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Many roads lead to Rome: Implications of geographic scope as a source of isolating mechanisms

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Abstract

Studies examining the competitive implications of geographic scope have largely focused on creating competitive advantage. In an attempt to investigate a less-illuminated role of geographic scope – that of sustaining competitive advantage – this paper investigates the sources of and relationships among the causal factors leading to creation of isolating mechanisms or barriers to imitation. This paper first distinguishes two sources of causal factors linked to the creation of isolating mechanisms, intrinsic characteristics of knowledge, and geographic scope of knowledge acquisition, and then investigates the relationships among the causal factors from the two sources. Employing the fuzzy-set qualitative comparative analysis method, this paper examines equifinality and functional equivalence of causal factors from the two sources. Empirical analyses with United States Patent and Trademark Office patent data of the semiconductor industry corroborate the main thesis of the paper that multiple paths can lead to the creation of isolating mechanisms and, in these paths, causal factors from the two sources of isolating mechanisms can be functionally equivalent. The results also provide managerial implications that firms with different sets of resources and capabilities can implement different types of isolating strategies to sustain their competitive advantage.

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Notes

  1. The team searches for solutions via external networks linked in six main hubs (China, EMEA (Europe/Middle East and Africa), India, Japan, Latin America and North America) and also operates a portal site for submissions of innovative ideas (pgconnectdevelop.com) in five languages (English, Japanese, Chinese, Spanish, Portuguese) (http://www.pg.com/en_US/downloads/innovation/C_D_factsheet.pdf).

  2. For instance, in 2009, Connect+Develop enabled projects achieved 70% higher than average NPV (http://www.pg.com/en_US/downloads/innovation/C_D_factsheet.pdf).

  3. This paper adopts Barney’s (1991) definition that “following Lippman and Rumelt (1982) and Rumelt (1984), competitive advantage is sustained only if it continues to exist after efforts to duplicate that advantage have ceased” (Barney, 1991: 102, italics added).

  4. Caves and Porter (1977) introduce the concept of mobility barriers between strategic groups. Rumelt maintains that “the group concept is frequently all that is needed, but there is no theoretical reason to limit mobility barriers to groups of firms. I shall therefore use the term isolating mechanism to refer to phenomena that limit the ex post equilibration of rents among individual firms” (Rumelt, 1984: 567).

  5. Among a variety of the sources for the creation of isolating mechanisms (Mahoney & Pandian, 1992), this study focuses on the impediments to knowledge flow, especially the role that causal ambiguity and uniqueness play in creation of isolating mechanisms by impeding flow of knowledge. Therefore, discussion in this study does not include isolating mechanisms by government intervention (e.g., patents and trademarks, legal restrictions on entry; Rumelt, 1984; Somaya, 2003, 2012) or other causal factors than the impediments to knowledge flow.

  6. The current study adopts Inkpen and Tsang’s (2005) definition of social capital: “… the aggregate of resources embedded within, available through, and derived from the network of relationships possessed by an individual or organization – a definition that accommodates both the private and public good perspectives of social capital” (151).

  7. Causal ambiguity can be classified into two forms: strong and weak. The strong form of causal ambiguity refers to the intrinsic characteristics of knowledge (e.g., tacitness or complexity; Simon, 1962; Polanyi, 1966; Reed & Defillippi, 1990; Rivkin, 2000) that makes it difficult to understand “what factors are responsible for superior (or inferior) performance” (Lippman & Rumelt, 1982: 420). This form of causal ambiguity would make it difficult for both insiders and outsiders to discover the source of superior performance. As articulated in Reed and Defillippi (1990), however, this type of extreme causal ambiguity would make it impossible to utilize (a firm’s) competences for advantage because managers (or insiders) themselves do not understand intra-firm causal relationship. The weak form of causal ambiguity, on the other hand, concerns the differential extent of causal ambiguity between insiders and outsiders (Reed & Defillippi, 1990; Chi, 1994; Levitas & Chi, 2002; Cantwell & Mudambi, 2011). More specifically, the weak form of causal ambiguity refers to the situation where outsiders suffer more from causal ambiguity than insiders do because the knowledge of interest has been developed within the group-boundary and is costly to transfer across the boundary (Kogut & Zander, 1992; Teece, Pisano, & Shuen, 1997; Levitas & Chi, 2002). As such, the weak form of causal ambiguity differentially impedes flow of knowledge across boundaries. This type of weak causal ambiguity resonates with the information asymmetry from liability of outsidership to the relevant network (Johanson & Vahlne, 1977, 2009) in that knowledge that is neither tacit nor complex to insiders can be causally ambiguous to outsiders, if the would-be imitators suffer from the liability of outsidership. In this light, geographic scope can increase the weak form of casual ambiguity.

  8. Refer to Ragin (2000, 2008) for further information on the fuzzy-set QCA method.

  9. As the 50th value of this measure during the 10-year period is 0, the crossover point is coded with the 75th value instead.

  10. Fleming & Sorenson (2001) and Sorenson et al. (2006) provide detailed explantions on these measures with an illustrative example of a patent.

  11. As the 50th value of this measure during the 10-year period is 0, the crossover point is coded with the 75th value instead.

  12. In line with the existing studies (Lahiri, 2010), this paper specifies a 5-year window in order to address possible issues with truncation for the forward citations.

  13. A geodesic connects actors i and j if no other path between i and j is shorter. That is, a geodesic is the shortest, or one of the shortest, paths between two actors.

  14. When measuring the betweenness centrality of countries in year t, I pool patent citation network with a 5-year window (i.e., from t-4 to t) in order to capture remaining effects of knowledge flown in the past.

  15. Ragin and Davey (2008: 78) recommend that “the configurations selected should capture at least 75–80% of the cases”.

  16. The minimum recommended threshold for the consistency level is 0.75 (Ragin, 2008: 136).

  17. The peripheral element is also called as “complementary” or “contributing” conditions (Ragin & Fiss, 2008: 204).

  18. Consistency (X i ≤Y i )=Σ[min(X i , Y i )]/Σ(X i ), where Y i denotes ith outcome and X i to ith causal condition (Ragin, 2006: 297).

  19. Coverage (X i ≤Y i )=Σ[min(X i , Y i )]/Σ(Y i ) where Y i denotes ith outcome and X i to ith causal condition (Ragin, 2006: 301).

  20. Consistency (Y i ≤X i )=Σ[min(X i , Y i )]/Σ(Y i ), where Y i denotes ith outcome and X i to ith causal condition (Ragin, 2006: 297).

  21. The same analysis with patents applied in year 2000 yields consistency ranging from 0.84 to 0.90.

  22. Coverage (Y i ≤X i )=Σ[min(X i , Y i )]/Σ(X i ), where Y i denotes ith outcome and X i to ith causal condition (Ragin, 2006: 303).

  23. This analysis employs the OECD, Citations database, June 2010 database and analyzes patents in the semiconductor industry.

  24. Eigenvector centrality considers both number and centralities of neighboring vertices (Bonacich, 2007). As such, it enables us to capture not only how many countries a focal country is connected to but also how important the connected countries are. The eigenvector centrality x in a network composed of n vertices i and j can be calculated as follows (Bonacich, 2007):

    Where λ refers to the largest eigenvalue of the adjacency matrix.

  25. This paper takes a broad definition of firm internationalization as a process of acquiring knowledge from international markets via various governance structures, which encompasses all forms of the governance structures that are employed to acquire knowledge from international markets (including, but not limited to, mergers and acquisitions, strategic alliances, and joint ventures).

  26. Despite the noise, studies have found that patent citations are indeed associated with knowledge flow (Jaffe et al., 1998; Duguet & MacGarvie, 2005).

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Acknowledgements

I am grateful to JIBS Editor-in-Chief John Cantwell, Area Editor Paul Almeida, and three anonymous reviewers for their invaluable guidance and suggestions. I extend my sincere gratitude to my dissertation committee members, Glenn Hoetker, Joseph Mahoney, Janet Bercovitz, and Deepak Somaya for their thoughtful advice and guidance. The article has benefited significantly from the insightful comments of Tailan Chi, Chih Liu, Shawn Riley, and Jane Zhao.

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    Minyoung Kim

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Accepted by John Cantwell, Editor-in-Chief, Paul Almeida, Area Editor, 29 May 2013. This paper has been with the author for two revisions.

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Kim, M. Many roads lead to Rome: Implications of geographic scope as a source of isolating mechanisms. J Int Bus Stud 44, 898–921 (2013). https://doi.org/10.1057/jibs.2013.39

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