Configuration of value chain activities: The effect of pre-entry capabilities, transaction hazards, and industry evolution on decisions to internalize

Lihong Qian, Rajshree Agarwal, Glenn Hoetker

Research output: Contribution to journalArticle

37 Citations (Scopus)

Abstract

We integrate insights from organizational capabilities, organizational economics, and industry evolution to examine industry entrants' boundary choices about value chain activities and test hypotheses in 1978-2009 data from a sample of U.S. bioethanol producers. 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 experience in an activity increases the likelihood of its internalization and reduces the effect of enduring transaction hazards on the internalization choice. Importantly, we also distinguish between firm- and founderlevel pre-entry capabilities (that is, the capabilities of firms versus those of founders). Diversifying entrants with firm-level integrative capabilities are more likely to internalize value chain activities than start-ups, and this effect persists over the industry's life cycle. The relationship between pre-entry experience with an activity and the likelihood of internalizing it is also stronger for diversifying entrants. Findings improve understanding of the relationships among capability development, boundary choice, and industry evolution.

Original languageEnglish (US)
Pages (from-to)1330-1349
Number of pages20
JournalOrganization Science
Volume23
Issue number5
DOIs
StatePublished - 2012

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Hazards
Industry
Bioethanol
Life cycle
Industry evolution
Hazard
Value chain
Economics
Internalization

Keywords

  • Governance choice
  • Industry evolution
  • Pre-entry experience
  • Value chain activity

ASJC Scopus subject areas

  • Management of Technology and Innovation
  • Strategy and Management
  • Organizational Behavior and Human Resource Management

Cite this

Configuration of value chain activities : The effect of pre-entry capabilities, transaction hazards, and industry evolution on decisions to internalize. / Qian, Lihong; Agarwal, Rajshree; Hoetker, Glenn.

In: Organization Science, Vol. 23, No. 5, 2012, p. 1330-1349.

Research output: Contribution to journalArticle

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