Study On The Firm Boundary Theory

As time goes,more and more modes of firm appear in front of us.How to explain why these modes emerge in the past,present and future is a topic of research in firm theory.This thesis attempts to provide an answer to the emergency of variety of these modes through reading relevant materials in firm theory and postulating from the angle of firm boundary.One difficulty encountered in this research is that methodologies for theories explaining the variety of firm modes differ fundamentally.To deepen the understanding of the theme of this thesis,the divergent in methodology among different schools is narrowed,centered with the evolution and development of firm boundary theory,by integrating theories of firm boundary in economics and management into a constructed framework of analyzing firm boundary theory,the thesis emphasizes on cause of the variety of firm mode.This thesis attributes the firm boundary theory framework to Coase,four core questions make up this framework: No.1 why firm emerges?(the first boundary of the firm);N0.2 why the boundary of firm expands?(why the size of firm increases);No3 why the expansion of the firm boundary stops?(the second boundary of the firm);No.4 how stable is the firm's boundary? Through this framework,following the thought of Coase,this thesis regards firm's boundary as the boundary of both the firm and the market.Coase emphasizes to view the firm from the market,firm theory based on Coase mainly concerned with the homogeneity of firms,while firm boundary theory based on strategy inherits and develops the thought of Coase,which emphasizes on viewing the market from the angle of the firm,focuses on the heterogeneity of firms.The thought based on Coase does study internal issues of the firm,but the focus is different from that of the strategy school.Therefore,the thought of the strategy school is the evolution and development of the thought of Coase.Excludes the instruction and conclusion,this thesis is consists of eight chapters. Chapter One:The Origin of the firm boundary theory of Coase.This chapter introduces contributions to firm boundary theory in classical economics by Adam Smith,Senior,Mill and Marshall in their works;introduces the unique view of Knight on firm boundary from risk theory;introduces thoughts of firm boundary from neo-classical economics.In the end of this chapter,the firm boundary theory of Coase is introduced with the four core question raised.Chapter Two:Firm boundary theory based on transaction cost.After the emergence of firm boundary theory of Coase,the first group of influenced followers were of the neo-classical school,such as Williamson,Klein,Alchian,Steven Chiang,Hart, Milgram etc,building on the thought of Coase they developed a set of firm boundary theory based on transaction cost.these followers study the firm's boundary by transaction cost,rarely relates to the internal management of the firm.In their theory, the specific use of capital is the core concept,which is putted together with transaction cost to study the central issues of firm boundary.Chapter Three:Firm boundary theory based on firm management.Another field of research by Coase's followers is the internal management of the firm.Obviously,the angle of research by neo-institutional economics school differs from that of the management science,it concentrates on the firm's internal supervision and incentive stimulation.Classical firm's boundary by Alchian,share-holding firm's boundary by Jensen and Meckling,stability of share-holding firm's boundary by Fama are all development of the thought of Coase from the internal management of the firm.A review is written at the end of chapter four to generalize firm theory based on the thought of Coase.Chapter Four:Firm boundary theory based on strategy.This chapter differs from previous chapters of the neo-classical origin.From this chapter onwards,the theoretical foundation switches to the combination of economics and management science.This chapter introduces the influence of strategy on firms.We start from Porter,who raises different results of market competition from that of the neo-classical school:victory by firm strategy.This thought influences the firm boundary theory deeply,for the neo-classical school regards sufficient competition contracts firm boundary,the strategy school believes certain firms' boundary are expanded by sufficient competition.This chapter is not about the strategic factors that affects the finn's boundary,which is denoted to chapters five,six and seven. Chapter Five:Firm boundary theory based on Knowledge.Why different firms adopt different strategy? There are many such factors,but Winter and Nelson's view illustrates the importance of firm intemal knowledge for executing the firm's strategy. This importance lies in the fact that knowledge is divided into encoding knowledge and tacit knowledge.The study and pass on of tacit knowledge depends on organization members long-term coordination,which is difficult is pass out and emulate.This results in close relation among the organization's knowledge absorbing, knowledge accumulation,knowledge coordination and organizational structure. Henceforth,the complexity of intemal firm knowledge is correlated with the firm's boundary.The aim of this chapter is to study the change in firm boundary from the angle of knowledge.Chapter Six:Firm boundary theory based on resource.Ever since Penrose suggested that firm's resource affects the firm's development,many economists and researchers in management science have studied strategy problem of the firm from the view of firm's resource.For example,Wemerfelt suggested the firm's variety of business is conditioned on relevant resources.Based on this,Barney raised the idea that heterogeneity in resources is the core for victory in competition.Conner is credited by having firm's potential resource for value creating as the center of firm research comparing with previous firm theories.O'Mahony and Pande constructed the theoretical framework based on resource.Peteraf built the theoretical model of given resources.Through their research,we could study how the allocation of firm resource affects the firm's boundary.Chapter Seven:Firm theory based on ability.After Richardson(Richardson, 1972)provided firm ability theory,breakthrough in ability theory came after firm core ability theory by Prahalad and Hamel(1990).Their theory explains the emergence of firms worldwide with core product,relatively large range of control,capability to produce different product since the 1980s.Actually,they provided a new theory for the firm's controlled boundary.Nelson(1991),Barton(Barton,1992),Foss(1997) suggested the new.concept of dynamic ability,they consider firms with core ability may lack the ability to adapt to change in external environment,thus may easily form ability blockade which is harmful for the firm's long term development.Teece,Pisano and Shuen(1997) built the research framework for dynamic ability theory.Eisenhardt and Martin(2002) developed dynamic capabilities theory.L Araujo,A Dubois,LE Gadde(2003) gave the theory of direct and indirect abilities that affect the boundary of the firm.Finally,modularization of theory opened a new field of research for firm boundary.In the era of modularization,due to the fact that the internal side of the firm get more and more complex,the boundary firm contracts,competition among firms gets intensified.Building on modularized theory,Chinese economists Li Haijian,Nie Huihua,Luo Min(2004) studied many changes in firm's internal marketization;Li Haijian and Yuan Lei(2005)did a thorough research into a new mode of the firm:firm without boundary.Chapter Eight:Review of Finn Boundary Theory in Western Economics.This chapter draws conclusion from comparing firm boundary theory of Coase and firm boundary theory based on firm strategy,illustrates several points that firms in our country should pay attention to while in the process of learning,emulating and competing.