Improving performance through vertical disintegration: evidence from UK manufacturing firms

Unlike previous work on the vertical integration–performance relationship, we investigate the performance consequences of vertical disintegration. We offer a theoretical justification for the disintegration decision and we condition the disintegration effect on performance on the initial degree of firm integration, the timing and the direction of disintegration. Using a sample of UK manufacturing firms and controlling for disintegration endogeneity, we find that disintegration eventually results in improved operating performance, particularly when disintegration occurs as a reaction to poor performance and in cases of forward between‐sector disintegration. However, being highly integrated does not guarantee gains from disintegration. The implications of these findings are discussed. Copyright © 2008 John Wiley & Sons, Ltd.     

Open standards,vertical disintegration and entrepreneurial opportunities: How vertically-specialized firms entered the U.S. semiconductor industry

This paper shows how the emergence of open standards has created large numbers of entrepreneurial opportunities in the semiconductor industry by enabling vertical specialization. Integrating data on firms and technology evolution, we find a gradual increase in the percentage of firms represented by newly-founded “de novo” entrepreneurial startups, instead of “de alio” ones, as open standards emerged in semiconductor products and processes over the life of the industry. This standardization reduced transaction costs and fostered specialization, thus facilitating the entry of vertically-specialized new ventures. Vise versa, the rise of such new ventures further pushed the adoption of open standards, and the vertical disintegration of the industry. Our theory on how standardization creates opportunities for new ventures and our analysis of the semiconductor industry contribute to the technology entrepreneurship literature, as well as the industry architecture literature that has primarily focused on the impact of standardization on the disintegration of vertically-integrated incumbents.     

Competing in the global aerospace supply chain: The case of the Canadian aerospace industry

In light of the vertical disintegration of the global aerospace industry, this paper reports on a study that was commissioned by Industry Canada to evaluate whether Canadian aerospace firms have been able to develop the new set of manufacturing and managerial capabilities required to compete in the global aerospace supply chain. A strategic management framework was used to assess the fit between the key success factors of the external environment and the resources and capabilities of the firms studied. The results indicate that although smaller aerospace firms seem to possess technological and engineering skills that are vital strengths in the aerospace industry, better marketing efforts would enable them to enlarge their client base and intensify their participation in the global aerospace supply chain.     

The effect of operational slack,diversification, and vertical relatedness on the stock market reaction to supply chain disruptions

This paper empirically examines whether operational slack, business diversification, geographic diversification, and vertical relatedness influence the stock market reaction to supply chain disruptions. The results are based on a sample of 307 supply chain disruptions announced by publicly traded firms during 1987–1998. Our analysis shows that firms with more slack in their supply chain experience less negative stock market reaction. The extent of business diversification has no significant effect on the stock market reaction. Firms that are more geographically diversified experience a more negative stock market reaction. We find that firms with a high degree of vertical relatedness experience a less negative stock market reaction. These results have important implications on how firms design and operate their supply chains to mitigate the negative effect of supply chain disruptions.     

Attainment Discrepancy and New Geographic Market Entry: The Moderating Roles of Vertical Pay Disparity and Horizontal Pay Dispersion

Studies in the behavioural strategy literature have examined the influence of attainment discrepancy on new geographic market entry with inconclusive results. We clarified the relationship between attainment discrepancy and new geographic market entry by considering the moderating effects of managerial pay gaps with concentration on vertical pay disparity and horizontal pay dispersion. The framework also contributes to our understanding of tournament theory and social comparison theory by identifying specified performance contexts under which types of pay gaps conform to or violate theoretical predictions. Empirical analyses based on a panel data of Standard and Poor’s (S&P) 500 firms from 1996 to 2006 showed that our hypotheses are largely supported.     

Vertical disintegration and the life-cycle of firms and industries

T0he degree of vertical integration experienced by a firm is an important managerial decision variable. It is an issue where there is a distinct lack of unanimity in studies on the economics of organizations. Moreover, studies have tended to ignore the complementary feature of vertical disintegration. This study examines the basic Stigler hypothesis that vertical disintegration is the typical development in growing industries. Using UK data on divestments, the results initially indicated some positive relationship between industry growth and vertical divestment activity; however, when different categories of asset transfer were examined, the Stigler view was rejected in favour of a null hypothesis.     

R&D Spillovers on a Salop Circle

The paper describes quality/price equilibrium and welfare effects of R&D spillovers when firms are located around the circumference of a Salop circle, and the extent of the spillovers may depend on the geographic proximity between firms. In particular, we show that an increase in competition may have a positive effect on the provision of quality and firms' profits. We also extend the model allowing a multinational enterprise to locate at the centre of the circle. In this scenario it is important to understand the interplay of local R&D spillovers with the spillovers that propagate from and to the centre. Copyright © 2015 John Wiley & Sons, Ltd.     

Geographic and Industrial Diversification of Developing Country Firms*

ABSTRACT This paper examines the impact of the industrial and geographical diversification activities of developing country firms on their performance, and draws attention to the unique attributes of these firms and of the circumstances under which their diversification activities take place. The empirical analysis is based on data from 345 developing country firms. The findings suggest significant and positive association between industrial and geographic diversification and performance, and considerable variation of these relationships across developing regions and diversification strategies.     

A transaction cost approach to a paradox in international marketing

Why do firms that make specific downstream investments as they start international operations, sometimes turn to more market-like arrangements as they gain international experience and their international sales increase? This paradox in international marketing is the key question to be addressed in this article. We use the concept of dynamic or temporary governance costs to examine the paradox. The pattern of internationalization in the Norwegian farmed salmon industry provides an example whereby Norwegian exporters established their own sales offices in several international markets in the early stages of internationalization, but subsequently disintegrated vertically and came to rely on more market-like arrangements. An analysis of the internationalization of this industry suggests that, over time, the market provided better capabilities than vertical integration. This reduced the transaction costs, thus making vertical disintegration an efficient strategy.     

Do major customers encourage innovative sustainable development? Empirical evidence from corporate green innovation in China

This paper examines the impact of customer concentration on green innovation in Chinese listed firms between 2006 and 2018 through the dynamic panel generalized method of moments regressions. It is reported that major customers positively impact corporate green innovation, indicating that firms have more incentives to engage in innovative green practices to maintain stable relationships with major customers. In addition, the positive relationship between customer concentration and green innovation is more pronounced in state-owned enterprises, firms located in the provinces with a high level of marketization, and after China's new Environmental Protection Law implementation. Moreover, we observe that the positive impact of customer concentration on corporate green innovation is more significant among industrial firms and firms operating in heavily polluting industries. Furthermore, industrial competition is an essential channel for major customers to affect corporate green innovation.     

The effects of inter-industry and country difference in supplier relationships on pioneering innovations

Innovations are critical driving forces for firms to engage in corporate growth and new business development. Innovating firms are increasingly generating new knowledge in collaboration with partners. In this paper, we analyze how the knowledge differences between the innovating firms and their suppliers in Canada are likely to result in pioneering innovations. The knowledge difference is decomposed into two dimensions: the inter-industrial dimension and the geographic dimension in national context. Using the Canadian Innovation database, we found the inter-industry difference has a positive effect and the country difference has a negative effect on the likelihood of generating pioneering innovation. The findings of this paper suggest that for generating pioneering innovation, it is important not only to search for suppliers from different industries to get access to various complementary external knowledge sources but also to find suppliers from the same or nearby countries for the sake of communication and coordination.     

Globalisation,industrial diversification and productivity growth in large European R&D companies

This paper aims to assess the impact of both geographic and industrial diversification of economic activities on the productivity performance of large European R&D Multinational Enterprises (MNEs). Based on the worldwide subsidiaries of these firms, we measure the performance of the firms according to their level of industrial diversification and globalisation that we proxy with the presence and importance of subsidiaries in the EU, North America and Asia–Pacific regions. The sample consists of large R&D firms that represent about 80 % of total European R&D. In general, the results indicate a positive impact from globalisation on firms’ R&D productivity, especially in the US, while a negative impact for industrial diversification is found.     

Separability test for the electricity supply industry

This paper examines the vertical integration issue of the electricity industry. This industry is typically vertically integrated and heavily regulated. The paper investigates the potential technological efficiency loss due to the vertical disintegration using the translog production function. Three separability hypotheses using the Allen-Uzawa elasticity of substitution are tested to examine the feasibility of various degrees of disintegration of the current industry structure. All three separability hypotheses are rejected, and the cost of disintegration is estimated. Further, estimates indicate that the electricity industry appears to have exhausted economies of scale. Unlike other deregulated industries, disintegration of the electricity industry will entail technological efficiency loss.     

Vertical Integration and Proprietary Information Transfers

Suppose that rival downstream producers of a final good contract with the same upstream supplier of an input and, in the process, reveal private information. A vertical merger between the upstream supplier and one of the downstream firms may dissipate the information advantage of the remaining downstream firms. The welfare consequences of such a merger and related information sharing depend on the value of information, the benefits of integration apart from information sharing, and the nature of upstream competition. In this paper, conditions are found under which owners of a vertically integrated firm are better off breaking up into independent firms. This result may explain AT&T's recent spinoff of Lucent Technologies. Further results suggest that a prohibition on information transfers, such as that often proposed by the Federal Trade Commission and Department of Justice as a precursor to approving vertical mergers, may actually reduce expected consumer surplus and expected social welfare.     

Vertical integration and first-mover advantages in environmental taxes

This paper analyzes whether vertical integration between firms and suppliers encourages governments to behave as leaders in environmental policies. To study this issue, we consider transboundary pollution and two countries, with one firm in each country. We find that whether governments prefer to be leaders or followers in environmental taxes depends on two factors: whether firms are vertically integrated or not and the degree to which environmental pollution spills over to trading partners. When this overspill takes an intermediate value, taxes are set sequentially under vertical integration, but they are set simultaneously without it.     

Vertical Foreclosure, Technological Choice, and Entry on the Intermediate Market

This paper analyzes the profitability of vertical integration for an upstream monopoly facing a potential competitor. We show that it depends on the technology used by the firm when it integrates. We distinguish two types of technologies: standard technologies, used by nonintegrated firms, and nonstandard technologies, reserved for integrated firms and implying the complete foreclosure of nonintegrated firms. Vertical integration with the adoption of a nonstandard technology dominates vertical integration with the adoption of a standard technology and is profitable, as long as the degree of competition in the downstream industry is sufficiently low.     

CONVERGENCE AND ECONOMIC PERFORMANCE IN GREECE: EVIDENCE AT REGIONAL AND PREFECTURE LEVEL

The purpose of this paper is to test regional convergence and to investigate interregional disparities in terms of per capita income in Greece. The novelty of our study lies in the use of a disaggregated dataset for an extended time period (1971–2003) at two regional levels (NUTS II & NUTS III). Our results indicate that there is β convergence between prefectures but not among regions, while no evidence of σ convergence is found at both regional levels. Also, the GDP geographic concentration and population density have a negative impact on growth, which outweighs the positive growth effect of population geographic concentration and GDP spatial inequality. Thus, policies aiming at the decentralization of economic activity in Greece might enhance growth and regional equality simultaneously. Finally, we do not find economic dualism across geographic areas; however, rich prefectures seem to converge faster than poor ones.     

供应链管理下的企业纵向边界

在阐述交易成本理论对企业纵向边界的解释的基础上,指出供应链管理影响资产专用性、不确定性和交易频率,降低了供应链上企业的交易成本,使企业纵向边界趋于缩小。然后针对企业如何结合核心能力理论进行重组提出一些建议。     

Vertical Foreclosure, Technological Choice, and Entry on the Intermediate Market

This paper analyzes the profitability of vertical integration for an upstream monopoly facing a potential competitor. We show that it depends on the technology used by the firm when it integrates. We distinguish two types of technologies: standard technologies, used by nonintegrated firms, and nonstandard technologies, reserved for integrated firms and implying the complete foreclosure of nonintegrated firms. Vertical integration with the adoption of a nonstandard technology dominates vertical integration with the adoption of a standard technology and is profitable, as long as the degree of competition in the downstream industry is sufficiently low.     

Vertical Disintegration

With economies of scale, a vertically integrated firm can lower its upstream cost by supplying downstream competitors. The competitors may strategically choose not to purchase from the integrated firm, unless the latter's price for the intermediate good is sufficiently lower than those of alternative suppliers. In a simple model of dynamic scale economies through learning by doing, equilibrium vertical disintegration occurs if and only if total industry profit is higher under vertical separation than under integration. The model bridges a logical gap in George Stigler's classic theory on vertical organization, and sheds light on the widely observed phenomenon of vertical disintegration .