Showing papers by "London Business School published in 1986"

Strategic Groups: Theory, Research and Taxonomy

Abstract: This paper discusses the concept of strategic groups, focusing upon the importance of intra-industry strategic groupings in understanding differences across firms within an industry. The problems involved in identifying strategic groups within industries are examined through a comprehensive review of recent studies. It is demonstrated that much of the research has used surrogates for elements of a firm's strategic direction, e.g. vertical integration, product range, R & D expenditure, to suggest bases by which creative and sustainable groups are formed. The authors argue that certain theoretical concepts such as mobility barriers, isolating mechanisms and controllable variablesprovide much firmer bases for identifying strategic groups within industries. Thus, taxonomies for understanding the nature of strategic group formulation can be developed. Implications of the strategic group concept for such strategic issues as the structure-performance linkage, firm mobility, patterns of rivalry, industry evolutionand firm growthare then examined. The paper concludes by indicating fruitful directions for strategic group research in the context of the strategic management field.

Privatization Policies and Public Enterprise: A Survey*

Abstract: This paper surveys and analyzes the economic literature on ‘privatization’ policies, restricting coverage to policies designed to improve the operating efficiency of public sector enterprises through increased exposure to competitive market forces These include asset sales, liberalization (or deregulation) and franchising The objectives, incentives and constraints of public and private enterprises are examined, and evidence on their comparative performance is analyzed Public sector revenue effects from asset sale are also explored On the basis of these considerations, the paper concludes that liberalization is an important ingredient in any policy package designed to improve the operating efficiency of public sector enterprises Asset sale may enhance the beneficial impact of deregulation but asset sale in the absence of deregulation is unlikely to improve efficiency, and may introduce additional market distortions Franchising is seen as an appropriate mechanism for privatization when the market is inherently monopolistic and when the government desires to retain control over output and/or price

Recent developments in corporate finance: Costs to crossborder investment and international equity market equilibrium

Abstract: Introduction The Sharpe–Lintner Capital Asset Pricing Model (CAPM), which is based upon mutual fund theorems applied to a single domestic capital market, suggests that with homogeneous expectations and opportunity sets, all investors will hold identical portfolios of risky assets. Aggregation of investors' portfolios to get a market equilibrium implies that all individuals will choose their portfolios from two funds: the market portfolio of risky assets and the risk free asset, or a zero beta portfolio if there is no riskless asset. The CAPM cannot be extended into an international CAPM by simply extending the opportunity set to include the world market portfolio, since the international capital markets differ from the domestic capital markets in certain important aspects, such as different currency areas, different socio–economic systems, taxes and barriers to capital flows. Several international capital market models have been developed to capture these complexities of the international capital markets. Most of these models treat exchange risk as the prime factor making international capital market equilibrium different from domestic equilibrium. For instance, Grauer, Litzenberger and Stehle (1976) assume that exchange risk is due to different stochastic national inflation rates, while on the other hand Solnik (1974), Sercu (1980) and Adler and Dumas (1983) assume that exchange risk stems from differences in consumption baskets between investors of different origin.

The Accounting Assessment of Competitive Position

Abstract: Concerns itself with competitive position accounting measurement, stating that it is a much more complex task, however, than devising a standard procedure for measuring competitive position. States that changes in competitive position generally build gradually, ebbing and flowing. Argues that a competitor's sales revenue is perhaps the most important of all competitive indicators and that estimation of this for firms and markets must be prime in developing a strategic management accounting system. Adds that market share provides a link between accounting performance of the single period for which the share is measured and the performance of future periods. Sums up by showing within this article that accounting representation of a firm's competitive position within an industry is possible by using quite basic accounting measurements. Goes on to say there is much development needed to refine methods of accounting for competitors, but the resulting change in the role of accountants will be immense.

Bayesian analysis and uncertainty in economic theory

Abstract: 1 Introduction- 2 Bayesian Decision Theory- 3 Behavioral and Control Theory of the Firm- 4 Bayesian Analysis and Duopoly Theory- 5 Multiperiod Decision Models with Alternating Choice as a Solution to the Duopoly Problem- 6 Cooperation and Learning in a Duopoly Context- 7 Interfirm Learning and the Kinked Demand Curve- 8 Sequential Strategies in Dual Control Problems- 9 Adaptive Utility- 10 Some Examples of Adaptive Utility- 11 Sequential Investment Decisions- 12 Capital Allocation within Firms- 13 Rational Expectations- 14 Epilogue- References- Author Index

Are the Rewards Worth the Effort? Changing Managerial Values in the 1980s

Abstract: The manager was once depicted as the “organisation man”. Managers, it was claimed, regarded their work and careers as central life interests around which other activities and relationships were structured. If families and friends were not entirely neglected, they were nonetheless, regarded as secondary to career progress. Within organisations, managers were seen as the creators, custodians and, in career terms, the prime beneficiaries of hierarchical authority structures. If corporate expansion and economic growth during the 1950s and 60s underpinned this view, contraction and recession in the 70s and 80s have begun to undermine it.

An empirical investigation into the causes of failure of the monetary model of the exchange rate

Abstract: The purpose of this paper is to attempt to provide measures of the relative importance of the principal causes of the failure of the monetary model of the exchange rate. Secondly, the random walk hypothesis for the exchange rate is tested. The methodology employed is new and has wide application elsewhere. It involves explicitly modelling the misspecification by time series techniques. The results confirm the importance of the breakdown of the PPP assumption but they also show that misspecification of the money market is equally important. The results further show that lagged information can also improve upon the random walk model of the exchange rate.

The need for middle‐out development of marketing strategy

Abstract: The current tendency to move decision making closer to those concerned with implementing decisions in order to make use of their local market and customer knowledge is timely, particularly in relation to marketing strategy. This tendency is reflected both in the shift away from broad strategic analysis and towards encouraging strategic thinking throughout the organization; and in the emergence of more decentralized strategy development through structural innovations such as Strategic Business Units. For the manager-in-the-middle who has historically had the task of relating the broad corporate strategies to the detail of delivering products and services to the customer, this shift in emphasis creates new stresses, for it is not possible for him to assume, even in the most established consumer goods companies, that the strategic development of such activities can be construed within the traditional marketing mix (4Ps) framework. Under such circumstances, he needs a framework which enables him to take account of the crucial interactions going on within the market's infrastructure itself between customers, competition and channels (3Cs). If the manager-in-the-middle is then to be effective in responding to his increasingly complex responsibilities in relation to such markets, he must also be given the ability to manage the micro-organizational context within which he delivers products and services. This micro-organizational context is crucial because it determines the quality of the relationship that can be sustained with the customer. The higher the quality of the relationship, the tighter the coupling that can be maintained with the local market. Such tight coupling makes the relationship with the customer more defensible against competition. It therefore provides the basis for sustaining and developing the profitability of value-adding products and services so necessary to long term corporate survival.

The Extent and Sources of Cost and Efficiency Differences between U.S. And Japanese Automobile Producers

Abstract: In this paper we present for the first time estimates of cost and efficiency differences between U.S. and Japanese producers based on an econometric cost function methodology rather than the accounting frameworks previously used. We demonstrate that the cost difference estimates for 1979 which were influential in the debate that resulted in the Voluntary Restraints Agreements of 1981-85 were substantial over estimates of the Japanese advantage. While our estimate of the Japanese cost advantage for 1980 is similar to previous estimates, we attribute most of this advantage to short-run phenomena -underutilization of U.S. production capacity and an undervalued yen. In a previous paper we have shown that the Japanese TFP growth rate was much faster than the U.S. rate during the 1970's. However we estimate the long-run underlying Japanese efficiency advantage as of 1980 to have been only 1-2%, much less than previously estimated. This results from the fact that Japan began the 1970's with a long-run efficiency disadvantage of over 20%, and the decade of the 1970's represented a catch-up period for Japanese producers.

Innovations: new market instruments

Abstract: Any measure of the volume of financial innovation would register an explosion in the last ten years. For example, the swap market has grown from zero to hundreds of billions of dollars in this period. The number of traded financial futures contracts has increased from a handful to nearly one hundred. The explosion is one of both scale and variety. Even the British Government now issues gilts with non-standard coupon rates and conversion features apparently tailored to a whole range of specialised clienteles.

Change in financial intermediation in the uk

Abstract: The British financial system is experiencing change unprecedented in its scope and pace. Before the war Britain's financial structure was clearly dominated by the banks. Other types of institution had developed over the previous century and more, but their effect on financial conditions was not yet judged significant enough to be given even a passing mention in the Macmillan Report of 1931, for example. By the time of the Radcliffe Report of 1959, the increasing variety of institutions had been acknowledged; but the Radcliffe Report was still able to speak of "faults", in the geological sense, which were difficult for borrowers to cross (Para 319).

Inside the Rust Belt: An Analysis of the Decline of the West Midlands Economy. 1: International and National Economic Conditions

Abstract: The decline in manufacturing employment in the West Midlands Region of England has been dramatic. This paper situates the changes in the economy of the region in the context of the changing international and national economies. It is argued that the shift in trading patterns from the old Empire towards Europe and North America made manufacturing sectors more vulnerable to competition both in the home market and in the overseas markets. This vulnerability has been exacerbated by the high value of sterling at certain crucial periods.National economic conditions and policies have also had detrimental effects on the regional economy, especially demand-management policies, which concentrated on consumer credit. The development of the vehicle sector has been disrupted by frequent and sudden changes in credit regulations. In addition to these problems, there is evidence that credit and labour-market conditions have both hampered development, and there is some evidence that land shortages in the conurbation have ...

Trade union mergers and competition in British banking

Abstract: Examines union merger discussions in the clearing banks in London, England. Prospects and obstacles to the merger between the Banking Insurance and Finance Union and the Clearing Bank Union; Importance of ideological differences and the proposed distribution of power in the negotiations; Internal political factors in explaining merger patterns; History of the inter-union rivalry.

Forecasting and the Manager

Abstract: In recent times there has been a change of emphasis in business forecasting. The shift has been away from the technical and statistical aspects. More thought is now being given to the way in which techniques are used and the context in which they are applied. This article is the first in a series of two which deal with these issues. It describes the role of the manager in forecasting. In particular, it discusses the tasks in designing and planning a forecasting system which are the key to its success and which fall within a manager's responsibility. The second article is concerned with the link between forecasts and the decisions they support.

How to combine active management with index funds

Abstract: m \\o ij; Treynor and Fischer Black suggested that it was conceptually useful to separate the selection of the common stock portfolio into two stages.’ First, the manager should place bets on specific stocks by taking long positions in those stocks that the manager expects to provide positive abnormal returns and by taking short positions in stocks that the nianager expects to give negative abnormal returns. Second, the manager should adjust the fund’s exposure to marketwide movements by buying or selling an index fund. Treynor-Black referred to the first step as the construction of the active portfolio and the second step as that of blending in the passive portfolio. Since the publication of the Treynor-Black paper, many pension schemes have invested part of their money in an index fund while putting the remainder in one or more actively managed funds, but the practice of active-passive management is linked only tenuously to the original theory. Of course, Treynor-Black assumed that the manager could freely sell short those stocks with negative expected abnormal returns. I shall argue that if managers are in fact unable to sell stocks short, a pension scheme would be justified in dividing its portfolio between an active and a passive fund only in very special circumstances. Indeed, if managers cannot sell short individual

The Canada-U.S. Auto Pact of 1965: an Experiment in Selective Trade Liberalization

Abstract: In this paper we analyse the Canada-U.S. Auto Pact, a selectivetrade liberalization agreement which created a duty-free North Americanmarket for the major U.S. multinational automobile producers, butcontinued to protect them from offshore producers. The new internationaltrade/I.O. literature predicts that, given the probable unexploitedeconomics of scale and specialization in the tariff-protected smallCanadian economy prior to 1965, rationalization leading to largeefficiency gains in Canadian production vis a vis U.S. production wouldoccur in a free trade environment. We estimate that the Auto Pact didnot induce a substantial improvement in Canadian relative productionefficiency. The missing ingredient seems to have been thecompetition-increasing effects of free trade in an oligopolistic settingthat is emphasized by the new trade/I.O. literature. The Auto Pact didnot increase the number of rivals in the oligopolistic Canadian industrysince the major players in the industry had production facilities on bothsides of the Canada-U.S. border before 1965, and no significant new entryinto Canada occurred.In the 1962-64 period, Canadian automotive production was 27% lessefficient than U.S. production. By 1970-72 this deficiency had beenreduced to 19%, but was not further reduced by the end of the 1970's. Ofthe 8 percentage points reduction in the Canadian disadvantage, weattribute only 3 percentage points to the rationalization process inducedspecifically by the Auto Pact.

The role of the mergers and monopolies commission in merger policy: costs and alternatives

Abstract: The purpose of this paper is threefold. First, we offer an overview of UK merger activity and the role of the Mergers and Monopolies Commission (MMC) in takeovers. Second, we estimate costs to shareholders arising from referrals of proposed mergers to the MMC. Finally, we discuss broader concerns about the aggregate level of merger activity, and suggest how institutional changes might be more effective alternatives to merger as a way of removing inefficiencies.

Inside the Rust Belt: An Analysis of the Decline of the West Midlands Economy. 2: Corporate Strategies and Economic Change

Abstract: The economy of the West Midlands Region of England is dominated by a small number of large manufacturing companies. The analysis of the economy in this paper focuses on the corporate strategies of the twenty-six largest manufacturing companies in the region. It is shown that there has been a transformation of the companies from producers of low value-added commodity-type products in the 1960s, is also shown to more diversified companies competing in higher value-added sectors. It also shows that these major companies have shifted their orientation from the old Empire markets towards Europe and North America.The companies have reduced their production costs by rationalising their manufacturing processes, and in some cases by establishing manufacturing plants in other countries. However, the main motive for shifting production from the United Kingdom has been to produce closer to the final markets, rather than cost reduction.The main method which companies have used to become more diversified has been acqui...