Minimum Efficient Scale Research Articles

Market Structure, Conduct, and Performance of Star Hotels in North Sumatra, Indonesia

This study aims to analyse the market structure, conduct, and performance of the star hotel industry in North Sumatra. The study was conducted in 2019 with time series data for the period of 2013 to 2018. The market structure is measured using the methods of concentration ratio, Herfindahl-Hirschman index, and barriers to entry, while descriptive methods are used to analyse the conduct and performance of five-star hotels. The results of the study show that: (i) there is a concentration of three- and four-star hotels, and that the concentration of four- and five-star hotels have an oligopolistic structure; (ii) the market structure of star hotels tends to be monopolistic; (iii) the minimum efficient scale index of star hotels is relatively small, which means that new hotels have a good opportunity to get a larger market share; (iv) the level of service and the level of availability of star hotel facilities are classified as good; and (v) the star hotel market structure influences hotel business behaviour in North Sumatra, which in turn affects hotel business performance.

Minimum Efficient Scale, Competition on the Merits, and The Special Responsibility of a Dominant Undertaking

Abstract As a leading model of law on abuse of dominance, Article 102 TFEU hosts two notoriously vague concepts: competition on the merits and the special responsibility of a dominant undertaking. The former could mislead abuse assessments into an illusion of inherent impropriety, while the latter is susceptible to expansive interpretations that undermine the pivotal role of dominance. We propose a test centred on the concept of minimum efficient scale, which has been seriously overlooked or even mischaracterized under Article 102, to complement the as-efficient-competitor rationale. This test clarifies—with respect to exclusionary conduct—competition on the merits in a purely efficiency-based way and gives content to the special responsibility concept. It is compatible with the case law and can be operationalized vis-à-vis digital platform markets to tackle practices such as self-preferencing. It shows potential in enhancing the robustness of ex post antitrust when ex ante regulation has become the more popular recourse.

A Techno-Economic Model for Benchmarking the Production Cost of Lithium-Ion Battery Cells

In response to the increasing expansion of the electric vehicles (EVs) market and demand, billions of dollars are invested into the battery industry to increase the number and production volume of battery cell manufacturing plants across the world, evident in Giga-battery factories. On the other side, despite the increase in the battery cell raw material prices, the total production cost of battery cells requires reaching a specific value to grow cost-competitive with internal combustion vehicles. Further, obtaining a high-quality battery at the end of the production line requires integrating numerous complex processes. Thus, developing a cost model that simultaneously includes the physical and chemical characteristics of battery cells, commodities prices, process parameters, and economic aspects of a battery production plant is essential in identifying the cost-intensive areas of battery production. Moreover, such a model is helpful in finding the minimum efficient scale for the battery production plant which complies with the emergence of Giga-battery plants. In this regard, a process-based cost model (PBCM) is developed to investigate the final cost for producing ten state-of-the-art battery cell chemistries on large scales in nine locations. For a case study plant of 5.3 GWh.year−1 that produces prismatic NMC111-G battery cells, location can alter the total cost of battery cell production by approximately 47 US$/kWh, which is dominated by the labor cost. This difference could decrease by approximately 31% at the minimum efficient scale of the battery production plant, which is 7.8 GWh.year−1 for the case study in this work. Finally, a comprehensive sensitivity analysis is conducted to investigate the final prices of battery cell chemistries due to the changes in commodities prices, economic factors of the plant, battery cell production parameters, and production volume. The outcomes of this work can support policy designers and battery industry leaders in managing production technology and location.

Economies of Scale in City Gas Sector in Seoul, South Korea: Evidence from an Empirical Investigation

The city gas sector in Seoul, the capital of South Korea, consists of five locally monopolized companies. As the city gas penetration reaches 98% and city gas as cooking fuel and heating fuel is being converted to electricity and district heating system, respectively, the need to redefine the role of the city gas sector is being raised. In this respect, this study aims to analyze the economies of scale in the city gas sector using the translog variable cost function model over the period 2008–2020 and to compute the minimum efficient scale. The scale economy index ranged from 0.1 to 0.2, which was larger than 1.0. The results show that the city gas sector still enjoys economies of scale, although the economies of scale are gradually disappearing. The minimum efficiency scale was estimated to be 1.06 times the size of the total market, which is the total output of the five companies. This finding vividly suggests that reducing the number of city gas companies through mergers and acquisitions among five city gas companies is more desirable in terms of cost reduction. This study suggests that the business structure favorable to the city gas business, such as high population density and urbanization, can rapidly lose economies of scale under rapid electrification and a rigid wholesale market. The central and local governments, which have the authority to regulate the city gas business, need to promote mergers and acquisitions between city gas operators, and to normalize distorted energy rates in order to prevent excessive electrification.

Economies of scale and optimal size of maternity services in Belgium: A Data Envelopment Analysis

This article uses a Data Envelopment Analysis to measure scale efficiency of maternity services in Belgium and estimate the minimum efficient scale in this context. Using administrative data for all maternity services in Belgium in 2016, the minimum efficient scale is estimated at 557 deliveries per year, which is above the currently prevailing norm of 400 deliveries per year. In particular, the closure of 17 small maternity services could improve efficiency without reducing accessibility. In addition to that, further efficiency gains could be attained by increasing the scale of maternity services up to at least 900 deliveries per year. Although most services are close to scale efficiency, the mean scale inefficiency level is 13% and low scores are mainly concentrated among the smallest services. These results are robust to changes in model specifications, bootstrapping and removal of outliers. In the current context of reform of the hospital and maternity landscape in Belgium, this study shows room for improvement and the possibility to generate substantial efficiency gains that could be reinvested in the healthcare system.

Analisis Structure-Conduct-Performance Pasar Ternak Sapi Dan Kerbau untuk Meningkatkan Efisiensi Pemasaran

This study aims to analyze the market structure of cattle and buffalo in the livestock market based on the concentration of traders and buyers, barriers to market entry, market behavior and market performance of livestock, and their relationship to marketing efficiency. The sampling technique used is Stratified Random Sampling. Data analysis used Market Share analysis, Hirschman Herfindahl Index (IHH), CR4 (Concentration ratio for the biggest four), concentration ratio (Kr), market entry barriers with Minimum Efficient Scale (MES) analysis, and Price – Cost – Margin (PCM). The market structure of cattle and buffalo in the livestock market based on the concentration of traders is oligopsony with low concentration, based on the concentration of buyers it is an oligopsonistic market, and based on barriers to market entry it is categorized as high barriers to market entry. There is a relationship between market structure, market behavior and market performance on marketing efficiency in the livestock market.

Rigid form of cooperation between industrial enterprises in the natural resources sector: Institutional trap or survival strategy

Environmental changes caused by digitalization and an increase in technological innovations have led to the formation of business models based on soft forms of cooperation. Nevertheless, when it comes to industrial enterprises engaged in the natural resources sector, avoiding rigid forms of cooperation, primarily holding structures, seems unreasonable. The present study is a scientific review focused on specifying the theoretical and object-oriented basis for the formation of rigid forms of collaboration. Neoclassical economics, new institutional economics and strategic management theory constitute the methodological basis of the research. To justify the choice of the forms of cooperation by industrial enterprises operating in the natural resources sector, the author uses the theory of industrial organization, as well as property rights theory and contract theory. In the paper, general scientific methods are applied, such as content analysis, systematization and object-oriented approach. We find that the adherence to the rigid cooperation strategy is due to the special features of industrial enterprises in the natural resources sector, such as a tendency towards structural monopoly, a high threshold of minimum efficient scale, considerable manufacturing cycle time, production cyclicality, interspecific investment, etc. The results indicate that rigid forms of cooperation are evolving from vertically integrated companies to conglomerates with a network-based institutionalized nature of the participants’ interaction.

A vision of the farming sector’s future: What is in there for farmers in the time of the Second Machine Age?

Recent technological advances both on the farm and in the lab are boosting not only the efficiency of modern farming but have made it also more independent from nature than ever before. Increasingly affordable and accessible new technologies are helping us to better understand and ‘manage’ nature and thus, for first time in history farming is becoming as any other industry – susceptible to specialisation and economies of scale. This in turn, besides increases in productivity and the minimum efficient scale, leads to fundamental organisational change, away from traditional family farms and towards corporate forms with the associated implications for employment and rural livelihoods. Recent evidence from the digitalisation in agriculture suggests that new technologies require developing capabilities in abstract and analytical skills substituting skills in routine tasks. However, this is not the end game for farmers; new partnerships between technology providers and agribusiness players emerge as digitalisation and connectivity become a strategic issue. Thus, while the first Industrial Revolution led to machines replacing ‘muscles’ the new Digital Revolution is leading to machines replacing ‘brains and souls’, and it may eventually end family farming as we know it.

The 'polluter Pays' Principle as a Basis for Sustainable Competition Policy

The climate crisis has become an emergency. To have a chance of keeping global warming to 1.5 degrees, carbon neutrality by 2050 is not enough. We need negative greenhouse gas (“GHG”) emissions to compensate for ongoing emissions from human activities, as well as for methane from melting arctic tundras, and carbon emissions from wildfires and drying and dying forests. Market forces, regulation and innovation may not save us, in view of market failures, Government failures, and the uncertainty that we will timely develop adequate carbon capture and sequestration technology. We need a coherent and consistent program of regulation, innovation, taxation, education, reforestation, and private cooperation. In markets where consumers’ willingness to pay for sustainability is enough to cover at least the “true price” of goods, we may not need special rules to enable private cooperation beyond environmental standards and labeling, and arrangement to create a minimum efficient scale. Where willingness to pay is inadequate, cooperation may be needed to counter market failures, create economies of scale and scope, and to implement the polluter pays principle. The article describes a model for a “polluter pays” agreement between suppliers, that could be a template. It analyses this model under the “ancillary restraints” principles underpinning EU case law in Wouters and Albany, and under Article 101(3) TFEU. Consumers need not be fully compensated by in-market countervailing benefits – they profit even if they benefit from better access to non-market goods or out-of-market goods, and enjoy “a fair share” even if they are not fully compensated with in-market countervailing benefits, so long as the arrangements eliminate costs imposed on others (negative externalities) in accordance with the “polluter pays” principle, or otherwise reduce environmental or climate change harm to all consumers. The current EU Guidelines are too restrictive taking into account the wording of the Treaties and the case law of the CJEU.

NEAR-MARKETS AND MARKET GAMES

Abstract : The market game, both in its side payment and no side payment versions, has provided a valuable tool for the utilization of game theoretic analysis for the study of exchange economies. It is known that exchange economies map into totally balanced games for both side payments and no side payments. It is known that totally balanced side payment games map into exchange economies and it is conjectured, but not yet proved or counter-exampled, that every totally balanced no side payment game is representable by an exchange economy. In this paper the author consider the relationship of market games and near-market games to economies with complexities beyond that of the exchange economy. They argue that a broad class of economies generate near-market games, including private goods economies with non-convexities, coalition production economies, and economies with local public goods. It is also suggested that economies with pure public goods do not, without special restrictions, give rise to near-market games. More specifically, they say that a sequence of replica games is a sequence of near-market games if the games are superadditive and the sequence satisfies a near - minimum efficient scale for coalitions property -- all increasing returns to coalition size are eventually exhausted.

Minimum Efficient Scale: Towards a More Coherent Understanding of Special Responsibility and Competition on the Merits under Article 102 TFEU

As two key concepts in the Article 102 framework, competition on the merits and special responsibility suffer from a lack of concretization. As a result, the competition on the merits concept may lead the abuse assessment into an illusion of inherent impropriety, whereas the special responsibility concept is susceptible to expansive interpretations that undermine the pivotal role of dominance in the Article 102 paradigm. These issues are shown in cases concerning exclusive dealing and exclusivity rebates. This article suggests using the as efficient competitor rationale — complemented by the no economic sense rationale — to distinguish competition on the merits and abuse with respect to exclusionary conduct. The distinction can be expressed as “efficiency-based versus non-efficiency-based exclusions”. Nonetheless, the limitations of the as efficient competitor test necessitate some calibrations. To that end and to give content to the special responsibility concept, this article spotlights the notion of minimum efficient scale, which has been somewhat overlooked and mis-characterized in the law enforcement. This concept deserves more appreciation in producing more coherent theories of harm under Article 102.

Shrinking Market Doctrine for Aging Stagnant Economies?: The JFTC 2019 Revision of Merger Guidelines

While Japan is aging rapidly and the local communities in rural areas are struggling to maintain their essential societal function, the Japan Fair Trade Commission (JFTC) has revised the merger guidelines to allow for mergers that create a monopoly. Under the new approach, which the author calls the shrinking market doctrine, such a merger is deemed to lack an anti-competitive effect if the market is no longer large enough to hold multiple companies. The article examines the precedent of the doctrine (a regional bank merger case), the logic behind it (counterfactual analysis and minimum efficient scale argument) and the way the JFTC is likely to apply the doctrine. The author then concludes that the careless application of the doctrine would lead to harm on the local community and that the doctrine should not add much to the already existent efficiency defence and failing company doctrine.

Innovating Down the Cost Curve by Trial and Adoption of Successive Innovations on a Large Scale, Specialist Grain Enterprise in Western Australia

A study by Kingwell et al (2014) identified that while scale economies underpin Total Factor Productivity (TFP) growth, farm performance was also critically important. Farm performance was driven only by ‘the farm manager’s preparedness and ability to use cropping innovations and their skill in organisation and time management’. This paper uses the Jones’ property in Tammin to provide a case study of how a farm can achieve improved TFP through adoption of cropping innovations, organisation and time management. The Jones’ dominant business philosophy for their 10,000 ha grain enterprise is to achieve target returns with secure cashflow. To secure cashflow, they seek to avoid negative event outcomes that have unknown probabilities. Secure cashflow implies that they can use comparatively small amounts of that cashflow to de-risk innovations designed to lift returns by lowering costs and securing market opportunities. The outcomes from selected innovations are trialed, measured and assessed and are subsequently adopted across the farm if target returns are met. Their approach is the detailed subject of this paper, with specific exploration of the efficiencies they plan through logistical efficiencies via the adoption of WiMesh intra farm connectivity coupled with sensors across the farm (trial, 20% of farm: 2018/full adoption: 2019) in boom operation. Similarly, their connectivity is also employed to deliver a range of other benefits, particularly related to weather event decision making. Cumulatively, these changes are designed to drive all in per hectare costs to comparatively low levels and increased TFP across the farm. The Jones’ report that IT integration has resulted in a definite improvement to the farm’s modus operandi, as it compliments other means to reduce management complexity. The Jones’ won the ‘2016 Cropper of the Year award maximising technology and science, (that works) on an impressive 15 per cent return on investment – more than three times that achieved by the average WA grain farm’ (Wagstaff, 2017). Importantly, the Jones’ have sufficient management depth and financial resources to devote to the adoption of on-farm AgTech; indeed, it is integral to their business success. However, ongoing competitive pressure from emerging competitors imply that further efficiency gains at farm level and along supply chains, in addition to innovations to deliver a greater array of value to customers (i.e. value chain formation), will be needed for the industry to remain competitive. From a public policy perspective, at issue is the best means to affect the greatest industry wide gains through adoption of an objective of TFP growth. Opportunities to create and encourage the adoption of low cost options for smaller, more capital constrained farms to access the benefits of digital agriculture, defined as ‘having the right farm data at the right time to make a better decision’ will be essential to reduce costs. To this may be added securing the human capacity to use this data on farm, and in keeping with Kingwell et al (2014) above, the role of targeted public extension to drive adoption and TPP growth by skills that lessen management complexity. On farm trialing to establish the validity of claims made about new technologies may also play an important role in accelerating the adoption of these technologies (Jackson and Malcolm, 2018). This is the first of a six paper series on farmer AgTech adoption in the WA grains industry that use open source information technology devices to solve for production problems that increase productivity. The first five papers are case studies outlining the business drivers of the adoption of differing types of AgTech adoption. A key proposition under investigation is that the particular circumstances of a farm implies that each farm will have a different path of open source information technology adoption that will give it the best risk adjusted rate of return. They consider the variables of farm scale (three are at or above minimum efficient scale – MES – for cropping), enterprise mix (three are mixed farm operations), rainfall zone and management structure/depth and group vs. single farmer adoption. The sixth paper is a summary document of key themes, – including the interaction of adoption with on and off farm connectivity and data integration – and public policy implications. It will discuss private and public structural and strategic options to deal with connectivity and complexity issues that are necessary for WA agriculture to access the productivity gains possible from adopting the full suite of available technologies. Interested readers are directed to a video link of a ‘farm table discussion’ on Bungulla’s system between Mr. Jones and the author.

Choosing Fit for Purpose Open Source AgTech Innovations on a Large Broadacre Mixed Farming Enterprise in Western Australia

This is the second of a six paper series on farmer AgTech adoption in the WA grains industry that use open source information technology devices to solve for production problems that increase productivity. The first five papers are case studies outlining the business drivers of the adoption of differing types of AgTech adoption. A key proposition under investigation is that the particular circumstances of a farm implies that each farm will have a different path of open source information technology adoption that will give it the best risk adjusted rate of return. They consider the variables of farm scale (three are at or above minimum efficient scale – MES – for cropping), enterprise mix (three are mixed farm operations), rainfall zone and management structure/depth and group vs. single farmer adoption. The sixth paper is a summary document of key themes, – including the interaction of adoption with on and off farm connectivity and data integration – and public policy implications. It will discuss private and public structural and strategic options to deal with connectivity and complexity issues that are necessary for WA agriculture to access the productivity gains possible from adopting the full suite of available technologies. This case is similar to the first case in that: both are of a similar size (~10,000 ha); both farm on the edge of the low and medium rainfall zones; both are at least minimum efficient scale in grain production (or ‘one tractor size’ or ‘unitisation scale’; that is a minimum of 4,000 ha); both have sufficient financial resources to deal with the cost of initial investment; and both have management structures to permit the business development needed to deal with the inherent complexity associated with adopting a new technology. However, the Newmans’ farm is a discontinuous mixed operation of grains and sheep spread over several properties. The farm places its premium on monitoring data largely pertinent to livestock production because this generates the best rate of (risk adjusted) return for it. Typical of most WA broadacre farms, connectivity to the Newman’s farm is poor. Much of the farm does not have mobile coverage or frequently drops out and the NBN satellite service is slow, intermittent and expensive. Consequently, the Newmans have invested to create an internal farm connectivity backbone onto which open source technology devices are attached to solve production problems. They have also invested in farm to mobile tower connectivity; further investment to automatically connect to the existing satellite NBN connection in case of mobile tower failure is in progress. The rate of return from these investments is high, reflecting significant productivity gains. Modelling by Perret et al (2017) for the Cotton CRC indicates that very large productivity and Gross Value of Production gains can be made by the full adoption of decision/precision agriculture. A key issue running through these papers is how are farms able to begin the journey of adopting such technologies? CSRIO’s ADOPT framework is used to outline the observed patterns of farmer adoption of new technologies. The Newmans’ adopted AgTech technologies are easily trialed, easily reversed, comparatively low cost, and because of the farm’s management structures and financial resources, they are able to be absorbed into existing production without greatly increasing complexity. The pertinent question is whether the expense and complexity of establishing this type of system implies a significant barrier to entry for farmers without the required financial resources and management structures. This theme will be further explored in subsequent case studies.

An Analysis of the Efficiency of Local Government Expenditure and the Minimum Efficient Scale in Vietnam

The purposes of this study were to; (i) estimate the efficiency of local government expenditure by province and city in Vietnam, (ii) test if there was a change in the efficiency of local government expenditure with the rapid development of Vietnam, and (iii) estimate the size of the population that is improving local government expenditures. By using the stochastic frontier cost function method to estimate the cost inefficiency, we found that Vietnam has been improving the efficiency of local government expenditure while achieving rapid economic growth from FY2005 to FY2009. In addition, we simulated a minimum efficient scale (MES) to determine the size of the province population that is improving local government expenditures. We found that the MES in Vietnam is 1,394,859.

Economies of Scale in the South Korean Natural Gas Industry

The South Korean natural gas (NG) import volume in 2017 was 33.7 million tonnes per annum (13.1%), making it the second-largest NG-importing country in the world after Japan. Nevertheless, the NG wholesale market in South Korea has remained monopolistic since the Korea Gas Corporation (KOGAS) was established in 1983. Thus, the purpose of this study is to determine whether the NG wholesale market in South Korea has economies of scale by estimating the translog cost function and estimating the minimum efficient scale (MES) using robust linear regression. We used quarterly business reports of KOGAS from the first quarter of 2000 to the second quarter of 2018 to construct the data. The results showed that diseconomies of scale existed in all the years in the first and fourth quarters, and the second quarter showed the same result during 2010–2014. From 2011, the production quantity of all the quarters has exceeded the MES (5.81 million tons). The reason for these results is that the demand for NG power generation and city gas has surged since 2000, while the monopolistic structure of the past has been maintained. This study implies that it would be more efficient to allocate some of KOGAS’s additional import volume to the existing private NG companies and mitigate the regulation on resale.

Exploring a Moderate Operation Scale in China’s Grain Production: A Perspective on the Costs of Machinery Services

Due to the indivisibility of agricultural machinery in production, limited farm sizes have reduced mechanization efficiency and increased the cost of grain production in China. As a result, the development of a moderate-scale farming system has been proposed by academic communities and policy makers. However, it is still hotly debated how to determine a moderate farm scale. We offer a new perspective on the costs of machinery services. This manuscript employs the threshold model and uses the nationally representative data from the 2015 China Rural Household Panel Survey (CRHPS) to investigate the role of farm size expansion relative to per area machinery services expenditures (PAMSE). The empirical results reveal that there is a nonlinear relation between the farm size and PAMSE. Specifically, farm size expansion can reduce the PAMSE by improving mechanization efficiency in all cases, while the magnitude of cost-saving is progressively reduced in the process of farm scale expansion. In particular, a 1 mu (1 mu = 1/15 ha) increase in the farm scale could only lead to a 0.3% decrease in the PAMSE when the farm size exceeded 50 mu, which indicates that 50 mu is a minimum efficient farm scale to achieve most economies of scale. Therefore, we suggest that persistent efforts should be devoted to improving farmland circulation efficiency and developing scale farms. More importantly, governmental supporting policies, such as agricultural subsidies, need to attach more importance to these large farms.

Is Gibrat’s law valid for travel agencies and tour operators? Evidence from the Visegrad group countries

The purpose of this paper is to investigate the validity of Gibrat’s law for a sample of travel agents from the Visegrad group (V4) countries and to identify the size-growth relationship. Using a linear auto-regressive model and ordinary least squares estimator, we rejected the validity of Gibrat’s law in the V4 countries (except Poland, where the results were mixed). The smallest firms tend to grow faster than their larger counterparts. Using quantile regression models, we concluded that the size-growth link differed depending on actual firm size. Before reaching minimum efficient scale (MES), there is a positive relationship between firm growth and firm size. This relationship is negative after reaching MES: the smaller firms grow faster than bigger ones. Gibrat’s law tends to be valid in the population of firms that have reached MES. This shows that economies and diseconomies of scale could play a significant role in explaining the size-growth relationship of travel agents.

“After End-2008 Structural Changes in Containership Market” and Their Impact on Industry’s Policy

The inability of carriers to forecast “demand for containerships” led them to order larger ships. Maritime economists were also unable to forecast it. The new-buildings cut cost per TEU, but “estimated economies of scale” are exhausted with ships beyond 21,000 TEUs, higher than the present. As average cost-AC was not at minimum, carriers did not produce at minimum efficient scale (MES). As larger ships are more competitive, smaller ships led to laid-up, and eventually scrapped. This strategy, however, did not bring the desirable balance between demand and supply. Due to falling demand, following the meltdown at the end of 2008, carriers priced their services at marginal cost-MC, and thus they accumulated losses. As a result, carriers resorted to frequent GRIs (freight rate increases). Supply exceeded demand and average distances fell after 2008. Containership market will remain depressed if economies of scale lead carriers to shipyards. Scrapping—the last hope—removed only 1/7 of the oversupply. Revenue, operating profits, and net profits, due to increased financial expenses, were lower than in the past. Aggressive ship-building programs could not be carried-out, because the depression meant that there are available only limited funds. The estimated funds required for new buildings were as high as $4 billion per carrier. So, the sector is in a vicious circle. The only helpful sign was the reduction in fuel prices after 2011 from $800/ton to $278 (2015). We also showed that ports and canals, through their traditional charging policy on size, penalized containerships for their efficiency—if volume discounts are not provided. Port dues and container handling and canal dues account for as much as 40% of the annualized containership cost. Finally, to study the relationship between concentration (market share) and revenue, operating profit and net profit, we ran three regressions; but only one gave a high correlation coefficient (0.97). This suggests that the containership market is purely competitive. We also showed that the Herfindahl index was 683 units (i.e., <1000) and Lerner’s index was 0.55—both indicating oligopolistic trends. Our model shows that containership market is either oligopolistic or purely competitive. This finding shows the double face of containership markets, which so much confused maritime economists.

A combined focused industry and company size investigation of the internationalization-performance relationship: The case of small and medium-sized enterprises (SMEs) within the Swedish wood manufacturing industry

The current literature has failed to deliver a coherent explanation of the internationalization-performance (I–P) relationship. The empirical findings are quite confusing and even contradictory. Researchers have found positive, negative, U-shaped, inverted U-shaped, S-shaped, and inverted S-shaped relationships between degree of internationalization and performance. Based on plausible theoretical explanations such as networking effects, cost and benefit mechanisms and minimum efficient scale (MES), the recommendation for further research is to change focus – from an overall level to a more detailed country-industry and company size contextual level. The underlying assumption is that more specific contextual aspects are paramount to the existence and shape of the I–P relationship. Building on the resource-based view and the S-shape theory of internationalization, this paper aims at such an empirically focused investigation of SMEs within the Swedish wood manufacturing industry. A repeated cross-sectional survey study using hierarchical regression analysis has revealed a linear negative relationship between internationalization and performance. Given that wood manufacturing is a low-tech industry, not highly automated and with a low level of MES, the results are expected. The size of the Swedish market is big enough to amortize the initial investments of establishing a small wood manufacturing business, and the costs associated with internationalization diminish overall performance. In addition, the follow-up tests of ANCOVA (analysis of covariance) and piecewise regression revealed a non-linear relationship between (1) internationalization and performance for highly internationalized firms in 2001, (2) internationalization and growth for low internationalized companies in 2001, and (3) internationalization and performance for highly internationalized groups in the pooled dataset. Considering the costs and benefits associated with international activities, the non-linear effects of internationalization on performance or growth is plausible.