IN SEARCH OF SUSTAINABLE COMPETITIVE ADVANTAGE

Consortium:
Lappeenranta University of Technology, Department of Business Administration (the responsible leader Professor Kalevi Kyläheiko)

Turku School of Economics and Business Administration, Institute of Competition Policy Studies (the responsible leader Professor Paavo Okko).

This research project aims to explain empirically how the firms can gain and sustain their competitive advantages in some of the most important industries of the Finnish economy (ICT, forest, retail & wholesale). The project consists of the following key issues: (i) the industry level analysis of the sources of competitiveness, (ii) the firm level analysis of sources of competitive advantage, (iii) the role of complementary assets and capabilities in value creation, and (iv) the role of the appropriability conditions that have a decisive effect on the ability to extract profits from innovations. Hence, the research project integrates both the industry- and firm-level analysis in aim to build a coherent framework for the explanation and measurement of potential sources for competitive advantage.

In our view, all the extraordinary profits are based on market imperfections that can be traced back to (i) monopoly power (Porterian profits), (ii) scarce, inimitable, non-substitutable, and non-transferable resources and capabilities (Ricardian profits), or (iii) dynamic ability to renew and reconfigurate the knowledge base of the firm (Schumpeterian profits). Globalization is shifting the sources of competitive advantage from traditional monopoly profits towards Schumpeterian profits based on dynamic capabilities. Whereas globalization and the knowledge-based economy have their direct effects on the sources of competitive advantages, they also change the nature of competition in open markets. The creation, selection and use of knowledge assets is becoming the key driver of gaining competitive advantage. This has an impact on the way how the firms compete and how competition will be realized at the industry level. There are two fundamental principles that define the competitive behavior of firms: the desire to outperform the market and the need to protect the firm-specific valuable knowledge assets and capabilities from the competitors' imitation. By involving these ideas of firm behavior to the analysis of dynamic competition, it is possible to construct a more comprehensive view of the industry level competition environment.

Our research project will be based on empirical survey data as well as data collected from public sources. The main goal is to reveal the basic mechanisms and underlying structures that help sustain competitive advantage in differently competitive industrial sectors. We will emphasize the role of knowledge assets and dynamic capabilities when the firms try to orchestrate their value chain in a way that minimizes transaction costs and maximizes transaction benefits. Different network strategies, entry timing of new innovation, the role of appropriability regime on the one hand and the open innovation model on the other hand as well as complementary assets and capabilities will be stressed as key drivers of the knowledge-based economy. 

The responsible leader of the consortium:
Professor Kalevi Kyläheiko
Tel: +35840 550 2779
E-mail: kalevi.kylaheiko(at)lut.fi