Global Value Chains Lunch Time Seminar

Location
Room 205 Birmingham Business School
Category
Research
Dates
Thursday 29th October 2015 (12:00-13:00)
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'Firm Performance and the Optimal Organization of Business Groups'

Speaker: Carlo Altomonte (Associate Professor of Economics of European Integration at Bocconi University, Italy)

Speaker biography

Carlo Altomonte is an Associate Professor of Economics of European Integration at Bocconi University. His main areas of research are international trade and investment, the political economy of globalization and the process of European integration. He has published in several top academic journals, including Economic Policy, Journal of International Business Studies, Journal of Industrial Economics, European Economic Review, International Journal of Industrial Organization, Journal of Economic Geography, and Oxford Bulletin of Economics and Statistics. He has been a visiting professor, among others, at the Paris School of Economics (Panthèon-Sorbonne, Paris, France), NYU (New York, USA), Korean Business School (Seoul, Korea), and KU Leuven (Leuven, Belgium). As Research Fellow of Fondazione Eni Enrico Mattei in Milan and visiting Fellow of Bruegel (a Brussel-based think tank) he has been regularly acting as consultant for a number of international institutions, including the UNCTAD, the European Parliament, the European Commission and the European Central Bank, analysing the role of international trade and investment and their implication for competitiveness. In the private sector, he has acted as a consultant on the evolution of the international macroeconomic environment for a number of multinational companies, including Freudenberg Group, Riello Industries, Italcementi, Sanofi, Whirlpool, BMW, AMD Industries, and TNT Post. 

Abstract

We exploit a unique dataset of 270,474 headquarters controlling more than 1,500,000 (domestic and foreign) affiliates in all countries worldwide in order to explore the relation between the organization of a business group and its performance. We study two different organizational choices of BGs, that is the degree of their vertical integration, and the hierarchical complexity of their structure of control, focusing on their interplay. We then relate these organizational choices to the productivity of the affiliates operating in the group. Controlling for the endogenous emergence of business groups as stemming from the institutional characteristics of the host country in which they operate, we …find that vertical integration and organizational complexity tend to be positively correlated at the group level, but have a different impact on the specialisation of each affiliate within the group.

We also corroborate the view that vertical integration and productivity tend to be correlated, but we …find the relation not robust to the inclusion of a group’s hierarchical complexity, as in our data the latter relation dominates the former. The positive and robust relation between hierarchical complexity and productivity is however non-linear: above a certain threshold of complexity the relationship becomes negative. Results are in line with the delegation view of business groups and the idea of knowledge-based hierarchies, in which intangible assets are a complementary input in the production processes.