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Positioning firms along the capabilities ladder

Author

Listed:
  • Coad, Alex

    (Waseda Business School)

  • Mathew, Nanditha

    (UNU-MERIT, Maastricht University)

  • Pugliese, Emanuele

    (European Commission, Joint Research Centre (JRC))

Abstract

We develop and apply a novel methodology for quantifying the capability development of firms, and putting these capabilities (and hence also the firms) in a hierarchy, that we refer to as their position on the capabilities ladder. Our nestedness algorithm, inspired by biology and network science, defines a capability as complex if it is performed by only a few firms at the upper rungs of the ladder. We analyze balance sheet and innovation data of almost 40,000 Indian firms for the time period 1988-2015, and observe significant nestedness. Lower rungs of the capabilities ladder correspond to basic managerial and production capabilities. Mid-level rungs correspond to internationalization and acquiring absorptive capacity. Higher level rungs are more related to M&A and innovation. ICT capabilities have become more fundamental lower-level rungs on the capabilities ladder in recent years. We find that capability ranking can explain future growth patterns and survival probability of firms, summing up in one number their future potential trajectories.

Suggested Citation

  • Coad, Alex & Mathew, Nanditha & Pugliese, Emanuele, 2021. "Positioning firms along the capabilities ladder," MERIT Working Papers 2021-031, United Nations University - Maastricht Economic and Social Research Institute on Innovation and Technology (MERIT).
    • Handle: RePEc:unm:unumer:2021031
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    References listed on IDEAS

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    JEL classification:

    • L2 - Industrial Organization - - Firm Objectives, Organization, and Behavior
    • D2 - Microeconomics - - Production and Organizations
    • O12 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Microeconomic Analyses of Economic Development

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