NADEZHDA GOREYKO

gnadinea@gmail.com

SVETLANA AVDASHEVA

avdash@hse.ru INSTITUTE OF INDUSTRIAL AND MARKET STUDIES,

STATE UNIVERSITY – HIGHER SCHOOL OF ECONOMICS, MOSCOW, RUSSIA

8th ENEF Meeting “Strategy and Economics of the Firm”, Strasbourg, France, 7-8 September 2011

The Empirical Analysis of Governance Structures

in Russian Manufacturing

Governance in Economic Theory

• Seminal work of Williamson (1985): classification of governance structures on market, hierarchical and hybrid

• There are a number of hybrid models of governance (Ménard, 2004)

• One classification of hybrid models for buyer-supplier relationships is proposed by value chain theory (Gereffi et al., 2005) as modular, relational and captive

• Despite the importance of governance structures the governance structures in Russia have been studied insufficiently

The Goal of Research:• To classify enterprises by the type of governance • To measure the shares of different transactions’

governance in manufacturing• To test the hypotheses on the impact of governance

models on: – Governance inside the firms– Price and non-price competition of enterprises– Investment decisions on the level of enterprises– Contract risk assessment by the enterprises

• To make conclusions on reliability of classification of hybrid governance on modular and relational

Overview of the paper• Methodology of governance structures analysis

– Source of data– Classification of governance types– Hypotheses of empirical analysis

• Governance types in Russian manufacturing: results of the hypothesis testing

• Conclusions and implications

Source of Data: Sample Survey of Russian Manufacturing Enterprises

• Survey of top managers of 957 enterprises by IIMS (Higher School of Economics) in 2009

• 8 Manufacturing industries

• 50 regions of Russian Federation

• Mid-sized enterprises: entities with the number of employees less than 100 (in 2005) and more than 10 000 are excluded from the sample.

• About 8% of an average number of employees in manufacturing and 6% of manufacturing product in Russia

Approaches to Analysis

NewInstitutionalEconomics

ValueChainTheory

New Institutional Economics

TRANSACTION

Frequency

Asset specificity

Uncertainty

Market

Hybrid

Hierarchy

Value Chain Theory

HYBRID

Modular

Relational

Captive

Classification of Governance Types for Supplier-Buyer Relations

Hypotheses of empirical analysis-1 • H1. The structure of Russia's manufacturing sector is bipolar: the

majority of enterprises is involved in market transaction or hierarchy;

the latter prevails• H2. There is a connection between the model of transaction

governance and model of governance in the company. Under modular

governance management is more frequently diverged from the

ownership• H3. Participants in different types of transactions have different

attitudes towards price and non-price competition: – H3.1. Market governance implies relatively low transaction cost for the

participants: the share of prepayment as a measure of distrust (high

transaction cost) should be lowest – H3.2. The preferred tool to assure quality depends on the type of buyer.

Suppliers in modular transactions should prefer ISO certification in contrast to

brand name.

Hypotheses of empirical analysis-2

• H4. The enterprises within hierarchies have higher investment on the level of enterprises (with high level of specificity).

• H5. Participants in hierarchical transactions have lower assessment of adverse events in the future. This should be true both for opportunism of partners in transactions and for trends in performance. Participants in relational (but not modular) transactions evaluate risks of partners’ opportunism as highest.

H1: The Structure of Russian Manufacturing

H1 is not Supported: hierarchical and market governance models do not prevail in Russian manufacturing

H2 is Supported: under modular governance the management is more often diverged from ownership than under relational one

H3.1 is partly Supported: the share of trade credit minus share of prepayments in shipments is significantly higher for the participants of market transactions in comparison with hybrid transactions (OLS regression)

Sample All enterprises Independent enterprises Subsidiaries of holding companies

Constant 24.82*(1.86)

23.45* (1.77) 16.34(1.02)

14.72(0.92)

57.40**(2.30)

57.30**(2.30)

Hierarchy 2.51 (0.39)

3.82(0.59)

0.83 (0.09)

2.80 (0.32) 5.58(0.52)

4.11(0.39)

Hybrid -10.87**(-2.07)

-13.23**(2.20)

6.13(0.56)

Modular -11.83**(-2.06)

-12.08*(-1.84)

-0.10 (-0.80)

Relational -2.00(-0.27)

-14.93(-0.60)

16.03(0.98)

SIZE (ln employment) 0.45 (0.22)

0.57(0.28)

1.93(0.77)

2.04(0.81)

-6.79*(-1.72)

-6.65*(-1.67)

Industries Yes Yes Yes Yes Yes YesParticipation of state in the ownership

-14.38* (-1.93)

-15.36** (-2.06)

-9.90 (-1.16)

-11.04(-1.29)

-22.48(-1.43)

-24.00 (-1.52)

Created after 1990 13.87 (1.61) 15.36*(1.78)

18.57*(1.83)

20.04**(1.96)

2.42(0.15)

4.68(0.28)

Competition 16.33***(2.98)

15.83**(2.86)

14.19**(2.16)

13.65**(2.07)

31.68***(3.10)

31.19***(3.04)

N 634 634 452 452 181 181F-statistics 15.70** 14.58*** 10.62*** 9.70*** 6.94*** 6.49***R2 adjusted 0.23 0.23 0.22 0.21 0.30 0.30

H3.2. is supported: under modular transactions enterprises more often choose ISO certification instead of brand name financing (binary logistic regression)

Dependent variables BRAND name (1 – yes, 0 – no)

ISO certification (1- yes, 0 – no)

Sample All enterprises

All enterprises

Final product suppliers

Final product suppliers

Hierarchy - - - -Hybrid -*** +**Modular -*** +**Relational - +**SIZE (ln employment) +*** +*** +*** +***Competition +** +*Participation of state in the ownership

-** -**

Industries Yes Yes Yes YesN 644 644 318 318-2Log likelihood 760.87 759.49 396.15 396.15R2 Nagelkerke 0.09 0.09 0.09 0.09Test of the model χ2 62.16*** 63.54*** 21.14** 21.14**

H4 is supported: enterprises in hierarchies have higher chances to invest whatever indicator of investment we use (binary logistic (a) and ordinal (b) regression)

Dependent variables (sunk investments indicators)

Lean productio

nLEANa

Investments INVb

R&D expenditure

sR&Da

Equipment purchasing

EQUIPa

Purchasing of

technologies

TECHa

Hierarchy +*** +*** +* +* +**Hybrid + + + + +SIZE (ln employment) +** +*** +*** +*** +***Competition +** +**Participation of state in the ownership

-**Divergence of management from ownership

-**

Industries Yes Yes Yes Yes YesN 769 581 769 769 769-2Log likelihood 806.70 1161.90 730.06 974.52 767.13R2 Nagelkerke 0.05 0.15 0.27 0.09 0.11Test of the model χ2 27.82**

*80.62*** 157.64*** 51.36*** 60.17***

H5 is partly supported: enterprises in hierarchies consider themselves more protected in contracts but assess the probability of bankruptcy as higher; enterprises in relational structures consider the risk of unfair competition as highest

Unfair competitiona

Contract protectiona

Probability of banlruptcyb

Hierarchy - - +** +** +* +*Hybrid + +*** -

Modular + +** -

Relational +*** +** -

Industries Yes Yes Yes Yes Yes YesSize(ln_employment

)- - +** +** -* -*

Agglomeration - - -*** -*** -** -*Switching cost -** -** - -

State ownership -** -**

N 668 668 644 644 527 527-2Log likelihood 882.57 876.17 713.73 713.73 761.02 793.66

R2 Nagelkerke 0.05 0.06 0.07 0.07 0.08 0.08

Test of the model χ2 25.28** 31.68*** 33.74***

33.74*** 36.66*** 36.70***

Conclusions and implications

Conclusions-1

1) In Russian manufacturing there exist all types of governance between suppliers and buyers. Hierarchical governance does not prevail.

2) Governance type matters: • … for the model of governance within the firm; • … for scope of price competition;• … for the way to assure quality;• … for the amount of investment on the level of

enterprise;• … for the assessment of contract protection and risk.

Conclusions-2

• Relational and modular governance models as a types of hybrids are very different in terms of impact on the behavior of the enterprises.

• Therefore the classification according to the role of buyer in codification and standards’ setting is important to explain inter-firm relations.

Thank you

for your attention