“Investment in Supply Chain Integration and De-escalation of Capacity Competition: A Formal Model and Empirical Test” by Dr. Kai-Yu HSIEH
Dr. Kai-Yu HSIEH
Associate Professor in Strategic Management
WASEDA Business School
When an entrepreneurial firm enters a new location to explore product- and labor-market opportunities, one critical concern is that its investment in building local production capacity could stimulate the latecomer to follow suit, resulting in escalation of capacity competition. In this paper, we develop a formal model to demonstrate how an early mover’s parallel investment in supply chain integration can help to de-escalate capacity competition through a positive spillover effect. We then test our predictions using data on a set of leading manufacturers in the information technology industry and their investment patterns in various geographic locations across China. In line with our expectation, our empirical results reveal that the latecomer’s capacity investment is increased by the early mover’s capacity investment, but decreased by the early mover’s supply chain investment. In addition to providing managers with a novel approach to tackle competitive pressure, this study also develops a conceptual bridge between operations management and entrepreneurship literature on entry behavior.