secrecy as a means of appropriability, and when licensors are smaller than their licensees. Innovative differential between companies, innovative supremacy of the licensor and market and technological overlap between partners appear to have no effect on the preference for a particular form of licensing.

Introduction: The internationalization of Chinese and Indian firms--trends, motivations and strategy

Athreye, S., Kapur, S. — 2009-03-31

The recent corporate evolution of China and India has been characterized by increased internationalization of firms in the form of significant outward foreign direct investment flows and overseas mergers and acquisitions. To provide a context for the papers in this ICC special issue 18:2 (2009), we outline the quantitative and qualitative patterns of internationalization activity of Chinese and Indian firms, identify factors that motivate these firms to invest overseas, and describe the internationalization strategies they have adopted.

Internationalization trajectories--a cross-country comparison: Are large Chinese and Indian companies different?

Fortanier, F., Tulder, R. v. — 2009-03-31

This article explores whether the internationalization trajectories—patterns over time in the level, pace, variability, and temporal concentration of international expansion—of large firms from China and India are fundamentally different from those of developed country firms. A longitudinal cross-country comparative study of 256 large firms for the 1990–2004/2005 period shows that although internationalization trajectories of large and leading Chinese and Indian firms are indeed different, there are also considerable similarities between established developed country firms and the new firms from emerging markets, not in the least, because they often interact within the same sector.

India's outward foreign direct investments in steel industry in a Chinese comparative perspective

Kumar, N., Chadha, A. — 2009-03-31

Indian and Chinese enterprises have emerged as important outward investors in recent times with their involvement in a number of prominent Greenfield investments and acquisitions. The theory of international business posits that the ownership of some unique advantages having a revenue-generating potential abroad combined with the presence of internalization and locational advantages leads to outward foreign direct investment. Conventional multinational enterprises (MNEs) based in the industrialized countries have grown on the strength of ownership advantages derived from innovatory activity that is largely concentrated in these countries. It examines the case of the steel industry that has become an important sector of overseas activity for Chinese and Indian companies with a string of major acquisitions of foreign MNEs for acquiring footprints and natural resources in order to identify the sources of ownership advantages and strategies of outward investments from emerging countries.

The strategies of Chinese and Indian software multinationals: implications for internationalization theory

Niosi, J., Tschang, F. T. — 2009-03-31

China and India are emerging as major entrants into the international software industry. Both are rapidly learning through outsourcing with multinational enterprises (MNEs) from advanced nations, yet their paths to this dynamic sector are very different. Chinese software firms have focused on their domestic market by working with foreign MNEs, while they move cautiously abroad. Indian firms, which are already large, continue to expand overseas as well as to climb the value chain. Different approaches to MNEs provide useful perspectives. At the same time, the innovation systems approach is necessary to explain the foundations of the industry. The article provides hypotheses and tests them. It concludes that learning internationalization processes are different in Chinese and Indian MNEs, and provides explanations for the different patterns.

Internationalization and technological leapfrogging in the pharmaceutical industry

Athreye, S., Godley, A. — 2009-03-31

Internationalization is a useful strategy for gaining firm-specific technological advantages especially during periods of technological discontinuity as the pharmaceutical industry illustrates. The antibiotics revolution in the 1940s saw laggard US firms scrambling to gain capabilities in antibiotics. The possibilities of non-chemical routes to new drug discovery in the 1990s saw Indian generic drug manufacturers attempting to develop new drug discovery capabilities. This article compares the leapfrogging strategies adopted by US and Indian firms and shows that in both periods internationalization strategies were central to the technological strategies of both groups of firms.

Internationalization and technological catching up of emerging multinationals: a comparative case study of China's Haier group

Duysters, G., Jacob, J., Lemmens, C., Jintian, Y. — 2009-03-31

A number of firms from China and India have in recent years been demonstrating their ability to face up to the challenges of globalization by internationalizing their operations. In this article we carry out a case study of China's Haier Group followed by a comparison of its growth and internationalization with those of India's Tata Group. We examine several aspects of their internationalization, such as the mode of internationalization and the choice of overseas destinations. The study further explores the importance of, among others, conglomerate structure, prior experience, the state, and entrepreneurship in the internationalization of the two groups.

Plus ca change: Industrial R&D in the "third industrial revolution"

Mowery, D. C. — 2009-01-28

The structure of industrial R&D has undergone considerable change since 1985, particularly in the United States. But rather than creating an entirely novel system, this restructuring has revived important elements of the industrial research "system" of the United States in the late 19th and early 20th centuries. In particular, many of the elements of the "Open Innovation" approach to R&D management are visible in this earlier period. This article surveys the development of industrial R&D in the United States during the postwar period. In addition to emphasizing continuity rather than discontinuity, this discussion of the development of US industrial R&D during the "Third Industrial Revolution" stresses the extent to which industrial R&D in the United States, no less than in other nations, is embedded in a broader institutional context. My discussion also highlights the extent to which its development has been characterized by considerable path dependency.

No "third way" for economic organization? Networks and quasi-markets in broadcasting

Deakin, S., Lourenco, A., Pratten, S. — 2009-01-28

We present two linked, longitudinal case studies of the use of quasi-markets in United Kingdom broadcasting over the past decade: one looks at the regulated outsourcing of programme making to independent producers, the other at the development of an internal market system within the British Broadcasting Corporation (BBC). New network forms are shown to have arisen from the interaction of legal regulation, contracts, and property rights. However, these organisational forms are also seen to be associated with increased transaction costs and with signs of deterioration in programme quality and innovation. We suggest that for such networks to be a viable "third way" between markets and hierarchy, closer attention needs to be given to the issue of institutional design.

Getting known by the company you keep: publicizing the qualifications and former associations of skilled employees

Roberts, P. W., Khaire, M. — 2009-01-28

When product quality cannot be ascertained in advance of purchase, producers must convince relevant audiences that they are worthy of consideration as quality players. We propose that quality-oriented producers will selectively publicize information about their skilled employees in anticipation of signaling benefits, which include the accrual of visibility and the projection of quality-based identities. We validate our perspective on publicizing affiliation information by analyzing how a sample of Australian wine producers publicized specific career information about their skilled employees (i.e., their winemakers), including the names of certain former employers of these individuals.

Striving for a large market: evidence from a general purpose technology in action

Thoma, G. — 2009-01-28

Various scholars have tried to focus on growth accounting of specific examples of general purpose technologies (GPTs). However, what are the factors that might make a GPT succeed or fail once the invention has been "triggered?" This article is a preliminary answer to this question and attempts to study GPTs from an ex-ante perspective trying to understand the strategic behavior, business model and performance of producer firms and what the factors are that can favor or hamper diffusion in the application sectors. The article follows a historical perspective on a control technology, introduced in the last few decades by a silicon valley start-up company.

Toward an integrated approach to industry dynamics and labor mobility

Mamede, R. — 2009-01-28

Industrial dynamics and labor mobility are two fields of economic research that have developed fast in recent years, but along what are essentially separate lines. This article shows that the processes those two fields deal with can be highly interdependent, and discusses the usefulness of, and the opportunity for, an integrated approach to the dynamics of industries and labor mobility. It concludes with a list of questions that inform a research agenda dedicated to such approach.

Crowding out! The role of state companies and the dynamics of industrial competitiveness in India

Majumdar, S. K. — 2009-01-28

This article examines growth patterns of government companies in India, whether their presence has crowded out private entrepreneurial activity and whether there has been a decline in the competitiveness of India's industry, measured as relative productive efficiency, for a 45 year period from 1957–1958 to 2001–2002. There was a significant growth in the number of government companies in India that effectively crowded out the entry and growth of private enterprise. This took place from the mid to late 1950s to the late 1980s and early 1990s. Correspondingly, the amount of private equity capital invested in firms declined until the late 1980s and early 1990s when there was an upsurge of private investment activity. Another feature was that a small number of government companies absorbed most of the corporate sector equity investment in India. The growth in the share of government companies in India that crowded out the entry and growth of private enterprises has had a significantly negative effect on India's industrial competitiveness. After the introduction of reforms in 1991, there has been a significant crowding in by private enterprises, displacing the government companies from their key position as holders of a very large portion of equity capital, and also reversing the trend in the decline of competitiveness of Indian industry as a whole.

Award Prize, 2005-

Nelson, R. R. — 2009-01-28