Abstract
Strategic management research has demonstrated the importance of firm- and industry structure as drivers of firm profitability. However, less is known about how firms´ geographical locations affect profitability. Applying a multi-level approach of hierarchical linear modeling we estimated firm-, industry-, and region-specific effects on profitability of 3,273 agri-food firms operating in different Spanish districts over the time span 2006-2013. The results reveal the dominance of firm-specific effects which contribute up to 48.8% to variance in firm profitability while the contribution of industry effects (0.8-4.2%), geographical location (0.1-1.8%), and year effects (0.1-2.5%) is rather small. Moreover, firm size, risk, and innovative activity turn out as significant profit drivers at the firm level. Although firm-effects outweigh industry- and region-specific factors, the results indicate that industry concentration as well as regional education and unemployment influence profitability. In addition, proximity to technological institutes as well as the degree of urbanization of the region in which a firm operates can be drivers of profitability. Hence, despite the superiority of firm effects the results indicate that agri-food managers should also consider possible advantages from location-based resources in order to ensure competitiveness.
Highlights
The agri-food chain is one of the most important branches in the European Union (EU) (Food Drink Europe, 2013)
The results reveal the dominance of firm-specific effects which contribute up to 48.8% to variance in firm profitability while the contribution of industry effects (0.8-4.2%), geographical location (0.1-1.8%), and year effects (0.1-2.5%) is rather small
The findings suggest that the impact of Local Labor Systems (LLS) effects is relatively small with a maximum contribution of 1.8% to Return on Assets (ROA) variance of agricultural firms in Navarre
Summary
The agri-food chain is one of the most important branches in the European Union (EU) (Food Drink Europe, 2013). Individual components of the agri-food chain are of high economic importance. In Spain, the country under investigation in this article, the food industry is one of the largest economic sectors with a contribution of 21.6% to total manufacturing turnover. The upstream sector –i.e. primary agricultural production– is mainly of high economic importance in developing countries where contribution to total GDP commonly exceeds 20%. The 2.5% share that the Spanish agricultural sector adds to national GDP is higher than in most western EU countries such as Germany and the UK where the share is below 1.0% (World Bank, 2015). Spanish agriculture provides employment for more than 2 million individuals which highlights its social importance (Eurostat, 2015)
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