Configuration of Value Chain Activities: The Effect of Pre-Entry Capabilities, Transaction Hazard and Industry Evolution on the Decision to Internalize

37 Pages Posted: 30 Oct 2009 Last revised: 13 Jan 2015

See all articles by Lihong Qian

Lihong Qian

University of Illinois at Urbana-Champaign - Department of Business Administration

Rajshree Agarwal

University of Maryland - Robert H. Smith School of Business

Glenn P. Hoetker

University of Illinois at Urbana-Champaign - Department of Business Administration

Date Written: October 29, 2009

Abstract

We integrate insights from organizational capabilities, organizational economics, and industry evolution to examine the firm’s decisions regarding the organization of activities in a value chain, and test our hypotheses using a near census of US bio-ethanol producers during the 1978-2009 period. We find support for our predictions that transaction hazards, decomposed as either enduring or transient over the stages of industry evolution, are positively associated with the choice to internalize value chain activities. Pre-entry value chain related capabilities result in an increased likelihood of internalization of these activities in the focal industry context, and are additionally associated with a better management of transactions hazard, thus reducing the effect of enduring transaction hazard on the internalization choice. Importantly, we find support for the conjecture that diversifying entrants possess integrative capabilities, causing them to be more likely to internalize value chain activities relative to entrepreneurial startups, and this effect persists across the industry life cycle. Findings of this study contribute to a better understanding of the relationships between capability development, boundary choice and firm evolution.

Suggested Citation

Qian, Lihong and Agarwal, Rajshree and Hoetker, Glenn Patrick, Configuration of Value Chain Activities: The Effect of Pre-Entry Capabilities, Transaction Hazard and Industry Evolution on the Decision to Internalize (October 29, 2009). Atlanta Competitive Advantage Conference 2010 Paper. Available at SSRN: https://ssrn.com/abstract=1496382 or http://dx.doi.org/10.2139/ssrn.1496382

Lihong Qian

University of Illinois at Urbana-Champaign - Department of Business Administration ( email )

1206 South Sixth Street
Champaign, IL 61820
United States

Rajshree Agarwal (Contact Author)

University of Maryland - Robert H. Smith School of Business ( email )

College Park, MD 20742-1815
United States

Glenn Patrick Hoetker

University of Illinois at Urbana-Champaign - Department of Business Administration ( email )

1206 South Sixth Street
Champaign, IL 61820
United States
217-265-4081 (Phone)

HOME PAGE: http://www.business.uiuc.edu/ghoetker

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