EVIDENCE ON THE ROLE OF FIRM CAPABILITIES IN VERTICAL INTEGRATION DECISIONS

Nicholas Argyres

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Outsourcing and Supply Chain Management Merger and Competition Analysis Innovation and Knowledge Management

Abstract

The capabilities approach to the firm postulates that firms vertically integrate activities for which they possess capabilities that are superior to potential suppliers'. The comparative contracting approach, in contrast, emphasizes high asset specificity as leading to vertical integration. This paper compares the two sets of explanations on make-or-buy decisions made by a large firm. It finds that in some cases asset specificity alone is determinant, but in others capabilities and combinations of considerations are explanatory. Analysis of the data also provides insights about the mechanisms through which capabilities operate. In particular, the similarity of the knowledge bases associated with various activities, and the time required to acquire knowledge, appear as important indicators of the importance of capabilities to vertical integration decisions.

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References

2004Firm resources and sustained competitive advantage 1987The Economic Institutions of Capitalism 1992Knowledge of the Firm, Combinative Capabilities, and the Replication of Technology

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2011Dimensionalizing Cultures: The Hofstede Model in Context 1996A Resource-Based Theory of the Firm: Knowledge Versus Opportunism 1998INTERNATIONAL EXPANSION THROUGH START-UP OR ACQUISITION: A LEARNING PERSPECTIVE.2004A Knowledge-Based Theory of the Firm—The Problem-Solving Perspective 2009Constructing Markets and Shaping Boundaries: Entrepreneurial Power in Nascent Fields 2005Organizational Boundaries and Theories of Organization 2000Product sequencing: co-evolution of knowledge, capabilities and products 1999Technological Resources and the Direction of Corporate Diversification: Toward an Integration of the Resource-Based View and Transaction Cost Economics

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