How diversification affects vertical integration through experience in pharmaceuticals

Abstract

The objective of this study is to analyze the choice between internal and external supplier at the manufacturing stage in the Brazilian pharmaceutical industry. We developed a structural equation model with hypotheses on experience, diversification, asset specificity, and vertical integration. We collected data for 1566 drugs registry, including its pharmaceutical form, therapeutic class and operation time of the firm and group. We found that the higher the experience, the lower the vertical integration in the manufacturing stage and a clear mediating effect of experience on the relationship between diversification and vertical integration. As firms advance in experience and the spread of the capabilities throughout the industry, agents concentrate activities on the relevant stages in value creation and strategically outsource the manufacturing. As the firm increases the diversification in the product portfolio, the experience favours the building of capabilities to manage the production lines and strategies for outsourcing. This result suggests a low risk for strategic alliances at the manufacturing stage.

Institutional regulation and performance of clinical-trial strategic alliances

“…Relational capability guarantees the functioning of strategic alliances, managing the inter-organizational relationship between the parties involved. It constitutes an additional interorganizational coordination mechanism to the relational contract between the parties (Ménard, 2006;Lima Nogueira & Bataglia, 2018). These governance structures determine activities developed in the alliance and their distribution among the partners, guide the development of actions in the parties, the integration mechanisms, the operational interfaces, and the resolution of eventual conflicts.…”

Related and unrelated product diversification and collaboration strategies: Comparison between the pharmaceutical and biopharmaceutical industries

“…For both the pharmaceutical and biopharmaceutical industries, product diversification and collaboration strategies are used for successful product development, which can lead to the enhancement of firm performance. Previous studies discussed product diversification in both the pharmaceutical industry (Gino et al, 2006; Grewal et al, 2008; Laursen, 1996; Nogueira & Bataglia, 2018) and biopharmaceutical industry (Lin & Chen, 2005; Zhang & Tang, 2018). From the resource‐based theory, diversifying a firm's product development is viewed as leveraging its resources across product lines, which can engender economies of scope as long as such development is done within the firm's existing capability (Jay, 1991; Teece, 1986).…”