Firm factors, industry structure and performance variation: New empirical evidence to a classic debate

The quest to understand the determinants of performance has created a bifurcated view. On one side of the debate are the structural characteristics of industries. On the other side of the debate are firm-specific resources. However, in recent years, the nature of competition and the shifting of economic conditions have led to increased challenges of the assumptions upon which industry structure theories have been built. In today's business environment, arguments suggest that structural characteristics of industries are becoming less relevant determinants of performance while firm resources are becoming the basis upon which firms compete. Through studying 285 Australian firms, this research explores the relative importance of distinct resources and industry structure variables in explaining firm-level performance variation. Across the aggregated sample, the results demonstrate that resources are more important than industry structure. In service firms, resources are found to be much more important to explaining performance variation than in manufacturing firms. Lastly, in both manufacturing and services firms, intangible assets and capabilities explain performance variation while, as hypothesized, tangible resources do not.     

A Comparison of Clustering Dynamics in the British Broadcasting and Financial Services Industries

This paper compares patterns of industrial clustering in the British broadcasting and financial services industries. Recent trends of deregulation, rapid technological change, and globalization in both industries suggest the significant and increasing importance of clustering effects. This study examines the evidence. It investigates the effects of cluster strength on the growth of the firm and on rates of surviving entry. We find positive, large, and statistically significant clustering effects. In both industries: (a) incumbent firms located in a cluster that is strong in their own sub-sector of their industry tend to grow faster than average; and, (b) new firms are attracted by industry strength in certain sub-sectors in a particular region. The results for these largely mature service industries are very similar to those observed in earlier studies that have examined clustering patterns in newer high technology manufacturing industries.     

Businesses without glamour? an analysis of resources on performance by size and age in small service and retail firms

Research on factors influencing performance in new and small companies is extensive. Earlier work found that strategies (e.g. cost, quality, differentiation, etc.) affected performance contingent on industry conditions, the environment, and the entrepreneur’s background. Although this work provides a solid basis for understanding differences in entrepreneurial performance, some firms are limited in their choices of strategy due to size, age, or industry. Often these firms are in industries where entry barriers are low and competitive advantages are easily imitated.Small service and retail businesses operate in sectors where these conditions are apparent. Comprising more than 50% of all small firms, they require minimal start-up investments but face intense competition. Lacking the “glamour” of high innovation/high growth firms, service and retail companies are at the “end” of the value chain, their fortunes rising and falling as a result of the direct influence of the owner-founder. Hence, performance variation may be better explained by the capabilities of the firm or individual competencies of the owner-founder, that is the resource-base and resource combinations, rather than strategy.The strategic importance of an organization’s resources and capabilities is the foundation of resource-based theory. Resources are tangible and intangible assets tied to the firm in a relatively permanent fashion. Their combinations are heterogeneous and form the basis for product/market strategies. Studies of resources, strategies, and performance are emerging in the entrepreneurial area. Research shows that various resources in concert with different strategy types can lead to above average performance over the business life cycle, and that combinations of resources are related to survival. Yet the vast majority of work focuses on high growth, high tech, or manufacturing businesses. Less is known about the relationships of resources to performance in less “glamorous” sectors. In these small service and retail businesses, we speculate that resources, in particular human and organizational resources, may play a greater role in explaining performance than strategy. Further, as other authors have suggested, it is expected that the combinations of these resources will vary across age and size.This study examines the influence of human and organizational resources on performance in a sample of 195 service and retail firms operating in central New Jersey, using a structured questionnaire. All companies utilized a focus strategy (either focused cost or focused differentiation) and employed a minimum of 3 to a maximum of 100 employees. All measures had theoretical and/or empirical precedent and were tested statistically for reliability. We used factor analysis to reduce the independent variables to: two human resource variables (owner resources and commitment), one organizational resource variable (comprised of planning, systems, and staff skills), and one strategy variable (focused cost and focused differentiation). Control variables were business age, business size, environmental benignness, and industry growth. The dependent variable performance was measured in two ways: net cash flow and log of growth in employees over 3 years.The study first examined whether strategy or resources had a greater influence on performance. Results showed that strategy influenced performance less than human and organizational resources both individually and interactively. The influence of owner resources (background and attitudes) on net cash flow was stronger than on growth, where the only significant variable was industry (market) growth.To analyze effects of resources on performance by size, we divided the sample by size groupings, selecting the smallest (maximum five employees) and largest quartiles (minimum 16 employees), which were comprised of 55 and 50 companies, respectively. These analyses showed that owner resources, commitment, and organizational resources contributed positively to net cash flow in very small firms; however, interactive effects of these resource combinations were negative. For instance, owner resources and organizational resources together, and organizational resources and commitment together, resulted in less positive cash flow than when analyzed separately. This implies that different resource combinations can have negative influences in these very small firms.We examined age effects in the same manner as size—dividing the sample into age group quartiles and conducting an analysis only for very young (fewer than 5 years) and very old (minimum 19 years) groups, which comprised 54 and 52 companies, respectively. These analyses showed that although growth was more rapid among the youngest firms, there were no distinctive resource-based correlates to growth in either age group. Substantive increases in formalized systems and procedures were not apparent among the oldest of these companies compared with the youngest, contrary to previous work showing the evolution of these over business life cycles.Results of this study are applicable only in the context of service and retail firms, and, readers should note this sample was nonrandom and geographically concentrated. Our purpose was not to predict, but describe associations between resources and performance. This study shows that, for firms in competitive industries at the end of the value chain, type of strategy is less important than resource combinations for certain types of performance. Human and organizational resources are associated with more positive cash flow, whereas industry and market factors are related to growth. These results imply that firms seeking growth are best served by selecting and entering growth markets and industries. On the other hand, if strong positive cash flows are the primary objective, attention to combinations of resources is more important. For instance, owner-founders having a strong business and managerial background, and industry experience will need less formalized systems, whereas those owner-founders with weaker managerial resources might benefit from more formalized procedures and skilled staff.     

Towards understanding who makes corporate venture capital investments and why

This study examines when established firms participate in corporate venture capital (CVC). We build on the resource-based view of interfirm collaboration and emphasize the strategic flexibility of CVC relationships. We use longitudinal data on 477 firms from 1990 to 2000 to test our hypotheses. We find that firms in industries with rapid technological change, high competitive intensity and weak appropriability engage in greater CVC activity. We also show that firms that possess strong technological and marketing resources and resources developed from diverse venturing experience engage in greater CVC activity. Finally, we find that these firm resources moderate the influence of the observed industry effects in paradoxical ways.     

Firm-specific assets and the internationalization–performance relationship in the U.S. movie studio industry

We study the role that firm-specific assets (FSAs) play in the processes underlying the internationalization–performance relationship. International business scholars have begun studying the interrelationship between FSAs, internationalization, and performance; however, this research is still emergent, and has produced inconclusive results. We believe that this may be due, in part, to research designs involving the same FSAs across many industries, even though individual industries may rely on different FSAs in their internationalization strategies. We address this issue in a single industry study of U.S. movie studios, which typically rely on blockbuster production capabilities as FSAs in their internationalization efforts. We show how these FSAs co-evolve with firms’ degree of internationalization, and how each factor mediates the positive effect of the other on performance. Our results highlight the importance of studying specific industries and their salient FSAs when assessing their role of such resources in the internationalization–performance relationship.     

Revisiting the entrepreneur gender–performance relationship: a firm perspective

Research shows that firms started by women underperform those started by men but the relationship may not be as straightforward as previously thought. Using a sample of 4,540 Korean ventures in 2002 we investigated the effects of three firm characteristics—resources, industry, and regional location—on firm performance. Results indicate that firms started by male entrepreneurs, compared to female, have greater firm assets, compete in high-technology manufacturing industries, and are more likely to locate in clustered regions. Further, these firm characteristics are positively associated with domestic and international firm performance. Findings suggest firm resource and context characteristics fully mediate the entrepreneur gender–firm performance relationship. Overall, gender is not a determinant of domestic or international firm performance.     

Foreign outsourcing, exporting, and FDI: A productivity comparison at the firm level

This paper documents how productivity varies with globalization modes, based on a firm-level data set covering all manufacturing industries in Japan without any firm-size threshold. Only a small fraction of firms outsource, export, or invest abroad. Foreign outsourcers and exporters tend to be less productive than the firms active in FDI or in multiple globalization modes but more productive than domestic firms. This productivity ordering is robust even when firm size, factor intensity, and/or industry are controlled for. This paper also finds that outsourcers are on average less capital intensive than other globalized firms.     

Local integration and co‐evolution of internationalizing Chinese firms

This study investigates the integration of internationalizing Chinese firms into local host markets. We explore the market‐driven investment of a new wave of Chinese private and local state‐owned firms in Australia since 2012, which has replaced the initial large‐scale investment in resources by central state‐owned enterprises. Using an in‐depth analysis of nine Chinese firms operating in various sectors of the Australian market, we argue that market integration, adaptation, and bilateral institution‐building through co‐evolution and empowerment of local subsidiaries of Chinese multinational enterprises results in entrepreneurial autonomy and characterizes a new generation of Chinese investors. We propose that Chinese multinational subsidiaries have transferred domestic practices to the Australian market and have reconfigured domestic and host market resources to gain a competitive advantage in their original investment industry and new industries. Our study advances middle‐range theory building and provides a practical understanding of the strengths and weaknesses of Chinese investors, their potential to disrupt local markets, and their responsiveness to market‐oriented institutional guidance. The results of this study suggest that the bilateral institution‐building and resource reconfiguration capabilities of Chinese enterprises can be transferred to other developed and developing markets, including Belt and Road Initiative countries.     

Strategic ambidexterity and innovation in Chinese multinational vs. indigenous firms: The role of managerial capability

In this study, we challenge the conventional understanding of ambidexterity as an unquestionable contribution to better performance. We combine the concept of ambidexterity and the notion of managerial capability to explore different effects of ambidexterity on innovation performance in the context of emerging markets. We investigate this ambidexterity-innovation effect, and how this effect is moderated by managerial capability, on a sample of 74 Chinese multinational enterprises (MNEs) vs. 60 indigenous firms that are both in high technology industries. We find that, surprisingly, ambidexterity has a negative effect on the innovation performance of indigenous firms, although this effect is less so in the case of Chinese MNEs. More importantly, strong managerial capability increases the positive effect of ambidexterity on the innovation performance of Chinese MNEs, but not so for indigenous firms. We discuss the implications of these findings on research on ambidexterity and product innovation.     

公司特征、行业特征和并购战略类型的实证研究

This paper studies 148 related and 169 unrelated acquisition cases conducted by Chinese listed firms from 2001 to 2004 and explores firm and industry characteristics of these firms prior to their acquisition. Results show that there are significant pre-acquisition differences between firms pursuing related acquisition and firms pursuing unrelated acquisition in terms of firm performance, business risk, firm size, proportion of state shares and degree of diversification profile. Except for differences in internal capital as represented by undistributed profit per share, there is no significant difference in other aspects of available resources and industry performance. Translated and revised from Guanli Shijie 管理世界 (Management World), 2007, (3): 130–137     

Knowledge,innovation and firm performance in high- and low-technology regimes

Industries with greater aggregate levels of research and development (R&D) intensity are home to higher rates of firm-level innovation, according to survey data from 845 Canadian manufacturing firms. And, though innovation is more common when industry dynamism is high, innovative firms are likely to enjoy revenue growth, irrespective of the industry in which they operate. The research also shows that firm knowledge, industry dynamism and innovation interact in the way they influence firm performance. A highly skilled workforce is most beneficial to firm performance in dynamic environments, while firms in stable manufacturing industries benefit more from investments in training.     

Linking two dimensions of entrepreneurial orientation to firm performance: The moderating role of environment and industry life cycle

The term “entrepreneurial orientation” has been used to refer to the strategy-making processes and styles of firms that engage in entrepreneurial activities. A popular model of entrepreneurial orientation (EO) suggests that there are five dimensions of EO—autonomy, innovativeness, risk taking, proactiveness, and competitive aggressiveness (Lumpkin and Dess 1996). This paper reports on two of those dimensions—proactiveness and competitive aggressiveness. Proactiveness refers to how firms relate to market opportunities by seizing initiative in the marketplace; competitive aggressiveness refers to how firms react to competitive trends and demands that already exist in the marketplace. Despite these distinctions, prior research has tended to equate these two concepts and argued that they have a similar effect on firm performance. This paper investigates how these two approaches are related to each other, how they are related to performance, and how their function differs in the environments in which firms exhibit these approaches to strategy making. These distinctions are important because proactiveness and competitive aggressiveness represent distinctly different avenues to entrepreneurial success.A field study was conducted in which 124 executives from 94 firms were surveyed. These were executives from non-affiliated, non-diversified firms who were actively involved in strategic decision making at the top level of the firm. All firms reporting had at least one respondent who was an owner. Analysis of the data was conducted in two phases. In phase 1, factor analysis was used to examine the distinctions between different dimensions of EO. Proactiveness and competitive aggressiveness emerged as two separate factors indicating that these two strategy-making modes were perceived differently by the executives in the study. In the second phase, the relationship of these two dimensions to performance was analyzed in various contexts. Initial tests found that proactiveness was positively related to performance but competitive aggressiveness tended to be poorly associated with performance.Subsequent tests of the EO-performance relationship indicated that the stage of industry life cycle tended to favor one entrepreneurial orientation over another. The performance of firms in the early stages of industry development was stronger when their strategy making was proactively oriented. In contrast, a competitively aggressive frame of mind was helpful to firms in more mature stages of industry development. These findings were supported by other tests of the business environment. In dynamic environments, characterized by rapid change and uncertainty, proactive firms had higher performance relative to competitively aggressive firms. In hostile environments, where competition is intense and resources are constrained, competitively aggressive firms had stronger performance.The findings suggest that these two different approaches to entrepreneurial decision making may have different effects on firm performance. The differences were particularly apparent in the way firms relate to their external environment. Proactiveness—a response to opportunities—is an appropriate mode for firms in dynamic environments or in growth stage industries where conditions are rapidly changing and opportunities for advancement are numerous. But such environments may not favor the kind of combative posturing typical of competitive aggressiveness. Firms in hostile environments, or in mature industries where competition for customers and resources is intense, are more likely to benefit from competitive aggressiveness—a response to threats. A further implication of this research is that the dimensions of an entrepreneurial orientation, often considered to be positively related to performance under all conditions, may not always be associated with successful outcomes. This study indicates that the dimensions of EO often vary independently rather than covary, suggesting that the extent to which an entrepreneurial approach to strategy making is useful will frequently depend on the organizational or environmental conditions under which such decisions are made.     

The impact of foreign ownership,local ownership and industry characteristics on spillover benefits from foreign direct investment in China

This paper finds that significant variation in FDI spillover effects on local industry is obscured through the aggregation common in most studies. Breaking Chinese industrial data for 2001 down by category of ownership of foreign investor, local firm, and by host industry, we find evidence of greater positive spillovers from FDI in technology-intensive industries than in labour-intensive industries. We also find that overseas Chinese affiliates from Hong Kong, Macau and Taiwan (HMT) generate spillovers to locally owned enterprises (LOEs) in labour-intensive industries, in contrast to western affiliates, which positively impact on the performance of LOEs in technology-intensive industries. Chinese state-owned enterprises (SOEs) benefit from the presence of both HMT affiliates in labour-intensive industries and of western affiliates in technology-intensive industries. Other LOEs (OLOEs), however, benefit only from HMT affiliates’ presence in labour-intensive industries. These findings offer some support to host government policies offering generous incentive packages to attract foreign investors in high-technology industries. We find that some aspects of China's status as a transition economy—for example the considerable resources and effective control deployed by the state and SOEs—has helped its development process; however we argue that it is possible for non-transition developing economies to implement similar policies.     

Competitive strategies and performance in technology-based industries

A model is proposed for relating a technology-based firm's investments in R&D and marketing to its level of performance. The model is based on a homothetic performance function form that is maintained to best represent unique differences among the competitive strategies of firms or groups of firms within an industry. It also permits explicit estimation of returns to scale with respect to investments in R&D and marketing for the industry as a whole. The empirical analysis strongly supports the existence of a heterogenous competitive structure in a technology-based industry with the returns-to-scale estimates varying among the industries studied. The model implies that desirable increases in competition occur through the interaction of individual firms and possibly strategic groups. It also implies the possibility of less than perfect substitution of resources across competitive strategies within an industry. Thus future models of competition should not be based entirely on size-related measures.     

Examining Determinants of Foreign Wage Premiums in China

We estimate foreign wage premiums for every 3‐digit manufacturing industry in China and discover a wide range of premiums both for ‘foreign’ ownership and for overseas Chinese ownership. Foreign ownership generates larger and more prevalent wage premiums than overseas Chinese ownership, but both produce premiums that respond similarly in estimates of determinants. Using the number of computers per worker to measure firms' technology levels, we find evidence consistent with the hypothesis that foreign firms pay higher wages to reduce the risk of worker turnover and the accompanying technology leakage in 76 to 78 per cent of industries. However, this determinant explains only 5 to 6 per cent of the foreign wage premium. We find the most intensive support for the ‘fair wage’ hypothesis that foreign firms pay higher wages because they are more profitable than domestic firms and workers in more profitable firms expect to be paid more, otherwise they will shirk. This hypothesis explains an average of 8 to 9 per cent of the foreign wage premiums, with support found in 72 to 75 per cent of the industries. When we consider the best combination of explanatory variables to include in each industry's wage regression, we find evidence consistent with our combined hypotheses in most industries, but we still find large residual foreign wage premiums.     

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.     

Corruption and private participation infrastructure projects: The influence of vicarious experience and national animosity

This paper investigates the influence of vicarious experience and national animosity on the relationship between corruption and the performance of private participation infrastructure projects. Our analysis of 27,264 projects in 114 countries from 1997 to 2013 shows that higher levels of corruption are associated with higher risk of project failure. We also find that this effect is weakened by the presence of other firms from the same industry, as firms may learn from other companies how to deal with corruption. In contrast, we find the effect is strengthened by the presence of other firms from different industries. This result is due to a lower applicability of knowledge and to an increase in national animosity and discrimination from local stakeholders.     

External governance pressure and corporate environmental responsibility: Evidence from a quasi-natural experiment in China

In recent years, the Audit Pilot of Natural Resources Assets (APNRA) pilot program has been implemented by the Chinese government to strengthen the protection of natural resources and the ecological environment. Based on the APNRA pilot program, we use the multi-period differences–in–differences model to investigate the response of corporate environmental responsibility to external governance pressure. We find that firms significantly improve their environmental investment and performance after the implementation of the APNRA pilot program. Sewage charges (including green fees) and ecological protection incentives constitute the two main channels that explain the positive relationship. We further find that the impact of the program on corporate environmental investment and performance is more pronounced for firms in regions with poor environmental quality, and for firms in heavy-polluting industries. This paper introduces the role of government governance in generating positive externality for firms and provides a valuable understanding of environmental governance in an emerging market.     

An examination of the substitutability of founders human and financial capital in emerging business ventures

Undoubtedly, access to financial capital and other resources is an important antecedent of new venture performance. Indeed, inadequate financial resources often are cited as a primary reason why emerging businesses fail (Barren 1989; McQueen 1989; Otterbourg 1989; Rujoub, Cook, and Hay 1995). Yet, there is some feeling among scholars that competent founders will find a way of coming up with necessary resources and capital Chandler and Hanks 1994, Timmons 1990, Thorne 1989. In this study, we seek to better understand and provide insight into the factors that determine the amount of money needed to start a business, and the factors that drive the decisions of whether such funding should come from founder savings or from outside sources.We explore two questions: (1) What factors are associated with the amount of initial capital raised? and (2) What factors determine the mix of founder savings versus financial capital from outside sources that create the initial capital structure? We seek to answer these questions using a sample of 102 manufacturing and service firms between 3 and 7 years of age. These firms were categorized as manufacturing, retail, wholesale, and business services. In general, the evidence supports our hypotheses. The amount of financial capital at start-up varies by industry. Of key importance in this study, human and financial capital appear to be substitutable. The analysis shows that, on average, firms with high levels of founder human capital and low levels of initial financial capital perform similarly to firms that have low levels of founder human capital and high levels of financial capital. Subgroup analysis provides insights into the degree of substitutability. This finding suggests that founders with strong background experience may be able to start businesses that survive and thrive with less financial capital than their less experienced counterparts.The proportion of initial capital provided by the founder differs significantly across industry types. In more capital intensive industries, founders provide a smaller proportion of the start-up capital. Interestingly, the amount of initial capital provided by the founder does not vary significantly across industry types. This suggests that the amount of initial capital provided by the founder may result from contributing all they can give to the business, which appears to be similar across business types. Finally, founders’ perceptions of their ability to recognize and take advantage of opportunity are positively related to the proportion of initial capital provided by the founder. This research provides insights into the factors that appear to drive the initial capital intensity and structure. To provide better understanding of this phenomenon, future research could investigate such practices as bootstrapping, asset sharing, or other techniques that allow founders to control resources without requiring ownership.     

Globalization and imperfect labor market sorting

This paper focuses on the ability of the labor market to efficiently match heterogeneous workers to jobs within a given industry and the role that globalization plays in that process. Using matched worker–firm data from Sweden, we find strong evidence that openness improves the matching between workers and firms in industries with greater comparative advantage. This suggests that there may be significant gains from globalization that have not been identified in the past — globalization may improve the efficiency of the matching process in the labor market. These results remain unchanged after adding controls for technical change at the industry level or measures of domestic anti-competitive regulations and product market competition. Our results are also robust to alternative measures of the degree of matching, openness, and the trade status of an industry.