nep-cse New Economics Papers
on Economics of Strategic Management
Issue of 2008‒03‒08
fifteen papers chosen by
Joao Jose de Matos Ferreira
University of the Beira Interior

  1. Gains and Pains from Contract Research: A Transaction and Firm-level Perspective By Grimpe, Christoph; Kaiser, Ulrich
  2. ‘Make-or-Buy’ in International Oligopoly and the Role of Competitive Pressure By Dermot, Leahy; Catia , Montagna
  3. Business Strategies for Transitions towards Sustainable Systems By Bakel, J. van; Loorbach, D.A.; Whiteman, G.M.; Rotmans, J.
  4. Operationalizing and Measuring Competition: Determinants of Competition in Private Banking Industry in India By KV, BHANU MURTHY; Deb, Ashis Taru
  5. Environmentally-Oriented Innovative Strategies and Firm Performances in Services. Micro-Evidence from Italy By Massimiliano Mazzanti; Giulio Cainelli; Roberto Zoboli
  6. A Recommitment Strategy for Long Term Private Equity Fund Investors By Zwart, G. de; Frieser, B.; Dijk, D.J.C. van
  7. Crafting Firm Competencies to Improve Innovative Performance. By Lokshin, Boris; Gils, Anita van; Bauer, Eva
  8. Long-term growth determinants of young businesses in Germany : effects of regional concentration and specialisation By Otto, Anne; Fornahl, Dirk
  9. Corporate Hierarchies and the Size of Nations: Theory and Evidence By Dalia Marin; Thierry Verdier
  10. Competition and Cooperation in a dynamical model of natural resources By Marta Biancardi
  11. Motivations, Capability Handicaps and Firm Responses in the Early Phase of Internationalization from Emerging Economies: A study in the Indian Pharmaceutical Industry By Dixit M.R.;
  12. Regional Opportunities and Policy Initiatives for New Venture Creation By Verheul, I.; Carree, M.A.; Santarelli, E.
  13. Durable Goods, Innovation and Network Externalities By Cerquera Dussán, Daniel
  14. Theoretical Framework Of Competition As Applied To Banking Industry By KV, Bhanu Murthy; Deb, Ashis Taru
  15. Firms’ International Status and Heterogeneity in Performance: Evidence From Italy By Alfredo Minerva; Lorenzo Casaburi; Valeria Gattai

  1. By: Grimpe, Christoph; Kaiser, Ulrich
    Abstract: Determining the research and development (R&D) boundaries of the firm as the choice between internal, collaborative and external technology acquisition has since long been a major challenge for firms to secure a continuous stream of innovative products or processes. While research on R&D cooperation or strategic alliances is abundant, little is known about the outsourcing of R&D activities to contract research organizations and its implications for innovation performance. This paper investigates the driving forces of external technology sourcing through contract research based on arguments from transaction cost theory and the resource-based view of the firm. Using a large and comprehensive data set of innovating firms from Germany our findings suggest that technological uncertainty, contractual experience and openness to external knowledge sources motivate the choice for engaging in contract research activities. Moreover, we show that internal and external R&D sourcing are complements: the marginal contribution of internal (external) R&D is the larger the more firms spend on external (internal) R&D.
    Keywords: Contract research, innovation, transaction cost theory, firm capabilities
    JEL: C24 O32
    Date: 2008
  2. By: Dermot, Leahy; Catia , Montagna
    Abstract: We study how competitive pressure influences the make-or-buy decision that oligopolistic firms face between producing an intermediate component in-house or purchasing it from a domestic supplier. We model outsourcing as a bilateral relationship in which the supplier undertakes relationship specific investments. A home and foreign firm compete in the home market. Firms’ mode of operation decision depends on cost and strategic considerations. Competitive pressure increases firms’ incentive to outsource. Consumer gains from trade liberalisation are enhanced when it leads to less outsourcing.
    Keywords: Outsourcing; Vertical Integration; Trade Liberalisation; Oligopoly
    JEL: L2 F2 F1 L1
    Date: 2007
  3. By: Bakel, J. van; Loorbach, D.A.; Whiteman, G.M.; Rotmans, J. (Erasmus Research Institute of Management (ERIM), RSM Erasmus University)
    Abstract: This paper develops a strategic perspective for business to address persistent sustainability issues by contributing to the innovation of societal systems. Sustainability issues at the level of societal sectors or domains cannot be addressed by single organizations but require co-evolutionary changes in technology, economy, culture and organizational forms. We present the case of transition management in the Netherlands – an approach combining systems analysis with new modes of governance to influence the direction and speed of structural changes towards sustainability – and the activities of two firms working in this new context. From the two specific cases we conceptualize business strategies at different levels to advance sustainable development.
    Keywords: sustainability;business development;transition management;systems
    Date: 2007–12–20
  4. By: KV, BHANU MURTHY; Deb, Ashis Taru
    Abstract: Using an appropriate theoretical framework and econometric methodology, the study has sought to measure and model competition in private banking industry in India in an attempt to analyse the process of market dynamics in the industry. The changing scenario of private banking consequent to deregulation provided the motivation behind the study. It used the concept of competition proposed by Stigler (1961) and measured it by Bodenhorn’s (1990) measure of mobility. The study provides a critique of the mechanism of inducing competition, which is implicit in the Narasimham Committee (1991). It then provides the theoretical background of an alternative mechanism based on Structure-Conduct-Performance paradigm, which incorporates basic conditions and strategic groups, apart from including entry, economies of scale, product differentiation and price cost margin, One basic contention of the study is that competition goes beyond “conduct” and encompasses all the four components of S-C-P paradigm: basic conditions, structure, conduct and performance. Accordingly, a three equation simultaneous equation model is used to ultimately estimate the equation of competition through Tobit technique. The result demonstrates that variables related to basic conditions, structure, and conduct and performance influence competition. The study has found evidence against the simplistic relationship between concentration and competition, which remained implicit in the literature. The study also developed a methodology to arrive at market form from an analysis of three aspects of a market and concludes that private banking industry in India is characterized by monopolistic competition.
    Keywords: Competition;Structure-Conduct-Performance;Banking reform;Tobit model.
    JEL: D21 E58 D41 D40 C25 D49
    Date: 2008–01
  5. By: Massimiliano Mazzanti; Giulio Cainelli (University of Bari and CERIS-CNR); Roberto Zoboli (Catholic University of Milan and CERIS-CNR)
    Abstract: This paper aims at analysing the role of the environment in innovative strategies based on firm economic performance indicators such as employment, turnover, and labour productivity growth. We exploit a unique dataset of 773 Italian service firms with 20 or more employees comprising 1993-1995 CIS II data on firm innovation strategic motivations and 1995-1998 data on employment, turnover, and labour productivity from the System of the Enterprise Account (SEA). We specify a Gibrat-like empirical model in which the covariates include firm strategies (innovation and environmental), and a set of other explanatory variables and controls. Our econometric findings show a negative link between environmental motivations and growth in employment and turnover and a consequent not significant effect on labour productivity growth. The effect on employment is partly in line with past evidence and may derive from efficiency improvements (dematerialization processes) which also impact on efficiency by reducing workforce number. It is plausible that the net effect derives from the absence of low skilled employment and a creation of high skilled jobs, as a consequence of increased environmental awareness. The effect on turnover shows a negative impact from environmental innovation strategy, implying either a short-medium effect, possibly balanced in the long run by net benefits in terms of higher added value, or a real negative impact, which may be contingent on the observed period, when environmental strategies where not at the heart of strategic management policies. However, productivity-related effects (the core of performance indicators) are not significant. Mainstream hypotheses related to eventual negative impacts are thus not confirmed, although Porter-like effects and virtuous circles between environmentally strategies and performance do not seem to be present.
    Keywords: Services, Firm Environmental Strategies, Firm Growth, CIS Survey, Innovation
    JEL: C23 D21 O32 Q55
    Date: 2007–12
  6. By: Zwart, G. de; Frieser, B.; Dijk, D.J.C. van (Erasmus Research Institute of Management (ERIM), RSM Erasmus University)
    Abstract: This paper develops a reinvestment strategy for private equity which aims to keep its portfolio weight equal to a desired strategic allocation, while taking into account the illiquid nature of private equity. Historical simulations (1980-2005) show that our dynamic strategy is capable of maintaining a stable investment level that is close to the target. This does not only hold for unrestricted portfolios, but also for investments limited to buyout or venture capital, a specific region, or management experience. This finding is of great importance for investors, because private equity funds have a finite lifetime and uncertain cash flows.
    Keywords: private equity funds;recommitment strategy;strategic asset allocation;overcommitment
    Date: 2007–12–24
  7. By: Lokshin, Boris (UNU-MERIT and Maastricht University); Gils, Anita van (Maastricht University); Bauer, Eva (BBDO Consulting)
    Abstract: Recent interdisciplinary research suggests that customer and technological competencies have a direct, unconditional effect on firms' innovative performance. This study extends this stream of literature by considering the effect of organizational competencies. Results from a survey-research executed in the fast moving consumer goods industry suggest that firms that craft organizational competencies - such as improving team cohesiveness and providing slack time to foster creativity - do not directly improve their innovative performance. However, those firms that successfully combine customer, technological and organizational competencies will create more innovations that are new to the market.
    Keywords: Innovation, Research and Development, Consumer Goods, Product Innovation, Production Management, Personnel Management, Capability Building
    JEL: O31 O32 L68 M11 M12
    Date: 2008
  8. By: Otto, Anne (Institut für Arbeitsmarkt- und Berufsforschung (IAB), Nürnberg [Institute for Employment Research, Nuremberg, Germany]); Fornahl, Dirk
    Abstract: "This paper explores how different levels of regional concentration and specialisation affect the long-term growth of young firms. The sample consists of knowledge-intensive and non-knowledge-intensive western German manufacturing firms which were set-up in 1992 and managed to survive 11 years. The paper examines the joint effect of regional, industrial and firm-specific determinants. The analysis of the concentration and specialisation factors takes into account the industrial and technological dimensions and the regional level of human capital. With regard to the concentration measures being located in an industrial or technological agglomeration slightly reduces the growth rates of start-ups. The same negative, but stronger, effect can be observed for competition measures. Furthermore, our results suggest that startups exhibit higher growth rates the higher specialised the region is in which they are located." (author's abstract, IAB-Doku) ((en))
    JEL: R11 L25 R12 O30
    Date: 2008–03–05
  9. By: Dalia Marin (Department of Economics, Ludwigstr. 28, 80539 Munich, phone: +49 89 2180 2446, email:; Thierry Verdier (Paris School of Economics, 48 Boulevard Jourdan 75014 Paris, France. phone: +33 1 43 13 63 08, e-mail:
    Abstract: Corporate organization varies within a country and across countries with country size. The paper starts by establishing some facts about corporate organization based on unique data of 660 Austrian and German corporations. The larger country (Germany) has larger firms with flatter and more decentralized corporate hierarchies compared to the smaller country (Austria). Firms in the larger country change their organization less fast than firms in the smaller country. Over time firms have been introducing less hierarchical organizations by delegating power to lower levels of the corporation. We develop a theory which explains these facts and which links these features to the trade environment that countries and firms face. We introduce firms with internal hierarchies in a Krugman (1980) cum Melitz and Ottaviano (2007) model of trade. We show that international trade and the toughness of competition in international markets induce a power struggle in firms which eventually leads to decentralized corporate hierarchies. We offer empirical evidence which is consistent with the models predictions.
    Keywords: international trade with endogenous firm organizations, endogenous congruence in the firm, corporate organization in similar countries, empirical test of the theory of the firm
    JEL: F12 F14 L22 D23
    Date: 2008–02
  10. By: Marta Biancardi
    Abstract: In this paper we propose a model describing the commercial exploitation of a common property renewable resource by a population of agents. Players can cooperate or compete; cooperators maximize the utility of their group while defectors maximize their own profit. The model provides for one utility function which can be used for every kind of player. Agents aren’t assumed to be divided into the two groups from the beginning; by solving the static game we obtained the best response function of i-th player without making other agents positions. Then, the Nash equilibria we calculated point out how different strategies - all players cooperate, all players compete or players can be divided into cooperators and defectors - can coexist. In any case the total harvest depend on renewable resource stock, and it influences agents’ positions. According to the Nash equilibria, harvested is arranged to fishing population dynamics and a complete analysis for the equilibria obtained and for their stability is proposed. The effects of the different Nash equilibria on the fish stock are compared showing the more stability in the cooperative case.
    Keywords: Nash Equilibria, Resource Exploitation, Population Dynamics.
    Date: 2007–10
  11. By: Dixit M.R.;
    Abstract: This paper identifies and analyses the motivations, capability handicaps and responses of a sample of Indian pharmaceutical firms in the early phase of internationalization. It distinguishes between the experiences of two types of internationalisers –initial internationalisers and later internationalisers - in the industry. It argues that the initial internationalisers face several discontinuities vis-a-vis the experience of meeting the needs of domestic market. They need to cultivate new capabilities by leveraging on whatever is available within the firms and the external environment. Their capability to cultivate depends on their internal processes to absorb the new experiences. The later internationalisers do not experience these handicaps. They can benefit from the industry experience and congregate capabilities to move faster. Their capability to congregate depends on the initial endowments of the founders. Based on its findings, the paper outlines scope for further research in capability building for internationalization in the context of emerging economies.
    Date: 2008–02–28
  12. By: Verheul, I.; Carree, M.A.; Santarelli, E. (Erasmus Research Institute of Management (ERIM), RSM Erasmus University)
    Abstract: This paper investigates the determinants of new venture creation across industries and locations for 103 Italian provinces between 1997 and 2003. We allow for differences in regional opportunities across industries and investigate the impact of a range of factors on entrepreneurship in different industries: manufacturing, retailing and wholesaling, hotels and restaurants. Our results show that wage costs deter entry in manufacturing and that regions with industrial districts are characterized by higher start-up rates. Firm entry in commercial sectors appears higher in large cities and areas with strong economic progress. For hotels and restaurants we find that tourism positively influences new firm formation. In terms of policy we do not find a significant effect of recently introduced regional laws promoting new firm formation.
    Keywords: venture creation;policy initiatives;Italian provinces
    Date: 2007–12–17
  13. By: Cerquera Dussán, Daniel
    Abstract: We develop a model of R&D competition between an incumbent and a potential entrant with network externalities and durable goods. We show that the threat of entry eliminates the commitment problem that an incumbent may face in its R&D decision due to the goods’ durability. Moreover, a potential entrant over-invests in R&D and an established incumbent might exhibit higher, equal or lower R&D investments in comparison with the social optimum. In our model, the incumbent’s commitment problem and the efficiency of its R&D level are determined by the extent of the network externalities.
    Keywords: Network externalities, Durable Goods, Innovation, Imperfect Competition
    JEL: D21 D85 L13 O31
    Date: 2007
  14. By: KV, Bhanu Murthy; Deb, Ashis Taru
    Abstract: Concepts evolve through time and over time they assume different meanings. The concept of competition is no exception. This paper discusses the evolution of the concept of competition in general with a view to derive a theoretical framework for analyzing competition in banking industry. Starting from the classical notions of competition it proceeds to some of the latest approaches (Northcott (2004), Neuberger (1998), Toolsema (2003), Bolt and Tieman (2001)). The ordinary Structure-Conduct-Performance approach does not involve any analysis of market dynamics. Our approach introduces various aspects of industry dynamics and growth. It provides a methodology to arrive at the market form in banking industry through an analysis of all the aspects of basic conditions, structure, conduct and performance. It is argued that sustained growth and dynamics of the industry is not price led. Growth arises out of changing basic conditions and dynamics arises out of sharing the new market created by basic conditions. Hence the prime mover of competition is rivalry among firms to control market share and to internalize externalities rather than adjustments brought about by the price mechanism.
    Keywords: Structure-Conduct-Performance;Competition theory;Banking competition;Basic Conditions;Entry facilitator.
    JEL: D21 B19 E58 D41 D40 B29 D49
    Date: 2008–01
  15. By: Alfredo Minerva (Università di Bologna); Lorenzo Casaburi (Università di Bologna); Valeria Gattai (Università di Bologna, ISESAO, Università Commerciale “L. Bocconi”)
    Abstract: This paper revisits the empirical evidence about the link between firms’ performance and their international status, based on a large sample of Italian enterprises. To this purpose, we merged two waves of the Capitalia survey (1998-2000, and 2001-2003) retrieving firm level data for roughly 7,000 units. Three results stand out from our empirical exercise. First, firms that engage in the foreign production of final goods, in addition to export activities, are more productive than firms that only export abroad. Second, firms that engage in final goods off-shoring are more productive than firms that engage in inputs off-shoring. Third, in terms of the productivity dynamics over the period 1998-2003, exporters’ performance in Italy was not any better than the non-exporters’ one. Our results support the view that the better performance (in static terms) of globally engaged firms is chiefly due to the selection caused by the fixed costs associated to international operations.
    Keywords: Export, Heterogeneous Firms, Italy, Off-shoring, Productivity
    JEL: F10 F20 L10 L20 L60
    Date: 2008–01

This nep-cse issue is ©2008 by Joao Jose de Matos Ferreira. It is provided as is without any express or implied warranty. It may be freely redistributed in whole or in part for any purpose. If distributed in part, please include this notice.
General information on the NEP project can be found at For comments please write to the director of NEP, Marco Novarese at <>. Put “NEP” in the subject, otherwise your mail may be rejected.
NEP’s infrastructure is sponsored by the School of Economics and Finance of Massey University in New Zealand.