Thomas Mejtoft. Institutional Arrangements and Competitive Posture: Effects of Company Structures in the Commercial Printing Industry

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1 Thomas Mejtoft Institutional Arrangements and Competitive Posture: Effects of Company Structures in the Commercial Printing Industry Doctoral Dissertation in Media Technology and Graphic Arts Royal Institute of Technology Stockholm Sweden 2008

2 Institutional Arrangements and Competitive Posture: Effects of Company Structures in the Commercial Printing Industry Copyright 2008 Thomas Mejtoft. No parts of this dissertation may be reproduced without the written permission of the author. Art work on page xiv, 4, 20, 68, 110 and cover art reproduced by courtesy of Sara Mejtoft / TRITA-CSC-A 2008:16 ISSN ISRN KTH/CSC/A--08/16--SE ISBN Royal Institute of Technology (KTH) School of Computer Science and Communication Media Technology and Graphic Arts SE Stockholm Sweden Thesis for the degree of Doctor of Technology to be presented with due permission for public examination and criticism in Sydvästra galleriet, KTHB, Osquars backe 31 at the Royal Institute of Technology (KTH) on November 11, 2008, at 13:00. Supervisor: Prof. Nils Enlund, Media Technology and Graphic Arts, KTH. Opponent: Prof. Robert G. Picard, Jönköping International Business School, Sweden. Examination committee: Prof. Saara Taalas, Turku School of Economics, Finland. Prof. Dimitrios Zevgolis, Hellenic Open University, Greece. Associate Prof. Stefan Melesko, University of Kalmar, Sweden. Printed in 2008 by US AB, Stockholm, Sweden.

3 To the ones who are always there.

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5 Abstract The research objective of this dissertation is to investigate the impact of institutional arrangements, with respect to vertical integration and cooperation, on competitive advantages within the commercial printing industry, with specific focus on digital printing. This dissertation comprises six research papers, based on four qualitative case studies and a quantitative survey study, all carried out in Sweden in the years The results show that vertical integration is a way to achieve competitive advantages in the commercial printing industry and is a widely used strategy in Sweden. Being able to contract full service companies is appreciated by customers to printing houses, especially direct customers, due to their need for a supplier of complete solutions for printed matters. Consequently, a vertically integrated company can provide value added services which makes it possible for customers to minimize their organization regarding production and purchasing of printed matters. Other reasons for vertical integration are the need to ensure fast deliveries to customers and having a steady supply of appropriate jobs. Despite the believed strategic importance by the industry, the results show that the level of vertical integration has no significant impact on profitability. Vertical integration is strategically important for digital printing houses in order to develop their business because digital printing allows for fast deliveries, on-demand printing and variable data printing. Despite the commoditization of printed matter, the findings indicate that the industry, in general, focuses on providing a high service level even though it means having to set higher prices. Furthermore, the results point toward that this strategic positioning is beneficial for digital printing houses because they experience a lower degree of competition and a lower price pressure. Vertical integration can, however create inflexibility due to ownership and employment. The findings suggest that cooperation can be used to achieve fast access to valuable resources, such as production equipment and knowledge, and, hence, increase printing houses resource flexibility. Even though internal control of resources is regarded as important to be able to satisfy customers needs and produce customers orders on time, cooperation with partners can create similar strategic effects. Furthermore, cooperation can give cost and flexibility advantages compared to vertical integration by reducing internal need for production capacity and allowing access to complementary resources. Nevertheless, it is common to combine vertical integration with cooperation to create competitive advantages and make a company more flexible and dynamic toward market changes. Keywords: business strategy, cooperation; customer value, institutional arrangements, printing industry, vertical integration Institutional Arrangements and Competitive Posture v

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7 Sammanfattning Denna doktorsavhandling har till syfte att studera hur institutionella strukturer, såsom vertikal integration och samarbeten, påverkar konkurrensfördelar i den kommersiella tryckindustrin, med fokus på digitaltryckerier. Den här avhandlingen består av sex forskningsartiklar baserade på fyra kvalitativa fallstudier och en kvantitativ enkätundersökning, genomförda i Sverige under åren Resultaten visar på att vertikal integration både är ett sätt att uppnå konkurrensfördelar inom den kommersiella tryckindustrin och är dessutom en allmänt använd strategi i Sverige. Att ha möjlighet att kontraktera ett fullserviceföretag är uppskattat av kunder till tryckerier, speciellt direktkunder, på grund av deras behov av att ha en leverantör av kompletta lösningar för trycksaker. Ett vertikalt integrerat företag kan erbjuda värdehöjande tjänster som gör det möjligt för kunder att minimera sin organisation kring produktion och inköp av trycksaker. Andra anledningar till vertikal integration är behovet av att möjliggöra snabba leveranser till kunder och få tillgång till lämpliga arbeten. Trots den tilltro som industrin visar för den strategiska betydelsen av att vara vertikalt integrerad, påverkar inte nivån av vertikal integration den procentuella vinstnivån. Vertikal integration är strategiskt viktig hos digitaltryckerier för att utveckla deras affärer då digitaltryck är mest lämpligt för snabba leveranser, korta upplagor och variabeldatatryck. Trots att tryck anses som en produkt med mycket små skillnader mellan olika leverantörer, visar resultaten på att tryckindustrin generellt har fokuserat på att hålla en hög servicenivå men den konsekvensen att behöva ha en högre prisnivå. Vidare indikerar resultaten att fokus på en hög servicenivå har gjorts mer fördelaktigt av digitaltryckerier eftersom dessa upplever en svagare konkurrenssituation och en lägre prispress från marknaden än konventionella tryckerier. Vertikal integration kan dock minska flexibiliteten på grund av ägande av utrustning och anställning av personal. Resultaten visar på att samarbeten kan användas för att få snabb tillgång till värdefulla resurser, såsom produktionsutrustning och kompetens och därigenom öka ett tryckeris resursflexibilitet. Trots att kontrollera resurser internt anses som viktigt för att tillgodose kunders behov och producera order på utlovad tid, kan samarbeten med partners skapa liknande strategiska effekter. Vidare kan samarbeten ge kostnads- och flexibilitetsfördelar gentemot vertikal integration genom att ge möjlighet att begränsa den interna kapaciteten och ge tillgång till kompletterande resurser. Det är med andra ord vanligt att kombinera vertikal integration med samarbeten för att skapa konkurrensfördelar och göra företaget mer flexibelt att möta förändringar på marknaden. Nyckelord: affärsstrategi, digitaltryck, institutionell struktur, kundvärde, samarbete, vertikal integration Institutional Arrangements and Competitive Posture vii

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10 Positioning in the Printing Industry - Differentiation in Terms of Price, Lead Time, Print Quality and Flexibility Thomas Mejtoft STFI-Packforsk/Royal Institute of Technology (KTH) Järnvägsgatan 3, SE Örnsköldsvik, Sweden thomas.mejtoft@stfi.se Magnus Viström STFI-Packforsk/Lund University, Division of Packaging Logistics Järnvägsgatan 3, SE Örnsköldsvik, Sweden magnus.vistrom@stfi.se Keywords: strategy, differentiation, flexibility, commercial printing Differentiation and adding value to the printed product is regarded as important in the low margin, highly competitive commercial printing industry of today. However, there exists a trade-off between the service level and the price the customer has to pay. This quantitative survey study of 136 commercial printing houses sets out to investigate how they are positioning themselves and how they perceive the demand from the customers with respect to price, lead time, print quality and flexibility. In summary the results presented in this paper propose that the commercial printing houses perceived a demand from customers to provide a commodity product with only small differences between price, lead time, quality and flexibility. However, the results also indicate that the printing houses want to sell a more differentiated and customer centric product with focus on flexibility and quality. Although positioning seemed to be independent of printing technology, it was possible to notice that digital printing houses perceived a lower price pressure from the market. These results suggest that using digital printing to enhance customer value was successful since the digital printing houses felt that their customers did not have as high demands for low prices as customers to conventional printing houses. Copyright Paper presented at iarigai s 34 th International Research Conference, September 2007, Grenoble, France. Paper published in Advances in Printing and Media Technology, Vol. 34, pp Institutional Arrangements and Competitive Posture 235

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12 Paper VI Vertical Integration and Profitability: Experiences from the Commercial Printing Industry Paper submitted for publication. Institutional Arrangements and Competitive Posture 249

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14 Vertical Integration and Profitability: Experiences from the Commercial Printing Industry Thomas Mejtoft STFI-Packforsk/Royal Institute of Technology (KTH) Magnus Viström STFI-Packforsk Keywords: corporate strategy, printing industry, profitability, vertical integration This quantitative survey study investigates the degree of vertical integration in the Swedish commercial printing industry and examines the affect of vertical integration on profit. The results show that vertical integration is commonly used both by digital and conventional printing houses. The study concludes that vertical integration is important due to the strategic importance of controlling a large part of the value system. The study indicates that the level of vertical integration has no significant impact on profitability. Nevertheless, one explanation, for the high level of vertical integration, could be the strategic aspect of acquiring possibilities to expand the business. Copyright Paper submitted for publication. Institutional Arrangements and Competitive Posture 251

15 Thomas Mejtoft Institutional Arrangements and Competitive Posture: Effects of Company Structures in the Commercial Printing Industry