This study explores the sources of the variation in high-tech industry perfor-mance with a particular interest in investigating the relative importance of country and industry effects. In the economics and strategy fields, researchers have long been interested in understanding the determinants of firm profitability so as to address the question of how and why certain private enterprise firms build competi-tive advantage in environments of rapid technological change (Teece, Pisano, and Shuen 1997). However, much previous research treated the country effect as a con-stant and failed to identify country-specific conditions that influence industry performance. Thus our interpretation of performance differences diverges from mainstream perspectives, industrial organization economics, strategic management, and especially the resource-based view of the firm, in that we do not start from firms but rather from industries. This work is undertaken because finding the sources of performance differentials among high-tech industries in international competitiveness is of importance to both national development policies (country effects) and unique industry structure characteristics (industry effects).
The empirical results of the analyses have several implications. First, our find-ings suggest that country does matter, having a significant impact on high-tech industry performance. The evidence supports the argument in conventional interna-tional business literature and instituinterna-tional theory that nainterna-tional contextual factors do influence firm behavior and economic performance. Similarly, the empirical results imply that location and economic geography-related insights are important, as sug-gested by Dunning (1993) and Buckley and Ghauri (2004). One extension of future research needs to incorporate country effects as an additional determinant of firm performance into the same model to advance our understanding of the antecedent of firm profitability.
Second, with respect to the variation in high-tech industry performance, our results show that the ‘‘external’’ effects (country influences) are more important in DCs and geographic regions NA, SA, AAM, WE, and EE, than in NIEs, large and small LDCs, and regions EE, SEA, and AAS, and that the ‘‘internal’’ effects (indus-try influences) explain the largest portion of variance in performance differences for the latter country classes and geographic regions. One possible explanation for this finding is that although countries with advanced economies are more integrated in terms of market transactions, infrastructure, institutional rules, and enforcement mechanisms (Makino et al., 2004), governments still have a crucial role in helping high-tech industries to improve their competitive positions. For developed countries,
although some scholars, e.g., Michael Porter, would disagree (Snowdon and Stone-house 2006), the results provide strong support of Chalmers Johnson’s (1982) indus-trial policy perspective of Japan’s success, where the Japanese government in the 1980s employed economic development strategies that are regarded as having played a key role in forging that country’s economic miracle. In addition, the aerospace and pharmaceuticals industry has a long-term relationship with its government in the U.S. and some of the European countries. Therefore, the existence of very different country-level influences in directing economic activities across high-tech industry boundaries, country effects matter much more to high-tech industry performance among developed countries and geographic regions NA, SA, AAM, WE, and AEU.
With regard to large LDCs, although China and India are on a very robust path with spectacular rates of economic growth (Tseng and Cowen 2005), Michael Porter argues that both of their political structures and systems are more complex and problematic in terms of policies (Snowdon and Stonehouse 2006). Thus, con-sidering the impact of country specificity on high-tech industry performance, there are big differences among large LDCs. In contrast, in small LDCs and EE, where public institutions and the macroeconomic environment are all underdeveloped, the external conditions explain less variation in high-tech industry performance.
Interestingly, although governments of Southeast Asian NIEs were regarded as tak-ing direct action in high-tech industry development, country effects matter little to high-tech industry performance. One possible explanation for this finding is, as Michael Porter argued, that in Taiwan and some of the other Southeast Asian NIEs the government in many cases was playing a fairly aggressive role in directing eco-nomic activity (Hernandez 2004), but there are also very powerful micro, diamond-type factors (internal conditions), rather than government direction, that ultimately play the dominant role in driving their success (Snowdon and Stonehouse 2006).
Third, with respect to the above country influences, governments have a crucial role to play in establishing macroeconomic stability and providing stable political, legal, and social institutions to help companies to improve their competitive positions (Snowdon and Stonehouse 2006), but they do not tell the whole story of high-tech industry competitiveness. In fact, the results indicate that the sound microeconomic fundamentals (industry effects) matter much more to high-tech industry performance, even if an investment and innovation-friendly environment is created that is conducive to sustainable growth, especially for the Southeast Asian NIEs and large and small LDCs. When looking at the microeconomic level, to the sophistication of firms and the quality of their microeconomic environment, it raises an interesting question whether industry effects persist longer than country effects. Are the competitive advantages of industries within their countries sus-tained longer than country influences? To investigate this issue, future research needs to decompose the persistence of incremental country- and industry-specific effects on high-tech industry performance.
Finally, the results of the importance of industry effects on the performance differ-entials explain how much industrial organization economics and a resource-based view of the firm matter within high-tech industries. While industrial organization economics, proposing the structure-conduct-performance framework, considers industry as the main unit of analysis, strategic management focuses increasingly on the individual firm to explain intra-industry performance differentials. For example, in the late 1930s, Nourse and Drury (1938) suggested that firm-specific influences, such as management skills, basically determined firm advantages and performance.
Firms were not simply seen as identical ‘‘black boxes’’ in a given industrial structure, but as dynamic collections of idiosyncratic attributes representing sources of compe-titiveness and relative performance. In this light it is also worth considering Porter’s (1990) account of how different forms of the national ‘‘diamond’’ can interact to facilitate a global expansion of a nation’s industries or a discipline’s intellectual pro-ducts. Since company strategies differ between firms within an industry, the bundle of idiosyncratic attributes that each firm possesses also varies (Nelson 1991). To develop a more fine-grained study of cross-national comparisons of industry perfor-mance, future research may examine the same effects in industries other than high-tech industry.
Note
1. Our thanks to the IRSR editor Sergio Rey and one of the anonymous reviewers for this suggestion.
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