MAPP Working Papers,
University of Aarhus, Aarhus School of Business, The MAPP Centre

Abstract: 1. The aim of the paper is to investigate the relative importance of three sets of sources of competitive advantages on business performance in a specific industry context, ie the European meat processing industry. The three sets of competitive sources are Firm Specific Advantages (FSAs), Localizational Specific Advantages (LSAs) and Relationship Specific Advantages (RSAs). Based on a literature study, each set of competitive advantages is briefly described in terms of their theoretical antecedents. Seven hypotheses are formulated regarding the direct as well as the indirect relationships between the FSAs, LSAs and RSAs and business performance. Also, the direction of causality between the various sets of explanatory variables is considered. The hypotheses are combined in a structural modelling of firm competition.

2. Data and measurements are derived from a survey in the European meat processing industry in which 133 meat processors from 10 EU countries agreed to participate. A total of 17 variables of sources of advantage were developed and analysed (nine FSAs, four LSAs and four RSAs). Examples of the FSA measures are level of process technology; product development efforts; new product introductions and marketing mix efforts. The LSAs include variables related to national endowment of resources and industry-related factors such as for example the degree of industry concentration. The RSA measurements include relationships with retailers; relationships to suppliers; access to raw materials and distribution costs. Business performance was measured by applying the following indicators: return of investments, sales growth and market share.

3. The data set was subjected to conformative factor analysis and structural equation modelling using LISREL8. Based on an evaluation of the reliability values and t-values of each item, only seven of the measurements of competitive advantages were further analysed. A three-factor model was found to fit the data best, viz. that firm, localisational and relationship-specific advantages together should be treated as independent constructs. Six structural equation models were estimated of which one model, in particular, seems to fit the data best.

4. The meat processing industry results of the analysis show that the FSAs and the RSAs are the most important explanatory variables as regards business performances, however, with strong interaction effects between the two sets of variables. LSAs such as industry structure and national endowment of resources do not seem to influence the business performance of the meat processors. Moreover, the paper shows that those meat processing firms developing strong ties with the retailing sector will have their business performance increased as well as their firm-specific advantages (such as product development, process development etc.) being improved by strong retail relationships. Finally, the paper supports the view that investments in process and/or product innovation will pay off in the meat processing industry

Keywords: Competitive power; Meat industry; Europe

28 pages, February 1, 1999

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