Corporate Venture Capital: How established firms use external resources to create new competencies

This Doctoral Dissertation is triggered by an emergent trend: firms are increasingly referring to investments in corporate venture capital (CVC) as means to create new competencies and foster the search for competitive advantage through the use of external resources. CVC is generally defined as the practice by non-financial firms of placing equity investments in entrepreneurial companies. Thus, CVC can be interpreted (i) as a key component of corporate entrepreneurship - acts of organizational creation, renewal, or innovation that occur within or outside an existing organization– and (ii) as a particular form of venture capital (VC) investment where the investor is not a traditional and financial institution, but an established corporation. My Dissertation, thus, simultaneously refers to two streams of research: corporate strategy and venture capital. In particular, I directed my attention to three topics of particular relevance for better understanding the role of CVC. In the first study, I moved from the consideration that competitive environments with rapid technological changes increasingly force established corporations to access knowledge from external sources. Firms, thus, extensively engage in external business development activities through different forms of collaboration with partners. While the underlying process common to these mechanisms is one of knowledge access, they are substantially different. The aim of the first study is to figure out how corporations choose among CVC, alliance, joint venture and acquisition. I addressed this issue adopting a multi-theoretical framework where the resource-based view and real options theory are integrated. While the first study mainly looked into the use of external resources for corporate growth, in the second work, I combined an internal and an external perspective to figure out the relationship between CVC investments (exploiting external resources) and a more traditional strategy to create competitive advantage, that is, corporate diversification (based on internal resources). Adopting an explorative lens, I investigated how these different modes to renew corporate current capabilities interact to each other. More precisely, is CVC complementary or substitute to corporate diversification? Finally, the third study focused on the more general field of VC to investigate (i) how VC firms evaluate the patent portfolios of their potential investee companies and (ii) whether the ability to evaluate technology and intellectual property varies depending on the type of investors, in particular for what concern the distinction between specialized versus generalist VCs and independent versus corporate VCs. This topic is motivated by two observations. First, it is not clear yet which determinants of patent value are primarily considered by VCs in their investment decisions. Second, VCs are not all alike in terms of technological experiences and these differences need to be taken into account.

Entrepreneurial opportunities, capability development and the performance of new firms

This study aims at providing a theoretical framework encompassing the two approaches towards entrepreneurial opportunity (opportunity discovery and opportunity creation) by outlining a trajectory from firm creation to capability development, to firm performance in the short term (firm survival) and the medium/long term (growth rate). A set of empirically testable hypotheses is proposed and tested by performing qualitative analyses on interviews on a small sample of entrepreneurs and event history analysis on a large sample of firms founded in the United States in 2004.

Innovation and economic performance of the firms in the service sector: relevant issues and open problems

This thesis is a collection of essays related to the topic of innovation in the service sector. The choice of this structure is functional to the purpose of single out some of the relevant issues and try to tackle them, revising first the state of the literature and then proposing a way forward. Three relevant issues has been therefore selected: (i) the definition of innovation in the service sector and the connected question of measurement of innovation; (ii) the issue of productivity in services; (iii) the classification of innovative firms in the service sector. Facing the first issue, chapter II shows how the initial width of the original Schumpeterian definition of innovation has been narrowed and then passed to the service sector form the manufacturing one in a reduce technological form. Chapter III tackle the issue of productivity in services, discussing the difficulties for measuring productivity in a context where the output is often immaterial. We reconstruct the dispute on the Baumol’s cost disease argument and propose two different ways to go forward in the research on productivity in services: redefining the output along the line of a characteristic approach; and redefining the inputs, particularly analysing which kind of input it’s worth saving. Chapter IV derives an integrated taxonomy of innovative service and manufacturing firms, using data coming from the 2008 CIS survey for Italy. This taxonomy is based on the enlarged definition of “innovative firm” deriving from the Schumpeterian definition of innovation and classify firms using a cluster analysis techniques. The result is the emergence of a four cluster solution, where firms are differentiated by the breadth of the innovation activities in which they are involved. Chapter 5 reports some of the main conclusions of each singular previous chapter and the points worth of further research in the future.

Three Essays in Spatial Economics

This work contributes to the field of spatial economics by embracing three distinct modelling approaches, belonging to different strands of the theoretical literature. In the first chapter I present a theoretical model in which the changes in urban system’s degree of functional specialisation are linked to (i) firms’ organisational choices and firms’ location decisions. The interplay between firms’ internal communication/managing costs (between headquarters and production plants) and the cost of communicating with distant business services providers leads the transition process from an “integrated” urban system where each city hosts every different functions to a “functionally specialised” urban system where each city is either a primary business center (hosting advanced business services providers, a secondary business center or a pure manufacturing city and all this city-types coexist in equilibrium.The second chapter investigates the impact of free trade on welfare in a two-country world modelled as an international Hotelling duopoly with quadratic transport costs and asymmetric countries, where a negative environmental externality is associated with the consumption of the good produced in the smaller country. Countries’ relative sizes as well as the intensity of negative environmental externality affect potential welfare gains of trade liberalisation. The third chapter focuses on the paradox, by which, contrary to theoretical predictions, empirical evidence shows that a decrease in international transport costs causes an increase in foreign direct investments (FDIs). Here we propose an explanation to this apparent puzzle by exploiting an approach which delivers a continuum of Bertrand- Nash equilibria ranging above marginal cost pricing. In our setting, two Bertrand firms, supplying a homogeneous good with a convex cost function, enter the market of a foreign country. We show that allowing for a softer price competition may indeed more than offset the standard effect generated by a decrease in trade costs, thereby restoring FDI incentives.

Diversity and local democracy. The case of Republic of Macedonia - implications of ethnic diversity on municipal decision making and organizational performance

This research seeks to review the level of knowledge achieved in interpreting the relationship between the ethnic diversity at the workplace in the public sector and the organizational performance; as well as seeks to contribute in understanding the implications of this relationship. The study commenced with investigating the academic research in the relevant area addressing the following research questions: (a) How are diversity management and organizational performance conceptualized? (b) What are the existing findings of research concerning diversity at the workplace in the public organizations and organizational performance? (c) What factors intervene the relationship between the diversity and organizational performance? Based on the findings from the review of the academic research, this study seeks to contribute in understanding the ethnic diversity – performance relationship and its mplications at the local level in the Macedonian context. The reform process in Macedonia as a multicultural society, where for many years, inter-ethnic relations have been one of the most sensitive political issues, affecting both the stability of the country and the progress, focused mainly on the implementation of the decentralization and inclusion of ethnic minorities in the decision making process. With the implementation of the Ohrid Framework Agreement workforce at the units of local self-government in Republic of Macedonia is becoming more balanced with respect to ethnic minorities, with more workforce participation than ever by Albanians, Turks, Roma and other minorities. As public organizations at local level become more diverse along ethnic lines, it makes sense to pay more attention to how different ethnic groups interact with one another at work. Thus it gives additional importance on the research question addressed in the study and gives significance of the research in a broader scope.

Understanding the Combined Role of Internal and External Factors in New Service Development Process within the Professional Knowledge Intensive Business Service Firms

Our research asked the following main questions: how the characteristics of professionals service firms allow them to successfully innovate in exploiting through exploring by combining internal and external factors of innovation and how these ambidextrous organisations perceive these factors; and how do successful innovators in professional service firms use corporate entrepreneurship models in their new service development processes? With a goal to shed light on innovation in professional knowledge intensive business service firms’ (PKIBS), we concluded a qualitative analysis of ten globally acting law firms, providing business legal services. We analyse the internal and factors of innovation that are critical for PKIBS’ innovation. We suggest how these firms become ambidextrous in changing environment. Our findings show that this kind of firms has particular type of ambidexterity due to their specific characteristics. As PKIBS are very dependant on its human capital, governance structure, and the high expectations of their clients, their ambidexterity is structural, but also contextual at the same time. In addition, we suggest 3 types of corporate entrepreneurship models that international PKIBS use to enhance innovation in turbulent environments. We looked at how law firms going through turbulent environments were using corporate entrepreneurship activities as a part of their strategies to be more innovative. Using visual mapping methodology, we developed three types of innovation patterns in the law firms. We suggest that corporate entrepreneurship models depend on successful application of mainly three elements: who participates in corporate entrepreneurship initiatives; what are the formal processes that enhances these initiatives; and what are the policies applied to this type of behaviour.

Strategic decision making in international firms: effect of top management team internationalization on international strategic decision process

In this research project, I have integrated two research streams on international strategic decisions making in international firms: upper echelons or top management teams (TMT) internationalization research and international strategic decision making process research. Both research streams in international business literature have evolved independently, but there is a potential in combining these two streams of research. The first empirical paper “TMT internationalization and international strategic decision making process: a decision level analysis of rationality, speed, and performance” explores the influence of TMT internationalization on strategic decision rationality and speed and, subsequently, their effect on international strategic decision effectiveness (performance). The results show that the internationalization of TMT is positively related to decision effectiveness and this relationship is mediated by decision rationality while the hypotheses regarding the association between TMT internationalization and decision speed, and the mediating effect of speed were not supported. The second paper “TMT internationalization and international strategic decision rationality: the mediating role of international information” of my thesis is a simple but logical extension of first paper. The first paper showed that TMT Internationalization has a significant positive effect on international strategic decision rationality. The second paper explicitly showed that TMT internationalization affect on international strategic decision rationality comes from two sources: international experience (personal international knowledge and information) and international information collected from managerial international contacts. For this research project, I have collected data from international software firms in Pakistan. My research contributes to the literature on upper echelons theory and strategic decision making in context of international business and international firms by explicitly examining the link between TMT internationalization and characteristics of strategic decisions making process (i.e. rationality and speed) in international firms and their possible mediating effect on performance.

Essays on Ethnic Diversity and Development

This dissertation consists of three papers. The first paper "Ethnicity, Migration and Conflict: Evidence from Contemporary South Africa” exploits some of the institutional changes intervened in South Africa during the end of apartheid to investigate the relationship between ethnic diversity and conflict. I find within-ethnic polarization to be significantly related to the intensity of armed confrontations among black-dominated groups. My investigation thus gives strong and robust empirical support to the theoretical arguments which identify ethnic diversity as one of the determinants of civil conflict. The second chapter, "Pre-Colonial Centralization, Colonial Activities and Development in Latin America", investigates the hypothesis that pre-colonial ethnic institutions shaped contemporary regional development in Latin America. I document a strong and positive relationship between pre-colonial centralization and regional development. Results are in line with the view that highly centralized pre-colonial societies acted as a persistent force of agglomeration of economic activities and a strong predictor of colonial state capacity. The results provide a first evidence of the existence of a link between pre-colonial centralization, colonial institutional arrangements and contemporary economic development. The third paper "Bite and Divide: Malaria and Ethnic Diversity” investigates the role of malaria as a fundamental determinant of modern ethnic diversity. This paper explores the hypothesis, that a large exposure to malaria has fostered differential interactions that reduced contacts between groups and increased interactions within them Results document that malaria increases the number of ethnic groups at all levels of spatial disaggregation and time periods (exploiting historical and current ethnic diversity). Regressions' results show that endogamous marriages are more frequent in areas with higher geographic suitability to malaria. The results are in line with the view that malaria increases intra-ethnic interactions while decreasing inter-ethnic ones.