Positioning firms along the capabilities ladder

Alex Coad (), Nanditha Mathew () and Emanuele Pugliese ()
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Nanditha Mathew: UNU-MERIT, Maastricht University
Emanuele Pugliese: European Commission, Joint Research Centre (JRC)

No 2021-031, MERIT Working Papers from United Nations University - Maastricht Economic and Social Research Institute on Innovation and Technology (MERIT)

Abstract: We develop and apply a novel methodology for quantifying the capability development of firms, and putting these capabilities (and hence also the firms) in a hierarchy, that we refer to as their position on the capabilities ladder. Our nestedness algorithm, inspired by biology and network science, defines a capability as complex if it is performed by only a few firms at the upper rungs of the ladder. We analyze balance sheet and innovation data of almost 40,000 Indian firms for the time period 1988-2015, and observe significant nestedness. Lower rungs of the capabilities ladder correspond to basic managerial and production capabilities. Mid-level rungs correspond to internationalization and acquiring absorptive capacity. Higher level rungs are more related to M&A and innovation. ICT capabilities have become more fundamental lower-level rungs on the capabilities ladder in recent years. We find that capability ranking can explain future growth patterns and survival probability of firms, summing up in one number their future potential trajectories.

Keywords: Capabilities; Competences; Complexity; Balance sheet data; Resources (search for similar items in EconPapers)
JEL-codes: D2 L2 O12 (search for similar items in EconPapers)
Date: 2021-08-13
New Economics Papers: this item is included in nep-ent, nep-his, nep-ict, nep-ino, nep-sbm and nep-tid
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Persistent link: https://EconPapers.repec.org/RePEc:unm:unumer:2021031

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