How diversification affects vertical integration through experience in pharmaceuticals

Antonio Carlos Lima Nogueira; Walter Bataglia

doi:10.4067/S0718-27242018000400003

Authors

Antonio Carlos Lima Nogueira Technological Faculty of Sao Paulo
Walter Bataglia Mackenzie Presbyterian University

DOI:

https://doi.org/10.4067/S0718-27242018000400003

Keywords:

governance structures, strategic alliance, drugs manufacturing

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.

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Author Biographies

Antonio Carlos Lima Nogueira, Technological Faculty of Sao Paulo

Ph.D in Business in Presbyterian University Mackenzie.

Walter Bataglia, Mackenzie Presbyterian University

PhD in Busines at University of São Paulo, Professor at Centre of Social and Applied Sciences

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