ENTRY DETERRENCE BY NON‐HORIZONTAL MERGER*

We study when and how pure non‐horizontal mergers, whether cross‐product or vertical, can deter new entry. Organizational mergers implicitly commit firms to more aggressive price competition. Because heightened competition deters entry, mergers can occur in equilibrium even when, absent entry considerations, they do not. We show that, in order to prevent a flood of entrants, mergers arise even when a marginal merger costs incumbent firms more than does a marginal entrant.     

Product Innovativeness and Entry Strategy: Impact on Cycle Time and Break-even Time

New product development time, or cycle time, has become a critical competitive variable, particularly for small high-tech manufacturing firms. The business press is filled with examples about large firms that have successfully reduced cycle time. This article investigates the relative impact of product innovation and entry strategy on cycle time and initial market performance of small firms. Using a sample of seventy-three small manufacturing firms, Abdul Ali, Robert Krapfel, Jr., and Douglas LaBahn find that faster product development is associated with shorter break-even time. Their results also indicate that these firms are achieving shorter cycle time not by sacrificing product quality, but by keeping the technical content of the product simple. Past research has not taken into account this relationship, and this may be one of the reasons why researchers have often suggested conflicting impact of entry strategy on market performance.     

CREDIBLE RETALIATORY ENTRY AND STRATEGIC TOE‐HOLDS*

The anticipated profits from entry by an established firm into a new market will depend on how incumbents in that market are expected to respond. One possibility, suggested by cases and the literature, is that an incumbent may respond with ‘retaliatory entry’ into the first entrant's ‘home’ market. The model presented here describes conditions under which this can be a credible threat that deters the first entry. When the conditions are such that it is not credible, the paper shows how firms can provide credibility through the establishment of toe‐hold investments in other markets.     

Big losses in ecosystem niches: how core firm decisions drive complementary product shakeouts

This study examines shakeouts in the context of business ecosystems. Market turbulence generated by core firm decisions in competing differentiated ecosystems can generate financial losses and exit for complementary niche market firms. I develop hypotheses predicting which niche markets will suffer larger losses and be more susceptible to shakeouts, and how core firm decisions will drive complementor performance and survival. I then apply these hypotheses to brand‐based differentiated ecosystems in the automotive industry, where networks of suppliers, customers, and complementors surround car manufacturers. More specifically, I study the complementary niche market of automotive leasing, where manufacturers sway leasing markets through product change, entry, and subsidization. To test the hypotheses, I use a proprietary dataset of 200,000 individual car leases between 1997–2002 to identify how manufacturer product design and niche market entry drive complementor losses and exit. These data allow a unique opportunity to understand how the strategic choices of core firms can have substantial and often devastating effects on niche markets in their ecosystem. Further, the results suggest how the dynamic capabilities to adapt to core firm behavior might improve performance for certain niche market complementors. Copyright © 2008 John Wiley & Sons, Ltd.     

Entry by diversified firms into German industries

The paper describes the entry behaviour of diversifying Firms in the German manufacturing sector. The econometric analysis leads to the result that firms enter new markets if (1) the expected rate of return is higher than in other comparable markets, (2) the market is growing, and (3) the accumulated know-how can be transferred profitably to the new market. The incentive to enter other markets will be reduced by entry barriers like economies of scale, product differentiation, and market risk. It is interesting to note that if the market provides room for all firms, then entry deterrence strategies are less likely to be adopted by incumbent firms.     

Little Fish in a Big Pond: Legitimacy Transfer,Authenticity, and Factors of Peripheral Firm Entry and Growth in the Market Center

Research summary : How do peripheral firms compete and secure future growth? Building on literature in strategy and organizational theory, we test a model of peripheral entry and growth in the mainstream market segment. Using data from 289 craft breweries over 11 years, we find evidence that niche producers are increasingly entering the mainstream market and competing with market‐center firms. We identify two mechanisms contributing to these actions: legitimacy transfer and cognitive claims of authenticity. As hypothesized, imitation of niche products by macro breweries facilitates craft beer entry into mainstream markets. Moreover, two authenticity‐based identity codes are found to reliably influence craft brewery growth: a local identity (i.e., operating in one's local market) and a product proliferator identity (i.e., offering a more diverse set of products) . Managerial summary : How can small niche firms compete with larger, more established organizations? By examining the rapidly expanding craft beer industry, this study explores how craft breweries are able to both enter the market space of these larger competitors and secure sustained patterns of growth. Specifically, we highlight two factors influencing the success of craft breweries. First, as major beer producers mimic niche products (i.e., faux craft beer), smaller niche firms are allowed to enter the market by exposing the typical consumer to the tastes of craft beer. Second, craft breweries enjoy increased success if they (a) emphasize the local elements of their company, and/or (b) offer a larger number of products . Copyright © 2017 John Wiley & Sons, Ltd.     

Non-Discriminatory Pricing,Partial Backward Ownership,and Entry Deterrence

This article demonstrates that entry deterrence can occur when downstream incumbents hold non-controlling ownership shares of a supplier that does not price-discriminate. Such backward ownership implies a rebate on the input price for the incumbents and a competitive disadvantage for downstream entrants. An industry can use non-controlling ownership to change the pricing of a supplier in a way that appears to be accommodating but in fact deters entry. The supplier benefits from an obligation or a commitment to supply the customers under equal terms, as this induces profitable sales of ownership stakes to incumbent downstream firms.     

Competitive Pressure and Innovation at the Firm Level

This paper provides empirical evidence on the relationship between market competitive pressure and firms' innovation using panel data of Spanish manufacturing firms for 1990–2006. We depart from standard measures of competition, and construct variables capturing the fundamentals of competitive pressure (product substitutability, market size and entry costs) to test the theoretical predictions of Vives [2008, The Journal of Industrial Economics] for free entry. Our results line up favourably with these predictions. We obtain that greater product substitutability and higher costs of entry lead to more process innovation but less product innovation, whereas market enlargement spurs both product and process innovation.     

Does Foreign Direct Investment Crowd Out Domestic Entrepreneurship?

In analyzing firm entry and exit across Belgian manufacturing industries, this paper presents evidence that import competition and foreign direct investment discourage entry and stimulate exit of domestic entrepreneurs. These results are in line with theoretical occupational choice models that predict foreign direct investment would crowd out domestic entrepreneurs through their selections in product and labor markets. However, the empirical results also suggest that this crowding out effect may be moderated or even reversed in the long-run due to the long term positive effects of FDI on domestic entrepreneurship as a result of learning, demonstration, networking and linkage effects between foreign and domestic firms.     

Governance Structure and Exit: Evidence from California Hospitals

Most inpatient and emergency health care services in the U.S. are delivered by non-profit organizations. To understand the impact of policies that are designed to affect competitive outcomes in hospital markets, it’s important to understand whether the “non-profit” structure changes the behavior and competitive conduct of firms. Given the complexity of the product space within which hospitals operate, we focus on more easily interpreted decisions within the hospital market: entry and exit. Using comprehensive administrative data for the universe of California hospitals from 1980 to 2013, we document the observed entry and exit behavior. We estimate flexible exit policy functions and demonstrate a difference in behavior between for-profit and non-profit firms that exists after accounting for several observable characteristics of hospitals. We find differences in observed behavior: this is a finding that strongly suggests that there are differences in the underlying objective function of the various firms.     

An empirical study of manufacturing flexibility of exporting firms in China: How do strategic and organizational contexts matter?

Using evidence from exporting firms in China, this research aims to determine the conditions that foster manufacturing flexibility and the way in which firms support it. The contingency perspective and the competence and capability theory are utilized to develop a framework to enhance the knowledge of internal competence, external flexibility, and manufacturing performance, and the understanding of the moderating roles of strategic and organizational choice on the competence-flexibility and flexibility-performance relationships. Empirical evidence from a sample of 222 export product/market ventures confirmed the main effect that manufacturing, assembly outsourcing, and marketing competencies support a firm's manufacturing flexibility and in turn enhance manufacturing performance. Several notable moderating effects were also identified. Although a strategic emphasis on low-cost manufacturing and long-term contracting weakens a firm's transformation of core competencies into flexible capabilities, specific organizational choices regarding private ownership and direct exporting strengthen the conversion of manufacturing flexibility to superior manufacturing performance.     

Flexibility and Standardization: Test of a Contingency Model of Product Design–Manufacturing Integration

This article proposes and tests a contingency model of system integration of product design and manufacturing among producers of goods involving tooling development. The model predicts which combinations of organizational and technical practices will be most effective under conditions of high and low design newness. The results, based on data from 74 firms, largely support the model. Differentiating mechanisms, such as a tall hierarchy and job specialization, are negatively associated with design–manufacturing integration, particularly for new designs. Socio-integrative mechanisms, including such flexible practices as cross-functional teaming and collocation, are positively related to design–manufacturing integration for new designs only. However, the use of in-process design controls is positively related to design–manufacturing integration regardless of design newness, which suggests that some modes of standardization may be beneficial even for new designs.     

Differentiating Major and Incremental New Product Development: The Effects of Functional and Numerical Workforce Flexibility*

This study seeks to explain the differential effects of workforce flexibility on incremental and major new product development (NPD). Drawing on the resource‐based theory of the firm, human resource management research, and innovation management literature, the authors distinguish two types of workforce flexibility, functional and numerical, and hypothesize differential effects on NPD outcomes. A large‐scale sample of 284 Dutch firms across various manufacturing goods and business services industries serves to test these hypotheses. The results suggest that functional flexibility positively influences incremental NPD only, internal numerical flexibility negatively influences incremental NPD only, and external numerical flexibility positively influences major NPD only. Thus, differences between major and incremental NPD are grounded in the human resource flexibility of the firm. This complements research that found that such differences lie in critical development activities, learning processes, and capabilities. It also complements product innovation research on flexibility in NPD processes and on flexibility in organizational structures and routines. It extends the resource‐based theory of the firm suggesting that human resource flexibility is part of the dynamic capabilities that allow firms to reconfigure existing competencies. The conclusions imply that managers of manufacturing and service firms may use training and education and create a functional flexible workforce that can progressively enhance incremental NPD outcomes. They may want to avoid paying overtime, because such internal numerical flexibility hampers incremental NPD, but use fixed‐term contracts to expand external numerical flexibility to enhance major NPD.     

Foreign Entry and Firm Advertising Intensity: Evidence from China

This paper investigates the determinants of advertising intensity at the firm level by focusing on the role of foreign entry. In a monopolistically competitive market with heterogeneous firms, we show that foreign entry affects the expected advertising intensity of domestic firms through its impact on the cost of resources, brand image, and productivity spillovers and its impact on firms’ exit behaviour. Then, using comprehensive firm-level data from China’s manufacturing sector between 2005 and 2007, we test this hypothesis and find that foreign entry significantly affects advertising intensity.     

Entry barriers,release behavior,and multi-product firms in the music recording industry

This article models the product release behavior of multi-product oligopolistic firms in the music recording industry. The model predicts that increasing industry concentration may result in an apportionment of the market among the existing firms, and fewer new product releases. Even though the minimum efficient scale of production in the industry is modest, the apportionment outcome is stabilized by the existence of industry entry barriers that raise the costs of potential competitors or entrants.     

Plant creation versus plant acquisition: The entry process in canadian manufacturing

Entry can take different forms - new plant creation versus diversified merger - and can be undertaken by quite different actors - domestic as opposed to foreign firms. This study uses a comprehensive data base on Canadian firms built up from census of manufacturing records to quantify the importance of these different components. Regression analysis is used to examine whether the determinants of entry differ for these components. Entry by merger is shown to be as important as entry by plant creation. Diversified mergers are concentrated in industries where entry barriers are high; plant creation by domestic but not by foreign firms is negatively related to entry barriers.     

Why Do Firms Enter a New Product Market? A Two‐Dimensional Framework for Market Entry Motivation and Behavior

What are the energetic forces that induce established firms to enter new product markets? While most previous research has explained the economic profits expected from a new product market as firms' distinctive motivation for market entry, some recent studies also emphasize interfirm competition and benchmarking activities as another important factor that motivates firms' new market entry. To explain the established firms' diverse new product market entry behaviors, this study presents a two‐dimensional scheme of entry motivation in terms of the degrees of target market profit focus and competitor focus. The first dimension captures the economic motivation of firms' new market entry that ranges from focusing on the direct expected profits from the target market to considering more strategic/indirect benefit incentives. The second dimension captures the degree of firms' external motivation for entry affected by competitors that ranges from independent entry decisions to fully competitor‐oriented entry decisions. Using multiple‐industry survey data, the current study empirically verifies that these two entry motivation dimensions explain a great portion of actual firms' new product market entry behaviors and that they are independent of each other. Subsequently, this study validates that firms' operational size and their environmental factors like perceived technological uncertainty and competitive intensity upon new market entry affect the degrees of the two dimensions of firms' new product market entry motivation. More specifically, large firms less emphasize target‐market profits than small firms, and when perceived technological uncertainty is high, potential market entrants become less target market profit focused but more competitor focused. Under a highly competitive new market condition, firms focus on both target‐market profits and competitors. Based on the analysis of new market entry motivation dimensions, the current study proposes a new typology of established firms' market entry behaviors. The suggested typology represents the four different types of new product market entrants and examines specific characteristics and entry strategies for each type of potential entrants. This entry‐motivation framework should provide a deeper understanding of the backgrounds of entry behaviors and assist firms in developing appropriate entry strategies and in advantageously responding to rival firms' actions with regard to entry.     

The role of horizontal and vertical new product alliances in responsive and proactive market orientations and performance of industrial manufacturing firms

This study examines different roles of new product alliance partners in enhancing responsive market orientation (RMO) and proactive market orientation (PMO) of industrial manufacturing firms in the context of learning in business-to-business (B2B) relationships. A survey of 146 firms shows that horizontal new product alliances with competitors provide access to similar industrial knowledge and know-how and thus help improve a manufacturing firm's RMO through exploitative learning. Although vertical new product alliances with suppliers may grant access to similar domains of knowledge, the findings of this study do not provide any support for their effect on a manufacturing firm's RMO. In contrast, the study shows that vertical new product alliances with research institutions provide access to a broader knowledge base and greater know-how with higher levels of non-redundancy and thus help improve a PMO through explorative learning. In addition, the results suggest that both RMO and PMO developed in different types of new product alliances enable a manufacturing firm to improve its new product performance and eventually its overall performance.     

Resource linkages and capability development

In this paper, we examine the different resource linkages sought by manufacturing firms through strategic alliance. We look closely at the impact of manufacturing activities on choice of resource linkage. Using a sample of Taiwanese firms, we found that product development ability and marketing distribution channels are the top priority resource linkages that Taiwanese manufacturing firms seek to establish. The authors also found it interesting that marketing know-how was not a resource commonly sought by Original Design and Manufacturing (ODM) firms, nor by Own-Brand Manufacturing (OBM) firms. Some implications are further discussed. Instead of outsourcing production to external suppliers, Taiwanese OBM firms remained committed to manufacturing as a core competence when they established their own brands overseas.     

British Manufacturing Organization and Workplace Industrial Relations: Some Attributes of the New Flexible Firm

The characteristics of the largest British manufacturing firms are analysed in order to argue that the form of organization adopted at corporate and plant level by such firms is distinctive. The first part of the paper looks at the characteristic kinds and types of productive activities that the largest British firms undertake. It is then suggested that there is a distinctive pattern of organization for production at plant level, described as the 'new flexible firm', the features of which are formally set out. The new flexible firm have some key features which help to make sense of an emerging pattern of workplace industrial relations in manufacturing. The way this new form of organization at plant level utilizes labour contradicts rather than supports the expectations of some analysts about the importance of human resource management.