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A Capabilities Perspective on the Evolution of Firm Boundaries: A Comparative Case Example from the Portuguese Moulds Industry

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  • Joao Mota
  • Luis M. de Castro

Abstract

The issue of vertical firm boundaries continues to attract interest both for economics and management research. The transaction cost economics approach, emphasizing transaction-specific assets and opportunism in order to explain discrete 'make-or-buy' decisions, dominates the literature. Nevertheless, alternative perspectives, developed under the guise of the capabilities, competence or knowledge-based theories of the firm, have gained attention recently. They focus on the evolutionary dynamics of boundaries in the context of the division of labour among firms in an industry and on what is to be divided and co-ordinated - i.e. productive knowledge. The conceptual links between this line of research, which some refer to as neo-Marshallian, and the Industrial Networks approach are explored in this paper. The paper emphasizes both a vision of firms as sets of direct and indirect capabilities, developed and combined in different ways over time, and the connectedness between inter-firm relationships. The discussion is illustrated with the cases of two firms, which are contrasted in terms of the dynamic evolution of their boundaries. The analysis made supports the argument that firms' vertical boundaries reflect their relationships with specific counterparts and the way they address through time the division and integration of knowledge through the configuration of direct and indirect, counterpart specific, capabilities. Copyright Blackwell Publishing Ltd 2004.

Suggested Citation

  • Joao Mota & Luis M. de Castro, 2004. "A Capabilities Perspective on the Evolution of Firm Boundaries: A Comparative Case Example from the Portuguese Moulds Industry," Journal of Management Studies, Wiley Blackwell, vol. 41(2), pages 295-316, March.
  • Handle: RePEc:bla:jomstd:v:41:y:2004:i:2:p:295-316
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    References listed on IDEAS

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    1. Subramaniam, Mohan & Watson, Sharon, 2006. "How interdependence affects subsidiary performance," Journal of Business Research, Elsevier, pages 916-924.
    2. Taggart, James & Hood, Neil, 1999. "Determinants of autonomy in multinational corporation subsidiaries," European Management Journal, Elsevier, pages 226-236.
    3. Andersson, Ulf & Forsgren, Mats, 1996. "Subsidiary embeddedness and control in the multinational corporation," International Business Review, Elsevier, pages 487-508.
    4. Birkinshaw, Julian & Hood, Neil & Young, Stephen, 2005. "Subsidiary entrepreneurship, internal and external competitive forces, and subsidiary performance," International Business Review, Elsevier, pages 227-248.
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    1. repec:spr:grdene:v:18:y:2009:i:5:d:10.1007_s10726-008-9137-7 is not listed on IDEAS
    2. Filipe J. Sousa & Luís M. de Castro, 2008. "How is the relationship significance brought about? A critical realist approach," FEP Working Papers 282, Universidade do Porto, Faculdade de Economia do Porto.
    3. Ulrike Gelbmann, 2010. "Establishing strategic CSR in SMEs: an Austrian CSR quality seal to substantiate the strategic CSR performance," Sustainable Development, John Wiley & Sons, Ltd., vol. 18(2), pages 90-98.
    4. Filipe J. Sousa & Luís M. de Castro, 2005. "Relationship significance: is it sufficiently explained?," FEP Working Papers 183, Universidade do Porto, Faculdade de Economia do Porto.
    5. Filipe J. Sousa & Luis M. de Castro, 2004. "The strategic relevance of business relationships: a preliminary assessment," FEP Working Papers 163, Universidade do Porto, Faculdade de Economia do Porto.

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