Open Access
Subscription Access
Open Access
Subscription Access
Mr. Porter and the New World of Increasing Returns to Scale
Subscribe/Renew Journal
This paper endeavours to espouse a nonconformist stance to the classic economic assumptions of Constant and Decreasing Returns to Scale, and explores the world of Increasing Returns to Scale, within the realms of Strategic Management. It seeks to study Michael Porter's Five Forces Model under the latter assumption which apparently embodies the contemporary internet age and global technological evolution, and juxtaposes it with traditional assumptions. Under refreshed circumstances, the paper attempts to establish how a technology supporting Increasing Returns favourably influences the five forces, providing fillip to a firm's competitive positioning, thereby offering it a substantial strategic advantage over peers.
Keywords
5 Forces Model, Porter, IRS, Technology, Competitiveness.
User
Information
- Ajit Prasad is Director at Indian Institute of Management, Lucknow; the paper was written during his stay at SP Jain Institute of Management, Mumbai. The usual organizational disclaimer applies. The author is grateful to contributions made by the student community group in general, and Ms H Pavitra (PGP student at IIM Raipur) in particular, for an earlier draft.
- It may also be interesting to reflect on Houthakker (1955) work on the aggregation of the Leontief type production function with zero elasticities of substitution, results through a large sample aggregation into the Cobb Douglas type production function with built in non-zero elasticities.
- Grove, Andrew, Only the Paranoid Survive (New York: Crown Business, reprint edition 1999) has attempted to introduce a sixth force, that of the complementors, which are factors / institutions outside the industry, yet have the power to alter the forces within the industry; Government is one such factor.
- A production function (initially proposed by Knut Wicksell) statistically tested by Charles Cobb and Paul Douglas in 1928, widely used to represent the relationship between output and inputs. The model assumes a simple economy with only two factor inputs – labour and capital invested.
- The firm, while trying to reduce the per unit cost and utilize the efficiencies, would want to aim for higher output (not necessarily the same level or a level that fully utilizes the inputs required previously at a lower level) and thus require higher levels of inputs.
- One of the four growth strategies propounded by Igor Ansoff (1957), projected across a 2-by-2 matrix popularly known as the ‘Ansoff ’s Matrix’, which aids managers in deciding on avenues for growth through products and markets (both existing and new), by assessing the subjective risks and returns attributable to each approach. Other three strategies are Market Extension, Product Development, and Product Diversification.
- Schwartz, Ephraim, “Wal-Mart promises RFID will benefit suppliers,” Infoworld, June 17, 2004, http://www.infoworld.com/t/data-management/wal-mart-promises-rfid-will-benefit-suppliers-160, accessed May 2014.
- Malviya, Sagar, “Ghari moves out Wheel to be No 1 in laundry market,” The Economic Times, January 10, 2012, http://articles.economictimes.indiatimes.com/2012-01-10/news/30611850_1_bimal-kumar-gyanchandani-ghari-laundry-market, accessed May 2014.
- It is a popular notion that for improving their spoken/written English, people should be habitual of reading editorials of The Hindu.
- Prasad, Ajit, “The Technology Strategy Nexus,” Management Review, IIM Bangalore, 2006.
- Grove, Andrew, Only the Paranoid Survive (New York: Crown Business, reprint edition 1999)
- Ansoff, H. Igor (1975), Strategies for Diversification, Harvard Business Review, (Sept-Oct): 113–124.
- Arthur, W. Brian, (1996), Increasing Returns and the New World of Business, Harvard Business Review (July-August): 100–109.
- Deans, G. K., et al (2002), The Consolidation Curve, Harvard Business Review, (December): 20–21
- Dixit, Avinash K. and Barry, J. Nalebuff (1993), Thinking Strategically: The Competitive Edge in Business, Politics, and Everyday Life, W. W. Norton & Company, New York.
- Douglas, Paul and Cobb, Charles (1928), Theory of Production, American Economic Review, 18 (supplement): 139–165.
- Grove, Andrew (1999), Only the Paranoid Survive, Crown Business, New York.
- Hicks, John (1946), Value and Capital: An Inquiry into Some Fundamental Principles of Economic Theory, Clarendon Press, Oxford.
- Houthakker, H. S. (1955), The Pareto Distribution and the Cobb–Douglas Production Function in Activity Analysis, The Review of Economic Studies, 23(1): 27–31
- Intriligator, Michael D. (2002), Mathematical Optimization and Economic Theory, SIAM, Philadelphia, PA.
- Marshall, Alfred (1890), Principles of Economics (Revised Edition) Macmillan, reprinted by Prometheus Books in 1997.
- Piketty, Thomas (2014), Capital in the Twenty-First Century, Harvard University Press, Boston.
- Pindyck, Robert S. et al (2013), Microeconomics, Pearson Education.
- Porter, Michael, (2008), How Competitive Forces Shape Strategy, Harvard Business Review (January): 78–93.
- Prasad, A. (2006), The Technology Strategy Nexus, Management Review, (December): 365–373.
- Robbins, L. (1932), The Subject Matter Of Economics. An Essay on the Nature and Significance of Economic Science, Macmillan & Co., London.
- Robertson, Dennis H. (1915), A Study of Industrial Fluctuations, P S King & Son, Westminister, London.
- Wicksell, Knut (1954), Value, Capital and Rent, George Allen & Unwin, reprint through A M Kelly, New York in 1970.
Abstract Views: 891
PDF Views: 1