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EVIDENCE ON THE ROLE OF FIRM CAPABILITIES IN VERTICAL INTEGRATION DECISIONS
Author(s) -
ARGYRES NICHOLAS
Publication year - 1996
Publication title -
strategic management journal
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 11.035
H-Index - 286
eISSN - 1097-0266
pISSN - 0143-2095
DOI - 10.1002/(sici)1097-0266(199602)17:2<129::aid-smj798>3.0.co;2-h
Subject(s) - vertical integration , asset specificity , asset (computer security) , contrast (vision) , business , industrial organization , similarity (geometry) , knowledge management , marketing , computer science , artificial intelligence , transaction cost , finance , computer security , image (mathematics)
The capabilities approach to the firm postulates that firms vertically integrate activities for which they possess capabilities that are superior to potential suppliers'. The comparative contracting approach, in contrast, emphasizes high asset specificity as leading to vertical integration. This paper compares the two sets of explanations on make‐or‐buy decisions made by a large firm. It finds that in some cases asset specificity alone is determinant, but in others capabilities and combinations of considerations are explanatory. Analysis of the data also provides insights about the mechanisms through which capabilities operate. In particular, the similarity of the knowledge bases associated with various activities, and the time required to acquire knowledge, appear as important indicators of the importance of capabilities to vertical integration decisions.