The Market Value of Modularity and Supply Chain Integration: Theory and Evidence from the Solar Photovoltaic Industry

Abstract

The practice of product development and delivery has shifted increasingly from an individual firm to collaborative efforts along its supply chain and as such, effective supply chain management is seen as a way of obtaining competitive advantage for all firms within the supply chain. If firms are indeed competing in the product markets based on their supply chains, then one would expect to see superior supply chain performance reflected in the capital valuation of these firms. In this proof of concept research, we explore how decisions regarding usage of standards, customization, product and production modularity relate to the stock market valuation of all the firms within the supply chain and then develop a procedure to disentangle the supply chain integration effect on the value of the firm. We construct measures to assess relevant decisions and test hypotheses around the synergy between these constructs in the context of 42 supply chains drawn from the solar photovoltaic energy sector. The results indicate the varying role of modularity, customization and standards in the value of the firm and the supply chain, and quantify the significance of integration and fixed assets in the supply chain valuation.

Keywords: modularity, integration, supply chain, market valuation