Abstract: We study the alliance activity of diversified firms to uncover the interaction between their internal resource markets and their external search for resources. We argue that as a governance form diversification mitigates search for resources through market mechanisms and the attendant transaction costs by conferring scope economies. However, diversified firms are also prone to distortions in internal markets due to dominant coalitions and bargaining over shared resources, which may enhance external search for resources. We test these arguments by empirically examining the ‘excess’ alliancing activity of a sample of diversified firms compared to single business firms. We find that diversified firms form fewer alliances, and there is a U shaped relationship between relatedness and alliancing activity indicating internal resources markets influence external search for resources.

Abstract: We study the impact of vertical integration on firms that pursue variety as their main product strategy. Product variety magnifies coordination challenges between upstream product development, midstream production, and downstream distribution. We empirically test our conjectures using operational data across about 300 distribution centers (DCs) within a major soft drink bottling company from 2008 to 2011, during which period the DCs and the bottling plants were vertically integrated into the upstream concentrate manufacturer. We find that both the stockout rate and inventory level dropped and sales forecasts improved significantly after integration, suggesting efficiency gain in the system. In addition, these improvements were greater for non-carbonated soft drinks (NonCSDs), for which the coordination challenges were greater than for CSDs. Overall, these results suggest that vertical integration across multiple stages of the value chain plays a positive role in coordinating product variety expansion by aligning incentives and facilitating information flow.

Abstract: We develop a structural theory of organization power to explain uncertainty absorption strategies and firm performance. We explain why the structural position of a firm in the resource exchange network can grant it structural power (dis)advantages over exchange partners, influencing the firm’s uncertainty absorption decisions. Moreover, we propose that structural power advantage is a fundamental source of a firm’s superior performance. In addition, we explain why power-enhancing acquisitions can positively influence firms’ future performance. We test our theoretical predictions based on a longitudinal analysis of American firms and find strong support for our theory of structural power. This research advances a structural perspective of power and has implications for research on a wide range of major organization decisions and firm performance.

Abstract: While offshore outsourcing has become an important strategy to lower production costs among western firms, it gives rise to a phenomenon of value chain climbing – suppliers in emerging markets can develop capabilities by supplying, with aspirations to compete with the buyers in the product market. We build an analytical model to study the impact of value chain climbing on value distribution in vertical relationships. The analysis identifies a set of dominant relationships, and shows how the buyer’s choice among these relationships is determined. We further extend the model to a dynamic setting, showing how vertical relationships evolve over time. By endogenizing the supplier’s entry into the product market, our study enriches the literatures on vertical relationships, market entry, and the management of global value chains.