Firm Capacity Research Articles

Innovation policies: the national and regional dimensions

The article discusses the article by Lucchese, Nascia and Pianta (this volume). It does so from the standpoint of innovation policy mixes. We highlight four main points. First most discussions on innovation policies underestimate the central role played by public investment banks (with their tools to support firm innovation). Second we have witnessed a massive move from sectoral policies to procedural policies and indirect, criteria based policy instruments (such as tax credits or support to investments in machinery) no longer focused on industries as such but on firm innovation capacity. Third higher education constitutes probably the most important framework condition supporting innovation and this raises important questions on the overall funding of universities and on their role in vocational training. Fourth I argue that the more procedural policies become, the greater the need for place-based policies, discussing thus the importance of regional innovation policies and the role of ‘clusters’, a missing dimension in the overview of Italian policies provided by Lucchese, Nascia and Pianta.

Going Abroad in a Risky World: Cash Flow Diversification, Institutional Frictions, and Corporate Leverage

Using novel data on detailed country-level sales exposures of U.S. multinational companies (MNCs) and unique identification strategies, we show that international cash flow diversification enhances firm debt capacity, but the magnitude of this effect varies with the innate country institutional frictions to which the firm is exposed. We find that a one standard deviation increase in MNC across-country cash flow diversification results in a 5 percent increase in firm leverage from its sample average. However, across-country institutional quality and tax frictions reduce the MNC geographic diversification benefit by 27 to 55 percent from the debt capacity enhancement without such frictions.

Technology Choice and Capacity Portfolios under Emissions Regulation

We study the impact of emissions tax and emissions cap‐and‐trade regulation on a firm's technology choice and capacity decisions. We show that emissions price uncertainty under cap‐and‐trade results in greater expected profit than a constant emissions price under an emissions tax, which contradicts popular arguments that the greater uncertainty under cap‐and‐trade will erode value. We further show that two operational drivers underlie this result: (i) the firm's option not to operate, which effectively right‐censors the uncertain emissions price; and (ii) dispatch flexibility, which is the firm's ability to first deploy its most profitable capacity given the realized emissions price. In addition to these managerial insights, we also explore policy implications: the effect of emissions price level, and the effect of investment and production subsidies. Through an illustrative example, we show that production subsidies of higher investment and production cost technologies (such as carbon capture and storage technologies) have no effect on the firm's optimal total capacity when firms own a portfolio of both clean and dirty technologies, but that investment subsidies of these technologies increase the firm's total capacity, conditionally increasing expected emissions. A subsidy of a lower production cost technology, on the other hand, has no effect on the firm's optimal total capacity in multi‐technology portfolios, regardless of whether the subsidy is a production or investment subsidy.

The Impact of Virtual Customer Community Interactivity on Organizational Innovation: An Absorptive Capacity Perspective

Research problem: Organizations are increasingly investing in virtual customer communities that reduce communication barriers between organizations and customers. However, little is known regarding how virtual customer communities might affect a firm's learning and innovation activities. Research question: What effects do virtual customer communities have on the relationship between absorptive capacity and organizational innovation? Literature review: Research has shown that virtual customer communities promote knowledge creation and knowledge sharing by facilitating communication within a virtual customer community. We investigate the extent to which interactivity in virtual customer communities influences the relationship between a firm's absorptive capacity (the ability to identify, assimilate, and apply external knowledge) and the extent to which a firm develops incremental and radical innovations. Methodology: We test this model with a quantitative survey-based research design that involves 102 firm-sponsored virtual customer communities. We use hierarchical regression techniques to test our hypotheses. Results: Absorptive capacity is positively related to incremental innovation and negatively related to radical innovation. Furthermore, virtual customer community interactivity moderates the relationship between absorptive capacity and incremental innovation. Conclusions: Virtual customer communities are transforming communication relationships between organizations and customers in ways that influence a firm's learning and innovation activities. One limitation of our study is the use of a single respondent for our survey. We recommend that future research examine how virtual customer communities affect organization-customer communication channels.

A hybrid solar photovoltaic-wind turbine-Rankine cycle for electricity generation in Turkish Republic of Northern Cyprus

AbstractThis paper presents an energy demand model by designing a hybrid solar-wind-thermal power generation system of the Turkish Republic of Northern Cyprus, a promising substitute for the expensive battery banks. The study models the future energy demand of Turkish Republic of Northern Cyprus based on the IPCC emissions scenario A1B and A2 by designing a new hybrid solar-wind-thermal power system that satisfies the current and future requirements of firm capacity during peak periods. The study suggests an improvement in a hybrid solar-wind-thermal power system performance by predicting reliable outputs that can integrate renewable energy technologies to conventional power generation. The energy consumption prediction model emphasizes the energy requirement that has a growing demand from 300 to 400 GWh in scenario A1B and 150–450 GWh in scenario A2 from 2010 to 2050. The proposed design can meet 400 GWh of electricity demand in TRNC based on IPCC scenario A1B and 450 GWh of electricity demand in TRNC ba...

Innovation and experiential knowledge in firm exports: Applying the initial U-model

Focusing on firm export activity as an important field within international business, this study corroborates the importance of experiential knowledge as the initial Uppsala model predicts. The model builds on the belief that experiential knowledge minimizes the risk and uncertainty of export operations. Additionally, the article examines a firm's capacity to widen this knowledge through its dynamic capacities, honing in on a firm's learning function. Thus, this article analyzes the role of innovation in exporting by investigating export product innovation and export market innovation, both strategic activities that allow experiential knowledge acquisition. The article uses a firm-level official dataset from a small developing country, Chile, examining data from 2006 to 2011. The results indicate, firstly, that experiential knowledge resulting from exporting to different and geographically distant markets increases the firm's export activity. Secondly, such export market innovation takes precedence over export product innovation.

Intellectual Capital-Enhancing HR, Absorptive Capacity, and Innovation

This study investigates the role of intellectual capital (i.e., human, social, and organization capital)–enhancing human resource (HR) practices in the development of a firm's absorptive capacity, as well as the mediating role of absorptive capacity in its relationship to the firm's innovation performance. Results show that while human capital–enhancing HR (acquisition and developmental HR) is positively related to absorptive capacity, social capital–enhancing HR affects absorptive capacity through egalitarian HR practices. Organization capital–enhancing HR practices contribute to absorptive capacity through effective information systems. Finally, our findings confirm that the various intellectual capital–enhancing HR practices affect innovation performance through their impact on the firm's absorptive capacity. © 2016 Wiley Periodicals, Inc.

The relationship between knowledge search strategies and absorptive capacity: A deeper look

The present study analyzes how the breadth and depth of search strategies affect the dimensions of a firm's absorptive capacity: exploration, transformation and exploitation. Results of an analysis of a sample of 467 Spanish manufacturing firms reveal that openness of external knowledge search contributes to firms' exploratory, transformative and exploitative learning processes in different ways. In particular, a strong curvilinear effect of external knowledge search breadth on exploratory and exploitative learning was found. It is also important to establish deep relationships with external agents to achieve transformative and exploitative learning up to a certain point after which relationships become negative. Interestingly, for a firm to develop explorative learning, it is not important to establish deep relationships. And for a firm to develop transformative learning it is not important to establish broad relationships. Some suggestions for managers and future lines of research are provided.

Absorptive capacity and firm performance: an integrative framework of benefits and downsides

ABSTRACTResearch underscores the important role a firm's absorptive capacity plays in developing knowledge, promoting open innovation, managing alliances, facilitating organisational learning, creating strategic variety, and enhancing financial performance. However, prior research often overlooks how absorptive capacity could increase a firm's costs associated with building this capacity, perpetuate and even increase inertia because of reduced variety and limited organisational search, handicap internal knowledge development, and complicate knowledge sharing. Research also ignores the growing complexity of absorptive capacity, a factor that could reduce a firm's gains from exploiting external knowledge. Our discussion builds on the knowledge-based view to provide an integrative framework for the performance effects of absorptive capacity. Based on different benefits and downsides of absorptive capacity at multiple levels of analysis, it points to an inverted U-shaped relationship between absorptive capacity and a firm's financial performance, highlighting several promising avenues for future research.

Government Regulation, Land Marketization and Excess Capacity

This paper discusses the reason of firm excess capacity in China in the aspect of marketization under government regulation, by using the data from World Bank China-enterprise survey 2012 to do empirical study of the relationship between obstacle of accessing land, land marketization and capacity utilization. According to the results, there is a positive correlation between levels of obstacle to access land firm capacity utilization. And the relationship between land marketization and capacity utilization is inverted U shape. When land marketization rate is 49.00%, firm capacity utilization is maximized. This implies that too low or too high land marketization rate will lower obstacle for firms to access land, resulting in excess capacity. In China, there is huge difference between land marketization rates in different regions. Especially, land marketization rates in developed regions are comparably lower, which means level of obstacle to access land is low in China for most firms. This is one key reason for China to suffer from excess capacity. Therefore, the government should formulate proper regulation policies to control land, in order to increase land marketization rate and obstacle to access land. Thereby, enterprise investment can be coordinated; capacity utilization can be improved; and the problem of excess capacity can be relieved.

Modeling the integrated expansion of the Canadian and US power sectors

This paper presents the development effort that created a robust representation of the combined capacity expansion of the U.S. and Canadian electric sectors within the NREL ReEDS model. The abbreviated scenario analysis effort was designed to understand drivers behind various Canadian–U.S. power sector futures out to 2036. We model the impact of natural gas prices, increased Canadian hydropower deployment, and increased renewable energy (RE) penetrations. The sample results analyzed in this paper show the highly dynamic nature of the modeling tool as it performs a simultaneous optimization of the two countries’ generation portfolios. The interactions between the two countries go beyond energy generation and also include firm capacity contracts and renewable energy certificates (RECs). The reference scenario results show a significant increase in wind generation in both the United States and Canada with a gradual retirement of coal and nuclear energy. The evolution of net energy and firm capacity exchange was very dynamic through the span of the analysis period and drives significant investment in transmission capacity across the border, almost doubling the existing capacity of transmission lines. The exchange of energy was driven by regional stories. ISO-NE and NYISO import energy throughout the analysis period. However, in the Western Interconnection we observed increasing imports to Canada from the United States, whereas the exchanges with MISO switched directions.

Sensitivity analysis of optimal capacity acquisition under demand uncertainty for a multi-resource firm: complementarity and substitution effects

We consider a firm that offers two products to serve the market using two dedicated resources and one flexible resource. We model the firm's capacity acquisition decision as a two-stage stochastic optimisation problem with recourse. In the first stage, the firm determines the capacity acquisition level before realisation of products demand. Whereas, in the second stage, after the products demand is realised, the firm determines the production allocation level. Our objective is to study the impact of both strategic and operational cost parameters as well as products demand correlation on optimal capacity acquisition decision. We conduct post-optimality sensitivity analysis via numerical example, and found interestingly that the firm's processing network exhibits complementarity as well as substitution effects. We discuss our results and implications in the context of multi-resource processing network.

Generators’ Appetite to Finance Pipeline Capacity: New England and South Australia

An analysis of why New England gas-fired generators rely on interruptible pipeline capacity and similar generators in South Australia reserve firm capacity finds that these alternative approaches are explained by differences in weather, the availability of alternative fuels, and electricity market incentives. The comparison reveals that, despite some perceptions to the contrary, New England's gas and pipeline market appears to function well.

Inherited competence and spin-off performance

ABSTRACTIn this paper we extend the hereditary theory of spin-off formation, developed by Klepper, by relating the concept of inherited competence to two different types of spin-offs—university and private sector spin-offs—and two different types of inherited competence—R&D competence and innovation competence. We then utilize this extension of Klepper's framework to study the evolution of a science-based industry—the biotech industry. Using the Irish biotech industry as a case-study, we find that differences in pre-entry experience manifest themselves most markedly in terms of the firm's capacity to attract venture capital, with private sector spin-offs considerably outperforming university spin-offs. We argue that the superior performance of the private sector spin-offs is explained by the nature of their inherited competence in that they are characterized by higher levels of innovation competence.

Interactive effects of internal brokerage activities in clusters: The case of the Spanish Toy Valley

This study focuses on how different brokerage roles affect innovation by co-located firms. The study takes into account the effects of the interaction between brokerage activities and the firm's absorptive capacity and extra-cluster openness, and evaluates synergies that derive from the simultaneous development of two different brokerage profiles. Comprehensive fieldwork in the Toy Valley cluster in the Valencia region (Spain) shows that intermediating between firms that are in different positions in the local value system unevenly affects the broker's innovation capability. Furthermore, for roles with a high effect on innovation, the broker's absorptive capacity and extra-cluster connections moderate network position effects.

From sustainability to adaptation: Goldman Sachs’ corporate real estate strategy

This paper is premised on a conceptual framework that attempts to draw theoretical and practical connections between sustainability, resilience and adaptation. The framework is explored through a case study of the corporate real estate (property) strategies of Goldman Sachs (a multinational investment banking and investment management company) developed over the course of the consolidation and development of its corporate headquarters. This case seeks to identify the existence and nature of the relationships by and between sustainable corporate real estate strategies, resilient operations planning and the firm's adaptive capacity. A secondary proposition seeks to evaluate whether the capacity of the firm to adapt and be resilient to changing conditions has been positively advanced by the firm's sustainable corporate real estate strategies. The findings support the proposition that these connections do exist, as well as the proposition that sustainability was promoting adaptive capacity and operational resilience. However, it remains an open question to what extent these practices and capacities are deterministic of one another. This paper sets the stage for future research that seeks to measure and model organizational adaptive capacity and to understand the potential co-benefits that may serve the interests of firms who struggle to rationalize the costs of sustainability.

STUDYING A FIRM'S INNOVATIONS AS A MULTI-FACETED (INTERACTIVE) SOCIO-TECHNICAL PROCESS

ABSTRACT The purpose of this paper is to stimulate debate with regards to why firms will commit resources to innovate and the effects of the interactive nature of a firm's innovation, as the firm engages in collaboration with several others to co-produce value. Methodologically, the study is a review of the existing literature on innovation, looking for an answer to the following. Why and how do a firm and some significant actors in its network engage in innovative activities to co-produce value? The study shows that, from a firm's perspective, (1) a firm innovates in order to enhance its competitiveness and (2) a firm innovates because it enables it to achieve growth in an increasingly competitive environment. A firm's innovation should translate into value creation for some stakeholders. (3)Through innovations, a firm co-produces value, mostly, with others in its network. A firm's internal capacity is complemented by external capacities of some actors in the firm's network. Keywords Innovation, socio-technical processes, co-produce value, Competitiveness, network

First‐mover strategy, resource capacity alignment, and new product performance: a framework for mediation and moderation effects

Based on the competence‐based perspective and contingency perspective, this study attempts to examine the relationships among first‐mover strategy, a firm's core capacity, resource allocation, and new product performance. Our findings indicate that (1) firms achieve a better new product performance when adopting first‐mover strategy and having an excellent core capacity, and (2) firms achieve a better new product performance if their core capacity (technical and managerial) fits the resource allocation they implement. Managerial implications and future research directions are discussed.

Firm adoption of international standards: evidence from the Ethiopian floriculture sector

AbstractGlobal trade in agriculture and food products is increasingly governed by an array of standards. In order to continue exporting, developing countries have little choice but to comply with the new requirements. This study uses a census based panel data set from the nascent floriculture industry in Ethiopia to empirically examine the determinants of firms’ adoption of international private standards in fresh horticulture produce in large‐scale estate farms. The econometric analysis shows that larger size, older, and foreign owned firms are more likely to adopt the private standards. Moreover, this study analyzes the overall industry level efforts and public–private partnership to launch and implement a national scheme GAP and build a firm's capacity to comply with the standards.

The emergence of absorptive capacity through micro–macro level interactions

A firm's absorptive capacity involves two dimensions: horizontal and vertical. The horizontal dimension refers to a dynamic interplay between internal and external environments of the firm, which is extensively covered in the absorptive capacity research. However, the literature ignores vertical dimension involving individual-organization interactions. Scant knowledge is available about the mechanisms through which absorptive capacity emerges as an organizational learning capability. This study reviews the seminal works of Cohen and Levinthal and finds that the stickiness of knowledge, the multiple antecedents of absorptive capacity and their interactions are explicitly addressed therein, but are insufficiently problematized in subsequent research. Drawing on the knowledge-based view of the firm and the micro-foundations lens of organizational capabilities, the present study re-conceptualizes absorptive capacity as a set of three sequentially linked learning processes where individual and organizational antecedents interact, and explains how value recognition, assimilation and application capabilities emerge as organizational (macro) level phenomena.