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The present study examines the impact affirm and industry-specific factors on profitability, using census data on Greek manufacturing. At the firm level, particular attention is given to strategy effects. Based on a modification of Porter's typology, these effects are captured through different forms of both 'pure' and 'hybrid' strategies. Industry effects are represented using industry concentration, entry barriers, and growth. Hypotheses are developed taking into account both previous research and the particular idiosyncrasies of the national context. The results obtained provide important insights on specific determinants affirm profitability. With respect to strategy, results confirm the hypothesis that hybrid strategies are clearly preferable compared to pure ones. In addition, it was found that the more generic strategy dimensions are included in the strategy mix, the more profitable the strategy is, provided that one of the key ingredients is low cost. Industry-level effects, although weaker, show strong impact of industry entry barriers. Moreover, the findings suggest that while both sets of factors significantly contribute to firm profitability, firm-specific factors explain more than twice as much profit variability as industry factors. Copyright © 2003 John Wiley & Sons, Ltd.
Key words: determinants of profitability; competitive advantage; hybrid vs. pure strategies; industry structure
One of the major goals in current strategic management research is to identify the sources and determinants of profitability differences among firms. Previous research, mainly within the industrial organization (IO) tradition, has examined the role of industry effects such as those involving market concentration, entry barriers, and growth, providing results that largely support the notion that industry is an important determinant of firm profitability. The paradigmatic notion here is that industry structure determines profitability; in effect this means that high-profit firms are found in high-profit industries with favorable competitive structure. Whereas the question of firm behavior is largely ignored in traditional IO research, competitive strategy effects on firm performance have predominately been the subject of enquiry in the strategic management literature. Results along this line of research provide evidence supporting the impact of strategy on profitability.
More recent theorizing, particularly in the framework of the resource-based view of the firm, has advanced the notion that, basically, more subtle firm qualities related to organizational and managerial capabilities are those that matter; these factors underlie the...