Turbulence in growing and declining industries

Turbulence over the industry life cycle is examined for the case of Portugal using the lowest possible level of industry aggregation, thus allowing for the use of panel data to study the evolution of product markets. Replacement of exiting firms by subsequent entrants plays a primary role in generating turbulence in high growth markets, while displacement of incumbents by recent entrants is the main selection force in declining markets. As the industry life cycle progresses, trial-and-error entry and entry mistakes decrease, and turbulence subsides.     

The Importance of Sectoral Differences in the Application of Complementary HRM Practices for Innovation Performance

Recent theoretical and empirical analysis in the field of economic organization has focused almost exclusively on identifying organizational practices and complementarities between such practices, without regard for the type of activity in question. However, organizational theory suggests that more knowledge-intensive production activities often involve higher degrees of strategic uncertainty for firms and performance ambiguity in relation to individual employees. Therefore, the 'organic' or 'clan' form of organization - involving the application of 'new' HRM practices - is expected to perform better within knowledge-intensive sectors of the economy, as compared to other sectors. A sample of 726 Danish firms with more than 50 employees in manufacturing and private services is studied. The results show that HRM practices are more effective in influencing innovation performance when applied together, as compared with situations in which individual practices are applied alone. In other words, organizational complementarities obtain. Moreover, the application of complementary HRM practices is more effective for firms in knowledge-intensive industries ('high' and 'medium' knowledge-intensive industries).     

The shadow of death: analysing the pre-exit productivity of Portuguese manufacturing firms

The pre-exiting productivity profile of mature firms relative to survivors is examined along with an evaluation of how productivity affects the probability of exit along various dimensions. An empirical approach, based on an unbalanced panel of Portuguese manufacturing firms covering a 10-year period, is used. The findings confirm that market selection forces low-productivity firms to exit, but there is also evidence that a sizeable portion of low-productivity firms do not shut down. Conversely, there is a non-negligible fraction of high-productivity firms that do actually close. Consistent with some key theoretical predictions, our analysis reveals that exiting firms have a falling productivity level over a number of years prior to exit. Finally, the results from the survival model show that both small firms and ones with low productivity are relatively much more likely to exit the market. Industry and macro-environment are also found to have a non-negligible role on the exit of mature firms.     

How Does Probability of Innovation Change with Firm Age?

This paper looks at the probability of introducing innovations by manufacturing firms at different stages of their lives. Once differences related to activity and size are controlled for, we examine how the probability of innovation varies over entry, post-entry ages, and advanced ages of mature firms. We also measure the association between exit from the market and pre-exit innovation. Results show that the probability of innovating widely varies by activity, and that small size per se broadly reduces the probability of innovation, but also that entrant firms tend to present the highest probability of innovation while the oldest firms tend to show lower innovative probabilities. Some sets of firms with intermediate ages also present a high probability of innovation, and exiting firms are clearly associated to lower levels of introducing process innovations.     

What goes around comes around: The effects of sanctions on Swedish firms in the wake of the Ukraine crisis

This study uses the sanctions imposed on and by Russia in 2014 as an exogenous shock on Swedish firms. The results suggest that the total short-run cost of these sanctions on the Swedish economy amounted to around 1 billion SEK in 2013 prices, which implies a rather limited impact (around 0.025% of the Swedish GDP). The sanction effects were, however, highly asymmetric, and the direct effect on firms exporting banned products to Russia was a 70% drop in exports to Russia and an increased probability of exiting this market with 0.6 units. The indirect effects on nonbanned products were a 36% drop in sales and an increased probability of exiting of around 0.2 units. The disruption on the Russian market also created ripple effects outside this market, which was manifested in a 20% drop in the domestic production of banned products, a 12% drop in sales on markets outside Russia and a new export pattern. These negative ripple effects were also found to be pronounced in firms with their core products exposed to these sanctions, in firms with financial distress and in regions with a relatively low level of labour productivity.     

The determinants of new firm formation in italian manufacturing

This paper focuses on entry of small firms in the manufacturing industries. It is argued that the exit option can be viewed as an insurance against risks of failure, increasing the likelihood of entry in an uncertain environment; the result is implicit in recent stochastic models of competition and entry decision under uncertainty. A regression model of industry birth rates in the Italian manufacturing industries provides empirical evidence on the impact of factors determining the decision to enter and the supply of new entrepreneurs. In our estimates, yearly entry rates are found to decrease with entry costs and barriers and to increase with market growth, expected growth of small firms, risks of failure and an index of spatial concentration of activities.     

Is market orientation affected by the product life cycle?

Considerable scholarly interest has been shown in the relationship between market orientation and business performance. Although a number of environmental moderators have been postulated to influence the market orientation–performance link, extant findings are inconclusive. This study takes a different approach by conceptualizing product life cycle stages in terms of variations in competitive intensity, market and technological turbulence. Data collected in Hong Kong reveal that Atuahene-Gima's [Atuahene-Gima, K. (1995). An exploratory analysis of the impact of market orientation on new product performance: A contingent approach. Journal of Product Innovation Management, 12: 275–293] product life cycle measure successfully discriminates stages in terms of market and technological turbulence, but fails to capture variation in competitive intensity. Market orientation is also found to be more highly valued by firms in growing and mature markets than firms in introductory and declining markets. Finally, the link between market orientation and firm performance is found to be strongest for firms in the growth stage and weakest for firms in the introductory stage of the product life cycle.     

Measurement of innovation activities in the knowledge-intensive services industry: a trademark approach

Innovation measurement in the knowledge-intensive services (KIS) industry is very complex, due to a lack of adequate innovation indicators. A rather new empirical approach involves the analysis of trademarks for the measurement. This paper aims to explore the use and relevance of trademarks for service firms. Data from the German section of the ‘Community Innovation Survey’ are used, and a survey with 278 participating firms is conducted. The results of the two independent empirical studies demonstrate that a trademark can be used as an innovation indicator, at least for knowledge-intensive business services (KIBS) and product innovations. The results also illustrate which firm-inside and environmental features explain the use of trademarks as an intellectual property protection measure.     

Surviving globalisation

This paper investigates the effects of international trade on firms' strategies for industry exit, either via closedown, switching industry or being acquired. We use a rich dataset of Swedish firms that extends over two decades to track firm choices between alternative strategies. We find that higher levels of international competition increase the probability of exit by merger and closedown. If trade is more intra-industry in character, the effect of import penetration on the probability of exit is less. The probability of exit by switching industry is higher in revealed comparative disadvantage industries. Finally, we find that the geographical source of international competition is important, the effects of trade on exit being strongest when trading partners are other OECD countries.     

Some implications of search and switching costs for the price dynamics of electronic markets

This article develops a model, based on switching costs and technological uncertainty, which explains some aspects of the price dynamics of e‐commerce. Switching costs and intertemporal cost correlation lock‐in consumers. Firms initially charge low prices to build a customer base. If firms fail to reduce costs, and reservation prices are low, firms exit the industry. Over time, prices increase if no exit occurs, and decrease if exit occurs. Prices may also decrease over time, if the proportion of low search cost consumers increases.     

Adoption of Radio Frequency Identification among Manufacturing Firms

Practitioners and academics have identified and acknowledged the presence of a gap related to actual and potential values of radio frequency identification (RFID) technology in the manufacturing industry. The purpose of this study is to present the RFID implementation in Swedish manufacturing firms, and if or to what extent use of this technology facilitates in increasing transparency of information throughout the supply chain for manufacturing companies. The findings show that although the great majority of firms are actively working with integrated information systems, only a small fraction has adopted RFID.     

Do innovation spillovers impact employment and skill upgrading?

So far, the research on impact of innovation on employment and skills focused on effects within firms and sectors. Little attention was paid to the influence of interlinkages between sectors as a source of employment change. The main contribution of this paper to the field refers to broadening the analysis of innovation impacts to innovation spillovers from vertically linked sectors on firms' employment and skill change in user industries. The empirical analysis conclusively demonstrates an important role of innovation spillovers in the economy. Firms' employment growth is shown to benefit significantly from spillovers of product innovations in manufacturing and knowledge-intensive services. Similarly, firms that are subject to increased spillovers of product innovations as well as marketing and organisational innovations are more likely to upgrade their skill composition. Conversely, employment growth and skill composition of firms seem to be negatively affected by spillovers of process innovations in vertically linked sectors.     

Domestic vs. International Spillovers: Evidence from Swedish Firm Level Data

This paper investigates the association between total factor productivity growth and the R&D expenditures of Swedish manufacturing firms in the presence of domestic- and international R&D spillovers. The paper assumes that the principal channel of transmission of new technology is through I/O relations. Econometric evidence suggests that international as well as domestic inter-industry R&D spillovers are important determinants of firms’ productivity growth in the long run. The R&D spillovers generated within the industry and following I/O links seem to be of minor importance in explaining productivity growth. It seems likely that within-industry productivity spillovers follow other channels than I/O flows, such as horizontal spillovers through copying of new products and processes, or labour turnover. The use of a convergence parameter is one way to check for such within-industry technology flows. Our results indicate that a catch-up process exists by which the non-frontier firms in the Swedish manufacturing sector absorb knowledge spillovers from the leading firms in the industry. Finally, a firm’s own R&D efforts are found to be more or less positively correlated with the TFP growth, maybe the contribution from R&D efforts in some sense are underestimated.     

Ownership,financial strategy and performance: the Lancashire cotton textile industry, 1918–1938

This article assesses the validity of John Maynard Keynes' claim that the Lancashire cotton industry failed to restructure because the banks as debt holders prevented firms exiting the industry, creating persistent over-capacity. Using case studies from a substantial sample of Lancashire firms, the article explores archival evidence to establish their financial characteristics, to examine their equity and debt finance and the governance roles of directors and outside ownerhip groups. On the basis of this review the article develops hypotheses to suggest alternatives to the view that bank debt was the dominant explantion of firm level behaviour and industry failure. Applying these to a statistical dataset, results show that syndicates of local shareholders, not banks, were an important impediment to the exit of firms. Moreover, syndicates milked firms of any profits through dividends, thereby limiting reinvestment and re-equipment possibilities. Our results show that where laissez-faire fails in response to a crisis, incumbent investors, particularly block-holders, can be an important impediment to corporate restructuring.     

Interdependencies in the Dynamics of Firm Entry and Exit

This paper investigates the interdependence between firm entry and exit from an industrial dynamics perspective. The paper discusses how entry and exit rates in industrial sectors are affected by previous exit and entry rates. Economic theory presents two different approaches to how entry and exit of firms are interrelated, the multiplier effect and the competition effect. This paper intends to investigate which force is the predominant one, for entry and exit patterns, respectively. The empirical analysis is based on data for 25 Swedish manufacturing industries at the 2-digit SIC level, during the period 1991–2000. In the estimation work the study applies a dynamic panel data approach as suggested by Anderson and Hsiao [Journal of the American Statistical Association, 76:598–606, 1981] and Arellano and Bond [Review of Economic Studies, 58(2):277–297, 1991]. With respect to entry, the empirical results support the multiplier effect such that entry stimulates future entry, but also a competition effect such that past exit induces additional entry. With regard to exit, on the other hand, the competition effect rules, implying that previous entry causes subsequent exit and previous exit reduces subsequent exit.      

Transaction Structure in Japanese Small Business Sector

An attempt has been made to examine some aspects of transaction structure of the small business sector in Japanese manufacturing. It has been found that there are some interesting findings in the industrial organization of the sector (1) In the transactions of intermediate goods with manufacturing, small businesses have more frequent transactions with other small businesses than with large firms. On the other hand, large firms have more transactions with each other than with small businesses; (2) The transactions between SMEs and large firms, and between SMEs themselves vary from industry to industry, depending on production/demand structure of an industry and product structure of its SMEs sector; (3) In engineering, such as electrical machinery and transport equipment, the intra-industry transactions from small businesses to large firms are great, suggesting a larger extent of subcontracting relationships. Also, textiles, clothing, and printing and publishing also have higher subcontracting transactions.The relationships are different between the two groups.     

Business Dynamics and Efficiency in Industries and Regions: The Case of Spain

High rates of firm births and deaths are a pervasive phenomenon across industries and territories. Most studies have related the great turbulence at the fringe of practically all manufacturing industries to positive effects on the long-run performance of industries. According to these views business turbulence, although it has a relatively small incidence on net entry, leads to allocative improvement and stimulates innovation. The existing set of empirical studies does not reach clear conclusions, however, and many questions are still open. Our contribution analyses the relationship between business dynamics in manufacturing and the growth of total factor productivity in industries and regions. After a review of current literature on entry and exit it is argued that most models are tailored to suit the processes observed in industries and regions that are near the technological frontier, and we propose an approach that could be more representative of middle range economies such as Spain. According to this approach new firms are seen more as users of innovations than producers of innovations. We adopt a model based on a vintage capital framework in which new entrants embody the edge technologies available and exiting businesses are supposed to represent the most marginal obsolete plants. Both industries and regions are represented by a Hall's type production function which controls for imperfect competition and economies of scale. The results show that both entry and exit rates contribute positively to the growth of total factor productivity in industries and in regions.     

Small Firms and the Strategy of the First Mover

Timing of entry and the decision to be a leader or follower in products or markets is a complex decision and empirical evidence suggests that first movers do not always 'capture' all the potential benefits from being first. Small firms in particular are faced with problems when deciding on whether to be a first or later mover. Their strategies were examined using a sample of 264 firms in chosen industry sectors and specific external and internal factors were found to explain much of the variation in timing of entry strategies by these firms. In particular a composite measure of the technological turbulence that firms faced in their supply chain was seen as a crucial determinant of early entry whilst uncertainty as to general business conditions explained much of the late and non pioneering strategies. Even within this group of small firms, size also played an important role with the smallest companies tending to be the most pioneering     

Small business strategy and the industry life cycle

This article proposes that individual small firms, just like large firms, use different approaches to make strategy. Three processes relevant to small firms are identified: simplistic, participative and adaptive. The article examines how these processes are related to performance, depending on industry life cycle stage. Empirical analysis indicates that all three approaches are related to small firm performance, but that the importance and impact of these relationships will change according to the industry life cycle stage. Markedly, and contrary to evidence from studies in large firms, small firms in mature industries are most likely to benefit from using adaptive strategy-making processes.