The nanoeconomics of firm‐level decision‐making and industry evolution: Evidence from 200 years of paper and pulp making

• Published date: 01 March 2020
• DOI: http://doi.org/10.1002/smj.3080
• Date: 01 March 2020
• Author: Juha‐Antti Lamberg,Mirva Peltoniemi

SPECIAL ISSUE ARTICLE

The nanoeconomics of firm-level decision-making

and industry evolution: Evidence from 200 years of

paper and pulp making

Juha-Antti Lamberg | Mirva Peltoniemi

Jyväskylä School of Business and

Economics, University of Jyväskylä,

Jyväskylä, Finland

Correspondence

Juha-Antti Lamberg, Jyväskylä School of

Business and Economics, University of

Jyväskylä, P.O. Box 35, FI-40014

Jyväskylä, Finland.

Email: juha-antti.lamberg@jyu.fi

[The copyright line for this article was

changed on 7 November 2019 after original

online publication.]

Abstract

Research Summary: We explore the qualitative differ-

ences in entries and exits over time. Using qualitative and

quantitative data on 96 firms over 200 years, we study

industry evolution from the perspective of individual

decision-making situations. Our historical and statistical

analyses reveal the vital role of technology investments in

determining firm outcomes, and the technological, institu-

tional and governance dynamics that lead firms to invest

or to abstain. Our main theoretical and methodological

contribution concerns the importance of the multiplicity of

firm-level rationalities and decisions as fundamentals in

theorizing on industry evolution.

Managerial Summary: What determines firm outcomes

in terms of acquisition, dissolution, and survival? This

article answers this crucial question of strategy and elabo-

rates on the extent to which the outcome is under top man-

agement control. Our findings highlight the importance of

technology investments and we identify factors that make

such investments possible and profitable. Our results

emphasize that firms weighing options must assess the

economic meaningfulness of generational technology

investments which result in narrowing profit margins and

intensifying competition. Another insight concerns the

management of political risks. Long-term fluctuations in

Juha-Antti Lamberg and Mirva Peltoniemi contributed equally.

Received: 29 September 2017 Revised: 23 April 2019 Accepted: 1 June 2019 Published on: 29 August 2019

DOI: 10.1002/smj.3080

This is an open access article under the terms of the Creative Commons Attribution License, which permits use, distribution and reproduction in

any medium, provided the original work is properly cited.

© 2019 The Authors. Strategic Management Journal published by Wiley & Sons, Ltd. on behalf of Strategic Management Society.

Strat Mgmt J. 2020;41:499–529. wileyonlinelibrary.com/journal/smj 499

regulation and foreign trade policy make it hazardous to

optimize to the contemporary political regime. Skillful

strategists invest in geographical and technological com-

plexity, which in combination increase the chances of sur-

vival in rapidly changing political regimes.

KEYWORDS

exit mode, industry evolution, nanoeconomics, paper and pulp

industry, technology investment

1|INTRODUCTION

How industries evolve and why they evolve as they do is a shared research interest at the inter-

section of strategy, business history, and economics. Scholars in strategy and economics typically

look for generalizable patterns and consistent empirical evidence. These efforts have resulted in

important theoretical insights concerning the causal links between firm-level strategy and industry-

level evolutionary patterns (e.g., Klepper, 1996; Malerba, Nelson, Orsenigo, & Winter, 2008). In

general, business historians have been interested in location and time-specific processes and often-

anomalistic effects of historical and institutional contexts on industry evolution (e.g., Butzbach,

2018; Cain & Haddock, 2005). Our aim is to build on and complement these research traditions by

studying the nanoeconomics of the decisions made by entrepreneurs and managers (Braguinsky &

Hounshell, 2016).

We follow earlier leads from the intersection of industry evolution research and theories on gover-

nance (e.g., N. S. Argyres & Liebeskind, 1999; Malerba & Orsenigo, 2015) and institutions

(Bjørnskov & Foss, 2016; North, 1990) which emphasize the importance of institutional dynamics

and history in the study of industry evolution and entrepreneurial decision-making. We study the

evolution of a nationally important population of firms in the Finnish paper and pulp industry—a

population that has produced several of the world's largest paper industry companies (currently num-

bering three in the global top 10) and has been a global technological forerunner since the 1970s

(Nykänen, Paulapuro, Stewart, & Maylett, 2005).

In our analysis, we trace the firm-specific pathways to survival and exit for the whole population

of firms. On the surface, the evolution of the industry seems predictable, given sufficient knowledge

of industry life-cycle theory and an overall understanding of the sources of competitive advantage

(see Figure 1). However, in the early phase of our research, we identified several anomalies, includ-

ing a substantial percentage of exits having a nonmarket explanation and the inability of industry-

specific physical resources to protect a firm against exit. These anomalies motivated us to seek causal

mechanisms for the understanding of nano-level decision-making situations along evolutionary path-

ways and why and how these pathways in aggregate produce the inverted u-shaped, macro-level evo-

lutionary cycle predicted by industry life-cycle theory. Our findings corroborate the crucial role of

technology investments in determining the fate of firms (cf. Jovanovic & Macdonald, 1994), but we

also find institutional and governance-related explanations for those investment decisions. Subse-

quently, our research question is as follows: How and why does the interplay of historical contexts

and firm-level decision-making aggregate into industry-level structural changes?

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