Abstract
Marketing strategists seek to identify drivers of firm performance and their relevant boundaries. To date, most research evidence would tell them that competition is a negative force, but this study challenges that conventional wisdom by drawing on network externalities theory and related strategy research. In particular, resources that exist outside the organization may benefit the performance of firms in a network, through positive spillover effects. For example, innovation efforts at the industry and country levels can have positive impacts on a focal firm’s performance, with influences that are even more prominent than the effect of its firm-level innovation. Due to their distinctions from firm-level innovation, these innovation efforts should be leveraged strategically and uniquely, according to the specific business environment. This research therefore broadens understanding of drivers of firm performance beyond the firm level; it also provides important implications for marketing practice.
1 Introduction
In research that seeks to specify the causes for variations in firm performance (e.g., Bamiatzi et al. 2016; Makino et al. 2004; Short et al. 2007), key factors arise at various levels (e.g., country, industry, firm). Along with a general agreement that firm performance depends on multiple factors at various levels, studies in this tradition tend to assume competition hinders a focal firm’s performance (Chen et al. 2009). But the theory of network externalities, as well as evidence regarding cooperative behaviors among firms, suggests a challenge to this conventional wisdom. Competition among firms in a network, as might be manifested in their investments in innovation, might benefit every firm in that network, due to industry clustering and knowledge spillover effects (Chang and Xu 2008).
6 Limitations and continued research
The limitations of this research indicate three main directions for continued research. First, with RC2, we provide some preliminary evidence that differences between shortand long-term performance metrics may influence innovation effects across levels. This evidence may be relevant to firms working to allocate their resources and advance their innovation efforts according to short-term versus long-term goals. Second, we include innovation as one performance driver; parallel research efforts could study other performance drivers that traditionally have been viewed at the firm level and investigate the impacts of their counterparts at other levels. Such research may strengthen our arguments and offer additional guidance to companies. Third, we restricted our sample to publicly traded firms, which tend to be large. Researchers should seek to determine if our findings hold for private and small firms.
