Cost of capital and market power: The effect of size dispersion & entry barriers on market equilibrium

A market power explanation for the observed empirical fact that large firms in a given industry pay less for their capital than small is developed. Larger firms in an industry are shown to pay less for their capital than small because they have more control over the market and the riskiness of their divided stream is correspondingly smaller. More firms in an industry with a given size dispersion raises the cost of capital to the incumbents, but proportionately more to smaller firms. However, the most significant result is that a greater dispersion of sizes will reduce the riskiness of the dividend stream of the larger firm and increase the riskiness of the smaller firm, causing an increase in the dispersion of capital costs. Hence product market power enhances capital cost efficiencies.     

Differences between Presidents' and Sales Managers' Perceptions of the Industry Environment and Firm Strategy in Small Industrial Firms: Relationship to Performance Satisfaction

The industrial sales force is the primary source of information about the competitive environment. Differences of perceptions of that environment between the national sales manager and the firm president in small industrial firms may reflect inadequate environmental information input into strategic decision-making. The sales force is a major element in implementation of strategy and differences between perceptions of firm strategy may reflect inadequate coordination and communication between the chief strategy decision-maker and the manager who is responsible for implementing that strategy in the market place. It would be expected that these differences in perceptions would impact negatively strategy formulation and execution resulting in unsatisfactory firm performance. This study surveyed the environmental and strategy perceptions of presidents and national sales managers in small to medium-sized industrial firms as well as presidents' satisfaction with firm profitability and marketing/sales effectiveness. The average absolute difference in environment perceptions has a negative relationship with satisfaction with profit. The average absolute difference in strategy perceptions has a negative relationship with marketing/sales effectiveness. This latter relationship is especially strong in an environment high in capital spending variation and for larger firms. The authors suggest implications for managers based on these results.     

Bundling products to success: The influence of complementarity and advertising

This study investigates the strategic influence of product complementarity and advertising on the success of bundling products. We use a profit maximization model to show that when a firm sells bundled products, both the product complementarity and advertising significantly impact the performance of bundled products. The bundling strategy with advertising can help firm achieve higher performance than the bundling strategy without advertising. However, the price discount to the identical products must be attractive to customers and the degree of product complementarity to the complementary products must be large enough, and then the bundling strategy with advertising can obtain a success in the market. Furthermore, our results also show that when the degree of the complementarity between two products increases, firm should invest less on advertising to promote the bundled products. Based on our results, we propose optimal marketing strategies for firms to adopt. Firm managers can utilize our findings to plan their bundling strategies wisely.     

Strategic Implications of Keeping Product Value Secret from Competitor’s Customers

Customers can sometimes learn unanticipated or hidden use value of a firm’s product whereas the non-customers remain uninformed about that extra value. A monopolist will increase its profit by informing the non-customers of its product’s hidden value. However, our analysis reveals that this may not be true when the firm faces competition in the market—the firm may actually make a higher profit if it keeps its hidden value secret from its competitor’s customers even if advertising to inform those customers is costless. This is because no advertising leads to information heterogeneity among consumers about the existence of the firm’s hidden value, which gives an incentive for both firms to continue targeting their own existing customers rather than poaching each other’s customers, alleviating price competition and increasing firms’ profits. This beneficial strategic effect of keeping some product value secret from the competitor’s customers can persist even when the firms anticipate the hidden value and compete more aggressively for customers in the early period. Our research suggests that firms can benefit from an “under-promise and over-deliver” strategy if they refrain from communicating their extra value to the competitor’s customers. Moreover, positive word of mouth about a firm’s product will not necessarily benefit the firm and can in fact make all firms worse off.     

Strategies of high performing new and small firms: A reexamination of the niche concept

Entrepreneurs seeking to position new or small firms in industries populated by well established competitors are frequently advised to seek the protection of a market niche. There, shielded by market characteristics which render the niche uninteresting to larger rivals, small firms are urged to compete at the fringe of the market. This article challenges this conventional wisdom, citing industry and firm characteristics which, under certain conditions, create opportunities for successful direct competition by some small or new firms against much larger and established competitors. However, the authors caution that the conditions which created the opportunity may erode in time, rendering the successful challenger vulnerable either to retaliation by the larger firm or challenge from subsequent entrants.Examples of successful direct confrontation by relatively small competitors are drawn from mature, low-tech industries, a rapidly growing high-tech industry and the service sector.     

A Balancing Act: Disproportionate Sampling of Organic Foods

When exploring decision making in food marketing, particular events are often unequally represented in the data. Concerns over bias can confuse public policy or strategy interpretation if samples are unbalanced. This occurs when researching organic food marketing. A small share of the market (～4%) and of product innovations (～7%) are organic. Caution is advised when predicting trends based on this disproportionately small sample of organic products. This study demonstrates that there is little statistical difference, and even a net gain in predictive power, when using a balanced sample to test factors that influence a firm’s decision to market organic food. Marginal probabilities for the smaller, balanced sample are biased by a constant factor. Thus ex post adjustment is easy and recommended to enhance predictive power.     

Enterprise logic vs product logic: the development of GE’s computer product line

The following article focuses on corporate strategies at General Electric (GE) and how corporate-level interventions impacted the market performance of the firm’s general purpose commercial mainframe product set in the period 1960–1968. We show that in periods of both divisional independent planning and corporate-level planning strategic governance, central decisions interfered in the execution of GE’s product strategy. GE’s institutional ‘enterprise logic’ negatively impacted the ‘product logic’ of its computer product line leading to a weakened position in the market for these systems.     

Profiting from product innovation: The impact of legal, marketing, and technological capabilities in different environmental conditions

Although product innovation is a key tool for firms competing in the marketplace, innovating firms often fail to obtain economic returns from their product innovations. This study examines the moderating effects of legal, marketing, and technological capabilities on the relationship between product innovation and firm performance in different environmental conditions in order to identify how a firm can leverage these capabilities to profit from product innovation. Based on the data of 223 Chinese firms, this study finds that legal capability positively moderates the relationship between product innovation and firm performance, especially when competitive intensity is high; the moderating effect of marketing capability is positive, although it is weakened by market turbulence; and technological capability has a negative moderating effect, which becomes more significant as technological turbulence increases.     

Product Innovation and Small Business Growth: A Comparison of the Strategies of German,U.K. and Irish Companies

Innovation in small firms is important both because of its direct contribution to the competitiveness of those companies but also because of the potential for the small firm sector to act as the initiator, catalyst and medium for wider technical change. In this paper data from the Product Development Survey, a new international survey of firms' product innovation activity and strategy, is used to examine the relationship between product innovation and growth in German, Irish and U.K. small firms. In each country the output of innovative small firms was found to grow significantly faster than that of non-innovators. In Germany, output growth was achieved by a product innovation strategy which sharply increased productivity but reduced employment. U.K. and Irish small firms adopted a more balanced approach with increases in both employment and productivity associated with innovative behaviour. Comparison of the organisation of product innovation indicated that German small firms adopted a less market-oriented, less risky, and more formally organised approach than their U.K. and Irish counterparts. The revealed characteristics of U.K. and Irish small firms suggested that they may be the most effective initiators and catalysts for wider technological change. The larger proportion of German small firms which were innovating, however, suggested that the German small firm sector may be the more effective technology transfer medium.     

What is beneficial for first-time SME-exporters from a transition economy: A diversified or a focused export-strategy?

We examine whether more focused or more diversified exporting is beneficial for first-time SME-exporters from a small European transition economy (TE). We test the impact of market (geographic) diversification, product diversification and export intensity (export volume) on firm performance. In addition, we test whether a complex export strategy – of simultaneous product- and market-diversification – is beneficial for TE SMEs. We use panel data of all reported, first-time Slovenian exporters in the period 1995–2010. We find that a diversified export strategy in terms of product, market and intensity is positively related to performance although with decreasing returns. Furthermore, a complex diversification strategy pays off for first time TE SME-exporters, but in a decreasing fashion.     

Efficiency and Ethically Responsible Management

One common justification for the pursuit of profit by business firms within a market economy is that profit is not an end in itself but a means to more efficiently produce and allocate resources. Profit, in short, is a mechanism that serves the market’s purpose of producing Pareto superior outcomes for society. This discussion examines whether such a justification, if correct, requires business managers to remain attentive to how their firm’s operation impacts the market’s purpose. In particular, it is argued that the value of efficiency, despite views to the contrary, cannot be fully separated from the planning and intentions of business managers as long as those managers direct their firms in an ethically responsible fashion. This position is inspired by, and serves as a supportive clarification of Joseph Heath’s so-called “market failures approach” to business ethics.     

Small‐Firm Performance: Modeling the Role of Product and Process Improvements*

Entrepreneurial and small and medium‐sized enterprises (SMEs) firm performance is a complex, multifaceted construct that should be examined with an eye toward its complexity. Our research study seeks to accomplish this examination by proposing a conceptual model of SME performance with two distinct but related outcome dimensions—growth as one dimension and profitability as another. We propose hypotheses for relationships between four antecedent factor conditions— environmental hostility, firm size, innovation capability, and internationalization—and an SME's likelihood to pursue either product improvement or process improvement as their primary strategic orientation. Furthermore, we propose that an SME product improvement orientation likely has greater influence on growth and profit performance than will a process improvement orientation. The findings of the study suggest that internationalization and innovator position have a positive impact on new product and process improvements, while environmental hostility, internationalization, and product improvement have positive influences on growth as a performance dimension. In addition and as hypothesized, the product improvement orientation is positively associated with growth and in turn profitability, whereas the process improvement orientation showed no statistical relationship to growth and ultimately profitability.     

Online marketing: When to offer a refund for advanced sales

Advance selling is a marketing strategy commonly used by online retailers to increase sales by exploiting consumer valuation uncertainty. Recently, some online retailers have started to allow refunds on products sold in advance. On the one hand this reduces the net advance sales, but on the other hand it allows a higher advance sales price. This research is the first to explore the overall effect of allowing a refund on profits from advance sales, identifying conditions where advance selling with or without refunds (or no advance selling at all) is best. We analytically compare the profits of three advance selling strategies: none, without refund, and with refund. We show that selling in advance and allowing a refund is optimal for products with a relatively small profit margin and small strategic market size, and that the added profit can be considerable. Our results guide managers in selecting the right advance selling strategy. To facilitate this, we graphically display, based on the two dimensions of regular profit margin and strategic market size, under what conditions the different strategies are optimal.     

The impact of mergers and acquisitions on brand equity: A structural analysis

An overlooked strategic benefit of mergers and acquisitions (M&As) is their impact on brand equity. M&As may affect consumer brand preferences, which in turn will affect a firm’s profit. We develop a structural model with a difference-in-differences specification to measure how M&As affect a firm’s profit through three mechanisms: brand equity, cost synergies, and product portfolios. We analyze Lenovo’s acquisition of IBM’s PC division in China’s PC market and find that the increase in brand equity contributed the most to increasing Lenovo’s profit, followed by cost synergies. To explore the generalizability of our modeling approach, we apply it to Geely’s acquisition of Volvo and also find that the gains in brand equity contributed the most to Geely’s profit increase.     

Investigating the Impact of Firm Size on Small Business Social Responsibility: A Critical Review

The impact of smaller firm size on corporate social responsibility (CSR) is ambiguous. Some contend that small businesses are socially responsible by nature, while others argue that a smaller firm size imposes barriers on small firms that constrain their ability to take responsible action. This paper critically analyses recent theoretical and empirical contributions on the size–social responsibility relationship among small businesses. More specifically, it reviews the impact of firm size on four antecedents of business behaviour: issue characteristics, personal characteristics, organizational characteristics and context characteristics. It concludes that the small business context does impose barriers on social responsibility taking, but that the impact of the smaller firm size on social responsibility should be nuanced depending on a number of conditions. From a critical analysis of these conditions, opportunities for small businesses and their constituents to overcome the constraining barriers are suggested.Jan Lepoutre is a PhD candidate in Applied Economics at Ghent University, Belgium. His dissertation focuses on the competences associated with small business social responsibility.Aimé Heene is a professor at the Faculty of Economics and Business Administration at Ghent University, Belgium. He teaches strategic management for private and for public organizations and currently focuses his research on (competence-based) management in public and social profit organizations.     

中国蜂蜜在日本市场的需求弹性

日本是中国蜂蜜出口的最大市场,占中国蜂蜜出口总额的40%,对中国蜂蜜贸易的发展至关重要。本文以日本蜂蜜市场1995年5月至2004年12月的进口数据为基础,运用近似线形需求系统模型(LA-AIDS)估计中国蜂蜜在日本市场的收入弹性、自价格弹性和交叉价格弹性,分析中国蜂蜜在日本市场的贸易地位与竞争策略。研究结果表明,在日本蜂蜜进口市场,中国蜂蜜的价格对来自阿根廷的蜂蜜进口量有较大的影响力,但实施价格战会使中国蜂蜜的利润损失大于阿根廷。最优的竞争策略是努力维持市场份额,通过质量与安全水平的提升来获取较高的价格和利润率。     

Firm Growth and Liquidity Constraints: A Dynamic Analysis

Using a large unbalanced panel data set of Portuguese manufacturing firms surviving over the period from 1990 to 2001, the purpose of this paper is to examine whether liquidity constraints faced by business firms affect firm growth. We use a GMM-system to estimate a dynamic panel data model of firm growth that incorporates cash flow as a measure of liquidity constraints and persistence of growth. The model is estimated for all size classes, including micro firms. Our findings reveal that smaller and younger firms have higher growth-cash flow sensitivities than larger and more mature firms. This is consistent with the suggestion that financial constraints on firm growth may be relatively more severe for small and young firms. Nevertheless, the same finding can be interpreted in a different way if we consider the more recent literature which interpret the higher investment/cash flow sensitivity of younger and smaller firm in absence of financial market imperfection as the outcome of these firms reaction to the fact that realisation of their cash flows reveals them the direction to go in presence of uncertainty of their growth prospect. Besides, firms that were small and young at the beginning of the sample period exhibited more persistent growth than those that were large and old. Finally, these results have significant policy implications.