Firm-level Capabilities Research Articles

Exploring the relationship among human resource flexibility, organizational innovation and adaptability culture

PurposeHuman resource (HR) flexibility is a firm-level capability that consists of employee skill flexibility, employee behavior flexibility, and HR practice flexibility. HR flexibility allows organizations to adapt and be responsive to changes in their environments. Findings from this paper indicate that if the organization is highly innovative and has flexible HR policies, then that influences organizational culture, risk-taking and experimentation within a firm. This paper has also revealed that process innovation mediates between adaptability culture and product innovation. It also revealed that managers should emphasize processes to improve efficiency for resource exploitation. The lessons learned from process innovation activities indicated that having a strong knowledge base assists a firm in developing innovative technology such as automation for manufacturing, handling and testing or simply smart manufacturing.Design/methodology/approachQuestionnaires were sent to employees at 23 Taiwanese companies in high-tech industries, where innovation is the key to their survival, and 293 valid surveys were collected. Structural equation modeling, (SEM) using IBM SPSS Amos, was used to test the hypotheses.FindingsThe results fully support the hypotheses that HR flexibility positively influences adaptability culture and contributes to organizational innovation. Furthermore, it was found that adaptability culture has a direct impact on process innovation and an indirect impact on product innovation through process innovation.Originality/valueThe critical role of HR flexibility and adaptability culture on organizational innovation in the high-tech sector were highlighted. The importance of HR flexibility is emphasized to provide managerial hints to top managers.

PRODUCT DIFFERENTIATION STRATEGY AND VERTICAL INTEGRATION: AN APPLICATION TO THE DOC RIOJA WINE INDUSTRY

This study evaluates the importance of product differentiation as a determinant of vertical integration in firms. The proposed model also controls for known determinants of integration, such as transaction costs and firm-level capabilities. By identifying transaction-, firm- and strategy-level determinants, we derive testable predictions about the vertical integration decision. To test these predictions we analyze the Rioja wine industry, using a representative sample of 187 firms. Our paper concludes that reaching judicious vertical integration decisions requires a thorough analysis of some very diverse aspects, especially those related to mitigating opportunism, dealing with unforeseen contingencies and product differentiation.

Whose fall and whose rise? Lessons of Japanese MNCs for Chinese and emerging economy MNCs

There are limited studies evaluating multinational corporations (MNCs) from different countries, and a comparison of the leading Asia Pacific economies, Japan and China, offers useful insights. This contribution considers in turn business strategies, firm-level capabilities, management organization and government policies in determining the patterns and impact of Japanese MNCs and Chinese MNCs in host economies. It reveals the relevance of phases of internationalization on strategic intent, the cross-border transfer of capabilities, and the costs and benefits of parental firm control vs. subsidiary autonomy.

Beyond Value Capture - Exploring Innovation Gains from Global Networks

Increasingly complex and diverse global corporate production networks (GPNs) and global innovation networks (GINs) are transforming international trade, production, and innovation, creating new, yet little understood, challenges for national policies that seek to foster economic growth and prosperity through productivity-enhancing innovation. As countries are integrated into these global networks (GNs), they are forced to rethink a broad array of policies. A fundamental tension needs to be addressed between global knowledge sourcing, which requires trade liberalization, and domestic capability development, which requires supporting industry and innovation policies. To reap innovation gains from GNs, countries need to address simultaneously two challenges. From the “outside,” national policies have to deal with a multitude of bilateral and regional trade agreements (RTAs) and attempts to establish a new architecture of megaregional trade agreements, like the Trans-Pacific Partnership (TPP), that seek to create and harmonize new international benchmark standards for national policies, rules and regulations, for example, for intellectual property, technical standardization, government procurement, taxation, and competition policy. National policies need to take into account these changes in the governance of the international economy (as demonstrated throughout the book). This chapter focuses on a second set of challenges that originate from the “inside”: countries differ in their capabilities to learn and innovate, and hence they differ in their capacity to capture potential gains from integration into GPNs and GINs. The chapter outlines a conceptual framework and describes the research needed to trace the dissemination (or lack thereof) of innovation resources and capabilities through knowledge-sharing within those networks that span developed and developing worlds. The analysis focuses on the experience of China and other leading Asian electronics manufacturing exporting countries. All of these countries are deeply integrated into international trade and foreign direct investment (FDI) through GPNs, and in some cases, through GINs. The author argues that research on GNs needs to move beyond value capture. Instead more effort should be invested in exploring whether and how integration into these networks might foster or erode a country’s absorptive capacity and firm-level innovation capabilities. The chapter reviews what is known about driving forces and characteristics of GPNs and GINs and highlights the increasing diversity and complexity of these networks in the electronics industry. To establish whether GN integration might foster or erode the host country’s absorptive capacity and firm-level innovation capabilities, three scenarios are considered: (i) the “Gains from Trade” effect; (ii) the “Domestic Disintegration” effect; (iii) the “Innovation Trap” effect; and (iv) the “Limits to Modularity” effect.

Moderating Role of Contextual Factors on the Impact of Cultural Distance: A Conceptual Study

Cultural distance is one of the most widely used distance construct in international business. However, its application as having linear and homogenous impact on organizational actions and performance has long been questioned. In this paper, we attempt to redress this weakness by proposing the moderating effects of firm-level capabilities and industry context, on the impact of cultural differences on firm-level outcomes. Drawing on the organizational learning theory with cultural friction perspective, we propose that the ‘cultural experience reserve’ of a focal firm is a potential firm-specific capability, mitigating the negative impact of cultural differences on cross-border deal abandonment. Second, we propose that the firm’s industry context impacts the uncertainties associated with cultural differences. We believe our testable proposition advance the role of contextual factors in studying the impact of cultural difference.

Interactive learning and firm-level capabilities in latecomer settings: The Nigerian manufacturing industry

Combining insight from strategic management, evolutionary economics and latecomer capability literatures, this paper analyses the relationship between interactive learning and capabilities in a sample of Nigerian manufacturing firms. A distinction is made between formal and informal modes of interactive learning. Results from multivariate probit estimations show that both modes are positively associated with firm-level capabilities but informal interactions dominate. These results have some implications for policy and practice. Firms may become more capable of innovating if they connect with externally-generated knowledge. However, the apparent difference in importance of formal and informal linkages suggests that the choice of how and when to form linkages is non-trivial. It also suggests the need for broad-based policies to nurture both types of linkages.

Connecting strategy and system dynamics: an example and lessons learned

This article is based on my talk at the 2015 International System Dynamics Conference upon receiving the Jay W. Forrester Award for the article “Impact of growth opportunities and competition on firm-level capability development tradeoffs” (Organization Science 2012; 23(1): 138–154). It summarizes how that research connects strategy concepts with system dynamics (SD) modeling to inform the pressures managers face to focus on the short term as a result of endogenous growth opportunities and competition. Drawing on this example I discuss some potentially useful research tools and assumptions. I close by sharing personal reflections on the process of writing for non-SD academics and why I think making those connections is worthwhile. Copyright © 2015 System Dynamics Society

What Drives Overseas Acquisitions by Indian Firms? A Behavioral Risk-Taking Perspective

Overseas acquisitions as a mode of international expansion entail a high level of risk, especially for firms from emerging economies which face considerable liabilities of foreignness and newness in international markets. Building on the behavioral risk-taking perspective, we examine the role of ownership characteristics on the propensity of Indian firms to make foreign acquisitions. Empirical results from a sample of BSE 500 Indian firms during the 2002–2011 period show that after controlling for firm level resources and capabilities identified in the prior literature, international experience of firm CEOs, promoter shareholding, and ownership share of foreign institutional investors positively influence firms’ acquisition propensities in foreign markets. Furthermore, our results show that the effects of these determinants on overseas acquisitions are stronger for stand-alone independent firms than for those affiliated to business groups.

Chance and Competitive Advantage

Chance or randomness as a mechanism to induce performance heterogeneity among originally homogeneous firms has recently been introduced to the resource-based view of the firm. In this paper, we demonstrate how chance can engender variation in performance among initially identical firms even in the absence of firm-level capability differences. Departing from the positional school of strategy, we show how and when firms in systemic industries benefit from the chance of staking positions vis-a-vis competitors in complex technology landscapes. Expectedly, the chance of making choices early and repeatedly increases a firm’s profitability. Also, the value of repeated chance is higher during the early stages of an industry’s evolution than during its later phases. Importantly, however, this latter effect is exacerbated by increases in competition.

Host-site institutions, production networks and technological capabilities

This article examines critically the literature on industrial policy, regional production specialization, global production sharing, global value chains and global production networks to analyse technological capability development in clothing, automotive and semiconductor firms in China and Southeast Asia. Host-site institutional support and regional production linkages were identified as having a strong influence on firm-level technological capabilities. The article then provides the justification and the structure of the automotive, clothing and semiconductor industries, which are characterized by strong international division of labour.

Latin America and the Middle Income Trap

Promising economic growth during the 2000s obfuscates the reality that Latin American countries are facing the acute threat of a middle income trap. In this paper I distinguish two approaches to the middle income trap: one focuses mainly on the lack of structural change, the driving forces behind it, and the national and global context in which it unfolds; the other stresses growth slowdowns irrespective of time and place. I offer an extension of the structural change approach with an emphasis on the implications of the current globalization process. A productive capabilities-focused analysis reveals serious gaps in social and firm-level capabilities in Latin America economies, though the magnitude differs across indicators and countries. The experiences of China and small latecomers trying to move from the middle to the high-income level (Chile, the Dominican Republic, Jordan, Ireland, and Singapore) suggest that a cohesive productive capabilities-focused development holds out great promise for generating growth-enhancing structural change. I conclude with a discussion of the key challenges Latin American countries have to overcome for the successful implementation of such a strategy to escape the middle income trap.

Antecedents and constituents of alliance management capability: the role of valuable alliance experience and governance mechanisms for learning

We study the process of alliance management capability building, examining what type of alliance experience matters most for its development and the impact of suitable governance mechanisms. Having identified the constituent skills of alliance management capability, we argue that (1) only certain types of alliances can be considered valuable for generating and developing such firm-level capability, enabling firms to successfully manage interorganizational collaborations, and (2) specific governance mechanisms may help to leverage alliance management knowledge from previous partnerships. In our theoretical framework, only experience accruing from firm’s embedded alliances can generate the necessary constituent skills. Moreover, in order to affect the capability building process, such experience needs to be heterogeneous in terms of alliance contents, governance forms and partners. Finally, we assume a stronger effect of alliance experience when leveraged through the use of specific governance mechanisms. We conducted a single-case study analysis in order to test the theory in encounters with concrete experience.

Product configuration, ambidexterity and firm performance in the context of industrial equipment manufacturing

The practice of configuring products to individual customer orders has found application in a variety of industry contexts, but little is known about the specific capabilities that firms develop to successfully compete when offering configurable products. Our research begins to fill this gap in the context of industrial equipment manufacturing. Drawing from the ambidexterity literature, we argue that firms have to balance dual goals of reducing variation and promoting variation in their product configuration activities by fostering two distinct firm-level capabilities: product configuration effectiveness (PCE) and product configuration intelligence (PCI). Specifically, we hypothesize that the simultaneous presence of PCE and PCI—that is, product configuration ambidexterity (PCA)—drives superior firm responsiveness and, indirectly firm sales and operating margin. However, we also contend that responsiveness gains through PCA can diminish with product complexity and can increase operating cost. We test these hypotheses by collecting both primary and secondary data from a sample of 108 European industrial equipment manufacturing firms. Results from our analyses indicate that PCA has an indirect effect through responsiveness on sales and operating cost but not on operating margin, with this effect diminishing with product complexity. Taken together, our results suggest that investment in developing PCA may represent a conundrum for industrial equipment manufacturing firms, because it translates into market but not financial advantages, and it is intertwined with product design decisions. We conclude this study with a discussion of the findings for theory and practice.

Does CSR Matter for Alliance formation? The Role of Capability Complementarity and Institutions

Alliance formation has been a major research stream in the strategy literature. Firms ally to reduce transaction costs, leverage their network positions, enhance their legitimacy, and access complementary resources. This paper highlights the role of firm-level social responsibility capabilities as important criteria for alliance partner selection. We argue that, holding other factors constant, the fit between the social responsibility capabilities of firms will enhance the likelihood of alliance formation. Furthermore, we discuss the effect of institutional factors that affect this likelihood.

Policy Constraints And Strategic Choices: MNE Subsidiaries Market Penetration In China

This study describes how firm level decisions and capabilities correspond to policy conditions in a host country where local market access is constrained and success is contingent on compliance with cultural hegemony. Using data from surveys gathered from multinational enterprise (MNE) subsidiaries operating in China, we describe the mode of entry the firms have used to penetrate and exploit markets in light of the constrained strategic choices open to their subsidiaries. We also expose the patterns of growth accomplished by the MNE and their underlying bases of competitive advantage. Finally, we relate the degree of centralization we observe among the respondents strategies.

ICT Adoption, Capabilities Development and Innovation Processes in Argentina: An Employment Approach

The discussion on innovation and the adoption of new information and communication technologies (ICT) and their impact on economic growth and development have flared up in the past few years. This debate has become increasingly relevant mostly in emerging countries like Argentina, which, in spite of high economic growth rates in the last decade, has been facing the challenge of quality employment creation. This article analyzes the impact of the ICT diffusion process in Argentine companies from a firm-level employment and innovation capabilities development approach. Recent findings support the linkage between different firm level ICT adoption patterns and the development of innovation capabilities and employment dimensions, while capturing the heterogeneity of the productive structure. These results provide useful evidence to think and develop new productive and technological policies not only for Argentina, but also to the rest of Latin American countries and other emerging regions such as Africa.

Social media technology usage and customer relationship performance: A capabilities-based examination of social CRM

This study examines how social media technology usage and customer-centric management systems contribute to a firm-level capability of social customer relationship management (CRM). Drawing from the literature in marketing, information systems, and strategic management, the first contribution of this study is the conceptualization and measurement of social CRM capability. The second key contribution is the examination of how social CRM capability is influenced by both customer-centric management systems and social media technologies. These two resources are found to have an interactive effect on the formation of a firm-level capability that is shown to positively relate to customer relationship performance. The study analyzes data from 308 organizations using a structural equation modeling approach.

HR Flexibility and Firm Performance: The Cross-Level Moderating Effect of Industry Dynamism

Way, Tracey, Fay, Wright, Snell, Chang, and Gong (2012) proposed that HR flexibility is firm-level capability which is instrumental in fostering the capacity of firms to be responsive to changes in competitive market demands and successful in dynamic industries. Although, scholars (e.g., Way et al., 2012; Wright & Snell, 1998) have proposed that the nature of the HR flexibility—firm performance relationship is contingent upon (moderated by) the dynamicity of a firm’s industry, there are no empirical studies published to date which have investigated the proposed contingent nature of the HR flexibility—firm performance relationship. Hence in this study, using hierarchical linear modeling and data obtained from four distinct sources for 153 for-profit, U.S. firms with 100 or more employees nested in 25 NAICS industries we investigate the proposed cross-level moderating effect of industry dynamism on the HR flexibility—firm performance relationship. Results indicate that the contingent nature of the relationship between HR flexibility and firm performance was as we hypothesized, with the HR flexibility—firm performance relationship positive when industry dynamism was high and negative when industry dynamism was low. Implications and limitations of this current study as well as avenues for future research are discussed.

The geographic extent of global supply chains: evidence from Southeast Asia

We study the extent to which inter-firm relationships are locally concentrated and what determines firm differences in geographic proximity to domestic or foreign suppliers and customers. From micro-data on self-reported customer and supplier data of firms in Indonesia, the Philippines, Thailand, and Vietnam, we measure the distances between firm pairs, that is, the distance to the main supplier and the distance to the main customer for the surveyed firms. The distances to suppliers and customers are shorter for indigenous firms in these Southeast Asian countries; but the arm's length differs across countries. The distance between firm pairs differs widely across firms within narrowly defined industries and countries. We find that both firm-level transaction costs and capabilities affect the distances between customers and suppliers. The distance to suppliers is longer for firms that have accepted guest engineers from the main supplier to maintain production processes. Further, we find that the distances to suppliers and customers are longer for firms that have undertaken organisational change or improved marketing practices.

Jordan: Model Reformer Without Upgrading?

Jordan has been praised as one of the best reformers among middle-income countries. Renewed growth during recent years has raised expectations that the reforms are finally bearing fruit. This article argues that growth in Jordan is not based on structural transformation and is not sustainable in the absence of firm-level upgrading. Growth has been driven by the expansion of non-tradable activities, while the country has not been able to modify its production structure or achieve noticeable productivity improvements under neoliberal policies. Higher value added and technology-intensive production has not evolved concomitantly with the development of social capabilities, impeding the emergence of a virtuous cycle leading towards economy-wide upgrading. Uneven development of social capabilities has also constrained the upgrading potential. The macroeconomic context has not been conducive to generating incentives for investment aiming at enhancing firm-level capabilities and promoting economic diversification. Upgrading will not take place spontaneously by the free functioning of market forces alone, and in its absence Jordan will not be able to confront the middle-income trap. This requires a more active state intervention, beyond building a business friendly environment, which in turn demands the development of institutional capabilities The Jordanian experience offers important insights for other small countries that have embraced the neoliberal recipe for development.