Project Work Uncertainties and the Boundaries of the Firm

The effective use of resources in an economy requires both that they are available where and when most needed and that they are kept employed as fully and effectively as possible. A lack of certainty over future resource needs within firms brings these two requirements into conflict. It is argued that the firm and the market offer alternative means of handling this trade-off. The market switches resource services between customers to keep specialist resources employed. However, this does not guarantee the firm that a resource will always be available when needed. The firm may therefore internalise resources, switching them between different tasks to keep them employed and to make their specialist capabilities available where most needed. Idiosyncratic advantages form an important part of the theory, often severely exacerbating resource availability issues. A model of resource planning in a project with uncertain task durations is presented to illustrate the problem faced by the firm.Project, Organisation, Uncertainty, Resources, Scheduling, Internalisation

Profit maximising rigid prices and vertical integration

This article explores profit maximising rigid pricing for a price setting firm and relates the results to vertical integration, which is an important area of corporate strategy and antitrust policy. The setting of a profit maximising rigid price is investigated in the face of a known distribution of short-run demand levels as a compromise between the flexible prices that would be appropriate in the short run at different levels of demand. The price and level of capacity are therefore set to maximise expected profits across varying levels of demand. With the help of computer simulations, it is shown that price rigidity increases the incentives for vertical integration particularly where upstream production is capital intensive, due to the increased importance of rationing. The incentives will also be particularly strong for more efficient and more capital intensive downstream production with low short-run marginal costs

Internationalisation theory and born globals

Purpose It has been claimed that Born Globals are incompatible with the Uppsala model, which is based on the firm having a maximum tolerable risk level. This assumption was used to explain observed incremental commitments, with further commitments being made as experiential learning reduces the level of risk faced. This study aims to show that adding a consideration of the role of expected value, including the effects of resource constraints, can reconcile the Born Global and internationalisation process literatures. Design/methodology/approach The theoretical arguments are supported by mathematical modelling of a firm pursuing expected value based on subjective beliefs. Findings While the effects of risk and expected value coincide when firms limit their downside risks by taking an incremental approach to commitments, other factors impacting on expected value can shift the balance of incentives towards earlier and more rapid internationalisation. For instance, some firms are specialised and have high costs of R&D, and so need to achieve early and rapid growth but face small home markets. While resource constraints can lead a firm to expand for some time in its home market before internationalising, the effect can be reversed in the case of the finance constraint for some firms. Originality/value The study shows how Born Global and internationalisation process literatures can be reconciled through a consideration of the effects of expected value on internationalisation decisions. It also provides a novel theoretical analysis of Born Globals

Directed search with real options

While search is normally modelled by economists purely in terms of decisions over making observations, this paper models it as a process in which information is gained through feedback from innovatory product launches. The information gained can then be used to decide whether to exercise real options. In the model the initial decisions involve a product design and the scale of production capacity. There are then real options to change these factors based on what is learned. The case of launching product variants in parallel is also considered. Under ‘true’ uncertainty, the model can be seen in terms of heuristic decision-making based on subjective beliefs with limited foresight. Search costs, the values of the real options, beliefs, and the cost of capital are all shown to be significant in determining the search path

The division of labour under uncertainty

Reductions in the division of labour are a significant feature of modern developments in work organisation. It has been recognised that a reduced division of labour can have the advantages of job enrichment and lower coordination costs. In this paper it is shown how advantages from a lesser division of labour can stem from the flow of work between different sets of resources where the work rates of individual production stages are subject to uncertainties. Both process and project-based work are considered. Implications for the boundaries of the firm and for innovation processes are noted

The economic theory of international supply chains: a systems view

This paper offers an integrated analysis of out-sourcing, off-shoring and foreign direct investment within a systems view of international business. This view takes the supply chain rather than the firm as the basic unit of analysis. It argues that competition in the global economy selects supply chains that maximise the joint profit of all the firms in the chain. The systems view is compared with the firm-centred view commonly used in strategy literature. The paper shows that a firm’s strategy must be embedded within an efficient supply chain strategy, and that this strategy must be negotiated with, rather than imposed upon, other firms. The paper analyses the conditions under which various supply chain strategies - and by implication various firm-level strategies - are efficient. Only by adopting a systems view of supply chains is it possible to determine which firm-level strategies will succeed in a volatile global economy

Internalization theory: an unfinished agenda

Internalization theory is usually applied at the firm level to analyse FDI, licensing and subcontracting, but this paper extends it to the industry level. It synthesises internalisation theory and oligopoly theory. It analyses a global industry where firms innovate competitively, and freely enter and exit the industry. It presents a formal model which highlights the inter-dependencies between rival firms. Each firm responds to its rivals by jointly optimising production and innovation through inter-dependent ownership and location decisions. The competitive outcome determines which firms serve which markets, which firms enter or exit the industry, and the internalisation strategy of each firm

Emerging market multinationals and internalisation theory

There is ongoing debate about the applicability of internalisation theory to Emerging Market Multinationals (EMNEs). Internalisation theory normally describes multinationals exploiting superior knowledge directly abroad rather than licensing its use to foreign firms. We argue that EMNEs can be explained readily in terms of internalisation theory. This involves internalisation in the opposite direction: knowledge is internalised by EMNEs which then exploit it utilising home-country cost advantages. However, this is normally achieved by means that avoid the licensing of key technologies from leading firms. This clarifies the theoretical basis of EMNE strategic asset seeking investment. Market-seeking investments are also linked to technology-seeking investments through fixed costs. A model formalises the arguments, establishing conditions leading to different types of equilibria when an advanced-economy firm competes with an emerging-economy firm. The range of factors that it incorporates means that it is also compatible with other theories of the EMNE

The development of the hydraulic biotope concept within a catchment based hierarchical geomorphological model

This thesis develops a technique for the identification, classification and quantification of instream flow environments. These features have been traditionally referred to as 'habitats' by lotic ecologists, in this research they are termed 'hydraulic biotopes'. The hydraulic biotope is the lowest of six nested levels of a hierarchical geomorphological model. This model has been developed as a tool to assist river managers, researchers and conservationists to categorise or classify rivers with respect to their geomorphic characteristics. Each level of the model provides data at a different level of resolution. This ranges from the broad scale catchment data to the site specific 'habitat' or hydraulic biotope data. Although this thesis is primarily concerned with the development of the hydraulic biotope, the interaction of all catchment variables needs to be recognised. Detailed analysis of hydraulic biotope data in the Buffalo River are presented within the broader hierarchical model. Consultation with lotic ecologists, together with a review of ecological literature, emphasised the need for a standardised terminology for the classification of ecologically significant instream flow environments. At present a fairly haphazard 'habitat' classification tends to be carried out by most researchers, this often leads to confusion in the identification and naming of different hydraulic biotopes ('habitats'). This confusion is exaggerated by the sharing of terminology between lotic ecology and fluvial geomorphology, usually for the categorisation of different types of features. A review of the ecological literature emphasises the importance of flow hydraulics within a river to describe the distribution of biota. The hydraulic variables considered to be most significant include velocity and depth. As river morphology directly determines the prevailing distribution of depth, velocity and substratum, it is obvious that there are important links to be made between fluvial geomorphology and lotic ecology. This thesis explores the potential of the hydraulic biotope as a tool to help develop those links. This thesis presents a standardised classification matrix for the identification of hydraulic biotopes. The matrix is simply based on water surface characteristics together with channel bed substratum. The validity of this matrix is tested by statistical analysis of hydraulic variables quantifying flow conditions within the various hydraulic biotope classes. Data is presented from four different river systems, each representing a different sedimentological environment. Where possible the influence of discharge has been considered. Results from more than 3000 data points show that hydraulic biotopes have distinct hydraulic characteristics in terms of velocity-depth ratio, Froude number, Reynolds number, 'roughness' Reynolds number and shear velocity. These hydraulic indices represent flow conditions both as an average within the water column, and near the bed. Statistical analysis shows that the hydraulic characteristics of the various hydraulic biotope classes are relatively consistent both within different fluvial environments and at different stages of flow. Unlike the morphological unit in which the hydraulic biotope is nested, in stream flow environments are shown to be temporally dynamic. Using the classification matrix as a tool for identification, hydraulic biotopes identified at one discharge are shown to be transformed from one class to another as a response to change in stage. The pattern of transformation is shown to be consistent within different sedimentological environments. An examination of the associations between hydraulic biotopes and morphological units demonstrates that, although some hydraulic biotopes are common to all morphological units (backwater pools, pools and runs), some features have specific associations. In this study rapids were found to be prevalent in bedrock pavement, bedrock pool and plane bed morphology, while cascades, chutes and riffles were common to plane bed, step and riffle morphology. Results from this research indicate that the hydraulic biotope, within the hierarchical geomorphological model, has the potential to aid the prediction of channel adjustment and associated 'habitat' (hydraulic biotope) transformation in response to changes in flow and sediment yield. These are likely to become increasingly important issues as South Africa strives to maintain a balance between the development of water resources to meet the needs of the rapidly expanding population, whilst at the same time maintaining the fluvial environment for sustainable use