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Advances in the analysis of the relationship between Interfirm Cooperation, Localization and Institutional Patterns

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Title: Advances in the analysis of the relationship between Interfirm Cooperation, Localization and Institutional Patterns


1
Advances in the analysis of the relationship
between Interfirm Cooperation, Localization and
Institutional Patterns
  • by
  • Peter Maskell
  • Professor, MSc, PhD, Dr.Merc
  • Director of DRUID
  • Maskell_at_CBS.dk
  • www.DRUID.dk
  • ESNIE, Institute d'Etudes Scientifiques de
    Cargèse, Corsica, Wednesday 20 May 2009

2
The basic mainstream distinction between firm
and market
  • " ...a firm is a production set summarizing the
    possibilities for transforming one bundle of
    time-, event- and location-differentiated
    commodities into another
  • a market is the coming together of economic
    agents (firms and consumers) to exchange
    ownership of such commodity bundles."
  • (Milgrom and Roberts 1988)

3
Hybrid organizational configurations by time
horizon and focus
4
Interfirm cooperation / networks
  • Vast and badly structured field
  • huge number of often unrelated contributions
  • array of theories and methods
  • modest degree of deductive theorizing where lower
    order propositions follow logically from more
    general propositions
  • Grabher Powell (eds) "Networks - Critical
    Studies in Economic Institutions" (Elgar 2004)
    contains 688 pages with 46 'classic' papers and
    thousand references

5
Basic assumptions
  • Economic system with intelligent, self-interested
    individuals

6
Self-interest
  • 'The beneficence of the play of self-interest
    only exists because that play is not free, but is
    confined to certain directions by our great
    social institutions...
  • What individual self-interest dictates as a
    course of action in any particular case thus
    depends on the total set or pattern of
    institutions' (Cannan 1896)

7
Basic assumptions
  • Economic system with intelligent, self-interested
    individuals
  • Property right allocation and enforcement

8
Basic assumptions
  • Economic system with intelligent, self-interested
    individuals
  • Markets with property right allocation and
    enforcement
  • Rent-seeking organizations with similar and
    complementary capabilities. Division of labor

9
Pope Innocent IV, 1243
  • first used the phrase persona ficta when
    assigning rights and obligations to a person by
    fiction and only by fiction, thereby including
    the idea into Roman law that property rights
    could be executed, assets assembled, capital
    accumulated and contracts made by purely legal
    entities of limited liability and infinitive
    lifetime.

10
Basic assumptions 4
  • Economic system with intelligent, self-interested
    individuals
  • Markets with proporty right allocation and
    enforcement
  • Rent-seeking organizations with similar and
    complementary capabilities. Division of labor
  • Possibilities of mutually beneficial
    interaction

11
  • In the lone houses and very small villages which
    are scattered about in so desert a country as the
    Highlands of Scotland, every farmer must be
    butcher, baker, and brewer for his own family.
    ...
  • (Smith 1776).

12
Assumptions
  • Economic system with intelligent, self-interested
    individuals and rent-seeking organizations
  • Institutions system, freedom, money,
    calculations
  • Markets with proporty right allocation and
    enforcement
  • Institutions, law, court, police Markets not
    sequences of events of exchange (Arrow-Debreu
    1954) but institutional settings where events of
    exchange take place.
  • Many firms. Division of labor
  • vision! similar,complementary, horizontal and
    vertical,
  • Possibilities of mutually beneficial interaction
  • transport, standards, Power, ikea
  • ON the shoulders

13
Forms of mutually beneficial interaction
  • Putting-out systems
  • Subcontracting arrangements
  • Strategic partnerships,
  • Franchising
  • Joint ventures
  • Decentralized profit centers
  • ... etc.
  • (Williamson 1991, Hennan 1993)

14
Governance
  • Oxley (1997) proposition
  • higher contractual hazards will lead to more
    hierarchical forms of governance

15
Foundations - Networks
  • Adam Smith, Alfred Marshall, George Richardson,
  • Ronald Coase, Oliver Williamson, Carl Dahlman
  • Oliver Hart
  • Mark Granovetter, Ronald Burt
  • William Baumol

16
Foundations
  • Adam Smith, Alfred Marshall, George Richardson,
    Brian Loasby
  • div of labor, capabilities,
  • Ronald Coase, Oliver Williamson, Dahlstrom,
  • make or buy. cost of using market
  • Baumol, Granovetter, Burt
  • relations, investments, trust and exit costs ,
    value chain,

17
Costs of cooperation
  • search and information costs,
  • bargaining and decision costs,
  • policing and enforcement costs
  • incentive alignment costs
  • (Dahlman 1979, Foss 1999) 

18
Recent additions...
  • Offshore outsourcing
  • Crowdsourcing (Lakhani and Jeppesen 2007)

19
Learning
  • ..salesmen "often knows purchasing agents well.
    The same two individuals may have dealt with each
    other from five to 25 years.
  • Each has something to give the other.
  • Salesmen have gossip about competitors,
    shortages and price increases to give purchasing
    agents who treat them well."
  • Stewart Macaulay(1963)Non-Contractual Relations
    in Business A preliminary Study, American
    Sociological Review 28(1)55-67

20
Repeated games Exit costs and higher order
institutions
  • Manufacturing
  • Construction/Creatives

21
Social Network Theories(Reactions to
Williamson's model of individual opportunism etc.)
  • Analyze how positions in networks provide
    leverage or access, shaping the accumulation of
    resources and knowledge.

22
Social Network Theories(Reactions to
Williamson's model of individual opportunism etc.)
  • Analyze how positions in networks provide
    leverage or access, shaping the accumulation of
    resources and knowledge.
  • Anticedents of networks traced to broad
    institutional environment (Sako and Helper 1998).
    NSI/RSI

23
Social Network Theories(Reactions to
Williamson's model of individual opportunism etc.)
  • Analyze how positions in networks provide
    leverage or access, shaping the accumulation of
    resources and knowledge.
  • Anticedents of networks traced to broad
    institutional environment (Sako and Helper 1998).
    NSI/RSI
  • Executive networks to gather information, deter
    competition and collude in setting prices or
    policies

24
Social Network Theories(Reactions to
Williamson's model of individual opportunism etc.)
  • Analyze how positions in networks provide
    leverage or access, shaping the accumulation of
    resources and knowledge.
  • Anticedents of networks traced to broad
    institutional environment (Sako and Helper 1998).
    NSI/RSI
  • Executive networks to gather information, deter
    competition and collude in setting prices or
    policies
  • Prescriptive on how to reduce uncertaincy

25
  • SPACE

26
Localization - Clusters
  • New institutional economics
  • New economic geography

27
Localization - Clusters
  • If there is such an entity as localization/spatia
    l clustering/agglomeration theory today, it
    consists of a mix of ideas originating more than
    a century ago (Marshall 1890, Weber 1909),
  • further developed in the post-war period within
    the regional science tradition (Alonso 1964) and
  • given new input since the early 1990s though the
    engagement by economists (notably Krugman 1991)
    business strategists (notably Porter 1990) and
    economic geographers (see Malmberg and Maskell
    2002 for overview).

28
Inter-firm Interaction
29
Geographical proximity effects?
  • there is no compelling reason to assume that
    ..local ties are stronger than ties at a
    distance.
  • Relational proximity can exist between actors
    located in different parts of the world. Modern
    technological and institutional developments
    facilitate both the transfer of information and
    the travelling of people across space. Amin and
    Cohendet (2004) .

30
Clusters definition and types
  • Real-life existing phenomenon
  • - across time and space
  • Non-random geographical agglomerations of firms
    with similar or closely complementary
    capabilities
  • (see Ellison and Glaeser 1994)

31
Cluster publications 1953-2004Number of
articles, published in scholarly journals within
the social sciences with the term 'cluster or
its synonyms in the title or in the abstract or
among the keywords.(Maskell Kebir 2006)
32
Cluster theory Three fundamental issues
  • 1) Existence the economic and social benefits
    that may accrue to firms when clustering or
    collocating
  • 2) Extension the diseconomies encountered when
    clustering exceeds certain geographical and
    sectoral thresholds. The solitary firm
  • 3) Exhaustion the possible erosion of economies
    and onset of diseconomies over the lifecycle of
    the cluster

33
Institutionalizing clusters
  • Decisions to invest in particular regions
    generated increasing returns as a wider number of
    participants followed them and developed local
    norms that guided interaction.
  • Identities are learned and interests forged
    through interaction, producing feedback dynamics
    that increased interdependence and consensus
    among the varied participants.

34
Lock-in The historically evolved institutional
repertoire
  • An interesting aspect of institutions in general
    is that they tend to work by limiting or even
    preventing the exploration of excluded
    possibilities
  • Excluding possibilities carries unknown
    opportunity costs.
  • The sophistication of institutions may prevent
    the performance of disparate activities deemed
    attractive at later stages.
  • (Arrow 1962, Loasby 2000).

35
Variety amongst similar firms
  • Best practices accumulate to isomorphic pressures
    that gradually reduce existing variety in
    routines.
  • Lack of variety combined with spatial myopia
    leads to an insular mind-set

36
Recent developments External Linkages - Local
interaction as an interpretive framework
37
Recent developments Myopic actors, cognitive
quirk
  • Clustering arguable represent a possibility to
    circumscribe some of the potential problems
    stemming from corporate myopia.
  • Actors lucky enough to find world-class solutions
    and global best practices in their backyard gain
    advantages over those who do not.

38
Recent developments 3Spillovers versus genealogy
and evolution
  • Entrepreneurship, first mover advantage, market
    selection
  •  

39
Recent developments 3Spillovers versus genealogy
and evolution
  • Entrepreneurship, first mover advantage, market
    selection
  • Steep learning curve, organizational superiority,
    institutions and infrastructure
  •  

40
Recent developments 3Spillovers versus genealogy
and evolution
  • Entrepreneurship, first mover advantage, market
    selection
  • Steep learning curve, organizational superiority,
    institutions and infrastructure
  • Attracting talented wannabes and related
    entrepreneurs

41
Recent developments 3Spillovers versus genealogy
and evolution
  • Entrepreneurship, first mover advantage, market
    selection
  • Steep learning curve, organizational superiority,
    institutions and infrastructure
  • Attracting talented wannabes and related
    entrepreneurs
  • Spin-offs from initial incumbents come endowed
    with inherited and previously tried-out superior
    routines.
  •  

42
Recent developments 3Spillovers versus genealogy
and evolution
  • Entrepreneurship, first mover advantage, market
    selection
  • Steep learning curve, organizational superiority,
    institutions and infrastructure
  • Attracting talented wannabes and related
    entrepreneurs
  • Spin-offs from initial incumbents come endowed
    with inherited and previously tried-out superior
    routines.
  • Intensified local rivalry among newcomers and
    spin-offs help create stable clusters with firms
    that dominate an industry for generations -
    sometimes globally
  • (Klepper 2002, Dahl et al. 2003, 2005, Thompson
    and Klepper 2005, Buenstorf and Klepper 2005),  

43

44
Institutional dynamics
  • Institutions are viewed as a solution to
    collective action problems, which enable
    participants to realize gains from coordination
    or collocation.

45
Implicit assumptions (and usually incorrect)
  • Functionalistic
  • Successful
  • Fair

46
Institutional dynamics 2
  • "How do linkages that become routine in a
    statistical sense cascade into normative
    understandings in the prescriptive sense, such
    that participants in a dense network recognize
    these categorical patterns and start to sustain
    and reinforce them?"
  •  (Powell et al. 2009)
  •  

47
Institutional dynamics
  • How does which elements combine to make
    distinctive repertoires possible only at
    particular points in time and space?
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