The Effects of Location-Fixity and Local ... - List of Projects

The Effects of Location-Fixity and
Local Embeddedness on the
Value Creation of Utilities and Concession-based Firms
D I S S E R T A T I O N
of the University of St. Gallen,
School of Management,
Economics, Law, Social Sciences
and International Affairs
to obtain the title of
Doctor Oeconomiae
submitted by
Annette Karoline Kern-Ulmer
from
Austria
Approved on the application of
Prof. Dr. Thomas Bieger
and
Prof. Dr. Günter Müller-Stewens
Dissertation no. 3941
Difo-Druck GmbH, Bamberg 2011

The University of St. Gallen, Graduate School of Business Administration,
Economics, Law and Social Sciences (HSG) hereby consents to the printing of the
present dissertation, without hereby expressing any opinion on the views herein
expressed.
St. Gallen, May 16, 2011
The President:
Prof. Dr. Thomas Bieger

Acknowledgements
Acknowledgements
The important thing in science is not so much to obtain new facts as to
discover new ways of thinking about them.
William Lawrence Bragg
Die Inspiration zum Thema dieser Dissertation verdanke ich massgeblich einer
Diskussion mit meinem Doktorvater, Prof. Dr. Thomas Bieger, in welcher wir der
Frage nachgingen, ob denn internationale Engagements von Flughafenbetreibern
ökonomisch sinnvoll seien. Ebendiese Thematik beschäftigte mich auch beruflich in
der internationalen Geschäftsentwicklung der Flughafen Zürich AG, und damit war die
Grundrichtung des Themas gefunden. Nach ersten Recherchen entstand die Idee, etwas
grundsätzlicher die Expansion standortgebundener und infrastrukturlastiger Branchen
unter dem Aspekt der ‚Value Creation‘ zu erörtern. Während der darauf folgenden
intensiven Phase des Forschens, Analysierens und Schreibens waren zahlreiche
Gespräche erforderlich, die für mich eine reiche Quelle an dichter und
aufschlussreicher Information waren. An dieser Stelle sei allen Impulsgebern im
Erstellungprozess herzlich gedankt. Ohne deren wertvolle Beiträge wäre diese Arbeit
nicht möglich gewesen.
Neben meinem Dank an Doktorvater Prof. Dr. Thomas Bieger und meinen
Korreferenten Prof. Dr. Günter Müller-Stewens, die mich weise, pointiert und effizient
im Forschungsprozess begleitet haben, möchte ich insbesondere Dr. des. Andreas
Nemeth danken, der mich wesentlich zu diesem Dissertationsprojekt inspiriert hat.
Cyrill Rüegg, Urs Brütsch und der Flughafen Zürich AG danke ich, da ich durch deren
Umsicht und Flexibilität diese Dissertation teils nebenberuflich fertigstellen konnte.
Eine wertvolle Quelle der Inspiration und Motivation waren mir auch die ‚Desperate
Docs‘ – mein Dank geht an Dr. Eva Bilhuber, Dr. Anne-Kathrin Lohbeck, Prof. Dr.
Markus Menz, Dr. Philipp Stradtmann sowie Carola Wolf für die angeregten
Diskussionen und das stets harte aber herzliche Challenging. Für die Ermöglichung
meiner Fallstudien und die Unterstützung während meiner empirischen Phase danke
ich Dr. Martin Everts (Axpo AG), Björn Schigt (Holcim Ltd) und Marc Chariatte
(ehemals Flughafen Zürich AG) sowie allen Interviewpartnern, die sich Zeit
genommen und sich so engagiert eingebracht haben.
Meinen grössten Dank möchte ich meiner Familie aussprechen, die mich während
allen Phasen bedingungslos unterstützt hat: meinen Eltern für die Ermöglichung der
iii

iv
Acknowledgements
Voraussetzungen, diese Dissertation überhaupt schreiben zu können und ihr
Verständnis während der Erstellungsphase, sowie meiner Schwester Dr. Marion Ulmer
für ihren wertvollen und motivierenden Rat und ihr immer offenes Ohr, vor allem aber
für ihre tatkräftige Unterstützung in der Schlussphase des Projektes. Für seine endlose
Geduld und sein Verständnis, seine Bereitschaft, persönliche Bedürfnisse
hintenanzustellen und seinen steten ermutigenden Zuspruch möchte ich an dieser
Stelle meine tiefe Dankbarkeit an meinen Ehemann Pascal Kern zum Ausdruck
bringen – dank ihm habe ich auch in Momenten des Zweifelns das Ziel nie aus den
Augen verloren. Neben all den damit verbundenen Opfern hat uns diese Zeit vor allem
weiter zusammengeschweisst und uns Gewissheit gegeben, dass wir unser Leben
gemeinsam verbringen wollen – Dir, Pascal, soll daher diese Dissertation gewidmet
sein.
St. Gallen, August 2011 Annette Kern-Ulmer

Overview of Contents v
Overview of Contents
Acknowledgements ........................................................................................................ iii
Overview of Contents ..................................................................................................... v
Table of Contents .......................................................................................................... vii
List of Figures, Tables, Appendices ............................................................................. xii
List of Abbreviations .................................................................................................. xvii
1 Introduction .................................................................................................................. 1
1.1 Research objectives and guiding questions ....................................................... 4
1.2 Theoretical relevance ........................................................................................ 8
1.3 Practical relevance ........................................................................................... 10
1.4 Outline of dissertation ..................................................................................... 11
2 Theoretical Embedding and Literature Review ......................................................... 14
2.1 Relevant concepts of strategic management research ..................................... 14
2.2 Relevant concepts of economic geography ..................................................... 23
2.3 Relevant concepts of (new) institutionalism ................................................... 27
2.4 Relevant concepts of economic sociology ...................................................... 30
2.5 Relevant concepts of value creation ................................................................ 35
2.6 Conclusion ....................................................................................................... 38
3 Empirical Approach ................................................................................................... 41
3.1 Research paradigm and research perspective .................................................. 41
3.2 Research methodology .................................................................................... 42
3.3 Case research ................................................................................................... 45
3.4 Research design ............................................................................................... 47
3.5 Research process ............................................................................................. 56
3.6 Methods ........................................................................................................... 58
3.7 Research quality .............................................................................................. 62
3.8 Conclusion ....................................................................................................... 68
4 Theory Building ......................................................................................................... 69
4.1 Space, place and scale ..................................................................................... 69

vi
Overview of Contents
4.2 Institutions ....................................................................................................... 71
4.3 Conceptual framework development .............................................................. 74
4.4 Part one - embedded single unit perspective ................................................... 78
4.5 Location-fixity ................................................................................................. 81
4.6 Institutional exposure ...................................................................................... 87
4.7 Moderators of institutional exposure ............................................................. 113
4.8 Embedding capabilities of local management ............................................... 119
4.9 Value creation ................................................................................................ 164
4.10 Part two – multi-site perspective ............................................................... 192
5 Case Studies ............................................................................................................. 220
5.1 Case study - energy utilities .......................................................................... 221
5.2 Case study - airport industry ......................................................................... 247
5.3 Case study - cement and building materials .................................................. 282
5.4 Cross case comparison .................................................................................. 312
6 Discussion of Results and Conclusions ................................................................... 329
6.1 Summary of propositions .............................................................................. 333
6.2 Contributions to theory .................................................................................. 334
6.3 Contributions to practice ............................................................................... 339
6.4 Limitations of the dissertation ....................................................................... 343
6.5 Methodological and empirical limitations ..................................................... 343
6.6 Theoretical limitations ................................................................................... 345
6.7 Directions for future research ........................................................................ 346
6.8 Final conclusions ........................................................................................... 349
Appendices .................................................................................................................. 352
Bibliography ............................................................................................................... 367
Curriculum Vitae Annette Karoline Ulmer ................................................................ 392

Table of Contents
Table of Contents
Acknowledgements ........................................................................................................ iii
Overview of Contents ..................................................................................................... v
Table of Contents .......................................................................................................... vii
List of Figures, Tables, Appendices ............................................................................. xii
List of Abbreviations .................................................................................................. xvii
1 Introduction .................................................................................................................. 1
1.1 Research objectives and guiding questions ....................................................... 4
1.2 Theoretical relevance ........................................................................................ 8
1.3 Practical relevance ........................................................................................... 10
1.4 Outline of dissertation ..................................................................................... 11
2 Theoretical Embedding and Literature Review ......................................................... 14
2.1 Relevant concepts of strategic management research ..................................... 14
2.1.1 Resource-based view ..................................................................................................... 15
2.1.2 Capability-based view ................................................................................................... 17
2.1.3 Relational view .............................................................................................................. 18
2.1.4 Transaction cost economics ........................................................................................... 19
2.1.5 Stakeholder theory ......................................................................................................... 21
2.2 Relevant concepts of economic geography ..................................................... 23
2.2.1 Location theory .............................................................................................................. 24
2.2.2 New economic geography - the cultural turn ................................................................ 26
2.3 Relevant concepts of (new) institutionalism ................................................... 27
2.3.1 New institutional economics ......................................................................................... 28
2.3.2 Legitimacy theory .......................................................................................................... 29
2.4 Relevant concepts of economic sociology ...................................................... 30
2.4.1 New economic sociology .............................................................................................. 31
2.5 Relevant concepts of value creation ................................................................ 35
2.5.1 Value creation within the RBV ..................................................................................... 36
2.5.2 Value creation through synergy realisation ................................................................... 37
2.6 Conclusion ....................................................................................................... 38
3 Empirical Approach ................................................................................................... 41
3.1 Research paradigm and research perspective .................................................. 41
3.2 Research methodology .................................................................................... 42
vii

viii
Table of Contents
3.2.1 Inductive research .......................................................................................................... 43
3.2.2 Grounded theory ............................................................................................................ 44
3.3 Case research ................................................................................................... 45
3.4 Research design ............................................................................................... 47
3.4.1 Conceptual framework .................................................................................................. 48
3.4.2 Research object .............................................................................................................. 49
3.4.3 Unit of analysis .............................................................................................................. 51
3.4.4 Case selection ................................................................................................................ 52
3.5 Research process ............................................................................................. 56
3.6 Methods ........................................................................................................... 58
3.6.1 Expert discussions and semi-structured interviews ....................................................... 58
3.6.2 Data transcription .......................................................................................................... 60
3.6.3 Document analysis ........................................................................................................ 60
3.6.4 Protocols and documentation ........................................................................................ 61
3.6.5 Coding and analysis ....................................................................................................... 61
3.7 Research quality .............................................................................................. 62
3.7.1 Validity .......................................................................................................................... 63
3.7.2 Reliability ...................................................................................................................... 67
3.8 Conclusion ....................................................................................................... 68
4 Theory Building ......................................................................................................... 69
4.1 Space, place and scale ..................................................................................... 69
4.2 Institutions ....................................................................................................... 71
4.2.1 Pillars of institutions ...................................................................................................... 71
4.2.2 Institutional environment and institutional arrangements ............................................. 73
4.2.3 Institutions and economic performance ......................................................................... 73
4.2.4 Institutional distance - the liability of foreignness ........................................................ 74
4.3 Conceptual framework development .............................................................. 74
4.3.1 Research questions guiding the framework development ............................................. 75
4.4 Part one - embedded single unit perspective ................................................... 78
4.4.1 Central links and notions of the research framework .................................................... 79
4.5 Location-fixity ................................................................................................. 81
4.5.1 Resource-based location-fixity ...................................................................................... 84
4.5.2 Market-based location-fixity ......................................................................................... 86
4.5.3 Ownership-based location-fixity ................................................................................... 87
4.6 Institutional exposure ...................................................................................... 87
4.6.1 Theoretical grounding of institutional exposure: stakeholder theory ............................ 88
4.6.2 Legitimate stakeholders within the research framework ............................................... 93
4.6.3 Theoretical grounding of institutional exposure: transaction cost theory ..................... 97

Table of Contents
4.6.4 Institutional exposure by identified stakeholder groups ................................................ 99
4.6.5 Reciprocal exposure, self-interest and the notion of fairness ...................................... 110
4.6.6 Differences in institutional environment and political system .................................... 112
4.7 Moderators of institutional exposure ............................................................. 113
4.7.1 Effects of the local economic relevance on institutional exposure .............................. 113
4.7.2 Effects of competition on institutional exposure ......................................................... 116
4.8 Embedding capabilities of local management ............................................... 119
4.8.1 The concept of embeddedness ..................................................................................... 122
4.8.2 Organisational legitimacy ............................................................................................ 126
4.8.3 Attributes of embedding capabilities ........................................................................... 129
4.8.4 Structural (economic) embedding capabilities ............................................................ 130
4.8.5 Relational (social) embedding capabilities .................................................................. 148
4.8.6 Summary of embedding capabilities ........................................................................... 162
4.9 Value creation ................................................................................................ 164
4.9.1 Value creation within the research framework ............................................................ 169
4.9.2 Value through strategic options ................................................................................... 171
4.9.3 Value through risk decrease ........................................................................................ 176
4.9.4 Short-term (direct impact) value creation .................................................................... 180
4.9.5 Summary of value creation effects in single-unit operations ...................................... 187
4.10 Part two – multi-site perspective ............................................................... 192
4.10.1 The role of the corporate parent .................................................................................. 193
4.10.2 Inter-site collaboration and linkage formation ............................................................ 194
4.10.3 Limitations to multi-site firms within UCI .................................................................. 195
4.10.4 Value creation in the multi-site firm ........................................................................... 200
4.10.5 UCF value creation in multi-site operations ................................................................ 202
4.10.6 Relational dimension of multi-site value creation ....................................................... 203
4.10.7 Resource dimension of multi-site value creation ........................................................ 206
4.10.8 Institutional dimension of multi-site value creation .................................................... 211
4.10.9 Summary of value creation effects in multi-site operations ........................................ 216
5 Case Studies ............................................................................................................. 220
5.1 Case study - energy utilities .......................................................................... 221
5.1.1 Industry characteristics ................................................................................................ 222
5.1.2 Swiss energy market .................................................................................................... 222
5.1.3 The case of Axpo ......................................................................................................... 224
5.1.4 Axpo's location-fixity .................................................................................................. 226
5.1.5 Axpo's environment - institutional exposure ............................................................... 228
5.1.6 Axpo's embedding capabilities .................................................................................... 232
5.1.7 Value creation .............................................................................................................. 239
5.1.8 Summary ..................................................................................................................... 246
ix

x
Table of Contents
5.2 Case study - airport industry ......................................................................... 247
5.2.1 Industry characteristics ................................................................................................ 247
5.2.2 Swiss airport industry .................................................................................................. 249
5.2.3 The case of Flughafen Zürich AG (Zurich Airport) .................................................... 250
5.2.4 Flughafen Zürich AG's location-fixity ........................................................................ 254
5.2.5 Flughafen Zürich AG's environment - institutional exposure ..................................... 256
5.2.6 Flughafen Zürich AG's embedding capabilities .......................................................... 262
5.2.7 Value creation .............................................................................................................. 272
5.2.8 Summary ..................................................................................................................... 281
5.3 Case study - cement and building materials .................................................. 282
5.3.1 Industry characteristics ................................................................................................ 283
5.3.2 Swiss cement and building materials market .............................................................. 285
5.3.3 The case of Holcim ...................................................................................................... 285
5.3.4 Holcim's location-fixity ............................................................................................... 289
5.3.5 Holcim's environment - institutional exposure ............................................................ 290
5.3.6 Holcim's legitimisation capabilities ............................................................................. 294
5.3.7 Value creation .............................................................................................................. 303
5.3.8 Summary ..................................................................................................................... 311
5.4 Cross case comparison .................................................................................. 312
5.4.1 Comparison of location-fixity ..................................................................................... 312
5.4.2 Commonalities and differences in institutional exposure ............................................ 314
5.4.3 Comparison of legitimisation and embedding strategies ............................................. 316
5.4.4 Comparison of value creation effects .......................................................................... 320
5.4.5 Summary & conclusion ............................................................................................... 326
6 Discussion of Results and Conclusions ................................................................... 329
6.1 Summary of propositions .............................................................................. 333
6.2 Contributions to theory .................................................................................. 334
6.2.1 Conceptualisation of location-fixity ............................................................................ 335
6.2.2 Conceptualisation of institutional exposure ................................................................ 336
6.2.3 Identification of embedding capabilities as value-creating factor ............................... 337
6.2.4 Enabling assets - linking institutional and strategic approaches ................................. 337
6.2.5 Utilities and concession-based firms - a new perspective ........................................... 338
6.3 Contributions to practice ............................................................................... 339
6.3.1 Long-term view of relationship building with stakeholders ........................................ 340
6.3.2 Understanding location-fixity's impacts and mitigation possibilities .......................... 341
6.3.3 Alternative approach to business development ........................................................... 342
6.3.4 Affirmation of value creation opportunities in UCF multi-site operations ................. 342
6.3.5 Identification of new peer group for exchange ............................................................ 343

Table of Contents
6.4 Limitations of the dissertation ....................................................................... 343
6.5 Methodological and empirical limitations ..................................................... 343
6.6 Theoretical limitations ................................................................................... 345
6.7 Directions for future research ........................................................................ 346
6.7.1 Methodological and empirical directions .................................................................... 347
6.7.2 Theoretical directions .................................................................................................. 347
6.8 Final conclusions ........................................................................................... 349
Appendices .................................................................................................................. 352
Bibliography ............................................................................................................... 367
Curriculum Vitae Annette Karoline Ulmer ................................................................ 392
xi

xii
List of Figures, Tables, Appendices
List of Figures
List of Figures, Tables, Appendices
Figure 1-1: Worldwide development of power deal activity .......................................... 1
Figure 1-2: Simplified (single-site) research framework, part one ................................. 5
Figure 1-3: Simplified (multi-site) research framework, part two ................................. 7
Figure 1-4: Outline of dissertation ................................................................................ 13
Figure 3-1: Basic types of case study designs .............................................................. 46
Figure 3-2: Simplified research framework and reference to research questions ........ 49
Figure 3-3: Inductive research process ......................................................................... 56
Figure 3-4: Theoretical sampling process to saturation ................................................ 60
Figure 4-1: Conceptualisation of space, place and scale .............................................. 70
Figure 4-2: Simplified conceptual framework and references to subchapters ............. 79
Figure 4-3: Types of location-fixity and corresponding references to subchapters ..... 81
Figure 4-4: Immobility-inducing resources .................................................................. 85
Figure 4-5: Internal and external stakeholder classification ......................................... 90
Figure 4-6: Institutional exposure and stakeholder groups within the research
framework ..................................................................................................................... 97
Figure 4-7: Moderators between location-fixity and institutional exposure .............. 113
Figure 4-8: Influence of aggressive competition on institutional exposure ............... 119
Figure 4-9: Embedding capabilities as action parameter towards value creation ...... 120
Figure 4-10: Objectives of the firm's embedding capabilities .................................... 121
Figure 4-11: Attributes of embedding capabilities within the research framework ... 130
Figure 4-12: Virtuous cycle between value share remaining in region and rent ........ 134
Figure 4-13: Principal forms of governance ............................................................... 139
Figure 4-14: Links between relational embedding capabilities and value creation ... 149
Figure 4-15: Spectrum of stakeholder engagement .................................................... 150

List of Figures, Tables, Appendices xiii
Figure 4-16: Value creation as the dependent (output) variable within the research
framework ................................................................................................................... 164
Figure 4-17: Conception of use value creation ........................................................... 166
Figure 4-18: Part two of the research framework ....................................................... 193
Figure 4-19: Alternative political management strategies .......................................... 214
Figure 5-1: Market shares in Switzerland's electricity supply (2008/2009) ............... 223
Figure 5-2: Swiss electricity generation mix .............................................................. 223
Figure 5-3: Axpo's organisational structure ................................................................ 225
Figure 5-4: Axpo's presence in Europe (2009) ........................................................... 226
Figure 5-5: Chronology of airport privatisations & transactions ................................ 248
Figure 5-6: Functional organisation of Flughafen Zürich AG .................................... 251
Figure 5-7: International engagements of Flughafen Zürich AG (2010) ................... 252
Figure 5-8: Primary business models in international airport activities ..................... 253
Figure 5-9: Field of tension between Zurich airport and its environment .................. 256
Figure 5-10: Cement production process and associated externalities ....................... 283
Figure 5-11: Holcim's global presence (2009) ............................................................ 287
Figure 5-12: Holcim's sales per region in percent (2009) ........................................... 288
Figure 5-13: Holcim's pillars of value creation .......................................................... 303
Figure 5-14: Holcim's development of alternative fuel use ........................................ 306
Figure 5-15: Different embedding focus over asset lifetime - Axpo and Zurich
Airport ......................................................................................................................... 318
Figure 6-1: Overview on derived propositions and affiliation with research
framework ................................................................................................................... 333
Figure 6-2: Intensity of embedding activities over asset life-time / duration of
concession ................................................................................................................... 341

xiv
List of Tables
List of Figures, Tables, Appendices
Table 2-1: Overview on relevant theoretical streams and concepts ............................. 14
Table 2-2: Theoretical perspectives in economic geography ....................................... 24
Table 2-3: Summary of key elements from the relevant theoretical research lenses ... 40
Table 3-1: Categorisation of research questions ........................................................... 48
Table 3-2: Overview case study objects and selection criteria ..................................... 55
Table 3-3: Internal validity through triangulation ........................................................ 66
Table 4-1: Three pillars of institutions ......................................................................... 72
Table 4-2: Types and characteristics of location-fixity ................................................ 83
Table 4-3: UCF characteristics fostering institutional exposure .................................. 94
Table 4-4: Legitimate stakeholder groups pertaining to UCFs .................................... 96
Table 4-5: Government's roles, objectives and related institutional exposure ........... 106
Table 4-6: Levers of structural embeddedness and organisational legitimacy ........... 132
Table 4-7 Holcim's types of stakeholder engagement at the local level ..................... 151
Table 4-8: Efficiency and strategy-based advantages of corporate reputation ........... 155
Table 4-9: Efficiency and strategy-based advantages of trusting relationships ......... 158
Table 4-10: Summary and operationalisation of embedding capabilities .................. 163
Table 4-11: Conceptualisation of value creation within the research framework ...... 169
Table 4-12: Type of exchange and effects on firm transaction costs ......................... 181
Table 4-13: Summary of value creation dimensions and effects in single-unit
operations .................................................................................................................... 190
Table 4-14: Links between UCFs' embedding capabilities and value creation .......... 191
Table 4-15: Value creation effects of location-fixity for the UCF ............................. 192
Table 4-16: Examples of economic nationalism in national strategic sectors ............ 198
Table 4-17: Typology of synergies for multi-site firms ............................................. 202
Table 4-18: Holcim's government relations 91 ............................................................. 216
Table 4-19: Overview on dimensions, effects of value creation in UCF multi-site
operations .................................................................................................................... 219

List of Figures, Tables, Appendices xv
Table 5-1: Sources of information for case studies .................................................... 221
Table 5-2: Location dependence of Axpo by construct characteristics ...................... 227
Table 5-3: Overview on Axpo's synergy implementation .......................................... 245
Table 5-4: Location dependence of Flughafen Zürich AG by construct
characteristics .............................................................................................................. 255
Table 5-5: Overall value added of Zurich airport (2004) ........................................... 263
Table 5-6: Overview on Zurich airport’s synergy implementation ............................ 279
Table 5-7: Net sales volumes of top five cement producers (2009) ........................... 284
Table 5-8: Operating profit margins of top five cement producers ............................ 286
Table 5-9: Location dependence of Holcim by construct characteristics ................... 290
Table 5-10: Holcim's community spending per category (2009) ............................... 295
Table 5-11: Overview on Holcim's synergy implementation ..................................... 310
Table 5-12: Cross-case comparison of location-fixity: Axpo, Zurich Airport and
Holcim ......................................................................................................................... 314
Table 5-13: Cross-case comparison of institutional exposure: Axpo, Zurich Airport
and Holcim .................................................................................................................. 316
Table 5-14: Fields of multi-site value creation and their significance for
case objects ................................................................................................................. 325
Table 6-1: Overview on research questions and relevant sub-chapters reference ...... 330
Table 6-2: Relevance of embedding capabilities for managerial functions ............... 340

xvi
List of Appendices
Appendix 1: Overview on case study objects
Appendix 2: List of interview partners
Appendix 3: Interview guideline, example
List of Figures, Tables, Appendices

List of Abbreviations xvii
List of Abbreviations
a/p airport
ACI Airports Council International
AFR alternative fuels and raw materials
BAA British Airport Authority
BIA Bengaluru International Airport
BIAL Bangalore International Airport Ltd., i.e. the operator of BIA
BKW Bernische Kraftwerke AG
bn billion
BRM business risk management, Holcim's corporate risk management
department
BU business unit
CAP Community Advisory Panel
CBV capability based view
CC corporate centre
CEO chief executive officer
cf. confer (Lat. = compare, consult)
CHF Swiss franc
CFIUS Committee on Foreign Investment in the United States
CSI Cement Sustainability Initiative
CSR corporate social responsibility
CSD corporate sustainable development
DPW Dubai Ports World
DVO Durchführungsverordnung; Implementation Regulation
EMR Emission Monitoring and Reporting, Holcim's corporate standard for
monitoring atmospheric emissions
e.g. exempli gratia (Lat. = for instance)
EnG Energiegesetz, Energy Law
ENSI Eidgenössisches Nuklearsicherheitsinspektorat, Swiss Federal
Nuclear Safety Inspectorate
ESTI Eidgenössisches Starkstrominspektorat, Federal Inspectorate for
Heavy Current Installations
F&B food and beverage
FDI foreign direct investment

xviii
List of Abbreviations
Fig. Figure
FOLA Fernwärmeversorgung Olten-Aarau
GB Great Britain
GLOBE Global Legislators Organisation of a Balanced Environment
GRI Global Reporting Initiative (www.globalreporting.org)
GTZ Deutsche Gesellschaft Für Technische Zusammenarbeit, German
Agency for Technical Cooperation
HS AG Axpo Hydro Surselva AG
HGRS Holcim Group Support
ICAO International Civil Aviation Organization
ICT Information and Communication Technology
i.e. id est (Lat. = that is to)
IO industrial organisation
KEV kostendeckende Einspeiseverguetung, cost-covering feed-in
compensation
KLL Kraftwerke Linth-Limmern AG
KWO Kraftwerke Oberhasli AG
m million
M&A mergers and acquisitions
Mgmt. management
MNC multi-national company or corporation
MS multiple sites, multi site
MSF multi site firm
MW megawatt
n/a not applicable
NES new economic sociology
NGO non-governmental organisation
NIE new institutional economics
N.N. nomen nescio (Lat. = anonymous person, name unknown)
p. page
P proposition
PAX passengers
PEP Plant Emission Profiles, Holcim's environmental assessment system
POP persistent organic polluants

List of Abbreviations xix
P&O Peninsular and Oriental Steam Navigation Company
pp. pages
RBV resource-based view
R&D research & development
REFUNA Regionales Fernwärmenetz Unteres Aaretal
RQ research question
SBFZ Schutzverband der Bevölkerung um den Flughafen Zürich, major
noise-centred interest group of Zurich airport
SD sustainable development
SOE state-owned enterprise
SRT SR Technics
StromVG Stromversorgungsgesetz, Power Supply Law
TCE transaction-cost economics
TRANSWAL Transport Wärme Aare Limmattal
TPAX transfer passengers
UCF utility or concession-based firm, i.e. firms within UCI
UCI utilities and concession-based industries of national strategic
importance
UDF User Development Fee
US United States
UK United Kingdom
VIP Very Important Person
VVIP Very Very Important Person
VPI vertical political integration
VRIN valuable, rare, imperfectly imitable and imperfectly substitutable;
characteristics of strategic resources within the RBV
vs versus
WARHENO Fernwärmeversorgung Hochrhein
WBCSD World Business Council for Sustainable Development
WWF World Wildlife Fund
www world wide web

xx
Abstract
Keywords: location-fixity, embeddedness, organisational legitimacy, sunk costs, value creation
Abstract
Location - in spite of increasing globalisation of economic activities – also in present
times remains central to firms’ success. While most firms have the freedom to choose
or change their location, some face limitations to do so. Yet, previous research barely
considered the effects of location-dependence in the field of organisation studies. In
addition, research has paid little attention to the spatially immobile infrastructure
sector, which is bound to a location for the long-term through significant sunk costs.
This dissertation addresses both gaps. It aims to contribute – among others - to
strategic management research by integrating a spatial dimension, and to enhance a
firm-centric perspective in economic geography. More specifically, we address
impacts of location-fixity on firms’ value creation with a focus on infrastructure-heavy
firms, subsumed as utilities and concession-bound firms.
In this study we conceptualise location fixity and investigate the firm's strategies and
capabilities to mitigate any negative impacts, which could affect its value creation. In a
first part, we approach the related research questions with view at single sites, before
turning to aspects of value creation and synergy realisation within multi-site settings.
To this end, we conducted an embedded multiple case study on three firms within
infrastructure-heavy industries, thus collecting rich evidence for further theory
development.
The key findings of this dissertation are: (1) Location-bound firms are highly
dependent on local stakeholders. The thus resultant institutional exposure to their local
environment may negatively influence their strategic options, business risks, and
economic aspects of daily operation. (2) Firms are able to mitigate institutional
exposure by developing capabilities for embedding in their local environment. Such
embedding increases their organisational legitimacy, thereby improving the firm's
prospects for long-term success and support from its environment. (3) Internationally
present location bound firms face liabilities of foreignness, entailing obstacles not
existent to local firms. The corporate parent therefore is able to support the local firm
in distinct fields, where it enhances value creation, whereas other fields need to be
managed decentrally to facilitate local embedding. Overall, also the locationdependent
utilities and concession-based firms are able to create value through multisite
resource management, albeit predominantly on an intangible dimension by
exchanging best practices and realising economies of experience.

Abstract (German)
Zusammenfassung
Schlüsselwörter: Standortgebundenheit, Einbettung, Unternehmens-Legitimität, irreversible
Kosten, Value Creation
Der Unternehmensstandort ist auch in der heutigen Zeit, trotz zunehmender Globalisierung
wirtschaftlicher Aktivitäten, ein kritischer Erfolgsfaktor. Während die meisten Unternehmen frei
sind, ihren Standort zu wählen oder zu verändern, gibt es Firmen, die dies nicht so ohne weiteres
können. Trotz dieses Umstandes hat sich die bisherige Organisationsforschung dem Thema
Standortgebundenheit kaum angenommen. Ebenso findet der standortgebundene
Infrastruktursektor, welcher sich auf Grund hoher irreversibler Kosten für einen langen
Zeithorizont zu einer Örtlichkeit bekennt, wenig wissenschaftliche Beachtung. Die vorliegende
Dissertation thematisiert diese beiden Forschungslücken mit dem Ziel, zur Integration der
räumlichen Perspektive in die strategische Managementforschung beizutragen, sowie eine
unternehmensbezogene Betrachtung innerhalb des Bereichs der Wirtschaftsgeographie zu fördern.
Im Besonderen beschäftigt sie sich mit den Auswirkungen von Standortgebundenheit auf die
unternehmerischen Möglichkeiten zur Wertsteigerung, mit Fokus auf die Gruppe der Utilities und
konzessionsgebundenen Unternehmen.
Die Studie beinhaltet eine Konzeptionalisierung von Standortgebundenheit, sowie die
Untersuchung von Strategien und Fähigkeiten, mit denen Unternehmen mögliche dadurch
entstehende Nachteile für ihre Wertgenerierung auffangen können. Die sich daraus ergebenden
Forschungsfragen werden zuerst mit Blick auf einzelne Standorte untersucht, und in einem
zweiten Teil aus der Perspektive eines Unternehmens mit meheren Standorten. Auf der Basis
einer vergleichenden Fallstudienanalyse von drei Objekten, welche im Bereich der Utilities und
konzessionsgebundenen Unternehmen angesiedelt sind, haben wir Erkenntnisse gesammelt,
welche einer weitergehenden Theoriebildung dienen.
Die Haupterkenntnisse dieser Dissertation können wie folgt beschrieben werden: (1)
Standortgebundene Unternehmen erfahren eine hohe Abhängigkeit von ihren örtlichen
Stakeholdern, mit möglichen negativen Auswirkungen auf ihre strategischen Optionen,
Unternehmensrisiken und ihre Operation. (2) Mit Hilfe von spezifischen Fähigkeiten zur
Einbettung ins lokale Umfeld können Unternehmen die Nachteile einer solchen institutionellen
Exposure auffangen. Dadurch erhöhen sie ihre unternehmerische Legimitation und sichern die
Unterstützung durch das lokale Umfeld, um somit die langfristigen Erfolgschancen zu stärken. (3)
Internationale Unternehmen erfahren im jeweiligen lokalen Umfeld ihrer Standorte Nachteile,
welche lokal angestammte Firmen nicht haben. Daraus ergeben sich für das Mutterunternehmen
bestimmte Bereiche, in denen es das lokale Management unterstützen kann, aber auch spezifische
Aufgaben die dezentral verankert sein müssen, um die lokale Einbettung des Unternehmens zu
stärken. Insgesamt sind auch standortgebundene Unternehmen in der Lage, durch das
Management mehrerer Standorte Wert zu generieren, wenn auch mehrheitlich auf Ebene eines
immateriellen Ressourcenaustausches.
xxi

Introduction 1
1 Introduction
In today's globalised world the mobility of production factors and resources is an
elementary precondition to the functioning of our economy. As the geographical
disconnection of production processes re-defines sectoral structures and shifts the
world's economic balance, firms are facing new challenges but also significant new
possibilities. Footloose industries, with predominantly mobile production factors,
may seize opportunities for new forms of sourcing, economies of scale and scope,
and location-related cost advantages. In contrast, other industries are confined in
their means to exploit these options. Infrastructure-heavy sectors, for instance,
whose exponents are committed to a location for long periods of time, need to
perform their whole range of core activities locally by the very nature of their
activities. These sectors will be the object of interest in our research.
Restrictions to mobility affect a number of vital industries, in particular providers
of large-scale infrastructures, i.e. (1) transportation assets, such as airports,
railways, and seaports; (2) utility networks, inluding gas, water, and electricity;
and (3) resource extraction facilities, pertaining to quarries and mines, offshore
platforms, or pipelines. Distinct as they are from each other, they all have in
common certain characteristics which tie them to their place of production. And
yet, many of these industries have gone through a phase internationalisation and
consolidation throughout the last quarter of a century, expanding horizontally and
vertically in their value chain (see also Schedler & Bieger, 2002). For instance, the
past decade saw a massive consolidation process in the power sector, as illustrated
in Figure 1-1, with the emergence of global power suppliers, such as E.ON, EdF,
GdF Suez, RWE or Vattenfall.
Figure 1-1: Worldwide development of power deal activity 1
1 PWC, 2009: 8.

2
Introduction
Similar developments have taken place in the water utility sector (e.g. Veolia, once
again GdF Suez and RWE, ITT, or Acqua America), the cement industry (e.g.
Lafarge, Holcim, HeidelbergCement, Cemex, Italcementi), the port industry (e.g.
Hutchison Port, PSA International, APM Terminals, Cosco and DP World) and to
some extent also in the airport industry (e.g. Fraport, TAV, MAp Airports Ltd.,
Hochtief AirPorts, GMR). To illustrate the worldwide dimension of these
structural changes, the OECD (2007) estimates that large-scale transactions
involving public infrastructure assets amounted to almost USD 1 trillion between
1980 and 2006 in OECD countries.
In Europe, these developments were facilitated by the European Community which
aimed at liberalising markets for public utilities and brought the era of central
planning to an end. Through the regulatory reforms, domestic markets became
increasingly integrated with the global economy, reduced the role of government,
and promoted market mechanisms to regulate the economy (Ray, 2003). The
adoption of market-based policies (deregulation) and the introduction of new
regulatory frameworks (reregulation) (Ugaz & Price, 2003), presented firms with a
wide range of strategic options, reshaping sectoral networks and construing fresh
relationships between established actors (Dudley, 1999). Additionally,
technological change created opportunities for sectors, where previously
monopolistic structures seemed to be the most efficient and politically desirable
solution. As a consequence to such removal of entry-barriers, increase in
competition and the privatisation of formerly state-dominated industries,
companies were free to follow strategies of expansion and internationalisation.
Thus, they could exploit the resulting new possibilities while using their core
competence in managing heavy-infrastructure assets (Parker, 2003). The
motivations to expand, inter alia, sprang from expectations to realise economies of
scale and scope, to gain access to innovations in products and processes, and to
benefit from the exchange of best practices.
These changes and their implications for the individual firm, for industry
structures, and for whole economies also raised significant new research questions,
which academics took to investigate from different perspectives. Within the scope
of this dissertation we remain focused on the firm-level perspective, for which
particularly strategic management research contributed to the discussion of related
key issues. Much attention was given, for example, to questions of mobility
barriers (e.g. R. E. Caves & Ghemawat, 1992; Lustgarten & Thomadakis, 1987;

Introduction 3
Mahoney, 2001; Porter, 1979) and their role with regard to market power,
competitive advantage and rent generation. Similarly, industry structures and the
notion of strategic groups (e.g. Barney & Hoskisson, 1990; Dranove, Peteraf, &
Shanley, 1998), as well as the formation of clusters and networks have been
intensely discussed (e.g. Gulati, Nohria, & Zaheer, 2000; Lavie, 2007; Porter,
1998), as have been issues of firms' internationalisation (e.g. Bartlett & Ghoshal,
1989; Müller-Stewens & Lechner, 2002; Ruigrok & Wagner, 2003). From a
different angle, the role of stakeholders and stakeholder management for the firm
have been thoroughly researched (e.g. Clarkson, 1995; Phillips, 2003; Post,
Preston, & Sachs, 2002b), leading to a theoretical appreciation of stakeholders'
importance in view of the firm's long-term profitability. As strategic management
research draws on central concepts from organisational economics - which
acknowledges the importance of the firm's external environment beyond inter-firm
interactions, but treats it as a black box - stakeholder theory contributed to
extending the view of the firm to its context, integrating notions from
institutionalism and economic sociology with strategic considerations.
In spite of these significant theoretical and conceptual contributions, which also
help to understand the peculiarities of infrastructure-heavy industries - our object
of interest - researchers have rarely focused on these sectors under consideration of
their common defining characteristics, which we identified as follows:
- location-fixity and immobility of production factors
- high capital and infrastructure intensity
- long planning horizon
- subadditive cost function
- market power through quasi-monopolistic industry structures
- quasi-public good character
- high importance of output for the local economy, as key components of
large socio-technical systems (Gil & Beckman, 2009)
- negative externalities
- high public visibility
- high regulatory density
As a consequence of these characteristics, the majority of corresponding industries
relies on public concessions to operate, which obliges them to perform their
activities within a - more or less narrowly - defined scope and which grants them

4
Introduction
the right to exploit a certain resource, or to develop and to run an infrastructure at a
dedicated location.
The purpose of this study is, therefore, to contribute to the further integration of a
contextual and strategic understanding of the firm in respect of industries, which
fall under the specified criteria and which we chose as our research object. For
matters of clarity, we aggregate these firms to the collective of Utilities and
Concession-based Firms (UCF), subsuming their industries under Utilities and
Concession-based Industries (UCI), accordingly. We therefore have chosen a
multi-lens approach, which integrates other research perspectives besides the
strategic management lens. In particular, we investigate the impact of the above
mentioned industry characteristics on firms' capacity to create sustainable rents,
and we examine the nature of location-fixity, its effects on firms' resource
management, and in what ways these factors impact firms' value creation. To this
end, we develop a two-parted framework, which first focuses on the effects of
location-fixity in a single-site context before analysing value creation impacts in a
multi-site setting.
1.1 Research objectives and guiding questions
Throughout our dissertation, we understand the firm's value creation to
significantly depend on its resource disposition and on the organisation of its intrafirm
activities, in the sense of the resource-based view of the firm. In addition, we
attribute importance to the firm's environment, and how it interacts with, and
adapts to it. This understanding of external context reaches beyond strategic
management's focus on inter-firm interactions: it includes the firm's embedding in
its local and institutional environment, and the role of firm-environment
interactions for the creation of sustainable competitive advantage and rents. While
these contextual factors are important for most firms, they are of particular
relevance for our research object on grounds of the above identified industry
characteristics. Therefore, throughout our dissertation we will develop the
argument that the UCF's sustainable livelihood depends on the relations with its
local stakeholders, due to its immobility and financial long-term commitments to a
location. In addition to strategic management research, we will draw on notions
from various institutionalist perspectives, economic sociology, and from economic
geography.

Introduction 5
The research gap, which we have identified and will try to close, pertains to the
characteristics of the UCF and the way in which they impact the UCF's ability to
create value. In particular, we will analyse the construct of location-fixity and the
related dependence of the firm on its local environment. We argue that these
factors require a thorough embedding of the firm in its environment, in order to
ensure long-term survival. The purpose of our work therefore is:
- to obtain a better understanding of the construct of location-fixity,
- to contribute to understanding the effects of location-fixity - positive and
negative - on firms in general and UCFs in particular, and to generate
insights on its effects in multi-site operations,
- to derive from these insights recommendations strategies for value creation,
and
- to identify further areas for research.
In the following, we will outline the research questions (RQ) addressed in this
dissertation, as well as the two-parted framework which we developed throughout
the research process. The first and dominant part of the research framework
employs a single-site perspective of the firm. In the second part we will outline
UCFs' possibilities for value creation in multi-site settings, based on the insights in
part one.
In part one of our research framework, we develop an understanding of the impacts
of location-fixity on UCFs' possibilities for value creation, as illustrated in Figure
1-2. We will outline the importance of the firm's capabilities to embed itself in its
local environment, in order to mitigate the effects from any exposure resulting
from its dependence on the location. Thereby we are guided by the first four
research questions, as laid out subsequently.
RQ 1, RQ 2
embedding
capabilities
local exposure from
location fixity
RQ 4 moderate
RQ 3
value creation
influences
Figure 1-2: Simplified (single-site) research framework, part one
Developing the construct of location-fixity. In spite of the relevance of location
for the sustained livelihood of most firms (Cox, 1998b; Dicken & Malmberg,
2001; Ross, 1896), and the spatial immobility that firms may experience (Clark &

6
Introduction
Wrigley, 1995; Cox & Mair, 1988; Oinas, 1998), the factors that cause such
immobility and the construct of location-fixity in general have not been
satisfactorily conceptualised in existing research. Cox (1989) may be a rare
exemption, taking a step in that direction by circumscribing firms' local
dependence to be rooted in a combination of long-lived fixed investments, the
specificity of firms' exchanges, but also in the immobility of social relations. Since
spatial immobility is a decisive characteristic of UCFs, which therefore constitutes
a core construct of this dissertation, we begin our research by trying to understand
firms' location-fixity and to conceptualise its dimensions. Consequently, our first
research question is:
Research Question 1: What are the defining elements of location-fixity?
Consequences of location-fixity. On the basis of, and related to these insights the
subsequent questions are concerned with the effects of location-fixity for the firm.
As the local actors are aware, that the firm is tied to its current site, the firm
becomes somewhat exposed to them - a fact which we refer to as institutional
exposure. In this context, we draw on notions from transaction-cost economics, in
order to understand the implications for the firm, and to identify the related
hazards (OE Williamson, 1983, 1996). More precisely, we aim to understand such
exposure and its sources, as well as the limitations and opportunities which arise
from it. Thereto related, we are interested in the effects of institutional exposure on
the firm's ability to create value. Thus, we obtain a deeper understanding of the
UCF's interdependencies with its local environment and of the nature of its
institutional exposure with regard to the individual stakeholder groups. Our second
and third research questions therefore are as follows:
Research Question 2: How do location-fixity and the related institutional
exposure affect our research object?
Research Question 3: How does the resulting local exposure - as the
amalgamation of location-fixity and institutional exposure - affect the value
creation of our research object?
Mitigation of the effects of location-fixity. The insights from the preceding
research questions are essential for identifying available strategies, with which the

Introduction 7
firm may mitigate adverse effects of location-fixity, or leverage related
opportunities. In this regard, we would like to introduce the institutionalist concept
of embeddedness, which underlines a contextual view of the firm. Economic
action thus is understood as being “embedded in concrete, ongoing systems of
social relations” (Granovetter, 1985: 487), with the firm's institutional environment
referring to “rules, norms, and beliefs surrounding economic activity that define or
enforce socially acceptable economic behaviour” (Christine Oliver, 1997: 698).
Importantly, the firm's long-term survival is seen to depend on “its ability to
establish and maintain relationships within its entire network of stakeholders”
(Post, Preston, & Sachs, 2002a: 7). In line with these notions, we therefore argue
that the firm's capabilities to embed itself in the local environment play a
significant role in the mitigation of institutional exposure. Consequently, our
fourth research question is directed towards identifying these embedding
capabilities and to understanding how they change the firm's local exposure in
value-enhancing ways:
Research Question 4: How can firms mitigate the effects of local exposure?
With the analysis of the first four research questions we hope to sufficiently
understand the effects of location-fixity on the value creation of single-site firms,
and how the latter may mitigate such effects. The subsequent questions relate to
the multi-site perspective of part two of our research framework, which builds on
the insights from the first part.
UCF - site
- location-fixity
- institutional exposure
UCF - corporate parent
value creation
RQ 6
interaction
RQ 5
UCF - site
-location-fixity
- institutional exposure
local environment local environment
Figure 1-3: Simplified (multi-site) research framework, part two

8
Introduction
Implications for cross-site value creation. After having developed an
understanding of location-fixity and its effects on the individual site, we focus on
UCFs strategies for value creation in a multi-site environment. We will analyse
how multi-site UCFs interact in value-enhancing ways among their units and sites,
and in which ways the corporate parent contributes to value creation. In their
multi-site interaction, UCFs not only need to overcome the confinement of
location-fixity, but also need to work around the differences in the local
environments of their sites. Due to the high visibility of UCFs, these specific local
environments require (politically) sensitive handling, whereby the experience of
the corporate parent may be beneficial, while its foreignness may prove a liability
(S. Zaheer, 1995). Consequently, it is of interest to understand the dimensions of
value creation for multi-site UCFs and to identify the available options for synergy
exploitation, which results in the research questions five and six:
Research Question 5: How does location-fixity impact our research object's
multi-site resource management?
Research Question 6: How can the multi-site UCF create value under the
condition of location-fixity and local exposure?
1.2 Theoretical relevance
Generally, by means of our research we aim at a better understanding of the
characteristics and effects of factor immobility from a firm perspective. To this
effect we employ multiple lenses, using the partially overlapping perspectives of
strategic management, new institutionalism, economic sociology, and economic
geography. Despite the importance of location factors (e.g. Cantwell, 2009;
Dunning, 2009; Tesch, 1980; HW Yeung, 2000) for the firm's sustained livelihood,
the construct of location-fixity has not yet been adequately conceptualised in
existing research. By developing an understanding of location-fixity and its effects
for the individual site-level, and in respect of cross-site value creation, on one hand
we aim to contribute to economic geography, which traditionally argues from a
higher scale perspective 2 (Oinas, 1997). On the other hand, we aim to underline the
relevance of the spatial dimension for economic actors within strategic
2 Such as regions, clusters, or economies.

Introduction 9
management research, and to extend the notion of asset specificity by a spatial
dimension.
In addition, we intend to contribute to a better understanding of the firm's
institutional exposure to its stakeholder groups. In particular, we develop a
conceptualisation of the multiple roles of the firm's public stakeholders 3 and the
possible resulting conflicts of interest that might adversely affect the firm.
Moreover, in our research framework we attribute significant importance to the
firm's local institutional context, drawing on the notion of embeddedness.
Originating from economic sociology (Granovetter, 1985; K. Polanyi, 1944), the
notion of embeddedness has only hesitantly found consideration within strategic
management research, predominantly with regard to firms' embedding within
networks and dyadic relations (e.g. Dyer & Singh, 1998; Lavie, 2007; Christine
Oliver, 1997; Uzzi, 1996). We thus seek to integrate the notion of local
embeddedness, which is a central concept of new institutionalism, with strategic
management research's focus on rent-seeking and value creation. Furthermore, we
aim to identify and contribute to an understanding of those capabilities, which help
the firm to strengthen its local embeddedness in value creating ways.
By considering the firm's institutional context as relevant for the firm's capacity to
generate rents, we additionally aim to expand the boundary of strategy process
research 4 towards acknowledging social explanations for effects of the
environment on the firm's success. Thus, we take into account firms' pathdependent
embedding activities towards building goodwill stocks, which allow it
to influence its relations with the public stakeholders in value creating ways.
Consequently, we add to a more holistic understanding of the complex
interdependencies between the firm and its external environment.
3
We have defined public stakeholders to refer to the government, the regulator, and the state as a
shareholder, see also chapter four.
4
We understand strategy process research according to Van de Ven (1992: 169), who
distinguishes three different meanings of process used in the literature: (1) a logic in order to
explain a causal relationship in a variance theory; (2) referring to a category of concepts with
regard to actions of individuals or organisations; and (3) a sequence of events that describes
changes of things over time. We consider our research to fall into the second category of process
research.

10
1.3 Practical relevance
Introduction
While it would be standing to reason, that the relevance of location is declining in
an increasingly globalised world, it seems that the opposite is true. Firms'
competitive advantages are often local, rooted in their embeddedness with their
environment and stakeholders (Dyer & Singh, 1998; Christine Oliver, 1997), as
Porter (1998: 90) observes: “[g]eographic, cultural, and institutional proximity
leads to special access, closer relationships, better information, powerful
incentives, and other advantages in productivity and innovation that are difficult to
tap from a distance”. We have outlined before, that the past twenty years of
deregulation have had significant effects on industry structures across the world,
resulting in a consolidation process throughout infrastructure-heavy industries. On
these grounds, we presume that executives of UCFs, as well as regional
administrations take interest in the challenges, which are related to tensions
between the 'local' and increasingly large firm operations. Throughout our
empirical research, the relevance of the 'local' was affirmed by representatives of
our case objects, illustrated by the following statement by an executive from Axpo
(cf. interview N°1: 12):
Local embeddedness is the decisive factor for our sustained livelihood - all our
endeavours depend on the approval of our local stakeholders. Without their
consent we would have not a single production site, no revenue source, and as a
consequence no firm!
Furthermore, according to an empirical study on corporate mergers in the energy
sector, synergy exploitation is a significant motivation behind these mergers
(Thomas, 2006). The same applies to other utilities and concession-bound
industries, albeit to varying degrees. Yet, practical experiences with the postmerger
integration of firms have yielded mixed results (Bishara & Schmitt, 2006;
Forsyth, Niemeier, & Wolf, 2011; N.N, 2007; N.N., 2004), with synergy
expectations often being inflated compared to the final outcome. Therefore it can
be assumed, that an understanding of the ways in which location-fixity impacts
value creation in firms' multi-site operations is of practical relevance.
Consequently, we consider our research subject to be relevant for managers of
utilities and concession-based industries and for public administrations, offering an
alternative view on the characteristics and challenges of infrastructure-heavy firms.
We identify three practical main contributions of our work: (1) Our findings stress
the path-dependence of firms' activities in their local environment, thus inducing

Introduction 11
managers to take a longer-term view on their stakeholder-relations. By establishing
a contextual link between local embedding and the firm's value-creation
opportunities, corporate managers therefore might attribute more value to the
firm's relations with its environment. (2) In our empirical research we describe,
how location-fixity affects the firm and how, as a consequence, value creation may
be adversely impacted. Our identification of mitigation strategies may contribute
to better focused managerial efforts towards local embedding, thus shielding firms
from the unwanted effects of local dependence. In addition, managers may derive
impulses for their approach to local business development, thus leveraging the
positive aspects of location-fixity to the firm's advantage. (3) Our empirical
research affirms the possibilities for value creation of location-fixed firms in the
operation of multiple sites. These insights may thus contribute to a better
understanding of the local firm's needs and of those fields, where the corporate
parent's support creates value.
1.4 Outline of dissertation
This dissertation is structured into six chapters, starting with the present chapter
one to provide an introduction to the research subject and objectives. The four
ensuing chapters comprise the theoretical embedding and clarification of the
research lenses (chapter two), the description of the research approach (chapter
three), the building and theoretical grounding of our research framework (chapter
four), and the empirical illustration by means of three case studies (chapter five),
before concluding with our findings and recommendations in chapter six.
In chapter two we clarify the research lenses, which we employ in the chosen
multi-lens approach. In order to familiarise the reader with the relevant concepts,
we briefly describe the central notions of these lenses in view of our research
questions, thus touching upon strategic management research, economic
geography, (new) institutionalism, and economic sociology. We also highlight in
each sub-chapter, how the concepts and constructs relate to our research
framework.
The third chapter informs on the chosen research approach and how we proceeded
to investigate our research questions. We describe the employed research
methodology, grounded theory, and the reasons for selecting an embedded multiple
case design with three case objects from different industries. Furthermore, we
clarify the cornerstones of our two-parted research framework, which is divided in

12
Introduction
a single-site and in a multi-site perspective. Under the single-site perspective, the
firm and the capabilities of its managers are considered as units of analysis. In
contrast, the multi-site perspective focuses on the corporate parent's interaction
with its subsidiaries, respectively on the interaction among the subsidiaries as unit
of analysis. The chapter also addresses aspects of research quality and the
measures which we took to safeguard the validity and reliability of our results.
In the forth chapter, which represents the core of this dissertation, we develop our
research framework and central constructs, and consequently derive propositions
based on our empirical insights. We theoretically ground essential notions, such as
location-fixity, institutional exposure, and organisational embedding, and further
evolve and contextualise them within the framework. Moreover, we identify the
elements of our research object's embedding capabilities and how these contribute
to value creation, respectively inhibit value destruction.
Chapter five empirically substantiates the research framework by illustration of our
three case studies and numerous embedded cases along the framework's
dimensions. The case-by-case reflection is followed by a cross-case analysis, in
which we identify relevant similarities and differences between the cases.
Ultimately, the sixth and last chapter presents the results of this study, elucidates
their practical and theoretical implications, and refers to the limitations and
directions for future research.
The outline of this dissertation is summarized in the following Figure 1-4.

Introduction 13
Outline
1. Introduction
Research problem and research gaps
Research objective and guiding questions
Key results and contribution
2. Theoretical embedding and literature review
Strategic management research
Economic geography, (new) institutionalism and economic sociology
Value creation
3. Empirical approach
Research paradigm and research perspective
Research methodology and design
Research process and quality
4. Theory building
Development of research framework and propositions from a single-site & multi-site perspective
Conceptualisation of location fixity and institutional exposure
Embedding capabilities of the local firm - social and structural
Value creation from a single-site and multi-site perspective
5. Case studies
Case-by-case analysis of three case objects
Cross-case comparison to identify relevant commonalities/differences between the objects
6. Discussion of results and conclusions
Contribution to theory and practice
Limitations and further research directions
Final conclusions
Figure 1-4: Outline of dissertation

14
2 Theoretical Embedding and Literature Review
Theoretical Embedding and Literature Review
Our research subject and the related research questions have led us to identify three
decisive constructs for theoretical orientation and choice of research lenses: locationfixity,
organisational embeddedness, and value creation. For a theoretical grounding of
these (and related) constructs and for better orientation across the relevant fields of
research, we will therefore discuss the fields of strategic management research,
economic geography, institutionalism, and economic sociology in the present chapter. In
this context we will provide a brief introduction to these research fields, their relevant
concepts and common ground with regard to the research topic, and their relation to the
research questions.
Strategic
Management (2.1)
Resource-based view;
Capability-based view;
Relational view
Concepts from
transaction cost
economics, originating
from organisational
economics
Economic Geography
(2.2)
Institutionalism
(2.3)
Economic Sociology
(2.4)
Location theory New institutionalism New economic
sociology
New economic
geography
(cultural turn)
New institutional
economics
Stakeholder theory Legitimacy theory
Table 2-1: Overview on relevant theoretical streams and concepts
2.1 Relevant concepts of strategic management research
Strategic management research, as a part of organisation theory, encompasses a wide
field of different research strands and reflects significant intellectual diversity. The field
is characterised by “amorphous boundaries and inherent pluralism” (Nag, Hambrick, &
Chen, 2007), which allows for the simultaneous preoccupation with multiple research
orientations, such as economics, sociology, marketing, or management. Among other
things, strategic management involves the adaptation of the organisation to its business
environment, whereby it “is expected continually to assess external and internal
conditions” (Chaffee, 1985: 91) and creating “satisfactory alignments of environmental
opportunities and risks, on the one hand, and organisational capabilities and resources,
on the other” (R. Miles & Cameron, 1982: 14). Accordingly, we understand the aim of

Theoretical Embedding and Literature Review
strategic management research as to develop an explanation of firm performance by
understanding the roles of external and internal environments, how firms position
themselves and operate within these environments and by relating firm's competencies
and advantages to opportunities within external environments.
Among the most influential strands of strategic management research are the resourcebased
view (RBV), considering the firm's idiosyncratic bundle of resources as its basis
for competitive advantage, and thereto related the capability-based view (CBV), which
focuses on the firm's capabilities as a special type of embedded, non-transferable, and
firm-specific resource that enhance the productivity of the firm's other resources
(Makadok, 2001). Less established within strategic management research the 'relational
view' stresses the concepts of power, trust and legitimacy with regard to the firm's
success (Branco & Rodrigues, 2006).
These three strands of strategic management research have a particular relevance to our
research subject, since location-fix resources and the firm's dependence thereon
represent a key characteristic of our research object, the utility respectively concession-
based firm (UCF). It is therefore essential, how the firm is able to act under condition of
such dependence in order to remain competitive and successful in the long-term.
Importantly, as a result of its close interconnectedness with the local environment, its
intangible resources such as reputation and trust gain in relevance in order to become
locally embedded and accepted by its stakeholders. These aspects are more closely in
the focus of the relational view, which constitutes a theoretical link towards the more
contextual research lenses of institutionalism and economic sociology.
2.1.1 Resource-based view
In the perspective of the RBV, strategy represents the art of creating value (Normann &
Ramirez, 1993). It is a continuing search for rent (Bower, 1974), defined as return in
excess of a resource owner's opportunity costs (Tollison, 1982), stemming from the
organisation's resources and capabilities and being appropriable by the firm (Amit &
Schoemaker, 1993). At the heart of the RBV lies the neoclassical view of the firm as
input-combiner. Differences in firm performance may be explained by a firm's resource
endowment, respectively by the firm's distinctive competence in making better use of its
resources. These resources we understand to include - apart from tangible resources -
also
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Theoretical Embedding and Literature Review
all items not appearing in the material reports (balance sheets) such as
organisational culture, reputation, and internal control. (Carmeli, 2004: 112)
Importantly, the RBV acknowledges the existence of persistent above average earnings,
which may be achieved through one of the following circumstances (Mahoney &
Pandian, 1992):
- Ricardian rents which result from the ownership of a valuable resource that is
scarce
- Monopoly rents realisable where barriers to potential competition are high, e.g.
by government protection
- Schumpeterian rents originating from risk-taking under uncertainty
- Rents due to firm-specific assets
All of these rent types to some extent are applicable to the activities of UCF, which will
be shown in chapter four.
Within the RBV, as an inward-oriented view of strategic content-research, managers'
attention is directed to the identification of inputs that are likely to generate rents.
Depending on its access to resources and resource combination, the firm may be able to
create sustainable rents, e.g. by establishing isolating mechanisms 5 that protect it from
imitation and preserve its rent streams (Rumelt, 1984). A particular form of isolating
mechanisms may be found in the notion of asset specificity (cf. 2.1.4), which represents
a distinct link between the RBV and transaction-cost economics (TCE). Asset
specificity enhances a firm's rent-creation if one factor increases the value in
combination with a second factor, but does not impact the value of a third (Conner,
1991). In contrast to the logic of TCE, the RBV considers such rent-creation achievable
within the firm as a result of its resource-combining ability. Since specific assets are
difficult to trade, due to their strong tacit dimension and social complexity, their
accumulation within the firm defies imitation, thus allowing for the creation of
sustainable rents (Dierickx & Cool, 1989).
5 Typical isolating mechanisms include causal ambiguity, path dependency, cost to imitation, and legal
barriers such as property rights to scarce resources, which for example utilities and extractive industries
frequently rely upon.

Theoretical Embedding and Literature Review
The RBV offers central notions for guidance throughout our research project, as well as
for the grounding of our construct of location-fixity and the link to value creation. Its
focus on the role of resources, including intangible and idiosyncratic resource-bundles,
for the firm's long-term success provide a valuable perspective in looking at the
particular issues for location-bound firms and in theorising the location-fixity construct.
2.1.2 Capability-based view
The capability-based view (CBV) is grounded within the rather static RBV representing
a dynamising extension of the latter's concepts. In their seminal article 'Dynamic
Capabilities and Strategic Management' Teece, Pisano and Shuen (1997) emphasised the
significance of the firm's ability to develop new capabilities, shifting the focus from
rent-generation through resources to the process of capability accumulation. In contrast
to the RBV, which regards strategic advantage to originate before the company uses the
resource, the CBV considers the resource combination and coordination after their
integration into the company as essential. In order to underline this notion Barney &
Clark (2007: 22) define resources as “a firm's 'fundamental' financial, physical,
individual, and organisational capital attributes, while capabilities are those attributes of
a firm that enable it to exploit its resources in implementing strategies”. Capabilities
generally may be defined as
organisational embedded non-transferable firm-specific resources whose purpose is
to improve the productivity of other resources. (Makadok, 2001: 389)
They develop over time through complex interactions among the firm's resources and
ensure strategic flexibility and protection for the firm's final product or services.
Examples of such value-creating processes are product development, strategic decisionmaking,
alliancing, knowledge creation, and capabilities transfer (Eisenhardt & Martin,
2000). Effective patterns of dynamic capabilities depend on the level of market
dynamism. In moderately dynamic environments and the context of stable industry
structures, dynamic capabilities resemble the traditional conception of routines, whereas
in high-velocity markets and hazy industry structures, dynamic capabilities take on a
different character: “[t]hey are simple, experiential, unstable processes that rely on
quickly created new knowledge and iterative execution to produce adaptive, but
unpredictable outcomes” (Eisenhardt & Martin, 2000: 1106).
Teece, Pisano, and Shuen (1997) cluster dynamic capabilities in three categories:
processes, positions, and paths, which are the fundamental units of analysis of the CBV.
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Theoretical Embedding and Literature Review
In their view, the essence of dynamic capabilities and competitive advantage are
explained by organisational processes, which are formed by the specific asset position
and the resulting available paths for a firm. The focus lies on assets of strategic interest,
for which no ready market exists. Implicitly, the authors herewith exclude fixed assets,
such as plants and equipment which can be purchased off-the-shelf and hence are no
source of competitive advantage. On the other hand intangibles such as difficult-to-trade
knowledge assets, reputational, and relational assets determine competitive advantage.
Following this argumentation, we would also include specialised plant and equipment,
idiosyncratic to the firm's specificities and entailing significant firm-specific knowledge,
to represent assets of strategic interest. With regard to our research object, the notions of
the CBV have high relevance pertaining to the limited spatial flexibility of our research
object. The specialised infrastructure, to which UCFs' are spatially bound in the long-
term, which are idiosyncratic to a specific site and to the institutional environment of the
firm, necessarily shift the focus of rent-creation on the firm's capabilities, since its
dependency on tangible resources is mostly given. While the RBV explains the rent-
generation opportunities for location-bound entities with regard to their preferred access
to site-specific resources, the CBV provides the framework for analysis of the value
creation on the basis of the firm's capabilities and know-how. Due to specific
characteristics and impaired spatial flexibility of UCF we assume that their value
creation opportunities mainly originate from their capabilities and knowledge, within a
specific site and in particular in the exchange and cooperation between sites.
2.1.3 Relational view
The relational view on strategic management has formed in the late 1990s, grounded in
Dyer & Singh's (1998) seminal article on 'cooperative strategy and sources of interorganisational
competitive advantage'. The authors suggest that a firm's critical
resources may span firm boundaries and may be embedded in inter-firm resources and
routines. The sources of inter-organisational competitive advantage thereby lie in the
firm's (1) relation-specific assets, (2) knowledge-sharing routines, (3) complementary
resources and capabilities, and (4) effective governance. Their criticism of the RBV
pertains to its disregard of the role that the firm's relationship with its environment plays
and of the “institutional rules and resources this environment provides, how firms
themselves depend on them … and how they can create common resources“ (Moldaschl
& Fischer, 2004: 129), perceiving the firm’s environment merely as a blind selection
mechanism and source of competitive pressure. The proposed extended view therefore

Theoretical Embedding and Literature Review
regards firms from a resource-based perspective as social actors who are embedded in
society: the firm itself is seen as an institution which is involved in interaction with
others. As in the CBV, intangible resources are seen as key determinants to a firm's
success, but some of them stem “from complex interaction relationships of various
social groups, organisations and individuals” (ibid.: 130), such as reputation, trust, and
organisational legitimacy. These relational resources are contained in relational ties
between a firm and its stakeholders, “proposed as a promising source of sustainable
competitive advantage because they are asymmetrically distributed across firms,
imperfectly mobile, difficult to imitate, and have no readily available substitutes” (D.
Davis & Mentzer, 2008: 436). Since consumers, politics and society as a whole are
providers of these important resources, the diligent management of the exchange
relationships with the environment gains in significance. By propagating such a theory
of the embedded firm, the relational view within strategic management research
establishes a strong link to institutional theories, borrowing thereto related socioeconomic
concepts.
The relational view and the related concepts from the RBV and institutional theory
reflect our own multi-lens approach to the research question. Since UCFs are tied to
their location, their relationship with the immediate environment becomes a critical
success factor, in view of the visibility and the economic importance of their activities.
In the analysis of the relationship between the location-fixed firm and its institutional
environment, as well as the factors that support it in its value-creation endeavours, the
notions of the relational view are an important source of theoretical inspiration and
grounding.
2.1.4 Transaction cost economics
Transaction cost economics (TCE) are theoretically attributed to the field of
organisational economics, which substantively overlaps with the resource-based view of
the firm and also has methodological similarities (Mahoney & Pandian, 1992). The
theoretical foundation to transaction cost economics has been laid by the institutional
economist John R. Commons (1931) who started to view the economic interactions
between individuals as transactions, and by Ronald Coase (1937: 21) who hypothesised
that “the main reason why it is profitable to establish a firm would seem to be that there
is a cost of using the price mechanism”. The subsequently developed theoretical
framework takes the transaction as unit of analysis, being concerned with the various
mechanisms for managing relationships between firms. In the 1970s, Oliver E.
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Theoretical Embedding and Literature Review
Williamson (1975) complemented the initial dichotomy of markets and firms with the
possibility of firm cooperation and adapted the concepts to cover modern organisational
forms. According to Williamson (1985a), transaction costs are determined through the
frequency with which transactions occur, the degree of uncertainty to which they are
subject, the condition of asset specificity, and the parties' bounded rationality and
opportunistic behaviour. The next two paragraphs will briefly touch upon the concepts
of asset specificity and opportunism, which are of particular relevance for our research
subject.
Asset specificity. Within TCE the notion of asset specificity is among the constituting
factors to the existence of firms, describing the degree to which an asset can be
redeployed to alternative uses and by alternative users without sacrifice of productive
value (OE Williamson, 1983). In this sense, asset-specific investments are characterised
as unique, idiosyncratic, specific, or non-redeployable (Lohtia, Brooks, & Krapfel,
1994). Asset specificity constitutes a central link between TCE and the RBV, albeit their
significantly differing interpretations: while the RBV uses the concept with regard to the
creation of value, respectively rent, TCE's theorising is directed at the avoidance of the
(negative) effects of opportunism (Conner, 1991). Transaction-cost economics (OE
Williamson, 1983, 1991) distinguishes six dimensions of asset specificity: (1) site
specificity, caused by assets which are highly immobile and movable only at great cost,
e.g. through a natural resource only available at a certain location; (2) physical asset
specificity, where transacting parties make investments in equipment and machinery
designed for a single purpose (the transaction) and which have lower values in
alternative uses; (3) human asset specificity, such as through the dependence on highly
specialised human skills; (4) dedicated assets, in the sense of a discrete investment in a
plant that loses value, if employed in alternative uses and where premature termination
of the contract would leave the supplier with significant excess capacity; (5) brand
name capital, through investments in reputation; and (6) temporal specificity, signifying
a type of site specificity where timely responses from on-site human assets are critical.
The notion of asset-specificity relates to transactions between actors resulting in a
bilateral dependency as the parties' asset specificity deepens.

Theoretical Embedding and Literature Review
Particularly two types of specificity are relevant to our research subject, namely site
specificity and dedicated assets. As infrastructure-heavy organisations, UCFs bind
significant capital in specialised, immobile infrastructure and equipment. Such sunk cost
commitments not only tie them to their assets and location, but also expose them to their
various local stakeholders, who - if acting opportunistically - could take advantage of
this dependence to renegotiate contracts over time. We therefore have further immersed
in the literature of TCE throughout the development of our framework and will revert to
the relevant concepts and notions in chapter 4.
Opportunism. Another central notion of TCE is the assumption that economic actors
seek to maximise their utility. In this context the ‘principal-agent’ problem requires
mentioning, which refers to behavioural difficulties under conditions of incomplete and
asymmetric information, and the related problems of contracting under uncertainty.
Thereby problems of opportunism and moral hazard, as well as conflicts of interest may
arise, either because one party has greater expertise or knowledge than the other, or
because one party cannot directly observe the other’s actions.
Pertaining to our research subject, in which the dependency of the UCF on its local
environment and stakeholders plays a major role, such problems of contracting,
opportunism, and power imbalances are important factors in the development of our
research framework.
2.1.5 Stakeholder theory
Social responsibility of firms and moral values were first addressed within strategic
management research by Igor Ansoff (1965: 65), who described personal non-economic
objectives to “include philanthropy, personal ethics, social responsibilities, social status
and reputation”. This element was further taken up by Kenneth Andrews (1971),
stipulating strategy to consist of four elements, such as (1) market opportunity, (2)
corporate competence and resources, (3) personal values and aspirations, and (4)
acknowledged obligations to groups other than shareholders. Consequently, decisions
for the most suitable strategy of a firm to follow cannot be isolated from the personal
values of the decision makers and should pay attention to social issues. This subjectivist
view of ethics, characteristic throughout the 1960s, considered ethical firm comportment
as a matter of goodwill of the firm's leadership, relying on their personal moral values
(Simon, 1961). Thus reduced to personal preferences, ethics is kept outside the
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Theoretical Embedding and Literature Review
rationality of the decision. On the basis of this view, strategic management theory
therefore for considerable time has not seriously attempted to integrate the normative
ethical principles into its field (Melé & Guillén, 2006).
In the 1970s however, the scientific discussion of social responsibilities led to the
linking of corporate social responsibility (CSR) and strategy, and to addressing the risks
that a firm assumes if its behaviour runs counter to the expectations of its social
environment (K. Davis, 1975). A number of theories began to form, addressing the
firm's response to these expectations and the role of social legitimacy as a source of
competitive advantage. In the late 1970s stakeholder theory emerged out of these
considerations, most noticeably advanced by Dill (1975), Freeman & Reed (1983); and
more recently by Clarkson (1994; 1995); Mitchell, Agle, & Wood (1997); Phillips
(2003); and Post, Preston, & Sachs (Post et al., 2002a; 2002b), just to name a few. The
integration of the stakeholder view into the thinking of strategic management becomes
particularly evident in Freeman's (1984: 46) definition of stakeholders as “any group or
individual who can affect or is affected by the achievement of an organisation's
objectives”. Since the key notions and concepts of stakeholder theory will be further
reviewed in chapter 4.6.1, we will not further detail them in the present review of
literature.
The relevance of stakeholder theory for our research is linked with the notion of
organisational embeddedness, central to the developed research framework, and is
founded in the high importance of UCFs' relations with their local environment. The
legitimacy of a firm within this environment is considered as an important resource for
the firm's value creation opportunities. Within our framework we follow the stakeholder
conceptualisation of Phillips (2003), who identifies normative and derivative
stakeholders in order to help the firm distinguish between a stakeholder relationship
based on direct moral obligation and one based on the power to help or harm the firm.
Both stakeholder groups have legitimacy to the firm, but both legitimacies are
importantly different. Phillips defines normative stakeholders as those, for whose
benefit the firm should be managed, whereas derivative stakeholders are “those groups
whose actions and claims must be accounted for by managers due to their potential
effects upon the organisation and its normative stakeholders” (ibid.: 31). We have drawn
on these definitions throughout the development of our research framework.

Theoretical Embedding and Literature Review
2.2 Relevant concepts of economic geography
The key concepts of economic geography, very generally, are space (referring to
physical distance and area), place (capturing the specificity of a particular location out
of space) and scale (organising places through a typology of spatial scales) (Coe, Kelly,
& Yeung, 2007). Its ideas come from a number of related fields, including economics,
sociology, psychology and management science, with which it shares occasionally
blurred boundaries. Its interface function therefore makes it particularly suitable to
integrate, link and further develop the insights, concepts and methods of these different
fields in a way which contributes to a consolidation of the current level of knowledge
(Zademach, 2002). In the past four decades economic geography has undergone a
significant transformation and, since the 1980s, even a radical restructuring, shifting
from universalising location theory and developing geographically specific theories of
territorial development “to the more reflexive cultural turn that champions heightened
sensitivity to the positionality of knowledge and theories and the context in which these
theories emerge” (Yeung & Lin, 2003: 115). While its initial conceptualisations
neglected behavioural aspects of economic actors, in the past decade a fuller
conceptualisation emerged which considers social, cultural, institutional and political
aspects of human agency (Bathelt & Glueckler, 2003). Thereby it draws - among others
- on institutionalist views of the firm and on network perspectives, viewing the firm as
“embedded in socially constructed networks of reciprocity and interdependence” (M.
Taylor & Asheim, 2001: 316).
Research in economic geography usually is concerned with the perspective of a wider
(geographic) scale and has no strong tradition of studying economic phenomena at the
firm-level (Oinas, 1997). However, as business economics' view of the firm tends to
underplay “the dynamic role of place, space, and spatiality in shaping firms' operations”
(M. Taylor & Asheim, 2001: 324), the interface function of economic geography is
ideally suited as a platform for trying out new ideas. The leading theoretical
perspectives of economic geography are illustrated in Table 2-2.
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Theoretical perspective Emergence Substantive research issues
Location theory (neo-classical) 1950s patterns in the distribution of economic
activities across space
Behavioural approach late 1960s alternative behavioural models to homo
economicus; influencing factors on
economic decision-making in various
situations
Structuralist approach 1970s social relations and economic structures of
capitalist economies
Post-structuralist approach /
cultural turn
Table 2-2: Theoretical perspectives in economic geography 6
1990s embeddedness of economic action and
behaviour in social, cultural and political
context; specific and place-specific features
of societies and economies
Due to their relevance for our research subject, we will briefly outline the perspectives
of location theory and the post-structuralist approach, which is closely interlinked with
concepts from institutionalism and (economic) sociology.
2.2.1 Location theory
Tracing back to Johann Heinrich von Thuenen's first volume of 'Der Isolierte Staat'
(1826) location theory essentially addresses the question of economic players' spatial
relatedness. Thereby it aims at understanding the “role of space and place in shaping
economic activity and performance (and vice versa), whether they are based on
individual economic actors, firms, industries, markets or regional and global
economies” (Yeung, 2001: 172). Furthermore, location theory is concerned with the
impact of transportation cost on locational decisions, distinguishing between resource
(or input) orientation and market (or output) orientation of the firm, which is decided on
the basis of whichever of the two is costlier to move.
Local dependence. Firms naturally interact with their local environment in order to
maintain their functionality. Their links to the locality persist for example through the
local labour market, supplier networks, or consumer markets. These localised linkages
of firms are rarely stable as a consequence of their search for profit and more rentgenerating
ways of production, which may entail also spatial restructuring and complete
relocation. However, under certain circumstances adjustments to a new geography
6 On the basis of Coe et al., 2007.

Theoretical Embedding and Literature Review
might be more difficult and relocation might result in high opportunity cost and loss of
competitive edge (Cox & Mair, 1988), rendering the firm location-dependent. Such
local dependence is characterised by Oinas (1998) as the firm's dependence on a
resource which is critical to its operation and to which it needs access as a necessary
condition for its operation. From a more socio-economic perspective Cox and Mair
(1988: 307) propose a relational view by defining it as “the dependence of various
actors - capitalist firms, politicians, people - on the reproduction of certain social
relations within a particular territory”. Thus, the firm's spatial immobility may stem
from sunk costs 7 , e.g. in the form of highly capital-intensive assets which result in
locked-up value; linkages with local actors, such as critical long-term supplier or
customer relationships or non-substitutable relations with government officials; or a
dependence on locality-specific resources. According to Oinas (1998) resources are
locality-specific if they cannot be obtained from other localities, and if they are either
non-transferable or controlled by other locally dependent actors who are not willing to
relocate themselves nor the resource.
Conceptual link to the RBV. Thus, considering local dependence 8 as a form of
resource dependence, on a set of locality-specific resources or on the locality as a whole,
location theory shares an important link to the resource-based view. Thereby the effects
of a firm's asset specificity more or less correspond with the effects of local dependence,
since a firm's human asset specificity, site specificity and dedicated assets tie it to a
specific location and tend to make it spatially immobile.
Location theory assumes relevance within our research subject due to its
conceptualisation of space, the determinants of firms' location decisions, and thereto
related of their location dependence. These notions and location theory's links with the
resource-based perspective have been important in our understanding of the
characteristics of location-fixity and the latter's effects on the firm, respectively on the
firm's value-creation opportunities.
7
Mata (1991: 52) defines sunk costs as those "costs of a firm which are irrevocably committed to a
particular use, and therefore are not recoverable in case of exit".
8
While Oinas (1998) defines local dependence as the firm's dependence on a resource which is critical
to its operation and to which it needs access as a necessary condition for its operation, Cox & Mair
(1988: 307) propose a more socialised view by defining it as "the dependence of various actors -
capitalist firms, politicians, people - on the reproduction of certain social relations within a particular
territory".
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2.2.2 New economic geography - the cultural turn
Traditionally, economic geography abstracted economic action from its social, political,
and cultural context, but in recent years it has been acknowledged that economic activity
is socially and institutionally situated, being “understood as enmeshed in wider
structures of social, economic, and political rules, procedures and conventions” (R.
Martin, 2003: 79), affecting the decisions of economic actors. The related new
theorising efforts have led to additional insights on firms' local embeddedness and local
dependence and to the establishment of the related research stream of 'new economic
geography' 9 . Moving away from the simple neo-classical assumption of the homo
economicus, it explores a wider range of goals and preferences of human action,
considering economic life is an instituted process and a socially embedded activity,
which is context-specific and path-dependent (Amin, 2004).
Local embeddedness. Drawing on the field of institutionalism, the concept of
embeddedness has become a central notion of new economic geography. Embeddedness
entails
the way in which organisations or actors become tied in to the local business and
institutional environment. (Alderman, 2004: 256)
It goes beyond a merely geographical connotation, rather being
defined by reciprocal, social, political and economic processes that occur at multiple
scales and change constantly at any given scale. (Hayter, 2004: 99)
Such embeddedness may include the firm's dependence on a particular local product,
service and labour market, but also on local government jurisdiction, or the growth of
the local economy (Cox, 1998a). On a political dimension it refers “to the involvement
of economic actors in local political practices conditioned by relations of dependence
and power” (Oinas, 1998: 124). Consequently, the region, respectively the local
environment of the firm and its relations thereto are considered as important factors for
the firm's sustained livelihood and competitiveness. The question how embeddedness to
its local environment affects the firm's performance and operation therefore has been the
subject of a number of publications in economic geography (e.g. Hayter, 2004; Oinas,
1999b).
9 New economic geography, which refers to the study of economic activities in relation to other
political, social, cultural, and institutional processes in society and space, should not be confused with
the economic approach of 'New Economic Geography', which aims at reintroducing spatial analysis into
mainstream equilibrium models and is most prominently represented by the research of Paul Krugman
(e.g. Krugman, 1998).

Theoretical Embedding and Literature Review
The relational view within economic geography, in particular the notion of
embeddedness, has been integrated and conceptually refined in our research framework
pertaining to our research object, utilities and concession-based firms. The thereto
related aspects of power and dependence are important in view of the high regulatory
density of our research object, and their strategic relevance for the local economy as
well as their high visibility due to their externalities (see also chapter 4).
2.3 Relevant concepts of (new) institutionalism
The core ideas of institutionalism relate to institutions, habits, rules, and their evolution.
Thus, institutional theory is concerned - inter alia - with the relations between the firm
and its environment and the ways in which firms react to institutional processes,
respectively which roles institutions play in shaping economic behaviour. In this context
institutions are understood as “the rules of the game in society or, more formally, ... the
humanly devised constraints that shape human interaction” (North, 1990: 3). As such
the role of institutions
is to provide stability in the real economic context of information asymmetry, market
uncertainty and knowledge boundedness, by restricting the field of possibilities
available, garnering consensus and common understandings and guiding individual
action. (Amin, 2004: 367)
However, while they reduce uncertainty in human exchange, institutions simultaneously
also prescribe and in some ways constrain the future development of the economic
actors.
New institutionalism refers to the collection of schools of thought that seek to explain
political, historical, economic and social institutions such as government, law, markets,
firms, social conventions, etc. in terms of concepts from neoclassical economics. Its
main proponents include Ronald Coase, Armen Alchian, Harold Demsetz and Oliver E.
Williamson, who significantly advanced the theoretical maturity of the transaction costs
and the property rights paradigm. Within organisation studies new institutionalism has
effected a shift of focus, comprising
a rejection of rational-actor models, an interest in institutions as independent
variables, a turn toward cognitive and cultural explanations, and an interest in
properties of supraindividual units of analysis that cannot be reduced to
aggregations or direct consequences of individuals' attributes or motives. (DiMaggio
& Powell, 1991: 8)
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Thus, the rejection of the neoclassical tendency to isolate a purely economic sphere
(Mjøset, 1985) has led to the application of a more socio-economic lens where “markets
are socially constructed; economics are diachronic, evolutionary, and volatile; and
economic behaviour is itself embedded in a and shaped through a whole range of
institutional habits … and place-based ties of proximity” (McLeod, 2004: 59).
2.3.1 New institutional economics
At the heart of new institutional economics (NIE) is the postulate that institutions matter
for economic performance. Consequently, NIE studies institutions and how these
interact with organisations, focusing on “an interdisciplinary combination of law,
economics, and organisation in which economics is the first among equals” (OE
Williamson, 1996: 3). It builds on neoclassical theory, modifies and extends it, thus
coming to terms with a number of hitherto unresolved issues (North, 1992): contrary to
the neoclassical paradigm NIE assumes that individuals have incomplete information,
that their decisions are prone to bounded rationality, that they consequently face
uncertainty and incur transaction costs through their information gathering. As a means
to reduce such uncertainty formal and informal institutions are created, developing
modes of organisation embedded in our society (Ménard & Shirley, 2005). Importantly
also, NIE adheres to the concept of methodological individualism, which attributes an
entirely new role to individual decision makers, seeing 'society', 'the state' or 'the firm'
not as collective, but rather as consisting of individually acting agents (Furubotn &
Richter, 2005). Consequently, it focuses on the responsive and problem-solving
behaviour of individuals who produce the phenomena of interest.
Economic and political interaction. Importantly, institutional economics addresses
also the interaction between economic and political markets, and what impacts the
polity has on transactional environments. Thereby it abolishes the traditional economic
perception of government being either a leviathan or entirely benevolent, rather turning
towards the way in which institutional arrangement can affect governmental incentives
and performance (Ménard & Shirley). In this discussion, trust in the government plays a
central role: a trustworthy government keeps its promises and acts in the interest of its
citizens. Its institutions ensure fair procedures and improve mutual trust between
government and citizens. The credibility of the government's commitments therefore has
a significant impact on economic activity and firm behaviour.
Social element in economic activity. Economic institutionalists have found a vehicle to
introduce a contextual and culturally sensitive interpretation of economic activity: the
institutions, whose actions “are embedded within, and constrained by, a local

Theoretical Embedding and Literature Review
institutional culture of social relations, tacit rules and formal regulations” (Barnes &
Gertler, 1999: xviii, as cited in McLeod, 2004: 62). Thereby the social element is
attributed not merely a regulatory but a constitutive function in the economy.
Consequently, from an institutional view the creation of value and competitive
advantage is considered to be related to the processes of perception, deliberation and the
firm's responsiveness and capacity for adaptation (Litz, 1996), as well as the firm's
ability to build sustainable relationships with its key stakeholders.
Modes of governance. In addition to the institutional environment, NIE also is
concerned with microanalytic issues such as the institutions of governance, which take
the transaction as unit of analysis (OE Williamson, 1996). On this level of analysis the
institutional environment specifies the relevant setting respectively constraints. Based
on the assumptions of transaction cost theory, in particular bounded rationality and
opportunism, NIE studies questions related to incomplete contracting and analyses the
possibilities to identify, explicate, and mitigate contractual hazards. These hazards
include bilateral dependence, weak property rights, hazards of measurement, intertemporal
hazards, and the hazards of a weak institutional environment (ibid.). Effective
government modes become increasingly essential, thus, the more asset- and
relationship-specific investments are made. In addition complex contracts are prone to
maladaptation over time, further exposing the parties to uncertainty and risk of
renegotiation. To overcome these hazards, TCE therefore sees legal enforcement and
self enforcement as complementing one another, with governance structures of
nonstandard contractual relationships being characterised by court ordering and private
ordering (Richter, 2001).
For our research framework the literature on NIE has proven useful with regard to the
firm's dependence on its public (in the sense of state-related) stakeholders. Since the
(usually highly regulated) UCF commits itself over long periods of time to a location,
being dependent on the state's regulatory regime, state-granted concessions and credible
commitments with regard to the contractual arrangements with the state and property
rights, the institutional economics provide the concepts and frameworks to address such
issues.
2.3.2 Legitimacy theory
According to legitimacy theory, firms exist in society under an expressed or implicit
social contract. The notion of legitimacy gives explicit consideration to the expectations
of society. Its origins lie in political economy theory, while its concepts greatly overlap
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with institutional theory and stakeholder theory and are linked with notions from the
resource-based perspective. In brief, organisational legitimacy is defined as the
acceptance of the organisation by its environment. More precisely it “is a generalised
perception or assumption that the actions of an entity are desirable, proper, or
appropriate within some socially constructed system of norms, values, beliefs, and
definitions” (Suchman, 1995: 574). It represents a reaction of observers to the
organisation as they perceive it, which is why “legitimacy is possessed objectively, yet
created subjectively” (ibid.). Thus socially constructed, it depends on a collective
audience and is time- and place-dependent. Importantly therefore, the conditions to
attain organisational legitimacy may change over time, respectively may vary across
different cultural and institutional environments. Accordingly, firms need to be aware of
society's expectations, values and any changes thereof and consequently try to anticipate
and adapt to them. Organisational legitimacy represents an important firm resource,
since it affects the way that people act towards firms, “but also how they understand
them. Thus, audiences perceive the legitimate organisation not only as more worthy, but
also as more meaningful, more predictable. and more trustworthy” (ibid.: 575).
While institutional research considers organisational legitimacy beyond the direct
control of the firm, a strategic view stresses instrumental aspects, assuming a high level
of managerial control over the legitimisation process. Thereby legitimacy is seen as a
resource for the firm on which it depends for its long-term success and survival.
Within our research framework we agree with Suchman's (ibid.) view, that real-world
firms encounter both kinds of challenges, strategic operational and institutional
constitutive pressures. Therefore we accept this duality and understand organisational
legitimacy as to include manipulable resource-like aspects and elements of a taken-for-
granted belief system.
2.4 Relevant concepts of economic sociology
As does new institutional economics, economic sociology deals with social actions. In
the classical fields of sociology and economics there are considerable differences with
regard to the influence between individual actors. In sociology these actors are
influenced by other actors, while in economics there is no such influence. Furthermore,
there are opposing conceptualisations of human behaviour and motivations: while
sociologists allow for various types of human action, which includes (boundedly)
rational action, for economists there is only perfect rationality (Smelser & Swedberg,

Theoretical Embedding and Literature Review
2005). As a response to new institutional economics' advance into sociologists’ territory,
the latter responded to these new conceptualisations with the development of new
economic sociology and the rediscovery of their old object of research, “institutions”
(Richter, 2001) which resulted in the development of new institutionalism. In this
process economic and sociological conceptualisations have become closely interrelated,
with new economic sociology's theoretical approaches being fundamentally eclectic and
pluralistic and with no emerging dominant perspective.
2.4.1 New economic sociology
New economic sociology (NES) draws on concepts from organisation theory 10 in order
to explore - among others - the links between the corporation and its environment.
Phenomena like power or trust thereby constitute fundamental parts of the theoretical
constructions, which look rather ad hoc to an economist. Richter (2001) identifies the
following three assumptions as central to NES: (1) economic action as social action,
whereby the
[e]conomic relations between two parties can be of different character: implicit or
explicit; hierarchical or among equals, mutually binding contractual relations with
freely chosen partners (according to the principle of freedom of contract) or power
relationships (dominance and compliance), reciprocal or one-sided, based on trust or
burdened by distrust. (ibid.: 8);
(2) embeddedness of social action, with social actions being constrained by ongoing
social relations which are embedded in enduring networks of personal relationships; and
the assumption of the (3) social construction of economic institutions, in which real
world institutions are not seen as results of a perfectly transparent market and purely
rational choice, or the work of an invisible hand, but rather as mixtures of conflict and
coordination, and of opposing and coinciding interests.
Embeddedness. Based on the seminal work of Polanyi (1944), 'The Great
Transformation', and further conceptualisations by Granovetter (1985) the concept of
embeddedness has developed into a core concept of economic sociology. It builds on the
argument that “[t]he [economic] behaviour and institutions to be analysed are so
constrained by ongoing social relations that to construe them as independent is a
grievous misunderstanding” (Granovetter, 1985, as cited in Yeung, 2003: 482). In other
words, Granovetter - critical of the economism underlying Williamson’s (1975)
10
Of particular relevance are the theoretical approaches of resource dependency, population ecology,
and new institutionalism (see also Smelser & Swedberg, 2005).
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Theoretical Embedding and Literature Review
transaction cost model - defined embeddedness in terms of socially instituted processes
created by reciprocal links between economic and social (noneconomic) institutions
(Hayter, 2004). Importantly, organisational embeddedness builds on the notion that
economic activity is organised through institutions, whereby the institutions themselves
are anchored in wider political arrangements and cultural systems of meaning
(Hamilton, 1994). Zukin and DiMaggio (1990) widened this conceptualisation,
proposing that embeddedness refers to the contingent nature of economic activity with
regard to four dimensions: cognition, culture, social structures, and political institutions.
Accordingly they have developed a taxation of embeddedness, including (1) structural
embeddedness, understood as “contextualisation of economic exchange in patterns of
ongoing interpersonal relations” (ibid.: 18); (2) cultural embeddedness, as “the ways
shared understandings and meanings come to give form to organisation activity,
structures, and process” (Dacin, Ventresca, & Beal, 1999: 328); (3) cognitive
embeddedness, as the “ways in which the structured regularities of mental processes
limit the exercise of economic reasoning” (Zukin & DiMaggio, 1990: 15f); and (4)
political embeddedness, as the “manner in which economic institutions and decisions
are shaped by a struggle for power that involves economic actors and nonmarket
institutions, particularly the state and social classes” (ibid.: 22). Through this enhanced
concept a number of ambiguities of the embeddedness term could be resolved, as will be
further discussed in sub-chapter 4.8.
For our research framework the notion of embeddedness has assumed high significance
in overcoming the disadvantages of the firm's location-fixity for its value creation
opportunities 11 . As will be further outlined in chapter 4, we have identified the firm's
embedding capabilities as a moderating factor in the relationship between location-fixity
and value creation. Thereby the taxation of Zukin and DiMaggio has been useful
towards enhancing the concept to reflect the particular characteristics of UCF.
Furthermore, in accordance with Dacin, Ventresca, and Beal (1999) we understand
embeddedness on one side to impose limits on what organisations can do, but also as to
entail opportunities for firms.
Trust and reciprocity. Contrary to the purely self-interested human conceptualisation of
economics and TCE, within NES trust and reciprocity are considered as basic motives
11 According to Davis & Mentzer (2008), the theory of embeddedness accounts for the value derived
from relational resources, thus establishing a link between the sociological / institutional concept and the
resource-based view.

Theoretical Embedding and Literature Review
of economic action besides self interest. Uzzi (1996: 677) claims “that embeddedness
shifts actors’ motivations away from narrow pursuit of immediate economic gains
toward the enrichment of relationships through trust and reciprocity”, whereby Fehr &
Gächter (2000) distinguish between positive reciprocity to include all cooperative
reciprocal tendencies, and negative reciprocity referring to retaliatory aspects.
Importantly, reciprocity includes responses from actors to friendly or hostile actions
even if no material gains can be expected. Furthermore, it is equally different from
altruism, since it does not refer to unconditional kindness, rather being an in-kind
response to beneficial or harmful acts (ibid.). Not surprisingly, such an altered
conceptualisation of human action reciprocity has powerful implications for many
important economic domains, while at the same time it is compatible with long term
individual utility maximisation as assumed to underlie relational contracts, respectively
long-term business relationships.
In the conceptualisation of trust two basic types need to be held apart, according to
Nooteboom, Berger, and Noorderhaven (1997): (1) competence trust, in the sense of a
partner's ability to perform according to the intentions and expectations of a
relationship; and (2) intentional trust, pertaining to the partner's intentions not to defect.
With regard to our research framework we concentrate on intentional trust, which is
path dependent and represents an idiosyncratic resource to a firm: while trust contributes
to risk reduction, it cannot be instituted instantaneously, but rather needs to be
established over time by developing bonds or shared norms and values. Intentional (or
goodwill) trust therefore may be defined as “the expectation that an actor (1) can be
relied on to fulfil obligations …, (2) will behave in a predictable manner, and (3) will
act and negotiate fairly when the possibility for opportunism is present” (A. Zaheer,
McEvily, & Perrone, 1998: 143).
In order to further reduce the ambiguity of the conceptualisation of trust, interpersonal
and inter-organisational trust need to be distinguished, which are “related but distinct
constructs, and play different roles in affecting negotiation processes and exchange
performance” (ibid.: 141). Inter-organisational trust is considered to be established
indirectly through boundary-spanners, i.e. individuals representing each party. The latter
institutionalise their trusting relationship by means of practices and routines for dealing
with a partner organisation, thus creating a stable context within which interorganisational
trust develops.
Finally trust needs to be distinguished from trustworthiness. Trust, on one side, cannot
be commanded and must be earned on the basis of trustworthy behaviour. It is
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situational and relationship-specific (Swift, 2001). Trustworthiness, on the other side, is
a quality displayed by the parties which engenders trust and represents a link towards
the construct of reputation, which is the result of consistently trustworthy behaviour
(Hosmer, 1995). In accordance with Davis and Mentzer (2008: 438), we understand
trustworthiness to reflect the “values, principles, and standards a trading partner brings
to the exchange relationship; these values, principles, and standards are shaped over
time by a firm's unique history and culture”.
Within our research framework, particularly the economic relevance of trust is of
importance. Trust lowers the costs for specification and monitoring of contracts,
provides incentives for cooperation, and reduces uncertainty (Hill, 1990). While in a
low trust relation the parties are likely to engage in lengthy and difficult negotiations
over unforeseen contingencies and to protect their relationship-specific investments by
means of contractual safeguards in order to reduce the possibility of both ex ante and ex
post opportunism (OE Williamson, 1975, 1985b), high trust conditions entail more
efficient exchange governance: firms are able to lower transaction costs because
agreements are reached more quickly and with fewer formal safeguards. As high asset
specificity and uncertainty influence the governance structure and formal contracts often
play a relatively limited role in such structures and relationships, other forms of
governance gain in significance, of which trust, reciprocity and reputation - briefly
outlined in the subsequent section - are important elements.
Reputation. Theoretical contributions with regard to reputation research come from the
disciplines of sociology, organisation theory, management strategy, marketing, and
economics. Although the concept has some overlaps with organisational legitimacy, the
two can be delineated: while legitimacy is primarily concerned with meeting and
adhering to the expectations of a social system’s norms, values, rules and meanings,
reputation is more related to relative standing, quality, esteem, favourableness, prestige,
and goodwill (Deephouse & Carter, 2005), closely linked with an organisation’s
“personality” (Eberl & Schwaiger, 2005). More precisely, within our research
framework we consider reputation to positively affect organisational legitimacy.
Through its inherent signalling function, reputation informs the public about various
attributes of the firm compared to its competitors. Since different publics attend to
different features of the firm's conduct, reputations reflect its relative success (Fombrun
& Shanley, 1990). With the objective to align rivalling conceptualisations of (corporate)
reputation, Gotsi and Wilson (2001: 25) defined it as

Theoretical Embedding and Literature Review
a stakeholder’s overall evaluation of a company over time. This evaluation is based
on the stakeholder’s direct experiences with the company, any other form of
communication and symbolism that provides information about the firm’s actions
and/or a comparison with the actions of other leading rivals.
Similar to trust and legitimacy, reputation may be interpreted as one of a firm’s
intangible resources - in line with the RBV (Barney, 1991; Hall, 1993). It is based on
the interactions of stakeholders with the firm and its representatives, and is pathdependent
and idiosyncratic to the firm - thus a potential source for competitive
advantage and sustainable rents. Thus viewed from an instrumental perspective,
reputation as a strategic asset produces “tangible benefits: premium prices for products,
lower costs for capital and labour, improved loyalty from employees, greater latitude in
decision making, and a cushion of goodwill when crises hit” (Fombrun, 1996: 57).
Consequently, reputation-building constitutes an investment, also as its signalling
function helps stakeholders to reduce risks in their interactions with the firm, which
allows the firm and its stakeholders to lower their contracting and monitoring costs
(Eberl & Schwaiger, 2005).
Conceptualisations of reputation are of relevance within our research framework with
regard to the firm's embedding capabilities. The high visibility of UCFs and their
strategic importance for national economies, give importance to the management of
their corporate reputation which may have considerable impact on the firm's activities
and future prospects. Therefore, as will be detailed later, we stipulate that a good
reputation management contributes to the firm's successful embedding in its local
environment.
2.5 Relevant concepts of value creation
Subject to the respective research tradition, value creation has been analysed from an
array of perspectives, leading to widely differing approaches and understandings of the
term. The following overview will focus on value creation in the tradition of strategic
management research, excluding aspects of agency theory or the financially motivated
understanding as often used in the leveraged buyout literature. Value creation thus is
understood as being linked to a genuine change in the financial and operating
performance of a firm, as opposed to value increases from a purely financial markets
perspective, which is regarded as only 'value capturing' (A. Berg & Gottschalg, 2005a).
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2.5.1 Value creation within the RBV
The purpose of a firm in the understanding of strategic management research, and in
particular the RBV, is to create sustainable competitive advantage, which is closely
related to rent generation and profit. However, there is no unity within the RBV with
regard to the terminology and definitions of the latter, often described by “a range of
phrases such as 'above normal return', 'high quasi-rents', 'value creation' and other nearsynonyms
for 'making money'” (Winter, 1995: 168). With the following review of
existing literature we try to disentangle these terms in relation to our research
framework. Of particular importance in this respect are the definitions and terminology
of Peteraf and Barney (2003: 314f.):
Competitive Advantage
An enterprise has a Competitive Advantage [italics in original] if it is able to create
more economic value than the marginal (breakeven) competitor in its product
market. (2003: 314f.);
Economic Value
The Economic Value [italics in original] created by an enterprise in the course of
providing a good or service is the difference between the perceived benefits gained
by the purchasers of the good and the economic cost to the enterprise. 12 (2003:
314f.);
Economic Rent
[R]eturns to a factor in excess of its opportunity costs. (2003: 314f.)
In a later publication of Barney and Clark (2007), the following refining comments are
made on the above definition of economic rents: it is a (1) net benefits approach to
value creation, displaying the benefits from the firm's activities net of their costs; it is
(2) closely aligned with fundamental economic principles, basically reflecting the
concept of total surplus; furthermore it emphasises (3) perceived benefits, rather than
absolute notions of quality differentials - consistent with the marketing view of value
creation; and lastly it supports an (4) efficiency view of the RBV, stipulating that greater
value means greater efficiency. Special consideration is thereby given to critical
resources, i.e. factors with a high contribution to value creation. What the above
definition leaves out is the issue of value appropriation, i.e. who ultimately receives the
12 For the sake of clarity, economic value shall be delineated from the 'value added' term used in
accounting, referring to the additional value of a commodity over the cost of commodities used to
produce it from the previous stage of production.

Theoretical Embedding and Literature Review
generated rent, as well as the question of the rent's sustainability. Therefore it is
important to note that rent generation ability and superior profitability are not
necessarily linked.
Conditions for value creation. According to the RBV differences in firm performance
may be explained by differences in (the efficiency of) resource-usage. Firms create
economic value not due to mere possession of resources but due to the effective and
innovative management of resources (Penrose, 1959), i.e. the unique interplay between
physical capital resources, financial capital resources, human capital resources, and
organisational capital resources over time (cf. Barney & Clark, 2007). The theoretical
conditions which underpin competitive advantage and rent generation, and all of which
have to be met, are defined as follows (Peteraf, 1993):
- resource heterogeneity 13 , creating Ricardian or monopoly rents
- ex-post limits to competition, preventing the rents to be competed away
- imperfect resource mobility, ensuring that valuable factors remain in the firm
- ex-ante limits to competition, keeping the costs from offsetting the rents
Complementary to this view, the dynamic capabilities perspective focuses on the value
drivers related to the creation, evolution and the recombination of these resources which
lead to new sources of competitive advantage (Melé & Guillén, 2006).
These conditions for value creation are interesting with regard to our research subject,
respectively with regard to the industries to which UCFs belong, in particular due to the
latter's high regulatory density and the requirement of a state concession for operation,
combined with significant sunk cost and heavy infrastructure.
2.5.2 Value creation through synergy realisation
From the perspective of strategic management the logic behind firms' motivation to
expand is rooted in the better exploitation of the firm's existing resources. Thus, firms
are able to create synergies, defined as “the value that is created and captured, over time,
by the sum of the businesses together relative to what it would be separately” (J. Martin
& Eisenhardt, 2001: 3). Importantly, synergies may spring from cost reductions, as well
as revenue enhancements and they are of use to the firm only as long as the resulting
rent is also captured by it. An aspect which is frequently underestimated by firms:
synergy exploitation does not come for free and has realisation costs to it, consisting of
13 Resource heterogeneity is understood in the sense that some firms have resources that generate more
value than others.
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direct costs of coordination and controlling, and indirect costs of compromise and
inflexibility (A. Campbell & Goold, 2000).
Pertaining to the types of synergies that firms may create, Knoll (2008: 25) has
established a comprehensive classification with regard to multi-business firms,
essentially dividing them in four major groups: (1) operative synergies, defined as
performance advantages of multi-business firms from leveraging operative resources
across their related businesses; (2) market power synergies, as the performance
advantages of multi-business firms from leveraging market power resources across their
businesses; (3) financial synergies, as the performance advantages of multi-business
firms from leveraging financial resources across their businesses; and (4) corporate
management synergies, which are defined as performance advantages of multi-business
firms from leveraging corporate management resources across their businesses. We
have integrated this synergy typology in our framework, throughout the description of
which we will come back to the concept of synergy in more detail.
The notion of synergy creation is of particular importance in the second part of our
research framework which is concerned with value creation among multiple sites of the
firm. Accordingly we will further elaborate our understanding of value creation in
chapter four - in the first part with regard to the single site firm, and in the second part
with regard to these multiple units, under particular consideration of synergies.
2.6 Conclusion
Based on our research strategy, following grounded theory methodology and employing
a multi-lens approach to our research questions, the review of literature played a
dominant role throughout our research process. On the basis of an open-minded
understanding of grounded theory we have immersed in the various fields of literature
already in the planning of our empirical phase. The introduction to the relevant
theoretical lenses and concepts for our research framework is deliberately kept brief in
order avoid redundancies, as we will return to these concepts and related literature in
more detail throughout chapter four. The objective of this chapter therefore is to provide
the reader with an overview and understanding of the key terms of existing research as
understood in our research, such as to facilitate the further reading.
Two major fields of research have been defining for the development of our research
framework: strategic management research - as a part of organisation theory - and (new)
institutionalism, whose core concepts are closely interlinked with the fields of economic

Theoretical Embedding and Literature Review
geography and economic sociology. Due to these conceptual overlaps a clear attribution
of the defining notions - while we have attempted it - was not always possible. In
particular the notion of embeddedness and a number of concepts originating from TCE
have constituted links between the individual research lenses, in some cases facilitating
their logically consistent weaving into an overall multi-lens framework, in others
making a clear delineation and decision for one perspective necessary. Table 2-1
provides an overview on the defining elements of the employed research lenses and
their relevance in addressing our research questions.
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Table 2-3: Summary of key elements from the relevant theoretical research lenses

Empirical Approach
3 Empirical Approach
In the literature review in chapter two we reviewed existing theory pertaining to our
research topic and research questions. In chapter three we expound our research
perspective, as well as the empirical approach towards deriving the answers to our
research questions. In its traditional conception, the essence of science as a method
may be divided into data and theory. In hierarchical terms, science accepts authority of
data over theory: while theory explains the world, its ideas have to be tested against
empirical data in order to validate them. However, chronologically it is irrelevant
which comes first - theory or data, as long as both are present (Punch, 2005). Bearing
these fundamentals in mind, we will start by outlining the research paradigm
underlying our research.
3.1 Research paradigm and research perspective
Paradigms encompass a number of characteristic theories and models that explain and
relate the variables defining subject matter (Mohrman & Lawler, 1985). They
represent a “worldview that defines, for its holder, the nature of the 'world', the
individual's place in it, and the range of possible relationships to that world and its
parts” (Guba & Lincoln, 1994: 105). From a scientific point of view, paradigms denote
a universally accepted set of models shared by the members of a specific scientific
community (Kuhn, 1962). They shall help readers to evaluate the findings, by being
able to comprehend the terms and process of research. Revealing the underlying
scientific assumptions is crucial in order to follow the researcher's conceptual
argumentation and to understand the subsequent results. In accordance with Guba and
Lincoln (1994), these underlying assumptions, respectively paradigms can be made
transparent by answering three principal questions:
- Ontological position: how is the form and nature of reality perceived?
- Epistemological position: what is the nature of the relationship between the
inquirer and the known?
- Methodological position: which process is chosen by the inquirer in order to
find answers to the research questions? Finding answers to this last question
goes beyond the pure choice of methods, which have to be aligned to a
predetermined methodology
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Empirical Approach
On the continuum of the ontological assumptions between the fundamental positions
of realism and idealism, science distinguishes between three principal paradigms. On
the realism-end of the continuum, there is the (1) positivistic paradigm, which assumes
reality as objectively given, existing independent of the observer. Its scientific aim is
to approximate and describe the world as correctly as possible. Furthermore, (2) postpositivism
equally bases assumptions on an objective reality. However, this reality can
only be apprehended imperfectly, because of flawed human intellectual mechanisms.
Scientifically, findings are acknowledged as being true until they have empirically
been proven false (Popper, 1976). Last but not least, science distinguishes (3)
constructivism, whose social realities are the product of human intellects and are
potentially conflicting. The content of human consciousness is assumed to be as
accessible as reality; constructivists apprehend the world by means of social
constructs, such as language, consciousness, or shared meanings.
In order to approach the formulated research questions, we have adopted postpositivism's
notion of a socially constructed reality. Under this perspective the task of
the social scientist is not defined by fact-gathering and pattern-measuring, but rather
by appreciating the different constructions and meanings that people place upon their
experience. This paradigm appears most appropriate for the topic and type of research
questions, and the consequently chosen qualitative approach of this dissertation.
Congruously, the post-positivist position allows for the combination of multiple data
collection and analysis methods, as well as the inclusion of various kinds of data
(Stablein, 1996: 537), with the purpose of capturing the different facets of an
underlying yet unknown reality (Denzin & Lincoln, 2000). To sum up, we understand
scientific research as a learning process, wherein our constructs are shaped
accompanied by theoretical intent and based on systematic knowledge through
experience (see also Kubicek, 1977).
3.2 Research methodology
In the history of science there is a long and enduring debate on the value of qualitative
versus quantitative research. Based on the positivistic end of the ontological
continuum, quantitative research seeks the causal determination and generalisation of
findings. In contrast, qualitative research is oriented towards the constructivist end of
the scale, seeking illumination, understanding, and extrapolation to similar situations.
From the perspective of the social sciences neither approach is superior to the other,
and the choice of method and use of data need to be based on the questions being

Empirical Approach
asked. In other words, there is agreement to attribute “logical priority of questions over
methods” (Punch, 2000: 6).
Based on our research subject and the associated research questions, as outlined in
chapter one, the purpose of our research is to better understand the construct of
location-fixity and how it affects the firm's value creation opportunities. Since the
characteristics and effects of location-fixity are not yet scientifically illuminated, our
aim is to contribute to the advancement and building of theory, mainly in the fields of
strategic management and institutional economics. Consequently, we have chosen an
inductive research strategy, focusing on qualitative research methodologies. This
qualitative orientation is supported by our rather contextual 14 research topic and the
employed multi-lens perspective, including research areas such as strategic
management, institutional economics, economic geography, and economic sociology.
On the basis of these considerations we have adopted an inductive case study
approach, guided by the principles of grounded theory.
3.2.1 Inductive research
Qualitative research refers to “any kind of research that produces findings, not arrived
at by means of statistical procedures or other means of quantification” (Strauss &
Corbin, 1990: 17). It is inherently inductive, “leading from the particular to the
general, the individual to the whole, the concrete to the abstract” (Bortz & Döring,
2006: 300). Being multidimensional and pluralistic with respect to paradigms, its
purpose is to explore the reality by capturing and interpreting real-world and authentic
experience. Inductive methods allow to apprehend and understand the research topic in
its width and depth (Kromrey, 2006). Consequently, inductive methods may be used to
better understand any phenomenon about which little is yet known, gain new
perspectives on things about which much is already known, and to gain more in-depth
information that may be difficult to convey quantitatively (Strauss & Corbin, 1990). In
his 'Introduction to Social Research', Punch (2005) classifies the major inductive
strategies for qualitative research methods into case research; ethnography and
grounded theory, as well as language-based strategies. These research strategies may
14 Yeung (2000: 13) clearly recommends a qualitative orientation for contextual research topics:
"Since quantitative data are not sensitive to variations in experiences at the individual social actor
level, they are not valid measurement of the rationale and behaviour of these social actors. If we take
the economic action of these actors as socially embedded, the validity of quantitative data is even
more questionable because indicators of economic action may not be compatible with measuring
social and cultural behaviour".
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Empirical Approach
be exploratory, descriptive, or explanatory in nature, depending on conditions such as
the type of the research question(s), the extent of control of the researcher over actual
behavioural events, and how much the researcher focuses on contemporary versus
historical events (Yin, 1994).
In the following subsections, we briefly introduce the approaches of grounded theory
and case study research, and further outline the reasoning for choosing those two
approaches.
3.2.2 Grounded theory
The methodology of grounded theory represents the extreme approach on the inductive
methodological spectre (Göthlich, 2003). It guides theory generation by collecting and
analysing data in an iterative process (Denzin & Lincoln, 2000; Glaser & Strauss,
1967). In the early phases of grounded theorising, the researcher goes through a
creative stage, allowing her maximum flexibility in generating new categories from
data, thus mitigating the inhibition of the research process by overly rigid
methodological prescriptions (Pidgeon, 2002). Importantly, grounded theory is shaped
by two fundamental analytical commitments, which clearly separate it from traditional
content analysis or other forms of thematic analysis: it insists on constant comparison
and on the use of theoretical sampling. Constant comparison requires the continual
sifting and comparing of elements throughout the lifetime of the research in order to
grasp the complexity, the similarities and differences of the researched field, thus
enhancing concept and theory development. The second commitment, theoretical
sampling, requires that characteristics and sample size are not predetermined. Rather,
they are influenced by the developing theory, which guides the researcher towards new
informants and appropriate locations (Goulding, 1998). Sampling therefore is mainly
driven by theoretical concerns, and cases should extend or deepen the researcher's
emergent understanding. Although this method supports the building of theory, the
researcher must be aware “that enquiry is always context bound and facts should be
viewed as both theory laden and value laden” (Goulding, 1998: 53). As an inductive
research methodology, grounded theory requires some theoretical sensitivity (Glaser &
Strauss, 1967) of the researcher, with regard to determining the point where research
reaches saturation: “The signals of saturation, which include repetition of information
and confirmation of existing conceptual categories, are inherently pragmatic and
depend upon both the empirical context and the researcher’s experience and expertise”
(Suddaby, 2006: 639). Consequently, grounded theory is foremost an interpretive
process and not a logico-deductive one.

Empirical Approach
Open-minded grounded theory. There are various streams within grounded theory,
reaching from the radical theorising method by Glaser (1992), which requires
researchers to start empirical research with no up-front theory assumptions, to the
more moderate approaches which acknowledge the need for a priori immersion in
existing theory. The recent literature on empirical social research promotes a
knowledge-based approach in qualitative studies, as suggested by Strauss and Corbin
(1990). Knowledge-generation and theory-building thereby are fostered through a
constant interplay of inductive and deductive steps. Within our research project, we
follow this more recent version of grounded theory, which Frank and Riedl (2004) also
refer to as the 'open-minded' approach. Through familiarisation with existing literature,
the researcher is sensitised towards new issues (Yin, 1994), which thus facilitates the
transfer of existing ideas to new theory by the interplay of holistic theoretical analysis
and the evaluation of collected evidence.
Reasons for choosing grounded theory methodology. With regard to our
dissertation, open-minded grounded theory offers a number of distinct advantages,
such as its (1) explorative character - since we approach our dissertation project from
a multi-lens perspective, the structured approach provided by grounded theory
methodology supports the generation of new insights by linking gained evidence with
consistent theory 15 ; its (2) theory building character - due to the absence of existing
theory with regard to the characteristics and effects of our location-fixity construct,
grounded theory facilitates the grounding and further specification of location-fixity,
thus contributing to theory generation; and lastly its (3) interpretive and inductive
character - grounded theory eases the comprehension of complex theoretical
assertions and increases their validity, because they directly derive from empirical data
(Strauss & Corbin, 1990). In our empirical phase these advantages became particularly
evident throughout the process of continuous comparison, which has contributed to the
gradual identification of our research framework's elements, and to an understanding
how they are related to each other.
3.3 Case research
Case research may be considered as one of the most effective methods in the
development of new theory. It may employ qualitative as well as quantitative methods
(Göthlich, 2003), consequently being allocated in between the inductive and the
15
According to Meinefeld (2004) only the explicit linking of newly generated insights with existing
theoretical knowledge constitutes genuine expansion of knowledge.
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Empirical Approach
deductive spectre. The case study, being the unit of analysis in case research, may be
defined as an empirical inquiry that “investigates a contemporary phenomenon within
its real-life context, especially when the boundaries between phenomenon and context
are not clearly evident” (Yin, 1994: 13). Thus, case studies are particularly useful in
forming a basis from which to develop theory inductively, whereby the emergent
theory is developed by “recognising patterns of relationship among constructs within
and across cases and their underlying logical arguments [emphasis in original]”
(Eisenhardt & Graebner, 2007: 25). Consequently, they offer the opportunity for
holistically viewing a process, as opposed to the often employed reductionistfragmented
view. Importantly, case studies differ from other research strategies, such
as experiments or action research, in the researcher's inability to manipulate the
research object. Consequently, they are optimally suited as an approach for such
situations of little or no control (Reason & Rowan, 1981).
Case study designs. Depending on the purpose of the research, different case-study
designs may be applied. Yin (1994) identifies four basic case study types,
distinguishing between single- and multiple-case designs, respectively holistic versus
embedded cases, as illustrated in Figure 3-1 below.
holistic
(single unit of analysis)
embedded
(multiple units of analysis)
Figure 3-1: Basic types of case study designs 16
single-case designs multiple-case designs
Type 1 Type 3
Type 2 Type 4
Single-case designs are chosen for arguments similar to the reasons for single
experiments. They may serve for the testing of a well-formulated theory by means of a
16 Yin, 1994.

Empirical Approach
critical case, as representation of an extreme or unique case, or they may be revelatory
in nature. In research designs with multiple stages, a single case might help as a pilot
case for the exploration of a research theme. Importantly, single case studies require
very careful scrutiny of the potential case, since all eggs are being put into one basket.
In contrast, multiple-case study designs require the researcher to pay attention to the
issues of research resources and the motives for case selection. Yin (1994: 45)
stipulates that “every case should serve a specific purpose within the overall scope of
inquiry”. Compared to the single case, multiple-case study designs usually produce
more compelling evidence, resulting in higher robustness of the overall results. As for
the holistic or embedded case study design, the unit of analysis is decisive. While
holistic case studies only focus on one unit of analysis, embedded designs involve a
main unit of analysis, but include also a sub-unit or sub-units to be researched (Yin,
1994).
Reasons for choosing the case research approach. With regard to our research topic
and research questions, a case study approach offers the opportunity to holistically
investigate the context-sensitive constructs of location-fixity, local exposure, and the
notion of local embedding. By being able to obtain context-rich information from
different data sources and several cases, the shaping and refining of our research
framework was greatly facilitated. To this effect we have employed an embedded
multiple case design. As to increase the external validity of our findings, we have
selected three case study objects from different industries by means of purposeful
sampling (Patton, 1990). Moreover, multiple case studies typically provide a stronger
base for theory building (Yin, 1994). The sampling process and criteria will be further
detailed in the subsequent section 3.4, as part of an overall description of our research
design.
3.4 Research design
The research design describes the logical sequence which links our empirical findings
with the research questions (cf. Yin, 1994). Generally, research design is defined as
“the overall configuration of a piece of research: what kind of evidence is gathered,
from where, and how such evidence is interpreted in order to provide good answers to
the basic research question(s)” (Easterby-Smith, Thorpe, & Lowe, 1991: 21). As
outlined before, we have chosen for our dissertation an inductive research strategy that
includes an embedded multiple-case design and employs grounded theory
methodology. This methodological choice is further supported on the basis of Yin's
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Empirical Approach
(1994) criteria for identification of the appropriate research strategy: (1) the type of
research question, (2) the extent of control of the researcher over actual behavioural
events, and (3) the degree to which the research focuses on contemporary events.
Pertaining to the first criterion, our research questions are of exploratory and
explanatory character, as detailed in Table 3-1.
Research question Categorisation
1. What are the defining elements of location-fixity? exploratory
2. How do location-fixity and the related institutional exposure
affect our research object?
3. How does the resulting local exposure affect the value
creation of our research object?
4. How can firms mitigate the effects of local exposure? explanatory
5. How does location-fixity impact our research object's multiunit
resource management?
6. How can the multi-site UCF create value under the condition
of location-fixity and local exposure?
7. What are the theoretical and practical implications for
companies pertaining to our research object?
Table 3-1: Categorisation of research questions 17
exploratory, explanatory
exploratory, explanatory
explanatory
exploratory, explanatory
exploratory
On the second and third criteria, the research subject clearly focuses on contemporary
events, whereby the relevant aspects under investigation may not be controlled or
manipulated. All of these circumstances suggest case research as the optimal research
strategy.
3.4.1 Conceptual framework
The conceptual framework of a research project describes the “conceptual status of the
things being studied, and their relationship to each other” (Punch, 2000: 54). In
accordance with the explorative character of our research, we started with a simplified
framework which evolved throughout our research process until reaching the point of
saturation, where no more substantially different information could be gathered. As a
result, the initial simplified research framework underwent numerous variations along
17 On the basis of Yin (1994).

Empirical Approach
the generation of new insights. Figure 3-2 illustrates the simplified research framework
which emerged from the process of refinement, and how the research questions (RQ)
relate to parts of the framework, respectively its constructs.
RQ 1, RQ 2
embedding
capabilities
local exposure from
location fixity
RQ 4 moderate
RQ 3
value creation
influences
Figure 3-2: Simplified research framework and reference to research questions
We initially started our research by supposing a link between the core constructs of
location-fixity, plus the related local exposure, and the firm's opportunities for value
creation, moderated by yet to be identified managerial capabilities within the firm. In
accordance with our theory-building approach, the objective of our empirical process
was to not only verify these links with regard to our case study objects, but to generate
insights on the specifics and characteristics of those constructs.
In a second part of our conceptual framework, we focused on the multiple unit firm
and value creation opportunities in the interaction between its location-fixed sites.
Thereby the role of the corporate parent, with its stock of experience from the various
units, is of particular interest. Based on the insights from the single unit environment
of location-fixed firms, the objective was to gain insights on how the corporate parent
may support its locally embedded units in value-creating ways.
3.4.2 Research object
Before we further describe our data sources and the criteria of case selection, in this
section we elaborate the characteristics of our research object. The initial impulses for
the research topic originated from the airport sector - a significantly location-fixed,
infrastructure-heavy and highly regulated industry. However, under the aspect of
external validity we widened the research focus to include those industries that share
the same central characteristics, in order to identify similarities and differences in their
coping with location-fixity. During our process of constant comparison and theoretical
sampling, the joint characteristics of these industries became more apparent and their
contours more clear-cut. Based on these industries' dependence on large-scale physical
infrastructure, which ties them to a specific location, they share three features which
are of significance within the RBV and the TCE:
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- They are dependent on a natural resource, which is available at a certain
location and which is immobile or movable only at great cost.
- They have a high degree of dedicated assets, due to their discrete investments in
infrastructure, which loses its value if employed in alternative uses.
- They are confronted with high entry and exit barriers, due to the nature of the
industry and the type of activity, which require particular circumstances to enter
the industry, but make it equally difficult to stop these activities
In summary, our research object refers to three types of large-scale infrastructures, i.e.
(1) transportation assets, such as airports, railways, and seaports; (2) utility networks,
including gas, water, and electricity; and (3) resource extraction facilities, pertaining to
mines, offshore platforms, or pipelines. What they have in common is their strategic
role within our large socio-technical systems and their high importance for the
functioning of national economies, which makes them assets of national strategic
interest (Gil & Beckman, 2009). Importantly, firms which operate in these industries
share the following particular characteristics:
High capital needs and sunk costs. The activities of our research object involve large
sunk investments in order to be able to deliver essential services to the public. These
capital requirements represent a significant entry barrier to newcomers. All the while,
these sunk costs tie the firm to the chosen location and makes it location-dependent
and to a certain extent exposed to its local stakeholders.
Long planning horizon. These major investments in site-specific infrastructure impose
a long-term orientation on the firm. Additional factors promoting a long-term
perspective are the complexity of the operation, which requires highly specialised
know-how; the strategic importance of the infrastructure, respectively the firm's
outputs; the stepped costs of the firm's capacity planning; and the resulting long
amortisation periods of the related infrastructure.
Sovereign mandates and concessions. The firms in our focus are subject to contractual
obligations from state-granted licenses, property-rights, and concessions. They have
received “a grant of land or property especially by a government in return for services
or for a particular use” (concession, 2010), respectively they have been granted “a
right to undertake and profit by a specified activity” (ibid.). As a consequence, they
have not only financially committed themselves, but they have a sovereign mandate
and obligation for the fulfilment of these tasks, as contractually agreed. Such
obligations may result in multiple and partly conflicting interests with regard to the
firm's activities. Most prominently the firm's profit orientation may be in conflict with

Empirical Approach
the sovereign's expectations regarding the provision of quasi-public goods, vital to the
national economy.
Path dependency. As a consequence of the first three characteristics, our research
object's activities are highly path-dependent. The irreversibility of decisions once
taken severely influences its future options and the available development paths.
Quasi-monopolistic industry structure. The industries pertaining to our research object
are predominantly characterised by monopolistic structures. Such structures are
encouraged by the capital intensive nature of infrastructure, combined with the
longevity and immobility of the assets, which collectively lead to sub-additive cost of
production functions 18 . Such natural monopolies are problematic with regard to the
firm's long-term fulfilment of its sovereign mandate. Consequently, the firm's
stakeholders, particularly the sovereign (public) ones, are concerned to protect
themselves “against the unregulated exercise of market power that a natural monopoly
makes possible” (Newbery, 2003: 3).
High regulatory density. As a result of the prior points, most of these firms are heavily
regulated, whereby the sovereign attempts to substitute the market through a
functioning regulatory system. By means of such regulation the firm's adequate
fulfilment of its sovereign mandate shall be ensured in the public interest.
As an aggregate denomination of the industries, to which the above characteristics
apply, we therefore refer to them as Utilities and Concession-based Industries',
respectively UCI, consequently denominating our research object as Utilities and
Concession-based Firms, in short UCF.
3.4.3 Unit of analysis
Within case research the unit of analysis defines what the case study is focusing on,
respectively what the case is (B. Berg, 2001). The case may be defined as a bounded
system (M. Miles & Huberman, 1994; Stake, 1995), whose limitations in data
collection and analysis, and in the application of the findings need to be determined on
three general categories, i.e. space, time, and values (Bacharach, 1989). Importantly,
different analyses in the same study may have different units of analysis.
With regard to our research project, the bisection of the research model in two distinct
parts results in two levels of analysis. In the first part we focus on the firm's local unit
18 I.e. a decrease of overall production-cost, when production is concentrated within one firm (Aberle,
2003).
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or site as the primary unit of analysis, more specifically the firm's relations and
interaction with its local environment in which it is embedded. In addition, the
capabilities of the firm's local managers represent our sub-unit of analysis. In contrast,
the second part of the framework focuses on the multiple-unit firm, which consists of a
corporate parent and geographically dispersed local units which interact inter se.
Thereby the interaction between the corporate parent and its individual unit may be
considered as primary unit of analysis. Equally, the interaction between the firm's units
themselves in the sense of cross-site collaboration also finds consideration. On the
dimension of space, the scope of the research model is limited to firms within utilities
and concession-based industries, as detailed in sub-chapter 3.4.2. The research object
is assumed to be allocated in a highly regulated institutional environment, which
principally functions as a market economy under prevalence of the rule of law - which
may be considered as part of the values, respectively the context within which the
cases are allocated. In respect of the bounding on a time scale, the research model
makes explicit the phenomenon of embedding, a process which takes place over a
period of time. The framework's social and relational constructs, such as the building
of trust and reputations, and any resulting effects on the firm's organisational
legitimacy in its local environment need to be seen in context and as enduring
processes: they need time to be established, but may also be reversed over time by
effect of the firm's activities.
3.4.4 Case selection
In the beginning of the empirical phase of data collection, the researcher needs to take
the important decision on her samples, appropriate to provide meaningful insights in
the course of the research process. To this effect “[n]othing is more important than
making a proper selection of cases” (Stake, 1995: 243). The choice of case study
objects may be driven by different purposes, such as the replication of previous cases,
the extension of emergent theory, the filling of theoretical categories, or in order to
provide examples of polar types (Eisenhardt, 1989; M. Miles & Huberman, 1994). In
theory-building research, to which we attribute our research project, sample selection
is conceptually driven, either by the theoretical framework which underpins the
research question from the outset, or by an evolving theory which is derived
inductively from the data as the research proceeds (Curtis, Gesler, Smith, &
Washburn, 2000).
Selection strategy. For an encompassing study of the research subject, the case study
researcher must strategically select a case that is pertinent to the object of study, and

Empirical Approach
which allows for sufficient access to relevant data, in order to obtain the desired
insights. In addition to data access, the chosen object needs to show a potential of
being information-rich, as to permit an in-depth approach to uncover unexplored and
complex phenomena (Stake, 1995). In particular, cases should also provide the
possibility to collect data on historical events, which Voss, Tsikriktsis, and Frohlich
(2002) term retrospective cases. A purposeful and analytical case study selection
therefore is decisive for the success of the research project, while “random selection is
neither necessary, nor even preferable” (Eisenhardt, 1989: 537). Possible criteria for
the purposeful case selection range from richness in information, to their being critical,
revelatory, unique, or extreme (Stake, 1995) 19 . The objective of case study sampling is
to identify those cases which help to expand and generalise theories, as opposed to just
enumerate frequencies. In choosing case study objects, the researcher has to ensure,
that apart from the generalisation-focus her attention also rests on the individual case.
Overall, the purposeful selection of cases requires the researcher to be clear on two
dimensions, i.e. she must have worked out an explicit sampling frame on the basis of
the research question and the research framework, and she needs to decide how many
cases are needed in the analytic generalisations of the findings (M. Miles &
Huberman, 1994; Yin, 1994).
Within our dissertation we have chosen a mixed purposeful sampling strategy, which
combines a number of strategies, for the purpose of triangulation and in order to meet
multiple needs (Patton, 1990). More specifically, our sampling logic combines
elements of intensity sampling, i.e. it focuses on information-rich cases that
significantly manifest the phenomenon; criterion sampling, i.e. the interest lies in
cases which meet some predetermined criteria of importance; and theory-based or
operational construct sampling, i.e. the sampling of incidents on the basis of their
potential manifestation of central theoretical constructs.
Criteria for mixed purposeful sampling. The three case study objects that we have
selected are all allocated within utility and concession-based industries (UCI). They
have been chosen on the basis of following sampling criteria:
Location-fixity. All case study objects are infrastructure-heavy and rely on their
specific location, either due to their need to be close to the market (market-based
location-fixity), or due to their need for a local immobile resource (resource-based
19 For more details on case selection criteria, see Patton (1990), who distinguishes between 16
purposeful sampling strategies.
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location-fixity). For all of them location-dependence is grounded in their irreversible
sunk investments.
Geographical presence. The selected objects are all involved in multi-site operations.
These operations vary in geographical scale, with each case-study object representing
one type of geographical diversification - global, international, and regional. In
addition, the importance of the case study objects' cross-border operations in relation
to their overall business differs significantly. These variations serve to increase our
findings' validity by analysing firms with differing resources for synergy exploitation
in their multi-site activities.
Strategic national importance. All selected case study objects are UCF, whose
characteristics include the affiliation to an industry of strategic national importance,
due to which they require a long-term concession from the state. They all operate
within a highly regulated environment, which impacts their scope of action.
Related diversification: Importantly, the selected case study objects are related
diversifiers. Particularly with regard to the multiple-unit perspective, we are interested
in their opportunities for value creation and synergy realisation within their core
business. We exclude those parts of the business from our scope of research, for which
such synergy realisation with the core business is not applicable (e.g. the electricity
trading unit in our power utilities case).
Organisation type and ownership. All case study objects are limited companies, whose
ownership structure ranges from fully private to fully state-owned. Two firms are
organised as financial holdings, and one firm manages its multi-site activities by
means of minority shareholdings and management contracts. While one firm is fully
floated on the stock exchange, one is a mixed ownership firm with partial stateparticipation,
and the third firm is a fully state-owned enterprise (SOE), despite its
legal form as a limited company.
Company culture. For all case study objects the cooperation between their sites, as
well as between the site and the corporate parent 20 is either actively promoted or seen
as a desirable state. In other words, the exploitation of synergies and inter-unit value
creation forms part of these firms' operational objectives.
20 For the case study object with minority shareholdings, the influence of the focal firm on the local
site is based on a management contract, through which the firm has committed itself to the
management and operation of the local site and thus has influence on the latter's performance.

Empirical Approach
Accessibility of information In respect of the practical aspects of field research, all case
study objects have a vital interest in the study results and signalled their openness
regarding the access to key informants, relevant data and information.
The decision to sample across three different industries has been driven by the
objective to allow some generalisability of the results throughout the range of UCI,
and to obtain insights if and in which regard the variation of the case objects matters.
Case study objects. The three case study objects, which we identified through our
purposeful sampling are
- Axpo Group, one of Switzerland’s leading power utilities
- Holcim Ltd, one of the world’s largest suppliers of cement and aggregates
- Flughafen Zürich AG, the operator of Switzerland's largest and Europe's 12 th
largest airport in terms of annual passenger traffic
Table 2-1 provides an overview on the case study objects on the individual dimensions
for purposeful case selection.
Axpo Holcim Zurich Airport
Industry power utility building materials airport
Location-fixity resource-based resource-based,
market-based
Geographical
presence
Strat. national
importance
Related
diversification
Regulatory
environment
Organisation
type; subsidiary
engagement
Company
culture
Switzerland,
Europe
High: central infrastructure
for economy's functioning
through electricity
generation mix; coverage of
major parts of electricity
supply chain
resource-based,
market-based
global Switzerland,
international
Medium: elementary to
construction industry
concrete and
construction materials
Switzerland, EU various various
Ltd. company / holding,
100% state-owned; mainly
consolidated subsidiaries
cooperative;
synergy seeking
Ltd. company / holding,
publicly traded; mainly
consolidated subsidiaries
customer-oriented;
synergy seeking
Table 3-2: Overview case study objects and selection criteria
55
High: critical transport
infrastructure
airport operation,
commerce and real
estate management,
consulting
Ltd. company,
38% state-owned;
minority stakes
cooperative, trusted,
socially involved;
synergy seeking

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3.5 Research process
Empirical Approach
The design of our research process consists of five analytic phases: research design,
data ordering, data analysis, and literature comparison. They are, in accordance with
inductive research in general and with grounded theory in particular, not sequential but
highly iterative and mutually reinforcing. In contrast to puritan versions of grounded
theory, we have reverted to literature very early in our research process, as stipulated
in the open-minded approach. This unfolding nature of our research and the
interleaving research phases are illustrated in Figure 3-3.
(1)
Literature comparison
Literature review
(2)
Research design
• Familiarisation with research field
• Deduction of research questions
Research set-up & piloting
(3)
Data collection
• Research structuring and planning
• Informal conversations
• Unstructured interviews
• Testing of semi-structured interviews (4)
Continuous comparison
(4)
Data ordering
(5)
Data analysis
• Concept generation and clustering
• Re-evaluation of interrelationships between categories
• Subsumption into higher order categories
Case research
• Document review
• Semi-structured interviews (22)
Evaluation, recommendations
• Description of emergent theory
• Deduction of practical & theoretical
implications, recommendations
Jun 08 – Mar 09 Apr / May 09 Jun 09 – Sep 09 Oct 09 – Dec 09 Jan 10 – Dec 10
Figure 3-3: Inductive research process
In the first phase we have familiarised ourselves with the existing literature and the
multiple perspectives, relevant to our research topic. In the initial months of our
empirical process we have been able to formulate and refine our research questions,
before moving on to the planning and structuring of our research. In addition, in line
with continuous comparison in the grounded theory approach, we have consulted
literature throughout our empirical research to ground and validate our empirical
insights. With regard to the relevant research perspectives, we started with strategic

Empirical Approach
management research (focusing on the resource-based theory) and organisation theory
(in particular transaction cost economics), before moving on towards economic
geography, and institutionalism (immersing in the fields of institutional economics and
economic sociology).
Based on the findings of the literature review and the specified research questions, in
the second phase we were able to start planning and structuring our research and the
related case studies. We identified the case study objects and obtained their consent for
participation in our research. By means of a piloting phase - including expert
conversations, expert interviews, and four semi-structured test interviews - we
established the interview guidance, which we continued to refine in the case research
phase. As we gathered first empirical insights from the piloting, we also started with
the continuous comparison of our data with prior insights and with the relevant
literature.
The third phase served to gather empirical insights in view of our research questions.
We conducted 22 semi-structured interviews, identifying our informants by means of
theoretical sampling. While the first half of the interviews served to obtain new
insights, we increasingly shifted our focus on the validation of our findings from prior
interviews. Thus, we were able to add focus to our questions, dig deeper into those
arrays, where we needed further clarification, to extend our research framework with
additional relevant constructs, and to exclude initial presumptions which could not be
confirmed in these interviews. This process continued, until we felt that no significant
additional insights could be gained, presuming to have reached saturation. Throughout
this phase, we documented our cases along the emerging structure of our research
framework.
While we advanced with our information collection, we also intensified our data
ordering efforts, thus proceeding into the fourth phase of our research. Building on the
data densification of the ongoing comparison process, our endeavours to sense-making
resulted not only in a consistent research framework, but also in an in-depth
understanding of the characteristics and specifications of the individual parts thereof.
Consequently, in the fifth and final phase we formulated propositions and immersed in
a cross-comparison of the case study findings, in order to identify similarities and
differences, and thus to strengthen the external validity of our findings. In one instance
we identified a relevant construct, but could not condense the insights into one logical
explanation (i.e. the influence of the competitive environment on the firm's
institutional exposure). As a consequence, we formulated a set of alternative and
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partially contradictory propositions, the clarification of which would require further
analysis in a future research project. After having described the emerging theory, we
finalised our research by deriving the conclusions and the relevant practical and
theoretical implications of our findings, as well as our recommendations for future
research.
3.6 Methods
Methods are the instruments for implementation of the research design. Under
consideration of the internal validity and the requirements of inductive research,
typically multiple data collection methods and data sources are combined (Eisenhardt,
1989). In the following sections we will describe the methods employed in our
research, including the means and sources of data collection.
3.6.1 Expert discussions and semi-structured interviews
Interviews are an effective way to gather rich, empirical data, particularly useful in
researching intermittent phenomena (Eisenhardt & Graebner, 2007), such as the
process of embedding or local exposure. For our empirical research, we have used this
data gathering channel by interviewing experts from different levels of hierarchy (i.e.
from top tier managers to specialists with relevant background and experience),
different geographies (including interview partners based in South Asia, Eastern
Europe, the Caucasus, and Western Europe), and from outside our case study objects
(e.g. from the public administration) in order to provide an additional perspective on
our research and as a means for validation.
Overall, we conducted a total of 26 interviews, with 22 informants, all of which lasted
between one and two-and-a-half hours. In four cases we had the possibility to revert to
the interviewee at a later stage of the empirical phase, in order to assess the fields of
interest in more depth and to clarify additional particulars. The list of our interview
partners and the details on time and purpose of the exchange are provided in the
Annexure.
With regard to our interviewing sequence, we have started out with a series of expert
discussions in order to better bound our field of research and to increase our focus. In a
pilot-run we conducted four semi-structured interviews with representatives from
Zurich Airport, respectively the affiliated Bangalore International Airport, and with
Axpo Group with the objective to refine the interview structure and to increase the
relevance and precision of the questions. Thereby we improved the output quality of

Empirical Approach
the later case interviews, which we conducted throughout our empirical research
phase. An example of the interview outlines for the semi-structured interviews is
included in the Annexure.
Prior to the interview, all informants were provided with an introduction to the
research topic, as well as the guiding questions at least two days in advance. In the
beginning of the exchange they were informed on the interview procedures.
Furthermore, they consented to our expressed request to record and transcribe the
interview (see also next passage). Within ten days of the exchange, the interviewee
received a transcript for review in respect of the statements' accuracy and for further
comments. All transcripts, but one 21 , have finally been released to be used for our
research and for direct quotation.
As we progressed in our empirical phase, we gradually changed the purpose of the
interviews which have been arranged on the basis of theoretical sampling:
- Piloting & refining of the interview guide: four interviews, in the beginning of
the empirical phase
- Gathering of rich and thick data: 12 interviews to substantiate the initial
simplified framework and to collect insights on the attributes of the constructs
- Refining and validating of research model: 12 interviews in the second half of
the empirical phase to further specify and confirm the identified constructs and
related attributes
By employing theoretical sampling, we were able to explore the gathered data and the
identified concepts in depth. Due to the sampling being responsive to the data, each
event could build on previous data and analysis, thus contributing to the subsequent
data collection and analysis (Corbin & Strauss, 2008). This process continued until we
were able to reach the point of saturation, i.e. until no new evidence emerged which
could meaningfully contribute to the theory building.
21 From one interviewee no final feedback on the transcript could be obtained. We therefore refrained
from direct quotations.
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Questions
Data
collection
Concepts
Saturation
Analysis
all concepts well
defined and explained
Figure 3-4: Theoretical sampling process to saturation
Empirical Approach
3.6.2 Data transcription
During the first phase of the empirical research, data analysis serves to reduce and
interpret the collected information. This process is facilitated by means of transcription
of the conducted interviews (Morse & Richards, 2002), which have the additional
advantage of documenting the data gathering. Transcriptions thereby add to the
transparency of the research process and consequently increase the internal validity of
the research. The transcription system should be pragmatically chosen, serving the
purpose of being “easy to write, easy to read, easy to learn and easy to search” (Flick,
2009: 300). Based on this premise, we have chosen a combination of literal
transcription, as well as selective transcription (cf. Höld, 2007) to ensure optimal data
evaluation. More precisely, approximately half of the interviews were transcribed in
their whole length. Over time, and with increasing clarity and focus, we decided to
transcribe selectively and to omit passages which did not contribute to the research
framework, neither through new insights nor through confirmation of prior gained
insights.
3.6.3 Document analysis
In addition to the insights from the interviews, our in-depth analysis of the case study
objects was complemented by written documents from various sources. Apart from
publicly available company information, such as annual reports, brochures, or
company web sites, we also had access to internal communication that added to the
internal validity and the cases' richness. In addition, we collected data from the press
and media, analyst reports, electronic sources (databases, internet, etc.), and other
publicly available material. These additional information sources served the

Empirical Approach
clarification of data which we received in the interviews, and provided additional
insights into the firm's culture, its approach to corporate social responsibility (CSR)
and stakeholder interaction, and its standards of corporate governance. It also helped to
verify and detail anecdotal evidence, respectively provided an external view on this
evidence through media coverage.
3.6.4 Protocols and documentation
The use of protocols for the documentation of the research process represents an
important tactic towards increasing research reliability (Yin, 1994). We therefore have
made use of documentation by means of a case study protocol, through memoing, and
by keeping a research log-book, all of which will be briefly described below.
Case study protocol. A case study or research protocol is a means to foster the
creative process, helping to capture a maximum of relevant insights from the collected
data. In addition to the specification of the employed research instruments, the central
element of the case study protocol is the guide to the interviews. We formulated the
initial interview guidance throughout the pilot phase of our interviews and continued
to refine it as we progressed. For each conducted interview, we have documented the
individual guidance, an example of which is included in the Annexure.
Logbook and memoing. Another element with regard to the reliability of our research
is the use of a research log-book, which documents the progress of the research and the
process of building theory from the gathered data. Notes with regard to our train of
thought, the condensing of data, and the transformation thereof into the emergent
theory have been documented throughout the dissertation project. More complex
insights in the process of continuous comparison have been documented by means of
memoing, segregated into memos of theoretical and methodological relevance, as well
as deliberations and comments on the research topic.
Case study database. For full documentation on the research process and to establish
transparency on the research materials which we gathered and used, a case study
database contains all documents related to a case study. We have established such a
database in the form of a suitable virtual folder structure and have stored our collected
case study documents accordingly.
3.6.5 Coding and analysis
Data analysis is “working with data, organising it, breaking it into manageable units,
synthesising it, searching for patterns, discovering what is important and what is to be
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Empirical Approach
learned, and deciding what you will tell others” (Bogdan & Biklen, 1982: 145). At the
heart of grounded theory analysis is the coding process, through which concepts are
extracted from raw data, “developing them in terms of their properties and
dimensions” (Corbin & Strauss, 2008: 159). With the help of coding strategies the
collected data is broken down into units of meaning and rearranged into concepts and
higher-order categories (Goulding, 1998), thus providing the means by which the
emerging theory can be integrated.
As described in sub-chapter 3.5 we have ordered and analysed data throughout our
data gathering phase and beyond, a process which has been greatly facilitated by the
use of coding. Thereby, coding did not only support our analytical process, but also
served an organisational purpose (Bazeley & Richards, 2000). As recommended by
grounded theory methodology, we frequently moved between open coding, the writing
of memos, axial coding, and modelling throughout our empirical process. In the
analysis of our interview data we started coding already in the course of the
transcription process (i.e. open coding). In this phase, we broke down the gathered
data into distinct units of meaning, which enables the researcher to describe what is
happening in the data (Goulding, 2002). Consequently, we attributed the identified
categories with properties, defined as characteristics that are common to all the
concepts in the category (Goede & De Villiers, 2003) and dimensions. In the ensuing
phase of axial coding we reduced the number of codes, and developed the
relationships among them.
3.7 Research quality
In order to verify the quality of inductive research, similarly to quantitative research a
number of logical tests are generally established and agreed. Generally, verification in
qualitative research refers to mechanisms during the research process, which
incrementally contribute to ascertaining the reliability (relating to the possibility that
the operations of a study can be repeated generating the same findings), and validity
(as the extent to which any measuring instrument measures what it is intended to
measure), and consequently the rigour of a study (Morse, Barrett, Mayan, Olson, &
Spiers, 2002). In addition, qualitative research needs to be objective, i.e. it must be free
from arbitrariness and randomness, value judgements, and ideology, and it must be
utilitaristic inasmuch as the results must be accomplished in an economically efficient
and justifiable way (Göthlich, 2003). Through consequent consideration of these
mechanisms in every step of the inquiry, the researcher is able to produce a solid

Empirical Approach
output. Importantly, these mechanisms ensure that errors are identified and corrected
before they negatively affect the developing research framework or the related
analysis.
Generally, the assessment of validity and reliability in inductive research is faced with
two major challenges: First of all, the methods of qualitative research are not
standardised and results therefore are derived through interpretation of data by the
researcher, which makes it difficult to ensure the research's reliability and validity.
Secondly, the findings are highly context-related - a deliberate feature of qualitative
research - which makes it more difficult to generalise the insights, and thus lowers
their external validity. The subsequent sections will address these challenges and
further specify the measures of quality which mitigate them. Furthermore, we will
describe how we integrated these considerations in our research.
3.7.1 Validity
In qualitative research validity is considered as the central issue in order to ascertain
research quality, as it is concerned with the degree to which the research supports the
researcher's conclusions (Bortz & Döring, 2006). Thereby three different types of
validity are distinguished, namely construct validity, internal validity, and external
validity:
- Construct validity is concerned with the quality of the operationalisation of the
relevant concept
- Internal validity refers to the extent to which the findings accurately describe
reality, and to the establishing of causal relationships between the constructs
- External validity refers to the extent to which the findings may be generalised
across different settings
In the ongoing scientific debate on the ideal measures of quality in inductive research,
validity is also referred to as credibility or dependability.
Construct validity. Construct validity is satisfied, if the researcher has identified the
right constructs and their operationalisation for the chosen research subject. It can be
ensured through a number of tactics in the data collection process, including (1) the
use of multiple sources of evidence, (2) establishing a chain of evidence, and (3) the
reviewing of the draft case study report through key informants (Denzin & Lincoln,
2000; Göthlich, 2003; Yin, 1994). With regard to the data collection process in our
case studies, all three tactics have been deliberately employed and made transparent,
mainly in the present chapter, as outlined subsequently.
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(1) Multiple sources of evidence. The case study approach as research method
explicitly foresees the use of multiple data sources. In our dissertation we have
employed a number of sources, by interviewing 22 relevant informants within and
outside our three case-study objects, and by drawing on internal and on external
documents.
(2) Chain of evidence. Pertaining to the establishment of a clear chain of evidence, Yin
(1994) recommends four measures to be taken. First of all, there should be abundant
reference in the report to the relevant case study data by means of citation. We have
satisfied this condition throughout our case study report, as well as in the theorybuilding
chapter of our dissertation. In addition, the researcher needs to collect all
evidence in a structured way, such as to be able to reveal it when asked to, and she
should indicate the specific circumstances under which data collection took place,
which we did in section 3.6.1. Third, the researcher needs to maintain a case study
protocol, including the description of the specific procedures and questions used
during the data gathering process. Our use of protocols and log-books throughout the
empirical phase is described in section 3.6.4. Ultimately, this protocol needs to
indicate, how it is linked to the initial research questions, which we also ensured. For
documentation, we have added a case study protocol in the Annexure.
(3) Review through key informants. By letting key informants review the transcripts of
the exchange, as well as the resulting case study report, construct validity may be
strengthened (Yin, 1994). For all three case study objects, informants have had the
possibility to review the case, which they did at minimum with regard to the direct
quotations. At least one key informant for each case object has reviewed the entire
case study in respect of accuracy of the information, as well as with regard to logical
consistency.
Internal validity. This aspect of validity, also known as logical validity, ascertains if
the relation between two variables is properly demonstrated, respectively if the related
arguments are compelling enough to defend the conclusions drawn from the research.
Different from construct validity, internal validity is established throughout the data
analysis phase of the research (Yin, 1994). Although establishing internal validity is
not easy for inductive research, and for case studies in particular, the researcher may
employ a number of strategies to this effect, including (1) the a priori definition of
research questions, (2) triangulation, and (3) pattern-matching (Eisenhardt, 1989; Yin,
1994), as outlined subsequently.

Empirical Approach
(1) A priori definition of research questions. Defining research questions and a priori
constructs in the beginning of the research is beneficial with regard to the researcher's
focus and provides a better grounding of construct measures (Eisenhardt, 1989). We
have defined our research questions in the initial phase of our research, when we
started to review literature and before immersing in the empirical phase. However,
research questions and preliminary constructs necessarily remained tentative and were
refined throughout our research.
(2) Triangulation. Defined as “the combination of methodologies in the study of the
same phenomenon” (Denzin, 1978: 291), triangulation reflects “an attempt to secure
an in-depth understanding” (Denzin & Lincoln, 2003: 8) of this phenomenon. It
addresses the issue of internal validity by seeking multiple sites and levels for studying
the research subject. Its basic principle is applicable to four major areas: method
triangulation, data triangulation, theory triangulation, and researcher triangulation
(Creswell & Miller, 2000). The triangulation of methods represents its strongest form
(Flick, 2007). Although we have applied only inductive data collection methods, we
have been able to triangulate within and between methods (Denzin, 1978) by
employing different interviewing methods, and by the additional review of documents.
With regard to data triangulation, the differentiation of the three dimensions of time,
space and individuals is of relevance (Flick, 2007). More precisely, the analysis of the
phenomenon should take place at different points in time, at different places and with
different individuals. We have satisfied the criteria for data triangulation particularly
through the use of theoretical sampling (see also sections 3.4.2 and 3.5), but also by
studying documents which cut across several years of the companies' recent history,
and different geographical and organisational parts of the case study objects. The
triangulation of theories has been considered, as we have chosen a multi-lens
approach, trying to ground our research framework in the fields of strategic
management research, economic geography, institutionalism, as well as economic
sociology. Thus, we have tied our emergent theory to existing literature from those
research areas, thereby further enhancing the internal validity, generalisability, and
theoretical level of theory building from case study research (Eisenhardt, 1989).
Lastly, on the dimension of researcher triangulation, internal validity is rather fragile,
as we discussed our work with other researchers on an irregular frequency, based on
the need for exchange and reflection throughout the research process.
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Dimensions of triangulation Satisfied Comment
Method � use of 2 inductive methods
Data � theoretical sampling; differentiation on the
dimensions of time, space and individuals
Empirical Approach
Theory � multi-lens approach; established links between
research framework and existing theories
Researcher ~ individual researcher, sporadic need-based discussion
with other researchers
� adequately satisfied; ~ weakly satisfied
Table 3-3: Internal validity through triangulation
(3) Pattern Matching. The logic of pattern matching “compares an empirically based
pattern with a predicted one” (Yin, 1994: 106), whereby coinciding patterns strengthen
the internal validity of the case study and its results (Trochim, 1989). In explanatory
case-studies, these patterns should be related to the independent or the dependent
variables of the research framework. Among the different approaches to pattern
matching (for more details see also Yin, 1994), we have employed an explanationbuilding
strategy which iteratively compares the findings from cases with the initial
propositions - an approach also in line with grounded theory. In addition, we have
selectively used the logic of rival explanations as patterns, whereby in one instance we
have not been able to rule out individual rivalling rationales: while interviewed
representatives from the case study objects agreed on the importance of the firm's
'competitive environment' as a moderating variable in our research framework, no
saturation could be reached with regard to the directions of its effects. In this particular
case we have theoretically and empirically grounded the rivalling explanations and
derived several mutually exclusive propositions thereof, which require further
verification in future research.
External validity. Concerned with the context within which the research findings can
be applied, external validity refers to the degree of a study's generalisability. Due to
the idiosyncratic circumstances of case studies, external validity represents a major
hindrance in the application of case study research and remains a source of criticism
with regard to the research method. There are two strategies to increase the external
validity of findings in case study research: once more theoretical sampling and the
cross-comparison of cases.

Empirical Approach
Theoretical sampling. Different from the statistical generalisation of quantitative
research, case study research relies on analytical generalisation, whereby the
researcher endeavours to generalise a particular set of results to broader theory
(Eisenhardt, 1989; Yin, 1994). For this purpose the right sampling strategy is essential.
The use theoretical sampling, as already described previously in this chapter, thereby
helps to increase the external validity of research by choosing cases which make the
relevant process transparently observable, respectively which are likely to replicate the
emergent theory, or to discover categories, properties, and interrelationships that will
extend the theory.
Cross-case comparison. Another strategy to increase external validity is the searching
for patterns across the cases. To this purpose, the choice of case study objects must
follow replication logic, in the sense that for each chosen object the researcher expects
the same results (Yin, 1994). Thus, the collected evidence becomes more compelling,
respectively the overall study gains in robustness. In accordance with this logic, we
have chosen three case study objects with the expectation to find similarities on the
dimensions of our research framework. Therefore, such as to increase our results'
external validity we have not only performed a within-case analysis, but also
compared the three cases against each other.
3.7.2 Reliability
The concept of reliability is also known as dependability within qualitative research.
Determining the extent to which other researchers are able to arrive at the same
insights at a later point (Denzin & Lincoln, 2000), it is concerned with the two issues
of whether the research questions are clear with congruent features in the study design;
and whether the research has been carried out with reasonable care (Riege, 2003). By
working towards high reliability, the researcher therefore aims at minimising the errors
and possible biases throughout the research. Among the strategies to increase the
reliability of results, Yin (1994) recommends the (1) diligent documentation of
research procedures, as provided by means of the present chapter, the case study
protocol in the annexure, and our research log-book; (2) the case study database,
which contains all collected documents, interview transcripts and other information
related to the cases - as described in section 3.6.4; and (3) the establishment of a chain
of evidence, as already outlined in the section 3.7.1 on research validity.
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3.8 Conclusion
Empirical Approach
On the basis of a post-positivistic research paradigm and in accordance with the
contextual nature of our research subject, we have chosen an inductive research
strategy in order to find answers to our research questions. Since previous research so
far seems to have neglected the adequate conceptualisation of location-fixity,
respectively the latter's effects on firms' value creation, we consider this dissertation as
contributing to theory. Accordingly, we have applied the qualitative research methods
of case study and grounded theory research, due to their explorative character, which
supports the generation of new insights. Further arguments, supporting our choice of
methods, are their theory building character, which facilitates the grounding and
additional specification of our core construct, and their interpretive and inductive
character, easing the comprehension of complex theoretical assertions. More
specifically, we have employed an embedded multiple case design, selecting three case
study objects along the logic of a mixed purposeful sampling strategy, in which we
combined elements of intensity sampling, criterion sampling, and theory-based or
operational construct sampling. By winning three ideal case study objects which
classify as UCF, our case portfolio allows to follow a replication logic, while ensuring
sufficient variation on a number of dimensions to increase the findings' external
validity. These case study objects are Flughafen Zürich AG, Axpo Group and Holcim
Ltd.
Moreover, we imparted high importance to the goodness of research through
transparent documentation of how we arrived at the findings and conclusions, and the
research process in general. Additionally the use of triangulation on various
dimensions served to enhance the study's validity. Through the two strategies of
constant comparison and theoretical sampling, as promoted by the grounded theory
approach, we were able to gather thick and rich information. The resulting insights
were verified to the point of saturation and ultimately condensed by means of different
stages of coding. In summary, we therefore believe to have employed adequate
measures to ensure rigour in our research, and to arrive at robust and valid results.

Theory Building
4 Theory Building
In the present chapter we will outline a relational model on location-fixity, its effects
on firms, and its consequences on firms' value creation opportunities. Built on a multilens
perspective, our framework draws on strategic management research, economic
geography, economic sociology, as well as institutional economics. It acknowledges
the role of institutions in economic life, as well as the importance of relations between
the economic actors. The latter are seen in the light of methodological individualism,
which stresses the preferences, objectives, ideas and motivations of individuals. Thus,
society, the state, firms and political parties are not regarded as collective actors, but as
a bundle of individual actors (cf. Richter & Furubotn, 2003). Preluding to our research
framework, we begin with a general conceptualisation of space, scale and location as a
basis for the ensuing definition of the location-fixity construct. Besides, we will briefly
draw on institution theory for a conceptualisation of institutions, introducing a
contextual view of the firm in its local environment, before further elaborating the
research framework.
4.1 Space, place and scale
In conceptualising location-fixity and the embeddedness of firms in their local
environment, it is crucial to distinguish between different concepts of economic
geography, such as space, place and scale. While space relates to physical distance and
area, the concept of place refers to the specificity of particular places that are carved
out of space. Through the notion of place, economic processes are being explored
under consideration of the environmental, social, cultural, institutional and political
contexts in which they are embedded (Coe et al., 2007). In this contextual approach
firms and their environment are assumed to influence each other significantly by their
interaction. Finally the concept of scale organises places through a typology of spatial
scales, typically ranging from the local, regional, national a macro-regional to the
global scale.
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Space
Place
Scale
distance / area
context
reach
Figure 4-1: Conceptualisation of space, place and scale
Theory Building
The location, respectively the place where a firm chooses to settle in order to take up
its activities is a crucial success factor. Contingent on the kind of resources which are
critical for the firm, its criteria for choosing a location will differ. Location factors, in
the sense of “variable location-specific conditions, influences and forces etc., which
have a positive or negative effect on the development of a production site” (Mikus,
1978, as cited in Zöller, 2004: 61), therefore determine a firm's choice of location.
Such considerations include (Maier & Tödtling, 2006):
- Upstream. Availability and access to a company's critical resources (land,
labour, capital, natural resources, semi-finished products, know-how, and
technology)
- Downstream. Access to relevant markets
- Factors relevant on the up- and downstream side. Infrastructure with public
good character, and agglomeration advantages
With view at our research object, utilities and concession-based firms, particularly the
tangible and immobile upstream factors are relevant, because of their dependence on
local resource inputs - mostly in the form of natural resources. For operators of
hydropower plants, for example, suitable water deposits and -flows are decisive for
their location choice, whereas for extractive industries the deposits of respective
natural resources determine their options. Looking downstream, some of these
industries additionally depend on the proximity to their customers. In other words,
their market reach is limited on a spatial scale, as exemplified by the cement industry,
which is affected by high product transportation costs, or airports, which need to be
within the reach of a catchment area. This particular importance of location factors for
UCFs is one of the cornerstones in the development of our research framework.

Theory Building
4.2 Institutions
In order to set the context of our research framework, the following section provides a
brief introduction to institution theory and develops our understanding of institutions.
Institutions are omnipresent in our society and economy, as they are “the systems of
established and prevalent social rules that structure social interaction” (Hodgson,
2006: 2). More precisely, within institutional theory they represent organised interests,
which are “ordered collections of rules, laws, regulations, property rights, habits,
practices, customs and routines that are enforced and that enable, guide and normalise
relations and behaviour among various parties” (Jovanovic, 2009: 154). For conceptual
clarity, it is important to differentiate between institutions and organisations. The latter
are established in an institutional environment, and - once they are created - also
develop institutions of their own (e.g. company culture). These organisation-specific
institutions tend to set the formal and informal “rules” of how to act and behave in the
different positions within them. Lundequist (as cited in Dale & Nilsen, 2000: 4)
applies a metaphor for a clearer distinction: whereas organisations can be seen as the
players, institutions represent the rules of the play. Both mutually influence each other:
organisations by the way the institutions (rules) are formulated, and the formal and
informal rules by the organisations' (the players') activities. In a market context, the
institutional environment sets the formal and informal rules for governance of the
economy (Storper, 1997), supporting the creation and 'proper' orientation of market
forces, economic growth and development. The resulting effects are stability in
economic interaction and the reduction of uncertainty and transaction costs.
4.2.1 Pillars of institutions
Despite the efforts to clarify the institutional term within institutions theory, it is still
in many ways ambiguous. With the objective to distinguish the divergent conceptions
more clearly, Scott (2001) introduced three dimensions, i.e. the regulative, normative
and cognitive pillar of institutions. The regulative pillar of institutions refers to
processes such as rule setting, monitoring, and sanctioning activities. Within this
perspective, economic actors orient their behaviour on the basis of costs of rewards
and penalties, in other words rules are obeyed because it is the actor’s self-interest to
conform. The regulative pillar is particularly emphasised by economists, whose
classical conception of economic behaviour discerns individuals and organisations
primarily as pursuing their self-interest through instrumental, utilitarian behaviour. In
contrast, institutions on the normative dimension impose constraints on social
behaviour, while at the same time empowering and enabling social action. Thus,
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Theory Building
institutions prescribe rights and privileges as well as responsibilities and duties
(expressing, “what is expected of me”). Finally, the cognitive pillar stresses the way
situations are framed and social identities defined (Scott, 2001). It centres on the
question of sense-making, i.e. our conception of who we are and what actions make
sense to us in given situations. In short, the cognitive dimension of institutions
embodies our things 'taken for granted'. Table 4-1 provides an overview on the
characteristics and delimitation of the three pillars.
Regulative Normative Cognitive
Basis of compliance expedience social obligation taken for grantedness,
shared understanding
Basis of order regulative rules binding expectations constitutive schema
Mechanisms coercive normative mimetic
Logic instrumentality appropriateness orthodoxy
Indicators rules, laws, sanctions certification,
accreditation
common beliefs,
shared logics of action
Basis of legitimacy legally sanctioned morally governed comprehensible,
recognisable, culturally
supported
Table 4-1: Three pillars of institutions 22
Scott's separation of the normative and the cognitive pillar is not entirely definite, with
the three pillars being mutually reinforcing, thus weaving into a strong social
framework. As a consequence, from the regulative to the cognitive pillar there is a
continuum “from the conscious to the unconscious, from the legally enforced to the
taken for granted” (Hoffman, 2001: 36).
Within our research framework all three pillars are relevant with regard to the
conceptualisation of firms' embeddedness in their institutional environment, as well as
firms' perception of their role and responsibilities within this environment. Pertaining
to UCF, the regulative understanding of institutions is essential, due to the high
importance of regulation within the related industries. Therefore, firms may rightly
view institutions from a utilitarian perspective, perceiving them as means to create
stability for the firm’s economic activities, and which they need to respect also in
22 Scott, 2001.

Theory Building
order protect themselves from any immediate and tangible consequences of noncompliance
with rules. Nonetheless, the normative and cognitive dimensions of
institutions are equally relevant, in order to maintain the firm's social acceptance
within its environment, since “organisations require more than material resources and
technical information if they are to survive and thrive in their social environments.
They also need social acceptability and credibility” (Scott & al., as cited in Scott,
2001: 58). These contextual aspects are of primary importance in our framework.
4.2.2 Institutional environment and institutional arrangements
Two levels of analysis apply within institutional economics concerning the relations
between firms and institutions: the institutional environment on a macro level, and
institutions of governance on a micro level. Davis and North (1971: 133) define the
institutional environment as a “set of fundamental political, social, and legal ground
rules that govern economic and political activity”, such as rules governing elections,
property rights, and the rights of contract. Institutions of governance or institutional
arrangements on the other hand may be of a formal or informal character and are
understood as “an arrangement between economic units that govern the ways in which
these units can cooperate or compete” (ibid.).
Combined with the effects of location-fixity, both, the firm's institutional environment
and its institutions of governance are central factors for its value creation capacity
within our research framework. If the overall institutional environment encourages a
firm's self-responsible demeanour, the firm can use its internal governance capacity (in
the sense of trust-building) to lower transaction costs in its interactions with the
environment.
4.2.3 Institutions and economic performance
The availability, quality and enforcement of institutions are crucial for the
coordination and the consistency of actions in an economy. Institutions provide the
incentive structure of an economy, and their direction of evolution shapes the long-run
economic performance. Depending on how institutions reward productive activities,
firms will engage to grow, thus benefiting the overall economy. From a firmperspective,
an institutional environment that encourages trust among trading
partners 23 may facilitate the creation of relational rents (S. Zaheer, 1995). Strong
institutional presence, however, seems to run along a utility curve whose marginal
23 I.e. an institutional environment with effective 'rules' or social controls for enforcing agreements.
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Theory Building
utility turns negative at a certain point. Amin and Thrift (1994) suggest that too much
'institutional thickness' 24 can turn firms resistant to change, consequently inhibiting
learning, innovation and growth. Despite this note of caution and in view of the
characteristics of our research object, institutional embeddedness in our research
framework is primarily regarded as critical to UCFs' survival, i.e. the more
institutionally embedded they are in their local environment, the more gainful for the
firm.
4.2.4 Institutional distance - the liability of foreignness
An interesting approach to the challenges of firms operating in non-familiar
institutional contexts is offered by the 'liabilities of foreignness' concept, originating
from S. Zaheer (1995). Firms engaging outside their home-territory face such
liabilities, as a consequence of not understanding the local environment and
institutional practices, and due to a lack of legitimacy (Xu & Shenkar, 2002). For
multi-site firms that engage in different institutional contexts it is therefore critical to
be able to bridge institutional distances between the host and home environment for
sustained competitive advantage (Van de Ven, 2004). While the observable elements
of the liabilities of foreignness are quite well researched, it is probably the more tacit
elements that considerably affect firms' performance in negative ways (Cox & Mair,
1988: 308). The concept of liabilities of foreignness and firms' capability to embed
themselves in host environments will be taken up again in our research framework
with regard to multi-site firms (see sub-chapter 4.10).
The next section elaborates our research questions and provides an overview on the
research framework.
4.3 Conceptual framework development
During the exploratory phase of our research, a basic framework for location-fixity
and its effects on firms' value creation opportunities has emerged. In the course of this
process our attention has shifted in two regards, based on the insights gained. On a
theoretical level, the initial assumption that the construct of location-fixity has been
sufficiently researched and defined has proven to be too optimistic. Despite extensive
literature research in the fields of strategic management (triggered by the construct of
24 The authors define institutional thickness as "the combination of factors including inter-institutional
interaction and synergy, collective representation by many bodies, a common industrial purpose, and
shared cultural norms and values" (ibid: 15).

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site-specificity), as well as economic geography (following various streams of location
theory and new economic geography) the therein established terms and definitions
appeared to be ambiguous. As a consequence, the first research question – “what is
location-fixity?” - needed to be more thoroughly researched than initially expected, as
its importance for our dissertation increased. Therefore, the subsequent discussion of
location-fixity forms the basis for approaching the subsequent research questions.
Secondly, on the empirical level, the indications from our expert interviews in the
various case studies consistently pointed towards the importance of firms' embedding
into their local environment as a response to location-fixity. In our case studies, firms'
long-term commitment to a location was accompanied by management's awareness of
the importance of embedding efforts, including active stakeholder management,
lobbying activities, as well as pro-active communication towards the local community.
Thus, in order to better understand the effects of location-fixity from a single-site
perspective, we shifted our initial emphasis on the relationships between multiple sites
of location-bound firms more towards exploring the link between location-fixity and
value creation of single sites, under consideration of their institutional environment.
As a result to these shifts in emphasis, we have decided to split the research questions
and framework in two parts, first of all exploring location-fixity and value creation in
the firm's single-site context, before concentrating on multi-site set-ups in the second
part.
4.3.1 Research questions guiding the framework development
The initial impulse for the research topic came from the author's professional
experience in the international business development of airports, as the important
issue, if airport operators' engagements at geographically dispersed sites create value
evoked ambiguous judgements from experts in the field. Thus, after preliminary
research, including exchanges with industry professionals and researchers, we
identified the characteristic of location-fixity as one of the central differentiating
criteria that made the question of value contribution difficult to answer. In comparison
to manufacturing firms, an airport has limited opportunities to optimise the value chain
of its daily operation across multiple sites, and compared to service industries it cannot
relocate and build its business elsewhere once a commitment to a site has resulted in
infrastructure development. Starting from this angle, we generalised the construct of
location-fixity, identifying other affected industries with similar set-ups. As a result,
we delimited our research object to all firms in industries which are characterised by
heavy infrastructure investments, high regulation density, and long planning cycles
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summarising them as 'Utilities and Concession-bound Industries' (UCI). After an
enlightening process of literature review and exchanges with practitioners, our
research questions emerged and were sharpened over time, as elaborated below.
(I) Single-unit perspective. The construct of location-fixity to date is not clearly
defined in its characteristics and effects for firms. Consequently, it is of interest to
clarify this ambiguity first by elaborating these elements, the sources, and the resulting
dependencies of location-fixity. This results in our first research question:
Research Question 1: What is location-fixity?
- What are the elements of location-fixity?
- Which kinds of dependence stem from location-fixity?
- Which external factors further influence the effects of location-fixity?
- What are the characteristics of location-fixity for utilities and concession bound
industries (UCI)?
In conjunction with the first research question, the subsequent question arises as to the
effects of location-fixity on the research object. Notably, location-fixity constitutes
many forms of dependence, particularly on the firm's local environment and on its
stakeholders. These various dependencies are consolidated in the construct of
institutional exposure, which is derived directly from location-fixity. In turning our
attention on the effects of location-fixity and the resulting institutional exposure, we
will explore the next question and sub-questions as follows:
Research Question 2: How do location-fixity and the related institutional exposure
affect utilities and concession-based firms (UCF)?
- What is institutional exposure?
- What are the sources of institutional exposure?
- What are the limitations and opportunities from institutional exposure?
Taking the constructs of location-fixity and related institutional exposure together, we
subsume them under the term 'local exposure' in our research framework. This local
exposure is assumed to affect UCFs' value creation in a number of ways, which to
explore is the objective of the next research question.
Research Question 3:How does the resulting local exposure affect UCFs' value
creation?
After the exploration of location-fixity and its various effects on UCFs, research
question four focuses on the firm's action parameters, i.e. the possibilities at hand to

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take influence on the effects of local exposure. In our efforts to explore the action
parameters we analyse the different elements firms have at hand to embed themselves
sustainably at a location, to reduce their exposure and in some cases to turn the effects
of location-fixity into a value creating advantage.
Research Question 4:How can firms mitigate the effects of local exposure?
- What kind of embedding capabilities do firms need?
- How can these embedding capabilities change local exposure in valueenhancing
ways?
(II) Multi-site perspective. Turning towards the initial focus of the research project,
the second part of the framework is concerned with the possibilities of value creation
between multiple sites of the UCF, respectively between the UCF's headquarters
(corporate centre) and its geographically dispersed subsidiaries.
In comparison with footloose manufacturing firms UCFs have fewer opportunities to
optimise the different elements of their supply and value chains. On the basis of this
rationale we try to carve out the differences, respectively the limitations that locationfixity
puts on multi-site management, resulting in the next research question:
Research Question 5: How does location-fixity impact UCFs' multi-site resource
management?
In view of the spatial limitations of UCF research question six elaborates on the
remaining value creation opportunities in multi-site management, respectively on
opportunities which base on the identified limitations. Thus we derive sub-questions as
listed below:
Research Question 6: How can multi-site UCF create value under the condition of
local exposure?
- What roles and functions can the corporate centre play to increase overall value
creation through its multi-site engagement?
- In which fields are location-bound units able to cooperate among each other and
create value?
- How can the corporate centre create value by helping its local units to overcome
liabilities of foreignness?
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The last research question is concerned with the insights from both parts of the
framework, with the aim of drawing conclusions on further implications of the
findings.
Research Question 7: What are the theoretical and practical implications for
companies with location-fixed assets?
In section 4.4 we will commence to outline the first part of our research framework,
before theoretically grounding and empirically developing the individual elements in
more detail.
4.4 Part one - embedded single unit perspective
In the process of our empirical research the embeddedness of the research object in its
local environment developed into a key element of our research framework. As a
consequence of this cognisance our theoretical orientation altered slightly and led to a
profound review of literature from the fields of economic geography, institutionalism
and economic sociology, besides the literature in strategic management research. Most
importantly, integrating the notion of embeddedness in our framework led to a
conceptual valorisation of the firm's local context in which it performs its activities. As
a result of our empirical insights, we therefore postulate that a firm's local
embeddedness, as “the way in which organisations or actors become tied in to the local
business and institutional environment” (Alderman, 2004: 256), has implications for
its value creation opportunities. This notion is illustrated by the following statement of
an executive of Axpo (interview N°1: 12), who asserts that “local embeddedness is the
central factor for us - all our plants and facilities depend on the local approval. We feel
that this factor is becoming increasingly important”. In setting the notion of
embeddedness in context with the core construct of location-fixity, we established the
'institutional exposure' construct which reflects the firm's dependency on its local
environment and its need to be locally embedded. In a further attempt to simplify the
framework, we subsumed 'location-fixity' and 'institutional exposure' under the
concept of 'local exposure'. As a starting point for the framework development in the
subsequent sections, Figure 4-2 illustrates the simplified model and establishes the
links between the main constructs. For better orientation, the sub-chapters which
further develop the constructs are indicated in parentheses.

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structural (economic) (4.8.4)
relational (social) (4.8.5)
local exposure from
embedding
capabilities (4.8)
moderate
location fixity (4.5 - 4.7) value creation (4.9)
influences
location fixity (4.5)
strategic options (4.9.2)
constitutes
business risks (4.9.3)
institutional exposure (4.6)
operational (4.11.4)
Figure 4-2: Simplified conceptual framework and references to subchapters
Starting from these main constructs, we will now incrementally detail the notions of
the research framework and derive related propositions, progressing from the left to
the right side of our framework. In this process some of the developed notions will
require deliberate theoretical grounding, particularly due to the chosen multi-lens
approach. Such excurses will be distinguished as such, consistently leading back to the
framework's main structure.
4.4.1 Central links and notions of the research framework
Our research framework develops from the core construct of location-fixity (cf. section
4.5), a characteristic to the firm which causes an increased dependence on its local
environment. With reference to Jovanovic's (2009) definition of institutions as
'organised interests', this dependence in the form of institutional exposure subsumes
the claims, demands and expectations of the firm's local stakeholders. It is the degree
to which a firm is exposed and vulnerable to these claims, depending on its
geographical flexibility to avoid them.
Leaning on the terminology and basic concepts of transaction cost theory, the
institutional exposure from location-fixity derives from potential opportunism on the
side of the firm's stakeholders. It is therefore assumed, that the firm's spatial
immobility is adversely influencing its bargaining power, consequently having an
impact on the distribution of the firm's created economic rent. As the firm commits
itself to a location for the long-term, e.g. through site-specific assets, it becomes prone
to hold-up situations 25 from its local environment with the objective to appropriate its
25 For more details on the hold-up problem, see for example Richter & Furubotn (2003), or Hart &
Moore (1990).
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quasi-rents. Such hold-up experiences are illustrated by the following example from
our empirical research: In the negotiations between the power utility Axpo and a local
public administration on the subject of a thermal power plant, Axpo had to accept the
redistribution of a significant share of its rents. A member of the firm's senior
management reflects: “they [the administration] know exactly that the national
regulation requires us to achieve a certain heat utilisation ratio, attainable only by the
delivery of electricity plus long-distance heating. In the course of the negotiation for
the pricing of long-distance heat we were forced to settle for a price less than half of
the benchmark price for domestic fuel oil” (interview N°3: 7). Consequently, the first
proposition suggests a relationship between location-fixity and institutional exposure
as follows:
Proposition 1
The higher a firm's location-fixity, the higher its institutional exposure and risk of rent
appropriation by its local stakeholders.
As illustrated in Figure 4-2, the two constructs 'location-fixity' and 'institutional
exposure' combined represent the firm's overall 'local exposure'. It is important to note,
that this construct summarises the firm's potential exposure in the sense of an overall
map of eventual risks, which are rooted in the firm's location-fixity. In case such risks
materialise, however, they may affect the firm's ability to create value - reflected by
the uni-directional relation between local exposure and value creation in our
framework. The firm's endeavours to reduce its exposure and the possible effects on its
value creation are aggregated in the 'embedding capabilities' construct, which entails
capabilities towards the economic and relational embedding of the firm. Inherent to
these capabilities is the aim to endow the firm with a high degree of 'organisational
legitimacy', a concept borrowed from institutional theory and further elaborated in
section 4.8.2. By building such legitimacy, understood as acceptance of the
organisation by its environment (Kostova & Zaheer, 1999), the firm ensures a
fundamental congruence between stakeholders' expectations and the firm's fulfilment
thereof. In other words, by developing capabilities to achieve such legitimisation the
firm may mitigate the negative impacts of its local exposure. As illustrated by our case
study object Holcim, such awareness of the importance of local embedding can
become a critical success factor. The firm maintains in a company-internal fact-sheet
“that earning and keeping the trust and respect of our stakeholders […] is not only a
prerequisite for our licence to operate, but will fundamentally strengthen our business”

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(Holcim Ltd., 2007). The second proposition therefore relates to the influence of
organisational legitimacy on the link between the firm's local exposure and its value
creation.
Proposition 2
The potential negative impact of local exposure on the firm's value creation is
moderated by its capabilities to embed itself locally.
Now that the main constructs and their links within the simplified research framework
are established, the following subchapters will elaborate the model and the thereto
related notions. To this objective we start with the conceptual clarification of the
framework's core construct 'location-fixity', in accordance with our first research
question.
4.5 Location-fixity
In our endeavour to conceptually clarify the notion of location-fixity, and based on our
empirical research, we distinguish three types of location-fixity: resource-based,
market-based and ownership-based, which will be specified in more detail in the
ensuing sub-chapters, as referenced in Figure 4-3.
embedding
capabilities (4.8)
local exposure from
moderate
location fixity (4.5 - 4.7) value creation (4.9)
influences
location fixity (4.5)
constitutes
resource-based (4.5.1)
market-based (4.5.2)
ownership-based (4.5.3)
institutional exposure (4.6)
Figure 4-3: Types of location-fixity and corresponding references to subchapters
The first and most obvious type, the resource-based location-fixity, is based on the
firm's upstream dependencies. In other words, the firm's spatial immobility is the result
of its dependence on natural resources which are critical, scarce and locality-specific,
or it stems from a dependence on tangible assets, i.e. locality-specific infrastructure
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that involves sunk cost and site-specific assets. Frequently, both dependencies
coincide, e.g. when firms develop infrastructure to exploit the locality-specific
resources. Secondly, looking downstream, firms may equally become dependent on a
location due to the non-substitutability of their localised exchange linkages (Cox &
Mair, 1988), i.e. the firm's reliance on stable buying and selling relationships.
Alternatively, such market-based location-fixity may arise from the nature of the firm's
product, which requires its spatial proximity to customers, e.g. due to limited product
transportability. Lastly, location-fixity may be ownership-based, implying constraints
through the firm's shareholders. In the case of state-owned enterprises (SOE), or firms
with state participation, for instance, spatial restrictions may arise when the
shareholder's utility function is determined by factors other than profit-maximisation.
Table 4-2 summarises the types, associated characteristics and dependencies of
location-fixity and provides examples within utilities and concession-based industries.
Type
Dep.
Characteristics Examples
Resource-based (upstream)
Natural resource dependence 26
Locality-specific natural resource deposit:
The firm relies on critical and scarce
resources, which cannot be obtained from
other localities, and which are either nontransferable
or controlled by other locally
dependent actors who are not willing to
relocate themselves nor the resource.
Resources in this context mostly signify
natural resources, including land.
(continued on next page)
Hydropower: waterways with hydro
potential
Airport: land development around
perimeter
Cement: limestone quarry
Seaport: waterways navigable for cargo
traffic, located nearby agglomerations
Skiing resorts: skiable slopes and
infrastructural access
Oil production: exploitable & accessible
oil deposit
Railway: coherent land resource for nondisrupted
railway line
26 This operationalisation is in line with the resource dependence theory, which postulates resource
dependence to exist, when the firm relies on resource supply which is marked by (1) concentration, (2)
controllability, (3) non-mobility, (4) non-substitutability, and (5) essentiality (cf. Frooman, 1999).

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Type
Dep.
Tangible asset dependence
Characteristics Examples
Long-term sunk investments:
Irrevocable commitment of the firm to a site
through a substantial investment in assets
limited to a particular use, and therefore not
recoverable in case of exit.
Assets in this context include tangible assets,
such as plants and other infrastructure, as
well as intangible assets, as property rights
and concessions.
Market-based dependence (downstream)
Dependence on market
proximity
Dependence on local
customer relationship
Product-related customer-proximity:
The pursuance of the object of a firm requires
its vicinity to the customer, due to the nature
of the product.
The required proximity to the market can be
evoked by the nature of the product, as in the
case of services, or by economically
prohibitive product transportation cost.
Customer-related tie-up to location:
The location of the firm was chosen on
grounds of co-location with the customer or
service partner.
Sunk cost commitments tie the firm to the
location, site- respectively relationshipspecific
assets tie it to the local customer.
Ownership dependence
Dependence on owners'
utility function
Significance of public shareholder:
The interests of (a fraction of) the firm's
shareholders deviate from profit
maximisation.
A public shareholder can add to the firm's
location-fixity because benefits through
presence in the region outweigh profitability
gains through involvement at different
locations.
Table 4-2: Types and characteristics of location-fixity
Hydropower: hydroelectric turbines, dam
wall installations
Airport: runway system, apron &
taxiways
Cement: mining & quarry infrastructure
Seaport: container terminals, docks,
yards, warehousing infrastructure
Skiing resorts: ski lifts, funiculars, hotel
infrastructure
Oil production: oil rigs & platforms
Railway: rail system
Airport: proximity to catchment area
(passengers, cargo-inducing industry)
Cement: proximity to construction market
(economically viable radius of app. 100
km)
Railway infrastructure: proximity to
catchment area (passengers, cargoinducing
industry)
Seaport: dependence of terminal operator
on port authority/operator
Airport: dependence of maintenance,
repair and overhaul providers on airport's
functionality and attractiveness
Airport, railway infrastructure, seaport:
strategic relevance for regional economic
development to attract further businesses
Power generation, water utilities:
strategic relevance due to enabling
capacity for functioning of all other
economic activity
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With reference to our research object, resource-based location-fixity practically always
applies to utilities and concession-based industries, owing to their sunk cost
commitments. By contrast, market-based location-fixity is less prevalent, only
affecting a subset of these industries. Ownership-based location-fixity frequently
applies to UCI, since their strategic importance for local economies commonly goes
along with state-involvement. Considering the thus gained insights, we define
location-fixity as follows:
Definition of location-fixity
The circumstance of being tied to a specific location on account of resource-, market-
and/or ownership-based dependencies.
4.5.1 Resource-based location-fixity
Defined rather generically, resources are inputs into the firm's production process. Any
economic enterprise is dependent on resource inputs from its environment, be they
tangible or intangible. However, the availability and abundance of resource inputs may
vary significantly, with some of them being scarce and competed over by different
economic players. Not surprisingly, therefore, resource dependence theory views
resources as a basis of power. Consequently, the scarcer a resource and the more
important it is for the firm's activities, the higher is the resulting uncertainty of a firm
if it lacks control thereover. Thus, firms seek ways to control and exploit these critical
resources in order to reduce their uncertainty and to ensure survival.
Resources within the RBV. Within the RBV resources are defined as to “include all
assets, capabilities, organisational processes, firm attributes, information, knowledge,
etc. controlled by a firm that enable the firm to conceive of and implement strategies
that improve its efficiency and effectiveness” (Daft, 1983, as cited in Barney, 1991:
101). Stated more simply “resources are the tangible and intangible assets of a firm
which can be drawn upon by the firm when required to achieve its objective(s)” (Ray
& Ramakrishnan, 2005: 4). In the firm's efforts to generate differentially greater value,
it relies on critical resources as “those factors that have a significant positive effect on
either the economic costs or perceived benefits associated with an enterprise’s
products” (Peteraf & Barney, 2003: 316). Furthermore, its overall resource
configuration is decisive with regard to attaining sustainable competitive advantage.
To this end the firm must also possess strategic resources, which have to be valuable,
rare, imperfectly imitable and imperfectly substitutable (the so-called VRIN criteria,

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Barney, 1991). Since these characteristics must be fulfilled simultaneously strategic
resources typically are intangible (cf. Amit & Schoemaker, 1993; Michalisin, Smith, &
Kline, 1997), as “fixed-assets, like plant and equipment which can be purchased offthe-shelf
by all industry participants, cannot be the source of a firm's competitive
advantage” (Teece et al., 1997: 518).
Resource dependence within the scope of the research model. Resource-based
immobility of firms evidently originates from those resources which are locationbound,
i.e. difficult or impossible to relocate. These might be of tangible and
intangible nature, as illustrated in Figure 4-4 which grades resources along the
dimensions of mobility and tangibility. This view corresponds with conceptualisations
in economic geography, wherein local dependence is defined as the dependence on a
resource which is critical to a firm's operation and to which it needs access as a
necessary condition for its operation (Oinas, 1998).
spatial mobility
−
+
knowledge
(explicit)
skills
reputation
knowledge
(tacit, embedded)
culture
concessions,
property rights
−
1 2
3 4
tangibility
labour
machinery
other equipment
land
plants
natural resource
deposit
Figure 4-4: Immobility-inducing resources
+
With reference to the nature of our research object, as infrastructure heavy,
concession-dependent and highly regulated businesses, such resources critical to the
firm's operation include: scarce and excludable natural resources, tangible assets and
thereto related sunk cost commitments, and on the intangible dimension a concession
to operate, respectively particular property rights. Often UCF also are characterised
through critical tacit knowledge, which is embedded in the organisation as a result of
the highly specific skills that are needed for operation (exemplified by the expertise
needed to operate a nuclear power plant or a mine). We therefore derive two further
propositions:
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Proposition 3
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The degree of location-fixity is determined through a firm's dependence on location-
bound resources which are exclusive and scarce in supply.
Proposition 4
The degree of location-fixity is determined through a firm's long-term commitment to
a location with regard to capital and assets (sunk costs).
4.5.2 Market-based location-fixity
In pursuance of their raison d'être firms are dependent on having access to their
markets. The extent, to which geographical proximity to these markets is required,
significantly depends on the firm's products and services. More precisely, productrelated
market proximity is determined by the products' nature and transportation cost.
For our research object geographical market proximity is not a universal requirement,
as illustrated by the example of electricity or gas utilities, whose output can be
efficiently transported over long distances. For such network industries the sole
condition to ensure output distribution is their principal access to the network, as the
medium to their customers. On the other side of the market-proximity continuum are
industries whose transportation costs account for a significant fraction of the product
price, as exemplified by the cement industry. To remain competitive production sites
need to be located close to the customer base. Consequently, product reach in such
industries is determined by the competitive environment, resulting in a competitive
advantage for the player with relatively smaller transportation cost in areas of
competitive overlap, and by the available transportation modes, such as cost-efficient
shipping in the case of cement. Located in between those extremes are the providers of
public or quasi-public infrastructure, such as railway networks or airports. Their
catchment area is determined by the maximum distance a customer is willing to accept
to reach the infrastructure. As a result of these downstream limitations for some UCI,
we further propose:
Proposition 5
The degree of location-fixity is determined through a need to be geographically close
to the customer, due to the nature of the product for some UCF.

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4.5.3 Ownership-based location-fixity
Depending on the industry characteristics and on the national industry structure, many
UCF are under total or partial public (i.e. government) ownership. Due to the public
service or public good character of the majority of UCI, governments frequently see an
advantage in retaining a degree of control through financial involvement. As public
shareholders, be it the state, related bodies, or other public institutions of regional or
local scale, they follow interests which might deviate from simple profit-maximisation,
for example by also considering public policy objectives and macro-economic
implications (cf. OECD, 2007: 110f). In particular this applies for utilities, whose
strategic importance for the local economy frequently induce public shareholders' to
prioritise price stability and security of supply before private-sector objectives.
As a consequence the firm's interest to diversify its risks, seek synergies or to expand
beyond its home territory may stand in conflict with its public owners' agenda. Firms
which are thus limited in their strategic options are characterised by the third type of
location-fixity, being inhibited in their profit-seeking and operational optimisations
with regard to spatial flexibility.
Proposition 6
The degree of location-fixity is also determined by the ownership structure of the firm,
when the owner pursues public policy objectives, or if his utility function in general
incorporates factors other than profit-seeking.
4.6 Institutional exposure
From an institutional perspective, concerned with the influences of normative
pressures on organisations (Zucker, 1987), the context and environment in which a
firm is embedded is of central relevance. Various research streams have addressed
context-related topics 27 , strengthening the rationale that organisations' adaptation to the
collective normative order increases the flow of societal resources, thus enhancing
“long-run survival prospects” (Meyer & Rowan, 1977: 252). In other words, “the longterm
survival and success of a firm is determined by its ability to establish and
maintain relationships within its entire network of stakeholders” (Post et al., 2002a: 7).
27 E.g. stakeholder theory and research on corporate social responsibility within strategic management,
or research within the relational view of institutionalism, economic geography, and institutional
economics.
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As an open system 28 , the firm constantly receives positive and negative external
impulses, to which it is expected to be receptive. Since the firm's activities affect
public interests, while inversely activities in the public interest also affect the firm
(Dyllick, 1992) it is crucial that the firm is aware in which ways it depends on its
stakeholders, respectively how these dependencies could impact its prospects. With
reference to our research object this systemic interconnectedness is particularly
influential: due to the externalities that UCFs usually emit to the local environment,
their related visibility and their location-fixity, they highly rely on favourable relations
with their direct and indirect stakeholders. This reliance on the institutional
environment is reflected in our research framework through the construct of
'institutional exposure', understood as an exogenous factor, which the firm takes as
given.
Definition of institutional exposure (concise)
The degree to which a firm is exposed and vulnerable to claims, demands, and
expectations of its local stakeholders.
An assessment of the firm's institutional exposure vis-à-vis its individual stakeholders
can be likened to the creation of a risk-map which points out potential negative
impacts the stakeholder could have on the firm and its potential for value
appropriation. Before assessing UCFs institutional exposure in more detail by the
individual stakeholders, the next two subchapters provide an introduction into the
concepts and theories underlying the notion - drawing on stakeholder theory and
transaction cost theory - with the objective to substantiate the theoretical grounding of
the institutional exposure construct.
4.6.1 Theoretical grounding of institutional exposure: stakeholder theory
Stakeholder theory has its roots in the 1950s as a response to activities by large
corporations with potentially severe repercussions on society's welfare. Since then
stakeholder conception has evolved in the course of various academic discussions. One
of the central notions of this wide field of research is the acknowledgement of a
corporate social responsibility beyond plain profit generation, as initially suggested by
Friedman (1962), and of the necessity to integrate business in society, wherein society
lends legitimacy and prestige to the business (Garriga & Melé, 2004).
28 See also Ackoff (1974), who pioneered the 'open systems' approach within system theory.

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Defining stakeholders. The term 'stakeholder' was originally coined in an internal
memo at the Stanford Research Institute (SRI) in 1963, defining them as “those groups
without whose support the organisation would cease to exist” (SRI, 1963, as cited in
Freeman & Reed, 1983: 89). In this early definition the relations between the firm and
its stakeholders were seen as non-adversarial, with the exception of labourmanagement
relations. This notion was challenged by Dill's (1975: 58) definition of
stakeholders as “people outside ... who have ideas about what the economic and social
performance of the enterprise should include”. In his argumentation towards better
integrating stakeholder considerations in firms' strategic decisions, he leveraged the
stakeholder concept to become a central determinant of strategic management
research. With an emphasis on the reciprocal influence between firms and
stakeholders, Freeman and Reed (1983: 91) extended the conception by defining
stakeholders as “any identifiable group or individual who can affect the achievement
of an organisation's objectives or who is affected by the achievement of an
organisation's objectives”. Consequently, the rights and interests a stakeholder claims
or has in a firm and its activities result from transactions with, or actions taken by the
firm (Clarkson, 1995), as well as from the stakeholder's 'threat potential', i.e. the
degree to which he may affect the achievement of the firm's objectives. This notion
links the stakeholder concept with our institutional exposure construct, commending
adequate stakeholder management as a response towards reducing the firm's exposure.
As illustrated in this brief overview, various approaches may be taken towards the
conceptualisation of stakeholders within stakeholder theory. As a result, there is still
theoretical discord in respect of distinguishing those individuals and groups that are
stakeholders from those that are not (Phillips & Reichart, 2000). The next section
reviews a number of stakeholder classification schemes and approaches towards
stakeholder identification.
Stakeholder identification. One of the difficulties in mapping the firm's stakeholders
derives from the fact that these include individuals, groups and organisations, each of
which standing in a specific relationship to the firm, while their composition and
membership keeps changing. All the more, a sensible stakeholder grouping is essential
to the firm in order to remain focused and to reduce complexity in the management of
stakeholder relations. The observation, that the spectrum of active stakeholders tends
to increase with a firm's degree of public exposure (Achleitner, 1985) adds additional
importance with hindsight to our research object. Stakeholder research has brought
forward a number of stakeholder classification schemes, the most important of which
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are briefly described below 29 . With this review we intend to increase clarity on who
should be regarded as a legitimate stakeholder, and after which criteria we should draw
the line of exclusion within our research framework.
Internal and external stakeholders. Certainly the most widely used classification
distinguishes between internal and external stakeholders. While the internal
stakeholders are rather given, including shareholders, the management, and
employees, the external stakeholders comprise lenders of capital, suppliers, customers,
the government and society, and potentially further groups.
Internal
stakeholders
employees
managers
shareholders
firm
External
stakeholders
suppliers
society
government
creditors
customers
Figure 4-5: Internal and external stakeholder classification 30
…
Primary and secondary stakeholders. Depending on a stakeholder's role and
importance for the firm's going concern, Clarkson (1995) distinguishes between
primary and secondary stakeholders. The relationship between primary stakeholder
groups and the firm is characterised by high levels of interaction, with the continuous
stakeholder participation being critical for the firm's going concern. Such primary
stakeholders are shareholders and investors, employees, customers, suppliers, and
public stakeholders, such as governments and communities. Apart from those closely
related stakeholders, secondary stakeholder groups influence or affect, or are
influenced or affected by the firm. Although they are not engaged in transactions with
the corporation and are not essential for its survival, they are capable of mobilising
public opinion, thus impacting a firm's performance. The media and special interest
groups for example are attributed to this category.
29 An excellent and more detailed overview on existing classifications can be found in Helm (2007), as
well as in Donaldson & Preston (1995).
30
On the basis of Mintzberg (1983).

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Power-centred identification. Stakeholder power and influence represent another
widely used set of criteria for stakeholder mapping. In the course of the past decades a
“consciousness [evolved] among stakeholders of the fragility of world social systems,
of global resource limits, and of unanticipated outcomes of both private and public
action” (Dill, 1975: 58). Therefore, as Dill (ibid.) was the first to observe, stakeholders
not only contribute to the economic success of a firm, but also have an inherent threat
potential. This potential represents the dependence of the firm on the respective
stakeholder, i.e. the firm's capability to withdraw from the raised claims by
substituting the relationship. In line with the RBV, stakeholder dependence represents
a form of resource-dependence (Eberhardt, 1998), further determined by the
stakeholder's capability to realise the formulated threats. This threat immanence
represents the actual imperilment of the firm (Helm, 2007).
Stakeholders as risk-bearers. Clarkson (1994) partitions stakeholders subject to their
being voluntary or involuntary risk-bearers. In his view (ibid., as cited in Mitchell et
al., 1997: 856f.)
voluntary stakeholders bear some form of risk as a result of having invested some
form of capital, human or financial, something of value, in a firm. Involuntary
stakeholders are placed at risk as a result of a firm's activities. But without the
element of risk there is no stake.
By determining risk as the discriminating factor for having a stake in the firm narrows
the range of stakeholders down and closely corresponds with the legitimate claims
classification.
Legitimacy-based identification. Stakeholder legitimacy research argues from a
normative viewpoint, focusing on contracts, formal exchanges, legal titles and rights,
moral rights, or moral interest in the positive or negative externalities induced by the
firm's actions. In expanding this perspective, Phillips (2003) argues that legitimacy can
be normative, based on moral obligations towards stakeholders, but that it also may be
of derivative nature, referring to “those groups whose actions and claims must be
accounted for by managers due to their potential effects upon the organisation and its
normative stakeholders” (ibid: 31). The approach allows for an integration of moral
philosophical streams and the more strategic conceptions towards stakeholder
management.
Combined approaches towards stakeholder identification. In their research on
stakeholder salience Mitchell, Agle and Wood (1997) observed that scientific
contributions with a narrow stakeholder definition emphasise the legitimacy aspect of
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stakeholder claims. In contrast, researchers favouring a broad stakeholder definition
emphasise the aspect of stakeholder power towards the firm, irrespective of their
claims' legitimacy. In an attempt to bridge these two extremes of stakeholder
conceptualisations, they propose to combine the notions of stakeholder power and
stakeholder legitimacy - which may coincide, but are distinct attributes 31 - with the
urgency of a claim. Urgency, as the “degree to which stakeholder claims call for
immediate attention” (ibid.: 864), is derived from institutional, resource dependence,
and population ecology theories' concern with outside pressures on the firm. In this
combined approach stakeholder salience thus relates to the cumulative occurrence of
all three attributes.
An alternative view is offered by Phillips (2003), who principally agrees on these three
suggested attributes but sees legitimacy as a superordinated attribute, of which
stakeholder power is but one possible substantiation. In his view, managers' attention
should be directed to stakeholders according to their normative and derived legitimacy,
a distinction which “brings together both moral philosophical and strategic
conceptions of stakeholder theory and thereby integrates these two often oppositional
streams of stakeholder research” (ibid.: 29). Normative stakeholders are identified as
those, for whose benefit the firm should be managed (Freeman, 1984; Phillips, 2003).
They require particular managerial attention and treatment, since managers have
distinct ethical obligations towards them. These obligations do not necessarily exist
towards derivative stakeholders, defined as “those groups whose actions and claims
must be accounted for by managers due to their potential effects upon the organisation
and its normative stakeholders” (Phillips, 2003: 31). The significance of the normative
- derivative distinction becomes evident in the example of a firm's competition. While
a competitor doubtlessly qualifies as a derivative stakeholder, since its activities affect
the firm and it thus possesses stakeholder power, it is certainly not a stakeholder for
whose benefit the firm should be managed. Phillip's (ibid.) distinction between the
morally-grounded legitimacy and other considerations is beneficial in the firm's
prioritising of stakeholder demands: managers have a primary obligation towards
normative stakeholders, while attention to derivative stakeholder demands comes
logically second.
Building on these bridging concepts, Kochan and Rubinstein (2000) suggest to assess
stakeholder salience along three criteria: (1) stakeholders' control over critical
resources (i.e. the contribution of critical resources or assets to the firm), (2)
31 See also Weber (1947).

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stakeholders' risks pertaining to the firm (i.e. the extent to which they put resources at
risk and would incur costs if the firm fails or the relationship with the firm terminates),
and (3) stakeholders' power and influence on the firm (i.e. their capacity to affect firm
performance, either favourably or unfavourably). The second criterion endows
stakeholders with normative legitimacy, whereas the other two criteria warrant them
with derived legitimacy. In line with the contextual approach of our framework, the
resources featured in the first criterion are understood to also include intangibles, such
as social acceptance or the “license to operate”, which are equally critical for the firm's
long-term prospects. Likewise the stakeholder risks in criterion (2) are viewed
comprehensively and encompass risks with regard to the stakeholder's financial
resources, human resources, but also his risks related to the firm's product quality (e.g.
for a supplier's reputation), or the firm's effects on its environment and local
community (cf. Post et al., 2002b) (e.g. the regional economic effects if a firm
discontinues its local operation).
After reviewing various scientific approaches towards stakeholder identification, we
regard Phillips' (ibid.) conception as the most suitable basis for our research
framework, particularly due to his disentanglement of the moral and strategic
dimension of legitimacy. In the identification of relevant stakeholders within our
research framework we will draw on his argumentation and on the detailing criteria
offered by Kochan and Rubinstein (2000).
4.6.2 Legitimate stakeholders within the research framework
To determine who is a legitimate stakeholder, we firstly highlight the particular
characteristics of our research object, which cause an elevated level of overall
institutional exposure. Table 4-3 provides an overview on these characteristics, as well
as the stakeholders towards which the firm faces exposure.
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UCF
characteristic
output of national
strategic
importance
negative
externalities
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description exposure towards
UCF usually produce goods or services central
for the functioning of the economy or society
(provision of electricity, drinking water,
transportation infrastructure, etc.)
output is linked with noise or other kind of
emissions, potentially hazardous to the environment
and lowering the (perceived) welfare of the
surrounding population
natural monopoly industry structure that turn UCF quasi-monopolists,
endowing them with market power
dense regulation as a consequence of the preceding characteristics,
UCF are under regulatory scrutiny from the relevant
authorities
Table 4-3: UCF characteristics fostering institutional exposure
political actors
public
administration
regulator
general public
political actors
regulator
local community
general public
political actors
regulator
political actors
regulator
In view of the combination of those characteristics, we draw two inferences: (1) UCFs
are very visible to the public in everything they do, which significantly contributes to
their vulnerability and exposure. As a consequence, they face demands and
expectations from a wide range of stakeholders (cf. Achleitner, 1985). (2) The
relevance of public or sovereign stakeholders to UCFs is significant. Because their
output in some aspects resembles public goods, and because of their enabling function
for the economy they are under scrutiny of various representatives of the sovereign,
who want to ensure optimal public policy outcomes. Both insights will be reflected in
the ensuing stakeholder identification.
Geographical delimitation of stakeholders. An important delimitation of the firm's
relevant stakeholders results from the scope of our research framework. The
geographical dimension of location-fixity and the notion of local embeddedness,
which will be developed at a later point, require a decidedly local, respectively
regional perspective. Although the geographical range of a firm's stakeholders has
increased in the past quarter of a century because of globalisation, we retain our local
focus by excluding stakeholders which have no relation to the firm's local
environment. This does not preclude differences between stakeholders with regard to
their geographical scales, exemplified by the different geographical scales of

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authorities and public administrations, depending on their institutional set-up and
jurisdiction.
Determining the relevant stakeholders. Based on the above insights into stakeholder
theory, the characteristics of our research object, and the geographical scope of the
research framework, we are now able to determine the relevant stakeholders. These
will be segregated in the two principal groups of private and public stakeholders,
owing to the high relevance of those stakeholders in representation of or related to the
sovereign. With reference to the concepts of Phillips' (2003) and Kochan & Rubinstein
(2000), Table 4-4 identifies the salient and legitimate stakeholders within the
geographical scope of the research framework.
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private stakeholders
public stakeholders
stakeholder legitimacy (1) control over
resources
civil society
and local
community
civilian
interest
groups
normative �
e.g. 'licence to operate'
derivative �
e.g. 'licence to operate'
suppliers normative �
e.g. critical inputs
customers normative �
e.g. reputation
service
partners
normative �
e.g. provision of inputs
relevant to the overall
system
employees normative �
e.g. human resources,
skills and know-how
public
shareholder
government
(political
dimension)
regulator
(law and
order
dimension)
normative �
e.g. public policy
support
derivative �
e.g. public policy
support
derivative �
e.g. licences,
concessions,
regulatory approvals
Table 4-4: Legitimate stakeholder groups pertaining to UCFs
Assessment of stakeholder salience
(2) stakeh. risks
towards firm
�
e.g. environmental and
economic risks
�
e.g. financial risks
�
e.g. product-related
risks
�
e.g. dependence on
mutual provision of
input for functioning
of overall system
�
e.g. financial risks,
risks regarding
livelihood
�
e.g. financial risks,
risk of public policy
misalignment
�
e.g. re-election of
political government
representatives
�
e.g. failure to protect
the public good,
factual consequences
of firm's noncompliance
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(3) power and
influence
�
e.g. withdrawal of
support
�
e.g. active lobbying
against the interests of
the firm; potential to
mobilise other
stakeholders
�
e.g. withdrawal of
resource; influence on
product quality
�
e.g. withdrawal of
support and
termination of
customer-relation
�
e.g. termination of
input-provision,
disrupting the overall
system
�
e.g. withdrawal of
resource or support
�
e.g. withdrawal of
support, obstruction to
business development
�
e.g. withdrawal of
support, active
lobbying against the
interests of the firm
�
e.g. denial of
regulatory approval,
penalties, additional
conditions to operation

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Figure 4-6 illustrates the two stakeholder categories as part of the institutional
exposure construct, and how they relate to the overall research framework.
local exposure from
moderate
location fixity (4.5 - 4.7) value creation (4.9)
influences
location fixity (4.5)
constitutes
institutional exposure (4.6)
private stakeholders
local community
interest groups
customers
suppliers
service partners
employees (unions)
public stakeholders
public shareholder
government
regulator
embedding
capabilities (4.8)
Figure 4-6: Institutional exposure and stakeholder groups within the research framework
Before immersing more deeply in the analysis of UCFs' institutional exposure towards
their legitimate stakeholders, we briefly introduce the core notions of transaction cost
theory with the objective to theoretically ground our assumptions on human behaviour
and the potential effects of institutional exposure on the firm.
4.6.3 Theoretical grounding of institutional exposure: transaction cost theory
As stipulated by a number of organisational theories, power accrues to those who
control resources needed by the organisation (e.g. Pfeffer, 1981). In their endeavours
to secure the resources required for survival and prosperity, firms consequently seek
strategies to reduce their dependence on resources beyond their sphere of control, or at
least to mitigate the thereto related risks. Such power differentials and the mechanisms
to govern them are among the subjects of transaction cost economics (TCE), which is
“an effort to identify, explicate, and mitigate contractual hazards” (OE Williamson,
1996: 12). Pivotal to its concepts are its assumptions on the human nature, which it
owes to organisation theory. According to TCE human behaviour is assumed to be
governed by the notions of opportunism, understood as “self-interest seeking with
guile” (OE Williamson, 1996: 6), and bounded rationality, defined as behaviour that is
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“intendedly rational, but only limitedly so [emphasis in original]” (Simon, 1961: xxiv),
both of which will be further described in the ensuing passages.
Opportunism. Opportunism can take many forms, which research has tried to classify
from different angles. Most common is the distinction between passive and active (i.e.
strong form) types of opportunism. In its passive form opportunism manifests itself in
the lack of dedication, shirking or free-riding, while the active form relates to the
expropriation of advantage through deliberate misrepresentation of material facts,
cheating, lying, stealing, etc. (Nooteboom, 2004). On a temporal dimension, either
party in an exchange can engage in opportunism before the firms transact (i.e. ex ante
opportunism), or after the transaction is underway (i.e. ex post opportunism). Last but
not least, on the legal dimension research distinguishes a 'lawful opportunism',
describing opportunistic behaviour which does not breach the formal contract, but
violates the relational contract between the parties (Wathne & Heide, 2000). In this
enlarged conception behaviour is also opportunistic, if it is contrary to the principles of
the relation in which it occurs. Such relational norms include the expectation of
sharing benefits and burdens, as well as restraints on unilateral use of power (Macneil,
1980). Importantly, in addition to these intentional forms of opportunism, also honest
disagreements that result in distributional and costly conflicts, may contain
opportunistic elements (Alchian & Woodward, 1988).
In his early conceptualisation of opportunism 32 Williamson (1985a: 181) describes the
behaviour as incomplete or distorted disclosure of information and “calculated efforts
to mislead, distort, disguise, obfuscate, or otherwise confuse”. This strong form of
opportunism was seen as a fixed exogenous condition, assuming that all potential
transaction partners are equally weakly moral. Later research has led to an
enhancement of the concept, rather viewing opportunism as a variable to be explained
(Wathne & Heide, 2000). Throughout chapter 4 we will repeatedly return to the notion
of opportunism and related concepts.
Bounded rationality. The concept of bounded rationality rests upon the premise that
the rationality of human beings is limited by their available information, their
cognitive limitations, and the finite amount of time they have to make decisions. It is
the key to understanding how people make decisions without utilities and probabilities
and leads to the empirically confirmed insight, that “decision makers satisfice instead
of optimise, rarely engage in comprehensive search, and discover their goals in the
32 The concept of opportunism originates from transaction cost theory, but is also implicitly assumed
within the RBV. For further discussion of opportunism within the RBV see also Mahoney (2001).

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process of searching” (Eisenhardt & Zbaracki, 1992). Firms' decisions therefore are
not expected to be perfect, since their decision processes are influenced by institutional
factors, leading to boundedly rational outcomes.
Reference to research object. Under condition of bounded rationality and with our
research object's characteristics pertaining to location-fixity, stakeholders of the UCF
may be apt to opportunistic behaviour and attempts to expropriate some of the firm's
rent. This notion is supported by the close theoretical relation between the concepts of
asset specificity and opportunism (Pies, 2001). According to TCE firms become
increasingly prone to opportunistic behaviour from their stakeholders as their assetspecificity
deepens, or as Klein, Crawford and Alchian specify: “after a specific
investment is made and … quasi rents 33 are created, the possibility of opportunistic
behaviour is very real” (1978: 298). In other words asset specificity becomes a
problem for firms because of opportunism. As a consequence, UCFs have to find
strategies to avoid rent appropriation, respectively to reduce their institutional
exposure towards stakeholders who could cause opportunistic hold-up situations.
Building on the first, simplified definition of institutional exposure, the foregoing
theoretical insights lead us to a more detailed specification.
Definition of institutional exposure (extended):
The degree to which a firm is prone to negative effects on its value creation capacity
and to rent appropriation by opportunistic stakeholders, due to its inability to substitute
the relationship or location.
4.6.4 Institutional exposure by identified stakeholder groups
Now that the theoretical foundation for the institutional exposure construct is
established, and the legitimate stakeholders are identified within our research object,
we continue with the detailing of UCFs' institutional exposure towards the individual
stakeholder groups.
Local Community (as a spatially bounded part of civil society). (1) Definitional
clarification. Within the social sciences civil society represents the community “in a
social space related to, but distinguished from, government, business and the private
sphere” (Kocka, 2006: vii). Furthermore, it “refers to the arena of uncoerced collective
33 Quasi-rents are defined as the income earned by a sunk cost investment in excess of post-investment
opportunity cost. To ascertain their long-term prosperity, UCFs need them to recover their sunk costs.
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action around shared interests, purposes and values” (LSE Centre for Civil Society,
2004). Society is socially and geographically delimited and shares interests, purposes
and values, without being essentially united. To be distinguished thereof, communities
are a tighter and more cohesive social entity, either in space, or through interaction,
respectively identity (Lee & Newby, 1983; Tönnies, [1887] 2001). The geographical
characterisation, relevant within our research framework, represents people residing
within the same geographic region, not necessarily interacting among them 34 . This
lack of 'unity of will' (Tönnies, [1887] 2001) and interaction poses considerable
challenges in addressing the local community as a stakeholder, due to its highly
diverse interests, claims, and expectations (Kocka, 2006).
(2) Relation to research framework. Local communities with regard to UCFs are
bounded by the reach of the firm's externalities within its local environment,
respectively by the jurisdiction towards which they administratively related to, e.g. the
local municipality or district. They draw their (normative) legitimacy from their
exposure to these externalities, which affect the welfare of the community members,
who put values or properties at risk and therefore derive a stake in the firm.
Externalities are understood as positive (e.g. employment opportunities, tax revenues
being re-invested in local institutions and infrastructure, attraction of further
industries) or negative (e.g. emissions in the form of air and water pollution, or noise)
spillovers.
(3) Related institutional exposure. The degree to which the UCF is institutionally
exposed to its local community is a function of the community's willingness to accept
the welfare effects of the negative externalities, respectively to value them against the
perceived compensation that the firm offers. Such compensation may be in the form of
positive externalities, community engagement programmes, investment in social
infrastructure, etc. (see also p.133ff.). Thus, there is a kind of 'societal regulation' for
firms, outside the political sphere in the form of 'subpolitical norms' (Dyllick, 2001).
The overall perception of the firm's stakeholder involvement and willingness to share
value as a compensatory effort towards the community helps the firm to gain a 'license
to operate'. If the negative effects of the firm's activities prevail in the local
community's perception, it might resort to uncoerced collective action, using
34 By contrast, interaction-based communities are not necessarily place-based, and identity-based
communities represent "a group who share a sense of belonging, generally built upon a shared set of
beliefs, values or experiences" (Bowen, Newenham-Kahindi, & Herremans, 2008: 10).

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reputation-impairing pressure potentials ('reputationsschädigende Druckpotentiale', in
accordance with Dyllick, 2001).
Civilian interest groups. (1) Definitional clarification. Generally interest groups
“share a desire to affect government policy to benefit themselves or their cause. It
could be a policy that exclusively benefits group members or one segment of society
… or a policy that advances a broader public purpose” 35 . In contrast to the local
community, which is only loosely bounded, interest groups usually are formally
organised. They exist in various forms, with economic or civilian objectives, political
or non-political orientation, or memberships for individuals or organisations.
(2) Relation to research framework. Within our framework, interest groups are
understood as civilian or public interest groups, promoting issues of general public
concern, and as cause groups, which represent a segment of society and promote a
particular cause. As opposed to political and economic interest groups, respectively
lobbies, their efforts are not directed at economic gain or influencing the political
agenda. The political arena will only be entered, if there is no other perceived way of
protecting their interests.
(3) Related institutional exposure. The institutional exposure of the UCF towards
interest groups bases on their capacity to use reputation-impairing pressure potentials
(Dyllick, 2001), their potential to mobilise other stakeholder groups (in particular
public stakeholders, such as policy-makers and regulators), and their overall capacity
to affect the firm's value creation, respectively to destroy value for the firm.
Customers and Suppliers. (1) Definitional clarification. Customers and suppliers are
the key stakeholders of any firm. The relevance and number of individual customers,
understood as end consumers or in business to business relations, depend on the firm's
industry and its products, as well as its size and organisation. Accordingly the firm's
stakeholder strategy towards its customers varies. Suppliers may be providers of
tangible or intangible inputs to the firm. The importance of a supplier predominantly
depends on the input's relevance in the firm's production process, and the degree to
which the input is a commodity and the supplier could be exchanged.
(2) Relation to research framework. The normative legitimacy of both stakeholders
bases on all three dimensions of stakeholder salience, since their relationship with the
firm involves control over resources, risks, and endow them with a degree of power
35 Interest group. (2009). In Encyclopædia Britannica. Retrieved October 23, 2009, from
Encyclopædia Britannica Online: http://www.britannica.com/EBchecked/topic/290136/interest-group.
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and influence (cf. Table 4-4, p.96). Due to the location-fixity and the local resource
dependence of the UCF, particularly suppliers with control over critical local resources
have a high legitimacy, not only from a normative point of view, but also pertaining to
strategic considerations.
(3) Related institutional exposure. The nature of UCFs products, the complexity of
their industries, and the fact that they are tied to their location over a long time
horizon, all encourage stable and enduring customer and supplier relationships.
Frequently these are accompanied by (mutual) dependence and exposure, which TCE
attributes to four elements: the degree of asset specificity, uncertainty, product
complexity, and the constraints of repeat purchase activity (Joskow, 1988). Among the
key challenges to reduce such dependence by means of contracts and formal
governance system is the problem of incomplete contracting. Although relationships
with long-term suppliers or customers usually are governed by more or less
comprehensive contracts, these may turn out incomplete over time, because they are
maladaptive to unforeseen contingencies, and because the contract parties over time
gain deeper knowledge compared to the outset of the contract (OE Williamson, 1983,
1991). Therefore frequently hold-up or opportunism problems must be confronted by
the transacting parties at the contract execution stage (Joskow, 1988). Moreover, legal
rule can only incompletely accommodate the complexities of the parties' relations,
often resulting in the use of private ordering solutions to the specific situation, in order
to enhance transactional security and to reduce transaction costs. Consequently, UCFs
face not only a contractual but also a relational exposure in their customer or supplier
relations (and vice versa) for which they must find protective governance structures to
avoid post-contractual opportunistic behaviour.
Service Partners. (1) Definitional clarification. Service partners are actors who
contribute complementarily to an overall product, as for example in an in-depth
customer-supplier relationship based on the partners' strategic status and mutual
dependence. Service partnerships are characterised by the partners' joint offering of
independent services, which contribute to a comprehensive overall solution for the
customer. In this process the service partners may also jointly use a common resource.
The customer usually is able to differentiate between the various contributors, but
links the services towards one perceived overall product (Benkenstein, 1996;
Birkelbach, 1993).
(2) Relation to research framework. The complexity of UCFs' products frequently
leads to service partnerships, wherein a number of partners jointly contribute to the

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overall product offering. The dependence on a service partner, and thus the firm's
exposure, is determined by the degree to which the services in question require special
know-how and to which degree such know-how is found in the market. The regulatory
frameworks within UCF are embedded and the expertise that their industries require
may make it difficult to exchange service partners. A typical example for service
partnerships is found at airports, whose business models frequently foresee service
delivery in aircraft and passenger-related processes through a number of well attuned
third parties.
(3) Related institutional exposure. Service partnerships, which are characterised by
their mutuality, intensity, frequency and mid- to long-term orientation, may encourage
hold-up situations particularly in dynamically changing business environments with
shifting balances in bargaining power. The UCF's institutional exposure principally
pertains to the same factors as in its supplier and customer relations: while the
relationships are structured in contracts (often accompanied by service level
agreements), the latter may be incomplete or become maladaptive due to unexpected
changes over time.
Employees. (1) Definitional clarification. Employees belong to the firm's primary
stakeholders. The more specialised a business is, the more important its employees are
as a resource, embodying their practical knowledge, acquired skills and learned
abilities.
(2) Relation to research framework. Their normative legitimacy derives, among
others, from their investments in the firm, respectively in firm-specific skills in
response to employer promises, from their specialised know-how, which provides
them with control over a valuable resource, and from the thereof derived power and
influence over the firm.
(3) Related institutional exposure. UCFs face exposure to employees in two forms: in
the relationship with unionised workers and with regard to highly specialised
knowledge bearers. The former depends on the local institutional environment and on
the traditional firm-labour relations within the local culture, as well as the firm's own
behaviour in the past and present. One of the major objectives of unions is to attain
shifts in the firm's rent distribution towards unionised employees, e.g. by negotiating
with employers over wages, working conditions and employment. Towards this end,
unions may revert to strikes or boycotts as forms of hold-up and opportunism. In this
context, UCFs' location-fixity, subadditive cost functions and sunk cost commitments
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in combination with their high public visibility contribute to their exposure towards
unions and their rent appropriation efforts.
To determine the firm's exposure towards highly skilled employees we distinguish
between firms' investments in general-usage and in specific human capital, based on
the transferability of employees' acquired skills 36 . Risk of hold-up thus arises from
general investments in the sense that the acquired skills are valuable in trade with other
parties, thus resulting in turnover costs to the firm. Hold-up exposure, however, also
arises with regard to specific employee know-how to the effect that the firm will not
easily be able to source the employee's know-how elsewhere, thus incurring high
replacement and further specific investment costs. While this exposure is pertinent to
all firms with a qualified labour force, it has considerable importance for UCF with
respect to their highly specialised and complex industries, which require rare knowhow
at their site of operation 37 .
Public Stakeholders: the different roles of the government. Before proceeding with
the individual public stakeholders, we will clarify the roles and importance of the
sovereign for utilities and concession-based industries. Historically, the nature of
UCIs' products, the resulting sub-additive cost function and their industry structures,
which tend to encourage natural monopoly-status, have made them a focus of
governments and their institutions. While the latter are concerned with issues of larger
national interest, such as market power, regulatory compliance, quality assurance and
productive efficiency, the firm's biggest concern is the protection of its asset-specific
investments respectively recovery of its sunk cost. As a consequence, the relationship
between firms and governments, classified as 'non-market relations' 38 , is characterised
by mutual dependence and power. The aspect of power is particularly significant, since
- contrary to other stakeholder relations - the government as sovereign has the
monopoly of legitimate power, whereas the firm only is endowed with delegated
36 This notion is borrowed from human capital theory, see also Kessler & Lülfesmann (2006).
37
This is exemplified by power utilities' need for engineering know-how in nuclear plant construction.
Since the last nuclear plants in Switzerland have been constructed in the 1960ies, the local industry is
in desperate need for fresh expertise in view of the current plants' replacement. The same know-how
shortage applies to the whole of Europe, where experts are rare while 300 nuclear plants will need to
be completed until 2020 (interview N°3).
38
Interestingly, while these political factors are well integrated in international business research,
mainstream organisation theory, strategic management research, and even the more recent
organisational economics paradigm only consider external political behaviour, mostly treating political
factors as constraints.

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power, resulting from its permission to operate within the bounds of government's
sovereignty (Boddewyn & Brewer, 1994). Because of this unique constellation, the
subsequent passages will elaborate in more detail the assumptions about the nature of
government and political actors.
Theoretically, government's decisions and activities always give highest priority to the
public interest. This is ensured through adequate public governance, for example in the
form of regulation, or through public corporate governance for firms with state
participation (Schedler, Gulde, & Suter, 2007). Taking into account the diversity in
government's organisation, its powers and responsibilities, firm-government relations
in general are sufficiently complex, as manifested in
- the differing sovereign functions of government, i.e. the legislative, executive
and judiciary;
- the multi-scalar involvement of government on local, regional and national
scales;
- the multiple levels of reference government institutions, such as ministries,
departments, and agencies;
- and the resulting multiplicity of roles, which government assumes.
For the purpose of our research framework we have identified different roles of
government, which are relevant in its interaction with UCFs. These roles range from
its acting as regulator and guarantor of the State, as politician as per the political
constellation of the sovereign system, its activities as promoter of economic
development, and its market appearance as entrepreneur. Not surprisingly, these roles
taken altogether contain a number of dilemmas of interest. Consequently, UCF face
various forms of institutional exposure in their interactions with the sovereign, the
significance of which being increased by the power differential between the parties.
Table 4-5 provides an overview of government's objectives and related institutional
exposure along the identified government functions.
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Role of government as …
objectives
Regulator & guarantor
maximisation of public welfare:
general and sector-specific regulation
(safety, quality, environment etc.) and
enforcement; avoidance of market power
exploitation and price collusion
Institutional exposure of UCF, due to …
risk of over-regulation;
exploitation of administrative discretion to the
disadvantage of the firm
ensuring compliance with law & order political influence on regulatory issues;
yielding of regulator to public pressure or
campaigning from interest groups
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guarantor of supply and non-discrimination adverse effects on rent generation by obliging the firm
to continue activities in economically unattractive
fields at no or insufficient compensation
Politician
public governance:
monitoring of firm-behaviour and perceived
efforts towards the public good, respectively
impairment thereof
private agenda setting:
mobilising voter-support within election
cycle for
re-election
Promoter of economic development
incentive-setting for economic investment:
lender of capital with loans from state-owned
banks; tax incentives; loan guarantees
public shareholding for protection of
strategic national infrastructure and
security of supply
Entrepreneur
profit-oriented provision of public sector
functions or related activities:
buyer of output; supplier of raw materials or
basic inputs; competitor through same-sector
activities by state-owned enterprises (SOE)
abuse of firm for political campaigning due to high
visibility;
scapegoating of firm to gain political capital
reneging on governmental commitments due to shortterm
fixation on election cycles;
negotiation for the government representative's
personal (i.e. political) instead of the public (longterm)
interests
hold-up resulting from dependence on state-borrowed
capital and maturity transformation issues;
hold-up in business development activities due to
diverging risk-preferences between the firm and stateowned
lenders
weakening of revenue-base due to prioritisation of
short-term national economic interests at cost of the
firm's long-term infrastructure re-financing (e.g. caps
on regulated prices/fees)
hold-up through bargaining power of SOE as critical
business partner; weakening of revenue base through
distorted competition from SOE, whose institutional
relationship with the government gives them special
advantages
Table 4-5: Government's roles, objectives and related institutional exposure

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On the basis of these roles, we proceed with the detailing of UCFs exposure towards
the relevant public stakeholders, distinguishing the sovereign's functions as a
shareholder, government, and as regulator.
Public shareholders. (1) Definitional clarification. Ownership involvement of public
bodies in firms frequently has historical roots, particularly in respect of utilities and
concession-based industries. Many industries have initially started out as purely stateowned,
performing commercial activities on behalf of the government. In the past
three decades, however, a number of countries initiated a liberalisation process within
these industries, leading to the partial or full privatisation of SOEs. Terminologically,
when we refer to public shareholders, we relate to public or government ownership as
opposed to private or individual ownership. In the understanding of our research
framework, SOEs also include government-linked enterprises, i.e. firms which are
partially owned by the state and where the public shareholder might also pursue public
policy objectives.
(2) Relation to research framework. The reasons for public ownership of firms are
twofold, according to Schedler et al. (2007): government either has a financial interest
(i.e. expected financial returns) or it takes on a performance mandate (e.g. on the basis
of the firm's strategic relevance, or because of market distortions). Both motivations
lend it high legitimacy as a stakeholder to the firm, normative and derived. Both
motivations also get it into a field of tension between management and politics, from
which three major responsibilities of the government may be derived (ibid.):
- Management: it ensures, that the third party efficiently and effectively fulfils its
tasks within the defined scope
- Corporate Governance: as owner, government ensures the preservation of the
firm's assets, control on the firm and its profitability
- Public Governance: it guarantees the level of supply, legitimacy, legality and
has an eye on overall cost
In fulfilment of these responsibilities the government delegates representatives to the
firm's management board, thus taking influence on firm decisions and activities.
(3) Related institutional exposure. However, government's involvement through the
firm's board simultaneously creates an agency problem, since nobody ultimately
monitors the political delegate in the pursuance of his mandate. In addition Ferner
(1988: 30) remarks with regard to SOEs, that “the way in which political objectives
are defined through the political process and then ‘transmitted’ into the enterprise
raises fundamental problems. … [T]he political demands on public enterprises lead to
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objectives that are confusing, changeable and often mutually at odds”. While - from
the government's point of view - this ambiguity of objectives provides the firm's
managers with discretion to pursue their own interests (Stiglitz & Heertje, 1989), the
uncertainty which results from such political involvement is equally disturbing for the
firm and creates institutional exposure.
Furthermore, public policy objectives may also influence the risk tolerance of the
public shareholder. As a consequence, the firm faces misaligned expectations between
the public and the other shareholders, respectively the management regarding the
firm's options for business development and growth.
Regulator. (1) Definitional clarification. Regulation is the “sustained and focused
control exercised by a public agency over activities that are valued by a community”
(Selznick, 1985: 363).
(2) Relation to research framework. The motivations for governments to regulate UCIs
derive from issues like monopolisation, industry coordination and network effects,
threats to human safety and the environment, impacts on overall economic
development, and distributional concerns, i.e. the need to ensure universal access to
basic commodities. Therefore, society and consumers need some basic protection from
negative public welfare impacts of the above issues. But much the same issues
simultaneously demand that firms' investments are protected, such as to ensure the
quality of privately held strategic infrastructure and to avoid underinvestment. Finding
a regulatory framework to effectively balance these complex interests against each
other has proven to be intricate, even more so if political aspects and uncertainty with
regard to long-term industry developments are taken into consideration.
(3) Related institutional exposure. The institutional exposure of the UCF pertaining to
regulation is concisely summarised by Migué (1977: 214), who describes regulation
“as an instrument of wealth transfer - the extent of which is determined in a political
market - where interest groups demand regulation and politician-regulators supply it”.
As a consequence of UCFs large sunk costs and the politicisation of their industries,
they are prone to regulatory expropriation of their quasi-rents. In addition, as Joskow
(1991: 68) argues, “the combination of franchise-specific sunk investments and
franchise exclusivity gives the regulatory agency (or more generally the political
process to which it responds) potential power to hold up the utility”. Such
expropriation may materialise for example in the regulator's price-setting below the
firm's long-run average costs. But also more subtle forms are possible, for instance by
requiring the firm to make specific investments or equipment purchases, or to accept

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certain labour contracts that appropriate quasi-rents (Levy & Spiller, 1996).
Furthermore, hold-up situations may result from the regulator's authority to certify the
construction of major facility extensions and to disapprove incurred costs which he
determines to be unreasonable ex post. Last but not least, the logic of 'obsolescing
bargain' needs mentioning, which relates to governments' incentives to break longterm
commitments with private investors, because they value agreements with them
less attractive ex post than they seemed ex ante (Ramamurti, 2003).
In summary, UCFs institutional exposure arises from the regulator's discretion through
the principal-agent problem between the government and the regulator it mandates.
Relatively efficient regulatory rules require not only commitment, but also flexibility,
thus granting the regulator substantial leeway in their application. Therefore, according
to Holburn and Spiller (2002: 470), the regulatory challenge “lies not just in designing
regulatory incentive structures that restrain utilities' monopoly behavioural tendencies
but also in designing regulatory governance frameworks that constrain the political
and administrative actors who have ultimate jurisdiction over the industry”.
Consequently, from a firm's perspective the credibility of the regulatory framework is
decisive to determine its regulatory exposure: only if the firm is sufficiently reassured
that the government and its regulator(s) restrain from using its discretionary power
towards appropriating the utility's sunk investments, it will undertake efficient
investments.
Government. (1) Definitional clarification. Government is the “political system by
which a body of people is administered and regulated” 39 . From a behavioural
perspective, its parties and policies are the platform for politicians to be reelected,
which is why political risk is among the greatest risks with regard to UCFs'
institutional exposure. Moreover, governments often face a 'time consistency problem',
since they “would be better off in the long-term if they could commit not to
expropriate investment returns, but face short-term incentives to do so” (Henisz &
Zelner, 1999: 8).
(2) Relation to research framework. With regard to their bargaining power towards
governments, UCFs need to regard their sunk cost commitments over the asset's lifecycle.
Over time, influence and bargaining power shifts between the two parties: while
it is with the investor prior to the investment, i.e. when the government needs access to
scarce capital or technology, bargaining power declines significantly after the UCF has
39
Government (2010). In Encyclopædia Britannica. Retrieved July 05, 2010, from Encyclopædia
Britannica Online: www.britannica.com/EBchecked/topic/240105/government.
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sunk its capital. This decrease simultaneously increases the institutional exposure in
the form of political risk, as a result of the government’s incentive to redistribute its
returns to a broader set of interest groups (Henisz & Zelner, 2005). As a consequence,
governments have a high normative and derived legitimacy as a stakeholder to the
UCF, decisively influencing the latter's short- and long-term prosperity.
(3) Related institutional exposure. Political risk thus relates less to rational preferences
of the government as sovereign, but is defined by the individuals and parties
representing the sovereign, their personal characteristics and preferences, as well as
their political agenda. UCF's institutional exposure therefore needs to be reviewed - ex
ante, but also on a continuous basis - based on factors like the structure of the political
system, the credibility of policymakers’ commitment to a given policy regime, and the
expected lobbying of affected interest groups as an indicator for possible reneging
incentives. Henisz & Zelner (1999) further argue, that incentives for politicians to
expropriate private investor's rents in the short term are rooted in UCFs' relatively
small operating cost compared to the total costs. As a consequence, operators of
infrastructure assets continue their operation even when their revenue falls short of a
sustainable economic return. An additional motivation for reneging comes from the
electorate's preferences: due to UCFs' quasi-monopolistic status politicians may expect
gains in political capital by accusing firms of market-power abuse, ensued by the
appropriation of revenue-streams and rent re-distribution towards their providers of
political support.
4.6.5 Reciprocal exposure, self-interest and the notion of fairness
Thus far, firm-stakeholder relations and institutional exposure have been described
uniquely from the UCF's perspective. For the sake of completeness, we would like to
point out that such exposure often is mutual, with the UCF not only being a likely
victim to opportunistic behaviour, but equally making use of its bargaining power to
potentially hold up stakeholders. Such reciprocity of exposure and dependence brings
up the notion of opportunism once again, and the conception of human behaviour. We
therefore stipulate an alternative to the homo economicus, by outlining assumptions on
the human nature, as offered by the relational approaches within economic sociology
and new institutionalism.
To explain the opportunistic aspect of humans' self-interested utility maximisation,
TCE added to the neoclassical conception the notion of guile, which Williamson
circumscribes as “lying, stealing, cheating, and calculated efforts to mislead, distort,
disguise, obfuscate, or otherwise confuse” (1985b: 47). While powerful in generating

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predictions in many contexts of economic modelling, this conception adheres to a
biased view of human behaviour 40 . This is particularly true for the assumption of pure
self-interest, which proves weak in cases with few parties that interact strategically (as
opposed to transactions in competitive markets) (Fehr & Schmidt, 2000). Therefore
the predominance of selfish motives in research is increasingly complemented by nonstandard
preferences, comprising considerations of fairness and reciprocity (T. Voss,
2003). One of the keys to humans' bounded selfishness is the fact, that also
opportunistic gains come at a cost, as for example social costs related to an impaired
reputation or the loss of social legitimacy (DiMaggio & Powell, 1983). In support of
this notion, Hill (1990) suggests, that the invisible hand of the market does away with
economic actors who have a reputation of being opportunistic, since selection
mechanisms favour actors who display a consistent bias towards cooperation.
As a consequence, research recently brought forward alternative theories of the firm,
giving weight to the role of trust and trustworthiness in governing social and economic
exchange (Tsai, 2000), and stressing the role of context in interactions. In various
experiments it could be shown, for instance, that interacting people reciprocate each
other's behaviour after an assessment of the interaction's fairness, i.e. that there is a
“behavioural predisposition to cooperate conditionally on others’ cooperation and to
punish violations of cooperative norms even at a net cost to the punisher” (Fehr &
Gintis, 2007: 45; see also Bosse, Phillips, & Harrison, 2009). In other words,
“reciprocity means that in response to friendly actions, people are frequently much
nicer and much more cooperative than predicted by the self-interest model; conversely,
in response to hostile actions they are frequently much more nasty and even brutal”
(Fehr & Gächter, 2000: 159). Importantly, such reciprocal behaviour is not to be
confounded with altruism, which is a form of unconditional kindness, or with
retaliation, which is based on expectations of future material benefits as a result of the
action. In contrast, reciprocal behaviour is a response to friendly or hostile actions, not
connected to any expected gains. Moreover, actors evaluate their transaction partners
not only on the basis of the outcome, but also based on their intentions. Intentionbased
theories suggest “that people are generous only if they have been treated kindly,
i.e., if the first-mover has signalled a fair intention” (Fehr & Schmidt, 2000: 34).
With reference to our research model, reciprocity and to some extent the interpretation
of the transaction party's intentions have important implications on governance
40 This view is not only held by researchers in economic sociology and institutionalism, but also by a
number of scholars in strategic management (e.g. Ghoshal, 2005; Wathne & Heide, 2000).
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mechanisms and on the enforcement of incomplete contracts. Moreover, these notions
influence the firm's strategies and behaviour to reduce its institutional exposure and its
opportunities to create value. Under the assumption of reciprocal behaviour in
transactions, a firm may expect to some extent that its exemplary behaviour as a good
corporate citizen will be appreciated by its stakeholders, who reciprocate the good
intentions through equally benevolent attitudes and actions. Thus, reciprocal behaviour
may change expected outcomes in principal-agent relations or in other transactions
under uncertainty and asymmetric information, compared to the likely results
assuming unbounded self-interest. This logic applies in inter-personal exchange, but
also on an inter-organisational level (Bosse et al., 2009). We will explore this idea
later in the development of our research model.
4.6.6 Differences in institutional environment and political system
Before continuing with the detailing of the research framework, we would like to
underline the relevance of the firm's institutional and cultural context regarding
stakeholder's propensity for opportunistic behaviour, and thus the firm's institutional
exposure. Without considering the social context of the transaction partners and their
transactions, “it is not possible to understand whether agents will behave
opportunistically or as a good steward” (Lubatkin, Lane, Collin, & Very, 2007: 51).
The impact of context on economic actors' behaviour becomes even more pronounced
when comparing different institutional and regulatory environments and cultural
settings. Consequently, also the assessment of a firm's institutional exposure requires
an understanding of the actors' social contexts and the nation's social and institutional
setting. These exogenous factors play a key role in creating assurance as to the
expected actions of others (J. Walker & Ostrom, 2007), and differently organised
societies and systems of institutions develop distinctive kinds of market rules and
actors. An example for the effects of such contextual variations is provided by Knack
and Keefer (1997) in a comparison of different market economies, which led to the
conclusion that “trust and norms of civic cooperation are stronger in countries with
formal institutions that effectively protect property and contract rights, and in countries
that are less polarised along lines of class or ethnicity” (ibid.: 1252). Because these
systems are historically contingent, their strength, homogeneity and complementarities
vary across countries and time, as does their ability to constrain opportunistic
behaviour (Whitley, 2003).
A review of the abundant scientific literature on institutional and contextual
differences, and their effects on economic behaviour would be beyond the scope of our

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dissertation. Nonetheless, we would like to stress the relevance of (institutional, social,
cultural) contexts with regard to the modelled framework. Since the case studies for
our empirical research are all set in strongly developed institutional environments,
with pronounced trust in the legal system and strong protection of property rights, they
do not allow inferences pertaining to other (i.e. weaker) institutional contexts. Yet, we
stipulate that the general relations within our research model remain valid in all
institutional and cultural contexts, while the emphasis and relevance of certain
elements might shift along changing idiosyncratic local contexts.
4.7 Moderators of institutional exposure
In assessing the relation between the firm's location-fixity and its institutional
exposure, our empirical research brought forward indications that there are two
moderators of relevance: the firm's local economic relevance and its competitive
environment. These moderating factors will be assessed in more detail in the following
sections.
local exposure
location fixity
local economic
relevance of firm
competitive
environment
(4.7.1)
(4.7.2)
institutional exposure
Figure 4-7: Moderators between location-fixity and institutional exposure
4.7.1 Effects of the local economic relevance on institutional exposure
In performing their activities, firms - and in particular UCFs - are in a state of mutual
dependence with their local environment. On one hand, the firm depends on regional
factors, such as public infrastructure, the local labour market, and institutional context
factors, whose overall attractiveness influences the firm's bottom line and its future
development potentials. On the other side, the region benefits from, and in certain
cases depends on the firm and its local production. The degree, to which a firm's
activity is vital for its environment is partially determined by its industry affiliation,
which is why UCI often are of high relevance as industries in the public interest.
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Example: Zurich Airport's effects on regional economic development
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In a study on the economic relevance of the Swiss aviation sector for the national economy, the
consultancy firm Infras (2006) calculated the direct and indirect economic effects of Zurich Airport to
total CHF 3.9bn per annum, respectively employment effects amounting to 24'000 full time equivalents
(FTE). Under consideration of the wider and thus less causal effects, the total economic relevance of
the airport is estimated to total CHF 9.9bn per annum, respectively 68'000 FTE. Although such
calculations may vary depending on the underlying assumptions, they indicate the significance of the
infrastructure for the regional economy.
Apart from the quantifiable value-contributing effects of airports, also qualitative effects need to be
taken into account, such as (ibid.)
- the expansion of market reach and related economies of scale,
- the expansion of employment markets and related access to highly qualified workforce
- a potential increase of competitive pressure in a number of industries, due to market access
for competitors
- an efficient global exchange of goods and services, which facilitates investments of Swiss firms
abroad and foreign direct investment in Switzerland
- a significant contribution to the international accessibility of Switzerland as a business
location, which supports key industries such as Switzerland's financial sector and the
attractiveness as a location for research and science (cf. Bleisch, 2005)
Because of the airport's role for the attractiveness of the Greater Zurich Area as a business location,
and thus for the development of the local economy, the preservation of its functionality and quality are
legally anchored in the Airport Law of the Canton of Zurich. The first paragraph thereof states: “The
State promotes Zurich Airport in order to preserve its economic and transport-related interests” 41 .
This principal support with regard to economic interests, however, is subsequently contained by
setting it against the needs of the surrounding inhabitants, and the first paragraph continues by stating
“It thereby takes into account the protection of the population with regard to detrimental or
undesirable effects of airport operations” ("Flughafengesetz," ibid.). As a consequence, Zurich
Airport's institutional exposure is reduced in relation to its going concern and functionality. However,
in view of its development opportunities and future outlook, the same legal fundament, politics and the
local administration have a limiting effect.
Furthermore, the firm's local importance is inversely related to the region's degree of
economic development and accessibility. Stated differently, in remote regions with
scarce economic activities, a firm's relevance for the local livelihoods may be
significant. Also in this regard UCFs frequently are vital local economic contributors,
as a number of them needs to settle in structurally weak regions due to their resourcedependence
or the nature of their product (e.g. hydro-electric power generation,
41 "Der Staat fördert den Flughafen Zürich zur Sicherstellung seiner volks- und verkehrswirtschaftlichen
Interessen. Er berücksichtigt dabei den Schutz der Bevölkerung vor schädlichen oder lästigen
Auswirkungen des Flughafenbetriebs" ("Flughafengesetz," 1999: §1).

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mining, cement and clinker production). As a consequence, the firm and the local
environment develop an apprehension of their mutual dependence, with the local
stakeholders being anxious to ensure the firm's well-being and to uphold its interest in
the location. From a power-balance perspective, such economic relevance should
result in a decrease in the firm's institutional exposure. This power imbalance,
however, is mitigated by the firm's reliance on the local resource and its strategic
alternatives to the local production site. The ensuing example illustrates the effects of
regional dependence on the firm, and the firm's reliance on a scarce local resource on
its institutional exposure.
Example: Institutional exposure in structurally weak regions - Axpo Hydropower project in Linth-
Limmern
The Axpo Group, being Switzerland’s leading energy utility, stresses its strong local roots and its
focus on sustainable energy. Consequently, in March 2005 Axpo started one of its most significant
hydropower projects – “Linthal 2015” - involving a CHF 2.1bn investment volume and upgrading the
existing hydropower plant to pump and turbine capacities of 1000 MW each. Despite the project's
complexity Axpo advanced in all administrative approval processes with no major hurdles. It obtained
the concession for the pump-storage plant in March 2009 and shortly later the building permit in July
2009. Three major factors for the successful handling of the concession process can be identified:
- the economic structure of the region: Linthal belongs to the canton of Glarus and is an
economically and structurally weakly developed region, the project will significantly spur
local economic development
- the extensive local embeddedness of Axpo's local subsidiary Kraftwerke Linth-Limmern AG
(KLL): KLL historically is an important economic factor in the region; it is deeply embedded
in its environment and actively manages its stakeholder relations
- the early involvement of project stakeholders: KLL involved the relevant stakeholders from
the very beginning, most importantly the local administration and environmental interest
groups; Axpo regards their early and sincere inclusion as key to project success
In a project newsletter the company cites its director of the board, Robert Lombardini: “The biggest
construction project is also the most significant for the canton Glarus. Correspondingly the
commitment is high on both sides” (Axpo Hydro Energie, 2009). The project secures the canton a one-
off income of CHF 62m in concession fees alone, plus an annual CHF 8 to 10m from taxes, power
proceeds and dividends, not to mention the primary and secondary effects on the region. However, due
to the low profit earning capacity of pump storage stations the long-term re-financing and profitability
of the project need to be carefully guarded with respect to local stakeholders' rent-appropriation.
Despite the high stakes for some of the affected municipalities and their dependence on the project, the
region succeeded to appropriate a significant portion of the project's present value, suggesting that
the firm's dependence on the project outweighs the region's high economic interest in the firm's
activities (cf. interview N°3: 14). Possible explanations could be the scarcity of suitable hydropower
sites of this magnitude, the state's agenda for energy policy (strongly encouraging an increase in the
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share of renewable power in the firm's energy mix), and the pressure on Axpo from its sovereign
supply mandate. In addition the local administration made use of its negotiation power before the
project's approval, being aware that opportunities for quasi-rent appropriation need to be exploited
prior to the award of concession. Once the contracts are signed, such opportunities become rare, if
one excludes the options of contract-breach or opportunistic ex-post renegotiation.
Based on indications from our empirical research, we therefore derive a proposition
with regard to the effect of firms' local economic relevance and institutional exposure.
Proposition 7
The institutional exposure of the UCF is moderated by its role and importance within
the local economy, on the basis of its industry nature or its contribution to the local
livelihood.
Since a thorough analysis of the mitigating effects of the firm's local relevance on its
institutional exposure would be beyond the scope of this dissertation, we commend
such analysis for further exploration and verification to future research.
4.7.2 Effects of competition on institutional exposure
The second moderator, which we identified in the relationship between location-fixity
and institutional exposure, warrants further elaboration and we consequently introduce
it with caution. In our empirical research a number of explanatory approaches
emerged, partly contradicting, and with no attainable saturation throughout the
research process. Since the feedback in our case studies affirmed the influence of the
moderator by and large, it consequently has been integrated in our research model. The
three different explanatory approaches, which depend on the firm's conduct towards its
competitors, will be laid out below.
Firms and competitors cooperate to limit stakeholder's rent-appropriation. Firms
under significant pressure from their stakeholders, e.g. due to their externalities, might
benefit from the advent of other market players. As a single player, a firm whose
activities impact the local environment risks to face undivided stakeholder attention
and criticism. In addition, its high visibility might make it a rewarding target in order
to gain political capital. With the presence of more than one competing player, also the
externalities no longer are clearly attributable to one emitter (e.g. fly-over noise in
multi-airport cities). Since these now are the product of several industry peers, political
and public pressure on the single firm decrease.

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Furthermore, the competing players may decide to cooperate with regard to
stakeholder issues, thus being able to find joint solutions, or to bring forward their
arguments more convincingly through joint communication and lobbying efforts, as
illustrated by the subsequent examples.
Example: Competitor collaboration against political hold-up - airport privatisation in India
In face of the significant investments needed for developing its airport infrastructure, India decided to
start privatising its airports at the turn of the millennium. In the early privatisation process, two
greenfield airports in South India served as pilot-projects for the government to collected experiences
in Public Private Partnerships (PPP) and to determine the regulatory set-up. During this regulatory
transition phase, negotiations with the various governmental bodies were characterised with
significant regulatory discretion and uncertainty. A pivotal issue for the private investors was the
determination of the newly introduced User Development Fee (UDF), a regulated charge needed for
the financing of the new airport infrastructure and future extension projects. For both pilot projects,
the Bengaluru International Airport (BIA) and Hyderabad's Rajiv Gandhi International Airport (HIA),
the government assured that UDF was to be calculated on the basis of audited project costs within a
contractually binding time frame. However, for both airports the Indian authorities granted a UDF
significantly below those calculated needs. As an additional drawback to its refinancing, the operator
of BIA waited for a formal go-ahead to levy the UDF for more than six months, which led to initial
cash flow and debt-servicing problems. In response to this threat to infrastructure refinancing the two
competing airport projects started to coordinate their actions and argumentation towards the relevant
authorities, which ultimately led to the approval of an acceptable, albeit lower than expected UDF for
both airports.
Example: Competitor collaboration to gain argumentative clout
The electrical power sector in Switzerland consists of a few major players, including Alpiq, Axpo,
BKW, and Rätia. For historical reasons their mutual relations are co-opetitive, as partners in the
production process, and as competitors in the market for electricity. With the help of the industry
association “Swisselectric” they coordinate their interests with the objective to take influence on the
political and regulatory issues, as per the interest of the members. Such pooling of resources and
harmonisation of positions through an association thus allows effective lobbying within the political
system to decrease institutional exposure and to attain mutual economic gain.
Thus we derive the following propositions:
Proposition 8
Institutional exposure decreases in an environment with local competitors, if the UCF
cooperates with competitors with regard to stakeholder issues and demands.
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Proposition 9
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Institutional exposure decreases in an environment with local competitors, because
industry-specific externalities originate from several industry players, which reduces
incentives to dispraise a single firm.
Firms' individual efforts for stakeholder goodwill increase with competition.
Under competition local stakeholders have the possibility to compare rivalling players'
conduct and their approaches to stakeholder issues. As a consequence, industry players
need to increase activities aimed at maintaining their local 'licence to operate', and to
build goodwill stocks with the local community as a means for competitor
differentiation. Since UCFs usually depend on scarce local resources, new project
opportunities in the region are expected to be contested among the industry players. In
view of such future development opportunities, firms therefore hope to increase their
chances for award of project through favourable conduct and reputation-building
activities. Through this embedding process, firms develop a competitive edge allowing
it to generate quasi-rents, which are then partly bargained away by the community in
which it is embedded. Based on this argumentation two further propositions are added:
Proposition 10
A high level of competition leads to an increase in institutional exposure, due to
stakeholders' possibility to play competing firms off against each other.
Rent-dissipation in oligopolistic competition. Last but not least, we would like to
introduce the notion of 'War of Attrition', originating from game theory, as an
alternative approach to explain the effects of competition on firms' institutional
exposure and rent distribution. A 'War of attrition', in the sense of an 'industry
shakeout' (Bulow & Klemperer, 1999), refers to a competitive situation in which the
contestants earn no rents and sell their products at average cost, with the objective to
survive until the other contestant exits the market (Fudenberg & Tirole, 1987).
Consequently, if all above average returns are competed away by the industry players,
the individual firm's institutional exposure decreases, since it becomes less attractive
for rent appropriation through stakeholders. Such a firm may fend off stakeholder
claims by arguing that it needs to protect its future livelihood and competitiveness. In
contrast, a single firm enjoying monopolistic above-average returns faces an increased
institutional exposure, since stakeholders would try to appropriate the composite

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quasi-rent, thus endangering the firm's sustainable long-term development. Figure 4-8
illustrates the logic of the 'War of Attrition', whereby the operators beneath the arrows
indicate a positive or negative influence.
local stakeholders
appropriation of quasi-rent
firm
value-creating +
rent
competition
economic activities
−
rent dissipation in War of Attrition:
competition on resources & price
Figure 4-8: Influence of aggressive competition on institutional exposure
−
+
institutional
exposure
We therefore infer, that the relation between a firm's appropriable rent and its
institutional exposure are positively reinforcing, leading to our next proposition:
Proposition 11
The lower (higher) the firm's appropriable rent, the lower (higher) is its institutional
exposure.
Explanatory ambiguity of 'competitive environment' as moderator of
institutional exposure. In view of the different approaches towards explaining the
effects of competition on firms' institutional exposure, we have to concede that it is
impossible to draw unambiguous conclusions within the scope of our empirical
research. Instead, we make a universally valid inference by asserting the relevance of
the competitive environment to our research model 42 . Further clarification of this
moderator's influence on the relation between location-fixity and institutional
exposure, however, is commended to future research projects.
4.8 Embedding capabilities of local management
In the preceding analysis of local exposure, we conceptually clarified the
characteristics of location-fixity and the resulting institutional exposure for UCF, in
42 This general inference is supported by Cox (1995), who suggested in his article on "Globalisation,
competition and the politics of local economic development" that the relation between competition and
local dependence should be explored at greater length.
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order to understand their specific context. On both constructs, the firm has no direct
influence: they are exogenous and represent the independent coefficients of the model
- however, they may have very real effects on the firm's profitability and its future
value creation potential. In the next section, we turn our focus on the firm's
possibilities to mitigate these real and potential effects of location-fixity and
institutional exposure. By analysing the dimensions of the firm's embedding
capabilities as a moderator to these effects, we define the action parameter of our
research framework.
local exposure
from location fixity
embedding
capabilities (4.8)
moderate
influences
value creation
independent coefficient action parameter dependent (output) variable
Figure 4-9: Embedding capabilities as action parameter towards value creation
By means of its embedding capabilities, the firm is able to work towards two distinct
objectives with regard to its local exposure. On one hand, it may deploy them to (1)
avert potential damage and risk through stakeholders, who exploit their power
differentials and thus have an inherent threat potential. On the other hand, they may
use these capabilities to (2) mobilise stakeholder support and to safeguard future
development options. Both of these objectives affect its potential to create value and to
increase its competitive advantage, as illustrated in Figure 4-10.

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local
exposure
threat
potential
support
potential
(1)
(2)
objectives of
embedding capabilities
forestall value destruction
avert damage
reduce risk
enable value creation
mobilise stakeholder
support
safeguard
future options
Figure 4-10: Objectives of the firm's embedding capabilities
effects on
value creation
net value
creation
competitive
advantage
In the elaboration of the elements which form part of the firm's embedding
capabilities, we will particularly be guided by the theoretical lenses of economic
geography, institutional economics and strategic management.
The importance of organisational legitimacy. In their activities, all firms are - to
various degrees - dependent on resources, such a materials, labour and capital, but also
on abstract goods like political stability, a dependable judicial system and -
importantly - legitimacy in the eyes of the public (Dyllick, 1984). Under consideration
of the long-term orientation of our research object, its locational dependence and its
high visibility, this last-mentioned aspect of legitimacy becomes particularly relevant
as UCF substantially depend on the goodwill of their surrounding stakeholders. As a
consequence of their special characteristics, they therefore can be considered
“creatures of public authority” (Jepperson & Meyer, 1991: 206), which continuously
need to prove their justification for exposing their environment to various externalities.
We therefore regard corporate legitimacy as a critical resource to the UCF, which is
provided through the local institutional environment giving “cultural support to
organisations ... in the form of acceptance” (Oinas, 1995: 155). Furthermore, corporate
legitimacy is critical, since it may impact the firm's value creation opportunities (as
will be elaborated later), since it is rare and inimitable in the sense, that it has to be
achieved over time and cannot be built systematically, and since it is imperfectly
substitutable for UCFs due to their local fixation and given stakeholder set-up. As a
consequence, legitimacy even qualifies as a strategic resource, fulfilling all criteria of
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RBV’s VRIN framework. Thus, earning and keeping a stakeholder 'licence to
operate' 43 becomes a factor for sustained competitive advantage for location-fixed
companies, which they should integrate accordingly in the management of the
relations with their institutional environment: “if stakeholders are to feel and act
positively towards a company, it will be in reciprocation for that company making a
contribution to their lives” (Lewis, 2001: 35).
Embeddedness as a means towards building legitimacy. The degree to which a
company is legitimised by its environment predominantly depends on its
embeddedness within its local context. The process of embedding is understood as
“the way in which organisations or actors become tied in to the local business and
institutional environment” (Alderman, 2004: 256). Importantly, unlike the externally
driven organisational legitimacy, embeddedness can be actively fostered by the firm
(cf. next section). It represents an indirect means to increase its legitimacy and
acceptance within its local environment.
4.8.1 The concept of embeddedness
The notion of embeddedness found its way into broader economic thinking through
Granovetter's seminal work 'Economic action and social structure: The problem of
embeddedness' (1985). It takes account of the significant social elements contained in
all economic action and stresses the fact that “economic action and outcomes, like all
social action and outcomes, are affected by actors' dyadic relations and by the structure
of overall network of relations” (Grabher, 1993: 4) 44 . In a wider context, the
embeddedness concept is linked to the institutional perspective, basing on the postulate
that social relations are shaped and constrained by informal (traditions, customs, etc.)
and formal institutions (organisations, administrative systems, etc.). For firms,
embeddedness to their local environment therefore may entail constraints (e.g. in the
form of 'institutional thickness', cf. Amin & Thrift, 1994), just as it is conducive to
significant strategic opportunities (Dacin et al., 1999). These result from the fact, that
the firm's embedding process is reciprocally influenced by activities of the firm itself,
and by the behaviour of strategic actors. Thus, by understanding and adapting to its
43
A term borrowed from Holcim, which aims in its community involvement programmes to maintain
its " 'license to operate' by providing education for society’s future, building infrastructure for liveable
communities, supporting sustainable community development" (Otto, 2006: 18).
44
The value of a firm's relations with its environment for its competitive position is also
acknowledged within the RBV, as manifested in Rumelt's (1974: 557) statement that "a firm's
competitive position is defined by a bundle of unique resources and relationships [emphasis added]".

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cultural and institutional context, the firm is able to bound the range of possible
organisational actions, in order to specifically enhance its embeddedness. As a
consequence, the firm's active fostering of its local embedding may open
opportunities, while it may build strategic barriers for other competitive players.
Conceptual ambiguity of embeddedness. Despite extensive research within various
fields of research, embeddedness unfortunately remains an ambiguous notion
resonating between under- and over-socialised conceptualisations (Oinas, 1997). Pike
et al. (2000) remark the term as being over-used in careless ways that often empty it of
much of its meaning. Nevertheless, “it serves a function in opening up a number of
questions concerning the nature of economic action and the relations of economic
actors with their socio-spatial environments” (Oinas, 1997: 24). A review of the
existing literature on embeddedness reveals differing terminological interpretations
and, above all, the need of a few clarifications on the scaling of the term (on a timespace
scale), the further specification of the actors in embedding processes, and the
dimensions of analysis in order to disentangle the “reciprocal social, political and
economic processes that occur at multiple scales and change constantly at any given
scale” (Hayter, 2004: 99). Some of the reasons, why a clear conceptualisation of the
embeddedness construct is so challenging are subsumed as follows:
- embeddedness consists of multiple layers and dimensions, which are partly
overlapping and hence not easy to conceptually separate
- embeddedness entails institutional and economic processes (cf. Dacin et al.,
1999), respectively social and an economic components “symbiotically
integrated, only understood in relation to one another” (Hayter, 2004: 98),
- embeddedness consists of a time-space scale, since “becoming embedded … as
well as sustaining embeddedness is a process (of longer duration)” (Oinas,
1997: 28) and embedding relates to a spatial scale, ranging from local to more
geographically distant ways of embedding
- the actors in economic embeddedness are not entirely clear, as there remains
uncertainty if the embedding process is rather driven by individuals or also by
institutions as collective actors
- the embedding of actors is a reciprocal process
- embedding is not a one-directional process and can reverse into disembedding
Social and economic aspects of embeddedness. To resolve some of these
ambiguities, Zukin and DiMaggio (1990) in their seminal work 'Structures of Capital:
The Social Organization of the Economy' classify four forms of embeddedness:
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structural, cognitive, cultural and political-institutional 45 . Albeit very useful to
disentangle some of the complexities of the concept, the authors equate 'structural'
with 'social' embeddedness as contextualisation of economic exchange in patterns of
ongoing interpersonal relations. Thus, they leave one of the main complexities of the
concept unresolved, as pointed out by Hayter's (2004) appeal to understand the
symbiotic relationship of the social and the economic components of embeddedness,
and as further reinforced by Oinas (as cited in Pike et al., 2000: 20):
Even though the ‘economic’ and the ‘social’ seem intertwined and inseparable
from one another empirically, it does not mean that we could not and should
not analytically separate ‘the economic’ from the rest of what is ‘social’, even
though it might be difficult in some instances.
The distinction between the economic and social aspects of embeddedness, however,
is crucial to our own conception of embeddedness in the context of the organisational
embedding capabilities to foster a value-enhancing business environment (cf. section
4.8.3).
Spatial Scale. From the perspective of economic geography, “economic events are
necessarily contextual, that is embedded in spatial structures of social relations” (R.
Martin, 1994: 42). To take account of the spatial scale of embeddedness, Oinas (1997)
conceptualises the construct as local, regional, or relations over a longer distance with
varying intensities. Actors interacting on the same spatial scale may be characterised
as locally embedded, whereas embeddedness on an extra-local scale is referred to as
spatial embeddedness (ibid.). With reference to our research framework, the focus lies
on local embeddedness of our research object, i.e. the local firm's relations with its
local stakeholders. Depending on the firm's industry structure and geographical
organisation, the spatial scale of its embedding activities may also extend from the
local to regional or national levels, as for example in the firm's relations to regional
public administrations or national regulatory bodies.
Actors in the embedding process. The concept of embeddedness relates to
individuals in interaction with their environment, as well as to collective actors, such
as firms, units of a firm, or networks. A firm's local embeddedness “is often a result of
a combination of individual and collective embeddedness” (Oinas, 1997: 27), whereby
individuals and their actions reflect the organisations within and through which they
45 For an immersed discussion on embeddedness see also Dacin, Ventresca, & Beal (1999).

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act (Pike et al., 2000), thus overcoming the separation of structure from agents 46 . We
follow this notion throughout our research model, assuming that the firm's managerial
embedding capabilities and the actions of individual representatives of the firm work
towards the collective embedding of the firm as a whole.
Embedding versus embeddedness. The process of embedding and the state of
embeddedness are inextricably linked to context within concrete, ongoing social
relations (Pike et al., 2000). Referring to a process of ‘anchoring’ firms to regional
contexts, the embedding process has a distinct territorial dimension: it refers to “the
processes through which subjects of economic action, while embedded in their own set
of social networks, become integrated in a selected spatial object, such as the region in
which the subject is located” (ibid.: 15). Embeddedness, on the other hand, relates to
the structure of social relations, embodying the environment or context in which action
takes place. It is “the relation of actors to others in a collectivity which affects their
behaviour … [and] may bear (positive) consequences on their (economic) action”
(Oinas, 1999a: 353). The scale of embeddedness is to be understood in terms of
interdependent layers, rather than hierarchical structures. Because embedding
processes reinforce embeddedness, both terms cannot be strictly held apart in the long
term, as economic actors influence, shape and affect the very economic action and
institutions within and through which they are reproduced and constituted. Territory
therefore “is both a cause and consequence of such a process [of embedding] rather
than simply a manifestation” (Pike et al., 2000). The distinction of the two terms is
relevant within our research framework, since the firm itself can only undertake
activities that foster its embedding process - potentially reciprocated by stakeholders'
activities. These embedding activities may result in enhanced embeddedness, and
possibly - as a consequence thereof - in increased organisational legitimacy, which
cannot be influenced in direct ways.
Tie Strength. The strength of ties between two parties is defined as a “combination of
the amount of time, the emotional intensity, the intimacy (mutual confiding), and the
reciprocal services which characterise the tie” (Granovetter, 1973: 1361). Within
strategic management research the theorising of tie strength has resulted in findings
which are partly contradictory (Rowley, Behrens, & Krackhardt, 2000), as different
research streams promulgate for different reasons that strong and weak ties positively
affect the firm's performance. The defenders of the strong tie - performance link
46 This interpretation is similar to Zaheer, McEvily, & Perrone's (1998) concept of boundary-spanning
individuals, see also section 4.8.5.
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stipulate that strong ties produce and are governed by relational trust, as well as norms
of mutual gain and reciprocity, while they develop through repeated interactions over
time (Larson, 1992). As a result of such strong ties, the firm benefits from fine-grained
information exchanges and trust-based governance. Weak ties, on the other hand, are
beneficial to the firm since they provide access to novel information through 'local
bridges' with other parties, with whom the firm is not so familiar (Granovetter, 1973).
Thus, the firm is able to access information within other networks, within which these
bridging parties are connected. With regard to our research object, strong ties play an
important role between the UCF and its stakeholders due to the long-term nature of
their relationships. As a result of incomplete contracts, strong ties and trust-based
governance therefore help to overcome potential contractual or relational pitfalls and
reduce uncertainty and opportunism potentials, thus positively affecting the firm's
performance. The development of strong ties with stakeholders therefore is an
important characteristic of our local embeddedness construct.
Embedded rigidity. Importantly, the marginal utility of firms' local embeddedness
seems to turn negative at some point, when actors experience negative impacts from
over-embeddedness. This phenomenon is related to Amin & Thrift's (1994)
'institutional thickness' (cf. section 4.2). The authors claim that firms which are overly
embedded in their local environment may become rigid and locked-in to their longstanding
relations. As a result, the actors may be caught in behavioural patterns which
inhibit learning and the exploitation of business opportunities, thus impairing the
firm's competitiveness. Within our research framework we exclude the phenomenon of
'institutional thickness' and related negative aspects, and focus on the positive aspects
of local embedding and the managerial capabilities needed to this effect.
4.8.2 Organisational legitimacy
One of the central claims of institutional theory is that organisations are more likely to
survive, if they receive legitimacy and social support from their institutional
environment, thus being accepted by the external parties within this environment.
Consequently, by establishing stable institutional linkages with those external parties,
the firm is able to decrease its uncertainty and the risks of organisational failure (Baum
& Oliver, 1991). In other words, if firms are to “survive and thrive in their social
environments … [t]hey also need social acceptability and credibility” (Scott, Ruef,
Mendel, & Caronna, 2000: 237). Apart from institutional theory, this notion also
attracted interest within resource dependence theory and strategic management
research, which all draw from the foundational work of Weber (1978) and Parsons

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(1960), albeit focusing on different objects of analysis. As the institutional lens on
legitimacy focuses on the macro-level of legitimisation's context, the organisational
lens on legitimacy explores the strategic implications of corporate social approval.
Below we will briefly outline the main concepts of organisational legitimacy from
both perspectives.
Concepts of organisational legitimacy. Legitimacy is defined as “a generalised
perception or assumption that the actions of an entity are desirable, proper, or
appropriate within some socially constructed system of norms, values, beliefs, and
definitions” (Suchman, 1995: 574). It is a not event-specific evaluation of a subject
“possessed objectively, yet created subjectively” (ibid.). On an organisational level,
legitimacy means a congruence between the social values associated with or implied
by the firm's activities and the norms of acceptable behaviour in the larger social
system of which it forms part (Dowling & Pfeffer, 1975). Organisational legitimacy,
within institutional theory, thus is shaped by three factors (Hybels, 1995; Kostova &
Zaheer, 1999), namely
(1) exogenously, by the environment's institutional characteristics;
(2) endogenously, through the organisation's characteristics; and
(3) on a time-scale, through the legitimisation process by which the environment
builds its perceptions of the organisation.
Exogenous factors influencing the firm's organisational legitimacy include its task
environment, its resource providers, its stakeholders in general, and its institutional
pillars (ibid., for the latter cf. next sub-section). Endogenous factors, on the other hand,
relate to the fact that the firm itself may be a collection of fragmented and varyingly
interdependent and independent subunits, whose activities indirectly affect
organisational legitimacy. Ultimately, the legitimisation process implicates the firm's
justification “to a peer or superordinate system [of] its right to exist, that is to continue
to import, transform, and export energy, material, or information” (Maurer, 1971:
361). Based on these factors, and similarly to the firm's embedding processes,
legitimacy is socially constructed and is the result of a reciprocal process between the
firm and its environmental context. It affects not only how people act on the firm, but
also how they understand it. Legitimacy therefore acts as a dynamic constraint on
organisational behaviour, changing as organisations adapt, and as the legitimacyconstituting
social values change, respectively are changed (Dowling & Pfeffer, 1975).
Importantly, legitimisation is not an irreversible process and firms have to persistently
engage with their environment in order to maintain it (Baum & Oliver, 1991).
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From a strategic management perspective, organisational legitimacy represents a
resource “that operations extract - often competitively - from their cultural
environments and that they employ in pursuit of their goals” (Suchman, 1995: 575).
Lack of legitimacy might act as a barrier to entry for firms, making them more
vulnerable to claims that they are negligent, irrational or unnecessary (Meyer &
Rowan, 1977). Conversely, a strong social endorsement can serve as competitive
advantage: being legitimate “enables organisations to attract resources necessary for
survival (e.g. scarce materials, patronage, political approval)” (Hearit, 1995: 2). Thus,
organisational survival is enhanced by the organisation's legitimacy, which is why
firms engage in activities to obtain and above all to maintain it. From the instrumental
view taken in strategic management research, this process underlies a high level of
managerial control - a stance not supported by institutionalists, who rather see
legitimacy as a set of constitutive beliefs. Putting legitimacy into a larger perspective,
that integrates the institutionalist and the strategic notion, we conceptualise it as a
construct which can only indirectly be influenced by the firm itself in making use of its
embedding capabilities. Since credibility, reputation and trust are not enforceable in a
structured process, the firm needs to foster them over time by means of these
capabilities, working towards an alignment of the firm's perception by the public with
the local system of values and beliefs. Such adaptation to implicit expectations by the
environment is only possible if the local firm is sensitive to the cultural and
institutional disposition of its environment.
Institutional pillars of organisational legitimacy. With another reference to Scott's
(2001) institutional pillars, firms need to address organisational legitimacy on three
dimensions:
(1) regulative dimension; entails firm compliance with relevant legal or
quasi-legal rules (what the firm may or must not do)
(2) normative dimension; calls to moral and more internalised norms of
legitimacy and includes intrinsic as well as extrinsic satisfaction (what the firm
should and should not do)
(3) cognitive dimension; internalised, referring to a preconscious awareness
level (what is or is not true, respectively what the firm can or cannot do)
On the (1) regulative dimension, the mere compliance with an institutional
environment's rules and regulations serves just as a firm's 'entry ticket' for being
accredited with legitimacy. It constitutes the minimum a firm must do to justify its
reason for existence. In comparison, embedding activities on the (2) normative and (3)

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cognitive dimensions are differentiators towards goodwill creation, which ultimately
elicit the firm's legitimacy. It is on these two dimensions, that the firm manifests its
commitment to the production site and its local environment by acting beyond selfinterested
(short-term) profit maximisation. Through activities addressing the
normative dimension, and by carefully choosing their mode of implementation, the
firm seeks to conform to the expectations from its local environment.
Institutional exposure and organisational legitimacy. Principally, all organisations
need to be endowed with a basic organisational legitimacy for their sustained
livelihood. However, with reference to our research object, we reason that such
legitimacy is more decisive for firms with a high institutional exposure, as is the case
of UCF. Their high visibility, the nature of their activities and their industry structure
are decisive factors which result in a higher dependence on social and political support
from their local environment (cf. Dowling & Pfeffer, 1975; Pfeffer, 1972). Based on
the above review on the concepts of embeddedness and organisational legitimacy, as
well as our empirical findings, we postulate with regard to the research object:
Proposition 12
The higher the firm's institutional exposure, the more its organisational embedding
matters with regard to its value creation opportunities and long-term success.
4.8.3 Attributes of embedding capabilities
In an attempt to overcome the theoretical tension between under- and over-socialised
concepts of embeddedness, our proposed research framework integrates two
dimensions of embedding capabilities: an economic dimension which enhances
organisational legitimisation through tangible contributions of the firm to its local
environment, and a relational dimension, which is interdependent with - and not
entirely dissociable from - the economic dimension of the firm's embedding
capabilities. The economic or structural dimension pertains to the firm's rent sharing,
contractual arrangements with local concession-givers, and the effectiveness of its
self-governance efforts towards being a good corporate citizen. On the relational side,
the firm's social embedding capabilities entail activities to build relational and
reputational assets and towards cultural adaptation 47 . The ensuing passages will
elaborate both dimensions of 'embedding capabilities', which serve as the UCF's action
47 See also Kostova & Zaheer (1999).
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parameter to mitigate its institutional exposure and the resulting effects on its value
creation opportunities (cf. Figure 4-11).
local exposure from
location fixity (4.5 - 4.7)
moderates
influences
value creation (4.9)
embedding
capabilities (4.8)
structural (economic) (4.8.4)
value-share remaining in region
mutual lock-in with stakeholders
effectiveness of self-governance
relational (social) (4.8.5)
local stakeholder relations
reputation & trust-building
cultural & institutional adaptation
Figure 4-11: Attributes of embedding capabilities within the research framework
Acknowledging that both dimensions, the economic and the social, are “incorrigibly
intertwined, unable to be separated off from one another” (Thrift & Olds, 1996: 314),
they are taken up successively for the benefit of conceptual clarity and to consequently
derive apposite recommendations for value-enhancing UCF behaviour.
4.8.4 Structural (economic) embedding capabilities
Structural (economic) embedding capabilities include all tangible activities which
manifest the firm's commitment to its location beyond symbolic actions, corporate
communication and PR-functions. Such commitment, as “the state … of being
obligated or emotionally impelled” 48 , includes rent-affecting firm activities, such as
corporate social responsibility engagements, employee development programmes and
support for community education, environmental programmes, the amount of taxes
paid locally 49 , and joint infrastructure development with the local administration.
48
Commitment. (2009). In Merriam-Webster Online Dictionary. Retrieved November 27, 2009, from:
www.merriam-webster.com/dictionary/commitment.
49
For firms, which are active across differing tax-systems and national boundaries, tax payments
involve a degree of discretion, e.g. through transfer-pricing, legal and organisational structures, and
other means for overall tax-optimisation. It is therefore to some extent a conscious decision of the
firm, to which extent it pays taxes locally, even if other tax-optimisation schemes seem more attractive
in the short-term.

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Viewed from an instrumental resource-dependence perspective such rent-affecting
embedding activities should not just be an altruistic contribution to the greater good,
but need to have an economic pay-off in order to be justified. Economic pay-off
therefore is based on a 'quid pro quo' philosophy, whereby the firm's structural
embedding efforts represent a compensation of its stakeholders for the negative
externalities to which they are exposed to. It is a means to gain and preserve local
support under the notions of reciprocity and legitimacy. Accordingly, stakeholders will
be more inclined towards accepting negatively perceived firm-effects, if on the other
hand they perceive the firm's willingness to share part of its rents. As outlined before
(cf. sub-chapter 4.6.5), research has shown the validity of the reciprocity notion in
human interactions under bounded rationality (Falk, Fehr, & Fischbacher, 2008; Fehr
& Schmidt, 1999): “in response to friendly actions, people are frequently much nicer
and much more cooperative than predicted by the self-interest model; conversely, in
response to hostile actions they are frequently much more nasty and even brutal” (Fehr
& Gächter, 2000: 159). Thus, the firm's compliance with normative stakeholder
expectations endows it with legitimacy, and equally serves as an instrument to avert
value-destroying stakeholder activities, respectively to mobilise value-enhancing
stakeholder-support.
In the subsequent section, we will have a closer look at how firms may enhance their
structural embeddedness in order to reduce their institutional exposure, as well as to
safeguard value creation opportunities. To this end, we will detail the three levers
identified within our research framework:
(1) Value-share remaining in region. If the notions of bounded self-interest and
reciprocity apply to economic actors' behaviour, firms have no choice other than to
adequately compensate their environment, in order to preserve their livelihood in the
long run;
(2) Mutual lock-in between the firm and its main stakeholders. Due to the high
commitment a UCF makes to a location by means of substantive upfront investments,
the creation of mutual lock-in situations (as opposed to unilateral institutional
exposure) serves the firm as a hostage to ensure its main stakeholders' sincerity in
upholding their contractual commitments; in this sense an effective lock-in-creating
agreement has positive implications for the firm, lowering its institutional exposure,
particularly towards its public stakeholders; and
(3) Effectiveness of (internal) governance. By establishing an effective and
transparent internal governance system, whose progress and results are systematically
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communicated to stakeholders, the firm signals that it is willing to acknowledge the
community's needs for information and involvement. Such pro-active behaviour may
particularly strengthen the firm's credibility with the regulator and other public
stakeholders, in addition to creating goodwill with the remaining stakeholders.
With reference to the three dimensions of organisational legitimacy (on the basis of
Scott, 2001), these identified levers entail obligations, choices and opportunities for
the firm to enhance its structural embeddedness, as illustrated in Table 4-6.
Levers of
structural
embeddedness
Value share
remaining in
region
Mutual lock-in
between the
firm and its
main
stakeholders
Effectiveness of
internal
governance
Regulative
(may / must not)
Taxes (obligatory
minimum fraction)
Labour law
compliance
Compliance with
legal 'local content'
rules
Social and
environmental
compliance
Formal safeguards
(contracts, hostages)
Overall legal
compliance
Legal obligations for
governance
Dimensions of organisational legitimacy
Normative
(should / should not)
Taxes (discretionary fraction)
Sustainable livelihood wages
& local employment
Local suppliers beyond 'local
content' rules
CSR initiatives, such as
- environmental programmes
- educational initiatives
- infrastructure development
- sponsoring activities
Informal safeguards through
relationally-governed
processes (trust, cooperation,
flexibility, solidarity,
information exchange 51 )
Moral obligations
Policy of ethical conduct
Explicit firm values
Table 4-6: Levers of structural embeddedness and organisational legitimacy
Cognitive 50
(can / cannot)
Normative activities' fit
with the implicit
cultural-cognitive
expectations:
- which are the firm's
priorities within the set
of potential activities?
- how are these
activities aligned with
(implicit) expectations
of the various
stakeholders?
- how are these
activities performed
and communicated
50
On the cognitive dimension, the firm's structural embedding capabilities to achieve mutual lock-in
are complemented by its relational embedding capabilities, which are further detailed in the next subchapter.
51
Cf. Poppo & Zenger (2002).

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Through the firm's activities that affect its structural embedding, it has a choice to go
beyond mere regulatory compliance, as covered by the regulative dimension of
organisational legitimacy. In taking conscious decisions as detailed by the normative
dimension in Table 4-6, it may take the right actions to live up to the explicit
normative expectations and the cognitively implicit cultural and institutional
expectations of its local stakeholders. Thus, the combination of its activity portfolio
and degree of rent-sharing (as a demonstration of its willingness to embed itself
locally), and the way it performs these activities, display its embedding capabilities.
Importantly therefore, on the normative and cognitive dimension it is not only the
firm's good intentions which affect its organisational legitimacy, but how well its
actions overlap with the local norms and expectations. In summary, the firm's ability to
identify, comprehend, and respond to the demands of powerful, locally relevant
stakeholder groups is decisive: in order to gainfully 'do good', legitimacy-related
actions must be carefully reconciled with the local institutional environment.
Value-share remaining in region. From an instrumental point of view, the firm's
efforts to embed locally involve investments that create intangible assets for the firm.
Thus, by redistributing a part of its rents (economic or otherwise) to its stakeholders
the firm intends to encourage them to engage in wealth-creating activities (Gossy,
2008), or to refrain from value-destroying acts towards the firm. Likewise such rentsharing
serves as a signal to the local community with regard to the firm's locational
commitment and therefore represents a key component of a virtuous cycle to establish
its reputation, foster legitimacy, and competitive advantage, and to ultimately create
more rent (cf. Figure 4-12). The firm's instrumental embedding efforts refer to
policies, programmes and processes which support its core activities, contribute to its
effectiveness in accomplishing its mission and by which it yields notable business
related benefits.
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rent
competitive
advantage
+
+
+
+
valueshareremaining
in region
+
cooperation
(due to reciprocality)
+
+
legitimacy
Figure 4-12: Virtuous cycle between value share remaining in region and rent
+
reputation
+
+
trust
Theory Building
With reference to our research object, and under the behavioural assumption of
fairness and reciprocity, stakeholder cooperation is particularly relevant in this
virtuous cycle: firms with a long-term dependence on a specific location need to pay
adequate attention to the fact that continued support by their environment comes at a
price. UCFs therefore might willingly accept partial appropriation of their local quasirents,
if they consequently are able to avert value destruction or to create value.
Although such redistribution is costly, “the primary payoff to the firm for incurring
these costs … is that it enjoys relationships with stakeholders who positively
reciprocate - and that the cooperation of such stakeholders in aggregate creates rent”
(Bosse et al., 2009). In an efficient market therefore firms pursue utility-maximisation,
creating rent while conforming to the norms and values of society - and thus
reinforcing their legitimacy on the normative and cognitive dimension.
Example: 'Mi Casa' initiative of Holcim Mexico
A best-practice case of economically viable rent-sharing is provided by Holcim's Mexican subsidiary
Apasco, which set out to sell responsibly to the poor. Before Apasco started its initiative in 1996, many
Mexicans could not afford to build their own house due to the distributional structure of the Mexican
building materials sector. As a result, the country faced an annually growing housing shortage.
Furthermore, owing to a lack of knowledge on building techniques, a quarter of the self-built homes
had no running water or drains. Consequently, Holcim Apasco decided to start an initiative, which it
called 'Mi Casa' resulting in the setting up of own distribution centres. The motivation for the
initiative sprung from Apasco's conviction to have a responsibility in initiating change, while equally
seeing it as a possibility for business development. In cooperation with tradespeople, local authorities,
housing law experts and credit institutions, it started to sell building materials to end-consumers at
+

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affordable prices, in combination with professional advice and total housing solutions. Today more
than 120 standardised 'Mi Casa' locations ensure distribution of building materials at affordable
prices, in addition to training of more than 10'000 self-builders in the necessary skills to build their
home, also in remote areas of the country.
While Holcim's products enable the building of private housing for the poor, the real requirement of
the market is not cement, but the knowledge and expertise to build safe and comfortable houses.
Holcim Apasco managed to establish itself in this niche by offering total housing solutions and
remodelling the local distribution structures. Thus, it is able to sell at lower prices and, at the same
time, to run a profitable line of business. In addition its initiative helped to reinforce its legitimacy,
with high brand recognition and public approval of these socially responsible activities. The resulting
reputational effects have helped Holcim Apasco with new market entries, facilitating trust-building
already in early phases of stakeholder relations.
Degree of rent-sharing. The degree, to which the firm needs to share its rent with local
stakeholders, can be assessed along the two postulated objectives of the model's action
parameter: (1) the avoidance of potential damage and risk through stakeholders' power
differentials and (2) the mobilisation of stakeholder support and safeguarding of future
development options. With regard to the first objective, we draw on notions from the
resource-based view, as well as the bargaining power perspective: Stakeholder
compensation is adequate when all stakeholders receive sufficient compensation to
hold them in place (i.e. pay ≥ stakeholder opportunity cost), whereas some
stakeholders receive more than would be required to do so, which results in rent
appropriation from the firm (Coff, 1999). Therefore, the identification of the relevant
stakeholders according to their threat potential, the determination of their expectations
and demands, and an evaluation of their alternatives for action allow the firm to
approximate the opportunity cost of its stakeholders and the firm's cost to avert
potential value destruction. Strategies to attain the second objective, the mobilisation
of stakeholder support, equally draw on concepts of influence and power: In its efforts
to safeguard future development options, the firm tries to appeal to its stakeholders'
(dormant) support potential. Thereby it hopes to build 'reputational stock' on which it
can draw when needed. Thus, the firm aims at the creation of real options (cf. Kogut &
Kulatilaka, 1994), which it 'acquires' through rent-affecting activities either directed at
a bigger crowd (e.g. the local community), or at specific stakeholders (e.g. the
regulator or the local administration). Examples include Corporate Social
Responsibility (CSR) initiatives and efforts to decrease or compensate for the firm's
externalities (e.g. through environmental programmes, CO2 compensating investments,
etc.), all carefully aligned with local stakeholders' priorities and expectations. Such
stocks of stakeholder loyalty may be invaluable to the UCF, particularly under
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consideration of its long planning horizon and the related uncertainties: in case of
unexpected crisis or emerging business development opportunities the firm thus is able
to draw on its local support potential, which helps it to master the impending
challenges.
Overlapping objectives of structural embedding. The two objectives of structural
embedding are not entirely distinct, but partially overlap and relate to each other: A
stakeholder with an inherent threat-potential may as well be - or become - a supporter,
as long as the firm satisfies his expectations. In other words, the firm may address a
stakeholder as a 'claimant', compensating him according to his opportunity costs, and
simultaneously activate his support potential. Such overlaps are seen, for instance,
with the local beneficiaries of airports' noise protection measures. The investment
clearly is a compensation for negative externalities. However, it simultaneously might
create goodwill, inducing the beneficiary to be less hostile to incremental traffic
growth and future airport development plans. Another example is provided by the
power industry, which frequently needs to incorporate costly requirements from
environmental groups, such as fishing associations in the case of hydropower. Such
measures, as for example the construction of fish ladders, compensate the associations
for their opportunity costs, i.e. the pre-emption of the project. However, in addition the
power provider's willingness to enter the dialogue and to invest in 'green' matters
might result in a continued constructive dialogue with a win-win-orientation.
Summary. In order to choose the right strategy towards structural embedding and to
successfully build goodwill stocks, firms require a far-sighted management. In the
short-term, the incurred cost of compensating stakeholder's opportunity cost might
outweigh the perceived benefits. This is partly due to the long time-span needed to
build such goodwill, and certainly due to the difficulties in quantifying the benefits,
which are often implicit and time-displaced. In the long-term, however, sharing part of
the firm’s rent with the various local stakeholders secures its legitimacy and support
for (or non-objection to) future development. Thus, ultimately the firm's investment to
satisfy such stakeholder claims might be a fraction of the value destroyed in case of
lengthy legal battles and publicly organised opposition to the firm's endeavours.
Example: 'Ortopolis' initiative of Holcim Brazil
In a participative planning approach, Holcim Brazil launched the Ortopolis programme in 2003, with
the objective of renewing the city of Barroso in a self-sustained way. After a thorough analysis of the
local community's most exigent problems, projects were devised to enable sustainable socio-economic
growth, and to transform the city's social, environmental, and economic sectors. In a dialogue

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between the community, the government, and Holcim, around 2'000 people or ten percent of the local
population received training to build management, leadership, and participative planning skills, as to
enable them to establish and carry through the envisioned social projects. One of the key success
factors for the initiative was the empowerment of the population, who consequently became an agent
of its own development. By enabling such self-sustained future development, Holcim reduced the local
population's dependence on it as the single biggest employer in the region. Simultaneously the firm
partly benefitted from the ensuing local wealth generation in the form of local support and loyalty, as
well as increased building activities.
Hostages and mutual lock-in. Apart from the firm's activities to attain legitimacy and
goodwill, in some instances more sturdy safeguards are necessary to reduce
institutional exposure and uncertainty. Although business managers often act on the
basis of trust, the difficulty in identifying trustworthy agents forces them to structure
themselves with contracts 52 and controls, serving as substitutes for trust (OE
Williamson, 1975). Such governance structures form the framework within which
firms negotiate, execute, and monitor exchange agreements (OE Williamson, 1985b).
Particularly the existence of asset specificity influences governance structures between
transaction parties, making safeguards necessary which protect against appropriation
of the associated rents. Furthermore, uncertain transaction environments create greater
potential for opportunistic renegotiation of the terms of a contract.
Importance of mutual lock-in for UCFs. With our research object's dilemma of upfront
sunk investments in specific assets, contractual safeguards become essential for the
protection of its interests. Furthermore, UCFs employ alternative modes of governance
with their key stakeholders with whom they have commercial and legal links. As
exchange hazards rise (i.e. exposure through dependence, measurement problems,
changing conditions over time, ill-defined property rights, and weaknesses in the
institutional environment), so must the UCF's contractual safeguards, whose neglect
may otherwise lead to a lock-in situation after the firm has incurred its sunk costs. If a
party becomes 'locked-in' in a bilateral exchange, the nature of the interaction
transforms from voluntary exchange to a command structure, “within which one party
lacks the ability to retaliate” (Wathne & Heide, 2000: 39). The locked-in player
thereby is forced to tolerate opportunistic behaviour because he cannot terminate the
relationship without incurring economic losses. Underpinned by Buchanan's claim that
“mutuality of advantage from voluntary exchange is ... the most fundamental of all
understandings in economics” (Buchanan, 2001: 29), it must therefore be the firm's
52 Contracts, in this context, are understood in their more restrictive form, defined as "legally binding
promises" (McNeil, 1974: 693).
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objective to pre-empt a unilateral lock-in. By creating a (more or less balanced) mutual
dependence or lock-in situation, the UCF may have a means to promote the other
party's commitment and mediate the effects of specific investments on relationship
outcomes (D. Davis & Mentzer, 2008).
Relations with public stakeholders. In its long-term relations with third parties which
are critical to its functioning, the firm relies on protective mechanisms that shield it
from the incompleteness of contracts and any resulting exposure. With reference to the
nature of UCF, such protective mechanisms are particularly crucial in the firm's
relations with its public stakeholders, due to the inherent power differential between
the parties. Contractual firm - government relationships may be compared to private
economy relationships, insofar as both parties assume contractual obligations.
However, as has been outlined before (cf. section 'Public shareholder', pp. 107), when
the government itself is party to the contract (e.g. as a giver of concession or orderer of
a 'service public'), its monopoly over the enforcement of property rights might come
into conflict with its contractual commitments, thus tempting it to renege ex post.
Relations with public stakeholders that extend over long periods therefore are rife with
uncertainty, since - depending on the degree of political stability - the firm cannot be
sure on the direction and content of government policies in the future. There might be
changes in the political agenda, regulatory developments, or - in institutional
environments with low legal certainty - incentives for predatory government behaviour
and conflicting public agents' private agendas 53 .
Governance mechanisms in firm-government relationships. Therefore, in conjunction
with irreversible, specialised investments the firm needs to consider a number of
protective mechanisms, based on trust, coercion, and incentives as relevant dimensions
of governance. To protect itself, the firm might rely on (1) third party enforcement,
whereby the firm may draw on the support of an additional party with the ability and
the incentive to punish the government, if the firm's contractually guaranteed interests
are at stake. Furthermore, the firm may aim at (2) interest alignment through formal
safeguards, thus diminishing the incentives for defection and breach of contract.
Ultimately it may make use of (3) relational contracts and goal convergence through
informal safeguards, thus deliberately employing socialisation tactics in order to
mitigate the risks of incomplete contracts and ex-post opportunism. The second and
53 Ramamurti (2003) subsumes three explanations for ex-post government reneging: (1) economic
uncertainty, making a renegotiation necessary, (2) the logic of obsolescing bargain, which makes deals
appear less attractive ex-post and (3) political change.

Theory Building
third mechanisms are self-enforcing, referred to as private ordering. Both intend “to
realign incentives and embed transactions in more protective governance structures [to
mitigate] the contractual problems that would otherwise arise” (OE Williamson, 2002:
438). Figure 4-13 illustrates the three principal forms of governance on the basis of
Dyer and Singh (1998).
third party
enforcement
governance
mechanisms
Figure 4-13: Principal forms of governance
private ordering
(self-enforcement)
formal safeguards [informal safeguards*]
* cf. section 4.8.5 on relational
(social) embedding capabilities
All three strategies serve as a means to mitigate the risk of the other party's defection.
While the first two build on rather coercive means and economic reasoning to ensure
protection, the third strategy relates to a more socialised view of economic
transactions, taking into consideration the actor's relational embeddedness in order to
mitigate the risks of opportunism. The effective combination of strategies, however,
depends on the institutional environment, to which the governance structure 54 has to be
aligned.
(1) Third party enforcement. In finding a third party whose interests and rents are
linked with the firm's interests, and who has the capacity to monitor and punish the
government in case of contract breach, the government's ability and incentive to
renege may be diminished. In order to be effective, the third party ideally is
institutionalised, in the sense that it is more than a group of individuals and will exist
beyond the lifespan of its individual members. Furthermore, it should be directly
linked to the decision makers of the government which is contractual party to the firm.
Such third parties, for instance, may be foreign states or domestic groups, which have
the capacity to threaten the government (Haber, Maurer, & Razo, 2003). Third party
nations may become involved through ownership or investment interests that citizens
54 A governance structure is understood as "a shorthand expression for the institutional framework in
which contracts are initiated, negotiated, monitored, adapted, enforced, and terminated" (Palay, 1984
cited in: Ménard, 2004: 368).
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or businesses of their nationality have in the firm, and which it needs to protect. Such
third party enforcement may be illustrated by the case of Bangalore International
Airport (BIAL), of which the German multinational Siemens is the biggest
shareholder. When the rent streams of BIAL were significantly impacted by the Indian
government's delay in approval of a regulated fee 55 to which BIAL had a right, the
issue was taken up to a political level, in order to speed up the process. The
government of Germany temporarily took over the role of a third party enforcer and
successfully sped up the approval process. The second type of third party enforcers
refers to groups, such as NGOs and multilateral agencies - e.g. the International
Finance Corporation as a member of the World Bank Group - which are able to
credibly threaten the government, and whose rents are directly related to the asset
holder's economic activities. Such enforcement is illustrated by the airport industry,
which may rely on a number of domestic stakeholders, on whom its activities has a
direct or indirect economic impact. If a government therefore intends to limit an
airport's activities (e.g. due to higher prioritisation of other public policy objectives),
consequently reducing the location's international connectivity, the regional tourism
and trade associations would effectively protest against such intentions. While the
trade associations would stress the threat of migrating international businesses, the
tourism industry would exert pressure by pointing to an expected decline in tourism
demand and knock-on effects on the national economy.
(2) Interest alignment through formal safeguards. As another means to protect itself
against institutional exposure, the firm may create self-enforcing agreements which
entail “an incentive structure that makes the long-term gains from cooperative
behaviour exceed the short-term payoff from opportunism” (Wathne & Heide, 2000:
44). Usually self-enforcing agreements remain in force as long as each party considers
itself to be better off by continuing rather than by ending the agreement. They may be
of formal or informal nature, the latter of which will be discussed in the subsequent
paragraph. Formal safeguards relate to financial and investment hostages (Dyer, 1996)
in the form of investments in specific assets. With the aim to control opportunism, they
align incentives (Benjamin Klein, 1980) and ensure credible commitments, with which
55 When India privatised its first airports in 2008, there was a political controversy on the financing of
these airports and their future investment needs. The State had previously granted to the private
investors a User Development Fee (UDF), whose amount would be determined by a body of the
Ministry of Civil Aviation on the basis of the airports' audited cost. The public discussion on the
introduction of such fees in combination with the economic slowdown, however, led the government
to delay its introduction. Today, the UDF is an accepted means to ensure the refinancing of airports.

Theory Building
the parties strengthen their relationship and promote exchange through reciprocal
exposure (OE Williamson, 1983).
In view of the government's monopoly of power, the firm may choose between two
strategies of formal safeguards. On one hand, it may demand ex-ante credible
commitments by devising a relationship of mutual reliance with the government. Such
mutuality may result, for instance, from making the government a partial shareholder,
from securing upfront financial support (e.g. through cash grants or loans or in-kind
contributions) and guarantees, or by clearly defining the contractual conditions, when
the firm is allowed to terminate the contract, exit the venture, and to claim
compensation from the state 56 . Alternatively, the firm may choose to pay a price
premium in order to increase the attractiveness of contract adherence. For instance, the
UCF could pay a recurrent concession fee above the economically justified level, in
order to secure a sustained buy-in from the government. Importantly, the following
conditions increase the effectiveness of self-enforcing agreements:
- open-ended business relations: formal self-enforcement mechanisms require
inter-party relations without a termination date, since in transaction sequences
with a definite known last element the parties will most probably behave
opportunistically (Telser, 1980);
- long-term business relations: the gains of adhering to a self-enforcing
agreement are higher, the longer the relation holds; and
- stable business environment: the probability for adherence is higher in an
environment with low uncertainty, since the latter increases the chances that
one party behaves opportunistically.
Compared to third-party enforcement of agreements, the self-regulated governance
results in lower monitoring and transaction costs, since self-enforcement also requires
self-monitoring, and contracting costs can be avoided (Dyer & Singh, 1998).
(3) Relational contracts - goal convergence through informal safeguards. The
discussed inter-organisational, respectively firm - government exchanges typically
involve long-term relationships, which are embedded in their local environment and
characterised by repeated interactions. In the absence of trust such interactions are
regulated by rules and compliance, which involve the costly specification, negotiation,
56 Most governments, however, while wanting the UCF to realise the costly infrastructure project, will
wish to distance themselves from the related financial burden and risks. Indeed, a major reason for a
government to issue concessions for such long-term ventures is to pass on the cost and burden of
project development.
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management and monitoring of contracts. In contrast, relationally-governed exchanges
enforce obligations, promises, and expectations “through social processes that promote
norms of flexibility, solidarity and information exchange” (Poppo & Zenger, 2002:
710). Such relationally-governed interaction involves informal self-enforcing
agreements, based on the existence of trust between the parties, and their reputation.
Thereby, a joint understanding of informal norms evolves into relational governance,
which mitigates precisely those risks that formal contracts try to control. Since the
involved parties mutually understand their relations to be long-term, there are
considerable incentives to invest in specific assets, protected by mutually-imposed
costs of termination. From an economic point of view, the behaviour can be compared
to infinite repeated interactions in game-theory, emphasising the calculative element of
the interactions. Arguing from an opposite angle, economic sociology stresses the
element of trust and the relational advantages emerging from the interactions, e.g. in
the form of ties which commit the parties to the contract. Ultimately, however, both
perspectives agree that trustworthy behaviour and good reputations are rewarded. On
the other hand, breach of trust negatively affects reputation, which consequently is
punished by potential transaction partners (see also the discussion of trust and
reputation, section 4.8.5).
In their analysis of the substitutability of formal contracts and informal relational
governance, Poppo and Zenger (2002) conclude, that firms should aim at
complementarily combining both approaches to optimally safeguard their interests. To
this effect, the formal contract should contain disincentives for cheating by defining
explicit penalties. Thus, the parties may overcome the limits of relational governance,
while reinforcing their incentives to invest in their relationship. In a combined
approach, therefore, high asset specificity of the firm's assets tends to increase the
complexity of formal contracts, while high uncertainty leads to the development of
greater levels of relational norms and governance (Crocker & Masten, 1991), which
compensate for the adaptive limits of formal contracts. Pertaining to firm-government
relations, it is evident, that both elements are crucial for the protection of the firm's
interests: Whereas the formal contractual arrangement offers some enforceability in
the longer term, the relational dimension (depending on the institutional and cultural
setting of the host country) protects the firm in the short-term from opportunistic
behaviour throughout election cycles.
Summary. Overall, in order to reduce its institutional exposure and the incentives for
opportunism and reneging, the firm needs credible commitments from its key
stakeholders. Such commitments are particularly valuable with regard to those

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stakeholders, whose relation with the firm is characterised by asset specificity.
Pertaining to the UCF this applies foremost to its public stakeholders, such as
governments, the local administration and the regulator. The ideal mix between formal
credible commitments (contracts) and informal ones (relational governance) depends
on the firm's local institutional and cultural context.
Effectiveness of self-monitoring and governance. In their efforts to advance
structural embedding, firms have an additional opportunity for the creation of goodwill
and legitimacy: social and environmental accounting. By voluntarily engaging in selfmonitoring,
such as the tracking of one's negative externalities, and the subsequent
publication of results to stakeholders with a perceived right-to-information (Donaldson
& Preston, 1995), a genuine commitment to sustainability and transparency is
signalled to the local environment. The motivations of management, to proactively go
to such lengths, may stem from a perceived aggregate benefit of such activities
(instrumental motivation), or from a belief that they have an accountability or
responsibility to do so (normative obligation). Equally, firm's activities to this effect
may be reactive, for example as a response to external pressure, peer pressure through
emerging industry standards, or to negative media coverage - in short, to avert
negative consequences and loss of legitimacy. Mostly, various interdependent reasons
affect the firm's approach to self-governance, combining normative ethical and
instrumental strategic considerations. Thus, it is able to reinforce its social contract
with its stakeholders, which is based on the foundation of delivering some socially
desirable ends to society in general, and the distribution of economic, social, or
political benefits to those stakeholders, from whom the firm derives its power
(Shocker & Sethi, 1973, as cited in Deegan, 2002: 296). Being fully aware of the
normative obligations and the related economic advantages of such voluntary reporting
activities, as well as its inward effects on the organisation, Holcim for example states:
The value of sustainability reporting to an organisation lies not in the outward
facing aspects – the report itself - but rather in the inward facing processes that
robust reporting requires. The discipline of setting and monitoring targets focuses
the organisation to allocate resources in meaningful areas and ensures that
effective structures are in place to drive the triple bottom line 57 agenda. (HGRS -
CSR/SD Coordination, 2008: 14)
57 I.e. the balancing of social, environmental and economic performance.
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Through its focus on the triple bottom line, the company strategically anchors the
obligation to balance social, environmental and economic performance, which
reinforces the efforts towards its local embedding and legitimisation.
Example: Self-monitoring and information disclosure at Holcim's Albox Plant, Spain
In 2003, Holcim Spain opened a waste pre-treatment platform in the town of Albox. The project was
met by the local population with distrust and opposition, due to uncertainties related to waste co-
processing. In its efforts to win the critical stakeholders for the project, Holcim commissioned the
German 'Gesellschaft für Technische Zusammenarbeit GmbH' (GTZ) as an independent third party, to
assure the innocuousness and safety of the plant operation. Furthermore, KPMG provided
independent assurance on CO2 emissions in 2004 and 2005. On the basis of recommendations from
the Community Advisory Panel CAP, which it established early on (cf. example p.175), Holcim
decided to allow public access to all safety- and environment-related company documents. These
documents included impact assessments, emissions data, safety reports and hazardous waste
declarations. The length to which Holcim went, in order to ensure transparency finally won it the
approval of the local stakeholders and allowed it to continue its operation in a constructive way.
Do good and let the world know about it. If, and to which extent a firm's operation is
in accordance with the social contract, is subject to individual and subjective
assessment, since the firm's legitimacy derives from individual stakeholders'
perceptions. However, as social disclosure forms part of the dialogue between the
company and its stakeholders, firms may engage in corporate social reporting as a
means to positively affect those public perceptions and to negotiate firm-stakeholder
relationships. If the firm is sincere in its embedding and legitimisation efforts, such
reporting activities are valuable all the more, because the firm's efforts influence
stakeholder perceptions solely, if they are effectively communicated. Importantly
therefore, neither communication without sincerity in efforts, nor endeavours towards
sustainability and continuous improvement without telling the public, will improve
perceived legitimacy of the firm in the long term.
Effects of self-governance efforts for UCF. If the firm decides to monitor its key
indicators for a socially responsible demeanour and to make (part of) those data
transparent to the public, it may expect a number of positive effects. As Holcim
continues in its statement on the value of sustainability reporting:
Sustainability reporting has the capacity to add value to an organisation for a
variety of stakeholders. Investors prefer to invest in companies that demonstrate
through effective reporting that they operate responsibly, employees prefer to work
for such companies and civil society and governments tend to trust those
organisations more. (HGRS - CSR/SD Coordination, 2008: 14)

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Thus, self-governance efforts may facilitate the firm's access to capital markets,
preclude restrictive government action, positively affect public opinion, and - as a
result - increase the firm's competitive position compared to its industry rivals. For the
highly regulated UCF, such signalling of 'good corporate citizenship' might also
alleviate the firm from significant administrative burdens. Under assumption of
behavioural reciprocity, the firm's commendable comportment with regard to
transparency and pro-active information helps the various regulatory bodies to be
reassured on its good intentions. Consequently, the latter are able to take a constructive
regulatory approach, for instance by engaging in a forward-looking dialogue with the
firm instead of using sovereign coercion, or by focusing their resources on less
exemplary firms. In such a trust-based environment, the firm may also take some
influence on future regulatory agendas by proactively setting best practice standards,
beyond the regulatory minimum, thus helping the regulator to find a balanced
approach to emerging issues. By means of such self-governing engagements, the firm
therefore exploits a money-saving potential in the form of lesser administrative and
legal procedures, avoidance of costly law-suits or ad-hoc regulatory interference. In
addition, the freed up managerial capacity usually bound by regulatory issues allow
the firm to re-focus on its strategic objectives and to engage in further legitimacybuilding
activities.
Influence of local institutional set-up. In addition to the firm's incentives from these
benefits, a country's legal set-up with regard to citizens' rights to information may
further increase the motivation towards enhanced self-governance activities. Some
empirical evidence suggests that “government statutes are most effective in facilitating
socially responsible corporate environmental behaviour if they afford citizens access to
information about toxic emissions, legal standing in court to sue suspected polluters,
and sufficient resources to support both of these activities” (J. Campbell, 2007: 955).
Thus, the state plays an important role in the self-regulation incentives of firms
(Karkkainen, Fung, & Sabel, 2000; Mitchell et al., 1997), since it affects their
institutional exposure in the form of (theoretical) power of stakeholders to follow
through with the monitoring of corporate performance. As a consequence far-sighted
firms recognise their chance to pre-empt regulatory interference by proactively
engaging in self-governance, rather than leaving it to state regulation to set further
standards over which they would have little control.
Firm credibility and corporate governance. Although firms' voluntary self-monitoring
and reporting have gained in popularity, they do not always result in noticeable
impacts on public trust. One possible explanation is that voluntary firm disclosures are
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received with hesitance due to a lack of confidence in the reported data and the
reporting firm's sincerity (Dando & Swift, 2003). In order to overcome this credibility
gap and to prove the honesty behind their efforts, firms therefore need to demonstrate
overall good corporate governance, understood as the system by which companies are
directed and controlled (Cadbury, 1992). Corporate governance is based on two key
elements, power (particularly on the allocation of corporate funds) and responsibility
(for corporate performance, proper corporate conduct, etc.). It therefore has significant
impact on firms' value creation and rent distribution, but also on its culture, as well as
its attitude and sense of responsibility towards its stakeholders. To instil public trust in
its corporate governance system (and consequently in its voluntarily disclosed
information) the firm may take a number of measures: (1) Instalment of a CSR
Steering Committee: as part of the firm's internal governance mechanisms CSR
Steering Committees have become popular over the past decade, composed of senior
executives and reporting to the board of directors (Cooper & Owen, 2007). Social and
environmental issues are thus brought up to the board's attention by top-class
managers, who lend the issues more weight and keep vigil on the firm's handling
thereof. (2) Third party assurance: another expedient is the commissioning of
independent third party assurance, as a guarantor to the public that monitoring-data or
the information in a report is true and fair on the basis of the third party's impartiality.
To improve the firm's credibility the independent auditor proceeds in accordance with
accepted standards, such as the Stakeholder Engagement Standard (AA1000SES) 58 or
the International Standard on Assurance Engagements (ISAE 3000) 59 . Most
importantly, the third party's favourable assessment of follow-up actions to prior
recommendations generally strengthens a firm's public standing. (3) External board
members: the appointment of external board members, i.e. the co-optation of political
leaders or other persons of legitimate status, can increase the firm's credibility
(Dowling & Pfeffer, 1975). (4) Good corporate citizenship: finally, the fourth
58
The AAI1000 standard has been developed by AccountAbility in 1999, as principles for sustainable
development with the objective to develop a widely accepted standard for CSR reporting. In its core, it
calls on the firms' inclusivity, i.e. integrating stakeholders in the handling of sustainability issues;
materiality; completeness; and responsiveness in CSR reporting.
59
The ISAE's objective is to provide a basic framework for large scale audits concerned with nonfinancial
data process monitoring. These types of audits include environmental, social and
sustainability reports; auditing of information systems, internal control, and corporate governance
processes; and compliance audits for grant conditions, contracts and regulations. In 2003, the standard
was upgraded to ISAE 3000 in order to further address ethical requirements; quality control;
engagement acceptance; planning; expert materials; obtaining evidence; documentation; and preparing
assurance reports.

Theory Building
credibility-gauging factor is not part of the firm's governance system, but rather the
result of good corporate citizenship. The attestation of a firm's sincerity by public
awards and labels, as for example the Dow Jones Sustainability Index 60 or the ACCA
Environmental Reporting Awards 61 , possess a significant signalling function. Such
commendation from an independent third party lend the firm high credibility, because
they are the result of the firm's self-governance efforts, and the evaluation process can
hardly be directly influenced by the firm. Research has brought forward abundant
literature on corporate governance and corporate social responsibility, whose review
and assessment would exceed the scope of the present research. Instead, we would like
to refer to two excellent reviews by Becht, Bolton, and Röell (2007) on corporate
governance literature and by Garriga and Melé (2004) on CSR.
Example: Credible sustainability - Holcim's commitment to CSR
One of Holcim's earliest efforts to embed CSR in its firm philosophy was the initiation of the Cement
Sustainability Initiative (CSI) 62 in 1999, together with two industry peers. Since then Holcim adopts
the priorities set by the CSI through its group-wide sustainable development (SD) initiative. In this
initiative the firm sets standards and guidelines, and advances the implementation of best practices in
order to reduce its ecological footprint. As a part of its commitment, Holcim publishes sustainability
reports, statistics on its CO2 emissions, and a range of other reports on its activities - on a global and
a local level. The credibility of these publications is strengthened by their accreditation through
reputable auditing firms.
Summary. If the firm manages to convey to its stakeholders credibility and corrective
actions in its self-regulation efforts, it will be able to build trust and increase its public
approval. As a result, the firm may benefit from the formation of relational rents and
isolating mechanisms against competition, ultimately leading to sustainable value
creation. Therefore, by engaging in self-monitoring and a pro-active information
60 Launched in 1999, the Dow Jones Sustainability Index (DJSI) series provided the first global
sustainability benchmarks worldwide. The DJSI indices include leading companies worldwide and
across all industries with regard to long-term economic, environmental and social criteria.
Components are selected according to a systematic corporate sustainability assessment that identifies
the sustainability leaders in each of 57 industry groups.
61
The ACCA awards scheme has been launched in 1991, with the objective to publicise the issue of
corporate environmental, social and sustainability reporting, and holding up pressure for reporting
reform by publishing annual reports of the panel of judges.
62
CSI was set up as a member-sponsored program of the World Business Council for Sustainable
Development (WBCSD), a coalition of 175 international companies united by a shared commitment to
sustainable development via the three pillars of economic growth, ecological balance and social
progress.
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policy, what looks like a cost factor at first sight, might turn into a net-economising
activity portfolio from an overall firm-perspective.
4.8.5 Relational (social) embedding capabilities
While the structural (economic) and the relational (social) dimensions of embedding
are distinct, they are not completely exclusive. In the conceptualisation of the firm's
structural embedding capabilities, it has become evident that the boundaries between
the two remain vague, mainly because all elements of economic embeddedness also
have an inherent social component. Through a combination of the firm's structural and
relational embedding capabilities, it is able to create safety nets to limit the downside
risks of its institutional exposure, as well as opportunity platforms creating options for
future courses of action (Fombrun, Gardberg, & Barnett, 2000). Thus, it increases its
organisational legitimacy, whose effects are summarised by Boddewyn & Brewer
(1994: 134):
[Legitimacy] is a political resource that firms want to secure because it facilitates
the acquisition of economic resources in their value- added chains as well as access
to policy makers, influence in public policy making, and reduction in opposition
from other stakeholders.
The following sub-chapter will shift focus towards assessing the characteristics of
legitimacy-endowing capabilities from a relational perspective. These capabilities
essentially are composed of three elements:
(1) Building local stakeholder relations: Through cultivation of local
stakeholder relations the firm is able to establish trust (see also subsequent
point) and strong relational ties. Constructive relationships with the firm's
local stakeholders activate their reciprocal behaviour, whereby the
accumulated relational capital may be used to enhance the firm's options,
reduce its risks and consequently to create value.
(2) Reputation- and trust-building: By being responsive to stakeholders'
expectations, the firm may influence the external perception of itself, i.e. the
“cognitive representation of [its] actions and results that crystallizes the
firm's ability to deliver valued outcomes to its stakeholders” (Fombrun et al.,
2000: 87). By signalling thus to its stakeholders, what behaviour they may
expect from the firm in the future, it builds reputational capital and generates
“reputational gains that improve a company's ability to attract resources,
enhance its performance, and build competitive advantage” (ibid.2000: 85).

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Desirable reputational characteristics include, among others, being perceived
as trustworthy, reliable, transparent, and honest.
Similarly, through repeated interaction the firm establishes trust with its
stakeholders, which facilitates their exchange of resources and information.
A trusting relationship thus acts as a unique governance mechanism: Mutual
trust with regard to capabilities and competencies, as well as behaviour,
reduces uncertainty and consequently transaction costs in the parties'
exchanges, thereby creating value for the firm.
Figure 4-14 illustrates the links between the first two relational embedding capabilities
and how they relate to value creation.
(1) Relationship
Management
(2) Trust
[relation-specific]
Types of trust:
- goodwill trust (integrity,
consistency, loyalty, openness)
- competency trust
Cooperation on the basis of reciprocation
(2) Reputation
[perception-based]
Desirable reputational traits:
- reliable
-trustworthy
- transparent
- honest
Value Creation
Figure 4-14: Links between relational embedding capabilities and value creation
Rents through:
- supportive stakeholders
- lower transaction / governance cost
- real options
- access to capital market
(3) Cultural & institutional adaptation: By means of cultural and institutional
adaptation to match the implicit and explicit expectations of local
stakeholders the firm may better reduce its liabilities of foreignness, thus
overcoming related competitive disadvantage compared to firms of local
origin. Adaptation of the firm's organisation, structures, and activities to the
local environment positively affects its organisational legitimacy and the
possibility to influence its environment in turn.
Building local stakeholder relations. As postulated by stakeholder theory (see also
section 4.6.1), effective stakeholder management is a critical requirement for corporate
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success. It includes the firm's processes of consultation, communication, dialogue and
exchange “to involve stakeholders in a positive manner in organisational activities”
(Greenwood, 2007: 318). Different from the unidirectional stakeholder information,
the building of stakeholder relations involves interaction and dialogue and sincere
efforts to involve stakeholders in the firm's decision making (Röglin, 1994).
Number of People Engaged
Communication
Strategies
Information
Disclosure
Figure 4-15: Spectrum of stakeholder engagement 63
Intensity of Engagement
Consultation Participation
Negotiation &
Partnerships
Whereas voluntary stakeholder information, discussed in the section on structural
embedding capabilities, locates left in Figure 4-15, building relational ties involves
more intensive stakeholder engagement. Thereby firms are able to build social capital,
i.e. the set of resources inherent in an actor's relationships (Coleman, 1988). Such relational
resources develop through changes in the relations among persons that facilitate
action. Consequently, these intangible, socially complex resources “may enhance
firms' ability to outperform competitors in terms of long-term value creation” (Hillman
& Keim, 2001:127; see also D. Davis & Mentzer, 2008; Hunt & Morgan, 1995).
Example: Stakeholder relationship management at Holcim
Holcim's engagement with stakeholders forms an integral part of its commitment to sustainable
development (SD), which is embedded in its corporate strategy. Having recognised the relevance of
lasting stakeholder ties for its immediate and long-term performance, Holcim states in its 2007 SD
report (2008: 23):
At Holcim, developing and maintaining strong relationships with our stakeholders is vital to the
success of our business. We are committed to a continuous process of listening to, and learning
from, people and organisations engaged with our operations around the world. … Working in
cooperation with organisations at global and local level is integral to maintaining our license to
operate and helping to achieve a more sustainable future.
Through these carefully built and maintained relations Holcim is able to increase the credibility of its
social and environmental engagement, reinforced by cooperations and strategic corporate
partnerships with organisations such as the German Agency for Technical Cooperation (GTZ) and the
International Union for Conservation of Nature (IUCN). Both strengthen the firm's legitimacy by
supporting it to find pragmatic solutions to Holcim's externalities and the thereto related challenges.
63 International Finance Corporation, 2007.

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Means of relationship-building. To establish relational ties with their stakeholders,
firms' engagement practices pertain to many areas of organisational activity including
public affairs, regulatory affairs, customer service, supplier relations, etc. They may
include activities such as community involvement through stakeholder panels,
strategic partnerships with non-governmental organisations (NGO), and dialogues with
authorities and related bodies. Most of these engagements involve a kind of dialogue,
which Niedergesäß and Rettberg (1998) categorise in three principal types based on
distinct motives: (1) sensitisation dialogues for early identification and reflection of
developments and issues in the firm's environment; (2) risk dialogues, which focus on
firm-related social and ecological risks and aim at increasing stakeholder acceptance
of these risks and the firm's measures to contain them; and (3) regulation dialogues,
initiated upon a prevailing issue in order to exchange with affected stakeholders and to
resolve related conflicts (see also Zöller, 2004). By carefully fostering such
stakeholder engagement, firms are able to receive information, which enables them to
sense emerging stakeholder issues in time, to take early actions, and thus to continue to
satisfy stakeholder expectations. The ensuing example on Holcim provides an
overview on their means to engage with stakeholders.
Example: Types of stakeholder engagement at Holcim
Holcim is committed to sustained engagement with a broad range of stakeholders. In 2009, 38% of its
group companies had an established community advisory panel (CAP) and 83% conducted a
stakeholder dialogue (Holcim, 2008) to give its stakeholders a platform. These activities are
complemented by a rich network of external partners, spanning the fields of community development,
economic development, education, environment, health, and affordable housing and construction.
Most noteworthy among those cooperations are Holcim's strategic corporate partnerships with GTZ
and the International Union for Conservation of Nature IUCN. Table 4-7 illustrates how Holcim is
committed to continuously improving its stakeholder dialogue and to increasing the use of CAP's.
Type of engagement ▼ / % of group companies ► 2006 * 2007 * 2008 * 2009*
Needs assessment 61% 65% 65% 46%
Stakeholder involvement in CSR planning 80% 85% 83% 83%
CSR/SD memberships 49% 70% 77% 79%
Stakeholder dialogues 90% 89% 88% 83%
Community advisory panels 39% 50% 54% 38%
Cooperations 73% 76% 65% 67%
* group companies covered in the years 2006: 49, 2007: 46, 2008: 48, and 2009: 48
Table 4-7 Holcim's types of stakeholder engagement at the local level 64
64
Stakeholder engagement on a local level. Retrieved November 03, 2010, from Holcim corporate
website: www.holcim.com/index.php?id=4356&L=1.
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In its 2009 SD Report (2010: 25), Holcim states: “Community engagement that results in mutual trust
and social acceptance remains a priority for Holcim in all countries of operation. … Community
advisory panels and other community engagement activities have proven to be an excellent way to
collaborate with community stakeholders, share responsibilities and ensure project ownership”.
Holcim aims at ultimately having a community engagement plan in place at all operational sites, an
objective which it approaches stepwise through bi-annually increased targets.
Effect on value creation. Within the scope of our research, we particularly focus on the
moderating effects of such relationship management regarding the firm's institutional
exposure and the impact on the latter's value creation. Being idiosyncratic to the firm,
the value of relational resources lies in their use, brought to fruition when they are
leveraged towards increasing the productiveness of other resources. Thus, they create
value for the firm in two ways: on one hand, they have an enabling impact by opening
up options for the firm in the future, which would not be in reach without its relational
ties. On the other hand they have a risk-decreasing effect which lowers the firm's
institutional exposure towards its stakeholders (Fombrun et al., 2000) and thus lowers
overall transaction costs and the likelihood of opportunistic behaviour. Both effects
will be described in more detail in our later discussion on value creation (cf. subchapters
4.9.2 and 4.9.3).
Summary. Firm's structured efforts to build and up-keep a dialogue with its relevant
stakeholders lowers its institutional exposure, builds social capital and increases its
overall legitimacy. Its resulting relational ties thereby are not only risk-decreasing, but
also open up options for its future development.
Reputation- and trust-building. Reputation and trust are idiosyncratic resources to
the firm. They both take time to be established, cannot be purchased and are easily
damaged. Equally, both have multi-faceted characteristics and effects that made them
objects of study in a number of disciplines, including economic sociology,
organisation theory, strategic management, and economics. Within our research
framework, we look at both constructs mainly through the lenses of economic
sociology and strategic management.
Reputation. Within economic sociology, reputation is considered as socially
constructed and defined as “a global perception of the extent to which an organisation
is held in high esteem or regard by the organisation's multiple stakeholders” (A. Weiss,
Anderson, & MacInnis, 1999). Reputation therefore is subject to causal ambiguity and
social complexity, constituting “subjective collective assessments of the
trustworthiness and reliability of firms” (Fombrun & Van Riel, 1997: 10). It represents
an external reflection of internal sense making activities within the firm.

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Complementarily, from a strategic management perspective reputation is viewed as a
strategic resource and a mobility barrier which “produce[s] tangible benefits: premium
prices for products, lower costs for capital and labour, improved loyalty from
employees, greater latitude in decision making, and a cushion of goodwill when crises
hit” (Fombrun, 1996: 57). Under this view the firm's main motivation for activities
towards building a reputation pertains to the strengthening of its competitive
advantage. The subsequent two examples illustrate a highly effective approach to
reputation-management: Holcim combines conscious internal sense-making with an
active communication strategy and thus successfully builds its reputation as a good
corporate citizen.
Example: Holcim's conscious reputation-building
Under the credo 'we want to be the world's most respected company in our industry' Holcim
consciously builds its reputation as a global socially responsible industry leader. In a presentation on
the management of reputation 65 , it identifies the following preconditions towards achieving this goal:
- reliability of its management
- adherence to Holcim's own code of conduct and the reliance on its own integrity
- being a fair competitor (see also Holcim’s Corporate Code of Conduct)
- focus on operational safety and health by means of Holcim's 'passion for safety' initiative and
maintaining of a record of excellence
- true commitment to sustainable development and external recognition for its efforts
Holcim passed a number of milestones to build the reputation it aims for:
1999 creation of an environmental management committee
1999 start of the WBCSD cement sustainability initiative, of with Holcim is one of the initiators
2001 introduction of a corporate environmental policy
2002 publication of the first corporate sustainability report
2002 introduction of the corporate policy on the use of alternative fuel and raw materials
2003 strategic partnership with GTZ
2003 signing of the UN Global Compact
2003 policy on corporate social responsibility
2003 introduction of the corporate policy on fair competition
2003 creation of a Sustainable Development steering committee
2004 introduction of a corporate code of conduct
2004 second corporate sustainable development (CSD) report
Holcim continuously reinforces the direction of impact these milestones had on the company and the
industry, e.g. by committing itself to stepwise CO2 reduction targets.
65 Dubach, B. (Holcim Ltd) (2005). Is reputation manageable - a benchmarking exercise. Workshop at
the Sustainability Forum, held in Zurich, September 13, 2005. Retrieved August 11, 2010, from:
www.sustainability-zurich.org/cm_data/TSF_2005_32_Dubach_Workshop2.pdf.
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Example: Transparency and good governance - Holcim and the media
Theory Building
Holcim imparts the media an important role in strengthening its reputation and in informing the
public on its qualities as a good corporate citizen. Careful to invigorate its “license to operate”,
Holcim's information policy is governed by the principles of openness and transparency, impartiality
and promptness, as well as accessibility and regional policy. On its homepage, the firm states “we are
committed to creating effective communications that enable our stakeholders to make informed
decisions about our goals and performance” 66 . In an effort to intensify its relationships with
journalists, Holcim's country organisations regularly invite media representatives to its production
units and its social and environmental projects 67 . Holcim has chosen a pro-active approach in
involving and using the media for legitimacy-reinforcing reputation-building.
Effects of reputation loss. On the other hand, relative to the firm's institutional
exposure to its environment, damage to reputation may become an issue to corporate
survival. Often cited for such major loss of reputation are two cases involving Shell,
see next example.
Example: Shell's 1996 loss of reputation and ensuing crisis
In 1996 Shell went through a major crisis, caused by public outrage concerning its planned
dismantling of the Brent-Spar oil platform and its social and environmental practices in Nigeria and
an ensuing consumer boycott. After this loss of legitimacy it took the company years to change its
culture and to rebuild its reputation, before emerging as a pioneer in CSR and triple bottom line
reporting. Shell learnt that short-term oriented opportunistic (and non-ethical) behaviour involves
major reputational risks which might cause costs and inhibit future contracting opportunities (cf. B.
Taylor, 2006).
Evidenly, Shell's crisis was on a global scale, beyond the scope of our dissertation.
Nevertheless, the example illustrates impressively, how the loss of legitimacy on a
local level may become an issue of a much wider dimension. If the firm lacks - local
and overall - goodwill stocks, that need to be built over longer time through reputation
and stakeholder trust, it is not able to draw on them in case of unexpected events. As
the more recent example of BP's oil catastrophe in the Gulf of Mexico in 2010 shows,
such reputational goodwill stocks can be destroyed within a short time, if the firm does
not adequately respond through transparent information, responsible actions, and
sufficient commitment to rectify its failings.
66
Press and Media. Retrieved June 12,2010 from Holcim corporate website:
www.holcim.com/CORP/EN/id/1610644015/mod/6/page/channel.html.
67
Cf. Holcim Brazil (2008), Corporate Sustainable Development 2007;
www.holdercim.com/gc/BR/uploads/TEXTOS_FINAL_ENGLISH.pdf.

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Value creation effects of good reputation. Reputation is built through investments in
the fulfilment of promises with regard to implicit stakeholder claims and signals that
such claims will be honoured also in future. Its capacity to impact the firm through the
system of markets, including capital markets, input-, and output markets consequently
give it an economic value (Hill, 1990) which increases with the firm's vulnerability
and institutional exposure. The effects of a positive corporate reputation as an
indicator for being a good corporate citizen and high organisational legitimacy are
summarised in Table 4-8.
Efficiency, cost
Crisis management reputation as a good corporate citizen lower follow-up cost through
“cushion of goodwill when crises hit” (Fombrun, 1996: 57)
Transaction & selection
cost
reputation for non-opportunistic behaviour reduces cost of contracting &
monitoring and facilitates the establishment of stable relationships and
lower cost of partner selection
Financing cost reputation as an indicator of high legitimacy lowers cost of capital
Quality & Productivity reputation as a good corporate citizen leads to higher morale and
motivation of actors involved in the firm's production processes, e.g.
suppliers and employees working for the firm
Strategy, competitive advantage
Mobility barrier rent-creation due to difficult to imitate and unique positioning with
stakeholders
Goodwill stock of goodwill in case of reputation shock, contributing to
stakeholder's cooperative attitude, helping to master crisis more quickly
and with less (reputational) damage
Opportunities additional contracting opportunities and attraction of desirable firm
partners and talents (employee recruitment) due to reputation-based firm
attractiveness
Signalling rent-creation through signalling of superiority of firm, regarding product
quality, corporate citizenship, competitors, etc.
Table 4-8: Efficiency and strategy-based advantages of corporate reputation
Importance of UCF for reputation. In the relations with its local environment,
corporate reputation is a major factor for our research object. As a result of the high
visibility, spatial inflexibility, and the related institutional exposure, reputational
effects may be stronger for the UCF than for a footloose firm. Consequently,
reputation may be regarded as a strategic asset for the location-fix firm, crucial to
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attaining competitive advantage. The UCF's reputation-building activities therefore
represent an essential element in the efforts to limit institutional exposure and to create
value.
Trust. Trust entails “the expectation that an actor (1) can be relied on to fulfil
obligations, (2) will behave in a predictable manner, and (3) will act and negotiate
fairly when the possibility for opportunism is present” (A. Zaheer et al., 1998: 143). It
is characterised by the absence of formal safeguards in interactions, such as
guarantees, complete contracts, and juridical enforcement (Gössling, 2004) and
develops only in repeated interactions and long-lasting relationships with identifiable
interaction partners. Generally, the trustworthiness of a firm is associated with
behavioural routines, but also with its ethics and values, all of which are part of an
organisation's culture (Nooteboom, 1996).
Challenges of conceptualisation. While there is general consensus on the importance
of trust in human conduct, research ostensibly lacks agreement on how to
conceptualise trust suitably, discussing it on the basis of numerous levels and units of
analysis (Shapiro, 1987). One of the difficulties of conceptualisation pertains to the
context, within which trust is discussed, which may relate to individual expectations,
interpersonal relationships, social structures, ethical principles, or economic
exchanges. With reference to economic or inter-organisational exchange, trust can be
seen as a specialised form of interpersonal trust (Hosmer, 1995) - a simplification
which creates its own set of challenges: Zaheer & al. (1998) contend that, although
inter-personal and inter-organisational trust are related, they are distinct constructs.
These differences need to be considered appropriately in the conceptualisation of the
role of trust in economic exchange. More specifically, organisations are not able to
build trust as an entity; it is the individuals representing the organisation who establish
trust. Trust therefore, as an aspect of relationships, varies within persons and across
relationships. As a consequence, Zaheer et al. (ibid.) suggest two distinct definitions to
resolve this ambiguity: they define interpersonal trust as the extent of a boundaryspanning
agent's trust in his counterpart in the partner organisation. On the other hand
inter-organisational trust is the extent of trust placed in the partner organisation by the
members of a focal organisation. Boundary spanners thereby are members of the
organisation, who are more closely involved in the inter-organisational relationship
and interaction with their counterparts than other members.
Thus, in order to understand the multilevel phenomena of trust, inter-organisational
relationships have to be analysed on the individual and organisational level

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simultaneously. By institutionalising processes, the individual and organisational trustbuilding
are linked, stabilising role definitions, even though individual boundary
spanners might change.
In the context of inter-organisational exchange and governance structures, a further
conceptualisation of trust seems noteworthy, distinguishing between a partner's ability
to perform according to agreements - termed competence trust - and his intentions to
do so - referred to as goodwill trust (Nooteboom, 1996). Both types of trust are
relevant to our research framework, which is concerned with inter-organisational trust
between the firm and its institutional stakeholders, i.e. inter-firm relationships and
firm-'public stakeholder' relationships, but also with firm relations to stakeholders as
individuals.
Value creation effects of trust. An early suggestion of a link between trust and value
creation interestingly stems from Kenneth Arrow (1972: 357), one of the most
influential neoclassical economists of the 21 st century, who claims that
virtually every commercial transaction has within itself an element of trust,
certainly any transaction conducted over a period of time. It can be plausibly
argued that much of the economic backwardness in the world can be explained by
the lack of mutual confidence.
Attributing equal importance to trust, Allan Greenspan defines it as a form of social
organisation, putting it at the root of any economic system based on mutually
beneficial exchange: “in virtually all transactions, we rely on the word of those with
whom we do business. Were this not the case, exchange of goods and services could
not take place on any reasonable scale” (Greenspan, 1999). The role of trust in
enabling transactions in a world of incomplete contracts therefore may be rated as
invaluable. How then can firms, and in particular our research object, use trust to
create competitive advantage and sustainable rents? On the basis of their long-term
orientation UCFs have an interest to establish enduring working relationships with
their key stakeholders. In addition, their dependence on the location makes them
highly committed towards their selected partners. As a consequence, their repeated
interactions over time allow for the development of mutually trust-based relationships.
Trust thereby acts as governance mechanism of such embedded relationships,
facilitating “the exchange of resources and information that are crucial for high
performance but are difficult to value and transfer via market ties” (Uzzi, 1996: 678).
Furthermore, the associated access to tacit and strategic know-how increases the firm's
transactional efficacy and renders it more responsive to external developments. As a
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result,the firm benefits from efficiency gains in governance, eased negotiations and
consequently lower costs of reaching mutually acceptable agreements (A. Zaheer et
al., 1998). With the prospect of these advantages, the partners in trust-based
relationships have material incentives for cooperation and reduce their relationshipspecific
uncertainty. The longer such relationships hold, with a sound prospect of
future relational benefits, the higher the impact on mutual trust and trustworthiness.
The efficiency-related and strategic advantages of trust in business relationships are
summarised in Table 4-9.
Efficiency, cost
Uncertainty decrease in governance costs and cooperation under reduced uncertainty
Negotiation cost faster agreements with lesser safeguards and contracting costs
Selection cost establishment of stable relationship and lower cost of partner selection
Strategy, competitive advantage
Reaction time faster reaction to unforeseen events
Conflict resolution constructive settling of conflict and lower risk of ex-post opportunism
Information exchange timely exchange of fine-grained information
Innovativeness higher innovativeness of mutually trusting parties
Cooperation increased willingness for cooperation between partners
Relationship-specific
investments
higher willingness to incur relationship-specific cost and to take risks
Table 4-9: Efficiency and strategy-based advantages of trusting relationships
Summary. Thus, if the local management of a UCF succeeds to build a credible
reputation as a good corporate citizen and to make trust a crucial element of their
stakeholder relations, it contributes to sustainable value creation for the firm. Such
added value goes beyond the short term and may not always be quantifiable. Rather, it
may manifest itself in the creation of real options for future business development by
activating stakeholders' cooperation potential, or by freeing management attention
from controlling and conflict resolution to more strategic tasks, since reduced
uncertainty allows firms to adopt a longer-term orientation (Knack & Keefer, 1997).
Firm adaptation to local context. This element of the UCF's relational (social)
embedding capabilities provides a bridge to the second part of the research framework,

Theory Building
the multi-site perspective. The adaptation to the local context, as a moderating factor
to the firm's institutional exposure involves more challenging obstacles for non-local
firms, compared to firms which are familiar with their institutional context. Therefore,
the following passages concentrate on local branches of multi-site firms, and their
endeavours and challenges to embed themselves in their new institutional
environment.
The importance of the firm's alignment with its institutional environment for its longterm
survival is a central notion of institutionalism. Thereby, the “conformity of
organizations to the collective normative order increases the flow of societal
resources” (Zucker, 1987: 445), thus strengthening the firm's organisational
legitimacy. As a consequence, the firm is induced to adopt structures or processes
reflecting its institutional environment, defined as a “set of highly established and
culturally sanctioned action patterns and expectations” (Lincoln, Hanada, & McBride,
1986: 340). These incentives for adaptation are referred to as coercive isomorphism
(DiMaggio & Powell, 1983), which is based on formal and informal pressures by other
entities upon which the firm is dependent and on the cultural expectations in the
society within which the firm functions. As a response to these external pressures, the
firm's capacity to align itself with the institutional environment's expectations
decisively depends on its local management's ability to sense these expectations, and
its collaborative capabilities.
Liabilities of foreignness. For firms which are active in cultural and institutional
environments outside their home territory, such adaptation to the local environment
may involve additional challenges: they may experience disadvantages referred to as
liabilities of foreignness (see also section 4.2.4). The latter refer to costs that a firm of
local origin would not incur and which put the focal firm's branch at a competitive
disadvantage. Liabilities of foreignness arise from four interdependent sources (S.
Zaheer, 1995), namely (1) spatial distance, involving liabilities such as travel,
transportation, and coordination over distance; (2) unfamiliarity with and lack of roots
in a local environment; (3) lack of legitimacy in the host-environment and economic
chauvinism; and (4) home-country-environment-induced costs. The firm's ability to
adapt to the local environment is particularly relevant to overcome the second and
third source, i.e. the unfamiliarity to the local environment and the lack of legitimacy
in this environment. Within the scope of our research framework, these two liabilityinducing
factors do not only affect multi-national firms operating across nation states.
Much rather, we relate foreignness generally to unfamiliarity and legitimacy-issues of
a firm in a new territory, independent of national borders. As will be illustrated in the
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subsequent example, as well as the later case description of Axpo (see chapter 5.1.3),
the institutional structures of a country, its size, and its ethnical composition may lead
to the formation of very different institutional environments, to which even a firm
from the same national background may be foreign, if it originates from a different
region.
Example: Home territories of Swiss Electricity Utilities, Axpo's expansion efforts
Despite the compactness of Switzerland as a country, its 41'000km2 entail an impressive variety in
cultural identities and local populations - many of them with a distinct sense of belonging. Related to
these regional identities some areas are characterised by economic chauvinism, erecting mobility
barriers for outsiders including firms from other parts of Switzerland. Such barriers are noticeable to
power utilities, since most of the incumbent firms are embedded and protected in their territory of
origin, but are hardly able to move beyond into other incumbents' territories. Axpo, for instance,
repeatedly tried to get a foothold in other water-rich areas. Thereby, it faced obstacles such as the
delay of approval processes, due to the authorities' request for additional investigations which usually
are undertaken at a later stage. Other obstacles emerged in the form of imposed conditions which
render the project economically or politically unattractive, and which would result in political issues
which the firm wants to avoid. This way, the procedural slow-down allows the local incumbent to
regain lost time in order to ultimately come up with a request for approval of its own (cf. interviews
N°1: 15; N°3: 18).
Among the strategies to overcome any liabilities of foreignness, local firms may
choose a compensatory approach by deploying additional skills and capabilities in the
local context, transferred from outside-in. As a result, the firm might be able to derive
competitive advantage from its superior organisational capabilities and its abilities to
learn, respectively transfer organisational practices and managerial skills across its
portfolio of sites (see also discussion of the multi-site perspective in sub-chapter 4.10).
Alternatively, firms may opt for an adaptive strategy, reducing the liabilities of
foreignness by being locally responsive and by conforming to the expectations of their
local stakeholders. In most cases non-local multi-site firms employ a combination of
both strategies for their local subunits, trying to find a balance between the
headquarters' pressures for internal consistency and the local coercive isomorphism
(Rosenzweig & Singh, 1991).
Example: Holcim's Garadagh operation in Azerbaijan
In 1999, Holcim acquired Garadagh Cement, Azerbaijan's market leader in the cement industry. Soon
Holcim's local management became aware of the high relationship-orientation of the Azeri culture
and the related importance of intense relationship-management with the firm's stakeholders.
Particularly to be on good terms with local authorities proved to be decisive for business
performance. Holcim's country manager summarises this cultural property: “It is important to be in

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continuous communication with the relevant people. No communication might be perceived as
arrogant. … It took me three years to find out how this works in Azerbaijan. I had to learn everything
from zero, all the relationships inside the government, between the political and regional players, etc.
… If you learn the local language, know the local culture, and respect the local traditions … people
will respect you much easier” (interview N°7: 9). According to him, Holcim successfully embedded
itself in Azerbaijan partly because it “does not want to change the culture of the country company,
where it is present. … There are only few people delegated from the headquarters, and they try to
adapt the Holcim culture to the local culture, not the other way round” (ibid.: 2). By successfully
blending the strengths of the local culture with the know-how, best practices and corporate
governance standards from the corporate centre, Holcim managed to continuously increase the local
cement output and plant efficiency. In addition, its relationship-building with the local authorities
created value, for example, through an alignment of Azeri cement standards with European standards,
thus increasing its range of products from initially two to six differing cement types.
Adapting along the institutional pillars. To successfully blend into the local
environment, the firm's local branch needs to adapt on all previously mentioned
institutional dimensions, i.e. the (1) regulative (what the firm may or must not do); the
(2) normative (what the firm should and should not do); and the (3) cognitive
dimension (what is or is not true, respectively what the firm can or cannot do) (see also
Scott, 2001). On the regulative dimension, the firm is exposed to coercive pressures
for isomorphism (DiMaggio & Powell, 1983), which almost leave it no choice than to
adapt, such as to safeguard its organisational legitimacy. This adaptation is fairly
straightforward, since the legal and regulatory expectations are explicit and seizable.
More challenging, the normative dimension depends on the ability of the local
management to sense less explicit local expectations, and to consequently derive the
right embedding actions. Thus, managers may seek legitimacy in conforming and
signalling allegiance to the cultural order and to established institutional logics (Meyer
& Rowan, 1991). Ultimately, the subliminal cultural-cognitive dimension presents the
most demanding form of embeddedness, being reflected in the shared understandings
and meanings that give form to the firm's activities, structures, and processes (Dacin et
al., 1999). Inability to comply with expectations on this dimension may potentially
damage the firm's legitimacy. To avoid such frictions, managers with a non-local
background therefore may choose to bring in locally rooted actors for support.
Effect on value creation. The influence between the firm and its embedded context is a
bi-directional one. Firms do not only experience it as a constraint, but they perceive
also distinct opportunity sets that embeddedness creates. Put differently, while firms
often adapt to their institutional contexts, they are equally active in shaping those
contexts, i.e. trying to incorporate their goals and structures into the rules of
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institutions and authorities (Dowling & Pfeffer, 1975). This notion is supported by a
statement of Holcim's country manager in Azerbaijan: “It is important that one does
not appear too … rigid to the environment - one always needs to be adaptable.
Adaptability is very important in terms of relationship with the local environment. If
they see, that you are adaptable, they are also willing to be adaptable” (interview N°7:
10f.).
Summary. By prudently adapting the firm's structures to the local institutional context,
the firm is able to overcome obstacles and to create options for its future development.
These options, on one hand, are created through the effects of a high organisational
legitimacy, and on the other hand, through the reciprocal effect which the firm's
willingness to adapt has on its stakeholders' response. Thus, the firm gains influence
and possibilities to shape its local environment, thereby increasing its chances for
survival and creating opportunities for competitive advantage.
4.8.6 Summary of embedding capabilities
The firm's capabilities to embed itself in its local environment and to facilitate its
organisational legitimisation process are summarised in Table 4-10. In this context it
needs to be emphasised that the suggested operationalisation of some characteristics
needs to remain vague, due to the latter's multi-dimensionality and conceptual overlap.

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Embedding
capabilities
Description Operationalisation
Structural (economic):
Tangible activities which manifest the firm's commitment to its location beyond symbolic actions
and which protect its interests against uncertainty and risks of opportunism
Value share
remaining
in region
Hostages
and mutual
lock-in
Selfmonitoring
and
governance
Deliberate redistribution by the
firm of a part of its rents to
local stakeholders, in order to
create intangible assets that
create value or prevent value
destruction
Protection of the firm's interests
through creation of a balanced
mutual dependence to
compensate for the
incompleteness of contracts and
the related uncertainty and
opportunistic risks
Reinforcement of the firm's
social contract through credible
self-regulation beyond regulative
institutional necessity
Spending for firm policies, programmes, initiatives and
processes that are directed at compensating stakeholders
for the firm's externalities.
Examples: locally paid taxes, sustainable livelihood
wages, CSR-related projects
(1) Credible threat of third-party enforcement; (2) formal
safeguards (self-enforcing incentive structure);
(3) informal safeguards (trust based lock-in based on high
mutual asset-specificity, reinforced by contractual
disincentives for cheating)
Examples pertaining to the public stakeholders:
(1) foreign state, from which the firm originates or which
has a vital interest in the firm's success; (2) ex-ante
credible commitment through upfront financial support;
(3) penalties
Social and environmental accounting, voluntary
monitoring activities, publication of data and corrective
actions.
Examples: tracking / publication of negative externalities
Relational (social):
Activities to build relational and reputational assets towards institutional isomorphism
Local
stakeholder
relations
Reputation-
and trustbuilding
Adaptation
to local
context
Establishment and cultivation
of strong local stakeholder
relations for mutual benefit,
thus building relational capital
to reduce risks and create value
By means of the firm's past and
current behaviour it signals to
stakeholders the future
behaviour that they can expect:
through these investments in
promises the firm reduces
uncertainty & transaction costs
Conforming to local stakeholders'
expectations strengthens
the firm's local legitimacy and
increases its ability to influence
its local environment
Table 4-10: Summary and operationalisation of embedding capabilities
Structured and deliberate stakeholder engagement
activities.
Examples: stakeholder dialogue, CAPs, cooperations and
strategic partnerships with interest groups, engagement
level in public affairs, regulatory affairs
Defined through context-specific factors for the individual
stakeholder groups.
Examples: ranking of firm attractiveness as employer
among university graduates, attributed firm creditworthiness
from banks, delivery and payment terms from
suppliers, quality of relationship with regulator
Number of stakeholder conflicts compared to closest
benchmark within same / similar institutional
environment.
Examples: labour conflicts, regulatory fines, number of
legal cases of local scope
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After this in-depth discussion of our framework’s moderator of the relationship
between UCF's local exposure and its capacity for value creation, the next section will
be concerned entirely with value creation.
4.9 Value creation
With the firm as our unit of analysis, we will begin by highlighting the conceptual
issues regarding firm-level value creation. After an introduction to value creation in
general, we will continue with a discussion of the dimensions of our output variable:
the creation of strategic options; the reduction of business risks; and value-creating
short-term effects to the firm, as illustrated in Figure 4-16.
embedding
capabilities (4.8)
local exposure from
moderate
location fixity (4.5 - 4.7) value creation (4.9)
influences
strategic options (4.9.2)
risk decrease (4.9.3)
short-term effects (4.9.4)
Figure 4-16: Value creation as the dependent (output) variable within the research framework
Challenges in conceptualisation. The concept of value has been embraced by a
number of research perspectives and represents an important notion in addressing
questions such as why firms exist and why they perform differently. As Conner (1991)
notes, the primary pursuit of business is creating and maintaining value. But despite
the centrality of value creation, value itself remains an ambiguous notion with little
agreement among researchers on what value means or how it is created 68 . The
difficulties in conceptualising resource value as well as value creation lie in their
multiplexity (cf. Peteraf, 2005), which results in the following dilemmas:
(1) System boundaries. Which is the unit of interest in value creation, the firm
alone, as part of a network, as part of the local environment and society, or the
economy as a whole?
68 Within the discussion of strategic management research, Rumelt (2003) identifies four areas of
confusion with regard to value creation and competitive advantage: (1) disagreement about how value
should be conceptualised or measured, (2) confusion about the meaning of rents, (3) disagreement
over the appropriate use of the opportunity cost concept, and (4) disagreement on the meaning of
competitive advantage (winning the game versus maintaining a position in the game).

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(2) Exchange versus use value. Is the value of a resource measured in terms of a
transaction price (exchange value) or with regard to the use for the firm (value
in use)? Is the resource value to be determined relative to the firm's competitors,
the value created for customers, or in terms of the rent the resource generates
internally?
(3) The value of real options. Does value consider real assets only or does it include
the value of strategic flexibility and future options of a firm?
(4) Value creation versus value capture. Ultimately not the firm's value creation
(increasing the size of the pie) is reflected in its bottom line, but which part of
the created value (share of the pie) it eventually captures and retains.
(1) System boundaries. The value that a firm creates may be seen from different
angles, resulting in significantly differing assessments of the effects of the firm's
activities. While economic sociology for example defines value creation in the context
of the wider society and the firm's environment, strategic management more narrowly
focuses on the value creation for the firm itself under the aspect of competitive
advantage. In our previous description of the firm's action parameters to mitigate its
local exposure in section 4.8, we have argued from the perspective of the firm in its
context under a broader and a longer term view regarding the targets of value creation.
Therein the local firm addresses its various stakeholders through its embedding
capabilities, consequently creating value “in many different ways for many different
targets, including earnings for owners, pay for employees, benefits for customers, and
taxes for society” (Lepak, Smith, & Taylor, 2007: 185). Thus, we have argued, the
firm is able to increase its organisational legitimacy, which in turn supports the firm in
its value creation and generation of rents for its sustained survival.
Link to research framework. Turning to the output variable within our framework (cf.
Figure 4-16), our understanding of value creation more narrowly considers the rents
which the firm is able to create and retain for itself, as discussed within the RBV 69 .
This firm-centred perspective therefore disregards value-creating effects of the firm's
activities on the firm's various stakeholders. Rather, it focuses on the value the firm
creates through its activities for rent generation and for its sustained livelihood.
(2) Market (exchange-based) versus use value (resource-based). Two essentially
different approaches need to be distinguished with regard to the conceptualisation of
value: Exchange value reflects the power of the good to purchase other goods,
69 See also Mahoney (2001), who terms the RBV a theory of firm rents.
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objectively determined by the market. It is “the monetary amount realised at a single
point in time when the exchange of the good takes place” (C. Bowman & Ambrosini,
2000: 3). The other approach, known as use value 70 centres on the utility of a resource
or good, essentially being a subjectively perceived value. With regard to our research
framework, particularly the latter understanding of value is relevant, whose
conceptualisations will be discussed hereafter.
Use value may be understood from the firm's internal perspective as the resources'
utility to the owner (Barney, 1996), or from the customer's perspective, whereby
resource value is linked to perceived customer value (Amit & Schoemaker, 1993; C.
Bowman & Ambrosini, 2000; Collis & Montgomery, 1995). Use value, from the
resource owner's perspective does not rely on the existence of a market to establish the
resource's (exchange) value. It is the result of internal processes, through which the
firm generates economic rent with the help of its resources and capabilities (Amit &
Schoemaker, 1993). More specifically, economic rents are created and also protected
through managerial decisions on the development of strategic assets. Resources and
capabilities therefore are valuable to the extent that they reduce a firm's costs or
increase its revenue above the level if it had to do without the resource (Barney, 1996),
and as far as they enable the firm to exploit opportunities and to neutralise threats in a
firm’s environment (Barney, 1991).
As illustrated in Figure 4-17, the firm therefore creates value through its combination
of superior resources and capabilities, i.e. “the actions of organisational members, who
combine to transform the use values that the organisation has acquired” (C. Bowman
& Ambrosini, 2000: 5). Thereby, it lowers its costs or increases the resource's benefits,
consequently augmenting the latter's use value, i.e. the economic rents as returns to a
factor in excess of its opportunity costs (Peteraf & Barney, 2003). As a by-product, it
creates competitive advantage, i.e. the ability to create relatively more economic value,
ultimately creating rent by employing its critical resources more effectively and
efficiently than it would be the case in the next best alternative.
Superior critical
resources &
capabilities
Firm costs �
and/or customer
benefits �
Use value �
firm-internal and/or
customer perceived
Figure 4-17: Conception of use value creation 71
Competitive
advantage �
Residual value �
i.e. firm margin
Rent �
70 Value of use has been first described by Adam Smith in his seminal work 'The Wealth of Nations'
(1776). Defined as the utility of a particular object, it is a pre-requisite to any exchange value.
71 On the basis of Peteraf and Barney (2003).

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The customer-centred conceptualisation bases on the customer's willingness to pay a
price premium, which results in rent for the firm. As Priem (2001) clarifies, this
conceptualisation of use value does not pertain to value created by the firm, but to
consumer surplus as the difference between the customer's perceived value and the
exchange value. The same is true, when looking at the focal firm as a buyer: “whether
a firm captures resources cheaply or not influences that firm's margin; it does not
influence the creation of use value by the firm's product” (ibid.: 500).
Link to research framework. In our research framework, both notions of use value are
relevant: while the customer-centred notion relates to the rent which the firm captures
by increasing the perceived value of its products, the firm-centred use-value covers the
value creating activities inside the firm through intelligent accumulation, combination,
and exploitation of resources, which may create value which is not perceived by the
end-customer, but which increases the rent of the firm, for instance through efficiency
gains. The first-mentioned notion stresses the importance of leveraging resources to
develop capabilities with value-creating potential, which allow the firm to generate
rent by using those capabilities in the marketplace. To create value for its customers,
the firm's “leveraging processes are critical in matching the firm’s internal capabilities
with conditions in its external environment” (Sirmon, Hitt, & Ireland, 2007: 283).
Complementarily, the latter approach is particularly relevant with regard to the
research object's asset specificity and the resulting lack of market value for significant
parts of its resources. Therefore, UCFs may likely engage in activities which have no
effect on the customer's value perception, and which are independent of exogenous
factors 72 while creating value and rents for the firm.
(3) The value of real options. Through the options lens, a firm's strategy represents a
process of choices for organisational resource-investments, i.e. options (E. Bowman &
Hurry, 1993). These options incorporate strategic flexibility to the firm and therefore
have an inherent use value. Because there is a time span between making an
investment decision and the actual implementation, the value of an investment might
change as the business environment changes, or as additional options and alternatives
appear. If the firm is able keep an option open (i.e. delaying the investment decision)
its decision-making basis improves due to reduced uncertainty. Thereby the firm is
able to reduce its investment risk, having better intelligence on the investment's
opportunity costs. Thus, an options' view allows for the integration of inter-project and
72 See also Peteraf & Barney (2003): 312f.
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inter-temporal (time compression) dimensions, as well as value creation considerations
(Dixit & Pindyck, 1994), which increases the quality of informed business decisions.
Real options and opportunity costs. Real options, a concept originating from financial
theory, infer the future value of today's investments from market prices. Accordingly,
a real option is defined as an investment in physical and human assets, that provides
the opportunity to respond to future contingent events, i.e. “rights but not obligations
to take some action in the future” (Dixit & Pindyck, 1995: 105). The decision for such
an investment entails the three elements of uncertainty, provision of future managerial
discretion to exercise when deemed appropriate, and irreversibility (Kogut &
Kulatilaka, 2001). Thus, when the firm decides to trigger the investment, it gives up its
option and incurs opportunity costs, defined as the value of the next-highest-valued
alternative use of that resource. Essentially, the firm gives up the possibility to wait
until new relevant information is available, which might impact the value or timing of
the investment - a cost that should be included in the investment calculation. Since
opportunity costs are very sensitive to uncertainty over future developments, for
instance with regard to an investment's revenue streams, the treatment of investments
as options underlines the role of risk, but also the value that the option creates.
Link to research framework. Examples for UCFs investment options are their property
rights or concessions for natural resources and land use, technological knowledge, and
reputation. In many cases these options are idiosyncratic to the firm and path
dependent, i.e. they are built over time and thus represent a competitive advantage
other firms cannot build upon. Therefore, for an overall consideration of a firm's value
creation, the value of options that it is able to create and the opportunity costs of its
investment decisions need to be taken into account.
(4) Value creation versus value capture. A key issue in economic exchange pertains
to the question of who creates and who ultimately captures value. In order to earn
above average returns, it is not sufficient for the firm to create Ricardian rents 73 , since
“the laws that regulate the progress of rent are widely different from those which
regulate the progress of (ordinary) profits, and seldom operate in the same direction”
(Ricardo, 1821: 34). Different from the creation of value, value capture is defined as
“the realisation of exchange value by economic actors” (C. Bowman & Ambrosini,
2000: 15), being “determined by the perceived power relationships between buyers
and sellers” (ibid.: 1). In other words, value capture occurs when use value is high
while exchange value is low (Lepak et al., 2007).
73 Ricardian rents are extraordinary profits earned from resources in fixed or limited supply.

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Link to research framework. The distinction between value creation and value capture
is central for our research object. Due to the local exposure and the specific
characteristics causing this exposure, UCFs are prone to value expropriation by a
number of stakeholders. Our understanding of value creation within our research
framework therefore pertains to the value, which the UCF creates and is also able to
retain.
Summary. The firm creates value, when it is able to synchronise the processes of its
resource management such, as to achieve a difference between the firm’s costs and the
price paid by consumers for its products or services. These processes are affected by
the environmental context, in which the firm operates (Sirmon et al., 2007). On the
basis of existing research, the conceptual scope of value creation underlying the
proposed framework is summarised as follows:
Conceptualisation issues Understanding of value creation within framework
(1) System boundary The unit of analysis is the firm (within a single geographical
market). Value creation concentrates on the value effects for the
firm, excluding value creation effects for its stakeholders, the
economy or society as a whole.
(2) Use value Value is created by the firm's internal activities, its capabilities in
the accumulation, combination, and exploitation of resources, but
also through its capabilities to get the consumer to perceive a high
use value of the firms' products in order to generate rents.
(3) Value of real options The value of some firm activities can only be adequately
considered, if the related options are included and positively
valued, as well as opportunity costs.
(4) Value creation and value
capture
Value creation pertains to the value which the UCF creates and is
also able to retain.
Table 4-11: Conceptualisation of value creation within the research framework
4.9.1 Value creation within the research framework
Following the introduction to the notions of firm-level value creation, we
conceptualise use value and value creation on the premise of our research framework.
The use value (utility) of a firm's resource consequently is defined as
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Resource use value (t0-tn) = [cash-flows over life-time] (t0-tn) + [option value] (t0-tn)
Where:
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- 'Resource' means the stocks of an available factor owned or controlled by the firm (Amit &
Schoemaker, 1993), including assets and capabilities.
- The resource-induced cash flows result from efficiency and effectiveness 74 improvements,
respectively the avoidance of costs through use of the resource. These cash flows include the
combinatory value added, as the value of the resource within an idiosyncratic resource
bundle. The combinatory value added is a perceived value influenced by the firm's
substitution cost of the resource.
- The value of the resource-induced options includes the expected generation of rent and the
expected avoidance of costs from the exploitation of opportunities, and the value of
neutralising threats from the firm's environment 75 .
Based on the above value definition, we define the firm's value creation as follows
Value Creation = [resource use value] (t0-tn) - [monetary value] t0 - [development costs] (t0-tn) -
[operating costs] (t0-tn) - [incremental investments] (t0-tn) - [opportunity cost] tx
Where
- Monetary value reflects the exchange value (i.e. the firm's purchasing price), if any.
- Development costs signify the cumulative firm investments in the resource, incurred and
expected.
- Operating costs are the variable cost to resource exploitation, incurred and projected to the
future.
- Incremental investments signify value-preserving or value-enhancing investments in the
resource.
On a time scale, t0 defines the time of acquisition of the resource, tx refers to the time of resource
valuation, and tn the expected lifetime of the resource, i.e. the year after which the resource ceases
to be valuable to the firm.
From the resource-based point of view, resources become more valuable, the more
firm-specific, durable and scarce they are (Amit & Schoemaker, 1993). The strategic
value of such resources and capabilities “may not lie merely in the scarcity of natural
resources such as land and oil reserves, but also in the ability to deploy concurrently in
74
In line with Daft's (1983) and Barney's (1991) assertion, that valuable firm-controlled resources
need to enable the firm to conceive of and implement strategies, that improve its efficiency and
effectiveness.
75
With reference to Barney's (1991: 105) definition of a resource being valuable "in the sense that it
exploit[s] opportunities and/or neutralises threats in a firm's environment".

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multiple uses … invisible firm-specific assets as culture, reputation, and relationships
with suppliers and buyers” (ibid.: 39). Their value contribution therefore may be
partitioned in direct or primary levers, such as increases in operational efficiency or
financial engineering, and indirect or secondary levers to value creation, as for
example good reputation and relationship management. According to this logic, the
secondary levers create value by positively impacting the primary ones (A. Berg &
Gottschalg, 2005b; Porter, 1985).
Despite the above attempts at clarification, the suggested formula provides only an
indeterminate definition of value and value creation within the framework 76 . However,
for the purpose of identifying areas of value creation within the scope of our research
question, the suggested definition and level of detail is useful, even if the firm's levers
for value creation cannot result in quantifiable amounts and remain indicative. To
remain within the scope of our framework, the discussion of value creation remains
focused on the effects of location-fixity and the related local exposure. The subsequent
sections aim at unfolding in which fields location-fixed firms, under the influence of
institutional exposure and the moderating impact of embedding capabilities of the
firm's local management, are able to create value.
On the basis of our case study research at Zurich Airport, Axpo and Holcim, as well as
our literature review, we identified three major areas for value creation of UCFs,
which we will elaborate in the subsequent sections:
- value creation through strategic options
- value creation through better investment protection respectively diminished risk
- short-term (direct impact) value creation
4.9.2 Value through strategic options
The resource endowment of a firm is a decisive factor for its opportunities for future
development, and consequently for its strategy formation process. While the existing
firm resources shape its future strategic path, the path ultimately chosen influences the
firm's decisions on its resource investments. From an options perspective, the firm's
resource endowment represents a bundle of options for future strategic choice, and
76 Among others, essential problems, such as attributing a monetary equivalent to intangible valuable
resources (e.g. tacit knowledge or organising routines) to reflect their development costs, remain
unresolved, as does the appropriate valuation of options created by the resource. The last-mentioned
issue is further complicated by the fact, that at the time of assessment some options might not yet be
evident and might only develop at a later point in time.
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strategy itself is conceived of as a portfolio of real options. Consequently, the firm's
organisational investments are evaluated according to their ability to create choices (E.
Bowman & Hurry, 1993). The importance of creating such choices, i.e. strategic
options, is closely related to the firm's environment. The value of having a bundle of
options at hand tends to increase with management's perceived volatility in the firm's
environment or industry, due to the resulting uncertainty.
What are strategic options. A strategic option is the commitment to relatively modest
expenditures in the present, in order to obtain and preserve the opportunity for making
a profitable investment at some later date. Such “preferential access to future
opportunities” (E. Bowman & Hurry, 1993: 762) includes the option to undertake
activities or to acquire resources (Sanchez, 1993). Options thus incur costs today for
unknowable future streams of value, respectively their value can only be assumed ex
ante, while their real value is to be determined ex post. Importantly, options not only
preserve flexibility with hindsight to concrete future projects and ventures, but also
increase the firm's scope for action for some undefined future eventualities. They
represent speculative investments with limited and known sunk costs, that may
facilitate the firm's value creation activities upon triggering the option. The possession
of a bundle of options serves two objectives: (1) the advantageous positioning of the
firm to exploit emerging opportunities, such as to enable future firm development, and
(2) the protection from the downside risks, e.g. through institutional exposure,
contained in already effected investments (cf. section 4.9.3). Since the value of options
changes with a changing firm environment, the development and assessment of real
options must be ongoing, in order to make effective use of the options approach.
Finding the value-maximising moment to trigger the option, consequently requires a
thorough tracking of the evolving circumstances.
Options from the firm's embedding capabilities. With reference to our research
framework, firms are able to create real options through their embedding and
legitimisation activities (cf. Husted, 2005). By making investments, which are
associated with good corporate citizenship and corporate social responsibility, firms
create “opportunities to expand and grow in the future” (Kogut, 1991: 21). With the
help of these investments and activities, the firm establishes a supportive business
environment, which enables it to react flexibly to unexpected changes. The thus
created options result in direct and indirect benefits to the firm (Burke & Logsdon,
1996). Direct benefits draw from the firm's ability to launch new products and services
and therefore directly impact its bottom line. An example would be the launch of a
socially responsible new business field, as demonstrated by the 'Mi Casa' project of

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Holcim Mexico (cf. p.134). Indirect benefits result from investments in the firm's
invisible assets and are thus less tangible, since they - in line with Berg and Gottschalg
(2005b) - create value by positively leveraging the direct ones. Possible indirect
advantages from such options are, for example, facilitated administrative processes in
business development projects, less exposure to regulatory discretion, or faster and
less damaging mastery of a corporate crisis. Due to their idiosyncrasy to the firm, such
options come in the form of goodwill stocks, which result in unique business
conditions that are not available to the competition.
Indirect benefits from the firm's options cannot easily be measured with regard to their
contributions to the firm's bottom line. Local management, sensitive to the needs and
expectations of the firm's environment, creates such indirectly-working options by
strengthening the firm's organisational legitimacy and thus accumulating enabling
assets, on which the firm can draw at a later point in time. These enabling assets act as
insurance against unforeseeable events by limiting the firm's downside risks from its
institutional exposure. Furthermore, they are facilitators in business development,
whose value lies in the creation of a wider range of business options and a faster time
to implementation. Neu, Warsame and Pedwell (1998: 265) describe both aspects in
respect of organisational legitimacy, which “pre-empts product boycotts or other
disruptive actions by external parties. ... By mitigating these potential problems,
organisational legitimacy provides managers with a degree of autonomy to decide how
and where business will be conducted”. Enabling assets, which are closely related to
the degree of the firm's organisational legitimacy, therefore are defined as follows:
Definition of enabling assets
Idiosyncratic intangible resources, which the firm accumulates over time with its
stakeholders, as an insurance against unforeseeable events and as facilitators in its
business development.
Link to research framework. Options play an important role in determining the
available strategic paths for the UCF, particularly due to the high level of uncertainty
resulting from its long planning horizon and the exposure towards its public
stakeholders. Since investment decisions, once taken, bind significant financial
resources, with associated opportunity costs, uncertainty and dependence, the success
of a UCF is fairly path dependent. Consequently, the UCF must be aware of the
significance of its embedding in the local environment: compared to footloose firms,
UCFs need to be more concerned with their local legitimacy, credibility, and their
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links with critical local stakeholders. The firm's managerial embedding capabilities
thus influence its scope of action and strategic flexibility in spite of the limited spatial
flexibility. They create options to decrease the downside risks from location-fixity and
the resulting exposure. Employing options thinking therefore provides the UCF with
value creation opportunities and competitive edge, with its options portfolio
representing a critical and inimitable resource.
In the subsequent paragraphs, the indirect and intangible effects of the firm's options
will be briefly discussed, which leads us to the formulation of two further propositions
pertaining to our research object.
Insurance against unforeseeable events. Organisational crises are “specific,
unexpected and non-routine events or series of events that create high levels of
uncertainty and threaten or are perceived to threaten an organisations' high priority
goals” (Seeger, Sellnow, & Ulmer, 1998: 233). Research has shown, that in case of
such crises, firms with a reputation to behave in socially responsible ways are able to
draw on their accumulated enabling assets, and benefit from a faster and less damaging
recovery (Husted, 2005). The firm's embedding capabilities are an effective way to
'insure' our research object with a goodwill option that enables it to recover in case of
an unexpected event.
Proposition 13
The effective use of the UCF's embedding capabilities leads to an accumulation of
enabling assets, which help the firm to master unexpected threatening events faster,
less costly and with less damage.
Facilitators in business development. In a dynamic industry environment, a firm's
success depends on its ability to adapt. Such strategic flexibility might require the firm
to adjust its existing asset base, to introduce emerging technologies, to expand into
new businesses or develop new products, not to mention the development of new sites
in the form of Green- or Brownfield projects. Depending on the firm's relations with
its local environment, such extensions are often slowed down or even prevented by
stakeholder resistance, regulatory hurdles and political processes. Getting the local
administration's go-ahead for investments beyond regulatory requirements may turn
into a hurdle race, leading to delays, limiting conditions to implementation, or
abandonment of the investment altogether. From the options perspective, the firm's
possibilities to avoid such cumbersome and costly experiences depend - inter alia - on

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its ability to accumulate enabling assets, the eventual use of which is comparable to
the exercise of an option.
Thus, over the lifetime of a site’s installed assets the firm's local management goes
through phases of differing intensity in their embedding efforts (see also section 6.3.1),
through phases of creating, of keeping and of triggering options for the firm's
sustained livelihood. Depending on its track-record of investing in its organisational
legitimacy and accumulation of enabling assets, it is rewarded with a facilitated and
cost-saving business development process.
Proposition 14
The creation and accumulation of enabling assets allows UCFs to shorten their time to
implementation for major infrastructure-related investments, as well as other business
development activities.
Example: Speed track to regulatory approval through pro-active embedding efforts
'Linthal 2015' represents the largest investment in Axpo's history (cf. example p.115). With a total
investment of CHF 2.1bn it is also the largest Swiss hydropower project to date. Kraftwerke Linth
Limmern AG (KLL), Axpo's local subsidiary, historically has a strong presence in the Linthal region
since 1957, when it started with the construction of the valley's first hydropower plant. In 1965 it
completed the high pressure storage plant 'Linth-Limmern', including the Limmern reservoir. From
this time onwards, KLL became a major economic factor in the Linthal region. Due to its continued
local commitment and its value creation for the surrounding communities, KLL was able to
accumulate stocks of enabling assets, which it drew upon in its 'Linthal 2015' project. Based on the
trust and reputation of KLL, the positive reputational spillover effects from the corporate parent Axpo,
and the promise of even more economic benefits to the region, the local stakeholders supported the
project from its beginning. The result was a trade-off between economic development and
environmental sustainability which was acceptable to all relevant parties. Thus, from the start of the
stakeholder negotiations in March 2005 it took the company only 54 months to find a widely endorsed
solution and to obtain a construction permit. Due to the trusting relationship, Axpo was also able to
make best use of the approval period, setting up the construction site to be ready for a speedy kick-off
of the construction activities.
Example: Community Advisory Panel at Holcim's Albox Plant, Spain
When Holcim communicated its plans for building a waste pre-treatment site in Albox, Spain (cf.
Example, p.144), the project was met with significant local opposition. Holcim therefore engaged in a
stakeholder dialogue right from the project's beginning. Key platform in this dialogue was the CAP,
which the firm established to regularly inform its stakeholders and to encourage their constructive
engagement in the project. Importantly, Holcim managed to convince the mayor of Albox and
representatives of other local authorities, as well as environmental and community groups to join the
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CAP. Furthermore, Holcim's organisational legitimacy was increased through the appointment of a
leading member of the NGO 'Ecologistas en Acción' as secretary to the CAP. As a local opinion
maker, the latter described the role of the Albox CAP as “an important tool for 'greening' the town
through educational projects” 77 and a means to further ensure transparency of the operation. Through
the combination of these steps, Holcim was able to build enabling assets over a short period of time,
which provided it with the option to continue its project implementation with the cooperation of the
affected stakeholders. Had Holcim not succeeded in gaining the support of the local environment, its
time to implementation might have been considerably longer, with resulting consequences on its
business plans.
4.9.3 Value through risk decrease
Risk is defined as uncertainty about outcomes or events, particularly with respect to
the future (Miller & Bromiley, 1990). Risk research originally started from finance
theory, mainly emphasising the risks of efficient markets from an investor's
perspective, i.e. the ex-post market judgment of financial risks. By contrast, risk
conceptions within management science take a firm-internal point of view, concerned
with the relationships among risk, superior levels of performance, the roles of
managers and their (ex-ante) decisions, and the organisation. In addition they view
firms in the context of their industry and environment (Bromiley, Miller, & Rau, 2001;
Ruefli, Collins, & Lacugna, 1999).
Link to research framework. Due to their location-fixity UCFs are confronted with
a variety of risks over the length of their projected business activity. As has been
discussed before, not only political and regulatory challenges from the nature of their
business, but also the risk exposure due to their externalities and the resulting visibility
to their immediate environment and the public in general are remarkable. A disregard
of this exposure increases the firm's risks by provoking a conversion of stakeholders'
implicit claims into explicit ones in the future. Ignoring implicit stakeholder claims
and expectations from the local environment ultimately could lead to the withdrawal of
local support, i.e. the loss of the firm's 'licence to operate'. The risks related to such a
loss of support range from labour issues, stakeholder boycotts, to the threat of more
restrictive governmental regulation, or even the withdrawal of the firm's concession, if
it does not show enough pro-active engagement in social and environmental issues. On
the other hand, being sensitive to such risks and investing in activities to decrease
them creates value to the firm and provides it with more stability in its business
outlook. Our empirical research has led us to the identification of two main areas,
77 Berbel Granados, M., cited in: Holcim Spain (n.d.). Community advisory panel in Albox - Holcim
Spain. Retrieved 14.12.2009, from www.holcim.com/CORP/EN/id/73138/mod//page/editorial.html.

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where management's embedding capabilities contribute to a decrease in UCFs risks:
regulatory discretion, pertaining to risks from the firm's exposure towards public
institutions and politics, and non-recovery of invested capital, which relates to the risks
of not recovering the firm's sunk costs. Both aspects will be further discussed in the
subsequent paragraphs.
Regulatory discretion & institutional risks. In existing research a number of studies
identified a link between firms' activities as good corporate citizens and business risk,
respectively a positive correlation between CSR and stakeholder engagement, and
profit variability (e.g. E. Bowman, 1980; Waddock & Graves, 1997; Wood, 1991) .
According to their observations, firms engaging in socially responsible activities
thereby incorporate organising principles that are surprise-avoiding, and which help it
to anticipate and reduce potential sources of business risk (Orlitzky & Benjamin,
2001). In the case of UCI, a great concern to firms' long-term survival and profitability
is the prospect of recovering their sunk costs within reasonable time. As has been
discussed before (cf. p. 108f), these prospects are directly related to regulatory and
political risks, which entail many forms of appropriation of the firm's quasi-rents.
Spiller and Tommasi (2005: 517f) pointedly summarise the argument:
[T]he overarching problem driving the regulation of utilities, whether public or
private, … is how to limit governmental opportunism, understood as the incentives
politicians have to expropriate – once the investments are made – the utilities’
quasi-rents, whether under private or public ownership, so as to garner political
support.
But apart from opportunism-driven risks, there are also risks from other motivations of
the public stakeholders, as for example from the motivation of regulators, who are in
pursuit of their public mission by means of regulation and enforcement thereof. This
mandate equips them with a degree of discretion to set their agendas, as well as to
interpret their imposed rules.
Since a firm's reputation to some extent influences the actions of a regulator, the
degree of a regulator's attention and his adopted remedies in case of poor compliance
are “framed” by the firm's behaviour, attitude and efforts towards correction in case of
a problem (Neu et al., 1998). Therefore, the firm's overall legitimising activities may
contribute significantly to decrease its institutional risks. With regard to the firm's
structural (economic) embedding capabilities its good internal governance,
transparency towards the public, the sharing of created value with the local
environment to increase overall welfare, as well as its mechanisms of mutual lock-in
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contribute to reduce the firm's exposure to politically motivated action. In addition,
such exemplary corporate behaviour helps the firm to build social capital: Pertaining to
the firm's relational (social) embedding capabilities, the cultivation and maintenance of
good relationships with its public stakeholders help to build mutual trust. In addition
the firm's continuous efforts towards reputation-building (supported through its
embedding activities on the structural dimension) and its visible adaptation to the local
environment serve the accumulation of goodwill stocks and public approval. These
concerted activities aim at rendering self-interested opportunistic behaviour from
public stakeholders unattractive, since a high public legitimacy of the firm limits the
political capital to be gained. A favourable public opinion as a buffer against
institutional risks is particularly important in political systems with frequent changes,
where relationship-building with public stakeholders does not render long-term effects.
Thus, building goodwill with the local public(s), but also investing in trusting and
cooperative relationships with the public stakeholders, increases the firm's chances on
generating and keeping rent-creating revenues. Possible beneficial effects are fewer
opportunistically motivated activities, such as re-distributional action by the
government; formal approval of prices above the firm's long-term average costs; and
from a public policy perspective, the general forestalling of unfavourable discretionary
regulatory activities.
Proposition 15
The UCF's effective use of embedding capabilities creates value by reducing the risk
of unfavourable regulatory and political discretion.
Non-recovery of invested capital. The UCF's risk of not recovering its sunk costs is
closely related to its institutional risks. The risks from regulatory, political and
administrative discretion can have immediate effects on the firm, but they also may
impact the asset's amortisation period, impairing the firm's cash flows for its whole
period of commitment for which it has received a public concession. Regulatory and
institutional risks to the recovery of investments range from restrictions on the firm's
pricing flexibility (e.g. regulated charges or price caps), additional conditions to
operation (e.g. requests for further investments, or with regard to purchasing or
employment patterns), restrictions on the movement of capital, public take-over of the
firm's assets with below-value compensation, or outright expropriation.
Through a decrease of rent-appropriation risks firms gain more scope for action by

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- freeing managerial capacities from political and regulatory struggles, which
may be devoted to the business again
- applying economic reasoning to investment decisions, thus being able to invest
the optimal level of capital for mid- and long-term infrastructure development,
as opposed to notorious underinvestment due to expropriation fears
- increasing the quality of products and services through higher investments in
value-conserving maintenance, due to lower expropriation fears
- allowing a long-term business outlook regarding investments whose
amortisation period exceeds the concession period, due to reduced uncertainty
These arguments are summarised in the following proposition:
Proposition 16
By effectively employing its embedding capabilities, the UCF is able to reduce the risk
to not recover its sunk costs, respectively to increase the probability of capital
recovery.
Example: Bangalore International Airport's struggle with the User Development Fee
When the Bangalore International Airport (BIA) opened in June 2008, the airport had an evidenced
right to levy a User Development Fee (UDF), the amount of which being subject to approval of the
relevant authorities (see also p.117). Although the airport operator handed in its request and all
relevant materials before airport opening, it took more than six months into airport operations to
obtain an official response, which in addition only granted a proportion of the requested fee to be
levied. In a retrospective analysis of the reasons for such a delay, the operator became aware, that
while it focused on tight construction management of the greenfield airport and on the planning of an
operationally smooth start-up, it possibly did not invest enough resources in the management of its
relationships with the public stakeholders. Given the high relevance of public authorities and
politicians in the Indian context, this neglect became felt, when the political issues around the User
Development Fee would have required strong working relations with them. As a result, the
management of the airport operator was not heard, when it tried to lobby for its contractual right.
When the airport finally was allowed to levy the fee, it had irrecoverably lost six months of fee
revenues, which it would have needed for its debt servicing, cost recovery and ultimately for the
funding of future expansion projects.
Today, the operator has an excellent political affairs management in place, which monitors impending
issues and which cultivates strong working relationships with the relevant decision and opinion
makers. Thereby it is able to handle issues faster, more effectively and with less risks and costs. In
addition, members of the management board are more sensitised towards paying regular courtesy
visits to key decision makers, and get involved early in the management of political issues.
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4.9.4 Short-term (direct impact) value creation
In addition to the mostly indirect value-creation effects from strategic options and
from the decrease of institutional risks, the UCF's effective handling of its local
exposure also has beneficial short-term effects which directly contribute to its bottomline.
Based on insights from our case studies, as well the review of literature, we were
able to identify the following main categories of direct levers to the firm's valuecreation:
the reduction of transaction costs, increases in operational efficiency, as well
as in financial efficiency, and the exploitation of positive externalities.
Reduction in transaction costs. In the neoclassical economists' world of perfect
markets, actors are perfectly informed at no cost, contracts are complete, and therefore
no transaction costs exist. In the real world, however, economic actors experience
imperfect information and bounded rationality, which - in combination with
opportunism, environmental complexity and asset specificity - result in transaction
costs. These transaction costs consist of search and information costs, bargaining and
decision costs, monitoring and enforcement costs (Robins, 1987) and occur “when a
good or service is transferred across a technologically separable interface. One stage of
activity terminates and another begins” (O Williamson, 1981: 552). Likening
transactions to a well-functioning machine, Williamson (ibid.) compares them to
frictions in the mechanism, caused by disharmony between the parties,
misunderstandings and conflicts, leading to delays, breakdowns, and other
malfunctions. The impact of these malfunctions on a firm's operations and bottom-line
may be considerable. Not only do they result in costs, they may also turn the firm's
relations with transaction partners more rigid, slowing down transactions' realisation
and making later adaptations more difficult (cf. p.137). Therefore, “an important
source of economic value creation stems from reduction of the dissipation of economic
value in the exchange process” (Asher, Mahoney, & Mahoney, 2005: 11).
This can be accomplished with the help of the firm's embedding capabilities, thus
decreasing transaction costs and the need for formal governance mechanisms, and
freeing resources for other productive uses (Gössling, 2004; Uzzi, 1999). In addition,
the reduced transactional uncertainty opens up opportunities for the exchange of goods
and services that are difficult to price or enforce contractually (Uzzi, 1996). Depending
on the firm's transaction partner and the type of interaction, different aspects of the
firm's embedding capabilities are needed to reduce its transaction costs. Furthermore,
different types of transaction costs are involved. Table 4-12 provides an overview on
the possible advantageous effects of the firm's embedding capabilities on transaction

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costs with its relevant stakeholders. For that purpose, three basic types of interactions
are distinguished - frequent, infrequent, and no direct exchange.
private stakeholders
public stakeholders
stakeholder no direct
exchange
local community less litigation
and hold-up
civilian interest
groups
less litigation
and hold-up
one-off (market)
transaction,
infrequent exchange
suppliers improved purchasing
conditions based on
the firm's reputation
customers improved selling
conditions based on
the firm's reputation
service partners
long-term relation,
frequent exchange
trust-based increase in
flexibility & adaptability,
less formal private
ordering solutions, i.e.
reduced cost for contract
specification, negotiation,
management & monitoring
employees higher loyalty, less
turnover, interest
alignment between firm &
employee
public
shareholder
government /
political
dimension
reduced
incentives for
politicallymotivated
adverse
activities
reduced cost of regulatory
intervention, better interest
alignment, early
recognition & action
regarding public policy
expectations
regulator early recognition &
correction of regulatory
complaints, reduced costs
from unforeseen regulatory
action
Table 4-12: Type of exchange and effects on firm transaction costs
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Skilful deployment of the firm's embedding capabilities, particularly its relational
ones, may reduce its transaction costs on the basis of a favourable reputation. This
effect certainly applies to parties, with whom the firm infrequently transacts, and to
which it thus is able to signal trustworthiness. Even more importantly, with regard to
long-standing transaction partners the firm is able to lower its transaction costs as
follows: if trusting stakeholder relations are related to socially responsible firm
comportment, they lead to more efficient contracting and “can create an organisational
expectation of altruism, in which opportunistic politicking has no place and, thus, no
costs associated with it” (Orlitzky & Benjamin, 2001: 374). Therefore, “high levels of
social capital reduce transaction costs … and ultimately, enhance a firm's
performance” (Branco & Rodrigues, 2006: 119), while creating strategically valuable
relational resources and competitive advantage.
Operational Efficiency. With the objective to ensure profitable long-term survival,
firms continuously strive to improve the efficiency of their resource deployment.
These resources include
all assets, capabilities, organisational processes, firm attributes, information,
knowledge, etc. controlled by a firm that enable the firm to conceive of and
implement strategies that improve its efficiency and effectiveness. (Daft, 1983, as
cited in Barney, 1991: 101)
Value-creating efficiency gains are accomplished through effects of scale, measured as
average cost per unit of production, effects of scope, defined as the effect on efficiency
of the range of different activities, or effects of experience, i.e. the effect of cumulative
production over time (Nooteboom, 2007). In some cases economies of scope or scale
are also related to the presence of fixed interval costs, where the production of a good
or service becomes economically feasible only beyond a defined minimum level, e.g.
due to minimum setup costs of a production facility. Such step-fixed interval costs
apply to most utilities and concession-bound industries, illustrated by the fix capacity
intervals of runways, airport or seaport terminals, nuclear power plants, sewage plants,
or in oil extraction.
The characteristics of UCFs make operational efficiency a particularly vital success
factor, notably due to their capital intensity and their external limitations (cf. subchapter
3.4.2): from an upstream perspective, many firms face limited availability of
key resources, as in the cases of hydropower or oil production. Downstream, for some
UCF the means to exploit their site's capacity are equally limited. As opposed to
manufacturing industries, which are able to store their manufactured goods or to

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export them to other markets, many UCI face limits on the demand side due to the
local (and sometimes perishable) nature of their product. Examples are airports, whose
operation is characterised by peak-times throughout the day, straining their
infrastructure, while for significant periods of their operational pattern they run below
their provided capacity. Such an operation is not only expensive due to the slack in
off-peak windows, but puts the airport operator before the choice of increasing its
peak-operation efficiency to increase utilisation, versus adding capacity to the airport
which entails costly non-gradual extension intervals. Apart from these resource and
market constraints, there are other external limitations on capacity instalment or
resource exploitation from the public stakeholders' side, which frame the firm's scope
of action. Thus, the combination of the costs of bound capital, limited discretion in
capacity adjustments, and UCFs' effects of scale, lead to a considerable lever of even
minor resource utilisation improvements on the firm's rent-generation.
In order to maximise resource utilisation before instalment of the next capacity
interval 78 , the firm itself has to find creative and flexible ways for improvement.
However, in some cases such increases in capacity utilisation require the approval of
the firm's stakeholders, such as the extension of operating hours, which depends on the
UCF's concession arrangements, its externalities, or applicable labour law, and might
require other special permissions. Such constraints are also illustrated by the example
of the hydropower industry, where environmental concerns often reduce the plant's
capacity utilisation, due to minimum requirements on residual water. In such cases
those firms will create value, which are able to find an intersection between the needs
resulting from the nature of their business and the expectations and requirements from
their stakeholders. By means of the UCF's embedding capabilities, managers have the
ability to accumulate enabling assets that increase the area of this intersection and thus
to creatively co-create alternative win-win solutions.
Example: Axpo's solution-finding in the Linth Limmern hydropower project
In Axpo's large-scale hydropower project Linth Limmern the firm faced expectations and concerns
from a wide range of stakeholders. Particularly environmental interest groups were worried about the
impacts of such a project on the local ecosystem. Through early involvement of the relevant
stakeholders in the project planning and through Axpo's interest in understanding their core concerns
and requirements, the parties were soon able to find workable solutions, satisfactory to both sides.
Ultimately, Axpo preserved the project's economic viability and planned resource utilisation by
convincing its stakeholders of the implementation plans for the increase of storage capacity at Lake
78
An option, which is not always available, as for example in hydropower plants, which rely on the
given quantity of water available at the site.
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Mutt, whose natural lake level will be raised by approximately 30 meters. On one hand, Axpo
supported the conduct of field studies to survey ecological diversity and to assess environmental
compatibility. On the other, the firm agreed on environmental compensatory measures, such as the
improvement of the fish habitat through various structural and procedural adaptations, scenic
appreciation of the region, and measures to improve fauna and flora. Furthermore, its agreement to
abandon the exploitation of the Linth gorge, including renaturation and an increase in the residual
water volume, finally secured it the support - or at least non-objection - of the environmental groups
and allowed it to continue with the planned scope of the project.
Thus, it can be followed:
Proposition 17
The higher the firm's organisational legitimacy, and the more credibly it is able to
convey its readiness to search for integrative solutions, the higher the approval by its
stakeholders for, respectively the lower the resistance against its endeavours to
improve efficiency.
Effectiveness of financial processes. Management's ability to access financial
markets for sufficient capital, respectively to secure adequate credit lines is essential
for firms which bind significant amounts of capital in their infrastructure. In raising
funds for the instalment of heavy infrastructure, such as an airport, a railway line, a
full-fledged hospital, or a seaport terminal, small differences in the firm's borrowing
costs can have a significant overall impact. But financing costs are not only influenced
by the firm's capital structure, past performance or future revenue outlooks. They are
also affected by the firm's reputation “shaping the responses of external actors,
because they summarise a good deal of information about a firm's current position and
behaviour and also its probable future behaviour” (Teece et al., 1997: 521).
As has been outlined before, comportment as a good corporate citizen decreases some
of the firm's risks and increases its options for future development. In addition, it
positively influences the firm's reputation in financial markets, sending a strong signal
to financial investors and lenders. Capital invested in a firm that operates in a stable
local environment, and which enjoys stakeholder legitimacy for its activities, has a
lower risk to it (Bansal & Clelland, 2004). As research has shown (Goyal & Santa-
Clara, 2003), such lower unsystematic risk increases the probability of continued
stable cash flow generation and hence, the firm's ability to service debt or to pay
dividends. On the other hand, poor regulatory compliance and other socially
objectionable behaviour might have spill-over effects on the perceptions of other

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stakeholders. Such comportment might, for example, affect the firm's reputation with
financial investors, which in turn might change their risk perception towards their
investment object, and consequently impact the firm's financing costs. Thus, if the
firm's management is able to build a strong reputation and to convey its organisational
legitimacy to its investors and creditors, the firm has the opportunity to lower its costs
of capital (cf. Fombrun et al., 2000), e.g. by receiving a more favourable (i.e. riskadjusted)
credit-rating or a better stock-market valuation. Branco & Rodrigues (2006:
124) argue, that firms which are regarded as socially responsible benefit from their
reputation “by having increased ability to attract capital and trading partners”, a
capability critical to UCFs' long-term survival.
Furthermore, other areas for improving the efficiency of the firm's financial processes
are its cash management, inventory management, as well as the collection of
receivables. Also these efficiency issues are linked to management's embedding
capabilities, particularly to the firm's reputation, as well as its perceived
trustworthiness. Stakeholders interacting with the firm, rate it on its competency to
perform according to its obligations and agreements (competence trust), as well as its
intentions to do so (goodwill trust) 79 (Nooteboom, 1996). In the firm's endeavours to
decrease its working capital, e.g. by lowering inventory and accounts receivables or by
increasing its accounts payables, it depends on the cooperation of its stakeholders.
Chances for implementing a high payment discipline rise with the existence of trustbased
relations to those customers with whom it is directly interacting. The same
applies to inventory management, where trust-based supplier-customer relationships
allow for smaller stocks in the firm's critical resources. Therefore we further propose:
Proposition 18
The UCF's degree of local embeddedness and organisational legitimacy indirectly
influence its value creation by increasing the effectiveness of its financial processes.
Valorisation of by-products (exploitation of positive externalities). An externality
is present, when there is a divergence between private and social cost. More
accurately, the problem of externalities is “that private costs (or benefits), which do
influence a resource owner, are not equivalent to the total of social costs (or benefits)
associated with the way an owner uses his resources” (Demsetz, 2003: 283). With
regard to economic transactions, an externality is an impact on a party that is not
79 See also section on Trust, p.156f.
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directly involved, with the effect that prices do not reflect the full costs or benefits in
production or consumption of a product or service. Pertaining to the output variable of
our research framework, i.e. value creation, we focus on positive externalities which
are created when part of the benefit of producing a good accrues to a party other than
that which produces it. Since UCFs are significant producers of externalities - mostly
negative, but there exist also a range of positive ones - they may create value by
capturing essentially negative externalities and transforming them into valuable byproducts,
respectively through the valorisation of such by-products.
The availability of these value creation opportunities is partly moderated by the firm's
embedding capabilities, pertaining to its ability to mobilise stakeholder support for
externality-exploiting projects. By credibly developing win-win propositions, which
increase the firm's resource efficiency through additional uses of so far 'lost'
externalities, while equally increasing stakeholder's utility through rent-sharing, firms
are able to increase their profitability and competitiveness. Since projects towards
externality exploitation in most cases depend on the support of the local administration
and the local community, the firm's reputation, trustworthiness, communication skills,
as well as the value proposition for the stakeholders, are decisive facilitators in
obtaining final approval.
Proposition 19
The UCF’s effective use of embedding capabilities creates value by increasing the
firm's resource efficiency through joint exploitation of positive externalities or the
transformation of negative externalities into exploitable ones.
The subsequent examples illustrate externality exploitation by the chosen case study
objects.
Example: Axpo's long-distance heating and gas production
Electricity generation often is linked with the production of unwanted by-products. The production of
nuclear power, for example, creates heat which needs to be absorbed by high quantities of cooling
water. The sensible valorisation of this externality represents a twofold relief to the environment, since
it reduces the need for fossil fuels of the by-product's users and since there is a decrease of the
negative effects of re-feeding the warm water to the water source. In addition, it improves the plant's
overall energy efficiency.
In the field of renewable energies, operations often generate heat, but also bio gas and fertilizers - as
for example in organic waste plants. For these much smaller plants, the exploitation of by-products is
not only environmentally desirable, but often is decisive for the project's profitability. In most

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circumstances, the implementation of such efficiency-improving projects depends on the cooperation
of local stakeholders.
In the case of Axpo's nuclear power plant in Beznau, the firm's political skills, its local embeddedness
and empathy to the stakeholder's needs and expectations allowed it to build a long-distance heating
network connecting it with the surrounding communities and households. Today, this network is
managed by a separate legal entity, REFUNA, which has been able to convince further villages to
join. With view at Axpo's renewable energies unit, local partnerships with organic waste producers
and collectors, as well as sewage plants allow it to optimally use synergies with its partners.
Example: Holcim's efficient fuel projects
In the cement industry, cement producers more and more begin to valorise the by-products of other
industries, through the use of alternative fuels or raw materials (AFR) for their cement and clinker
production. In these endeavours Holcim is among the pioneers, engaging in so-called co-processing
production with the objective to reduce overall CO2 emissions. Examples for the valorisation of other
industries' by-products are biomass from agricultural waste (e.g. rice hulls, sugarcane waste), meat
and bone meal, and sewage sludge. In some cases Holcim is able to further valorise the heat produced
in its kilns, as demonstrated in two of its Swiss plants, which supply some 600 households with
district-heating.
Example: Airports and shopping centres
A different kind of by-product is very profitably exploited by airports, which have developed solutions
to benefit from the streams of passengers, visitors, employees, and other people frequenting their
facilities. Zurich Airport is one of the world's most successful airports cum shopping centre, based on
the average spending per passenger, and over time has developed into Switzerland's third biggest mall
in terms of revenues. The overall cash-flows thus ensure the economic viability of future airport
expansions and investments in infrastructure upgrading or maintenance.
4.9.5 Summary of value creation effects in single-unit operations
Value creation can be understood in a number of different ways and analysed from
different angles. Within the scope of our framework, we refer to value in the sense of
use value, which we understand from a customer-centred perspective - i.e. the rent
which the firm captures by increasing the perceived value of its products, and from a
firm-centred perspective - i.e. the value created inside the firm, which is not perceived
by the end-customer. We set our research focus on firms, which are attributed to
utilities and concession-based industries of national strategic importance, in order to
identify the fields within which these firms may create value, under consideration of
their specific characteristics and despite their constraints. The insights from empirical
research have led to the conclusion, that value creation seems to predominantly occur
through indirect effects on the firm's relational (social) embedding dimension. In
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particular intangible assets, such as the firm's reputation and trustworthiness, play into
all of the suggested fields of value creation, but also the firm’s conscious care for
building and maintaining strong stakeholder relationships. On the other hand, the
structural (economic) dimension of firm embedding ultimately adds to the firm's
reputation and credibility, serving as proof of the seriousness of its efforts towards
'good corporate citizenship' by delivering also tangible (and sometimes costly) signals
and results. Thus, by embracing good corporate citizenship, the firm taps a key source
of competitive advantage, mitigating risks and recognising opportunities from longterm
economic, environmental, and social trends.
Table 4-13 summarises the identified dimensions of value creation and the thereto
related value-creating effects.

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(continued next page)
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Table 4-13: Summary of value creation dimensions and effects in single-unit operations
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Regrettably, due to the multiplexity of the framework's constructs, the identified
dimensions of value creation are not distinctly delineable in all aspects. Even so, they
are means to structure the field and to reveal the direct and indirect workings within

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the framework. Table 4-14 provides an overview on the links between the
characteristics of the firm's embedding capabilities and the identified fields of value
creation.
Table 4-14: Links between UCFs' embedding capabilities and value creation
With view at the construct of location-fixity, the results of our empirical research
suggest that firms' local dependence is not only an inhibiting factor, but equally may
be the root of unique advantages. By linking the firm's future direction and the welfare
of its surrounding stakeholders, location-fixity creates opportunities for the firm to
accumulate enabling assets with these stakeholders. Thus, the firm may facilitate the
exploitation of potentials for a unique positioning and strengthen the mobility barriers,
inherent in the nature of its industry. If the firm is able to tap these opportunities by
means of its embedding capabilities, it therefore is able to reduce its institutional
exposure, respectively to convert its institutional exposure into institutional
opportunities. Location-fixity's threats to, and opportunities for value creation for our
research object are summarised in Table 4-15.
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Dimensions of
location-fixity
(1) natural resource
dependence
(2) tangible asset
dependence
(3) dependence on
market proximity
(4) ownership
dependence
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Threats & limits to value creation Opportunities for value creation
growth opportunities limited by
constrained resource availability
rent-seeking from resourcecontrolling
stakeholders (e.g. public
stakeholders)
rent-seeking from relevant
stakeholders, appropriating quasirents
necessary to recover sunk
costs
growth opportunities limited by
growth potential of the local market
and transportation costs
state-involvement leads to
conflicting orientations, such as
profit vs. guarantee of public
service and overall utility
Table 4-15: Value creation effects of location-fixity for the UCF
4.10 Part two – multi-site perspective
exclusivity of resource usage as
mobility barrier, ensuring natural
monopoly
subadditive production function,
ensuring natural monopoly
long-term orientation as signal for
commitment and credibility
opportunity for trust building and
embedding of firm with local
customers, reinforcing mobility
barrier against potential competitive
entry
state-involvement (e.g. as public
shareholder) as legitimacy-building
factor
insurance against downside-risks,
since state will not allow the firm's
demise
The second part of our research framework is concerned with value creation between
multiple units and sites, as a contextual complement to the local focus of the
framework, presented in the first part. Throughout the subsequent sub-chapters, we
will examine the collaboration and resource management of multiple location-bound
organisational units - among each other, and between the unit and the corporate parent.
Within this framework we predominantly employ the research lens of strategic
management. We thereby concentrate on single-business (i.e. focused) and moderately
(i.e. relatedly) diversified multi-site firms, or other forms of multi-site collaboration
with a coordinating focal firm, henceforth addressed as MSF.

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UCF - site
-location-fixity
- institutional exposure
UCF - corporate parent
value creation
RQ 6
interaction
RQ 5
UCF - site
-location-fixity
- institutional exposure
local environment local environment
Figure 4-18: Part two of the research framework
Within strategy research, the firm's organisation form is often regarded as central to
strategic outcomes and firm-performance (e.g. Datta, 1991; Hill, Hitt, & Hoskisson,
1992; Markides & Williamson, 1996). We deviate from this emphasis within our
research framework, as the firm’s choice of organisation plays a subordinate role for
our research questions. Rather, we set the focus on multi-site value creation from the
specific angle of location-fixity. We will start our analysis with a brief introduction of
the literature on corporate parenting, before concentrating on concepts of synergy and
discussing the value creation potentials of MSF within utilities and concession-based
industries.
4.10.1 The role of the corporate parent
While the business units (BU) of a firm compete in particular markets, often being
directly engaged in production processes, the firm as corporate parent is usually not.
Much rather, “its role is to oversee, support or augment the primary activities” (C.
Bowman & Ambrosini, 2007: 363) of its BUs, and to facilitate firm-wide value
creation via organic growth or external development. These tasks may be approached
on the attitudinal continuum between a top-down 'the corporate centre knows best' and
a decentralised 'laissez-faire' maxim. Whichever approach the corporate parent
chooses, synergy realisation within relatedly diversified firms requires management (J.
Martin & Eisenhardt, 2002) and the establishment of cooperative organisational
arrangements, in order to coordinate the activities of otherwise independent BUs (Hill
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et al., 1992; Porter, 1985). Campbell and Goold (1995) identify four value-creating
types of activities of the corporate parent, namely
- stand-alone influence: impact on the BU's performance and strategies, viewed
as a stand-alone unit (e.g. by being involved in the setting and monitoring of
performance targets, approving major capital expenditures, and selecting and
replacing the business unit's leadership crew)
- linkage influence: promotion of cooperation and synergy-seeking between the
units and businesses
- central functions and services: support of the BUs' and the overall business
effectiveness
- business development activities: identification of business opportunities by
means of acquisitions, divestments, changes in the scope of business, alliancebuilding
and new ventures.
All of these activities may contribute to value creation, but they also have an inherent
tendency for value destruction. This threat emanates from the obvious issue of
corporate overheads, but also from the ill-judged influence from senior managers and
information filters (Goold, Campbell, & Alexander, 1998). The corporate parent
consequently faces two major challenges towards a positive net value contribution:
First, it has to identify and focus on those areas, where it realistically can contribute to
value creation and to restrain its influence, where no central linking activities are
needed for the realisation of synergies between corporate units. Secondly, it has to
overcome several barriers impeding the collaboration with and between its multiple
sites, needing to develop distinct organising capabilities. Thus, defining the corporate
parent's role to effectively contribute to overall value creation remains an act of
balance.
4.10.2 Inter-site collaboration and linkage formation
Depending on firm context, apart from interactions between the corporate parent and
its BUs, also the exchange between the firm's units and sites plays a role in value
creation. As opposed to the corporate parent's strategic contribution, inter-unit
activities build unique problem solving capabilities on a more operational level. Thus,
different units establish linkages among themselves to exchange resources and transfer
knowledge. Compared to market exchange, such interaction is characterised by
facilitated communication in the exchange process, based on similar shared values and
common corporate languages (Tsai, 2000). Consequently, organisational units can
access other units' knowledge and learn from each other more easily. Hansen and

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Nohria (2004) very generally name five areas of value creation between multiple sites:
cost savings through best practice transfer; better decision making through advice
obtained from other subsidiaries; increased revenue through the sharing of expertise
and products among subsidiaries; innovation through the combination and crosspollination
of ideas; and enhanced capacity for collective action involving multiple
sites.
However, notwithstanding their benefits, the creation of such linkages between units is
not easy. Research has shown, that linkage formation in general is a path-dependent
process, whereby prior linkages determine the formation of future linkages (e.g.
Gulati, 1995; G. Walker, Kogut, & Shan, 1997). Because relation-specific capital, such
as trust and tacit understanding, develops over time, firms tend to stick to their
coordination routines and usually are not actively seeking to establish new linkages.
This inertia is moderated by the degree of individuals' 'strategic linking capability',
which determines the effectiveness of the units' resource exchange and knowledge
transfer (Tsai & Ghoshal, 1998).
Since the MSF's specific organisation form is of limited importance for our research
questions, we will regard the focal firm's dispersed parts as a not further specified
network of organisational units, which are located in different environments and which
possess a set of relational ties which links them together.
4.10.3 Limitations to multi-site firms within UCI
The spatial inflexibility of the UCF entails a number of disadvantages in its value
creation opportunities across multiple sites, if compared with footloose industries.
These constraints relate to three main issues, which will be further elaborated
subsequently.
(1) Limits to overall value chain optimisations
(2) Constraints through (institutional environment specific) regulatory systems
(3) Constraints due to economic nationalism, respectively protective reflexes with
regard to strategic assets of importance to the local economy
(1) Limits to overall value chain optimisations. UCFs are significantly constrained in
the optimisation of their productive processes across dispersed sites, since they have to
perform most operational activities in situ. The extent of these limitations becomes
apparent in the cases of patient care in hospital services, passenger and aircraft ground
services in airport operation, or oil production on drilling rigs. Consequently,
compared to manufacturing industries there are limited possibilities to pool production
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processes for individual components or to combine certain parts of the value chain in
order to realise economies of scale and scope. In addition, the sharing of physical
production resources across sites is almost impossible, because UCFs' critical tangible
assets are highly immobile, making it impossible or very costly to displace them
geographically.
(2) Constraints through (institutional environment specific) regulatory systems. The
high regulatory density of UCI impedes exploitation of synergies across countryborders,
for example, due to differing standards for special equipment, products, etc.
Although there is a tendency towards global regulatory harmonisation, structural
barriers concerning differences in the statutory and regulatory environment persist
(Sudarsanam, 2003), particularly in the less developed areas of the world. In some
cases, these obstacles overlap with the argument elaborated in the next passage - the
defence of national strategic interests - since “most rules and regulations … are created
by governments and are often the outcome of local political processes” (Kostova &
Zaheer, 1999: 70). But also different expectations from the public stakeholders
towards a non-local firm may explain regulatory hurdles. In many countries, firms
with a foreign corporate parent are expected to do more than local companies for their
social acceptance, so that the mere compliance with regulatory minimum standards
does not suffice to build goodwill and would provoke regulatory disappreciation.
Example: Expectations toward Flughafen Zürich as operator of Bengaluru International Airport
Air traffic in Bengaluru has grown significantly in the first decade of the new millennium, with
passenger traffic increasing from slightly above 3m in 2003 to almost 8m in 2009. This momentum
exceeded the most optimistic scenarios for the capacity planning of the new Greenfield airport when it
opened in June 2008. While positive on the revenue side of the airport operator, it also put stress to
the infrastructure and processes from the beginning of operation. Although the airport handled the
high traffic volumes according to international best-practice standards, a fact that was repeatedly
acknowledged by international service quality benchmarks, the Indian authorities expected a different
kind of airport. During its first year of operation, the authorities, politicians and the media regularly
compared the airport with Asia's biggest hubs, such as Singapore, Seoul and Bangkok - all multiples
of the size of the regional airport, and stated their frustration with the appearance of the airport and
its processes. In comparison, the resonance on other Indian airport projects, which were under
control and responsibility of the Indian government or Indian private firms, was much less critical,
despite in some cases obvious inferiority of the services levels. One explanation for such judgments
under divergent yardsticks may be that the major involvements of an international airport operator
and a German shareholder led to unrealistically high expectations. It took the local operator BIAL a
year of continuous high service quality and the convincing argument of winning of a number of
international awards, until the public view was changed and until also feedback from public
authorities and politicians on the airport became more favourable.

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(3) Constraints due to economic nationalism. Since UCI are very visible and under
close scrutiny from the regulator, politics, and the public in general, attempts towards
synergy realisation are a sensitive issue with regard to issues of security of supply and
national interest. Recently, there is a renewed tendency in industrialised states towards
economic nationalism 80 , manifesting itself in the “role that the national government,
domestic firms, and general public is expected to play in curtailing the involvement of
foreign firms in the domestic economy” (Akhter, Kim, & Hosseini, 2003: 77; see also
Schedler & Bieger, 2002). As a result, firms optimising their operations across borders
might experience in their host countries a willingness to restrict free market
developments, if the stand-alone functionality of the firm's local unit is at risk 81 .
Empirical evidence is mostly found in cases, where the state takes influence on
planned mergers and acquisitions, recent examples of which being illustrated in Table
4-16. However, economic nationalism influences also established foreign firms'
operations, by imposing costs which do not accrue to firms of national origin (cf. S.
Zaheer, 1995). Thus, the consequences for foreign firms are restrictions to the
movement of labour, goods, and capital at best and outright expropriation at worst.
80
See also Akhter (2007), who defines economic nationalism as seeking to "safeguard domestic
resources, industries, and people from the control of foreign firms, who are considered members of the
out-group".
81
In a commentary article, 'European Voice' (N.N., 2006) observes: "EU governments celebrate when
companies registered in their countries take over foreign companies - and tend to see it as a sign of the
economic potency of their industries. But they are up in arms when foreign companies try to take over
their national companies. They often justify their protectionism with the desire to boost 'European
champions', which would prevent the de-industrialisation of Europe, they say, and would avoid
restructuring and layoffs."
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Industry
(country)
Energy
(Spain)
Energy
(France)
Steel
(Luxembourg)
Ports
(USA)
Various
(Canada)
Airports
(Great
Britain)
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Description Year
As an answer to a takeover bid to Endesa (Spain) by E.ON (Germany), the
Spanish government decided to intervene in order to prevent a take-over and to
merge Endesa with Gas Natural (Spain) instead, with the objective to create an
Iberian energy champion. Ultimately the (government-loyal) Spanish regulator
allowed the merger due to mounting pressures from the European Commission,
however, tying it to significant constraining conditions. As a consequence
E.ON withdrew its bid in spring 2007.
The French government pushed a merger between state-controlled Gaz de
France (GdF) and the private utility group Suez, in order pre-empt Enel's
(Italy) take-over attempt for Suez. Due to political resistance in France, Enel
never officially bid and withdrew from its plans. Suez and GdF merged 2007.
Mittal Steel (GB, India) initially made a friendly offer to Arcelor, to which
Arcelor responded by rallying the related governments of Luxembourg
(owning 5.6% of Arcelor), France, and Spain against the deal. Consequently,
Mittal Steel changed strategy after being turned down, which led to a lengthy
takeover struggle. Backed by Luxembourg's government and swiftly approved
by its regulator, Arcelor produced Severstal (Russia) as a “White Knight” to
prevent a takeover by Mittal Steel. Yet by June 2006 the merger between
Arcelor and Mittal Steel finally was agreed upon, being implemented in the
course of 2007. Initial political resistance to the bid were based on economic
nationalism: governments feared for their countries' interests, which they saw
endangered through the entrepreneurial business demeanour of Mittal Steel,
contrary to Arcelor's tradition of serving public interests and giving priority to
securing national supplies.
When Dubai Ports World (DPW, an SOE of United Arab Emirates) acquired
Britain's Peninsular and Oriental Steam Navigation Company (P&O) in March
2006, a controversy started about P&O's management contracts of six major
US ports (plus 14 minor ports). Although the sale was approved and regulatory
hurdles have been cleared by the Committee on Foreign Investment in the
United States (CFIUS), various US politicians argued that the takeover would
compromise US port security. After an initial voluntary postponement of
DPW's takeover of significant operations it finally decided to resell the venture
to American International Group (AIG), due to the persisting political and
national resistance to the takeover.
End of 2007 the Canadian Government issued 'clarifications' of its FDI rules
for SOE under the 'Investment Canada Act'. The new rules included an
assessment of the acquisition-impact on the location of production sites, as
well as R&D facilities, and on whether the bidder will ensure “the appropriate
level of capital expenditures to maintain the Canadian business in a globally
competitive position” (Government of Canada, 2007).
Two years after Ferrovial (Spain) took over the British Airport Authority
(BAA) Britain's regulator ordered its break-up in order to improve service
quality and lower costs by creating a competitive environment for the various
airport operations, cf. subsequent separate text-box.
Table 4-16: Examples of economic nationalism in national strategic sectors
2006
2006
2006
2006
2007
2007

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Example: BAA's loss of legitimacy after its take-over by Ferrovial
In June 2006, Great Britain's BAA accepted a take-over bid by the Spanish infrastructure group
Ferrovial, bringing Britain's strategically most relevant airports under foreign ownership. Despite
desolate customer service and deterioration of infrastructure over the past 30 years of BAA's existence
as a private company, the British regulator became active just in the advanced stages of negotiations
with Ferrovial, conveying the impression that the impending change of ownership had an influence on
the application of stricter standards. BAA operated seven British airports at the time, among them
Heathrow, Stansted and Gatwick - it therefore historically had a quasi-monopolist status in the
London area. However, already during the negotiation phase for Ferrovial's take-over the Office of
Fair Trading announced a competition inquiry into the ownership of Britain's airports, which would
potentially result in the break-up of BAA. There followed scrutiny of the operator's customer service
standards at Heathrow and a review of prices and charges. Under the header 'Breaking up BAA', the
Financial Times commented in 2008: “in the months since June 2006 … Heathrow has become hated,
a byword for chaos and incompetence” 82 and the Telegraph doubles: “BAA is one of Britain's most
arrogant, complacent and customer-unfriendly businesses. It's a showcase for the disbenefits of
immunity from competition” 83 . But when Ferrovial took overin 2006, the airport management was
already complacent. The perceived grievances were caused by BAA, whose privatisation in 1987
obviously had not resulted in the hoped for improvement of airport infrastructure and customer
service. Nevertheless, the regulators decided to take consequences only at the time, when BAA was no
more a British company.
Consequently, the various inquiries of the national regulatory bodies focused on BAA's lack of
responsiveness to the needs of its customers (i.e. airlines and passengers), the impact on investment
and customer service, and the absence of competition - particularly in the London area. Ultimately, in
March 2009 the British Competition Commission imposed on BAA the divestiture of three airports,
namely Gatwick, Stansted, and one of the Scottish airports, based on the findings of their inquiry.
While there certainly were valid reasons for the decision, interestingly the concerted regulatory
activity only started when a change in ownership to a foreign firm became imminent. It is standing to
reason, that the increased scrutiny, inter alia, is linked to the loss of BAA's organisational legitimacy:
Ferrovial - as a Spanish company - apparently was not able to overcome its liabilities of foreignness
and to become a credible investor and airport operator in the British interest. As a consequence the
parent firm faced higher transaction costs during the various disputes, lower revenues due to a
reduced cap on its allowed return on capital, and increased cost of capital due to the perceived
increased risk to creditors. However, what hurts Ferrovial most is the divestiture of three of BAA's
most precious assets at a loss, compared to the premium it paid for purchasing them in a bundle.
82
N.N. (2008, April 22). Breaking up BAA. Financial Times. Retrieved January 15, 2010, from
http://www.ft.com.
83
Randall, J. (2008, August 20). BAA break-up is needed for better airports. Telegraph. Retrieved
January 15, 2010 from http://www.telegraph.co.uk.
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While the second and third limitation generally pertain to all multinational
corporations, they are particularly salient to location-bound firms within UCI, which
are not only visible, but also highly sensitive contributors to the functioning of the
national economy, often being symbols of national pride and progress. As a
consequence, in their search for synergy across their multiple sites, UCF need to be
sensitive to the local environment, as described in the single-site framework. Due to
these specific limitations, and regardless of their organisational form, their synergy
and value creation potentials are mainly to be found in the realm of intangibles, as will
be discussed next.
4.10.4 Value creation in the multi-site firm
From a strategic management perspective, the fundamental argument for firms'
expansion - geographically or towards related businesses - has been provided by Edith
Penrose (1959). Viewing the firm as a bundle of resources, she argued that the reason
for expansion lies in underutilisation of some of these resources, which induces firms
to search for opportunities to employ these slack resources in other rent-creating
activities. According to this logic, value creation in the operation of more than one
firm site or business unit stems from an improved utilisation of a firm's existing
resources.
Stated differently, firms are seeking to realise synergies, defined as “the value that is
created and captured, over time, by the sum of the businesses together relative to what
it would be separately” (J. Martin & Eisenhardt, 2001: 3). While often narrowed down
to reduction of cost 84 (Besanko, Dranove, & Shanley, 2000), this inclusive view on
synergies also considers value creation from revenue increases and from a reduced
need for investment. Importantly, it also takes account of the temporal nature of
synergies, incorporating value creation effects of sharing and recombining resources
over time (J. Martin & Eisenhardt, 2003). Moreover, this notion of synergy stresses the
importance of the firm's internal and external environment, as well as the relationships
between them for the exploitation of synergies (J. Martin & Eisenhardt, 2002). Based
on this wide conceptualisation, in the second part of our framework we equate synergy
realisation between multiple sites (respectively between the corporate parent and its
sites) with value creation.
84 Porter (1985: 328), for example, conceptualises synergies much narrower as the results from
businesses' transfer of knowledge, or from the sharing of activities with "the potential to reduce cost if
the cost of a value activity is driven by economies of scale, learning or the pattern of capacity
utilisation".

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Synergy classification. The concept of synergy has been extensively researched
within strategic management from a variety of perspectives, and resulting in a number
of definitions, typologies and classifications (e.g. Ansoff, 1965; Goold & Campbell,
2000). In a recent contribution to the field, Knoll (2008) integrated existing approaches
to synergy into a consistent overall typology, as illustrated in Table 4-17, on which we
will draw for our framework.
Synergy
Type
(1) operative
synergies
(2) market power
synergies
(3) financial synergies
Definition Sub-Categories
performance
advantages of MSF
from leveraging
operative resources
across their sites and
related businesses
(continued next page)
performance
advantages of MSF
from leveraging market
power resources across
sites & related
businesses
performance
advantages of MSF
from leveraging
financial resources
across sites and related
businesses
- efficiency synergies: cost subadditivities from sharing similar
operative resources across businesses
- growth synergies: valuable revenue superadditivities from
combining complementary operative resources across
businesses
- procurement power: pooling of purchasing volumes to
maximise price advantage
- reciprocal buying and selling: establishment of advantageous
buying and selling relationships
- reduced corporate risk: building of portfolio with negatively
correlated cash flows to benefit from coinsurance effects
- internal capital market: establishment of an internal capital
market to benefit from reduced financing costs and increased
financial flexibility
- tax advantages: reduction of tax liabilities by using losses in
some businesses to offset profits in others
- financial economies of scale: reducing transaction and
floatation costs in issuing of securities, due to larger scale
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Synergy
Type
(4) corporate
management synergies 85
Definition Sub-Categories
performance
advantages of MSF
from leveraging
corporate management
capabilities across sites
and related businesses
Table 4-17: Typology of synergies for multi-site firms 86
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Sources of corporate management synergies:
- entrepreneurial capabilities: stimulation of business-level
managers to act entrepreneurially
- organisational design: firm capability to create structure,
culture, and control systems that motivate and coordinate
employees; to balance exploitation and exploration; and to
continuously align environment, structure and strategy
- superior strategic capabilities: intangible governance skills
for better BU performance, as compared to stand-alone
4.10.5 UCF value creation in multi-site operations
Although Knoll's (2008) synergy typology was devised for multi-business firms, we
argue, that the identified categories equally apply for single-business firms and related
diversifiers, which exploit international - as opposed to inter-industry variation. The
emphases and significance of the identified synergy types are different, though: the
more closely related the firm's businesses, the higher the potential benefits from interunit
collaboration (Hansen & Nohria, 2004). This applies particularly to the group of
operative synergies, whereas for example risk reduction through negatively correlated
cash flows 87 , or bundling advantages are less important in related, but geographically
diversified diversifications. With view at UCFs with multiple sites, and under
consideration of their limitations, our empirical research has led us to identify the
following dimensions of value creation:
85 Corporate mgmt. synergies have not yet been conceptualised in strategic management literature.
However, research suggests that these synergies exist, capturing the performance increases of
businesses that directly result from the activities of corporate managers. Knoll (2008: 98) specifies "if
a firm possesses valuable corporate management capabilities, chances are high that the synergies
derived from them contribute to corporate advantage because these capabilities are likely to be rare,
causally ambiguous and socially complex". To bridge the conceptual gap, and building on the claim
that corporate management capabilities may contribute to synergy realisation, we therefore draw on
the identified capabilities as a substitute for the typology for the purpose of our research framework.
86 Adapted on the basis of Knoll, 2008.
87
Apart from business diversification, also geographical diversification can be a means to spread risks,
depending on the industry and firm context.

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(1) Relational dimension. The corporate parent's reputation and its experience from
operations in different institutional and cultural environments form the basis for
value creation in operating across units. The MSF's contribution lies in
reputational signalling effects to the local unit's environment, and in an
accelerated process of legitimisation through heightened institutional sensitivity
and empathy.
(2) Resource dimension. By exchanging, recombining, and making joint use of
intangible resources, also spatially inflexible MSF are able to create value
across their units. These contributions are particularly valuable in the areas of
best practice exchange, and the exploitation of management synergies and
financial synergies.
(3) Institutional dimension. In its interactions with public stakeholders, MSF are
able to build trust by enforcing effective compliance monitoring across their
units, making their business activities and externalities transparent, and
demonstrating good corporate citizenship. Through its extensive experience, the
corporate parent is able to effectively support the local unit in regulatory
lobbying. Thus, it contributes to value creation by efficiently mitigating the
risks inherent to firm foreignness, foreseeing the intricate challenges of a new
host country environment as a result of their extensive institutional experience
from other operations.
These three dimensions of value creation in multi-site situations will be further
elaborated subsequently.
4.10.6 Relational dimension of multi-site value creation
While a number of influential streams within the synergy literature assume a rather
under-socialised and simplistic perspective of corporate action (e.g. transaction-cost
economics, agency and contingency theory) (J. Martin & Eisenhardt, 2003), recent
research changes focus from a static view on synergy towards a more dynamic
perspective, acknowledging that synergy realisation depends on context. Thus, the
need to frequently realign firm resources for the exploitation of shifting market
opportunities is better incorporated. In such dynamic environments synergy realisation
to a growing degree relies on intangibles, such as knowledge, brand, reputation and,
importantly, organisational legitimacy - linking strategic management with
institutional research.
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MSF often operate in differing institutional environments 88 , with their units linked
through shared policies or strategies. As a consequence, their organisational legitimacy
spans multiple levels and scales, taking different forms at the individual sites and for
the overall firm. Compared to single-site organisations, this bears an additional
element of complexity with regard to the dimensions that influence organisational
legitimacy, such as (1) the legitimating environment; (2) the organisation itself; and
(3) the process of legitimisation (Kostova & Zaheer, 1999). Importantly, the
legitimacy of the firm's subunits is interdependent with the legitimacy of the overall
system. As a result, there are possible 'legitimacy spillovers' - negative and positive -
between the different parts of the organisation. Such spillovers illustrate the
opportunities and simultaneous vulnerability of the focal firm with regard to overall
legitimacy: local legitimacy of a firm's subunit is not only inferred from its local
activities, but also from the social approval and reputation of other firm units, as well
as the corporate parent.
Under such a systemic perspective, the multi-site UCF contributes to local value
creation by bringing in its experience with non-familiar institutional environments. On
a relational dimension, it has the opportunity to support the local unit on two of the
afore-mentioned legitimisation dimensions, namely
- on the organisational dimension: through affiliation with a corporate parent
respectively a focal firm, the local unit benefits from signalling effects; and
- on the process dimension: the corporate parent draws from its experience with
other units, thus being highly sensitive towards different institutional and
cultural environments.
Signalling on the basis of reputation and identity. Originating from contract theory,
the concept of signalling developed from the notion of information asymmetry
between economic agents. The objective of signals is to reduce uncertainty on quality
in markets: economic actors rely on them, when a direct quality evaluation is too
difficult, costly, or dangerous. Thus, signals are designed to communicate, transmitting
information from those who have more of it to those who are less informed (Spence,
2002). More formally
a signal is a perceivable action or structure that is intended to or has evolved to
indicate an otherwise imperceivable quality about the signaller or the signaller’s
88 Each of these institutional environments has its own set of regulatory, cognitive, and normative
domains, see also sub-chapter. 4.2.

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environment. The purpose of a signal is communication and its goal is to alter the
receiver’s beliefs or behaviour. (Donath, 2007: 3)
Within strategic management research, signalling is often researched in relation to
reputation and trust (e.g. Fombrun & Shanley, 1990; Nayyar, 1990). Reputations
summarise a good deal of information about firms and shape the responses of the
firm's stakeholders (Teece et al., 1997). This intangible asset thus enables the firm to
achieve various goals in its stakeholder interaction. In our framework, we therefore
draw on the stipulated link between reputation and signalling: when the parent's
reputational asset radiates to the local unit's environment, the latter receives
information on the expected future behaviour of the firm and its local unit. As a
consequence, with their reputation MSF are able to support their local units in
signalling their commitment, conveying trustworthiness and credibility.
Thus, with regard to multi-site UCF, the concept of signalling describes the use of the
corporate parent's reputational attributes for the purpose of
- facilitating the firm's market entry;
- expediting the local unit's embedding process in institutional environments
where the local unit is not yet firmly embedded: and
- increasing the credibility and status of the local unit in order to gain support for
specific local projects, local financing, and business development.
Institutional and cultural sensitivity. As has been discussed already in the first part
of the research framework, the ability to understand a firm's local institutional
environment and its stakeholders is a precondition for its long-term success.
Accordingly, based on the firm's empathy for the local conditions, its overall business
culture and its organisational logic, the local unit decides on the degree of local
adaptation. In its extreme form, adaptation renders the firm 'isomorphic' with the
institutional environment “by adopting organisational forms, structures, policies, and
practices that are similar to the ones institutionalised in their environment” (Kostova &
Zaheer, 1999: 71). In multi-site firms with operations in widely differing institutional
environments, this option may not be feasible, stretching the organisational cohesion
requirements and the local 'way of doing things' too far (Westney, 1993). In its less
far-reaching version, firm adaptation happens selectively and resembles a negotiation
process towards legitimisation. This approach is particularly valuable in institutional
environments, which are conflicting with the firm's home environment. Firms with
little experience in geographical expansion usually are facing higher transaction costs,
due to their 'liabilities of foreignness' and their “alien status [that] always imposes
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some penalty on managerial effectiveness” (Caves, 1971: 6). In the case of an
experienced MSF, these transaction costs are moderated by the “extensive
organisational experience [of the corporate parent] in dealing with legitimacy issues
and expertise in scanning different institutional environments, identifying important
legitimating actors, making sense of their legitimacy requirements, and negotiating
with them” (Kostova & Zaheer, 1999: 71). Depending on the size of the corporate
parent and the strategic relevance of the local unit for the local environment, this
approach may also increase the firm's bargaining power in the interaction with the
public stakeholders. The corporate parent's cultural and institutional empathy and
experience thus creates value through
- lower transaction costs of the local unit and faster time to implementation of
local projects, due to better sense-making of the institutional environment's
legitimacy requirements
- increased managerial effectiveness
- increased bargaining power by the corporate parent's adequate and sensitive
interference with local issues
Summary. Both of the described fields of MSF value contribution, i.e. signalling and
cultural sensitivity, are highly relevant in the initial legitimisation process of the local
unit. However, established local units have to be aware of the possibility of negative
spill-over effects from other units and the corporate parent, which might equally pose a
threat to maintaining local legitimacy (Kostova & Zaheer, 1999). Affiliation with the
corporate parent, again, implies potentials for value creation and the risk of value
destruction.
4.10.7 Resource dimension of multi-site value creation
Sharing resources between various BUs frequently implies the use of common
production factors, with the objective to achieve economies of scope 89 . The potential
to create value therefore is a function of both, subadditive costs and superadditive
values of the underlying resource combinations (Tanriverdi & Venkatraman, 2005). In
the case of the multi-site UCF and its spatial limitations, cross-unit value creation
predominantly takes place outside the domain of physical production. The value of
managing across the firm's units rests not so much on the exploitation of differentials
in factor and product markets, but on the transfer of learning and innovations, as well
89 Economies of scope are realised where joint production costs are less than the sum of stand alone
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as the enhanced leverage to respond to competitors' and governments' threats. Thus, by
the joint use, exchange, and recombination of intangibles, the firm is able to use them
better as compared to their stand-alone use within each of its units. Based on our
empirical research and with reference to Knoll's (2008) synergy typology, the
following fields of resource-based value creation have been identified and will be
discussed subsequently:
(1) sharing of best practices
(2) drawing on management skills from the corporate parent or the focal firm
(3) exploitation of financial synergies
(1) Knowledge resources & best practice synergies. Out of all intangibles,
knowledge certainly is the most significant resource for the creation of synergies: it is
one of the few assets that grow most when shared. Categorised into tacit and explicit
knowledge, the first-mentioned is linked to individuals, residing in the minds of human
resources. Consequently, it is costly to articulate and communicate. Explicit
knowledge, on the other hand, is codified, i.e. embedded in product and process
technologies, patents, organisational processes, routines, and rules, and can be
expressed and communicated (Tanriverdi & Venkatraman, 2005). Exchanging
knowledge resources in the organisational context pertains to the process by which it
flows through the corporation and is recombined into new value-creating synergies (J.
Martin & Eisenhardt, 2002). Thus, by using the same knowledge resources across
multiple businesses, firms are able to create economies of scope. Unfortunately, such
knowledge exchange is not trivial: efficiency and effectiveness depend on various
factors, such as the characteristics of the knowledge sender and recipient, the
relationship between them, respectively the organisational context within which the
transfer occurs (cf. Kogut & Zander, 1992; Szulanski, 2003). Most importantly, it
depends on the characteristics of organisational knowledge being transferred: the more
codified, the easier a successful transfer can be attained, and the weaker is the need for
geographical proximity. Despite the difficulties in sharing knowledge, it has
advantages over the transfer of physical assets, “because it can be more readily
transferred and applied in very different situations” (J. Martin & Eisenhardt, 2002). If
done effectively and efficiently, it signifies the most important competitive dimension
(Kogut & Zander, 1992). Thereby, the processes that facilitate knowledge transfer and
recombination represent a particularly important source of synergy from (intertemporal)
scope economies (Singh & Montgomery, 1987).
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In the intra-organisational context, the transfer of knowledge is also known as best
practice exchange, connoting “the firm's replication of an internal practice that is
performed in a superior way in some part of the organisation and is deemed superior to
internal alternate practices and known alternatives outside the company” (Szulanski,
1996: 28). It is a dyadic exchange of the firm's knowledge between a source and a
recipient unit, in which the identity of the recipient matters. Winter (1995) even
conceptualises best practice exchange as the replication of organisational routines, i.e.
the exact or partial replication of a web of coordinating relationships which connects
specific resources to the effect that a similar set of resources is coordinated by a very
similar web of relationships. Since part of these practices and routines is tacit,
difficulties in such a replication are most likely to emanate from causal ambiguity
about these connections and how the relationships interact in the activity or process
(Lippman & Rumelt, 1982; M. Polanyi, 1962).
In their management across multiple sites, UCF thus have a potential to exploit their
cumulated knowledge and to create value by exchanging best practices. Particularly
with regard to explicit knowledge, such as process knowledge, codified in standard
operating procedures (SOP), as well as technological best practice, the roll-out across
all parts of the organisation can be managed effectively. Due to the subadditivity of
their production function, small changes in utilities' operation may have a considerable
impact on overall productivity, in parallel potentially also positively impacting safety
and reliability. Therefore, the exchange of codified knowledge can already effect
major improvements. Taking the example of airport management, a major part of the
performance of airports derives from adherence to best practice SOPs and the right
technological devices, thus allowing for an efficient knowledge transfer. However,
productive knowledge is embodied in ways rendering a simple information transfer
insufficient (Teece et al., 1997): in order to reach operating excellence this explicit
knowledge is inextricably linked with tacit and socially constructed knowledge, as for
example the establishment of a safety culture or instilment of a true service orientation
in the firm's employees. To convey and share this fraction of best practice is
considerably more challenging: by dispatching human resources from one BU to
another, the reuse of tacit knowledge may be facilitated. But this process is slow and
only a small number of units can benefit from the knowledge exchange at any given
time. Therefore, while the value creation potential is significant, UCF must be aware,
that best practice sharing is an enduring endeavour that requires patience.
Best practice transfer usually takes place through BU interaction. But to achieve proactive
knowledge exchange, the corporate parent or focal firm must send the right

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signals to their dispersed flock of managers. Often, there is a lack in mechanisms for
the efficient knowledge-sharing (Markides & Williamson, 1996). By setting the right
incentives and fostering a cooperative culture, the corporate parent might succeed in
knocking down the barriers to inter-unit collaboration. In addition, it must establish
routines and platforms to facilitate exchange between the units. Most importantly,
though, the corporate parent needs to sensitise its subsidiaries on necessary adaptation
of transferred knowledge to fit with the local context and requirements. Again, the
corporate parent's experience and sensitivity towards cultural and institutional
differences adds to an increased awareness of the knowledge giver and the knowledge
taker of what is needed to deploy the best practice successfully in a new environment.
Example: Holcim Group Support
Holcim Group Support (HGRS), based in Zurich and in Holderbank, is a service organisation with the
purpose to create value by supporting Holcim's de-central organisations in operational and industry
related fields. It fosters knowledge exchange, best practice dissemination and ensures adherence to
Holcim's corporate policies. Through its turntable function between the corporate centre and the de-
central units, as well as between the units, it facilitates the overall information flow. In addition,
HGRS plays an important role in business development, providing expertise in new market entries or
green- or brownfield projects. One of its focus areas is the implementation of the corporate SD
initiative, helping its locally rooted firms to further strengthen their stakeholder relations and to
reduce its overall global footprint. Complementary to these roles, HGRS is responsible for the group's
corporate strategy and risk management. Its over 800 employees (2009) represent Holcim's know-how
and capabilities backbone and constitute one of the group's biggest intangible assets.
(2) Corporate management synergies. Compared to stand-alone businesses, business
units within the MSF “have a learning scale opportunity in the development and
exploitation of managerial knowledge” (Tanriverdi & Venkatraman, 2005: 102). Such
corporate management synergies stem from the following superior capabilities (Knoll,
2008):
I. entrepreneurial capabilities, i.e. corporate management's ability to stimulate
business-level managers to act entrepreneurially
II. capabilities in organisational design, i.e. to create structure, culture, and control
systems that motivate and coordinate employees; to balance exploitation and
exploration; and to continuously align environment, structure and strategy
III. strategic capabilities, in the sense of intangible governance skills to manage
BUs to perform better than they would if they were independent companies
All three sources play a significant role for MSFs within utilities and concessionbound
industries, as our case-study research has shown.
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I. Entrepreneurial capabilities. Due to the cumulative experience of the overall firm,
and insights into best practices all over the organisation, the corporate parent has the
capacity to see future trends and opportunities, complementary to the insights of the
local units in their local environments. Depending on the corporate culture,
entrepreneurial ideas and business development projects might be encouraged from the
corporate parent, giving the local management the needed support - financially, as well
as in terms of business advice.
II. Capabilities in organisational design. Different institutional environments and
cultural contexts may require different approaches towards organisational design, as
may the local regulatory set-up. Since the corporate parent has insights in the relations
with service partners and other public stakeholders in a number of business contexts,
its experience is invaluable with regard to designing an organisation adequate within
and fitting into new institutional environments.
III. Strategic capabilities. In its property of monitoring BUs on a number of key
performance indicators, the corporate parent is able to take timely influence on BU's
strategic orientations. Particularly with regard to investment management, the parent
has the opportunity to increase the overall value of the firm by setting priorities in
capital allocation.
(3) Financial synergies. As opposed to the other two categories of resource-related
synergies, which require an interaction between the BUs, financial synergies can be
achieved with no such exchange. Through the availability of an internal capital market,
the MSF is able to achieve lower capital costs as compared to stand-alone businesses.
In addition, effects of geographical risk diversification, co-insurance, and reduced
information asymmetries between the BUs may lower the cost of issuing new debt for
the company, making it cheaper to raise additional funds. Such financial economies
allow the firm to lower its risk of default (Chatterjee, 1986; Haspeslagh & Jemison,
1991) and give it greater ability to finance investments internally by means of portfolio
management (Lubatkin, 1983).
While these effects are relevant to any multi-site firm, the benefits to UCF are
particularly marked. Not only are they significantly financially leveraged, due to their
capital-intensive assets, but their product demand in some cases is highly correlated
with the business cycle, as for example in the airport industry (volume of passengers
and cargo), the port industry (volume of cargo), power utilities (industrial demand for
electricity), or the cement industry (reduced construction activity). As a consequence,
the risk and potential instability from volatile demand, combined with high cost of

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capital is significant. As our empirical research suggests, managing multiple
(geographically dispersed) assets provides UCF with the following financial synergies:
- reduced corporate risk high importance for several case study objects
- internal capital market
- tax advantages
- financial economies of scale
high importance for Axpo and Holcim,
which are organised as financial holdings
Geographical and related-business diversification therefore help the multi-site UCF to
smoothen its revenue fluctuations and provide it with greater flexibility to allocate
capital through the availability of internal means.
4.10.8 Institutional dimension of multi-site value creation
As elaborated in the first part of the research framework, institutions form a critical
element of the firm's business environment, and the interaction of our research object
with institutional stakeholders bears significant institutional exposure. But while
institutions usually are perceived as constraining (in the form of business policies),
they equally allow for the accumulation of valuable institutional assets, leveraging the
firm's competencies to earn economic rents (C Oliver & Holzinger, 2008).
In order to build and benefit from such institutional assets, UCFs put efforts into their
organisational legitimisation, thus lowering risks and uncertainty from their local
environment. Importantly, their legitimisation activities aim at establishing positive
relationships with their stakeholders - thus signalling commitment - and at building
trust and credibility. By seeing such relationships as a process, cognitive distance can
be reduced, while furthering empathy on both sides (Nooteboom, 2004). Thus,
although the parties' interests remain conflictive, the nurturing of a constructive
relationship facilitates joint solution-finding.
As a further trust-building dimension in the local firm's interaction with official and
sovereign stakeholders, an affiliation with a corporate parent might prove supportive.
Not only can the parent firm add to credibility through its reputation, its endeavours
towards being a good corporate citizen, and its efforts to be transparent, it also has the
capacity to support the local unit in lobbying for its interests.
In the following, we will therefore elaborate the two identified fields of corporate
parents’ value creation on the institutional dimension: compliance monitoring and
political support and regulatory lobbying.
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Compliance monitoring. Through its firm-internal linkages, the corporate parent is
able to establish governance mechanisms with its multiple sites. These include the
monitoring of their performance, their strategic and financial decisions, but also their
adherence to local, national, and international rules and regulations. Its motivation to
exercise some control on the dispersed parts of the firm is deeply intrinsic: due to the
risks of reputational spillovers (cf. sub-chapter 4.10.6), it aspires to ensure an overall
unified understanding of good corporate citizenship and the need for organisational
legitimacy, as well as simple regulatory compliance. On one hand, this can be fostered
by establishing a strong corporate culture as a medium for governance, creating “a
shared 'focus' of purpose, meaning (interpretation), standards and values of behaviour”
(Nooteboom, 2004: 97). On the other hand, the corporate parent achieves effective
internal governance by having supportive organisational arrangements in place which
link structure, incentives, and control systems in order to sharpen this shared focus.
Martin & Eisenhardt (2002: 22) specify the advantages of internal governance within
multi-site organisations as “the ability of managers … to reduce the costs of intrafirm
exchanges, relative to the costs of conducting similar exchanges in the market”. These
advantages also refer to their ability to track compliance issues within the overall firm
construct: where external institutions, such as the regulator, are at an informational
disadvantage in their monitoring of the firm's activities, the corporate parent has the
means to eliminate such information asymmetry. Thus, the corporate parent's credible
efforts to establish transparency in their local unit's operation, creates value by:
- Reducing the risk of industrial accidents and damages through irresponsible
activities. The establishment of internal control systems and the demonstration of
management attention lead to a joint interpretation of good corporate citizenship
and responsible corporate behaviour beyond pure regulatory requirements. In
addition, ensuring corporate minimum standards beyond the regulatory
requirements avoid negative reputational spillovers, which would damage the
overall firm's reputation.
- Decreasing transaction costs with public stakeholders. The increased level of trust,
instilled by the corporate parent's involvement, may lead to reduced transaction
costs with the regulator and the public administration, since a cooperative
relationship fosters joint solution-finding as opposed to legalistic bureaucracy.
- Formation of long-term institutional assets. Firm-incentives for opportunistic
behaviour are eliminated, since the advantages of possessing invaluable
institutional assets for the local unit's future development outweigh short-term

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advantages from breaching trust, which would put those assets at risk.
Concomitantly such trust-based interaction increases the local administration's
goodwill stocks for the firm, leading to effects as described in the sections 4.9.2
Value through strategic options and 4.9.3 Value through risk decrease.
The importance of internal governance for MSFs, and their respective awareness and
derived actions are illustrated by the following best practice example of Holcim.
Example: Holcim's internal governance standards
Due to the diversity of Holcim's geographical markets, the extreme variance in their host countries'
cultures and legal systems, and due to Holcim's social responsibility towards its stakeholders,
corporate governance is not only a legal requirement, but assumes strategic importance. Thus, the
firm's intricate system of governance and control shields it from financial risks and protects its
reputation. In its annual report 2009, Holcim states accordingly: “[corporate governance] is the
precondition for the Group’s credibility and good reputation and strengthens confidence among
investors, business partners, employees and the public at large” (Holcim Ltd, 2010a: 25). The
implementation of good internal governance happens on the one hand on an individual level of
empowerment. Holcim established a broad Code of Conduct, binding to all employees, for the
clarification of what rights and obligations apply in the work environment (ibid.). On the other hand,
governance implementation takes place on a control level, whereby the corporate centre's independent
internal audit body actively screens central and de-central firm activities on a financial dimension, but
also with regard to compliance with external and internal guidelines.
Political support and regulatory lobbying according to spatial scale. Generally,
firms operating in densely regulated environments with a high perceived degree of
dependence on government policy, are acutely aware of the importance of their
political activities (Hillman & Hitt, 1999). Thus, for UCF paying attention to
governmental affairs is vital on the local and the corporate level, in order to guard the
firm's interest against adverse regulatory changes, and as a means of gaining
competitive advantage. Political activity is concerned with the firm's relationship to
government, in particular its interests and activities in legislative and regulatory
processes. It includes, among others, environmental scanning, lobbying, political
action committees, coalition building (including trade associations), and advocacy
advertising (Shaffer, 1995). While it does not enable the firm to reduce its dependence
on the government, political activity diminishes “uncertainties related to the
dependence, and … the likelihood that dependence will have negative effects on the
firm” (Getz, 2001). Overall, the objective of the firm's political activity is to arrive at
public policy outcomes favourable to the firm's continued economic survival and
success (Keim & Baysinger, 1988).
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For the effective management of the political environment, the firm has four basic
strategies at hand, as illustrated in Figure 4-19: proactive, defensive, anticipatory, and
reactive (C Oliver & Holzinger, 2008). Seeing political activity as an opportunity to
create value, UCFs prefer proactive and anticipatory strategies. While the anticipatory
approach induces the firm to establish best practices in pre-emption of regulatory
changes to come, the proactive approach builds on the use of the firm's political
capital. Defined as the ability to influence government policy (Shaffer & Hillman,
2000), political capital is a specific form of reputational capital (Fombrun, 1996), and
its development resembles the development of social capital, which is characterised by
a continued exchange relationship between the parties (Nahapiet & Ghoshal, 1998).
Therefore, a firm's relational approach on public policy facilitates such continued
exchange, employing a mixture of anticipatory and proactive strategies. By means of
such relationship-building, the parties are mutually trusting and “more willing to
engage in cooperative exchange, which then increases each party's social capital”
(Hillman & Hitt, 1999: 829).
Compliance
Strategic orientation
Influence
Value perspective
Value maintenance Value creation
Reactive strategy
Examples:
• Developing efficient pollution
control processes to meet standards
• Rapid realignment of structures
Defensive strategy
Examples:
• Lobbying to increase entry barriers
• Active advocacy of the status quo
Figure 4-19: Alternative political management strategies 90
Anticipatory strategy
Examples:
• Establishing best practices in
anticipation of public policy change
• Hiring government experts
Proactive strategy
Examples:
• Redefining constituents’ norms
• Establishing standards that redefine
current legislation
The dimensions of political influence include access to policy-makers, knowledge of
the public policy arenas in which the firm operates, and expertise in crafting effective
strategies (Shaffer & Hillman, 2000). In order to be effective on these dimensions of
influence, the multi-site firm needs to differentiate between its corporate political
90 C Oliver & Holzinger, 2008: 60.

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strategy and the specific conditions of their local units: as institutional environments
vary by country, so do firms' political actions. While the local firm knows the local
political environment best, the corporate parent maintains an overall perspective on
current public policy trends. Consequently, the parent adds value within the overall
firm's public policy by
- devising an overall public policy strategy;
- following a proactive relational approach on a bigger geographical scale, i.e.
national, multi-national (e.g. within the European Union), or global;
- supporting the local unit on the basis of its vast experience with political
processes, in the form of tactical and procedural advice;
- providing the local unit with corporate lobbying materials; and
- making use of its corporate bargaining clout on the local level, in order to
further firm-specific interests.
Thus, by being part of an MSF, the local unit is able to pursue its political interests and
to impact policy making in ways which would not be attainable as a stand-alone
operation. By mobilising the resources of the corporate parent and by tapping
experiences of other BUs, it can take influence on policy making processes beyond the
local level, as illustrated by the subsequent examples.
Example: Axpo's lobbyists in Berne
Axpo has a number of possibilities to have a voice in important political bodies and with respect to
relevant decision makers. As a group, it is the largest power producer in Switzerland and its channels
of influence, among others, range from informal interaction with the country's federal councillors, to
the presence of two lobbyists in the federal parliament in Berne, the participation in various industry-
relevant committees, and an active relationship management with the regulatory bodies. Thus, it is
able to contribute to shaping the Swiss energy policy, and to advocate its particular interests on a
national and regional level. While Axpo's local subsidiaries are more aware of their immediate
political environment, in whose handling the holding rarely gets involved, the supra-local and
national lobbying activities are coordinated by the holding.
Example: Holcim's public policy and responsible lobbying
On its corporate website Holcim states: “we are committed to working within the regulatory
framework of the countries in which we operate, yet believe in the need for open dialogue on issues
relevant to the manufacturing of cement and concrete” 91 . Ensuing to this statement, Holcim informs
91 Holcim Ltd (n.d.). Public policy, compliance and environmental investments. Retrieved March 15,
2010, from: www.holcim.com/CORP/EN/id/1610652470/mod/7_4_5_0/page/editorial.html.
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on its lobbying practices, stating that 69% of its group companies were engaged in related activities in
2009.
Generally, Holcim narrowly watches industry developments, whose business impact it assesses before
deciding on the appropriate lobbying strategy. As a member of various trade organisations, such as
the European Cement Association (Cembureau), Holcim often is able to place its matters via those
channels. With the objective to promote its position on climate and energy, the group also sponsors
'Global Legislators Organisation of a Balanced Environment' (GLOBE), a platform for legislators
from a broad political spectrum to exchange on the development of sound environmental legislation.
To ensure responsible lobbying also in the de-central parts of its organisation the group has corporate
standards in place, which it developed with WBCSD or UN Global Compact. Furthermore, many of
the initiatives it develops are cross-checked with these organisations. The corporate website informs
on Holcim's government relations as follows:
2006 2007 2008 2009
No. of group companies receiving subsidies 10 12 12 15
Average value of subsidies from national
governments
2'600'000 4'110'436 4'736'604 3,056,376
No. of group companies giving donations 3 5 9 7
Total value of political donations 100'000 415'468 1'018'054 279,491
Table 4-18: Holcim's government relations 91
In view of the transparent way in which Holcim discloses its lobbying activities, but also its best
practice approach to politically engaging in industry issues, its lobbying strategy certainly is
proactive. As a group Holcim possesses refined expertise and adequate resources to support local
lobbyists in their country organisations.
4.10.9 Summary of value creation effects in multi-site operations
Firms within utilities and concession-based industries realise value in multiple-unit
operations mainly through their intangible assets. They support their business units
with their know-how and experience from the corporate parent, or by fostering the
exchange between their business units, thus exploiting best practice synergies and
economies of experience. Such value creation may occur on a resource level,
increasing the efficiency and effectiveness of the BU's operations, but may also stem
from the behavioural and institutional dimension of interaction between the units, or
with the corporate parent. Not surprisingly, most of these effects have general validity
for all firms operating in multiple institutional environments. Within the scope of our
research framework, however, we have aimed at identifying those fields of value

Theory Building
creation out of the overall range of possibilities that have particular validity for our
research object under consideration of its special nature and characteristics. The
subsequent table summarises the identified value creation dimensions, and the value
creating activities of the corporate parent and its BUs within utilities and concessionbased
industries.
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218
(continued next page)
Theory Building

4 Theory Building 219
Table 4-19: Overview on dimensions, effects of value creation in UCF multi-site operations

220
5 Case Studies
Case Studies
The inputs for our exploratory work have been drawn from three case studies,
according to the selection logic as described in chapter three. The following chapter
provides an overview on the empirical insights and establishes the links to the model
presented in chapter four. The cases will follow an identical structure, starting with an
overall introduction to the case study object and its industry characteristics, and
gradually progressing along the dimensions of the model, linking empirical facts with
the constructed framework.
For best results with the case studies, a number of qualitative methods have been
combined. While semi-structured interviews and expert discussions have rendered the
most valuable insights, these have been complemented with information from
company documents, media reports, and official communication from the firms'
stakeholders. In cases where additional insights or clarification was required, the
interview partners were approached a second time. Contrasting the empirical insights
with the author's own professional experience in international airport operations served
as additional validation check. Table 5-1 provides an overview on the information
sources, on which we have been drawing for our case studies.
In accordance with the grounded theory approach, information gathering and model
development were an intertwined process, which led to the initial basic constructs and
construct-linkages, and which were further developed, complemented and refined
through-out the empirical process until a point of saturation was reached. In the
following case descriptions, information evaluation and analysis is first performed on a
case-by-case basis. Thereafter, by means of cross-case comparison, the common
presence of constructs and relationships among them are illustrated towards an overall
assessment and generalisation.

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Data
Collection
Method
Interviews
Company
documents
Media accounts
and
communication
from firm
stakeholders
Purpose Execution
- gather background information on the
organisation
- explore stipulated construct-links or
alternative explanations
- develop and validate propositions
- identify further key informants
- identify further sources of information,
such as company documents, etc.
- validate information gathered from
other sources
- substantiate insinuations and inferences
from interviews
- gather information and impulses for
further question-development in
interviews
- draw materials for supportive 'minicases'
to illustrate the workings of the
framework
- obtain third party perspective on
company
- validate information from interviews
and check consistency with stakeholder
perceptions
Table 5-1: Sources of information for case studies
5.1 Case study - energy utilities
24 interviews (semi-structured for
model development; model
validation) with selected experts
from case-study objects
- Axpo: 6
- Holcim: 5
- Zurich Airport: 13
2 interviews (model validation)
with third party experts
- SOE shareholder: 1
- economic think tank: 1
- print-information from
interview partners
- internet research
- print-media
- internet research
Deregulation and privatisation of electric utilities was first started in Great Britain. In
1979 the government of Margaret Thatcher initiated an extensive programme of
privatisation across various industries, leading also to the unbundling of the electricity
sector in 1990/1991. These developments in turn have provided impetus for utility
privatisation in other parts of Europe, aiming at the introduction of more competition,
ensuring security of supply and a move towards green energy (cf. Domanico, 2007).
The utilities' response to these technological and regulatory changes was
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consolidation: with the aim to capture synergies in procurement, production,
marketing, and administration they bought other utilities, pursued horizontal and
vertical integration, and expanded geographically. This process was additionally
supported by politics, which favoured the creation of national champions (Domanico,
2007). However, overall acquirers have found it difficult to derive value from merged
utilities, due to acquisition premiums, harsh regulatory requirements, and the
overestimation of synergy potentials - respectively failure to exploit them (Becker-
Blease, Goldberg, & Kaen, 2008; Morsches, Gell, Finger, Seshadri, & Peters, 2008).
5.1.1 Industry characteristics
The electricity sector belongs to the category of network utilities, which involve a
natural monopoly network essential for the delivery of network services to consumers.
Typical characteristics are large sunk investments and the provision of essential
services which contribute directly to the private sector output. Since these services
affect the majority of the voting population, the latter therefore is concerned to protect
itself against the unregulated exercise of market power that a natural monopoly makes
possible. Thus, the electricity sector is one of the most densely regulated sectors of all.
With regard to value creation in multi-unit operations, power utilities have limited
opportunities for cross-site economies of scale in the costly sections of their
production process, if compared to other industries. While optimisations may be
achieved within the operational scale of single plants, they are not so obvious across
multiple operations. An empirical study on value-creation in power utilities (Bausch &
Raffeiner, 2003) points to the danger of negative economies of scale through costs of
complexity and high transaction costs. In addition, the regulatory environment and
political parameters often impede savings potentials in support activities of the value
chain.
5.1.2 Swiss energy market
The Swiss energy market is composed of a total of approximately 1'100 utilities. Many
of them have an ownership mix of private and public investors, the latter being mostly
local municipalities. Electricity supply on the other hand is provided by the regional
transmission companies. Despite the high number of small utilities (particularly for the
electricity supply to end consumers), also in Switzerland the energy industry has
undergone a process of consolidation. With regard to electricity generation the Swiss
market is dominated by four major players with a combined market share of 89%. As

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the biggest national player, Axpo covers a third of Switzerland's energy production (cf.
Figure 5-1).
Swisspower
16%
BKW
14%
others
11%
Alpiq
25%
Axpo
34%
Figure 5-1: Market shares in Switzerland's electricity supply (2008/2009) 92
The Swiss electricity generation mix is dominated by hydro and nuclear sources (cf.
Figure 5-2), which makes power production one of the cheapest all over Europe. The
low price level is additionally fostered by the fact that all major nuclear assets are
approaching obsolescence, i.e. they are written off. With a look at the future, however,
Switzerland could face supply shortfalls already in a few years time 93 , if it is not able
to replace those assets by new nuclear reactors.
Nuclear
39%
Thermal
5%
Figure 5-2: Swiss electricity generation mix 94
92 Axpo Holding AG, 2010a.
Hydro
56%
93 See Axpo's study on electricity perspectives as of 2020 (Gubser, Zepf, Hubler, & Jochum, 2006).
94 Bundesamt für Energie, 2010. Electricity from renewable sources is included in the 'thermal'
category.
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On the regulatory side since January 1 st 2009 also the Swiss electricity market is
partially liberalised (lagging one decade behind market liberalisation in the European
Union). With that first stage of market opening, power consumers with a demand
above 100'000 KWh are free to choose their power supplier. Concomitantly the market
is in the process of prescribed unbundling, separating power plants and power grids.
As a result,the management of the high voltage grid, currently owned by various
power producers, has been transferred to the newly founded 'SwissGrid', a limited
company owned by the major Swiss power utilities. It is responsible for the grid's safe
and reliable operation, as well as for grid coordination and usage as per terms of the
European Energy Exchange (EEX). In 2013, SwissGrid will become owner of the high
voltage grid, and assumes responsibility for its maintenance and extension. Another
novelty of the first liberalisation stage is the electricity regulator's (ElCom) overseeing
of network tariffs and electricity prices. Finally, the last stage towards full market
liberalisation is planned for 2014, when freedom of choice will also be introduced in
the market for end consumers.
5.1.3 The case of Axpo
Axpo is Switzerland's leading energy utility. It acts as a single-source provider of
electricity generation, transmission, trading and sales, and electricity-related services.
While its energy generation is currently focused on Swiss territory, its trading
activities are spread throughout Europe. Within Switzerland Axpo supplies three
million people with energy, as well as around 100'000 businesses.
History and organisation. Axpo came into existence in 2001 as a holding, subsuming
a range of traditional Swiss utilities, which it kept under their original brands. In 2009,
it has undertaken a rebranding of its biggest subsidiary 'Nordostschweizerische
Kraftwerke AG' (NOK), with the aim to strengthen Axpo's competitive position and its
brand. As illustrated in Figure 5-3, the Axpo Group is headed by Axpo Holding AG
and comprises the subsidiaries Axpo AG (formerly NOK), 'Centralschweizerische
Kraftwerke AG' (CKW), and 'Elektrizitäts-Gesellschaft Laufenburg AG' (EGL) - its
trading arm.

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Axpo Holding AG
Central-
Elektrizitäts-
Axpo AG schweizerische
Gesellschaft Axpo Informatik AG
KraftwerkeAG Laufenburg AG
Figure 5-3: Axpo's organisational structure
As a state-owned enterprise (SOE), the Axpo group is wholly owned by the cantons of
north-eastern Switzerland (Zurich, Aargau, Appenzell Innerrhoden, Appenzell
Ausserrhoden, St. Gallen, Thurgau, Schaffhausen, Glarus, Zug), respectively their
electricity utilities. Their objective, in their capacity as firm owners, is to ensure a
secure and inexpensive supply of electricity for industrial and commercial enterprises
and private households within their sovereign reach.
In the subsequent passages, Axpo Holding AG as a group will simply be referred to as
Axpo. Furthermore, in the illustrative examples and observations we will only refer to
the precise organisational parts of the group, where it adds to clarity. Generally, the
majority of the embedded cases refer to Axpo AG, which comprises most of Axpo's
power plants, including the new energies division.
Strategic orientation and geographical presence. Axpo combines strong local roots
with an international outlook. The cornerstones of its strategy are:
- to expand its position as an energy supply company in Switzerland
- to ensure reliability of supply with its own production capacities
- to expand its trading activities in order to improve links to other countries and
to exploit opportunities on the European market
Its supply and delivery territories in Switzerland span - in accordance with its
ownership structure - the north-eastern cantons of Switzerland. In these regions, Axpo
operates 51 hydropower stations 95 , 3 nuclear power stations, 1 gas power station, and
63 small-scale power stations with renewable energies 96 .
95
The number of hydropower plants is higher, because a hydropower station may subsume more than
one plant.
96
Re-enforced by Switzerland's energy policy agenda, which incentivises energy production from
renewable energies and hydro power with a cost-covering feed-in compensation (KEV), the field of
renewable energies is one of Axpo's strategic areas of growth.
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On a European scale, Axpo is mainly present through EGL, its trading arm. With the
objective to strengthen EGL's position as a pan-European energy trader, it invests in
the expansion of its trading and gas business, but also in conventional energy
production capacities and renewable power projects (a number of projects in Italy and
Northern Europe are in the pipeline).
Figure 5-4: Axpo's presence in Europe (2009) 97
Corporate philosophy. In spite of being state-owned, Axpo clearly is a profit-oriented
company which positions itself in international markets and sets its benchmarks with
privately held competitors. The opportunity-driven spirit of Axpo is reflected in its
corporate mission 98 , which stresses value creation (“we want to be constantly
profitable and create added value for our shareholders. In this way we can ensure that
we have the freedom to act and that we will remain competitive") and entrepreneurial
attitudes ("we identify and exploit new opportunities at an early stage”).
5.1.4 Axpo's location-fixity
As a power utility, location-fixity is a central factor for Axpo, impacting its
opportunities for value creation and available paths for expansion. Table 5-2 provides
97
Axpo Holding AG, 2010a.
98
Axpo mission statement. Retrieved June 12, 2010, from Axpo corporate website:
www.axpo.ch/axpo/en/neue_energien_multi/konzern/auf_einen_blick/leitbild.html.

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an overview on the characteristics of location dependence and how they are relevant to
the company.
Characteristic Applicable
for Axpo
Upstream
Natural
Resource
Dependence
Upstream
Tangible
Asset
Dependence
Downstream
Dependence
on Market
Proximity
Ownership
Dependence
on Owners'
Utility
Function
Comment
� fully applicable / ~ weakly applicable
� With the objective to further increase the share of hydropower in its
electricity mix, Axpo depends on the availability of locations,
subject to water concessions, that hold water quantities and water
streams suitable for power generation.
227
Equally, for its nuclear power generation, it depends on the provision
of locations that qualify topographically, for which authorities would
grant a concession, and for which it would gain the approval from
local stakeholders.
� Axpo's production sites - be it for nuclear power, hydropower, but
also partly for smaller scale renewable energy projects - are always
associated with major site-specific investments. The amortisation
period for an asset ranges from 60 to 80 years, while its overall
lifespan may be significantly longer. Concession periods either
match amortisation periods or are shorter.
~ In theory, power does not depend on customer-proximity. Once
transmission networks are installed, its transportation over long
distance is cheap at minimal power loss. However, limiting factors
are the capacity of the high voltage grid, network usage fees, as well
as issues of politics and organisational legitimacy.
� The agenda of Axpo's public owners clearly prioritises security of
supply in their region. However, the ownership strategy leaves Axpo
the freedom to selectively venture abroad.
Nevertheless, the political dimension sets limits to degree and type
of geographical expansion: Axpo is critically monitored in Swiss
politics and by interest groups, because of its focus on 'clean'
electricity in Switzerland, while investing in relatively more CO2producing
plants abroad.
Table 5-2: Location dependence of Axpo by construct characteristics
These ties to its core territories are the foundation to its institutional exposure, as
discussed in the subsequent section. At the same time they represent a fundamental
strength in sight of the upcoming liberalisation, protecting the firm as incumbent
through a number of mobility barriers.

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5.1.5 Axpo's environment - institutional exposure
Power utilities always are closely interlinked with national or regional economic
interests. Concerns regarding security of supply, as well as electricity price-levels keep
politicians and economic interest groups alert on all utility-related issues. On the other
hand, due to their externalities, such as CO2 emissions or the production of nuclear
waste, power utilities are under the monitoring of interest groups of all sorts.
Such exposure is felt by Axpo in most of its strategic moves, particularly at present,
due to the upcoming replacement of its nuclear plant in Beznau. But also on a much
smaller scale, any kind of business development project relies on the stakeholders'
'licence to operate'. As the head of Axpo AG's business development puts it: “the
external social legitimisation is extremely important - without the approval of the local
environment Axpo cannot function” (interview N°2: 2). The major dependencies stem
from the local community (society), politics and the public administration, respectively
the regulator. Furthermore, Axpo to some extent feels the conflicts of interest resulting
from its ownership structure (see below). From a supply-perspective, apart from being
reliant on concessions and water exploitation rights, there is also a dependence on
local suppliers in Axpo's renewable energy projects. In wood-fired power plants, for
example, it is the company's credo to source locally, which in turn increases its
exposure towards a handful of suppliers.
In the following we will briefly outline Axpo's stakeholder groups, and its respective
institutional exposure towards them.
Local community: exposure towards voting population; plant neighbours. The
local community plays a crucial role in Axpo's planned projects and running
operations. Within the Swiss context, owing to the people's strong sense of democracy,
major projects may be prevented by a group of individuals. In a recent project, where
Axpo planned to install a wood-fired power plant in Würenlingen (Switzerland, canton
Aargau) (cf. interview N°1: 13), the local community pre-empted the realisation,
predominantly due to opposition from the site's neighbours. Although Axpo informed
and discussed with most local stakeholders from the very beginning, and although its
project hearing with the local community was successful, the change of opinion
happened at a point in time, when Axpo thought that all major obstacles were passed.
Civilian interest groups: exposure towards nature conservation and fishery
associations. To be successful in the medium-term, Axpo's operations require the
involvement of interest groups in order to maintain its operational legitimacy. The

Case Studies
following two examples illustrate the importance of these interest groups for
successful business development.
(1) Exemplary interest-group involvement in Linth-Limmern. In the major hydropower
project in Linth-Limmern, Axpo's local subsidiary involved the local fisheries
association, as well as the WWF from the very beginning in its project planning. In
this process the parties constructively discussed Axpo's plans to include an
ecologically controversial pump-storage and other functions, which have impacts on
the local eco-system. By demonstrating a willingness to make concessions, at
significant cost and with reductions to the project's overall capacity, Axpo facilitated
the negotiation progress and allowed it to gain the trust and approval of the relevant
interest groups. A manager at Pro Natura, an influential Swiss environmental
association, subsumes: “those who have understood, that the interests of nature and
landscape have to be considered from the very beginning, will proceed in their
projects” (G. Weiss, 2009). As a consequence, the administrative process progressed
smoothly through all instances and construction activities were kicked off as planned.
(2) Interest groups impeding project progress. In less exemplary cases, however, the
consequences of weak relations to interest groups can be quite far-reaching. In a
complex hydropower project by Kraftwerke Oberhasli AG (KWO) 99 environmental
interest groups pre-empted the project's realisation for almost 10 years. In 1999 KWO
has launched an investment project for the upgrading of its assets in Oberhasli, in the
mountainous and ecologically sensitive Grimsel region. Despite its lobbying efforts
and endeavours to establish a constructive dialogue with interest groups, KWO was
not able to convince them of the ecological balance of the project. During this period
of legal disputes, KWO's CEO commented: “The environmental associations are
capable of opposition, but they don't have experience in finding compromises. They
are simply not able to cooperate.” And “the environmental associations are against the
flooding of further areas in principle and against investments in major technical
infrastructure” (Wartenweiler, 2005). Only in the course of 2009 the negotiations
progressed in connection with a partial re-licensing of existing installations.
Ultimately, in June 2010, KWO could reach an agreement with its interest groups for
two of three partial projects, after the firm consented to a number of significant
environmental measures. With this milestone KWO finally had cleared the way for
seeking regulatory approval.
99 KWO are owned by the Bernische Kraftwerke AG (BKW) (50%), and the municipal utilities of
Berne, Zurich, and Basel.
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Customers: exposure to powerful local purchasers. Particularly with regard to the
valorisation of by-products, Axpo is reliant on the cooperativeness of the local
customers - as for example in its exploitation of heat externalities. Other than that
there is little institutional exposure from the side of customers.
Suppliers: exposure to local feeders for power plant operation; local suppliers for
plant construction; suppliers of plant maintenance services. Depending on the type
of power production, some plants need a stable external supply of fuel for an
uninterrupted operation. Thus, energy utilities are in danger of becoming reliant on a
small number of local contractors, which guarantee such supply in the long-term.
Particularly the renewable energy plants require continuous replenishment of the
respective fuels, thus creating an exposure towards private or public suppliers.
Furthermore, in the project-approval phase, electric utilities may become exposed to
pressures for local sourcing. In order to obtain local goodwill and approval of a
project, and to speed up decision processes, a number of services preferably should be
purchased locally. Examples are the commissioning of the local engineer, engaging the
local transport and hauling company, or working with the local construction firms etc.
Service partners: no significant exposures. Axpo's service partners are mainly the
distribution utilities to end consumers, downstream in the supply chain. Since
interfaces and pricing issues are regulated, there are no major issues of exposure.
Employees: external job market exposure. Due to Axpo's good labour relations,
there are no internal issues of exposure. However, in the external job market the firm
might soon face an exposure because of the limited availability of qualified engineers
for the planning and implementation of its upcoming nuclear power plant renewals.
Since a significant number of nuclear power plants reach the end of their lifetime all
over Europe, and since Europe has 'unlearned' its capabilities to build such plants in
the past three decades, a 'war on talent' may be expected (cf. interview N°3: 4).
Public shareholder: public choice conflicts and exposure to public administration.
In their dual roles as guarantors of electricity supply for the local economy, and as
owners of profit-oriented Axpo, conflicts of interest may arise from the side of the
public administration. In reality, these potential conflicts have no significant
consequences, as Axpo fulfils its sovereign mission according to its stakeholders'
expectations and thus enjoys some degree of entrepreneurial freedom. In other words,
such conflicts of interests play a minor role in the current firm - stakeholder
relationship.

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Government, regulator, politics: exposure due to discretion and opportunism.
Many utilities' projects are exposed to various forms of administrative discretion, due
to the complex approval processes, which are necessary for most of them, the
industry's dense regulation, as well as the political dimension of utility-related
decisions. Discretion, for example, may be practised on a time-dimension: the local
decision makers may influence the speed with which a project passes through the
administrative process. Axpo has experienced cases, where it has been at disadvantage
as a non-local bidder, as the application processes were purposely slowed down in
order to allow the local competitor to prepare a counter-bid (cf. interviews N°3: 18;
N°1: 15).
Moreover, Axpo repeatedly faced hold-up situations in negotiations to valorise its heat
externalities. The firm established a number of long-distance heating systems through
which it makes productive use of a by-product, thus reaching a better energy utilisation
ratio. Since local administrations know that such measures for improved energy
utilisation are necessary to obtain regulatory approval, they successfully negotiate the
heat pricing to levels well below the benchmark price of domestic fuel oil.
In another example of political hold-up, Axpo intended to build a larger scale organic
waste plant, spanning the cantons of Uri and Schwyz. However, since the
administration in Uri did not allow its organic waste to be commercialised outside its
regional borders, the firm was forced to build two smaller-scale plants with adverse
impacts on economies of scale and profitability.
With another reference to Axpo's project for a wood-fired plant in Würenlingen, the
firm experienced unfavourable discretion in the interpretation of law and regulation. In
its preparations for the project approval process, Axpo decided to pre-submit all
relevant information to the local administration, in order to find out if there are any
further issues to be considered. Consequently, it received positive feedback to go
ahead with the official submission and thus expected a smooth approval process. In
particular, Axpo was informed that no adaptation of the cantonal structure plan was
needed. However, as the opinion of the local community changed against the project,
the cantonal administration decided that such an adaptation was imperative, halting
project progress for an expected 18 months. As a consequence Axpo suspended the
project for an unknown period of time.
Last but not least, there is a political exposure - either directly or indirectly - through
effects on the regulatory dimension. In Axpo's interaction with the regulatory bodies,
national issues are being taken up on the holding level, whereas local or value-chain-
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specific issues are handled by its units and subsidiaries. Although the relationship
generally is constructive, Axpo perceives exposure from the pressure that politics
exerts on the regulator. As a result,a number of regulatory objectives lead to
suboptimal industry developments. Politicians demand, for example, the big-scale
provision of renewable energy at low cost, which in Axpo's view is unattainable in
foreseeable time (cf. interview N°6: 14). Such policy requests are mostly a result from
political difficulties to accommodate the complex requirements from the industry's
multi-dimensionality. In addition, the conflict between political fixation on election
cycles and the long-term orientation required for energy issues are a further source of
political exposure.
5.1.6 Axpo's embedding capabilities
Given the various sources of institutional exposure, how does Axpo approach its local
environment and what are its strategies towards reduction of this exposure? How does
it ensure, that its activities are aligned with societal expectations, being perceived as a
good corporate citizen? Due to its long experience in the Swiss market and in the
different cantons where it operates, Axpo is well aware of its dependence: in our
interviews with Axpo representatives, there was consensus that without the support of
the local stakeholders Axpo cannot maintain a successful operation. Traditionally
therefore, Axpo makes significant efforts to gain operational legitimacy, furthering an
ongoing dialogue between the local operation and its surrounding stakeholders. This
awareness must also be seen in the light of concession renewals. Although a
concession is granted for the duration of an average of 40 years, the local goodwill
needed to facilitate its renewal is path-dependent and can only be accumulated over
time. In order to effectively call on goodwill stocks, their accumulation therefore has
to be cultivated on a continuous basis.
In the following we will outline, how Axpo uses its embedding capabilities along the
structure of our research framework.
Capabilities towards structural local embedding. Axpo effectively makes use of its
legitimisation capabilities on all three identified dimensions: (a) value share remaining
in region; (b) mutual lock-in between the firm and its major stakeholders; and (c)
internal governance, as will be discussed subsequently.
(a) value share remaining in region. Axpo's hydropower and nuclear power assets
predominantly originate from former NOK, recently rebranded into Axpo AG. In its
early days NOK heavily invested in hydropower projects in infrastructure-weak

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regions. As a consequence, after payment of the concession fee, most of Axpo's locally
generated profits were transferred to its homebase in Baden (canton Aargau) where it
also paid taxes, i.e. little of the value created remained in the region (cf. interview N°3:
6). This imbalance did not go unnoticed by the economically weaker cantons hosting
its plants. Thus, over time these areas also requested a bigger share of the profit and in
the negotiations for concession renewals Axpo had to accept a higher degree of rentappropriation.
Today, Axpo is very conscious of the necessity to take, but also to give appropriately.
In its project negotiations it involves all relevant stakeholders early on and displays a
willingness to sacrifice part of the project's profitability for environmental, landscaperelated,
and social concerns in exchange for the necessary stakeholder support. Once
more referring to its prime example in Linth-Limmern, Axpo succeeded to get the goahead
for its mega-project in the minimum time. Among the key factors to success
were 100 :
- Rent transfer to the canton during construction phase: CHF 12.4m p.a. in the
form of taxes, public dues, and power sales
- Rent transfer to the canton in the operational phase: plus CHF 2.7m in taxes
compared to previous tax-level
- Secondary effects of construction investment: generation of 240 jobs, additional
revenue of CHF 47m for local suppliers
- Concession fees between 2007 and 2015: CHF 52m
- Compensation from abdication of reversion ('Heimfallverzichtsabgeltungen'):
CHF 120m
- Environmental compensatory measures: agreement to three major measures, i.e.
improvement of the fish habitat through various structural and procedural
adaptations, scenic appreciation of the region, measures to improve fauna and
flora through the discontinuation of sheep grazing in specified areas.
- Abandonment of the exploitation of the Linth gorge, incl. renaturation and an
increase in the residual water volume
All of the above admissions go significantly beyond lip service, affecting the projects
profitability and causing upfront costs. It is for this reason that Axpo was able to create
a climate of cooperation and trust, becoming a respected discussion partner in a
normally conflict-laden situation.
100 Cf. Staatskanzlei Kanton Glarus (2007). 'Aus den Verhandlungen des Regierungsrates vom 12. Juni
2007 - Volkswirtschaftliche Auswirkungen des Projekts "Linthal 2015"'. Glarus: Kanton Glarus.
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(b) mutual lock-in between the firm and its major stakeholders. In the case of Axpo,
the mutual lock-in on the political dimension is already manifested in its ownership
structure. Those areas, where Axpo predominantly is active, are also owners of the
firm 101 , thus providing it with more stability and facilitating the alignment of interests.
Moreover, the Axpo group was founded on the basis of the NOK founding treaty 102 ,
dating back to 1914, which guarantees the firm a right of priority on water resources
within the shareholding cantons. Other means to create a mutual lock-in are achieved
by the creation of structural parameters through the public administration, such as the
legally secured supply for local power projects. Examples are covenants to all organic
waste, or rights to the wood from local forests, within a specified region for the
fuelling of renewable energy plants.
Beyond the ownership lock-in of its core regions, commitment in critical stakeholder
relations is often achieved through strategic appointments to the subsidiaries'
supervisory boards. Many of Axpo's power plants are part of small, mostly local legal
entities, which are integrated into one of its units. The board of these entities assumes
not only a governance function, but its composition is in part strategic, with hindsight
to the local political environment. Axpo regularly appoints important opinion makers,
politicians, or local entrepreneurs to strengthen its embedding in the region, as well as
to facilitate future development schemes.
(c) internal governance. Justified by the pivotal significance of energy supply for
society, the latter expects transparency from Axpo in its activities. This societal
expectation is further substantiated by the fact, that Axpo handles hazardous materials
(e.g. enriched uranium for its nuclear power plants), and by the impacts its operations
have on the surrounding ecosystems. Axpo is aware of the need to be transparent 103
and to ensure compliance with the law and its ethical standards. Its efforts to this effect
include:
- internal corporate risk management
- transparency through monitoring and reporting
- certifications from accredited external institutions
101 The shareholding cantons are locked in by means of a shareholders' agreement.
102
See also §5 of the 'Vertrag zwischen den Kantonen Aargau, Glarus, Zürich, St. Gallen, Thurgau,
Schaffhausen, Schwyz, Appenzell A.-Rh. und Zug vom 22. März 1914 betreffend Gründung der
Gesellschaft der Nordostschweizerischen Kraftwerke AG'.
103
Cf. 'Das Treibhausgasinventar der Axpo'. Retrieved June 12, 2010, from Axpo corporate website:
www.nachhaltigkeit.axpo.ch/axpo/de/home/verantwortung/environment/co2/axpo_treibhausgas.html.

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Axpo's risk management thereby is an integral part of the firm's corporate governance.
It increases informational transparency and thus contributes to better and risk-adequate
corporate decision-making. Risk considerations include the dimensions finance,
security of supply, environment, and reputation. Within the organisation, Axpo's risk
management is decentrally organised, but coordinated by the holding's Corporate Risk
Management department. While responsibility for the risk management conception
and implementation in order to establish firm-wide transparency remains with the
latter, risk ownership is with the line businesses (Sangiorgio, Hottinger, & Brodbeck,
2008).
Aimed at strengthening its credibility with regard to sustainable power generation,
Axpo continuously measures a number of indicators, which it uses for its own
controlling, as well as for publication to its stakeholders. In its endeavours to decrease
its CO2 contributions, Axpo for example monitors corporate-wide emissions, thus
obtaining clarity on the major internal emission flows. From these insights it derives
improvement-, reduction- and compensation-objectives. Furthermore, in 2010 it
started with annual publications of its CO2 inventory. Another effort of trust-building
is made in the reporting on its highly sensitive nuclear plant operations, for which it
publishes detailed information on the respective websites. For its reactors in Beznau
Axpo published a certified environmental declaration for the first time in 2009 (cf.
Umweltdeklaration Kernkraftwerk Beznau. Axpo AG, 2009). Since 2007 the group
produces a comprehensive sustainability report every second year, compliant to and
audited by the Global Reporting Initiative (GRI).
As further means for trust- and reputation-building, Axpo fosters cooperations with
reputable institutions (e.g. Paul Scherrer Institut, ETH) thus supporting research to
improve energy efficiency. It also has engaged accredited external organisations, such
as the German TÜV, to certify processes, data collection, or to validate power labels
(e.g. electricity from renewable sources).
Capabilities towards relational local embedding. The basis for Axpo's actions
towards gaining and maintaining its 'licence to operate' is compactly summarised in
the firm's policy document on sustainability (Axpo Holding AG, 2007: 9):
3.4 We strive for high acceptance
Our success depends on the public's trust in Axpo, which we continuously
endeavour to earn and invigorate
We take the expectations of the relevant interest groups seriously and take them into
account in our actions
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3.5 We are committed to transparency
The significance of energy supply for our society constitutes a societal right to
transparency. We feel obliged to this right. We comply thereto by communicating
openly and honestly
We strive for results-oriented and holistic management, which requires
transparency in leadership and in decision-making - internally as well as externally
These principles are operationalised in its daily actions on the three identified
dimensions of relational embedding: (a) relational capabilities; (b) reputation-building
capabilities; (c) capabilities to adapt to the local environment.
(a) relational capabilities. Through the long-term orientation of its business activities
and the longevity of its assets, Axpo has adopted a sustainable approach to its
relationship management. On one side, it has a systematic approach in its project
planning and pre-concession phases (cf. Axpo Sustainability Report 2008/2009: 50f.).
Its activities embrace all relevant stakeholders, informing and exchanging with them
before they go ahead with any official appeal or bidding for concession. In these
exchanges the firm's managers are aware, that sensitivities against new projects often
are of emotional nature, not susceptible to rational reasoning. The success of their
approach therefore is as much contingent on their empathy towards these stakeholders
and their understanding of stakeholder expectations and fears, as it depends on the
project-related facts. Axpo makes use of the following platforms for stakeholder
communication in the pre-concession phase:
- information sessions in the municipal assemblies to inform on the planned scale
of project, as well as on impacts on the local environment and eco-system
(target group: politicians, local community)
- public hearings for questions and answers on the project (target group: local
community)
- cooperation with a local bridging party, i.e. parties with an inherent interest in
the project's implementation, in order to reduce liabilities of foreignness104
(target groups: reduces exposure versus politicians, public administration,
interest groups)
- establishment of work groups to assess sensitive issues and compensatory
measures (target groups: public administration, regulator, interest groups)
104
Axpo experiences liabilities of foreignness even on Swiss territory, outside its founding cantons,
where preference is often given to the local utility (cf. interviews N°3: 21; N°1: 15).

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On the other side, its platforms which it regularly uses during the operational phase
are:
- information sessions and hearings in front of the municipal assemblies,
periodically and not only in the face of critical issues (target group: politicians,
local administration, local community)
- open house days in local power plants (target group: local community)
- exchange and sensitisation on current local issues via the local members of the
board (reducing exposure towards politicians, local administration)
- local initiatives to familiarise the local community with the firm and its
activities
By being familiar with the people, the environment, and Axpo's assets, the firm's
representatives achieve high efficiency in their daily tasks, but also in the assessment
of singular situations, allowing for short reaction-times and fast decisions (cf.
interview N°4: 6). In addition, Axpo systematically uses synergies in their relations
with the local key-decision makers. If one unit already has well-working contacts and
another unit wants to become active in the region, it draws on the existing contacts
from the unit which is already locally present.
For the illustration of Axpo's relational embedding capabilities, we refer once more to
the Linth-Limmern project. Very early in its planning process Axpo invited all
relevant interest groups, thus signalling its serious intentions to actively involve the
invited parties. As a consequence, despite reservations against the scale and design of
the project, the associations recognised their opportunity to constructively secure their
interests. Among the involved were the cantonal department for environmental
protection, the WWF, the local fishery association, and the Swiss landscape
conservation foundation 105 . Together they defined the compensatory measures for the
project, which were approved by the canton's governing council. Not only did the
parties find a common denominator, it also helped to align interests as to obtain a
maximum result with the available funds for compensatory measures. While Axpo
initially designed a type of dam wall which focused on low visibility for ecological
reasons, it became clear in the course of the discussion, that the environmental
authorities were more concerned with residual water and perceived no benefit from the
more expensive construction type. Thus, Axpo was able to design a less costly dam,
while being able to make concessions with regard to other environmental concerns (cf.
interview N°1: 21).
105 I.e. Stiftung Landschaftsschutz Schweiz.
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(b) reputation-building capabilities. In addition to relationship-building with its direct
stakeholders, Axpo invests in a number of activities to strengthen its reputation as a
good corporate citizen. Its engagement spans the dimensions
- environment: e.g. cooperation with the Swiss Alpine Club (SAC) for the
implementation of energy-efficient projects, or funding of a research project on
the impact of climate change on Swiss glaciers;
- society: e.g. various educational projects, financial support of socially
disadvantaged people, etc.;
- sustainability: commitment to sustainability in its activities by anchoring it in
Axpo's company strategy as a social responsibility; and
- employment: 350 positions for vocational training.
A major effect of all of these engagements undoubtedly is trust-building, which is the
basis for successful local interactions, or as a representative of Axpo AG's
management puts it: “trust is essential - if the region trusts, that Axpo builds its assets
for the common good of the local community, the quality of the cooperation improves
significantly” (interview N°4: 17). On the national level, trust-building with the
regulator and nationally organised interest groups is essential. For this reason, Axpo
co-founded the 'Energy Trialogue', establishing a dialogue between industry
regulators, power utilities, environmental interest groups, and research institutions to
give impulses for a sustainable and competitive energy policy in Switzerland, thus
constructively contributing to the directions of the future regulatory set-up.
Importantly, the fragility of trust and reputation is demonstrated by Greenpeace's
recent questioning of the declaration of origin that Axpo has made for its enriched
uranium resources. To regain public trust in the firm's communication, particularly the
criticised life-cycle assessment, Axpo has reacted immediately: after obtaining more
precise data, it corrected the contested figures and initiated a re-certification of the
respective plant and document. The fact, that Greenpeace has chosen to address the
public and the resulting echo in the media, is another indication of the industry's
exposure and the population's sensitivity towards electric utilities.
(c) capabilities to adapt to the local environment. As already described, Axpo's efforts
to adapt to the local environment are often supported by local gatekeepers. Through
their engagement for the firm, Axpo has the unique opportunity to learn about
potential issues, before they become one. Thus, the firm can act in time, signalling its
willingness to cooperate, or inform stakeholders before misunderstandings arise. By
appointing local politicians to the local unit's board, an additional channel for

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information exchange and influence is established. In combination, the local unit is
knowledgeable on specific stakeholder expectations, whose adherence are a
precondition to legitimisation and embedding. As a consequence, even though Axpo is
perceived as a sizeable Aargau-based firm, by the local identity of its subsidiaries it
reduces its liabilities of foreignness.
5.1.7 Value creation
As in the framework, we will analyse value creation at Axpo on two levels: (1) from a
single-site perspective on the local level, as well as (2) from the multi-site perspective,
having a closer look at Axpo's overall fields of value creation.
(1) single-site perspective. Inferred from prior observations in section 5.1.6, Axpo's
local embedding leads to value creation opportunities for its sub-units and individual
power plants. In their long-term fostering of stakeholder relationships and cooperation
with authorities, Axpo's subunits have been able to secure a number of options for
their business development. In the case of the Linth-Limmern project, the local
subsidiary's 106 sustained local presence in Linthal was decisive, combined with its
continuous lobbying and its cultivation of constructive stakeholder-dialogues long
before the project came up (cf. interview N°3: 13f.). Particularly its connectedness
with the regional political representatives helped an efficient information flow, beyond
the official channels and processes. Consequently, important details were exchanged
faster, and with less red tape, speeding up the efficient finalisation of the project
application. In absence of these factors, the agreement-finding process with its critical
stakeholders very likely would have taken longer, or would not have come to
conclusion at all.
Similarly in other projects, its subsidiaries' and local units' awareness, sensitivity and
incessant efforts to build social capital are one of the firm's key success factors for
project implementation. In this sense, the local unit's embedding capabilities create
strategic options and business development opportunities, which a firm with less
developed embedding skills and organisational legitimacy would not be able to create.
Moreover, the established links with the local environment serve as a protection of the
local assets. Despite the fact that water concessions have to be 'bought' with
appeasement measures, the return of such measures comes in the form of decreased
project risk, thus protecting the firm's sunk cost investment. The high legitimisation of
Axpo's power plants in their local environments increases the chances of cost
106 Kraftwerke Linth-Limmern AG (KLL).
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repayment over their lifetime - even under the sacrifice of slightly deferred break-even
points. Because many plants are situated in infrastructure-weak regions, not only Axpo
relies on the cooperation of the region, but the region is also dependent on the plant's
fees and taxes, employment, as well as its secondary economic effects (cf. '(a) value
share remaining in region', p.232). Therefore, despite the conflicting interests on rent
appropriation, the region will ensure that the basic economic prerequisites for the firm
are sound.
In addition, Axpo benefits from reduced risks of competition through the strong local
mooring of its subunits, which serves as a protective mobility barrier in face of the
impending full market liberalisation. Not only is Axpo a Swiss power producer, but it
draws additional legitimacy from its comparably 'clean' energy mix and its
contribution to the local economies. As a member of Axpo's executive board puts it:
Through its regional embedding Axpo presumably has an advantage over
foreign suppliers. Consequently, liberalisation provides us with a potential to
sell power at long-distance all over Europe, while we experience no
disadvantage from our being tied to Swiss locations. (interview N°3: 5)
On another scale, Axpo is able to lower risks on the supply-side by securing
continuous replenishment of renewable fuels through contracts with the regional
public administration, as mentioned before. Such secured supply serves as another
protection of its investment.
In the short term Axpo's subsidiaries create value through their legitimisation
capabilities on the identified dimensions:
- Transaction costs: through its manifold informal interactions with stakeholders on
a local, regional and national level, Axpo is able to lower its transaction costs
significantly. On the one hand it increases its chances for a faster agreement with
the involved parties in projects, thus saving time, as has been demonstrated in the
case of Linth-Limmern. On the other hand, it is able to lower expenses in its
interactions with the public administration, by avoiding exhausting legal
proceedings from conflicts with interest group stakeholders, and by means of
private ordering in general. Exemplary for its reduction of transaction costs through
embedding capabilities are Axpo's operations in the Surselva region in Grisons.
There, Axpo is locally embedded through its subsidiary Axpo Hydro Surselva AG
(HS AG). The unit is possibly the biggest economic contributor to the region and
has a predominantly local workforce, loyal to the firm. The resulting goodwill
stock in the region helps to reduce transaction costs in the daily business and

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particularly in permitting issues, as exemplified by HS AG's replacement of its
hydroelectric turbines. For road transportation of these turbines special permits are
required, due to their size. Each local municipality thus needs to give approval for
the respective road sections, based on a formal request. HS AG was able to obtain
all of the permits at a minimum level of administrative expense, based on the
established relationship between the firm and its local administrations. This kind of
pragmatic cooperation generally characterises HS AGs relation to its institutional
environment.
In addition, Axpo's policy to only invest in projects, if the local community backs
them, equally results in transaction cost savings. As the case of Würenlingen has
shown, Axpo's decision to consequentially withdraw from controversial projects is
an important part of a firm's legitimisation capabilities. Possessing the aptitude to
abandon a project in cases of strong opposition in order to protect the overall
reputation of the firm also saves costs and negative legitimacy spillovers 107 .
- Operational efficiency: the local embeddedness of its subsidiaries also entails
opportunities for increased operational efficiency, as demonstrated by Axpo's
partner plant Kraftwerke Maggia AG. Located in the rather remote region of the
Maggia valley (Switzerland, canton Tessin) the firm is an important economic
factor for the local population. Thus, goodwill stocks of all local stakeholders are
historically high, which also made it possible that the firm obtained permits for six
power plants that are controlled to serially exploit the hydropower from the valley's
gradient. Thus, Kraftwerke Maggia AG is not only able to optimally use the
valley's hydropower potential, but also to realise synergies from its local
workforce. With almost the same number of specialised employees that would be
necessary for a smaller number of plant operations, it efficiently maintains and
controls six plants, which reduces its operational costs. Similarly, Axpo Hydro
Surselva AG serially exploits hydropower through eight plants, a constellation
which also became possible through its high local embeddedness.
107 In contrast, the case of the project by Kraftwerke Oberhasli AG in the Grimsel region demonstrates
how the adherence to controversial implementation schemes can become costly, in terms of time to
implementation and legal costs. KWO states in its first sustainability report (2009: 47): "Der Konflikt
um 'Grimsel West' traf die KWO unvorbereitet. Das Unternehmen reagierte auf die vorgebrachte
Kritik hauptsächlich abweisend und begegnete verschiedenen Exponenten der Opposition mit
politischem Druck. Der Konflikt nahm im Laufe der Jahre nationale Dimensionen an. Die Fronten
verhärteten sich zusehends."
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- Effectiveness of financial processes: Axpo's subsidiaries contribute to lower
financing cost, due to investors' trust on the basis of their track records in daily
operation, project implementation and their local legitimacy. If investors know,
that Axpo has the necessary local acceptance to follow through with planned
projects, the willingness to invest in such schemes is higher. In addition, fewer
bank guarantees are necessary and suppliers are more flexible with regard to late
payments in case of temporary distress of a project, thus resulting in lower default
interests.
- Exploitation of positive externalities: many of Axpo's power production
technologies produce by-products, such as heat. The ability to create opportunities
for their exploitation substantially depends on the firm's regional legitimacy. For its
nuclear power plant in Beznau (Switzerland, canton Aargau), Axpo was able to
establish a long-distance heating network, managed by the separate legal entity
REFUNA. Today REFUNA supplies nine neighbouring municipalities and 2'500
connections. The project's implementation, from the idea to the commissioning of
the first parts of the network took almost nine years of research and intensive
negotiations, requiring refined political skills 108 . The fact, that REFUNA came into
life and is able to expand its reach ever since can be declared a success story. Many
other projects (e.g. the envisaged networks TRANSWAL, WARHENO, FOLA),
which were envisaged at the time failed, among other factors, due to a combination
of uncompetitive pricing and insufficient understanding of the political processes
(cf. Graf, Handl, & Pritzker, 2004). Another example for the cooperative
exploitation of by-products can be found in the renewable energy unit, where
organic waste generates biogas, electricity, long-distance heating for neighbouring
households, and marketable fertilizer. These externalities are often exploited
through the cooperation with local partners, such as composting plants and sewage
plants, and by selling them to local farmers.
(2) multi-site perspective. In the management of its several subsidiaries and dozens of
sites, the role of Axpo's holding is primarily financial, subsumed in the responsibility
to determine the overall strategic direction, to monitor the progress of strategy
implementation, to raise capital efficiently, and to effectively engage in political
lobbying. In its understanding of leadership, the holding recognises the significance of
being familiar with the local facts and circumstances. Therefore it mainly engages on a
group level, leaving local decisions to the local management.
108 In addition, the second oil crisis and a rising environmental awareness helped the project's take-off.

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In addition to its strategic tasks the Axpo group creates value along the dimensions (a)
relations, (b) resources, and (c) institutions of the presented framework, as illustrated
below.
(a) relations. As the empirical research indicates, Axpo's emerging brand, the group's
size and its industry competence are valuable factors in the bidding and negotiation
processes of its subsidiaries, as well as in its local units' daily operations. On one side,
through positive spillovers the group's reputation proves advantageous to business
units and smaller subsidiaries in their local interactions. On the other side, Axpo's size
shields BU's from opportunistic stakeholder behaviour in negotiation and bidding
phases, since it has the capacity and means to walk away, if the offered conditions are
economically unviable.
On the level of inter-unit cooperation, Axpo's individual units very effectively exploit
synergies from their local embeddedness. In cases where one unit is firmly established,
other units with upcoming projects or activities in the region approach the existing unit
to benefit from its contacts with the local authorities and other stakeholders (cf.
interview N°1: 11). For example, the scope of the Linth-Limmern project includes also
a new extra-high voltage connection to the Swiss transmission network. Since Axpo's
local subsidiary KLL knows all relevant stakeholders, the experts from the grid unit
closely work with KLL in order to facilitate their local relationship building. The
support from the local unit thus helps to speed up processes and to save transaction
costs.
(b) resources. According to insights from the empirical research Axpo's subsidiaries
have no established lateral exchange. Interactions mostly take place hierarchically via
the group level. The same applies further down the hierarchy, within Axpo AG's units
and their respective subsidiaries and plants. With the objective to establish firm-wide
minimum standards and to ensure governance, emphasis lies on subjects, such as work
safety, operational safety, reliability, or security of supply. Simultaneously, Axpo
becomes more efficient in the implementation of regulatory standards through the
pace-setting role of the holding level. In addition, the company realises cost
advantages by standardising best practice maintenance procedures, thus shortening
downtimes from maintenance activities and increasing the asset's overall utilisation.
Through coordination between its operational entities, Axpo as a holding is able to
realise a number of operational synergies. They are generated on all organisational
levels, as illustrated by the examples in the subsequent table.
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Type of
synergy
operative
synergies
market
power
synergies
Organisat.
level
grouplevel
grouplevel;
BU level
grouplevel
grouplevel;
BU level
cross-sitelevel
Examples
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Economies of scope through the group's multiple power generation
sources. Due to Axpo's mix in electricity generation, it is able to
optimise its overall capacity utilisation in spite of the peak-load problem
characteristic to power utilities. Its hydropower plants, including a
number of reservoirs and pumped-storage plants, allow for exact
demand-based planning of power production, and to exploit the base
loads of its nuclear power plants. Axpo even sources excess electricity
from French nuclear plants and German wind-parks at low cost, using it
for pump-storing its water resources to produce high-priced peak-load
power at a later point. These opportunities are not available to single-site
operations, or to firms without a balanced energy mix.
Economies of scale in the firm's support activities, such as HR, finance,
marketing, public affairs, political affairs and regulatory lobbying.
Economies of scale with regard to electricity trading. Through its size
Axpo is able to realise growth and volume synergies in trading, which
are crucial due to the trend towards decreasing margins per deal.
Economies of experience within the individual lines of production
(grids, trading, hydro power, nuclear power, or renewable energies), e.g.
in the planning and conception of assets, but also in daily operation.
Best practice exchange across sites within BU's, on an expert-level. This
exchange is not institutionalised, but happens on a need-basis.
BU level Value is created particularly in the optimisation of maintenance
procedures (cf. interview N°4: 6), but also in the fields of work safety
and operational safety, as well as regulatory compliance.
grouplevel;
BU level
grouplevel
(continued next page)
Efficiency synergies through joint use of assets. Particularly in the field
of IT, infrastructure and licences are jointly used; otherwise very limited
use of joint mobile assets for the operation and maintenance of
transmission grids.
Joint purchasing or critical resources (e.g. nuclear fuel, components,
plants and facilities, but also IT hardware and services).
BU level By selling electricity centrally to the communal end distribution utilities,
Axpo AG is able to achieve market conditions, which would not be
attainable to its individual subsidiaries.

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Type of
synergy
financial
synergies
corporate
mgmt.
synergies
Organisat.
level
grouplevel
grouplevel
grouplevel
grouplevel
grouplevel
grouplevel
Examples
Table 5-3: Overview on Axpo's synergy implementation
Financial economies of scale through efficient overall capital raising.
For the first time since its founding in 2001 Axpo has issued bonds
amounting to CHF 1 bn in 2010, with the objective to finance upcoming
large investments in its power plants and grid infrastructure.
Increased financial flexibility through a balanced business portfolio.
Thus, Axpo is able to set investment priorities according to future
strategic directions, without being reliant on the external capital market.
While renewable energies currently need more funding to grow than
they can contribute from their own resources, many hydropower plants
are highly profitable, since they reach the last third of their lifecycle
beyond their payback period. Thus, financial resources can be shifted
accordingly.
Reduced corporate risk due to the complementarities of hydro-power
and nuclear power. In contrast, if each of these asset parks were
regarded individually, they would represent a cluster risk to the firm.
As a group, Axpo enjoys holding privileges reducing its overall tax
burden.
With the help of the group's financial planning and allocational
capabilities, it fosters the business units' entrepreneurial capabilities and
supports the implementation of the envisioned strategy. In the field of
renewable energy, for example, the holding identified it as a strategic
field for growth, consequently allocating financial means to the
responsible unit. This in turn enables the BU to develop and grow.
In its holding function Axpo defines the firm's overall direction top
down, which its units consequently break down into concrete objectives
through a bottom up process.
(c) institutions. As a function of Axpo's size in the Swiss electricity market, the group
has incomparably more possibilities for effective regulatory lobbying, compared to its
units, individual subsidiaries, and sites. Politics have a significant influence on the
industry, its regulation, as well as the awarding of concessions. This influence always
implies some degree of discretion in decision-making processes, regulatory
developments, and the interpretation of rules and regulations (cf. interview N°6: 7).
Therefore Axpo ascribes high importance to its handling of political affairs, as well as
its corporate communications. Most importantly, Axpo influences its reputation
through its daily actions and its external communication, which needs to be consistent
and in line with these actions. In addition, the holding is politically well connected
with its channels of influence, among others, including
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- direct and informal interaction of top management with the country's federal
councillors in urgent matters,
- regular formal meetings with federal councillors,
- engagement of two lobbyists in the federal parliament in Berne,
- participation in various industry-relevant committees and panels (e.g. Energy
Trialogue),
- relationship management with the regulatory bodies through public affairs
department and regulatory managers, and
- participation in industry associations (e.g. VSE, Swisselectric),
in order to actively shape Swiss energy policy (cf. interviews N°3: 13; N°4: 20). Apart
from the influence on policy making, these engagements also help to lower the group's
transaction costs.
With regard to compliance monitoring, Axpo's risk management to retain an overview
from the holding perspective, as well as its standardisation efforts to ensure
compliance are a further value-creating activity. The contributions hereby lie in a risk
reduction with regard to regulatory compliance, as well as in its superior capabilities to
influence the regulatory developments in its interest. Both result in a lower exposure
towards the regulatory bodies, protecting its going concern.
5.1.8 Summary
Axpo may be considered as location fixed from an upstream, as well as an ownership
perspective, and to a lesser degree from a downstream perspective. The firm has a high
level of consciousness on the importance of local embedding and the related activities,
in particular with regard to the approval of new projects and renewal of concessions.
On a single site level, the firm is actively and early involving its relevant stakeholder,
with a focus on the public stakeholders and special interest groups. From a multi-unit
perspective, Axpo considers itself as a financial holding, which does not interfere in
the daily operation of its sub-units. Instead, it focuses on the setting of top-down
strategic targets, the realisation of synergies with regard to financial markets or
procurement of strategic inputs, as well as the safeguarding of regulatory compliance.
On a national level, Axpo is also very active with regard to lobbying, thus taking
influence on Switzerland's energy policy and lowering its overall transaction costs.

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5.2 Case study - airport industry
Strategically important for regional and national economies the airport industry has
been state-dominated over long periods of its history. Protectionism in the form of
heavy regulation, ownership restrictions and limits to movements in international air
transportation made international engagements for both, airlines and airport operators,
nearly impossible. In 1997 these conditions changed markedly with the lifting of the
bilateral traffic agreements in Europe. The deregulation of the European Union's
airspace led to the boom of 'budget' airlines on shorter routes and in some countries to
the privatisation of the national incumbent airlines, thus allowing them more freedom
to grow and expand internationally. During this period and as a consequence of the
dynamics in the airline sector, also the structure of the airport industry began to
change. These industry changes were facilitated by the fact that many states were
overstrained with the financing of their airports' infrastructure modernisation and their
transition to efficient customer-oriented service organisations. Consequently,
governments started to deregulate and privatise the industry, combined with new
regulatory approaches and models of airport management. Today, many airports are
operated under public private partnerships (PPP), which leave the state with some
degree of control on its strategic infrastructure, while large parts of the airport
financing, planning and management is in the hands of a private airport operator.
5.2.1 Industry characteristics
Airports are the most stable component in the aviation sector. Their stability grounds
on the significance of their commercial (i.e. non-aeronautical) activities, their limited
competition in metropolitan areas; the persistent entry barriers based on cost,
environmental, and political issues; and on regulatory mechanisms that often insulate
airports from the airline industry's volatility. Despite the long history of the airport
industry, their real commercial potential only became apparent in the process of
deregulation and privatisation, when they turned from mere public utilities to a
commercialised industry. Nowadays, airports are more than just infrastructure for the
handling of aircraft movements and passenger flows. Airport operators are real estate
developers and builders of airport cities, they integrate business parks and shopping
centres, and they provide all kinds of services that ease travelling. Because airports are
natural focal points for large flows of people every day - i.e. passengers, their
accompanying friends and relatives, but also employees and people otherwise
transferring through the airport's facilities - they generally are attractive places for
business. Thus, the industry's revenues have grown over proportionally since
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privatisation started, with an increasing share of commercial revenues compared to
aeronautical revenues. In 2007 the average share of airports' commercial revenues was
48% of overall revenues (Graham, 2009), with the best airports achieving a share of up
to 58% (A.T. Kearney, 2008).
As an effect of the increased commercialisation and industry dynamics, airports have
not only become more efficient in the handling of their local passengers, but have also
identified additional growth opportunities beyond their original catchment areas. This
is partly a result of the hubbing strategies of their home carriers (i.e. an airport's
dominant airline), but also due to its own marketing efforts to attract new airlines and
passengers.
Traditionally airports used to be either stand-alone businesses, or they were under the
auspices and management of a national state-owned airport authority. This industry
structure is currently undergoing significant change through the global trend towards
airport privatisation. With the UK as a forerunner, which privatised its major airports
in 1987 through the formation of BAA, other privatisation initiatives began in the
course of the 1990s. Figure 5-5 provides an overview of the most important airport
privatisations in the past two decades.
BAA
Lon. City
‘87 ‘92 ‘93 ‘94 ‘95 ‘96 ‘97 ‘98 ‘99 ‘00 ‘01 ‘02 ‘03 ‘04 ‘05 ‘06 ‘07 ‘08 ‘09 ‘10
Vienna I
Cardiff
Prestwick
Copenhagen I Vienna II
East Midlands Lon. City II
Sheffield
Belfast Int.
Athens
Copenhagen II
Belfast Int.
Xiamen
Australia I
Düsseldorf
Rome I
Istanbul
Birmingham
Kent Int.
Mexico
II
Malaysia
Argentina Zurich
Auckland Hamburg
Skavsta Mexico II
Australia II Rome II
Hannover Turin
Naples Newcastle
South Africa
London Luton
Wellington
Mexico I
Shanghai
Beijing
Fraport
Newcastle
Lon. Luton II
Bristol
Birmingham
Bournemouth
East Midlands II
Sydney I
Hainan
Sydney II
Belfast City
Teesside
Senai
Figure 5-5: Chronology of airport privatisations & transactions 109
Brussels
TBI
Tirana
Blackpool
Thailand
Argentina II
Lon. Luton III
Cardiff
Exeter
Bangalore
Mumbai
Budapest
London City
Hamburg
BAA
AdP
GAP, Mexico
Mumbai
New Delhi
Aberdeen
Bristol
Fraport
Exeter
Friedrichshafen
Budapest
AdR
Birmingham
Leeds Bradford
Xian Xianyang Cairns
TAV Lon. Gatwick
Treviso Bristol
Brisbane
Mackay
Lon. City
Belfast City
Blackpool
London
Gatwick
Peel Airports
Malé
The trend towards airport privatisation is expected to continue, since many countries
are only starting to privatise their airport infrastructure. A.T. Kearney (2008) estimates
the annual transaction volume for the sale and privatisation of airports to EUR 6-8bn
109 On the basis of Brown & Lee, 2010.

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until 2013 and further. As a result of the past developments and the future outlook a
number of international airport management groups have emerged, which engage in
the financing, consulting, operation and maintenance of airports on a global scale.
Currently the major international airport operators are Fraport AG, Germany;
Aéroports de Paris, France; TAV Airports Holding, Turkey; Vancouver Airport
Services, Canada; Changi Airports International, Singapore; Malaysia Airport
Holdings Berhad, Malaysia; GMR Group, India; and Zurich Airport (Flughafen Zürich
AG), Switzerland.
In addition a number of international airport investors with a banking, venture capital,
or construction background are actively seeking investment opportunities, as for
example Macquarie Airports (Map), a spin-off from the Australian Macquarie bank, or
Germany's Hochtief Airport AG, as well as Spanish Ferrovial and Abertis Group,
originating from the construction sector.
5.2.2 Swiss airport industry
Due to its small size Switzerland has only three national commercial airports, listed in
the order of their size:
- Zurich Airport (21.9m passengers annually, 2009)
- Geneva Airport (11.2m)
- EuroAirport Basel-Mulhouse-Freiburg (3.8m)
This structure is the result of the industry's hub economics, characterised by economies
of scale and network effects. In other words, only airports exceeding a critical size are
able to operate a hub efficiently, and - in combination with a sizeable catchment area -
can attract the needed number of airlines and connecting passengers to ensure an
economically viable operation. Due to the small size of Switzerland as a country, and
the distribution of its population, only Zurich Airport has a hub function with a
significant share of transfer passengers. Our case object, which will be analysed next,
is Flughafen Zürich AG as the operator of Zurich airport and an international airport
management company.
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5.2.3 The case of Flughafen Zürich AG (Zurich Airport)
Since 2000 Flughafen Zürich AG (FZ) is a publicly traded company 110 , partially
owned by the state, respectively by the Canton of Zurich (33.3% of equity) and the
City of Zurich (5.0%). Today FZ is a diversified company that operates Zurich Airport
on behalf of the federal government. For this purpose, it has been awarded a State
Concession until 2051, which entails the mandate to provide infrastructure and
services in accordance with the demand of the Swiss people, Switzerland's economy
and tourism industry. Its compliance with this mandate is determined by the criteria of
economic utility, safety and security, efficiency, quality and with regard to its
environmental impact. FZ receives no subsidisation and generates annual revenues of
CHF 820m with 1550 employees (2009). According to its website, FZ's expertise as an
airport operator is summarised through the following core competences 111
- operational excellence: optimisation of operational processes and quality
management
- commercial competence: definition of commercial strategies and optimisation
of non-aviation revenues
- master planning and construction management
- start-up and expansion planning and execution of airports and buildings
- partnership management: with authorities, airport partners, concessionaires,
customers, etc.
With Zurich airport as one of Europe's best-managed airports, FZ exploits this
expertise also by means of international airport engagements. The subsequent analysis
therefore focuses on FZ as the operator of Zurich Airport, but occasionally draws on
various experiences and cases from its international engagements, particularly FZ's
involvement in a greenfield airport project in the South Indian city of Bengaluru
(Bangalore).
History and organisation. Until its privatisation in 2000 FZ was a single-site airport
operator with no further engagements at other airports. In the past decade, however,
the firm has developed into an international airport operator, developer, and
consultancy offering its services on a global scale. To a limited extent, and as far as
110
The newly created firm was the result of merging the 'Flughafen Direktion Zürich' (FDZ), which
until then belonged to the cantonal administration, and the 'Flughafen Immobilien Gesellschaft' (FIG),
which took care of the airport infrastructure.
111
See also 'Our Expertise'. Retrieved April 18, 2010, from Zurich Airport's corporate website:
http://www.zurich-airport.com/desktopdefault.aspx/tabid-435/.

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required, FZ also holds minority stakes at the airports, where it is active. Its dual
orientation towards maintaining its high standards at the homebase in Zurich and to
expand in its international activities is reflected in FZ's vision (Flughafen Zürich AG,
2009):
We connect Switzerland to the world;
we welcome our guests around the clock;
we develop projects in Switzerland and abroad;
and we distinguish ourselves through “Swissness”.
Like most major airports, FZ has a functional organisation (cf. Figure 5-6). Its
operational knowledge is embedded in the functional units, while the project knowhow
for international activities is concentrated in its finance division. Whenever
operational expertise and best practice advice is needed in international activities, the
latter is able to draw on the relevant experts across the firm.
Operations
Marketing &
Real Estate
Board of Directors
CEO
Figure 5-6: Functional organisation of Flughafen Zürich AG
Finance Services
Strategic orientation & geographical presence. In FZ's portfolio of managed
airports, Zurich airport is and will remain the core asset due to its size and strategic
importance for the firm. Zurich airport is not only the homebase to which FZ is
committed through its concession, its shareholders and through its tradition, it
represents also FZ's showcase operation, from which it draws its credibility and
reputation for its international activities, as well as the required knowledge for best
practice transfers to foreign projects. Geographically FZ's international activities focus
on Latin and Central America, as well as Asia, where it already has invested in
airports. In 2008, the firm widened its strategic focus also to Central and Eastern
Europe where it is actively seeking airport engagements. International engagements as
airport operator are chosen on the basis of their size and development potential, i.e. FZ
focuses on airports where it is able to transfer best practice knowledge with the highest
leverage. Consequently, it concentrates on the development and operation of mediumsized
airports mostly in emerging markets, which are in high need for the upgrading
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and development of aviation infrastructure, or in environments where the commercial
potential of airports is not yet exploited. FZ's international airport portfolio involved
eleven airports in six countries in 2009, as illustrated in Figure 5-7.
Mexico
Honduras
(4 airports)
Colombia
Bogota
Peru
La Serena
Chile
Puerto Montt
Curacao, Curacao
Venezuela,
Isla Margarita
Brazil
Switzerland,
Zurich
Eastern
Europe
Figure 5-7: International engagements of Flughafen Zürich AG (2010) 112
India
Bangalore
Vietnam
airport operations
strategic focus areas
In its strategy-finding process FZ identified four primary business models with regard
to international activities (cf. Figure 5-8): (1) consultancies with knowhow and a shortterm
orientation confined to their mandate; (2) operators, who possess the knowhow
and have a long-term orientation to the airports they manage; (3) developers, who are
primarily interested in airport construction and start-up; and (4) investors with a longterm
orientation and financial means, but lacking operational knowhow.
112 Company information.

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Knowhow
Factor endowment
Financial funds
Orientation
short-term long-term
(1) Consultant (2) Operator
(3) Developer (4) Investor
Figure 5-8: Primary business models in international airport activities 113
Among these strategic choices FZ sets its focus primarily on the operator-role, taking
responsibility for airports through management and operation agreements. As its
former Chief Development Officer specifies: “we engage ourselves for the long-term,
with our main contribution being our knowhow and not capital” (interview N°24: 1).
FZ sees its core competency in the operation and management of complex airport
systems sized between 5-25m passengers, where the knowhow from its Zurich
operation can be best employed. In its engagements it always cooperates with a
strongly embedded local majority partner, helping it to overcome its liabilities of
foreignness. Other project-related financial obligations and equity participation
requirements are covered by selected strategic partners, often with a venture capital
background. FZ also offers consulting services 114 , but regards them as a means
towards project acquisition.
Corporate philosophy. In its annual report 2009 (Flughafen Zürich AG, 2010) FZ
states about its business approach:
When formulating and implementing its strategy, the operator of Zurich Airport
gives due consideration to the aspects of cost-efficiency, environment and social
responsibility in its decision-making. In this way it aims to increase the company's
competitiveness and credibility and add to its value on a sustainable basis.
113 Cf. interview N°24.
114
FZ's engagement in Colombia, for example, comprises mainly consulting services, with the
prospect of more far-reaching involvements in the future.
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Due to the relevance of airports for their surrounding economic system and their
impacts on the local environment, FZ sees itself as an intermediary and ambassador to
the region. Zurich airport, for example is positioned as being the Gateway to the Alps.
Similarly, its greenfield operation in India, Bengaluru International Airport markets
itself and the region as 'Gateway to South India'. The strength of this philosophy lies in
the tying together of various local interest groups to mutually benefit from each other,
e.g. by closely coordinating the airport's activities with local tourism organisations and
economic development agencies to promote the region surrounding the airport, its
business centres and touristic attractions. In addition, FZ considers itself as a reliable
factor for the growth of the local economy. In its mission statement FZ consequently
states (excerpt):
We perceive it as our duty to strengthen Switzerland as a business centre, as a
country with a rich tradition of culture, know-how and sport, and as an attractive
tourist destination, by operating a well-developed and efficient gateway to the
world. …
We make the best possible use of our know-how in Switzerland and abroad by
developing and implementing projects aimed at enhancing economic performance
and efficiency.
We distinguish ourselves from our competitors by consistently implementing
positive Swiss values – i.e. “Swissness”.
Through FZ's consistent quality and service orientation and an established feedback
culture (also with its service partners) towards continuous improvement, Zurich airport
consistently ranks among the top-rated airports of Europe.
5.2.4 Flughafen Zürich AG's location-fixity
FZ's location-fixity is grounded in the land it has been allocated for operation, and the
resulting sunk-cost from investments in the airport's assets. In addition, the operator of
an airport takes on concession-related obligations, which it has to comply to until its
concession expires. In the case of Zurich airport, FZ maintains and further develops
800 hectares of land, which comprise assets in the value of 3.1bn Swiss Francs (2009).
In Table 5-4 the dimensions of FZ's location dependence are further detailed.

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Characteristic Applicable
for FZ
Upstream
Natural
Resource
Dependence
Upstream
Tangible
Asset
Dependence
Downstream
Dependence
on Market
Proximity
Ownership
Dependence
on Owners'
Utility
Function
Comment
� Due to the spatial and topographical requirements of airports,
including the need for large coherent pieces of undeveloped land to
accommodate an airport and a runway system, FZ's dependence on
a natural resource can be affirmed. Once the airport is built and the
economic development around the airport perimeter sets in, its
location becomes practically unalterable.
� Airports' highly specific infrastructure usually is of little value
outside its intended use, their assets have long amortisation periods,
averaging 25-30 years for runways and 30 years for terminal
buildings. Combined with related sunk costs for such lumpy
investments this creates significant dependence on tangible assets.
� The nature of their product, respectively of their provided services
makes airports dependent on their catchment area, i.e. the radius
within which people choose a specific airport as a starting or ending
point of a journey. It is therefore essential for the economic viability
of an airport that it is located close to a sufficient number of airport
users, depending on its size and business model. Thus FZ, in all of
its geographically diverse airport operations, depends on the
proximity to its market in the form of local passengers.
� Although its equity is predominantly freely floated, 38.3% of FZ
belong to public shareholders, i.e. the Canton of Zurich and the City
of Zurich. Because airport operations imply noise and air emissions,
conflicts of interest between the public shareholder and the airport's
management naturally may arise.
� fully applicable / ~ weakly applicable / � not applicable
In the case of FZ, which is closely located to the city centre of
Zurich and embedded in a densely populated web of surrounding
communities, stakeholder tensions related to aircraft noise exist.
Consequently, the Canton of Zurich as the airport's largest
shareholders and representative of the people of Zurich attempts to
mitigate these tensions by seeking political solutions. During the
past decade it experienced the thereto related difficulties to balance
between the economic interests of Zurich as a business location, the
interests of the noise-affected inhabitants, and the interests of FZ as
a private company.
Table 5-4: Location dependence of Flughafen Zürich AG by construct characteristics
To sum up, FZ can be considered as location-dependent on all relevant construct
characteristics. How this dependence affects its institutional exposure, and how FZ is
able to reduce its local exposure will be further elaborated in the subsequent sections.
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5.2.5 Flughafen Zürich AG's environment - institutional exposure
Commercial airports are public utilities which serve the economic development of a
region, satisfy the local population's needs for mobility, but also contribute to noise
and air emissions, and to other environmental impacts on their surroundings.
Moreover, the visibility of airport activities adds a political dimension to their
business. The resulting dilemma is exemplified by Zurich airport's positive economic
impact on the region, making the latter attractive to new incomers, while creating an
increasing dissonance with its externality-affected local stakeholders, who oppose its
further growth. These tensions between economic, environmental and social
dimensions of an airport's activities are illustrated in Figure 5-9. Essentially, a healthy
balance between the three dimensions is imperative to the airport's organisational
legitimacy, and influences also the institutional exposure towards the individual
stakeholders.
Environment
(air and noise
emission potential)
Economy
(economic utility & market
potential Zurich airport)
Sustainable civil aviation
sector development
in the Zurich region
(ecological damage ≤
economic and societal utility)
societal utility ≥
ecological damage
Figure 5-9: Field of tension between Zurich airport and its environment 115
Society
(potential of social contacts)
Consequently, the 'trouble-potential' which is related to Zurich airport's interlinkage
with its environment, to the current political dynamics, and the local dependence is
substantial (cf. interview N°23: 7). In the subsequent passages, we elaborate in more
detail FZ's institutional exposure towards its individual stakeholder groups.
Local community: exposure towards voting population and noise affected
population. To some extent airports are the victims of their own success 116 . While
115
Wittmer, Fröhlich, Weinert, & Axhausen, 2008: 12.
116
One of the core problems of the relations between Zurich airport and its surrounding communities
lies in the increased popularity of the airport region: On one hand, the size of noise-affected areas
within the defined immission threshold shrank by two thirds within the past two decades, due to
technologically advanced aircraft. At the same time, the population of the airport-surrounding

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they increase the economic attractiveness of the region in which they are located, they
equally - thereto related - are resented by the local population, due to their emissions.
Consequently,
the relationship between Flughafen Zürich AG and the general public is marked by
numerous contradictions. On one hand, people expect a reliable, high-quality
service provider which takes the society’s continuously increasing demand for
mobility into consideration. On the other hand, Flughafen Zürich AG is confronted
by demands related to airport-related noise from the population groups that want
the number of flight movements – counter to global trends – kept at current levels
or even reduced. (Flughafen Zürich AG, 2008: 17)
For the past three decades FZ faces an unresolved conflict with noise-affected
municipalities who benefit from airport-related popularity-increases and who need to
argue in the interests of their inhabitants to limit noise emissions. As a result,FZ finds
itself in a position of very limited flexibility. Many stakeholders oppose its existing
approach and departure routes from a 'not-in-my-backyard' perspective. Equally every
change to the existing system, particularly any capacity-enhancing measures to fulfil
FZ's public mandate in providing demand-sufficing infrastructure, meets resistance.
The airport's planning processes are thus prolonged and involve higher risks and
uncertainty. Many intended changes run through a long legal appeals process, resulting
in time-inefficiencies and procedural costs.
Civilian interest groups: exposure towards noise-related and environmental
groups. Concerned with issues of quality of life and real estate resale values, a number
of noise-centred associations actively promote their members' interests. The most
prominent of them are the Verein Flugschneise Süd Nein, Zürich Nord gegen
Fluglärm, IG Nord, Bürgerprotest Fluglärm Ost, and the Schutzverband der
Bevölkerung um den Flughafen Zürich (SBFZ). Many of these interest groups are
actively involved in political processes, for example through the launch of popular
initiatives or the filing of petitions. Moreover, with regard to concrete business
development activities or changes in Zurich airport's aeronautical processes, they also
often choose legal actions, which may involve several time-consuming juridical levels.
communities has increased by 20-85%, compared to the cantonal average of 15% (Müller-Jentsch,
2009). This is also reflected by the intensity of construction activities: between 2003 and 2008 the
areas, which the regional structure plan designates as exceeding the immission limits for noise
exposure, have seen a growth of 10.8% in the overall number of apartments - a growth-rate more than
double the cantonal average of 4.8% in the same period (Fuhrer, 2009).
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Because FZ is already a best practice airport with regard to sustainability and
environmental protection, it faces barely any exposure from environmental groups.
Customers: exposure to dominant airline alliances and business cycle
dependence. Airports serve two types of customers, airlines and passengers. From the
side of the airlines, institutional exposure has grown over the past two decades
particularly with the formation of airline alliances, which strengthen their members'
negotiation power. Importantly, it has also risen due to the increasing influence of low
cost carriers. At Zurich airport its single biggest airline customer - its hub carrier Swiss
International Airlines - has a market share of 59% (2009), while the market share of
the world's biggest airline alliance Star Alliance adds up to 72% of all transported
passengers. This dominant position allows the alliance members to negotiate hubspecific
investments, resulting in institutional exposure for the airport due to the
related sunk costs and few guarantees to ensure credible commitments 117 from the
airlines. Moreover, airlines' volatility and sensitivity to business cycles regularly pose
challenges to airports, which are characterised by high fixed costs in their operation. In
this respect, Airports Council International (ACI) (2009: 1.7.1c), an international
industry association, points out:
Airports are significantly exposed to the airline industry which is very susceptible to
external circumstances forcing it frequently to revisit business models and
strategies which immediately affect airports. … Airport infrastructure development
is a long term undertaking which must not be disrupted by short term airline
industry volatility.
From the passengers' side, institutional exposure mainly stems from the aviation
industry's cyclicality, i.e. the decrease of local demand and increased pricesensitivity
118 in times of economic downturn.
Suppliers: no relevant exposure to strategic suppliers. Zurich airport has few
strategic suppliers, from which it derives institutional exposure. Most of its strategic
relations are with its service partners, on which the smooth airport operation crucially
depends (see next paragraph).
117 On the other hand, airlines face a hold-up risk from the airport, since they are equally dependent on
the functioning of airport infrastructure for smooth and cost-efficient performance. In addition, airlines
face hold-up risks in non-regulated airport charges, due to the natural monopoly situation of airports.
118
Price-sensitivity is felt most significantly by the airlines, but also by the airport's commercial
partners due to passengers' lower willingness to spend while travelling.

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Service partners: hold-up situations in case of disruptions with service partners,
i.e. air traffic control, ground handling companies, caterers, aircraft refuellers,
security services and customs. Airports are intricate systems of well attuned service
partners. Depending on the airport operator's business model and national regulations,
the number of such partners varies. FZ depends on the well-functioning of the abovelisted
service partners. Although it has issued more than one concession for the
coverage of ground handling and catering, with service level agreements in place,
disruptions of a partner would lead to operational inconveniences, additional costs and
might result in negative reputational spillovers.
Employees: labour issues, strikes. As recent examples of strikes have shown in Los
Angeles (airport workers, 2008), at various airports in Italy (air traffic controllers,
2008), Frankfurt (ground staff, 2009), or at London's BAA-operated airports (ground
staff, 2007), airports are exposed to hold-up situations from labour issues, be it their
own employees or through the employees of their service partners. Labour issues in
the form of strikes or non-cooperation may lead to system disruptions, which in their
worst case may take the airport weeks to recover from. With view at Zurich airport, a
cooperative firm culture and functioning mediation processes between FZ's
management and its employees have helped to constructively resolve any issue in the
airport's history. With regard to its social partnership, FZ states in its annual report
2009 (2010: 19):
In all matters concerning Flughafen Zürich AG's operations, both the employer and
the staff representation council (PeV) work closely together. The participation of
the staff representation council has a direct effect on those who work for Flughafen
Zürich AG and it is a key feature in how the employer/employee relationship works.
Both the Management Board and line managers acknowledge the importance of the
staff representatives' work to the social partnership.
In addition, the Swiss culture has developed effective systems to handle firmemployee
disagreements, which rarely result in strike situations. Thus, also service
partners' risk of escalating labour issues is small. This characteristic Swiss mediation
capability has so far helped FZ to avoid labour issues also in its international airport
activities.
Shareholder: exposure due to conflicting priorities of public shareholders. The
objectives, that the Canton of Zurich specifies as FZ's major shareholder aim to ensure
a balance between transportation-related, macro-economic, as well as environmental
interests. Therefore, the Canton formulates its expectations towards FZ through its
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strategic investment controlling, considering the following dimensions: (1) mobilityrelated
and economic relevance of the airport; (2) environmental protection; (3)
business management and governance; and (4) stakeholder management (Amt für
Verkehr, 2009). In its strategy-controlling report on FZ, the Canton states, that “by
means of influence through the State [on the airport operator] - which is essential in
airport politics - the population can be given account for the Canton's investment, the
pursued goals, and the compliance therewith” (ibid: 4). With regard to FZ's
international activities, the Canton further specifies (ibid: 6):
Principally the Canton of Zurich expects that … Flughafen Zürich AG invests in
national or international airport projects only under the condition that the thus
bound human and financial resources are proportionate to their value created for
Zurich airport, and that the risk of legal claims against the Canton of Zurich as a
shareholder can be precluded with high certainty.
Concludingly, FZ has the opportunity to develop its international activities according
to economic principles and diligent risk management, as long as it is able to comply
with the performance expectations in the management of Zurich airport. With regard
to the development of Zurich airport as an infrastructure, however, the political
realities limit FZ in capacity expansions, thus forcing it to become more efficient
within the bounds of the existing capacity - which is also reflected in the Canton's
performance targets.
Government, regulator, politics: exposure due to the industry's polarisation of
the local electorate and its public utility function. Due to the long-term orientation
of the airport industry, which faces long break-even periods, high risks and needs
substantial policy and financial support, regulatory regimes equally need to take a
long-term perspective, considering both current and future beneficiaries of the airport
assets. However, in the face of limited information and uncertain market conditions,
reinforced by political pressures arising from airports' high visibility and polarisation
of the electorate, regulators potentially make shorter-term decisions, which increase
the exposure of airport operators in a number of ways. Particularly the fact that
airports have to provide sufficient infrastructure through lumpy investments 119 in
anticipation of future growth, makes them vulnerable to the public stakeholders'
reneging on contracts. In addition, if the perceived regulatory risks are high for airport
119
Lumpy investments are characterised by investment spikes, with little or no investment activity
between the spikes (cf. Nilsen, Raknerud, Rybalka, & Skjerpen, 2005).

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operators, their incentives to proactively invest in additional capacity in a timely
manner are low, which exposes them to criticisms of underinvestment.
In the case of FZ, one of the main obstacles to its business development in Zurich
stems from its political exposure. According to article one of the cantonal airport law
("Flughafengesetz", 1999), the Canton supports Zurich airport in all aspects affecting
its economic and transportation-economic interests. It thereby considers the protection
of the population from adverse and undesirable impacts of the airport operation. In the
past three decades the political situation has evolved in a way which makes solutionfinding
very complex and time-consuming, due to the afore-described field of tension
between the economy, society and the environment (cf. Figure 5-9). Thus, even though
FZ is willing to invest in additional capacity to fulfil its concession mandate,
implementation often is slowed down or prevented through procedural, legalistic
loops.
In its international engagements, its regulatory and political exposure is often less
related to (noise) emissions, but to the economic impact of airports and the question of
fair rates of return. India, for example is currently developing a new regulatory regime
with uncertain impacts on the recently privatised airports. In a white paper, the newly
established 'Airports Economic Regulatory Authority' (AERA) states: “The process of
regulation, could itself significantly protect investors from key aspects of risk.
Notably, the periodic review of airport and aeronautical services tariffs provides
mechanisms for risk to be shared between an airport and its users – subject to
safeguards to protect users” (AERA, 2009: 40). This statement proves correct in a
regime, which has firmly established processes and in which proven past stability
provides certainty to the investors also in the future. In institutional environments with
a less stable history, the protection of users might lead to a politically motivated
challenging of investors' assumptions in determining an airport's fair rate of return,
potentially putting their business case at risk. Thus, the international industry
association Airports Council International (ACI, 2009: 1.7.1c) recommends:
When calculating a reasonable rate of return, the various and potentially
significant degrees of risk airports are exposed to must be taken into account. …
The airports’ ability to react to negative developments can be limited as airport
infrastructure cannot simply be decommissioned.
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5.2.6 Flughafen Zürich AG's embedding capabilities
One of the biggest challenges in an airport's legitimisation process lies in the finding
of the right balance between its own economic interests and its stakeholders' social
interests under consideration of the political circumstances (cf. interview N°13). This
task revolves around delicate issues, most notably the airport's externalities affecting
the local community's quality of life. If the pendulum swings too far towards economic
interests, resulting in a neglect of social issues, the whole system between airport,
society, environment and politics becomes unstable, and further business development
options may become uncertain (cf. interview N°23: 1). Thus, from its history at Zurich
airport, FZ knows that the continuous nurturing of stakeholder relationships is a
critical success factor. Its experiences with a highly complex environment and very
limited flexibility for further development have enabled it to develop an alertness to
sense which kind of cooperation mode with the various stakeholders will be fruitful - a
treat which is also valuable in its international activities.
Capabilities towards structural local embedding. When FZ emerged as a privatised
company in 2000, it coined the company motto “to operate the airport together with
the community”, which pointedly reflects the airport's self-conception. The operation
of Zurich airport can never be an end in itself, but receives its 'licence to operate' by
fulfilling its role in serving the society, the economy and the state in the wider sense
(cf. interview N° 23: 2). In the subsequent sections we will examine along the
parameters of the research framework, in which ways FZ is able to strengthen its
structural embeddedness and its stakeholder legitimisation.
(a) value share remaining in region. Beyond its function as provider of infrastructure,
an airport represents an integral part of a business location. Moreover, through its
activities it promotes the creation and exploitation of a region's economic growth
potential. Consequently, the direct value added of the airport operator itself is
subordinate to the economic effects of the airport as an overall system. From a bird's
eye perspective, an airport creates value in its local environment on various levels. In
order to assess its economic relevance ACI and York Consulting (2000) recommend to
divide its impact in direct and indirect effects. The direct effects measure its value
added (equalling sales minus inputs) and the employment effects on its premises
through activities of other firms, which are located there. In contrast, indirect effects
measure the inputs of firms outside the airport, which contribute to the direct value
added. Table 5-5 provides an overview on Zurich airport's direct and indirect value
added effects for the year 2004, plus from a broader economic perspective on the

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somewhat less reliably assessable multiplication effects. The latter include induced
effects 120 and catalytic effects 121 , which relate to effects from the region's improved
connectivity to the world (Infras, 2006).
Economic effects (CHF million)
direct effect 3'081
indirect effect 841
sum of direct and indirect effect (narrowly defined economic benefit) 3'922
induced effect 5'740
catalytic effect (passenger-related) 4'118
sum of induced and catalytic effect (widely defined economic benefit) 9'858
overall effect 13'780
Table 5-5: Overall value added of Zurich airport (2004) 122
Caused by Switzerland's economic growth and related growth in annual passenger
volumes, in 2009 Zurich airport's overall employment throughout the service chain
grew to 21'000 full time equivalents, which makes it one of the country's most
important employers. Furthermore, considering its multiplication effects, in 2009 more
than 100'000 people earned their livelihoods related to the airport. Its direct and
indirect value added amounted to CHF 20bn (airport- / airline- / retail plus F&B
related effects) (Flughafen Zürich AG, 2010).
Narrowing the perspective on value contribution to the airport operator itself, FZ
creates value in the greater Zurich region through
- stable annual tax payments, amounting to CHF 26m in 2008123;
- economic impulses through investments in major real estate projects, such as
the fifth expansion phase (1999-2004, with an investment volume of CHF
2.1bn), Zurich 2010 (2008-2011, with an investment volume: CHF 0.43bn), or
120
I.e. the value added and employment effects from the additional purchasing power, which results
from the jobs created through the airport's activity.
121
I.e. the spending of foreign passengers who visit Switzerland, and productivity effects respectively
additional sales of firms which benefit from the airport's infrastructure.
122
Infras, 2006.
123
In 2009, FZ paid CHF 48.4m in income taxes, which included one-off effects from its divestment
of a 12% stake in Bangalore International Airport Ltd. (BIAL).
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the planned development of an airport city through its 'Circle' project (with an
estimated overall investment volume of CHF 1bn); and
- annual expenditures for sound insulation measures/noise compensation of CHF
6.8m, to which FZ is obliged by law and which it finances from its noise fund
(see also next paragraph).
With the objective to compensate particularly emission-affected citizens for their
reduction in quality of life, FZ has established a noise fund, which is financed through
special noise charges based on the principle of “user pays”. FZ describes in its annual
report (Flughafen Zürich AG, 2010: 16):
Our sound insulation concept is a key measure for abating aircraft noise, second in
importance only to the use of quieter engines and the improvement of, and
adherence to, operating instructions. Sound-insulating windows provide local
residents with passive protection against the intrusive and harmful effects of
aircraft noise. Owners of properties exposed to noise and which are located in a
clearly defined area within the airport (“sound insulation perimeter”) have certain
entitlements in respect of sound-insulating windows. Property owners who have
already taken the initiative of fitting sound-insulating windows will over the coming
years be reimbursed for their investment by Flughafen Zürich AG.
Moreover, FZ compensates property owners whose properties have sustained losses in
value because of aircraft noise, if the immission levels as laid down by the Federal
Noise Abatement Ordinance are exceeded, and if the owner could not have anticipated
the aircraft noise when the property was purchased. Thus, FZ derives part of its local
legitimisation through its continued construction activities at the airport, the stable tax
income it creates to the surrounding communities, its noise relief provisions, and the
further economic impulses the airport brings to the regions through its existence.
Because in different institutional and cultural environments different legitimisation
activities are expected, FZ's engagements in international airport management entail
different ways of creating value in the region. In its airport operation in Bangalore for
example, its legitimacy is furthered by employment of less qualified villagers from the
airport's neighbouring communities, by supporting underprivileged local families, or
through local forestation projects to compensate for the environmental impacts of the
airport (cf. interview N°15). These measures are part of the operator's corporate social
responsibility programme, leading to an increased local living standard and to the
accumulation of local goodwill stocks.

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(b) mutual lock-in between the firm and its major stakeholders. As has been outlined
before, Flughafen Zürich AG is a privatised company with major public equity
participation. Thus, FZ maintains a dual relationship with the Canton of Zurich, with
the latter being both, a source of tension and a source of stability. On one side, their
interactions have a legalistic, regulatory, and political character, and on the other side
the Canton safeguards its interests through its role as FZ's biggest shareholder. In this
role as an owner, the Canton becomes involved in the firm's strategic decision-making
and takes on responsibility for the firm's governance, which incidentally increases FZ's
organisational legitimacy. In addition, the shareholding represents an obligation to the
Canton to duly act towards ensuring FZ's going concern, which means that it needs to
balance those interests against political claims in respect of airport emissions and
growth. Consequently, despite irresolvable conflicts related to its activities, FZ is
granted a basic legitimacy which is undisputed among its various stakeholders. The
Canton's equity involvement serves as a kind of guarantor to the conditions needed for
future development, albeit within the bounds of social and environmental
compatibility.
Further illustration of mutual lock-in is provided by the affiliation of eight
municipalities in the Glatt valley close to Zurich airport, with the objective to create a
joint economic region promoted as GLOW area. Those communities have not only
accepted that the airport and the surrounding environment are mutually dependent, but
have taken steps to further exploit the resulting economic potential. In order to do so,
and although the region objects to the airport's emissions under the aspect of quality of
life, the involved public administrations have decided to constructively cooperate with
the airport. In their efforts to foster community-spanning developments, they describe
GLOW as one of the most dynamic areas of Switzerland and “the focal point between
the city of Zurich and Zurich Airport” 124 . In addition, the region is being marketed as
the Airport Region Zurich. The related goodwill towards the airport brings positive
side-effects to FZ, since the spillovers from the administrative goodwill might lead to
equally increasing community goodwill, helping to put aircraft noise in perspective
with the related economic benefits.
(c) internal governance. In order to honour its obligations towards the environment,
FZ operates a comprehensive ISO 14001:2004 certified environmental management
programme. In its endeavours to being a good corporate citizen, FZ collects
124 'Welcome to Glattal!'. Retrieved August 5, 2010 from www.glow.ch/de/business/contact/.
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environmental data throughout and around 125 the airport, which it records, processes
and systematically reports in the form of standardised key data. Among others, the
firm continuously monitors emissions of nitrogen oxides (NOX), volatile organic
compounds (VOCs), carbon monoxide (CO) and particulate matter (PM), which are
the key pollutants affecting local air quality. Importantly, FZ calculates its CO2emissions
in detail since 1991, in accordance with the GHG-protocol (Greenhouse
Gas), and managed to reduce those emissions 126 under its direct control by
approximately 30% since 1991, in spite of a 60% traffic increase in the same period. In
acknowledgement of these endeavours FZ received Airport Carbon Accreditation 127 by
ACI Europe in November 2010 on a high level. Through these systematic data
collection activities FZ is able to surveil the current environmental situation and
evolvement thereof. The details and results are being made transparent through
publication in the firm's annual report, of which environmental reporting forms an
integral part. In addition, key data on aircraft movements and noise emissions are
published on a monthly basis on FZ's company website and through its monthly 'Lärm-
Bulletin' publication. To make recent aircraft movements transparent to the local
community, FZ publishes detailed movement tables on a daily basis on its website.
These mostly voluntary public reporting activities aim at gaining good decision bases
for further improvements to environmental protection, but also at building trust with
the airport's surrounding stakeholders. FZ hopes also that by having transparent and
reliable data at hand, the discussion on airport-related immissions can be brought to a
less emotional level.
Capabilities towards relational local embedding. Nurturing constructive relations
with the airport's surrounding stakeholders is one of the most important factors for
FZ's success and future development opportunities. However, FZ is aware, that
although good relational embedding might lead to a change in tonality and better
coordination processes, it will not alter the airport operation's key points of contention.
(a) relational capabilities. As a means to reduce the airport's exposure to its regional
stakeholders, FZ relies on a constructive dialogue which reaches beyond purely
transactional information exchange. As it states in its sustainability report (2008: 17),
125
Outside Zurich airport’s premises, the Canton of Zurich's Office for Waste, Water, Energy and
Air monitors air quality in the region on behalf of FZ, using a network of monitoring stations.
126
Scope 1 and scope 2, according to company information.
127
See also 'committed to carbon reduction'. Retrieved November 15, 2010, from
www.airportcarbonaccreditation.org, respectively from Zurich Airport corporate website:
www.flughafen-zuerich.ch/desktopdefault.aspx/tabid-493/967_read-3624/.

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“a long-term orientation of operations at a major international airport requires a vital
but also resilient relationship with the general public and politicians”. The complexity
of the airport's impacts on its environment and its stakeholders' expectations make it
essential to avoid disputes around special interests of individual stakeholders and to
retain a synoptic view of the issues. To this end FZ nurtures an ongoing interaction
with its surrounding communities under a wider perspective, which integrates the
whole region around the airport in its considerations. In its relationship management,
FZ uses the following platforms and channels:
- regular information events and workshops with representatives of the affected
municipalities (themes are chosen towards capacity-building of communities in
fields which are prone to conflict and misunderstanding, e.g. 'air traffic control
and the impacts of weather', or 'overnight runway renovation')
- participation in the master planning of Kloten, FZ's most important host
community, with controversial discussions due to opposing interests (increased
residential building activities versus prevention of growing numbers of noiseaffected
citizens and thus opposition against the airport); periodical meetings
between airport executives and city councils for information exchange and to
maintain a constructive debating atmosphere
- monthly high-level exchanges with local service partners for trust-building and
solution-finding to joint issues, respectively for constructive escalation
- bi-monthly 'President's Talk', wherein FZ's CEO invites the CEOs of the service
partners for an exchange
- alliance-building with other organisations, crucial for the economic
development on a regional or national scale (e.g. Economiesuisse, Zurich
Tourism, Switzerland Tourism, GLOW)
- active membership in tourism-related associations (e.g. Switzerland Convention
& Incentive Bureau, Zürich Unterland Tourismus)
- events at the airport directed at involving the large public (e.g. the welcoming
of the A380 in Zurich, multi-day festivals on the airport's observation deck,
celebration of airport-related anniversaries, annual nature conservation walk on
the airport's territory, etc.)
Through its experiences in the past decade, FZ's relational capabilities have been
honed and significantly gained in importance, due to the change of political climate. A
number of external factors have contributed towards this development, from
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Germany's 2001 implementation of fly-over limitations 128 , to the grounding of the
national carrier Swissair in 2001, and the sale of its successor 'Swiss International
Airlines' to the German Lufthansa in 2005, which resulted in a partial loss of the local
population's loyalty and tolerance towards aircraft noise. During this learning process
FZ realised that it is not decisive to seek dialogue with any of the airport's
stakeholders, but to carefully deploy resources for relationship management to interact
with those stakeholders, who are genuinely interested in solution-finding. Particularly
with regard to groups representing individual geographical areas of the airport's
surroundings, the success of regular interactions crucially depends also on the other
side's interest in finding majority-winning solutions. In some cases however, interest
groups rather narrowly focus on special interests, employing political tactics instead.
As a consequence FZ concentrates its efforts on its surrounding communities based on
the intensity of their noise exposure, and on interest groups representing major parts of
noise-affected stakeholders, such as for example the SBFZ. With regard to its service
partners, FZ established platforms for bilateral exchange in order to attain a common
understanding on how to run the airport, and to address upcoming issues between the
partners fast, transparent and trustingly. Moreover, FZ's multilateral platforms which
are integral part of its daily operation, have contributed towards the cooperative airport
culture and the high quality and efficiency at Zurich airport. The mutual embedding
into the airport system and its environment helps in the daily operation and is
particularly valuable in times of crisis, emergency, or in the management of inter-party
conflicts.
Notwithstanding its efforts in the past years, the political development related to its
operation has hindered FZ in creating a thoroughly positive environment. Although the
presence of an international airport in Zurich's vicinity entails significant positive
externalities for the Zurich region (cf. section (a) value share remaining in region,
p.262), in the political discussion the negative externalities prevail. In the opinion of
FZ's former Head of Political Lobbying and Environment, this agonising development
absorbs significant management resources, with a paralysing impact on FZ as an
organisation. “With regard to business development of an airport such as Zurich
Airport, maximum-solutions are no longer possible, nor desirable. Due to the political
128 The fly-over limitations, which Germany enforced in 2001, effected a change in approach-routes to
Zurich airport, thus exposing densely populated areas in the Zurich region to aircraft noise. At the time
of escalation, this measure came as an external shock to the local population and consequently led to
an increased urgency of the noise issue and increased interest groups' opposition to the airport's hub
operation.

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complexity consensual solutions require all involved parties to scale back to their
common denominator” (interview N°23: 11). Thus, it would be desirable for FZ to
retract itself somewhat from the debates, allowing it to resolve a number of issues and
processes more smoothly (cf. interview N°23: 10).
In its international activities, FZ gives equally high priority to the local relationship
building, with better prospects to accumulate valuable goodwill stocks. To intensify
relations on the institutional dimension in its Bangalore operations for example, the
local operator BIAL is member in three chambers of commerce, each helping it to
grow the network and to nurture contacts with important opinion makers. In addition,
specific to the cultural context, the personal contact of executive management to
politicians is sought regularly, in order to build goodwill stocks and to reduce overall
transaction costs and institutional risks. On the other hand, BIAL tries to establish a
relation with the local community through regular festivals on the airport site and
events in cooperation with the various tourism associations, which - apart from the
advertising effect - positively connect the airport with the touristic symbols of national
and local pride. Furthermore, related to its next big expansion phase, BIAL has
organised a competition for architectural students with regard to design proposals for
the new terminal building. Equally with the motivation to build goodwill stocks for the
airport's extension, BIAL has become a leader in the use of social media - among
others - with the launch of its 'smilebengaluru' initiative (www.smilebengaluru.com) in
2010, through which it involves the local community and airport users in the design
and features for the new parts of the airport.
(b) reputation-building capabilities. The political sensitivity and strategic importance
of the airport business make reputation management a key capability of operators. In
the case of FZ's Zurich operation, its importance is further underlined through the
objectives specified by FZ's public shareholder, the Canton of Zurich. Thus, FZ
engages in a number of activities to build stakeholder awareness on the airport's role
for local value creation, but also its efforts towards environmental protection and
emission reduction. Its 'green' activities in Zurich include:
- the promotion of more environmentally friendly aircraft through incentivising
airport charges (reduction of noise, air pollutants, CO2 emissions 129 ) - the
129 In its annual report (2010: 16), FZ states: “Minimising noise immissions wherever possible is a
high priority for Flughafen Zürich AG, and is set to remain that way. Admittedly, it will not be easy to
reconcile the demand for mobility with the need for noise reduction in the coming years.”
Furthermore: "We are committed to ensuring that aviation evolves in an environmentally-friendly
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current charges are in the process of being adapted in two-steps in order to
reflect the technological advances and to keep up the incentivising effect;
- incentives for employees (in the form of a public transport pass as fringe
benefit) and airport users (through high parking fees as negative incentive) to
avoid private transport and use trains and buses instead;
- the instalment of environmentally friendly building structures and business
processes, which limit the airport's energy consumption (e.g. through the use of
geothermics) and reduce impacts on the environment (e.g. through the recycling
of de-icing agents);
- the maintenance of the nature conservation zone around FZ's airport perimeter
through the airport's green area maintenance crew; and
- the environmental supervision of construction projects through strict internally
developed environmental protection regulations, which FZ considers as its
ecological standards.
While stakeholders in its Zurich-operation expect mainly an environmental focus from
FZ, in its international activities equally a social orientation is expected for FZ's
organisational legitimisation. For example in its Bengaluru project, its local operator
company established a CSR programme to support the villagers around the airport.
Importantly, irrespective of the degree of their environment's economic development,
airports need to inform their local stakeholders on their contribution towards the
economy, and to legitimise themselves on the basis of the strategic importance of their
infrastructure. After an initial learning process, particularly in FZ's Bengaluru
operation, where image and reputation were essential factors in the opening process
for its greenfield airport, FZ successfully builds the reputations of its international
airports in their environments. Thereby it always takes into consideration the political
dimension of its airport operation and the public dimension, adopting the reputationbuilding
approaches accordingly. With regard to Bengaluru International Airport, the
early reputational difficulties have been overcome altogether in the meantime: the
airport has successfully built a local and national reputation as India's most efficient
airport and receives prestigious awards, such as the CNBC Awaaz Award as India's
'Best managed Airport' in 2010.
(c) capabilities to adapt to the local environment. One of FZ's key strengths lies in its
strong industry knowledge, combined with the awareness that an airport is an
manner. Our aim is to further reduce the CO2 emissions we cause, while taking into account the
general legal and economic framework” (ibid.: 55).

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infrastructure of national and regional pride, i.e. which needs to be adapted to local
customs. This is not only expressed in an airport's architecture, but also in
organisational structures, processes and control mechanisms, employment terms, and
the handling of stakeholders in the airport's environment. A best-practice example in
FZ's international activities can be found in its engagement as airport operator in
Curacao, where it is active since 2009. Before assuming operational responsibility, FZ
initiated a stakeholder dialogue, where it outlined its own operational philosophy and,
more importantly, familiarised itself with stakeholder expectations. This road show has
been prepared by a local public relations specialist, with profound knowledge of the
political circumstances. In preparation, FZ received a stakeholder map with all critical
issues, thus being sensitively aware of the history of the airport's stakeholder relations,
as well as the stakeholder concerns. In the course of these discussions, the parties
achieved consensus on common objectives for the airport and its development. As a
result, the new airport operator was supported from the very beginning by its
stakeholders, including the local population, the regulator, trade unions and the
airport's employees. Moreover, the government approached it for support in the
development of a strategic land reserve beneath the dedicated perimeter, which it
earmarked for this purpose. Consequently, FZ agreed to further evaluate if any larger
scale projects would be economically viable. In the meantime, FZ has initiated a major
landside development programme, which includes the development and construction
of an anchor project under its own risk in order to attract further interested parties, thus
vitally stimulating the local economy. Importantly, from the beginning of its
engagement in Curacao FZ was able to apprehend the local expectations and to
adequately adapt, while at the same time engaging itself in the economic development
of the island.
In its airport operation in Bengaluru, India FZ has gone through a learning process
towards recognising local needs and subsequent local adaptation. After initially
focusing primarily on airport efficiency for passengers and cargo, FZ has recognised
the high significance of VIP's in India, which led to adaptation of airport infrastructure
and processes. Through these status-lending procedures it offers VIP's and VVIP's the
respect and treatment that is expected in the Indian context. Consequently, it not only
conforms to local convention, but at the same time has improved its relationship with
the local, regional, and even national opinion-makers.
In general, to fuse its industry knowledge with the local customs for best leverage, FZ
works with locally embedded and respected partners, which help it to overcome its
liabilities of foreignness (cf. p.276). With regard to FZ's best practice knowledge, its
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success is less related to the know-how itself, but to the capability of its experts to
adapt it to the local context, and to the experts' intercultural sensitivity. For example,
while an airport in Chile or India equally benefits from the introduction of
collaborative decision making (CDM) in its operations, it might not yet need the
sophisticated software, which FZ effectively employs at Zurich airport. However,
more importantly the CDM philosophy needs to be imparted on the local employees.
Depending on the local culture and the markedness of power distance, the idea of
expressing one's own judgment on a situation in daily airport management and to take
responsibility for consequent decisions mean a major change in organisational culture.
Thus, the effective scaling of the processes and tools to the size and needs of the
airport, but also to the respective local culture ultimately decides on the value created
through best practice transfer (cf. interview N°13).
5.2.7 Value creation
As an airport operator from a country with demanding and critical stakeholders in
respect of the airport's growth perspectives, with spatial and capacity limitations and
with high employment cost, FZ is used to (1) attune its company goals with its
complex institutional environment, (2) focus on quality as a means to satisfy its
various stakeholders, and (3) to achieve and continuously improve its high levels of
efficiency. These three firm characteristics are important in its Zurich operation and in
its approach to international projects pertaining to value creation. The subsequent
sections discuss value creation aspects of FZ's activities from a single- and multi-site
perspective.
(1) single-site perspective. Despite its limited flexibility grounded in its local
exposure FZ is able to create value through its embedding capabilities. In its Zurich
operations its credibility with the regulator, and its excellent track-record as a worldclass
airport operator give FZ's lobbying more weight - at least in those areas, which
are not touching political focal points. Particularly in its commercial activities FZ is
therefore able to create valuable strategic options. An example where its pro-active
relationship management and communication efforts led to such options is found in the
subject of regulatory smoking bans in public areas. Early in the legislative process for
formulating the new law, FZ began to develop concepts for branded smoking lounges
in cooperation with tobacco firms. These lounges were constructed on a sponsoring
basis, generating significant advertising revenues. By proactively approaching the
legislator with concrete amendment proposals for the wording of the law, FZ was able
to anchor its concept legally and to further pursue the sponsoring concept, despite a

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general ban of tobacco advertising. In another example, FZ succeeded in an
amendment of the law with regard to the airport's landside traffic. Due to an increasing
demand for direct transportation for tourists from the airport to the skiing regions in
winter, FZ started to lobby for obtaining regulatory approval to offer bus services.
These activities finally led to an amendment of the law, resulting in increased revenues
and higher service quality for winter tourists. In its most recent lobbying efforts FZ
worked towards one of its biggest strategic options for non-aeronautical revenues: a
licence for arrival duty free, which ultimately was approved in December 2010 and
will allow it to increase its retail revenues, thus creating further options for growth.
Also in its international activities FZ creates strategic options through its close
cooperation with local partners and its relationship building with the surrounding
stakeholders, particularly with the public authorities, as the example of Curacao
illustrates (cf. p.271). In contrast, the example of Bengaluru International Airport
shows, how a neglect of pro-active relationship management may lead to foregone
options. In the greenfield project's construction and start-up phase, FZ underestimated
the intensity with which relations to Indian authorities need to be cultivated. Thus, the
local operator BIAL faced a number of obstacles which might have been avoided
otherwise. BIAL's plan to erect an airport hotel next to the terminal for example was
blocked for more than a year due to a local land development authority's refusal to
approve its initial construction plans. This came partly as a result of BIAL's neglect to
involve the authorities at an early stage and to clarify possible exemptions with respect
to the local building code. Consequently, the authority decided to disapprove the
requested building height and to allow only the 35% lower legal maximum height,
which would have rendered the planned hotel operation economically unviable. After
prolonged negotiations with the authorities, BIAL decided to adapt its construction
plans and to increase the lateral size of the hotel plot (cf. interview N°15), which
ultimately got approved by the authorities.
One of the key objectives of FZ's embedding efforts is a decrease of the risks from its
local exposure. The effectiveness of these efforts, however, significantly depends on a
number of external parameters which are difficult to influence, as the case of the
operations in Zurich shows. Beyond FZ's influence, for example, is the instalment of a
new air-space related Administrative Agreement 130 between Switzerland and Germany.
In 2001, Germany unilaterally terminated the previous agreement, replacing it with
German Implementation Regulations (DVO). These resulted in tightened flight
130 I.e. 'Verwaltungsvereinbarung'.
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restrictions for Zurich Airport on weekends and holidays. A decade later, the
conciliation between the two nations on the DVO is still pending. Under such
institutional circumstances, and under consideration of the multiplexity of its
stakeholders' interests, FZ's levers to reduce its institutional risks are limited. To
address these external parameters, FZ may hope on the Canton of Zurich's engagement
in its interest, as its majority shareholder, and on the federal government, which has a
strategic interest in the functioning of the airport as a central transport infrastructure.
With regard to regulatory and political risks, FZ's local embedding with its system
partners has a risk-decreasing impact. The resulting consistent high level of quality
reassures the authorities that the airport is competent to perform in accordance with its
mandate. As long as FZ proves its professionalism in airport operations and
maintenance, regulatory bodies have no need for interventions and closer monitoring
beyond the necessary. As a result,the public shareholder's framework for FZ's
performance management only lays down high-level performance indicators and
leaves FZ's management flexibility in how to attain them. Aware of this comfortable
room for manoeuvre FZ is highly motivated to continuously improve its quality
standards, such as to keep these regulatory and political risks low (interview N°17). In
contrast, British airports for example, which are less exemplary in their reinvestment
and service levels, have a rather tense relationship with the regulator. The latter's
mistrust resulted in its decision to tightly monitor airports, prescribing price and
quality and thus exposing airports to higher risks with respect to regulatory action.
In the short-term FZ creates value in its Zurich operations, but also in its international
airport operations, on the following dimensions:
- Transaction costs: after a learning process in its international activities with regard
to legitimacy-building, FZ is able to decrease transaction costs and the time to
implementation in business development, as the example of its Curacao activities
illustrates. Meanwhile, its embedding capabilities allow it to lower the legal costs
in international airport operations. In its Zurich operations, FZ is able to lower
transaction costs with surrounding communities, as illustrated in the GLOWexample,
whereas it is not able to realise transaction cost savings on the political
dimension. There, its efforts seem to be overridden by external factors, on which it
has little influence.
- Operational efficiency: FZ's embedding capabilities, high legitimacy, and trusting
relationship with its service partners contribute to lower cost of interaction in daily
airport operation, and to better decisions - particularly through its collaborative

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decision-making philosophy - which further improve service quality and efficiency.
In Zurich, its constructive working relationship and optimal information exchange
with Skyguide, the air traffic control provider, also leads to better utilisation of
limited runway capacity, subject to compliance with safety standards.
- Valorisation of by-products: Airports' most significant by-product is the number of
people they attract, owing to their activities and in their function as a natural nodal
point. In Zurich, FZ has been able to exploit and increase the location's
attractiveness by expanding its offer for landside shopping 131 , and by developing
business and convention facilities, including office-space in the high-price
segment. Thus, it attracts further visitors, who are not primarily interested in the
airport's core services. This development has been reinforced by the lobbying
efforts of FZ's commercial and real estate developers, e.g. with regard to special
opening hours, and by the success of its home carrier Swiss International Airlines.
The high popularity of the airport as an excursion destination reflects the
legitimacy and goodwill it receives from the local population, despite the
unpopular issue of aviation noise. With regard to FZ's international activities, the
commercial development of its portfolio airports represents one of its strategic
pillars for value creation.
(2) multi-site perspective. Although airports are highly location-dependent, their
design and operational procedures are internationally regulated (ICAO and EU
standards), contributing to global standardisation. In this respect, FZ's former Head of
Corporate Projects observes: “With regard to our international expansion this
regulatory standardisation is a major industry advantage. To build and operate airports
in other countries FZ can rely on the knowledge, which it has acquired through its
airport operation in Zurich” (interview N°22: 2). Thus, it is able to employ its
operational and commercial knowledge independent of any location. FZ's motivation
for its internationalisation strategy can be summarised as follows, according to a
company presentation (Grünig, 2009: slide 30):
Growth opportunities on the basis of
- FZ's reputation as ‘Europe’s Leading Airport’
- Competencies and knowhow as precondition for successful international
engagements
- Swiss values and characteristics, e.g. reliability, efficiency, cleanliness, etc.
- Project experience in India and South America since 1999
131 Zurich airport is Switzerland's second largest shopping centre in terms of annual turnover (2010).
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Additional benefits on the basis of
- Knowledge transfer
- Benchmarking with other airports
- Broadening of horizon for employees
- Job enrichment and more attractive professional perspectives
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Since FZ, as a partially state-owned enterprise does not possess the financial means for
major equity participations, its international strategic orientation aims at airport
management contracts, where it is able to fruitfully transfer the whole range of its
operational know-how and best practice procedures.
(a) relations. Due to the (sometimes hurtful) experiences in the earliest international
airport projects, FZ has been able to accumulate valuable capabilities with regard to
legitimisation processes abroad. Today, FZ's reputation for quality and
professionalism, and for its cooperative approach, lends it credibility and
trustworthiness in its project acquisitions. Moreover, its credibility is further reinforced
by its track-record in Zurich, where it is ranked among the top European airports for a
number of years now. The company also exploits its advantage of having a Swiss
background, which internationally is associated with a number of positive
characteristics, such as reliability, professionalism, efficiency and effectiveness. With
these combined signalling qualities, FZ is very effective in approaching countries with
upcoming airport privatisations and in opening doors with regulators and
administrations. Its reputation also facilitates the finding of strong and trustworthy
local partners.
In its international airport projects, FZ meanwhile has also been able to establish a few
show-cases of its involvements. These references demonstrate not only economic
effectiveness, but also FZ's ability to engage with the local communities and to respect
the local culture in its airport management approach. Based on its experiences, FZ puts
high importance to the cooperation with a strong locally embedded partner, who
supports it in establishing the operation in situ. Under this set-up, the privatised
airports, which often face initial distrust due to their new status, are able to establish
themselves more effectively and to earn their licence to operate. Thus, FZ's ability to
combine its own industry knowledge with the local strengths of its carefully selected
partners effectively helps it to overcome the liabilities of foreignness.
(b) resources. Through a number of influences, FZ has been forced to develop best
practices, which allow it to be highly efficient and to maximise the safe use of limited
capacity. Among the main reasons are its long experience as operator of a secondary

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hub, the high labour costs in Switzerland, and the difficult local environment inhibiting
further capacity expansion. Its know-how and its understanding of quality therefore
have contributed to its reputation as a world-class airport operator. In its international
activities it effectively transfers this knowledge to less developed airport operations.
Its business model rests on the acquisition and management of international projects
through a separate department, whereas the expert know-how resides within the whole
organisation which operates Zurich airport. Whenever particular skills are needed, the
business development unit draws on the respective experts, who appreciate the
opportunity to engage in international projects. Thus, FZ not only transfers theoretical
knowledge, but also the expertise to apply it in new environments.
Such in-depth familiarity with the rules, combined with capabilities for the practical
adaptation of know-how, seems to be particularly important in the complex airport
business. In its projects in Bangalore and Bogota, FZ became involved in time to
review earlier inputs from external consultants. Although these were fully in
accordance with the ICAO rules and regulations, they would have rendered an
efficient operation impossible. As an experienced airport operator, FZ was able to
identify and correct these flaws in the planning stage. FZ's value creation in its
international activities thus primarily relates to its fusing of operational requirements
and commercial knowhow and includes the areas as detailed in Table 5-6.
Type of
synergy
operative
synergies
Organisat.
level
grouplevel
cross-site
level;
grouplevel
(continued next page)
Examples
Best practice transfer from FZ to its international airports (i.e. airport
planning processes and tools, manuals and standard operating procedures
in airport operation, etc.): while the knowledge needs to be adapted, the
transfer of proven systems and processes improves productivity and saves
resources, respectively reduces costs of trial and error.
Best practice exchange between the airports, where FZ is involved as
operator and investor: through exchanges between similarly sized airports,
which experience similar issues in their respective countries (e.g. coping
with regulatory uncertainty from ongoing privatisation processes,
argumentation strategies towards regulators and boards of directors with
state-involvement, etc.), economies of experience may be realised.
FZ is in the process of institutionalising the exchange between these
airports and to set up platforms for regular interaction.
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Type of
synergy
market
power
synergies
Organisat.
level
grouplevel
cross-site;
grouplevel
regional
level
grouplevel
grouplevel
(continued next page)
Examples
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The international experience increases the overall quality of FZ's
management: executives and specialists draw beneficial insights and
impulses from benchmarking their own practices against alternative
(sometimes simpler and thus less costly) approaches. Through the
international experiences of FZ's Zurich-based specialists, FZ creates a
management pool, be it for deployment to other international operations,
or ultimately for recruitment of the next management generation at its own
home base.
Compliance support and consulting with regard to the implementation and
interpretation of international and national regulations: due to regulatory
discretion, economies of experience save costs of non-compliance and
trial and error.
Economies of scope: in its Latin American engagements, FZ (respectively
its joint venture 'A-Port') is able to realise economies of scope through the
management of small airport systems. The operation and administration of
four small-scale airports in Honduras, for example, is coordinated through
one top-management team.
Purchasing: while FZ has no centralised value-chain activities for its
airport portfolio, negotiation advantages can be realised to a small extent
on the basis of its product know-how and its supplier network. With FZ's
expertise, modernising airports therefore are able to create value from
more effective purchasing processes and consequently from better supplier
decisions.
However, depending on applicability of WTO/GATT procurement
regulations at the involved airports, joint purchasing efforts are inhibited.
Potentially at some point in time, FZ could achieve savings in its airport
portfolio with regard to industry-specific ICT systems, ICT hardware, or
specific vehicles and equipment (e.g. fire trucks, passenger boarding
bridges, tow back vehicles, etc.).
Economies of experience in airport concession negotiations for new
international projects: with an increasing number of airports in its
portfolio, FZ builds its negotiation capabilities, resulting in the realisation
of more favourable bid prices for any airport value-chain activities that it
outsources by means of licensing.
These economies also apply to the negotiations with consortium partners,
regarding the cooperation mode and conditions for the venture.
Bundling synergies in service partner and concessionaire licencing:
Prospective service partners possibly bid more aggressively for
commercial licences at individual airport locations, if FZ operates a
portfolio of airports with interesting future opportunities for the bidders.

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Type of
synergy
financial
synergies
corporate
mgmt.
synergies
Organisat.
level
grouplevel
grouplevel
grouplevel
grouplevel
grouplevel
Examples
Return-maximising investment of surpluses, which are generated in FZ's
Zurich operation: Given the limited growth opportunities in Zurich,
international airport activities provide means to grow and to create value
beyond the possibilities in the financial market. Thus, FZ's surplus
financial means can be employed abroad in a value-enhancing way.
Reduced overall business risk due to a geographically wide-spread airport
portfolio, which follows different economic cycles: risk reduction is
particularly important in view of FZ's dependence and risk concentration
towards Star Alliance in its Zurich operation (with a Star Alliance
passenger share of 71.6%).
Better access to capital: FZ as an airport group is able to obtain more
favourable conditions, compared to the financing possibilities of
individual small-scale airports.
Organisational design: from its experiences and particularly from the
lessons drawn from its own past miscues, FZ knows which type of airport
and institutional environment requires what kind of organisational
structure, in order to perform smoothly. Through its capabilities to adapt
locally, FZ is sensitive to local specificities, enabling it to draw valid
conclusions for its organisational approach.
Improved overall long-term planning: FZ's strategic capabilities have been
honed through its international 'greenfield' experiences, which is
beneficial also to its Zurich operations. From its acquired insights into the
building of new airports, including long-term masterplanning in multiple
phases, FZ has received impulses for its approach to long-term planning at
its homebase, as well as for its acquisitions of further greenfield and
airport expansion projects (cf. interview N° 22).
Table 5-6: Overview on Zurich airport’s synergy implementation
Because the internationalisation of the airport industry has a relatively young history,
FZ is only at the beginning of structuring the exchange between its airport operations.
Until recently, any knowledge transfer was channelled through its business
development department in Zurich, and there was no direct exchange between the
related airports. However, the firm has recognised the value-creation potential of such
additional links and is in the process of setting up structures and platforms for a more
dynamic interchange.
(c) institutions. Based on the experiences at Zurich airport and the related institutional
environment, in its international activities FZ knows exactly where internationally
proven best-practice procedures are required, and - in contrast - where local
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knowledge is needed in order to manage an operation successfully. Thus, apart from
the internationally applicable regulatory knowledge, which FZ has internalised, the
firm employs carefully selected local specialists with regard to handling the local
political system, authorities and institutions, as well as other stakeholders, where FZ
could experience liabilities of foreignness. As FZ's former Head of Corporate Projects
states (cf. interview N°22: 3):
Being an international airport operator, it is essential to have a competent local
partner at hand, who handles the politically sensitive issues. As we have seen in our
greenfield project in Bangalore, India the existence of such a strong and locally
embedded strategic partner turned out to be decisive for our project's success. Such
a partner needs to be able to deal with the authorities and the regulator at different
spatial scales. What we learned in India was also, that it is not enough to have
contacts on the business level, but that the network of political relations and the
degree of influence and power decide in the end. There are countries, where it is
more important to have the right partner than to do the things right.
With regard to FZ's compliance monitoring, its effectiveness depends on the type of
contract and involvement in its international engagements. In Bangalore for example,
FZ occupies a seat in the board of directors and is responsible for recruitment of the
airport's top management. Thus, it is able to take influence on the airport's
performance, and to initiate corrective actions in case of underperformance, for
example by dispatching specialists from its Zurich operations for analysis and support.
Apart from the joint devising of the airport's financial management information system
(MIS) and the operational key performance indicators, FZ regularly evaluates the
airport's sensitive areas, such as safety and security, airport maintenance, and daily
operational processes. These engagements are understood as system checks in order to
uncover improvement potentials and continue the transfer of specific best practices.
On the other hand, its involvement as an internationally recognised airport operator
gives FZ clout in the political support and the regulatory lobbying for its international
projects. Its CEO, COO and top level business developers selectively pay curtesy visits
to their host countries' authorities and aviation ministers, or specifically lobby for FZ's
interests in the individual local operations. In many of the countries, where FZ engages
in airport operations, the privatisation process of the airport industry has only begun,
including the necessary regulatory and legal amendments. Thus, FZ is not only
exposed to uncertainty, but simultaneously has the opportunity to take influence on the
regulatory system towards international compatibility and serving its interests as an

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international airport operator. In India, for example, FZ became involved with the
regulator during a major reform of airport regulation. In this process, it was able to
transfer know-how on regulatory frameworks and experiences with the Swiss
regulatory system to the national authorities (cf. interview N°15).
5.2.8 Summary
FZ's location-fixity stems from all three identified dimensions: its resourcedependence,
the dependence on being close to its market, and from its public
shareholders. The resulting local exposure is closely related to the nature of FZ's
externalities, which affect significant parts of the wider local population. In addition,
the airport is exposed due to a number of political factors which are beyond its sphere
of influence, such as the restrictions to using German territory for approaches and
take-offs. In this challenging environment, FZ has learned to invest in embedding
activities where they are most effective, such the fostering of dialogues with
principally constructive interest groups, or the active relationship management and
capacity-building with representatives from politics and local administrations in the
surrounding municipalities.
As a consequence of the restrictions in its home environment, FZ is able to create
value in its international business development and to deploy its financial means,
which cannot be equally fruitfully used in its Zurich operation. Overall, these multisite
activities create value for the individual international operations, but also for its
homebase in Zurich through the benchmarking effect between its operations. The
insights into various problem-solving approaches in its portfolio provide FZ with the
possibility to positively stimulate the dynamics and competitiveness within its
portfolio. FZ's former Chief Development Officer observes: “If a firm is location-fix
and at the same time enjoys a natural monopoly, the pressure for improvements in
efficiency and quality are less intense than in competitive environments. Thus, our
internationalisation is an important factor for us to remain professional and to ensure
long-term survival” (interview N°24: 6).
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5.3 Case study - cement and building materials
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The cement 132 industry developed in the course of the 19 th century, driven by the
industrial revolution, when evolving needs for infrastructure required new solutions
for building materials. Equally, new production technologies and the advent of railway
infrastructure allowed the industry to grow in efficiency and to consolidate, since
transportation of the bulky product became less costly.
Modern cement-production is energy-consuming and entails significant
environmentally unfriendly emissions. It can be divided in two main stages: the
transformation of raw limestone and smaller quantities of clay, shale and sand, into
clinker at temperatures of 1'400°C, and the milling of clinker with other minerals to
produce the cement powder. Plants generally locate nearby limestone quarries to
minimise transportation costs and to ensure security of raw-material supply. Figure
5-10 illustrates the cement production process and its associated externalities.
Owing to the fact, that cement production is responsible for approximately 5% of
global CO2 emissions, the industry recognised early on its role and responsibility for
emission reductions. In 1999 ten of the world's leading cement producers combined
efforts towards a more sustainable approach to cement production. Under the
coordination of the World Business Council for Sustainable Development (WBCSD),
these industry representatives started to invest in research, develop joint standards for
emissions monitoring and reporting, and agreed on a technology roadmap for the
reduction of the most hazardous emissions, including the halving of CO2 reductions
until 2050. Their efforts illustrate effectively, how an industry can decrease production
cost while pursuing a socially desirable objective, thus strengthening the industry's
licence to operate. In the next section, the characteristics of the industry are briefly
summarised, before further analysing Holcim as a major global player.
132 Cement is a hydraulic powder material, which reacts with water to produce strength-bearing
lattices. Combined with aggregates and water, the result is concrete whose strength and durability
make it invaluable for modern economies, and for which no adequate substitute exists to date.

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Figure 5-10: Cement production process and associated externalities 133
5.3.1 Industry characteristics
The cement industry is infrastructure-heavy and among the most capital-intensive
industries of the world 134 . The average cost of a cement plant is usually above EUR
150m per million tonnes of annual capacity, involving site-specific assets whose
modifications are equally costly. These significant sunk costs involve long pay-back
periods, which explain the long-term nature of the industry. Furthermore, “the plants
operate under conditions of high fixed costs and substantial increasing returns to scale”
(McBride, 1983). As the sector is very energy-intensive, it depends on sufficient fuel
supply - mostly in the form of gas and coal, electricity or, increasingly, alternative
energy sources. On the other hand, labour intensity is low, due to the availability of
modern machinery and material handling.
Similar to utilities, the cement industry produces a homogeneous product, which can
be categorised into a number of cement classes, whose sub-products offer little
opportunities for differentiation between the producers. Therefore, quality premiums
133 WBCSD, n.d. ‘What is Cement?’. Retrieved February 15, 2010, from:
www.wbcsdcement.org/index.php?option=com_content&task=view&id=69&Itemid=140.
134
Cf. CEMBUREAU, 'Cement industry - main characteristics'. Retrieved March 18, 2010, from:
www.cembureau.eu/about-cement/cement-industry-main-characteristics.
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exist but are rather limited and the industry is rather focused on price, provided it is in
competition with other producers. However, as often as not, the cement sector is
characterised by regional oligopolies, because the product is heavy and land
transportation costs are significant. Usually the geographical range of a local cement
producer is limited to a radius of 200-300 km 135 . These limitations, combined with the
industry’s reliance on the construction sector, mostly lead to a market-clustering,
resulting in a collection of quasi-independent local geographic markets.
In the industrialised part of the world, cement is considered a mature product. In
Europe, for example, there are considerable country differences in the cement
consumption per capita, depending on the evolution and structure of the construction
sector. Since the latter closely follows the economic cycle, the cement industry equally
depends on economic growth and is exposed to cyclical patterns of demand.
The structure of the cement industry historically has been influenced by the two
factors of high transportation costs and significant economies of scale in production
(Newmark, 1998). Even though these industry characteristics would appear to limit the
value of multinational presence (R. E. Caves, 1998; Ghemawat & Thomas, 2005), the
cement and building materials industry has undergone a global consolidation process
within the past three decades. From this ongoing process five major global players
have emerged, each “with clearly identifiable national origins and controlled leading
shares of their respective home markets” (Ghemawat & Thomas, 2008: 1981):
Lafarge, Holcim, Cemex, HeidelbergCement, and Italcementi, whose size relations are
shown in Table 5-7.
Rank Company Net sales (EUR million)
1 Lafarge 15'884
2 Holcim 13'994
3 HeidelbergCement 11'117
4 Cemex 10'456
5 Italcementi 5'006
Table 5-7: Net sales volumes of top five cement producers (2009) 136
135
In cases, where bulk shipping is available this radius may be increased, since maritime
transportation is significantly cheaper than overland transport.
136
Company information.

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5.3.2 Swiss cement and building materials market
The cement market in industrialised Switzerland is a mature market with a highly
developed infrastructure. This slow-growth market is vertically integrated and
dominated by three cement companies - Holcim, Jura Cement, and Ciments Vigier SA
- which operate a total of six cement production plants. The production volume in
2009 amounted to 4'333 million tonnes (cf. CemSuisse). The industry is partly
vertically integrated and demand is dominated by 30 major customers who consume
60% of the overall volume (Lurati, 2009).
Due to the subordinate role of the Swiss cement market for Holcim we will not go into
further detail on the country's market specificities.
5.3.3 The case of Holcim
As shown in Table 5-8, Holcim is the world's second largest cement and building
materials company. It employs 81'500 people worldwide, with annual revenues of
CHF 21.1 billions (2009). In spite of its size, the company has retained an astonishing
ability to react quickly, to take critical decisions towards the achievement of its
economic goals, and to implement new processes or standards without delay. With the
help of well-structured management systems and clear targets for all relevant corporate
divisions, decisions can be taken locally and with no loss of time.
Holcim has a clear profit orientation, but equally accepts its responsibility for the
impact of its activities on its environment, stakeholders, and on the regional economy:
The group is one of the most active companies with regard to corporate social
responsibility and sustainability, and its profit margins demonstrate that socially
responsible behaviour and economic success are no contradiction. Even in the difficult
years of 2008 and 2009, where the industry contracted due to the economic crisis,
Holcim managed to maintain an operating profit margin of slightly above 13%, which
is only consistently surpassed by its larger competitor Lafarge (cf. Table 5-8).
Immediate capacity adaptations, efficiency initiatives and other cost cutting programs
allowed the company to make profits, although net sales shrank 7% in 2008,
respectively 16% in 2009.
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Rank Company 2007 2008 2009
1 Lafarge 18.7% 18.6% 15.6%
2 Holcim 18.6% 13.4% 13.2%
3 HeidelbergCement 17.0% 15.1% 11.8%
4 Cemex 13.7% 11.6% 8.0%
5 Italcementi 10.2% 4.3% 4.8%
Table 5-8: Operating profit margins of top five cement producers 137
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History & organisation. Holcim was founded in 1912 - then named 'Aargauische
Portlandcementfabrik Holderbank-Wildegg' - in the Swiss canton Aargau. It looks
back on a long history of internationalisation, which started in the 1920s when Holcim
began to invest selectively in Europe and overseas. From the very beginning, the firm's
managers recognised the limited expansion opportunities in the domestic market,
which remained one of the key drivers for its international growth. Today, Holcim is a
global building materials group which operates in over 70 countries on all continents.
Its core businesses include the manufacture and distribution of cement, and the
production, processing and distribution of aggregates 138 , ready-mix concrete and
asphalt. Increasingly, it also offers consulting, research, trading, engineering and other
services. The business strategy is based on continuous growth in both, developed
economies and emerging high-growth markets. Holcim's success factors include
market-oriented structures, product innovations, skilled employees and efficient
environmental management systems. Because it strictly focuses on value creation in
the short- and longer-term, great importance is given to sustainable development at an
economic, ecological and social level. Its engagement towards improving the
sustainability of its business model has been acknowledged by the Dow Jones
Sustainability Index, which has awarded Holcim as the industry leader for four
consecutive between 2005 and 2008 139 .
Holcim's leadership approach stresses the expertise of the local management. The
group’s management and line responsibility is organised by geographical regions.
137 Company information.
138
I.e. crushed stone, gravel and sand.
139
In 2009, Holcim again received top scores with regard to its recycling strategy, its human capital
development, its corporate citizenship approach and its engagement with stakeholders, but comes
second after Panasonic Electric Works Co Ltd.

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Senior management is supported by efficient corporate staff units and management
systems. Operative units are reporting to members of the board of management,
supported by the country managers and corporate functional managers. With the help
of these flat hierarchical structures and clearly defined divisions of responsibility at all
levels, Holcim is able to remain agile in its responses to the market. To optimally
employ and diffuse its accumulated knowledge, Holcim continuously trains and
promotes its key people and high potential employees. As a result,Holcim has a talent
pool for systematic succession planning - on a country level, as well as on group level.
In view of the significant risks inherent to the business, and the size of the company,
Holcim's risk management puts special focus on the efficiency and efficacy of its
internal control systems. These include reliability and completeness checks of the
financial and operative information, compliance with internal and external guidelines
and legal standards, as well as audits for securing the group's working capital.
Strategic orientation & geographical presence. According to the company's annual
report 2009 (Holcim Ltd., 2010), its strategy is based on three pillars:
(1) concentration on the core business,
(2) geographical diversification, and
(3) balancing business responsibility between local and global leadership.
This combination seemed to help Holcim to successfully manage through the recent
economic turbulences. In addition, the group seeks to diversify its risks and to smooth
out cyclical fluctuations through its broad geographical presence, which entails 70
countries, 57 principal joint ventures and equity-consolidated companies, and
approximately 2'000 production facilities.
Figure 5-11: Holcim's global presence (2009)
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In its sales portfolio, the importance of emerging markets is steadily increasing, adding
up to 52.4% of overall net-sales in 2009. This strong presence in emerging markets
entails also different kinds of responsibility, as compared to mature markets, which are
further outlined in the subsequent section.
Asia Pacific
29%
Africa &
Middle East
6%
Latin America
15%
Europe
34%
North America
16%
Figure 5-12: Holcim's sales per region in percent (2009) 140
Corporate philosophy. As reflected in its corporate philosophy, Holcim is aware of
the impact it has on the livelihoods of local populations where it operates, as well as
the environmental impacts of its operations. Its vision therefore is “to provide
foundations for society's future” (Holcim Ltd., 2004: 4), which is achieved through
central strategies and by means of empowerment of the group companies, to enable
“their autonomy and leveraging their local strengths to the benefit of all” (ibid.: 4). As
its mission, the group foremost strives “to be the world’s most respected and attractive
company in our industry – creating value for all our stakeholders” (ibid.: 5). These
core creeds translate, among others, into the following objectives:
- to partner with the world’s best suppliers, in order to leverage opportunities and to
deliver increased value for both, the group and its customers;
- to continually demonstrate commitment to sustainable environmental performance,
and to play a leading role in social responsibility within the company's sphere of
influence; and
- to maintain an active dialogue with governments, international organisations and
NGOs, and to be acknowledged as a valued and trusted partner.
The group's philosophy and goals are reflected in its 'triple bottom line' - economic,
social and environmental - which has been incorporated into its business strategy for
140 Holcim Ltd, 2010a.

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years and guides its employees' decisions at all levels. By taking this holistic approach,
Holcim is convinced it “can secure the company’s long-term success. The basis for
this is an exceptional operational performance and a solid return on the capital
invested” 141 .
5.3.4 Holcim's location-fixity
Being the producer of bulky and heavy products, which are created from locally
sourced raw materials, Holcim is a prime example of a location-bound company
outside the domain of the conventional utilities. As the company itself states, “natural
resources are a precious commodity - our products are dependent on quarrying”
(Holcim Ltd., 2009: 6). Consequently, Holcim's location-fixity is rooted in its land,
insofar as raw material reserves are concerned, and its buildings and installations,
which are site-specific and which it writes off over a period of 20-40 years (Holcim
Ltd., 2010: 122). Table 5-9 provides an overview on Holcim's location dependence
along the construct's characteristics, as specified in our research framework.
Characteristic Applicable
for Holcim
Upstream
Natural
Resource
Dependence
Upstream
Tangible
Asset
Dependence
(continued next page)
Comment
~ For the production of cement, the company depends on clinker.
High transportation costs usually suggest the co-location of
limestone quarrying, clinker production processes, and further
processes for cement production (cf. interview N°7: 3).
Equally, for the production of aggregates (i.e. granular materials
such as sand, gravel, or crushed stone, which are essential
ingredients in concrete) the firm's location-fixity bases on its
dependence on a quarry, and the existence of the relevant
concessions for mining and exploitation.
However, all these raw-materials are widely available. For the
cement industry, location-fixity comes with the decision for a
location and the ensuing sunk cost investments (cf. interview N°9:
6f; see next line).
� Sunk cost investments in a cement plant usually amount to around
EUR 150m per million tons of annual capacity (CEMBUREAU).
Amortisation periods for an asset range from 20-40 years, but
investment horizons are between 50-150 yrs. (cf. interview N°8: 2).
141
'Company profile'. Retrieved March 15, from Holcim corporate website:
http://www.holcim.com/index.php?id=4197.
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290
Characteristic Applicable
for Holcim
Downstream
Dependence
on Market
Proximity
Ownership
Dependence
on Owners'
Utility
Function
Comment
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� Cement production depends on customer-proximity, due to high
transportation costs and the commodity character of cement.
Exceptions to the rule are production plants which are located close
to maritime shipping terminals, thus being able to transport cement
by water over longer distances at lower cost.
� Holcim has developed from a family business. To today Thomas
Schmidheiny, member of the founding family, owns more than 18%
of the group's shares and is a member of the board of directors.
However, Holcim essentially is a publicly traded firm with the
majority of its shares freely floating. Thus, its business orientation
is primarily profit-driven and there is no shareholder-related
conflict of interest with regard to its geographical expansion.
� fully applicable / ~ weakly applicable / � not applicable
Table 5-9: Location dependence of Holcim by construct characteristics
5.3.5 Holcim's environment - institutional exposure
Producing cement has significant positive and negative impacts at a local level. The
impacts from quarrying and cement plants are large and visible to neighbouring
stakeholders, leaving lasting impressions on the landscape. Therefore, expectations
from various stakeholder groups are high and require sensitive handling of their
demands, in order to maintain the licence to operate. The cement industry, including
Holcim, has made its experiences with strained stakeholder relations and the possible
impacts thereof, ranging from long court battles, demonstrations of protest at the gates,
boycotts, environmental damage, and facility closures (CSI, 2005).
The Cement Sustainability Initiative (CSI, 2005: 36) 142 defines the industry's
stakeholders as
all individuals who see themselves as potentially affected by or who can impact
cement operations at the local, national, or international scale. These groups
include, but are not limited to, neighbours, community organisations, nongovernmental
organisations (NGO), contractors, academia, and suppliers.
Apart from the local communities, particularly the regulatory bodies belong to the
most involved stakeholders of the industry. The subsequent paragraphs provide an
142
CSI is a global association by 11 major cement producers for the pursuit of sustainable
development, see also www.wbcsdcement.org/.

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overview on Holcim's exposure to the various stakeholders, using the stakeholder
typology from our model, which includes the stakeholders as identified by CSI.
Local community: exposure towards voting population; plant neighbours. With
regard to local community exposure, differences exist between mature and emerging
markets. Issues in mature markets usually revolve around the plant's various kinds of
emissions, its impacts on the local landscape and operational sustainability (see also
next paragraph). By contrast, the firm's cement plants in emerging markets often
constitute a major factor in the local economies and are an important source for the
local population's livelihood. Stakeholders in such environments have divergent sets of
expectations, leading to wholly different social responsibilities of the firm. An
example of these differences is cited by Holcim's country manager in Azerbaijan
(interview N°7: 8):
For Azeri people … some aspects are more important than to people in the United
States, for instance. In Azerbaijan, the neighbours of a cement plant have less
environmental concerns, but they would like to see the company to be more involved
in the education of their children or the development of infrastructure. … In
contrast, people in the United States don't want to hear about a cement plant in
their neighbourhood at all.
Either way, the major impacts of cement plants on their neighbourhoods engender
significant exposure to the local community.
Civilian interest groups: exposure towards human rights, nature, and landscape
conservation groups. Cement production causes disturbance to the landscape, dust
and noise, and disruption to local biodiversity from quarrying limestone. Not
surprisingly, the industry is in the focus of many interest groups on all spatial scales.
Examples for campaigns of global interest groups activities are Holcim's nomination
for the 'Public Eye' award in 2008 to criticise employment practices of its subsidiary
ACC in India, or a Greenpeace campaign in 2003 to fault the handling of an oil
accident in Holcim's Lebanon operation. On a more regional level, exposure may arise
with regard to ethnical or political conflicts, as in the case of Holcim's minority stake
engagement in Guatemala. There, in 2008 an organisation called 'Abogados de Maya'
accused Holcim's local partner of violating the rights of the indigenous population.
Customers: exposure due to business cycle dependence. Demand for cement is
closely connected with the volatile construction sector and varies regionally and
seasonally. Thus, the cement sector often struggles to have the right amount of
capacity in the right places at the right times. As a consequence, in times of downturns
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cement plants suffer from the combination of potential price-wars with the
competition 143 and high fixed costs of their assets and plant operation. Marginal
production costs rise rapidly in times of underutilisation of existing capacities. Other
than that, no exposure to customers exists. In face of the often oligopolistic market
structures in the cement industry, reality frequently shows an inverse dependence of
customers on the industry.
Suppliers: exposure to strategic suppliers for uninterrupted kiln operation;
exposure with regard to negative reputational spillovers. Holcim is interested in
long-term relationships with its suppliers “to secure the most value-enhancing products
and services” 144 . Due to its global presence and engagements in countries, where
legislation and regulation are not very advanced, and where rule of law is not always
prevailing, its exposure to suppliers mostly stems from reputational concerns. As a
consequence, Holcim's sourcing needs to ensure that also its partners implement
minimal standards with regard to working conditions, corruption, environmental
practices and environmental impact. To guarantee a sustainable supply chain, the
group therefore has developed a supplier qualification programme which includes
local and global suppliers.
With regard to resource supply, Holcim is in the process of increasing the use of
mineral components in its plants, in order to improve energy efficiency. These changes
also entail logistical challenges: “Sources of mineral components are often linked with
other production processes remote from our production facilities. Thus, strategic
sourcing and efficient logistics are required for long-term reliability of supply, and
strict quality assurance systems are critical to ensure the consistent quality of our
products” (HGRS - CSR/SD Coordination, 2007: 2).
Service partners: see also suppliers. Holcim sometimes outsources parts of its value
chain, as for example the operation of quarries. Although Holcim is mainly involved
as a purchaser of the end product, the public perceives the operation to be a part of
Holcim. Resulting exposures therefore are similar to those against (strategic) suppliers.
143 According to Mabry (1998), empirical evidence shows that demand for cement is relatively priceinelastic.
Lower prices in economic downturns have only a redistributive character between competing
firms, which is one of the reasons, why cement producers often are accused of collusion as means to
avoid such deteriorations in price. The example of the recent economic crisis, which started in 2008,
shows that cement majors suffer from pressure on prices due to weak construction markets. For
Holcim, this pressure had an effect in 2009 particularly in some European markets.
144
'Customer and supplier relations'. Retrieved July 20, 2010, from Holcim corporate website:
www.holcim.com/index.php?id=4338&L=1.

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Employees: labour issues, strikes, sabotage, external job market exposure. The
cement industry has a long history of labour issues with its employees and trade
unions. For various reasons, ranging from wage-discontentment, health and safety
concerns, general labour conditions, to political protests, cement plants are sometimes
exposed to momentary plant shut-downs due to employee action. Although Holcim
generally maintains good relations with its workforce and has a reputation as a socially
responsible employer, it occasionally is entangled in adverse firm-employee
interactions. Recent examples include a row with workers in the Philippines on work
contracts and pay increases, or worker protests in Spain, due to an announced plant
closure. Apart from costs incurred through strikes, tense labour relations can also
result in reputational spillovers.
Shareholder: none. Since Holcim is a listed company with the majority of its shares
free floating, there is no major exposure to its shareholders in respect of locationdependence
and related conflicts of interest. Holcim has a clear profit orientation with
a strong emphasis on ethical business conduct and sustainability.
Government, regulator, politics: exposure due to legal complexity of industry
regulation. Over the past decades, industry regulation and the complexity of legal
procedures, particularly for new projects, have risen significantly. On the one hand, the
number of parties being involved in permitting processes has increased. On the other
hand, there are a large number of relevant regulations and regulatory bodies. To run
through these processes needs time, involves costs and entails procedural uncertainty.
Furthermore, societal trends and environmental awareness increase uncertainty in
respect of production methods. As a result, the plants - once a technology is chosen -
experience a lock-in situation, in which it becomes difficult to obtain approval for
adaptations. Technological developments, for example, have facilitated the efficient
use of waste from other industries as alternative fuels or raw materials (AFR) in
cement production. In its endeavours to reduce CO2 emissions, but also to decrease its
fossil fuel costs, Holcim has invested in research for the safe use of these AFR 145 .
Between 1990 and 2008 Holcim's share of alternative fuels for the production of
thermal energy has risen from 3.7% to 12.2%. However, these AFR include materials
such as scrap tires, plastics, solvents, impregnated sawdust, and other materials
145 Between 2003 and 2008 Holcim was engaged in a strategic partnership with the German Agency
for Technical Cooperation (GTZ) in order to improve waste management. The partnering research
resulted in standards for the safe incineration of waste, including toxic waste, which is particularly
valuable to close gaps in the legislation of selected developing countries.
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potentially resulting in dangerous emissions. Thus, the bias between Holcim's vision
for the safe use of AFR and societal opposition results in regulatory uncertainty, which
is an example of the firm's exposure to public stakeholders.
Besides, regulatory exposure depends on a country's institutional and cultural set-up.
Referring once more to the example of Azerbaijan, the most important stakeholder to
Holcim is the government. Importantly, due to cultural factors, relational management
capabilities concerning public authorities are more important than in Western
countries. If a firm neglects this circumstance, it may evoke administrative discretion,
possibly negatively affecting permitting processes, approval of new product standards,
or provoking regulatory fining, etc. In respect of permitting, for example, in Western
Europe it is sufficient to follow the procedure as defined by the regulator and the
respective laws. Although these processes equally are defined in Azerbaijan, the
material fulfilling of all criteria in itself will not grant procedural progress, because
“you really have to know the people, personally see them, explain your request, and
discuss with them the sequence of steps to finally obtain a permit” (interview N°7: 10).
5.3.6 Holcim's legitimisation capabilities
As a consequence of its exposure, Holcim has long recognised the importance of local
embedding and sustainable relationship building with its key stakeholders. Holcim
also acknowledges that its social engagement is not altruistic, but rather strategic in
nature. The group
sees an active commitment to social responsibility and a continuous dialogue with
its stakeholder groups as essential preconditions for a stable corporate and
business environment. This is why Holcim supports projects in the fields of
education and training, infrastructure and sustainable community development.
(Holcim Ltd., 2010: 47)
Equally the commitment to sustainable development constitutes a core component of
its corporate success (ibid.). Thus, as the basis of its 'licence to operate', Holcim has
defined the following priority issues: occupational health and safety; climate and
energy; sustainable products and services; sustainable construction; resources
conservation; community involvement; and stakeholder engagement. In the following
passages we will describe Holcim's capabilities for structural and relational
embedding, along the dimensions of our research framework.
Capabilities towards structural local embedding. Due to the significant effects of
its plants on local communities, particularly at the less developed locations where it

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operates, Holcim accepts its responsibility to support these communities in various
economically important ways.
(a) value share remaining in region. According to Holcim's factsheet on community
involvement, “being a good neighbour entails not only limiting environmental impacts,
but also working with our stakeholders to help improve their quality of life” (Holcim
Ltd, 2007a: 1). Therefore, Holcim attaches great importance to a structured approach
in community engagement, including the provision of financial means for related
projects. It describes its approach to local engagement as follows (2009b: 7):
Holcim has a longstanding commitment to the communities where our facilities are
located. Frequently the biggest local employer, we recognise our social
responsibility. Our Group companies promote education and training, sustainable
community development and improvements in local infrastructure. With innovative
concepts, technical support, easy access to construction materials and sources of
funding, Holcim gives larger sections of the population an opportunity to carry out
their own building projects.
The firm sources an average of 66% of its total procurement spend locally, with
around 75% of its suppliers being local. In addition, taxes and wages significantly
contribute to the local communities 146 . Importantly, these 'regular' value contributions
are complemented by Holcim's community spending, which amounts to one percent of
its consolidated profit before taxes. In 2009, the company spent CHF 37m on social
projects worldwide, reaching around three million beneficiaries. Table 5-10 provides
an overview on the categories of Holcim's investments in community projects.
Category mCHF (%)
Community development projects 6.7 18
Education projects 7.0 19
Infrastructure community projects 6.3 17
Donation and charity 9.6 26
CSR overhead 5.2 14
Others 2.2 6
Total 37.0 100
Table 5-10: Holcim's community spending per category (2009) 147
146 Overall, taxes amount to 4.5% and wages to 16.8% of net sales on the basis of its 2007 figures.
147 Holcim Ltd., 2010: 47.
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Holcim’s community strategy is based on the development of human capacity. Some
of the group's most successful community development projects have already been
introduced in chapter four. These examples can be complemented with other highimpact
projects:
- India - various locations. With the mission to energise, involve and enable
communities to realise their potential, Ambuja Cement Foundation (ACF) currently
works with 670 villages in ten Indian States. For its activities it has an annual
budget of CHF 11m, of which half comes directly from Ambuja Cements - a
subsidiary of the Holcim group - and the other half from the local government and
donor agencies. In villages around Ambuja Cement's 148 Kodinar plant, for example,
it has established self-help groups that enable women to acquire new skills and to
access micro-credit opportunities.
- Vietnam - various locations. In the volunteer project Green Summer, run by the Ho
Chi Minh City University of Technology, Holcim provides cement and cement
know-how to the project participants. Thus, they are enabled to build rural
pathways, rural bridges, low-cost houses and cultural centres. Further support from
Holcim comes in the form of a kindergarten, built in the area of Green Summer's
operations. Holcim aims to educate the leaders of the construction teams, in order
to disseminate cement-related technical know-how and to raise their level of safety
awareness.
- Colombia - Nobsa, Iza and Tibasosa. In 2005, Holcim Colombia founded a project
to support income generation for local farmers by creating the agricultural and
commercial association AGRONIT. Its goal is to ensure higher profits within the
rural economy by improving the production conditions and by increasing the local
knowledge of marketing tools. Thus, the farmers are encouraged to directly sell on
the market and to better commercialise their products. Through analysis of the
environmental, social and economic conditions in the region and the development
of alternative solutions, AGRONIT is able to build capacity in the rural sector.
Sometimes, also small projects have an enduring impact on the local population's firm
acceptance. In Kosovo, for example, Holcim restored the central power line in a
village, which used to break down frequently, leaving the inhabitants without power.
Besides, it provided the building materials and the workers to renew water and sewer
pipes, thus substantially improving the life of plant neighbours (cf. interview N°8: 10).
148 Since 2008, Ambuja Cements is a fully consolidated subsidiary of the Holcim Group.

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Overall, Holcim's experiences with financial and capacity-building engagements are
fruitful. The interviewed firm representatives believe that the value share thus returned
to the region contributes to Holcim's organisational legitimacy and strategically
contributes to its sustained profitability, e.g. by strengthening employee and customer
loyalty. In some cases, its capacity-building activities even contribute to the
development of new businesses, as has been demonstrated with the Mi Casa initiative
in Mexico.
(b) mutual lock-in between the firm and its major stakeholders. In contrast to utilities
or public infrastructure, the cement industry - albeit economically important - does not
necessarily play a strategic role for national economies. Therefore, the issue of mutual
lock-in as a protection is essential, but considerably more difficult to achieve
compared to - for example - state-owned Axpo. In respect of its institutional exposure
to public stakeholders, Holcim needs to secure a mutual lock-in during the preoperational
negotiation phase, particularly by ensuring a long concession period and
favourable key terms of quarrying (e.g. conditions, annual volumes, etc.). Apart from
the contractual agreement, investment protection also depends on the country’s legal
and regulatory stability. To attain a further dimension of protection in its operational
phase, Holcim thus selectively nominates local representatives and influential persons
to the boards of its subsidiaries in order to support it in all kinds of topics.
(c) internal governance. Corporate governance at Holcim entails established
management processes, the organisation and monitoring of the highest corporate
management levels, the definition of business policy principles, as well as internal and
external control mechanisms. It “is the precondition for the Group’s credibility and
good reputation and strengthens confidence among investors, business partners,
employees and the public at large” (Holcim Ltd., 2010: 25). Holcim's vulnerability as
a global business major, the nature of its business and market structures, but also its
long-term dependence on the locations where it operates contribute to the high
corporate awareness on the issue. In the company brochure Holcim at a Glance, it
therefore states (Holcim Ltd., 2009: 3):
Holcim strives to be a valued and reliable partner for all stakeholder groups as well
as the most respected and attractive company in the building materials industry.
Our strict Corporate Governance standards make a major contribution to achieving
this goal.
In its CSR Report 2007, the group further states (Holcim Ltd., 2008: 4):
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At Holcim, we recognise the importance of operating with integrity and apply high
standards of corporate governance in the conduct of our business. By
demonstrating responsible and transparent leadership and management, we earn
the trust of our stakeholders, which is essential to achieving long-term success.
By setting high standards, Holcim fosters responsible and transparent company
leadership, and gears its management towards long-term success and sustainable value
creation. Part of these standards is the Holcim Compliance Policy with which the
group sets the rules for all employees. Therein, Holcim defines the standards for
compliance with external laws and regulations, as well as with company-wide internal
policies, following a zero tolerance approach.
In order to strengthen its local embedding and trust-building, Holcim established an
environmental assessment system, the Plant Emission Profiles (PEP). With the help of
this tool it is able to monitor its performance on three operational levels: individual
plant performance assessment, group company assessment, and corporate
consolidation of plant performance worldwide. The monitoring of its plant
externalities includes the continuous tracking of dust, nitrogen oxides, sulphur dioxide
and volatile organic compounds, and at least an annual measuring of heavy metals,
dioxins/furans, hydrogen chloride, benzene and ammonia. Its atmospheric plantemissions
are monitored along the specifications of its Emission Monitoring and
Reporting (EMR). EMR is an internally developed corporate standard in order to
globally establish a strict unified approach to emissions monitoring. This measure was
necessary due to the considerable differences in regulatory standards between the
countries where it operates. Overall, Holcim uses the monitoring data for its
environmental management, regulatory compliance, and for the assessment of its
performance. These evaluations serve as inputs for the development of both, individual
and integrated performance indicators for plant-specific environmental scorecards.
Particularly in respect of its increased use of AFR thermal energy, Holcim is aware
that it needs to provide its stakeholders with objective information on its plants'
emissions. By measuring and publishing these results, Holcim stresses its commitment
to continuously improve environmental performance.
Capabilities towards relational local embedding. As aforementioned, local
stakeholders' needs may differ significantly, depending on the operation's location, the
cultural context and the economic maturity of the local environment. Recognising that
it “need[s] to balance a systematic approach to engagement Group-wide with
addressing local stakeholder needs and aspirations” (Holcim Ltd, 2007b: 2), Holcim

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has developed a stakeholder mapping process to assess those needs. Thus, it hopes to
allocate the available financial means in order to maximise beneficiaries' utility. To
remain focused, Holcim regularly performs an SD [sustainable development]
materiality review, wherein it contrasts the internally identified key issues with
feedback from its local stakeholders, thus validating its priorities. In this process, the
firm involves its stakeholders in the determination of relevant issues and provides
them with an understanding how these issues are prioritised, while offering the
possibility to discuss and challenge them if necessary.
In addition, more than half of the group companies have validated their most important
social projects on the basis of a Social Engagement Scorecard. Thus, Holcim aims to
ensure that the projects effectively contribute to the group’s objectives, while at the
same time improving the quality of life of the local population.
(a) relational capabilities. Because the cement industry is very visible wherever there
are plant operations, firms cannot hide from their social responsibility. Having
understood the importance of being positively integrated in its host communities,
Holcim recognises “that earning and keeping the trust and respect of our stakeholders,
through strong SD performance, is not only a prerequisite for our license to operate,
but will fundamentally strengthen our business” (Holcim Ltd, 2007b: 1). To foster the
accumulation of goodwill trust, Holcim's activities toward relational embedding
include:
- the establishment of Community Advisory Panels (CAP), which involve
representatives of interest groups, the local administration, etc.;
- the exchange with other local organisations, such as the fire and rescue service,
youth and children's organisations, schools, women's organisations, local
NGOs, local authorities (cf. interview N°9: 5);
- the publishing of environmental performance results (see also p.297);
- periodical open plant days, which serve to inform the local community on the
firm's activities, cement production processes, and other relevant issues;
- local festivals, to provide the community with further opportunities to get in
touch with the firm;
- local sponsoring activities;
- restoration projects, such as the renaturation and conversion of quarries into
parks, public courses, educational walks, etc.; and
- pollution prevention initiatives.
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By seriously demonstrating that the concerns of the local stakeholders are important to
the firm, Holcim is able to build strong relationships with its communities and the
regulator, which improves both, the plant's performance and the local living
conditions. While less than a decade ago Holcim followed a rather paternalistic
approach towards 'doing good' (cf. interview N°9: 4), today the group's stakeholder
involvement is fundamentally participative, with a focus on sustainable livelihood. The
use of CAPs, for example, led to remarkable results in overcoming tensions and
finding win-win solutions with affected local parties, and in the overall improvement
of stakeholder relations. The positive effects of such panels are exemplified at the case
of Holcim (US) Inc.'s Holly Hill plant, which initiated a CAP under difficult
circumstances. As the plant failed to comply with emission standards in the 1990s 149 ,
its organisational legitimacy and the local public's trust in its operation consequently
suffered. Thus, the establishment of a CAP was seen as a chance to start rebuilding
constructive relations with the local stakeholders. Today, the CAP has become an
essential institution to inform the local managers on the community's concerns and to
provide a reality check for the firm's business development plans. In the meantime, the
members of the panel have developed into ambassadors for the plant, who in the
beginning of 2000 even helped to create community support for a proposed plant
expansion (CSI, 2005: 37). Holly Hill plant's exemplary community outreach has been
recognised through an award by the US Portland Cement Association (PCA) and by
Cement Americas in 2008.
Another best practice example for community relationship management can be found
at Holcim Switzerland. In its Sustainability Report 2005-2007 the unit states (Holcim
(Schweiz) AG, 2008: 16):
Each cement plant informs the local council on ongoing developments and
activities at least annually. The plant managers communicate directly with the
concerned local councillor and cultivate their partnership with the local
administration. Thus, both sides have the possibility to express their needs and
concerns openly.
How to practice such community capacity building is exemplarily demonstrated at the
Swiss Siggenthal plant. In the course of the 1990s, the plant gradually increased the
use of AFR. These alterations in production methods and the increased environmental
awareness of the local population resulted in new needs for communicating and
149 In 1993, the Environmental Protection Agency (EPA) fined Holly Hill Plant for failing to comply
with air emission standards.

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interacting with the local stakeholders. Therefore, in the past decade Siggenthal's plant
management heavily invested in the relationship-building with its host community.
Through an intensification of stakeholder involvement, and repeated incorporation of
stakeholders' opinions, the plant enjoys broad backing among its neighbours, despite
its being unusually closely located to the village. Its 'licence to operate' is further
reinforced by the plant manager's skills for relationship management (cf. interview
N°9: 2). The plant's local legitimisation activities, among others, include:
- regular exchange with members of the CAP;
- publication of a plant journal, informing the community on news and activities;
- annual publication of plant emission profile (PEP) results;
- a makeover of the plant's cement silo façade with the winning picture of a local
school competition “as a symbol of our plant's close bonds with its local
community” 150 ; and
- various sponsoring activities.
(b) reputation-building capabilities. Apart from its community involvement activities,
which Holcim sees “as a way to … improve our reputation” (Holcim Ltd, 2007a: 2),
Holcim engages in various strategic partnerships, which also serve its reputation and
increase its credibility. One of its partners is the German Agency for Technical
Cooperation (GTZ), with whom it formed a strategic alliance between 2003 and 2009
to improve waste management in developing and transition countries. The results of
the joint research led to a better understanding of the effects of co-processing, and the
optimisation thereof. Even after the expiry of the alliance, Holcim and GTZ continue
to work together, fostering knowledge dissemination and offering training courses in
co-processing. Consequently, Holcim is able to relate its best practice standards in coprocessing
to a credible independent source, which increases the method's and the
firm's legitimacy. Furthermore, GTZ's conclusions on the basis of its scientifically
sound assessments help to reduce uncertainty and to alleviate communities'
reservations. As a responsible corporate citizen, Holcim not only applies these
standards worldwide, but also actively helps to close gaps in some countries'
legislation.
Another organisation with which Holcim is partnering is concerned with the
biodiversity in the surroundings of quarries. In 2007, Holcim signed an agreement for
a three-year programme with the International Union for Conservation of Nature
(IUCN), focusing on the management of ecosystems at Holcim’s sites. The
150 Remo Bernasconi, Holcim's Siggenthal plant manager, in a Holcim press release, June 08, 2005.
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programme includes the monitoring of Holcim's practices through a committee of
independent experts, in order to increase its credibility. At the end of the cooperation,
Holcim will have developed a biodiversity strategy and a biodiversity management
system, for which the exchanges with IUCN and the monitoring results form the basis
(Holcim Ltd., 2010).
One of the more recent engagements of Holcim is its membership in the support group
of the International Red Cross (ICRC) to help the latter's field activities. In this longterm
agreement, Holcim will fund humanitarian projects as part of its commitment to
sustainable development 151 .
Importantly, Holcim is also the recipient of a number of prestigious awards for its
social and environmental engagements, which foster its reputation. Between 2005 and
2008, Holcim has been named Leader of the Industry in the Dow Jones Sustainability
Index, as the company with the best sustainability performance in the building
materials industry. Furthermore, in 2009 alone Holcim received 90 awards 152 , whereof
- mostly on a national level - 13 awards were for its social activities, 35 for its
environmental engagement, and 31 for its occupational health achievements. All of
these are valuable signals for the communities, where Holcim is present or where it
intends to build a presence in the future.
(c) capabilities to adapt to the local environment. One of Holcim's strategic pillars is
the balancing of business responsibility between local and global leadership. This
includes Holcim's ability to identify the relevant local characteristics, to skilfully use
the local strengths, and to work with the local culture. For Holcim's country manager
in Azerbaijan “local embeddedness means first of all, that you have to be aware of and
respect the local culture. … You have to understand the local conditions, in order to
set the priorities right and to build up the strategy accordingly” (interview N°7: 8).
Furthermore, in his view (interview N°7: 2)
Holcim is a player which does not want to change the culture of the local company,
where it is present. Maybe this has to do with the Swiss culture - in any case it is a
success factor. There are not many people delegated from the headquarters to the
various countries. … They try to adapt the Holcim culture to the local culture, not
the other way round - a very positive factor.
151
'Holcim supports ICRC field activities'. Retrieved January 28, 2010, from ICRD corporate website:
www.icrc.org/eng/resources/documents/news-release/private-sector-relations-news-280110.htm.
152
'Awards 2009'. Retrieved April 4, 2010, from Holcim corporate website:
www.holcim.com/holcimcms/uploads/CORP/Awards_SD_2009.pdf.

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This cultural sensitivity and willingness to de-centrally adapt to local ways
differentiates the Holcim from other major cement firms, such as for example Lafarge
which is more centrally organised. Holcim's local approach is reinforced through a
collaborative attitude, whereby stakeholders are perceived as partners, that need to be
integrated in its decision-making process in order to develop innovative professional
solutions (Holcim Ltd., 2004).
5.3.7 Value creation
Holcim's long-term success grounds on a clear product strategy, centring on the
production and distribution of cement and aggregates. Its investment activities and
value creation focalise on the processing of natural resources. As observed earlier,
these activities are highly capital-intensive and tie up assets over long periods (Holcim
Ltd., 2010). Consequently, Holcim has developed a characteristic approach to value
creation, which is illustrated in Figure 5-13.
Figure 5-13: Holcim's pillars of value creation 153
The following passages will elucidate how Holcim sets out to implement its value
approach. They will elaborate more closely the group's various fields of value creation
from a (1) single-site perspective on the local level, as well as from a (2) multi-site
perspective.
(1) Single-site perspective. On the basis of our empirical insights, we conclude that
Holcim's subsidiaries successfully derive value from the careful fostering of their
external legitimacy and their 'licence to operate'. By consciously deploying their
153 Holcim Ltd, 2010a: 17.
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embedding capabilities, the subsidiaries are able to accumulate goodwill stocks, which
contribute to value creation by
- attracting qualified employees and increasing employee retention from the
reputation as good employer, thus lowering transaction costs and exploiting
economies of experience;
- benefiting from good relations and high credibility with local banks, resulting in
better financing opportunities, more strategic options, and lower transaction
costs;
- increasing organisational legitimacy and local support for new projects,
reinforced by the subsidiaries' high acceptance with the local banks (cf.
interview N°11: 8); and
- decreasing the risks 154 related to institutional exposure, resulting in a better
protection of sunk cost investments (cf. interview N°9: 5).
Particularly in Holcim's endeavours to reduce its reliance on fossil fuels through new
production technologies, trust and firm credibility are key factors for success. In
respect of AFR and co-processing, for example, local populations usually are
concerned about emissions and potential impacts on health and environment. Only
with a credible firm reputation, Holcim's arguments may have the legitimacy to reduce
fears of directly affected stakeholders. Thus, its embedding capabilities ultimately
create strategic options for its future development which might not be available to
players with less legitimacy.
Furthermore, embedding capabilities are also effective for the erection of protective
mobility barriers, e.g. by using them as a means for competitor differentiation 155 . In
most of its markets Holcim is in direct competition with other cement producers. With
its embedding activities, and the resulting value added for the local stakeholders,
Holcim often sets itself apart from other cement producers. Particularly with regard to
business development, Holcim's accumulated stakeholder goodwill sometimes
positively influences the probability of successful implementation, thus creating
strategic options for future development. In Azerbaijan, for example, Holcim's country
manager has been approached by a number of entrepreneurs and representatives of
154
This observation applies to Holcim's fully consolidated subsidiaries. In its minority-engagements,
the group has made the experience that the local management often is less conscious of its operations'
institutional exposure, as well as the need to justify their 'licence to operate'.
155
Generally, strong local competition rather seems to increase competitors' efforts for building their
reputations and their organisational legitimacy (cf. interview N°9: 7), in order to strengthen their
competitive advantage.

Case Studies
neighbouring regions, who invited the firm to set up business there: “It depends on
your visibility and reputation. If both are good, as with Holcim, they might welcome
you in different areas …. I was approached by many business entrepreneurs … asking
me to come and have a look.” (cf. interview N°7: 11).
In the short term, Holcim's various organisational units create value through their
embedding capabilities on the following identified dimensions:
- Operational efficiency. Depending on a country's history in labour conflicts, the
embedding capabilities of Holcim's local plants improve their uptime, as there are
fewer disruptions through labour tensions. In addition, the plants benefit from
smoother day-to-day transactions with their stakeholders, thus further lowering
their transaction costs.
- Exploitation of positive externalities. Producing cement creates heat as a byproduct.
In a handful of projects Holcim further utilises the produced heat, as for
example in its Swiss cement plants of Eclépens, and Siggenthal, which together
supply 600 households with district heating. Furthermore, five Chinese plants are
about to invest in a power generation system, using low-temperature waste heat
from the cement production process for steam-driven electricity generation. In
India and Spain, Holcim experiments with the capture and storage of produced
CO2, with which it intends to produce algae biomass, to be returned to the cement
production process. Thus, it would partially close the energy loop and further
reduce emissions from its activities. However, currently the economic importance
of the exploitation of by-products remains negligible for Holcim.
- Exploitation of other industry's externalities. In exactly the opposite direction,
Holcim's use of co-processing and burning of industrial waste exploits by-products
of other industries, thus helping to reduce production costs. Moreover, since these
alternative fuels are seen as CO2 neutral, Holcim is making a further contribution
towards sustainable development, achieving an improvement in its fuel mix, and
alleviating the growing waste disposal problem. Figure 5-14 illustrates the
development of Holcim's use of alternative fuels over the past two decades.
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306
% thermal energy from alternative fuels
12
10
8
6
4
2
0
3.7
9.4
11.0
11.5
11.6
12.1
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1990 … 2000 2005 2006 2007 2008 2009
Figure 5-14: Holcim's development of alternative fuel use 156
(2) Multi-site perspective. On its website 157 , Holcim states that it is
more globally active than any other building materials group, but retains a strong
foothold in each individual market. Geographic diversification stabilises earnings,
as it helps to balance cyclical fluctuations in individual markets.
This summary of Holcim's expansion logic from a holding perspective is being
complemented from an operational perspective by the following excerpt of its mission
statement (Holcim Ltd., 2004):
We strive to leverage our shared experience and knowledge throughout our global
network, actively applying this excellence to where it has the greatest benefit – in
the markets and communities in which we operate.
In the subsequent passages we will elaborate along the dimensions of our research
framework, how Holcim creates value in its geographically diversified operations.
(a) relations. Holcim's business model very actively encourages the exchange between
its sites. The firm's country organisations are organised in regional clusters within
which they frequently interact, complemented by regular country-level or regionallevel
meetings, which serve as platforms for exchange. In addition, local and regional
organisations are supported by service centres at the regional level, or by the central
Holcim Group Support (HGRS), located at the firm's headquarters. Since all country
organisations are well embedded, they mutually support each other in special projects,
such as for example the preparation of market entry in neighbouring countries.
156 Holcim, Annual Report 2009 (2010: 45).
157
'Geographic Diversification'. Retrieved March 28, 2010, from Holcim corporate website:
www.holcim.com/index.php?id=4288&L=1.
12.6

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Through such close coordination with regional peer organisations, local subsidiaries
can more effectively gather market intelligence and are able to make use of the firm's
network, in order to connect to the right people and institutions. Complementarily,
they receive support from HGRS, which helps with procedural advice and the
compilation of documents for any regulatory processes.
Furthermore, Holcim fosters the development of corporate standards for its operations,
which includes unified product standards. To this effect, it helps countries to close
legislative gaps or to introduce best-practice standards for building materials - a
process, which is also facilitated by the corporate centre. In another example from
Holcim's operation in Azerbaijan, such a knowledge transfer was initiated by the firm's
country manager in order to create new market opportunities. To this effect, the
country organisation supported the local regulator in the adoption of EU standards for
different cement products and for cement packaging. As a result, Holcim now is able
to sell six cementitious products in the Azeri market instead of only two, and enjoys a
significantly improved relationship with the regulator (cf. interview N°7: 13).
(b) resources. Initially, the idea for the geographical diversification of Holcim was
driven by considerations of financing and risk. Over time, however, other aspects of
resource sharing and synergy exploitation gained in importance, particularly in respect
of the growing expertise and best practices in Holcim's operations. Today, the
realisation of financial synergies is under the auspices of the group's financial holding,
which coordinates and controls all financing activities. In contrast, for the realisation
of industry-specific synergies the firm established the Holcim Group Support entity -
as mentioned - which centrally accumulates Holcim's competencies through its people
and by means of documentation. HGRS therefore has a turntable function with the
purpose of disseminating industry-specific knowledge throughout the firm (cf.
interview N°8: 1). Through this mix of central coordination, regional clustering, and
bottom-up local initiatives, Holcim has made synergy exploitation on all levels and
across geographies a central factor of its business model, as the subsequent examples
illustrate.
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308
Type of
synergy
operative
synergies
Organisat.
level
regional
level
grouplevel
(holding;
HGRS)
regional
level;
cross-site
level
grouplevel;
BU
level
grouplevel;
regional
level;
cross-sitelevel
grouplevel;
regional
level
(continued next page)
Examples
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Economies of scale in the firm's support activities through the regional
clustering of country organisations: Examples for operative synergies are
found in the fields of HR, market intelligence, purchasing, training &
vocational education, market segmenting, product harmonisation,
IT/software applications, public affairs, political affairs and regulatory
lobbying (interview N°7: 6). By turning each of the units in its regional
clusters into a competence centre for one of these fields, knowledge is
being exploited more efficiently (interview N°8: 4).
Economies of scale in the group's financing-activities (holding), and in
sharing of industry-related knowledge, e.g. in the fields of marketing,
public affairs, and political affairs (HGRS).
Avoidance of risk accumulation through inter-unit information exchange:
By performing cross-informational checks between the organisational
units, the firm is able to effectively detect and manage for example credit
risks from accounts receivables, or other material risks to their ongoing
operation (cf. interview N°7: 5).
Economies of experience which facilitate the permitting process for new
business development projects, or market entries in new countries: These
economies also apply to applications for EU funding, which often require
preparation of detailed documents and information, too wide-ranging for
smaller single-site firms.
Exploitation of best practice exchange on all levels: Combination of
highly institutionalised exchanges with the multiplier effect of HGRS, and
spontaneous interaction on a need-basis. HGRS establishes platforms for
knowledge exchange, providing opportunities to create links between the
separate units.
In 2009, Holcim implemented a newly developed knowledge management
system (iShare) to capture and make accessible the key business
knowledge of its companies and corporate staff units (Holcim Ltd., 2010).
In addition, Holcim creates incentives for knowledge exchange, e.g.
through internal competitions. In 2009, such a competition was organised
to promote knowledge transfer in the field of near-to-market innovation.
“Successful examples of innovative products, services and solutions were
singled out and publicised group-wide. This created incentives for further
market innovations and paved the way for successful multipliation and
advancement of the ideas at the local level” (Holcim Ltd., 2010: 31).
Synergy exploitation in research and development at the corporate centre
and on regional levels: Holcim's central R&D focuses on the identification
of fundamental principles, complemented by decentralised market-based
innovative activities in the subsidiaries. The active exchange between the
centre and those local initiatives fosters the generation of new knowledge
and innovation. As a result, group-wide roll-out of innovations is faster
and more effective through sound internal cooperation.

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Type of
synergy
market
power
synergies
financial
synergies
corporate
mgmt.
synergies
Organisat.
level
grouplevel
regional
level,
cross-sitelevel
grouplevel;
regional
level
grouplevel
grouplevel
grouplevel
grouplevel
grouplevel
grouplevel
(continued next page)
Examples
Minimum standards in the fields of work safety, operational safety (cf.
interview N°8: 4), and regulatory compliance: Holcim has developed
absolute minimum standards, which it enforces in all plants.
Exploitation of efficiency synergies through joint use of assets: regional
organisations, for example, (1) manage the storage of critical spare parts
(expensive parts with long order lead-times) for their country clusters; (2)
share semi-mobile concrete mixing equipment, which is needed in road
construction; and (3) trans-nationally pool rail wagons, which allows a
need-based dispatching of their rolling stock (cf. interview N°8: 5).
Cost reductions through central corporate procurement, respectively a
centrally-controlled standard procurement process: On different spatial
scales (global, regional, local) the firm works together with its suppliers,
in order to optimise resources and workflows. Three central procurement
offices in Switzerland, Miami, and Singapore.
Central purchasing includes the procurement of cement vehicles, critical
plant components, and equipment.
Exploitation of financial economies of scale through large internal
financing possibilities, and the holding's efficient access to capital
markets: Holcim combines central financing with additional selective decentral
financing, where sensible (interview N°11: 1).
Financial flexibility through a geographically diversified business
portfolio: With a share of 52.4% (2009) of its net sales stemming from
emerging markets, diversification means accelerated growth and
resistance against economic crises. With falling demand expectations in
Europe and the USA until 2012 (FT.com, 2009), Holcim can still expect
smooth financial results through its growth markets.
Reduced corporate risk due to improved liquidity planning, allowing the
injection of money in temporarily distressed local operations (interview
N°8: 8). Particularly during the banking crisis, such risk reduction proved
valuable. It equally creates strategic options.
Legally permissible reduction of the overall tax burden. Opportunities are
limited, though, due to the location-fixity of Holcim's operation (interview
N°8: 7).
Capabilities in organisational design, and expertise in balancing local
entrepreneurship and responsibility with the corporate centre's need for
monitoring and control. In addition, Holcim has excellent performance
appraisal systems which reward systemic thinking (cf. next line).
Highly developed strategic capabilities, for optimal allocation of financial
means regarding growth and expansion: The group fosters incremental
growth through an intricate performance management system, which
prescribes team- and group-based key performance indicators (KPI),
309

310
Type of
synergy
Organisat.
level
grouplevel
Examples
instead of individual targets, thus enforcing communication and
interaction between its units (cf. interview N°7: 6).
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Risk reduction and strategic decision support through Business Risk
Management (BRM) department: BRM “aims systematically to recognise
major risks – as well as opportunities – facing the company. Potential
risks are identified and evaluated at an early stage. Countermeasures are
then proposed and implemented at the appropriate level” (Holcim Ltd.,
2010: 28). BRM takes into consideration all types of risk, including,
including risks of non-compliance and reputation.
Table 5-11: Overview on Holcim's synergy implementation
Overall, Holcim very effectively exchanges its intangible resources through welldesigned
organisational structures and processes, and by means of its central talent
pool. Knowing that its success depends on people, it uses standardised processes to
identify high-performers, experts and talents, and to prudently ensure succession
planning. Thus, Holcim facilitates the best-possible dissemination of expertise
throughout the company.
(c) institutions. Holcim's relations with the various regulatory authorities are spatially
divided. On a country-level, the country manager is responsible for understanding the
regulations, processes, and potential issues, and for managing the relations with the
national regulatory bodies. Although local managers receive support in the
communication to official bodies from HGRS' communication department, specific
support is challenging due to country-specific conditions and regulatory frameworks.
Particularly in Asian countries, communication to official bodies is assisted by local
minority partners, who help overcoming any liabilities of foreignness (cf. interview
N°8: 14).
The corporate centre significantly creates value by means of well structured
management systems and effective corporate governance, which are a precondition for
the group’s credibility and good reputation. Holcim's subsidiaries “are given clear
guidelines in all key areas of the business, from technology and environmentally
friendly production to human resources and finance” (Holcim Ltd., 2010: 27) and a
“broad Code of Conduct ensures that all employees know what rights and obligations
apply in the work environment” (ibid.: 25). As a means to ensure proper adherence to
the group's standards, Holcim has installed an independent body responsible for
internal audits, which is not confined to financial audits but also monitors compliance

Case Studies
with external and internal guidelines. Particular attention goes to the functioning of
internal management and control systems, including the examination of the reliability
and completeness of financial and operational information; of the systems for
controlling compliance with internal and external directives; and whether business
assets are secure (Holcim Ltd., 2010: 28). Through these elaborate internal checks and
balances, Holcim strengthens confidence among investors, business partners,
employees, and the public at large.
In the fields of political and regulatory affairs, Holcim's regional and country
organisations exercise support functions to help the individual sites in their
management of regulatory issues. Such support is particularly valuable in case of
complex procedures and investigations. Holcim Switzerland, for example, centrally
coordinates soil investigations, which are necessary to identify potential
contaminations from past firm activities, or negotiates voluntary emission reduction
plans for its plants with the respective local authorities.
5.3.8 Summary
Holcim's location-fixity originates from its upstream resource dependence and from
downstream dependence on market proximity. As a fully private company it
experiences no location-fixity from its ownership structure. Through its global
presence Holcim recognised the consequences of liabilities of foreignness early on,
hence attributing importance to subsidiaries' local embedding, the respect of local
culture and the local way of doing business. Its subsidiaries therefore intensively
engage in local stakeholder dialogues and CSR activities, taking responsibility of their
impact on the local environment and the local population's livelihood, which Holcim
aspires to improve in a sustainable way. From a multi-site perspective Holcim has
identified fields, where it requires all entities to comply with corporate best practice
standards in order to capture synergies. On the other hand, political and regulatory
issues are clearly handled on a regional or national basis, where the knowledge of the
local institutional environment is highest. Importantly, Holcim encourages
decentralised inter-unit exchange to leverage its know-how and to foster innovation. In
addition to these bottom-up need-based interactions, the corporate centre facilitates
such exchange in a structured way. Thus, Holcim is able to leverage economies of
experience across its operations, to capture synergies from its financial power and its
global risk management, and to exploit the local strengths of its location-dependent
units in day-to-day operation.
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5.4 Cross case comparison
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The central notion of theory-building case research is to use the associated insights to
inductively develop theory over time. In this process “theory is emergent in the sense
that it is situated in and developed by recognising patterns of relationships among
constructs within and across cases and their underlying logical arguments” (Eisenhardt
& Graebner, 2007: 25). Our choice of multiple cases therefore allows to follow
replication logic (Eisenhardt, 1989), considering them as discrete experiments which
enable “comparisons that clarify whether an emergent finding is simply idiosyncratic
to a single case or consistently replicated by several cases” (Eisenhardt & Graebner,
2007: 27). With the objective to increase the robustness of our findings, we therefore
will subsequently compare our hitherto individually described cases, with an interest in
identifying commonalities but also relevant differences.
5.4.1 Comparison of location-fixity
The core construct of our research framework, location-fixity, applies to all three case
study objects, albeit with differences in intensity on the suggested dimensions (cf.
Table 5-12). All three firms share a dependence on natural resources (e.g. water, land,
limestone) and on tangible assets (power plants, airport infrastructure, quarry &
cement plants), but differ in their dependence on market-proximity. As it is essential
for an airport to be near to its catchment area, customer proximity is less vital for
cement manufacturers, where product reach is directly correlating with transportation
costs and regional competition. The least significance of market proximity is
observable for power providers, whose product is - in theory - transportable in
economically viable ways. However, in reality restrictions to transportation over long
distance exist through the limited capacity of the transmission networks and due to
network usage fees. On the dimension of ownership, Axpo and Zurich Airport are
state-owned enterprises - Axpo in full public ownership and Zurich Airport being
38.3% publicly owned - while Holcim is a fully private company. The ownership
dimension therefore represents the most interesting variation in location-fixity between
the three case study objects.
How does the public ownership affect Zurich Airport and Axpo, which both are in an
ongoing process of international expansion? Interestingly, for both firms there were no
indications for any obvious conflicts of interest in the past decade. However, as both

Case Studies
firms have a sovereign mission 158 which they need to fulfil, the awareness is high, that
their economic success represents the key to their entrepreneurial freedom. Until
recently, Axpo therefore explicitly stated in its mission: “We want to be constantly
profitable and create added value for our shareholders. In this way we have the
freedom to act and that we will remain competitive” 159 . This focus on value creation as
a means of retaining entrepreneurial freedom has strong parallels with FZ, which
equally perceives its profitable operation, as well as its high quality standards in
Zurich as a facilitating factor to its international engagement. However, Axpo's
expansion path so far remained focused on Europe, and - with few exceptions -
concentrated on energy trading, involving less up-front capital investments and being
an essentially mobile (knowledge-driven) business. FZ, on the other hand, seeks to
expand in geographically more distant countries. Clearly driven by risk-considerations,
FZ restricts its engagements to minority shareholdings, combined with management
contracts for which no major sunk costs are incurred. It is unclear, however, to what
extent its obligations towards the public stakeholders influenced its propensity for risk
in recent years, potentially bounding its aggressiveness in bidding processes for
international airport projects.
In contrast, Holcim's biggest shareholder is a member of the founding family, with the
rest of the share capital freely floated. Although Holcim very prudently fosters its
international expansion, it has no limitations from potential target system conflicts
with its owners, thus being able to decide on risks and areas of geographical
engagement from a purely firm-centred value-driven perspective.
158
In the case of Axpo, the sovereign mission anchored in its vision, combined with the intent to go
international, read as follows: "We aspire to dependability: As a Swiss energy group, we stand for
security, quality and sustainability. We are therefore locally anchored and globally present [italics
added]." (retrieved September 14, 2010, from Axpo corporate website:
www.axpo.ch/axpo/en/home_multi/konzern/auf_einen_blick/vision.html). Similarly Zurich Airport's
mission reads: "We connect Switzerland to the rest of the world, we welcome our guests all around the
clock, we develop projects in Switzerland and abroad, and we distinguish ourselves through
'Swissness' [italics added]"(retrieved September 14, from Zurich Airport corporate website:
www.zurich-airport.com/desktopdefault.aspx/tabid-546/).
159
'We have a mission'. Retrieved July 14, 2010 from Axpo corporate website:
www.axpo.ch/axpo/en/neue_energien_multi/konzern/auf_einen_blick/leitbild.html.
313

314
Characteristic Axpo Zurich
Airport
Upstream
Natural Resource & Tangible Asset Dependence
Downstream
Dependence on Market Proximity
Ownership
Dependence on Owners' Utility Function
� fully applicable / ~ weakly applicable / � not applicable
� � �
~ � �
� � �
Table 5-12: Cross-case comparison of location-fixity: Axpo, Zurich Airport and Holcim
Case Studies
Holcim
5.4.2 Commonalities and differences in institutional exposure
On the dimension of institutional exposure all three firms are concerned with civilian
interest groups and their public stakeholders, as both have decisive influence on the
feasibility of new projects, as well as on the profitability of existing ones. Due to the
externalities of their industries, all three case study objects have to regard the
expectations from environmental groups and interest groups, which also represent the
local community. While Axpo discusses its projects with nature conservationists,
fishing and neighbourhood associations, FZ is more concerned with various noisecentred
associations, and Holcim maintains a close dialogue with the local community
and their various forms of organisation, based on the high impact of their operation
and the resulting responsibility for the local livelihoods. In respect of their employee
relations, Axpo and FZ have no history of labour issues across their operations. In
contrast, Holcim occasionally experiences labour conflicts, which partly are related to
its industry, respectively to the traditions of its host countries.
With view at the public stakeholders, Axpo is closely interacting with local
administrations and the regulator, being aware of their essential role for new projects
and other undertakings in business development. Most importantly, Axpo needs to
limit the attempts of local public stakeholders at rent appropriation, particularly in preproject
negotiation phases. Furthermore, Axpo is familiar with the effects of economic
chauvinism 160 , which it has come across in trying to extend its presence to new
regions, where other local champions are rooted. FZ's exposure to public stakeholders
160 I.e. the regional form of economic chauvinism, as Axpo experiences similar effects across different
regions in Switzerland.

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also pertains to local administrations, and particularly to the regulator. In its
international projects it occasionally experiences the difficulty to get credible
commitments from governments. Particularly in phases with forthcoming elections, it
is prone to becoming a target of political opportunism, such as the politically
motivated renegotiation of airport tariffs or the demand of higher investments in
airport infrastructure. Furthermore, presently the regulation for airport charges is being
reworked in a number of states, putting the airport operator at risk of a more
disadvantageous and investor-unfriendly regulatory practice 161 . With view at its Zurich
operation, the political atmosphere related to the airport's activities is very emotional,
representing one of the critical topics for local politicians and the local administration.
In this environment the conflicting public policy objectives become apparent, with
which the airport struggles in its daily operation. At last, Holcim's biggest concern
regarding its public stakeholders pertains to regulation. While it actively tries to shape
regulation for new solutions in respect to its production processes and technologies 162 ,
increasingly strict prescriptions may represent a regulatory risk for continued
profitable local operation. Furthermore, the increasing automation of plant operations
and the firm's consequent policy with regard to demand-driven production, leading to
occasional shut-downs of plants in economic downturns, exposes the firm to local
pressure pertaining to the preservation of jobs.
Importantly, the reach of the firm's externalities may serve as an indicator of the
resulting complexity to find adequate solutions for stakeholders: Holcim, on one hand,
is able to resolve any effects from its externalities on a purely local level, as possible
noise and atmospheric emissions affect a defined range surrounding the plant. On the
other extreme, Zurich Airport's activities affect a large area, partly depending on the
approved landing and departure regime. Any change in such a regime favours certain
residents in the region, but necessarily puts other parts of the population at
disadvantage. As a result, FZ - at least with regard to its Zurich operation - is currently
caught in a literal straightjacket, unable to make alterations to its current operational
mode 163 . Axpo may be seen as somewhere in between: its hydro power plants affect
161
Such as for example price-cap regulation on a single-till basis, where commercial revenues cover a
portion of the airport’s overall fixed costs.
162
E.g. for the use of alternative materials for its kiln fuelling.
163
This view is underlined by a statement from a Zurich Airport executive with regard to the
significance of externalities for the local population: "Da liegt natürlich auch der wesentliche
Unterschied zu Holcim. Wenn Holcim im Untersiggenthal den Beton aus dem Silo in den Lastwagen
verlädt, dann staubt das. Für dieses Problem kann Holcim zusammen mit der lokalen Bevölkerung vor
315

316
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the local ecosystem, depending on the scope of the project-externalities which most
often can be discussed with a small range of stakeholders. An altogether different
perspective needs to be taken for its nuclear plant, which not only affects the local
population, but theoretically puts large surrounding areas at risk. Any special
occurrences, planned changes, extensions or even new projects therefore need to be
considered from a large-scale view on stakeholders, far beyond the regulatory
perspective.
While the individual issues of the three firms with their stakeholder groups are
different and partly industry-related, the consequences and resulting need for
stakeholder collaboration and local embedding are similar and will be discussed in the
subsequent section. Table 5-13 provides an overview on the institutional exposure of
the three case objects towards the individual stakeholder groups.
Institutional exposure from stakeholder group Axpo Zurich
Airport
Local community � � �
Civilian interest groups � � �
Customers ~ ~ �
Suppliers ~ � ~
Service partners � � ~
Employees � � ~
Public shareholder � � �
Government: political dimension � � �
Regulator: law & order dimension � � �
� high / ~ medium / � low or none
Table 5-13: Cross-case comparison of institutional exposure: Axpo, Zurich Airport and Holcim
Holcim
5.4.3 Comparison of legitimisation and embedding strategies
The activities of our case objects with regard to organisational legitimisation and
embedding are not unique to these industries, nor are they truly innovative - most
firms in one way or the other make use of similar means to gain the acceptance of their
local environment. However, the intensity with which the three companies pursue
them may be pointing towards the high significance and value impact that legitimacy
has for them as characteristic UCFs.
Ort eine lokale Lösung finden. Das kann der Flughafen Zürich nicht, denn das System ist ein komplett
anderes und es herrscht auch ein anderer politischer Aufheizungsgrad vor…" (Interview N° 23: 9).

Case Studies
With a look at Axpo, its organisational legitimacy currently gains a particular
significance in view of two facts: (1) Axpo's nuclear plant in Beznau will reach the end
of its life cycle shortly past 2020, and the company has already requested regulatory
outline approval 164 for a technologically more advanced replacement plant in 2008.
Apart from the regulatory green light, the public opinion on nuclear power will
ultimately be decisive for project implementation. In addition, public opinion on the
project will be influenced by the general trust in Axpo as a responsible plant owner
and operator. (2) Many of the firm's hydropower concessions will expire in the
upcoming years, which will expose the firm to negotiations for higher rent
appropriation, respectively which will require various costly admissions to its local
stakeholders. Not surprisingly, the firm therefore intensively engages in lobbying and
image-building, on top of the regular embedding activities. From a general embedding
perspective, particularly Axpo's capabilities to identify and involve all relevant
stakeholders from the earliest project stages should be highlighted. In addition, its
ability to sense underlying issues, motivations, and expectations of stakeholders, not
obvious from the outset, and to consequently find optimised solutions to satisfy the
real concerns of stakeholders certainly are mentionable key success factors. As a
consequence, these capabilities allow Axpo to make concessions exactly where they
matter.
From a different angle, also FZ finds itself in a phase, where intensive embedding
activities are required. As Zurich airport is approaching its capacity limit 165 , already
having to turn down demand in its daily peak periods, FZ requires high trust and
legitimacy from its stakeholders to initiate the needed infrastructure expansions. The
long time to implementation of such schemes, due to planning requirements, as well as
legal and regulatory approval periods, positively impact the airport's efforts to embed
itself and to build goodwill with its affected stakeholders. Furthermore, since its
privatisation in 2000, FZ has been regularly engaging in large-scale projects in Zurich,
which in one way or the other affected airport operation 166 . These projects include its
fifth expansion phase, major system adjustments due to Switzerland's admission to the
Schengen Agreement, the renovation and operational re-integration of its Dock B 167 ,
164 I.e. Rahmenbewilligungsgesuch.
165 From a peak-hour perspective.
166
Mostly with regard to passenger processes, but to some extent also affecting aircraft processes.
167
Dock B was closed as a passenger terminal for almost a decade after the opening of Dock E in
2003. The decision was taken due to a sharp decrease in passenger traffic in the wake of the terrorist
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318
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as well as the planned introduction of a central security process in 2011. In a longerterm
outlook, FZ will also significantly develop its landside area with the construction
of a large multi-purpose structure called 'The Circle', with expected construction costs
of CHF 1 billion 168 . All these projects require FZ to be on good terms with its
surrounding communities, the local population, and the regulatory authorities which
need to approve the projects and their related environmental effects. FZ therefore very
consciously maintains good relationships with administrative and political
representatives from its neighbourhood. In this endeavour, it prioritises its efforts
according to its stakeholders' degree of affectedness. With regard to its international
projects, FZ benefits from its experiences with a politically challenging environment in
Zurich, thus being able to empathically involve relevant stakeholders in airport issues,
and to culturally sensitively respond to stakeholder expectations.
Figure 5-15 illustrates the increased focus of Axpo and FZ (at Zurich airport) on
organisational embedding from a concession life cycle perspective. Both firms are in
need of high legitimacy and trust, in order to successfully master major infrastructure
projects in the mid-term. Consequently, both firms should display intensified
embedding activities over the next years.
intensity of embedding activities
evaluation
of location
firm site
approval
bidding &
negotiation
construction &
start-up preparation
government
concession
approval
start of
operation
embedding focus
of Zurich Airport
negotiation
for extension
adjustment
to operational
scale or scope
negotiation
for concession
renewal
� � � � �
Figure 5-15: Different embedding focus over asset lifetime - Axpo and Zurich Airport
embedding focus
of Axpo
t
end of
concession
attacks of September 11, 2001, and the ensuing grounding of the home carrier Swissair in October
2001.
168
The financing structure of the project has not been finalised at the time of concluding this
dissertation. FZ intends to implement the scheme together with third party investors.

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Holcim, as a truly global firm, is continuously engaged in all stages of the embedding
process, due to its large international portfolio and the different life cycles of these
operations. Of all three case objects, Holcim also seems to have the most structured
approach to local embedding and to CSR activities, centrally providing guidelines to
its subsidiaries with regard to stakeholder materiality reviews, stakeholder dialogues,
and CSR activities in general. By proactively contributing to high regulatory standards
also in less developed countries, and through its objective to promote international
unification of its industry's regulation, the firm demonstrates high ethical standards,
thus creating goodwill in its local operations. The same applies to its unified emission
monitoring and reporting, and its valuable strategic cooperations with reputed
organisations, such as GTZ, in order to develop more energy efficient production
methods and to lower its externalities.
In respect of Axpo's legitimisation strategy, the firm is able to rely on a mutual lock-in
with a part of its public stakeholders, as the most politically demanding parties are also
its shareholders. In its geographical core regions, Axpo therefore benefits from the
positive interests that the public stakeholders take in its ability to pursue its public
mission. All the same, this mutual lock-in becomes a liability in regions, where it has
no historical ties, since the respective public administrations have an interest in their
own local energy champions. In respect of Switzerland's energy policy, Axpo has a
quasi-lock in with the national political decision-makers due to factual constraints:
with current energy consumption levels and environmental protection standards, there
is no known 'green' alternative to nuclear power - apart from importing often less
'green' power from neighbouring countries. In comparison, FZ in its Zurich operation
equally has a mutual lock-in with its public stake- and shareholders. This lock-in,
however, is bounded by the Canton of Zurich's ownership strategy, wherein the canton
clearly prioritises the protection of the population of negative externalities,
respectively balances these protective considerations with the airport's cantonal and
national mission to provide adequate infrastructure 169 . Thus, Zurich airport's ongoing
operation (and thus the going concern of its operator) is ensured through this set-up, as
169 See also Article 1 of the cantonal Airport Law ("Flughafengesetz," 1999): "Der Staat fördert den
Flughafen Zürich zur Sicherstellung seiner volks- und verkehrswirtschaftlichen Interessen. Er
berücksichtigt dabei den Schutz der Bevölkerung vor schädlichen oder lästigen Auswirkungen des
Flughafenbetriebs."; respectively Article 36a of the national Aviation Law ("Luftfahrtgesetz," 1948):
"Der Konzessionär ist verpflichtet, den Flughafen unter Vorbehalt der im Betriebsreglement
festgelegten Einschränkungen für alle Luftfahrzeuge im nationalen und internationalen Verkehr zur
Verfügung zu stellen, einen ordnungsgemässen, sicheren Betrieb zu gewährleisten und für die dafür
erforderliche Infrastruktur zu sorgen."
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has also been seen during FZ's crisis after the grounding of its home-carrier Swissair in
2001. On the other hand, the development of further capacity currently is and will
remain restricted in the foreseeable future, due to political circumstances to which also
the Canton of Zurich is subjected. Holcim, as a fully private company does not have
strong factual lock-ins in its operations. It therefore needs to create them in the
negotiation phases of its international engagements, thus reducing its project risks,
securing profitable operation on a sustained basis, and having clear exit options in case
of deterioration of the conditions in its institutional environment. In the example of the
recent expropriation and nationalisation of its operation in Venezuela, for example,
Holcim was able to limit its exposure due to an investment protection agreement
between Switzerland and Venezuela - a safeguard between states that is intended to
deter unilateral state-actions of this type. Although the firm had to cede control of its
plant and was forced to leave in 2008, it received a decent compensation, according to
industry experts, in September 2010 (NZZ Online, 13 September 2010).
Finally, all three case objects have capabilities to adequately adapt locally. While for
Axpo, local adaptation mostly means to adapt to the specific local political
circumstances in different regions of Switzerland, where it chooses to facilitate
interactions through local gatekeepers, FZ and Holcim also interact with differing
institutional environments on a global scale. The two last-mentioned both explicitly
stress the importance of taking the local firm- and institutional cultures as reference
points, both having the capability to identify relevant local characteristics and
strengths, which they take as a basis to work with the local culture. In the case of FZ,
local adaptation additionally has an architectural and design aspect, whereby the
locally managed airports need to be given a distinct local look and feel, with the aim to
make them symbols of regional pride.
5.4.4 Comparison of value creation effects
Single site perspective. With a look at the management of individual sites, all three
case objects have a conscious approach to local embedding, instrumentally building
their image in order stimulate a constructive local business environment. Differences,
however, exist with regard to the breadth of these embedding strategies, as well as to
the degree of structure with which the embedding and legitimisation process is
furthered. Holcim, with its 'triple bottom-line' philosophy - embracing the economic,
social and environmental dimension of value creation - has developed the most farreaching
approach towards stakeholder involvement and corporate social
responsibility. Through its holistic approach it pursues economic profit, while giving

Case Studies
clear guidance to its employees on the company values and ethical standards with
which profit-generation needs to be in accord. Consequently, in exemplary cases the
firm is even able to combine CSR-minded projects with profit-generation, as
illustrated in its 'Mi Casa' initiative (see also chapter 4.8.4). Clearly, Holcim has
recognised the value of high organisational legitimacy with regard to value creation
opportunities and the creation of options. As has been shown, its embedding
capabilities positively affect transaction costs, the exploitation of positive externalities,
and operational efficiency.
In comparison, FZ- due to its rather loose links with its international airports and its
minority shareholdings - has no unified approach to organisational embedding. In its
Zurich operation, the firm has an intricate approach to stakeholder involvement, not
least due to the complex and politically sensitive environment. It systematically
involves stakeholders - particularly the political and public ones - and returns some of
its created value to the externality-affected parts of the local population in the form of
noise abatement measures 170 , to which it is legally obliged. The resulting
organisational legitimacy allows it to create and ultimately realise options for further
revenue generation, as the aforementioned examples of the smoking lounges and
arrival duty free illustrate. However, its value creation possibilities are and will remain
bounded by the limitations to develop or even adapt its aviation infrastructure. In its
international operations, FZ experiences less restrictive environments in respect of
growth opportunities, but often is prone to more uncertainty with regard to institutional
and political stability. Depending on the political situation of its host country, which
often is influenced by election cycles, continuous reputation building with the local
population, politicians, and public administrations is crucially contributing to value
creation, respectively serves as an 'insurance' against value destruction. Importantly,
FZ's embedding capabilities in Zurich and in its other operations are effectively
lowering transaction costs (and liabilities of foreignness), have a positive impact on its
operational efficiency, and support it in the exploitation of positive externalities.
At last, Axpo's approach may be placed in between Holcim's unified and very
systematic, and Zurich Airport's de-central embedding activities. In line with its selfconception
as a financial holding, it leaves the local embedding strategies completely
to the de-central units, while pursuing national lobbying issues on the holding-level. In
170
These measures are financed through a fraction of the airport's passenger fee which is dedicated to
noise abatement, and which is administered within the airport's noise protection funds
('Lärmschutzfonds').
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project acquisitions or concession renewals, however, the corporate centre -
respectively the responsible division - is very diligent to involve the relevant
stakeholders early on, and to create respective value propositions, thus significantly
increasing the probability of obtaining the necessary approvals for implementation and
positively influencing the project's overall conditions. Thus, although such proactive
stakeholder involvement incurs costs in the form of 'appeasement', Axpo creates value
by ultimately reaching closure of project deals, which might otherwise be delayed or
fail altogether. Similar to FZ's situation, Axpo also needs to pay attention to the
expectations and needs of local stakeholders on an ongoing basis. Thereby it may
avoid expensive legal battles and hardening of attitudes of neglected parties, and
preserve valuable options for the firm's future development. By means of its
embedding capabilities, Axpo therefore is able to save on transaction costs, to gain in
operational efficiency - effectively illustrated by the example of the consecutive
hydropower plants in the Maggia valley - to lower its financing costs, and to valorise
positive externalities.
Multi-site perspective. Also with regard to value creation among multiple locationfixed
sites, our case objects differ quite significantly in their structuring of inter-unit
exchanges, respectively in their interaction between the corporate parent and the
individual units. Again, Holcim employs the most structured approach, having firmly
anchored the exchange and diffusion of best practices throughout the firm in its
strategy. An important pillar in this strategy implementation is the corporate HGRS
unit, which specifically supports knowledge transfer, fosters innovation and facilitates
the interaction between its units and geographies. These activities are complemented
by its global iShare system, which serves as a knowledge exchange platform, and by
the firm's performance management system, whose key performance indicators
encourage inter-unit interaction. Furthermore, Holcim has standardised key corporate
processes, thus exploiting its value creation potential in its production. In addition, it
allows the local management to concentrate resources on locally specific issues, and to
nurture relations with various stakeholder groups (Holcim Ltd, 2010a). Holcim, as a
location-dependent multi-site firm, therefore creates value through the realisation of
operative synergies such as the organisational clustering of support functions, central
procurement opportunities, and the management of critical spare parts. With regard to
financial and corporate synergies, Holcim is able to optimise its financing costs, to
better diversify its risks, and to professionally manage its overall risks.
Similar ways of value creation are pursued by Axpo. As is the case for Holcim, also
Axpo encourages the diffusion of best practices across the firm to add value. Know-

Case Studies
how is being shared, however, mostly within Axpo's subunits, respectively is being
spread to the units through corporate parent. Compared to the other two case objects,
Axpo probably has more possibilities to ensure standardisation of certain processes
than FZ or Holcim, as it is mostly operating within the same regulatory space and is
obliged to the same regulatory bodies on a national level. This concentration of
production activities also make its lobbying activities very effective, and gives it a
critical mass in the Swiss market, which has effects on its negotiation strength for new
projects. Compared to smaller firms, synergies from multi-site activities therefore arise
from its balanced energy mix - i.e. its engagement in different types of power
production, with significant advantages for its plants' utilisation and revenue
generation - from cost savings through central support activities, reduced corporate
risk, and from more resources to engage in R&D and new business development
strategies, just to name a few.
FZ's industry and organisational set-up probably are the most challenging of the three
case objects in respect of multi-site value creation. For comparison, due to the nature
of its industry, FZ can only limitedly standardise key processes across its portfolio.
With regard to the aviation-side, each and every airport has a unique topographical
landscape in which it is embedded, requiring equally unique landing and departure
systems, as well as designs for its civil engineering works. Thus, although industry
regulation for airports is probably more globally harmonised than in the other two
industries, being based on ICAO standards and recommended practices, the
implementation of these regulations on an individual site requires tailored adaptation.
On the other hand, the operational and commercial management of terminals allow a
high degree of process standardisation. Equally, synergies and standardisations may be
achieved in the selection of various third parties with regard to airport services (such
as ground handling or catering) and commerce (e.g. food and beverage, retail and duty
free). Since FZ has the relevant best practice know-how from its Zurich operation,
which it combines with its capability for adaptation to the local environment, it creates
value across its operations mostly through the transfer of know-how. In its Latin
American operations, however, it has additional possibilities to realise synergies from
the combined management of airport clusters through its joint venture A-Port, as
illustrated by its Honduras operations. Furthermore, A-Port is able to centralise certain
planning functions across the Latin American portfolio, along with a rotation of its
airport managers across the portfolio airports and a more intense exchange between the
individual airports. Concluding, FZ will probably never be able to achieve the intensity
of inter-unit exchange of the other two case objects, Holcim and Axpo, since it only
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engages as a minority investor cum management contract in its airports. Nevertheless,
the firm is in the process of intensifying interaction between its airport managers also
across the different parts of the world, to better exploit its expertise.
Comparing the value creation endeavours of our three location-dependent case objects
in single- and multi-site settings confirms, that they mostly pursue similar synergy and
cost saving opportunities, albeit with partly different intensity and focus. Table 5-14
provides an overview of the identified fields of value creation in multi-site operations,
and their significance for each case object.

Case Studies
Fields of value creation - multi-site perspective Axpo FZ Holcim
Relations
Resources
Institutions
Signalling on the basis of reputation & identity �� �� ��
facilitation of market entry �� �� ��
acceleration of the local unit's embedding process �� � ��
increase in credibility and status of local unit �� �� ��
Institutional & cultural sensitivity � �� ��
lower local transaction costs, faster time to implementation �� � ��
increased managerial effectiveness � �� ��
increased bargaining power � � ��
Knowledge resources & best practice synergies �� �� ��
improved overall productivity � �� ��
improved safety and reliability �� �� ��
common understanding of key processes and firm approach � � ��
Corporate management synergies ~ �� ��
better leverage of entrepreneurial activities ~ � ~
better fit of local unit's organisational design with local
requirements
~ �� ��
strategic priority-setting and funding of projects with
highest expected returns
� �� ��
Financial synergies �� � ��
reduced corporate risk �� � ��
advantages of an internal capital market (fin. holdings) �� � ��
tax advantages (financial holdings) � ~ �
financial economies of scale (financial holdings) � � �
Compliance monitoring � � ��
reduced risk of costs of non-compliance and negative
reputation spillovers
� � ��
lower transaction costs (particularly with public stakeh.) �� � ��
accumulation of institutional assets �� �� ��
Political support & regulatory lobbying acc. to spatial scale �� � ��
lower transaction costs with public stakeholders �� �� ��
increased effectiveness of firm's political activities on
various spatial scales
�� � ��
increased bargaining power towards public stakeholders �� ~ �
�� high significance; � significance; ~ low significance; � no significance
Table 5-14: Fields of multi-site value creation and their significance for case objects
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5.4.5 Summary & conclusion
The comparison of our case objects along the dimensions of the research framework
has revealed similarities in local exposure and in their embedding strategies to balance
such exposure. Particularly notable is difference between Axpo, FZ and Holcim in
their ownership structure, with consequent effects also on their entrepreneurial
freedom. While Holcim - as a fully privately owned firm - is able to pursue its
business strategy without any firm-specific public policy restrictions, Axpo and FZ
have to fulfil a public mission, which has priority before any other business
development endeavours. Moreover, FZ is constrained in its local development
opportunities by a public policy framework which balances the regional economic
interests of a growing airport with the population's interests in high quality of life and
in environmental protection. However, the interviewed representatives of Axpo and FZ
are convinced that as long as their firm performs according to its mission, it is not
significantly constrained in its expansion strategy.
The embedding capabilities of the three firms most significantly differ with regard to
their degree of structure and international harmonisation. Holcim centrally guides its
country organisations in respect of corporate social responsibility programmes and the
establishment of continuous stakeholder dialogues. On the issue of lobbying the firm
transparently communicates its lobbying resources, which it uses on a supra-national
level, but also within the respective countries of operation. Similarly, but on a
geographically smaller scale, Axpo engages in lobbying activities on its holding level,
allowing it to exert more influence on regulatory developments in its home market
Switzerland. However, embedding activities on a local scale are decentralised and the
corporate parent does not prescribe any specific approach or activities to be taken. The
least structured approach, due to a different organisational set-up, is taken by FZ,
which supports the airports in its portfolio with regard to political and regulatory
issues on a need-basis, respectively pays courtesy visits to important decision-makers
from time to time, but leaves the embedding approach and respective activities fully to
its local airport management.
With regard to single-site value creation, we could illustrate that all case objects create
value by means of their embedding capabilities on similar dimensions. The most
important fields of value creation are transaction cost savings, increased operational
efficiency, and the valorisation of by-products. Through their embedding capabilities
all three firms are able to lower their transaction costs from their interactions with
public stakeholders, in particular local administrations and the regulator, but also due

Case Studies
to fewer litigation cases with the local community. For FZ, these savings are best
illustrated through its international projects, as the situation in its Zurich operation is
influenced by many factors which it cannot influence by means of local embedding.
Holcim has made very good experiences with its approach to stakeholder dialogues,
being able to take up and resolve issues before any hardening of minds, with often
costly consequences. The same applies to Axpo, which establishes good working
relationships with stakeholders in project planning phases and consequently maintains
closeness with the local community throughout its concession phase. All three firms
are able to improve their operational efficiency, be it through the opportunity to better
exploit existing resources, e.g. due to good labour relations which lower plant
downtimes, as in the case of Holcim; or on the basis of longer shop opening hours, or
procedural improvements to increase runway utilisation, as in the case of Zurich
Airport; or as a result of the possibility to serially connect multiple hydropower plants,
as in the case of Axpo. The third important field of value creation on the basis of local
embedding is the valorisation of by-products of our case objects. While Axpo and
Holcim predominantly are able to economically exploit produced heat (e.g. district
heating or CO2 storage for biomass production), FZ is able to economise the fact that
it channels large numbers of travellers and other groups through its infrastructure
daily. In addition, Holcim's use of AFR materials for its kiln operation is a splendid
example how it 'CO2-neutrally' exploits the externalities of other industries. Many of
these activities have become possible due to the firms' high organisational legitimacy
with its local stakeholders, which allowed them to draw on accumulated enabling
assets to obtain the necessary approvals for implementation.
In line with the constraints of location-fixity, the multi-site creation of value
predominantly results from intangible resources. The traditional fields of financial
synergy realisation, pursued by most major MNCs, are also relevant for Holcim and
Axpo - which are organised as financial holdings - but do only insignificantly apply to
Zurich Airport. More importantly, however, all three firms create value through their
monitoring and control of their portfolio members' regulatory compliance, including
their efforts to increase overall transparency. These efforts are complemented by the
political support and lobbying which the firms centrally provide to their subsidiaries.
Less seizable, all three case objects create value through their reputation, which serves
to signal positive attributes from the parent company to the local market. Equally their
ability to adapt to the local environment, while transferring know-how from the
corporate centre has positive impacts on their transaction costs with the local
stakeholders and the time to implementation of business development endeavours. On
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the other hand, all three firms create value through the realisation of best practice
synergies with regard to production, safety and reliability, and with the objective to
attain a common understanding of key processes and business philosophy. Again,
Holcim pursues such best practice exchange with support from its central HGRS unit
and within its country clusters, while Axpo focuses on a few selected fields within
which the holding engages, and ultimately FZ identifies areas to leverage its airports'
capabilities of on a case-by-case basis.
Overall, the assessment of the case objects' embedding capabilities and the related
effects on value creation suggest, that despite the limitations in synergy realisation
from value-chain optimisations, location-fixed firms have significant opportunities to
create value. Not surprisingly, most of these are based on intangible resources, in
particular the transfer of best-practice know-how. However, in addition to these
intangibles, Holcim also found ways to economise on joint procurement or the
management of critical and expensive spare parts across larger geographies, due to its
size and its widespread geographical presence. We therefore conclude, that large
location-fixed MNC's or firms with geographically clustered markets are able to
realise a number of conventional operational synergies in spite of their spatial
immobility.

Discussion of Results and Conclusions
6 Discussion of Results and Conclusions
The intention of this dissertation was to understand the particular characteristics and
circumstances of our research object, the utility and concession-based firm, pertaining
to its location-fixity and the latter's effects on value creation. We segregated our
research topic into two main parts: (1) the investigation of location-fixity from a
single-site perspective, addressed by the research questions one to four; and (2) based
on these insights, the further analysis of location-fixity and value creation in a multisite
setting, which is covered by the research questions five and six. Thereby, our first
research question aimed at developing an understanding of location-fixity and its
constituting elements, the resulting firm dependence, and the external moderators to
location-fixity. Research question two addressed the effects of location-fixity on the
UCF and the thereto related institutional exposure, with the aim to conceptualise the
latter and to identify its sources. Furthermore, it was the intention to gain insights on
the general limitations and the opportunities that institutional exposure involves. The
third research question concerned the effects of local exposure - the combined effect
of location-fixity and institutional exposure - on the UCF's value creation
opportunities. With research question four we turned towards identifying the
moderators to the relation between location-fixity and value creation. In this context,
we analysed what kind of embedding capabilities UCFs need in order to mitigate the
effects of local exposure in value-enhancing ways. With research question five we
shifted our attention to a multi-site perspective, assessing how location-fixity impacts
UCFs' resource management across their sites. Ultimately, in research question six we
dealt with the possibilities for multi-unit UCF to create value under the conditions of
location-fixity and local exposure. In conclusion, the present chapter will discuss the
theoretical and practical implications for firms with location-fixed assets.
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330
Research question Sub-chapter reference
1. Conceptualisation of location-fixity sub-chapter 4.5 Location-fixity
2. Effects of location-fixity &
institutional exposure on UCF
3. Effects of local exposure on value
creation
4. Mitigation of limitations from
location-fixity / local exposure
5. Impact of location-fixity on multi-unit
UCF resource management
Discussion of Results and Conclusions
sub-chapter 4.6 Institutional exposure (particularly
section 4.6.4 Institutional exposure by identified
stakeholder group)
sub-chapter 4.8 Embedding capabilities of local
management
sub-chapters 4.8 Embedding capabilities of local
management; 4.9 Value creation
section 4.10.3 Limitations to multiple unit firms within
UCI
6. Multi-unit value creation of UCF sections 4.10.5 UCF value creation in multi-site
operations; 4.10.6 Relational dimension; 4.10.7
Resource dimension; 4.10.8 Institutional dimension;
4.10.9 Summary
7. Theoretical and practical implications sub-chapters 6.2 and following
Table 6-1: Overview on research questions and relevant sub-chapters reference
Before we expand on the implications of our research, we will briefly summarise the
objectives and core elements of the preceding chapters. In chapter one, we started by
framing the research problem of the utilities and concession-based firm regarding its
location-fixity and the thereto related effects on value creation. In this context, we
outlined the existing research gap and proceeded by highlighting the theoretical and
practical relevance of the research topic and by formulating our guiding research
questions.
In chapter two, we identified the theoretical fields relevant to our framework
development. As our research is based on a multi-lens approach, we aimed to briefly
introduce the main fields of research and their core concepts on which we have drawn
in our research framework. Accordingly, we covered the fields of strategic
management research, economic geography, (new) institutionalism, and economic
sociology. As we employed a grounded theory approach, our purpose was not to
delineate our research within the literature review. Rather, we intended to openmindedly
carve out the relevant aspects and to familiarise ourselves and the reader
with notions and definitions to which we have returned throughout our empirical
chapter four.

Discussion of Results and Conclusions
The third chapter expounded our approach to the empirical part of our research. We
argued why our research topic suggests an inductive approach, attributing it to theorybuilding
research. Furthermore, we clarified our research paradigm, the employed
methodology, and illustrated our research design. We substantiated the underlying
reasons for choosing grounded theory methodology to approach our research topic,
why we decided for case research, and how we purposefully selected the case study
objects. In addition, we have attached great importance to the issues of research
quality, making transparent our procedures and the employed measures throughout our
empirical research, in order to ensure high validity and reliability with regard to our
results.
Chapter four represents the core of our dissertation. Therein we have developed a
comprehensive research framework and according propositions as a response to our
research questions. We started with a conceptualisation of the location-fixity construct,
central to our research topic, whose characteristics are summarised in Table 4-2. Based
on the latter, we continued with the elaboration of institutional exposure, which is
directly related to the degree of the firm's location-fixity. After outlining a typology
for the UCF's stakeholders, where we importantly distinguish between public and
private stakeholders, we have broken down the meaning and effects of institutional
exposure to each individual stakeholder type. Subsequently, we turned our attention to
the moderators of the firm's institutional exposure. The insights from our case study
research have indicated two moderators, i.e. the local economic relevance of the firm
and the firm's competitive environment. Interestingly, while there are strong
indications that the latter is of relevance, the statements which we collected in our
interviews remained ambiguous, which led us to briefly elaborate on the juxtaposing
explanations and to develop propositions for the rivalling options, ultimately
commending the issue to further research. In accordance with the structure of the
research framework, we further developed the notion of embeddedness and
organisational legitimacy, before continuing with the definition of the firm's
embedding capabilities, which are considered as moderators to the firm's local
exposure. Thereby, we have identified two groups of capabilities: structural
(economic) embedding capabilities, which include all tangible activities that manifest
the firm's commitment to its location beyond symbolic actions; and relational (social)
embedding capabilities, which relate to the firm's activities in building relational and
reputational assets towards institutional isomorphism. These embedding capabilities
are condensed and defined in section 4.8.6. In the last thematic block within the singlesite
perspective we concentrated on value creation, first outlining our understanding of
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Discussion of Results and Conclusions
value. On this basis, we continued identifying the value creating dimensions for UCFs
under conditions of local exposure. Consequently, we have developed the construct of
enabling assets, which are defined as idiosyncratic intangible resources that the firm
accumulates over time with its stakeholders, as an insurance against unforeseeable
events and as facilitators in its business development. The relevant dimensions of
value creation include strategic options, risk decrease, and short-term value creation,
which are summarised in section 4.9.5.
The second part of our research framework is concerned with a multiple site
perspective on the UCF. Its considerations significantly build on the insights and
conceptualisations of the first part. We started with a brief description of the role of the
corporate parent and linkage-formation in strategic management research.
Subsequently we outlined, why the value creation opportunities are somewhat limited
for location-fixed firms, particularly in respect of UCFs, before proceeding with
aspects of value for UCFs' multi-unit operations. In our research framework we
identified three relevant dimensions of value creation, which we consequently
elaborated: relations, resources, and institutions. Finally, the value creation effects in
multiple unit operations have been summarised in section 4.10.9. Where appropriate,
we have illustrated aspects of the framework with examples from our empirical
research.
In order to support the developed research framework with empirical insights, in
chapter five we presented the condensed findings from our case study research. After a
brief introduction to each case study object and to its industry, we followed again the
logic of our research framework, illustrating the relevance of our findings for each
construct with examples and embedded cases. Thus, we empirically elaborated how
the case study objects create value on the dimensions of the framework, despite their
particular characteristics of the UCF. After an individual discussion of the three case
studies, we have immersed into a cross-case comparison with the objective to
underline similarities across industries (external validity), and to identify and explain
essential differences in our findings.
The implications from our insights in the chapters four and five will be the subject of
the present chapter six. Subsequently, we will discuss the research's contributions for
theory and practice, its limitations, and the thereto related recommendations for future
research.

Discussion of Results and Conclusions
6.1 Summary of propositions
The following propositions (P) have been derived throughout our research. Figure 6-1
illustrates how they relate to the research framework.
embedding
capabilities
local exposure from
moderate P2
location fixity value creation
influences
P7
location fixity P3-P6
strategic options
local econom.
relevance of firm
competitive
environment
business risks
P11-12
P1
P8-P10
institutional exposure
operational
Figure 6-1: Overview on derived propositions and affiliation with research framework
P13-14
P15-16
P18-19
With the exception of proposition two, the first six propositions relate exclusively to
location-fixity, respectively to its impact on the firm's institutional exposure:
Proposition 1. The higher a firm's location-fixity, the higher its institutional exposure and risk of rent
appropriation by its local stakeholders.
Proposition 2. The potential negative impact of local exposure on the firm's value creation is
moderated by its capabilities to embed itself locally.
Proposition 3. The degree of location-fixity is determined through a firm's dependence on locationbound
resources which are exclusive and scarce in supply.
Proposition 4. The degree of location-fixity is determined through a firm's long-term commitment to a
location with regard to capital and assets (sunk costs).
Proposition 5. The degree of location-fixity is determined through a need to be geographically close to
the customer, due to the nature of the product for some UCF.
Proposition 6. The degree of location-fixity is also determined by the ownership structure of the firm,
when the owner pursues public policy objectives, or if his utility function in general incorporates
factors other than profit-seeking.
The propositions seven to ten address the moderators between location-fixity and
institutional exposure, including the rivalling propositions on the moderating role of
the firm's competitive environment:
Proposition 7. The institutional exposure of the UCF is moderated by its role and importance within
the local economy, on the basis of its industry nature or its contribution to the local livelihood.
Proposition 8. Institutional exposure decreases in an environment with local competitors, if the UCF
cooperates with competitors with regard to stakeholder issues and demands.
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Discussion of Results and Conclusions
Proposition 9. Institutional exposure decreases in an environment with local competitors, because
industry-specific externalities originate from several industry players, which reduces incentives to
dispraise a single firm.
Proposition 10. A high level of competition leads to an increase in institutional exposure, due to
stakeholders' possibility to play competing firms off against each other.
The next two propositions are concerned with institutional exposure:
Proposition 11. The lower (higher) the firm's appropriable rent, the lower (higher) is its institutional
exposure.
Proposition 12. The higher the firm's institutional exposure, the more its organisational embedding
matters with regard to its value creation opportunities and long-term success.
The remaining propositions 13 to 19 relate to the firm's embedding capabilities and the
framework's dimensions of value creation:
Proposition 13. The effective use of the UCF's embedding capabilities leads to an accumulation of
enabling assets, which help the firm to master unexpected threatening events faster, less costly and
with less damage.
Proposition 14. The creation and accumulation of enabling assets allows UCFs to shorten their time to
implementation for major infrastructure-related investments, as well as other business development
activities.
Proposition 15. The UCF's effective use of embedding capabilities creates value by reducing the risk
of unfavourable regulatory and political discretion.
Proposition 16. By effectively employing its embedding capabilities, the UCF is able to reduce the
risk to not recover its sunk costs, respectively to increase the probability of capital recovery.
Proposition 17. The higher the firm's organisational legitimacy, and the more credibly it is able to
convey its readiness to search for integrative solutions, the higher the approval by its stakeholders for,
respectively the lower the resistance against its endeavours to improve efficiency.
Proposition 18. The UCF's degree of local embeddedness and organisational legitimacy indirectly
influence its value creation by increasing the effectiveness of its financial processes.
Proposition 19. The UCF’s effective use of embedding capabilities creates value by increasing the
firm's resource efficiency through joint exploitation of positive externalities or the transformation of
negative externalities into exploitable ones.
In the following sub-chapters we turn to the theoretical and practical implications of
our findings.
6.2 Contributions to theory
By means of this dissertation we have contributed to theory building in a number of
related research fields, most notably through the conceptualisation of location-fixity

Discussion of Results and Conclusions
and the identification of its effects on firms' value creation opportunities, as well as the
identification of value-enhancing embedding capabilities for UCFs. We will
subsequently discuss the results' theoretical contributions and how they relate to the
relevant research lenses.
6.2.1 Conceptualisation of location-fixity
Among the central contributions of this dissertation is the conceptualisation of
location-fixity from a firm perspective, thus increasing definitional clarity of an
important notion within economic geography. While existing definitions in the field
strongly focus on individual aspects of location-fixity, such as resource-dependence
(e.g. Oinas, 1998), locality-specific social relations (e.g. Cox & Mair, 1988), or the
facilitation of a trading relationship (e.g. Lamminmaki, 2005; OE Williamson, 1991),
we have aimed at an integration of these different views and aspects. Consequently,
we view location-fixity from the angles of resource-dependence (upstream), marketdependence
(downstream), and the additional aspect of ownership-dependence, which
is of particular importance for our research object, as the state in many cases is
involved as a (partial) owner. With the locally embedded firm as our unit of analysis,
our concept of location-fixity adds to a lesser used perspective in economic geography,
which commonly argues from higher scale geographies, such as regions or countries,
respectively clusters and networks of firms (Oinas, 1997). Thus, our segregation of the
sources of location-fixity on the firm-level may add another analytical lens for
assessing the economic impacts of spatial immobility.
The definition of location-fixity might contribute too to the field of strategic
management research, stressing the relevance of the spatial dimension for economic
actors and extending the notion of asset specificity through addition of a spatial
dimension. When the concepts of asset fixity and specificity were originally
developed, space was not explicitly considered. Ward & Hite (1999) therefore suggest
the addition of the notion of spatial fixity, which arises because there is a cost to
moving a firm's productive assets. Our concept of location-fixity strengthens this
stance.
In addition, the three identified dimensions of location-fixity might - in combination
with the characteristics of UCF - provide an interesting lens on the concept of mobility
barriers, understood as deterrents of movement between groups because of related
substantial costs, a significant lapse of time, or uncertainty about the outcome (McGee
& Thomas, 1986). We suggest that a location-fix UCF is able to erect strong mobility
barriers on the basis of its local dependence and embeddedness. On one hand, its sunk
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Discussion of Results and Conclusions
cost characteristics and resulting subadditive cost functions would induce it to remain
in business, as long as its operating costs are covered - even if its rents do not cover its
long-run average costs - thus deterring potential competitors. On the other hand, it
owns a valuable scarce resource in the form of a concession, and provides a good
which is of critical relevance to the local economy. Similar arguments apply for the
ownership-dimension of location-fixity. The UCF thus enjoys strong shields against
competition and is protected through a local interest in its going concern and
sustainable livelihood.
6.2.2 Conceptualisation of institutional exposure
Institutional exposure essentially draws on notions from stakeholder and institutional
theory. Stakeholder theory, on one hand, predominantly views stakeholders and their
interests as contingencies that management must respect and balance in their variety.
Thereby, one of the major determinants of stakeholder salience is their power in
relation to the firm (e.g. de Bakker & den Hond, 2008; Hill & Jones, 1992; Mitchell et
al., 1997): Based on the relevance of the firm's various stakeholders, corporate
management decides on the strategic priorities to pursue (Müller-Stewens & Lechner,
2005). Institutional theory, on the other hand, is more concerned with the organisation
as an adaptable social system, and how these values and cultural norms influence its
activity, in particular how they control the behaviour and activities of individuals
within organisations (Zucker, 1977). The notion of institutional exposure fuses both
perspectives: it acknowledges the influence of the external environment on the firm's
values and norms, as well as on its behaviour, and stands for a stakeholder's aggregate
potential to negatively impact the firm, which is the central criterion of stakeholder
salience from a strategic perspective. By understanding institutional exposure as the
degree, to which a firm is exposed and vulnerable to local stakeholders' claims,
demands, and expectations, we provide a theoretical construct to represent, what
instrumental stakeholder theory aims to mitigate. Thereby, we include the potential
effects if the firm loses its organisational legitimacy with (some of) its stakeholders,
thus not only relating to the firm's vulnerability with regard to stakeholder activities,
but also to potential indirect harm from the loss of passive stakeholder support.
Furthermore, in developing the construct of institutional exposure construct we have
assessed and contextualised the various roles of the public stakeholders (cf. section
4.6.4). In so doing, we contribute to a better understanding of the multiple roles that
the State combines, and the resulting potential conflicts of interest pertaining to the
UCF. This conceptualisation of sovereign and political influences on the firm and the

Discussion of Results and Conclusions
resulting hazards provides an interesting lens on the firm’s relations with its public
stakeholders, combining notions from TCE, new institutionalism, public policy and
political science.
6.2.3 Identification of embedding capabilities as value-creating factor
By having determined the traits and characteristics of the firm's embedding capabilities
with regard to value creation, this dissertation adds to strategic management literature,
which to date has only selectively adopted the concept of embeddedness. More
precisely, the latter's application in the past remained mostly limited to issues of
network embeddedness (e.g. Gnyawali & Madhavan, 2001; Uzzi, 1996) - to some
extent also considering performance implications (e.g. Gulati et al., 2000), relational
embeddedness in dyadic relationships (e.g. Dyer & Singh, 1998; Lavie, 2007), or the
institutional and cultural obstacles to local embedding to MNE subsidiaries (e.g.
Rugman & Verbeke, 2001).
Our theoretical contribution therefore is twofold: On one side, (1) we stress the
importance of business context with regard to a firm's value creation. We thus
theoretically valorise the firm's relations with its local environment, and its
embeddedness therein, within strategic management research (evidently under
consideration of our findings' limited applicability to UCF, whereas a wider
generalisability would need to be tested). Thus, we are linking a key notion from
institutional research lenses with strategic management research's focus on rentseeking.
On the other hand, (2) we added insights with regard to the specific activities
and capabilities which are needed to foster local embedding. By identifying and
conceptualising relevant firm capabilities with regard to local embedding and
establishing a link to value creation, we have contributed to the integration of spatial
embeddedness into strategic management research. Particularly with regard to the
relational view of the firm, we have empirically supported the notion that
embeddedness with the local environment, the firm's organisational legitimacy, its
reputation and trust represent valuable resources, which may contribute to competitive
advantage.
6.2.4 Enabling assets - linking institutional and strategic approaches
Related to our conceptualisation of the firm's embedding capabilities, we developed
the construct of enabling assets, theoretically situated at the crossings between
institutional and strategic management theory. Defined as idiosyncratic intangible
resources which the firm accumulates over time with its stakeholders, as an insurance
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Discussion of Results and Conclusions
against unforeseeable events and as facilitators in its business development, the
construct contributes to the relational view within strategic management. More
precisely, enabling assets extend the notion of relation-specific assets, as they reach
beyond inter-firm relations (Dyer & Singh, 1998) to create relational rents and to
lower transaction costs.
Moreover, the construct of enabling assets also contributes to institutional theory,
complementing the existing concept of relational assets (Dunning, 2002), which are
defined as “the stock of a firm's willingness and capability to access, shape and engage
in economically beneficial relationships” (ibid.: 572). First of all, enabling assets do
not refer to the firm's willingness or capability, but are the result of such capabilities
and efforts. They represent the outcome of the firm's activities towards embedding and
organisational legitimacy, which includes the social aspects of trust and reputationbuilding,
but also the structural aspects of good self-governance and the
compensation 171 of stakeholders for the negative effects on their welfare through the
firm's externalities.
Furthermore, in contrast to Dunning's (ibid.: 572) rather open reference to
“economically beneficial relationships”, enabling assets point to the facilitating aspect
of strong stakeholder relations. On one hand, our definition goes beyond inter-firm
relations, to which Dunning explicitly limits his conceptualisation of relational assets,
stating that “unlike most other assets R[elational]-assets are only of value when
combined with those of other firms” (ibid.: 574). On the other hand, the pathdependent
enabling assets accumulate within the firm, in dependence on the
stakeholder goodwill and trust that it created over time, with the main purpose to build
a source of support and relief for times of need - be it crisis or change.
6.2.5 Utilities and concession-based firms - a new perspective
In the early phase of defining our research topic we approached the emerging research
questions with a rather narrow focus on the airport industry. As the issues and related
questions became more pointed, though, we identified a number of industry
characteristics which were applicable also to other - seemingly unrelated - industries.
Location-fixity, obviously, was the first common characteristic which we identified,
standing out most prominently. But we soon discovered other linking elements, which
171 Understood as direct and indirect benefits for the stakeholders from the firm's activities, such as the
resulting value share that remains in the region, job opportunities, infrastructure improvements, CSR
projects, etc., such as to comply with stakeholders expectations to the firm.

Discussion of Results and Conclusions
led us to define a singular type of firms, which we termed utilities and concessionbased
firms (UCF, see also section 3.4.2). Through the specification of UCFs and their
characteristics, we add a new perspective to analyse an industry group beyond
conventional utilities, including providers of large-scale infrastructures, such as
transportation infrastructure, or quarrying and mining, as well as other extractive
industries, or. We therefore offer an alternative perspective to research firms with
subadditive cost of production functions, which might lead to additional research and
useful practical and theoretical insights on related phenomena.
6.3 Contributions to practice
As for the practical implications of our dissertation, we provide insights mainly - but
not exclusively - to representatives of utilities and concession-based firms. The
findings may also apply to some extent to firms, which combine a number of the
characteristics of UCF - most notably location-fixity. With our contributions, we
particularly address site managers; managers of corporate social responsibility;
environment, public affairs and political lobbying departments; business development;
and - specifically in multi-site firms - corporate management and those staff functions,
which are concerned with inter-unit collaboration and best practice exchange. Table
6-2 provides an overview on the relevance of the identified capabilities for local
embedding for the managerial functions, as mentioned above.
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340
� high relevance
~ medium relevance
Relevance for managerial functions�
Embedding capabilities �
Discussion of Results and Conclusions
Structural (economic) Relational (social)
Value-share remaining
in region
Mutual lock-in with
stakeholders
Effectiveness of selfmonitoring
& governance
Local stakeholder
relations
Reputation &
trust-building
Site manager � � � � � �
Corporate social responsibility � � � � �
Environment ~ � ~ �
Public affairs; political lobbying � � ~ � � �
Business development � � � � �
Corporate management & staff functions � � � � ~
Table 6-2: Relevance of embedding capabilities for managerial functions
Cultural &
institutional adaptation
6.3.1 Long-term view of relationship building with stakeholders
The explicit linking of firms' embedding (capabilities) with value creation in the long
term might change managers' perception of firm relations with the local environment.
More precisely, it might induce them to adopt a longer-term view of firm-stakeholder
relations and the related efforts to relationship building. By identifying the dimensions
for value creation in relation to effective organisational embedding, the indirect effects
of such embedding become apparent, as do the hidden costs of a weak organisational
legitimacy in the firm's local environment. The management thus is able to more
consciously address the need for economic and social embedding and to orchestrate
activities to this effect. As a result, also the perception of costs for these activities - in
particular for the economic embedding - might change, due to a clearer understanding
of the benefits and of the indirect costs of weak embedding.
As illustrated schematically in Figure 5-15 we understand the importance of enabling
assets by means of organisational embedding to vary throughout the asset's life time,
which implies varying intensities of embedding activities over the course of time.
Importantly, however, these efforts never cease, even in phases of smooth operation
and when there are no immediate plans for infrastructure or business development.

Discussion of Results and Conclusions
intensity of embedding activities
evaluation
of location
firm site
approval
bidding &
negotiation
construction &
start-up preparation
government
concession
approval
start of
operation
negotiation
for extension
adjustment
to operational
scale or scope
negotiation
for concession
renewal
� � � � �
Figure 6-2: Intensity of embedding activities over asset life-time / duration of concession
341
t
end of
concession
In particular managers within the fields of corporate social responsibility, public
affairs, and to some extent environmental sections may strengthen their argumentation
for an increased focus on their activities, which often are considered by firms rather as
cost factors than as strategically important value contributors.
6.3.2 Understanding location-fixity's impacts and mitigation possibilities
By more explicitly understanding the elements and impacts of location-fixity, the
managers of individual sites are better able to address their firm's exposure and to
devise according strategies. With our framework and the identification of economic
and social embedding capabilities we therefore contribute to a more contextual
perspective of site managers on the firm's environment.
Importantly, a better understanding of the significance of public stakeholders with
regard to the firm's local dependence, and of the different roles of the state, might
induce firms to differently approach the public decision and opinion makers. Through
our insights, thus, the managers of individual sites may adapt their negotiation
strategies pertaining to the local administration and the regulator. These findings are of
particular importance in pre-project negotiation phases (i.e. before committing to a
site), in expansion and business development projects, but also in re-negotiation
phases for concession renewals. In respect of any local ownership-dependence due to
public shareholders, managers may better address issues of interest alignment and
governance in order to avoid potential conflicts which might restrict them in their
options for business development.

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Discussion of Results and Conclusions
Furthermore, for corporate business developers who are active in diverse cultural and
institutional contexts, these insights add to the focus on governance mechanisms and
mutual lock-in. While these factors are relevant to any internationally expanding firm,
our contribution is to stress the particular consequences for UCF. Due to their sunk
cost investments, the contractual obligations from their concession agreement with the
state, the long time horizon and the high public interest in the firm's activities (with a
risk of renegotiations), the value at risk involved in these investments is considerably
higher than in more spatially mobile ventures, thus making special precautions
necessary.
6.3.3 Alternative approach to business development
Our research revealed benefits of organisational embedding for the business
development opportunities of a firm in terms of facilitated processes, fewer regulatory
stumble blocks and lesser administrative discretion, and through a wider range of
options for such development. As a result to these findings, business developers might
adapt their approach to the planning and implementation of major projects which have
an impact on the firm's local stakeholders. As we have shown in our research, firms
should involve a broad range of stakeholders and opinion makers from early stages in
a project, in order to build trust and understand their expectations and claims. The
related creative solution-finding processes might involve some costs, but also allow
the firm to tap significant savings potentials with regard to the overall project costs.
Business developers therefore should build and accumulate enabling assets with the
firm's key stakeholders on a continuous basis, in order to draw on them when needed
in a concrete project. Our contribution is to provide some guidance with regard to the
dimensions of building enabling assets, and the related operationalisation of these
dimensions.
In addition, our insights help corporate strategists and developers in UCFs to support
their local sites in a more focused way. By understanding the local exposure of their
individual sites and the need for according embedding capabilities, they may adapt the
job profiles for the local site management and pay higher attention to local managers'
skills in this regard.
6.3.4 Affirmation of value creation opportunities in UCF multi-site operations
Pertaining to UCFs' multi-site operations, our practical contribution lies in the
principal affirmation of possibilities for value-creation by managing multiple locationfixed
sites. Since existing research has not shed light on the particular conditions of

Discussion of Results and Conclusions
location-fixed firms and how these conditions influence multi-site operations,
corporate centres thus obtain new insights in respect of value-adding fields and
activities across sites. We deem these findings crucial in respect of firms' strategic
decisions on expansion paths and the related options for internationalisation. In case of
expansion by acquisition, it also helps the UCF to focus its post-acquisition resources
with regard to value creation and support of the local unit's leadership.
6.3.5 Identification of new peer group for exchange
Due to our findings in respect of the commonalities among utilities and concessionbound
firms, whose group subsumes seemingly distant industries, we allow UCFs to
identify new peers with regard to exchange of experience. Thus, firms are able to
exchange their best practices between hitherto considered unrelated industries for
better ways to cope with location-fixity and local exposure, and to learn from noncompetitors.
6.4 Limitations of the dissertation
Through our research we have aimed at contributing to theory by generating new
insights of adequate validity and generalisability. However, due to a number of factors,
which we will detail subsequently, the results underlie certain limitations.
6.5 Methodological and empirical limitations
As outlined in sub-chapter 3.2, we have followed grounded theory methodology
throughout our empirical research, using an embedded multiple case design in order to
assess our research questions. While suitable to the nature of our research topic, we
would like to call attention to a number of methodological limitations which apply to
purely qualitative approaches, as we will more closely specify below.
(1) Generalisability. First and foremost, we recognise that there are some bounds to
the generalisability of our findings. We have ensured methodological coherence
(Morse, Barrett, Mayan, Olson, & Spiers, 2002) by choosing a qualitative research
approach in line with the theory-building character of our research topic. Accordingly,
we have addressed the subject of validity by employing an embedded multiple case
design with case study objects from three different industries. We further increased
validity by performing a cross-case comparison, in order to identify inter-industry
patterns and commonalities (Eisenhardt, 1989). However, the validity of our research
could have been further strengthened by testing additional cases for the replication of
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Discussion of Results and Conclusions
our results. Despite the unquestionable advantages of a larger number of in-depth case
studies, we have decided against this expansion in scope in the interest of remaining
focused, and in order to avoid a disproportionate increase in the research's complexity.
Thus, and in spite of the measures taken, any application of our theoretical findings
presented in chapter four and the related propositions, beyond the specific context of
the three case objects, requires adequate caution.
Moreover, the applicability of our research's findings is explicitly limited to utilities
and concession-bound firms. While some findings may have validity beyond this
specified type of firms, a wider generalisation would have to be further tested.
(2) Familiarity with the case object. According to Morse (1994), a researcher ideally
needs to face her research object as a 'stranger', before starting to build adequate trust
and establish the atmosphere to obtain rich information. This condition has not been
fully complied with in the case of our research, as the author works in the business
development department of Flughafen Zürich AG, one of the three case study objects.
While the professional involvement has been particularly valuable in the initial
development of the research questions, and with regard to deeper investigations
throughout the performed interviews to obtain precise and rich information, it entailed
the danger of bias during our interviewing phase. However, this risk was mitigated by
the circumstance that all interviews with representatives from Zurich Airport have
been conducted during a period, when the author was on leave for her research project.
Thus, at the time we had no professional relations with, or obligations towards the
interviewees, which could have deflected our focus and attention. Furthermore,
through our cross-case comparison we were able to ensure some general validation of
the findings from the airport case.
(3) Triangulation through interviewees' variation in background. In our empirical
research we have interviewed 20 informants from three different firms, with different
hierarchical levels and backgrounds. These perspectives were complemented by two
additional interviews from neutral third parties, in order to provide for further
validation of the results. Besides, however, our findings could have been further
enriched by additionally collecting information from the stakeholders of our case study
objects. In so doing, the 'public' side (as for example local administrations, the
regulator, or public shareholders) and the firms' interest groups could have proved
particularly interesting. As a result, such further triangulation might have led to an
even more faceted understanding and interpretation of UCFs' embedding activities and
to a further strengthening our findings. Notwithstanding these benefits, and in

Discussion of Results and Conclusions
accordance with grounded theory methodology, we have chosen to end the phase of
interviewing after having reached saturation in our information collection, also with
hindsight to remaining within the defined scope of the dissertation.
6.6 Theoretical limitations
Owing to the choice of our research topic, the definition of scope, and the selection of
research methodology, we would like to point to a number of theoretical limitations
pertaining to our research results.
(1) Multi-faceted research topic. By selecting a multi-faceted research topic for this
dissertation, which entails the use of multiple research lenses and difficult to
operationalise qualitative constructs, a number of theoretical limitations are implied.
While these adequately reflect the topic's complex nature and thus are partly
determined by the overall research objective (M. Miles & Huberman, 1994), they
render the development of a coherent theory more difficult. Yet, real world phenomena
often are too complex to do justice to them through simple cause-and-effect relations,
requiring also consideration of the shades of grey in between pure black or white.
Furthermore, in consequence of the breadth of our approach, the degree of theoretical
immersion in the individual research streams remained limited. In other words, the
wide spectre of theoretical fields and notions which we integrated in our research
framework had a constraining effect on the level of detail, with which we ideally
would have liked to reflect on the individual constructs and theories. These constraints
particularly apply to the socially more complex notions of embeddedness, legitimacy,
and trust.
(2) Operationalisation of complex qualitative constructs. Due to the nature of some
constructs, as well as their partial interleaving with other employed constructs, a
distinct delimitation among them and an unambiguous operationalisation regrettably
was unattainable. Endeavours to that end were further impeded by limitations to the
available resources and the defined scope of our dissertation. Again - and also related
to the first limitation - this flaw concerns the elements which pertain to the construct of
relational embedding capabilities, such as trust and reputation, due to their causal
ambiguity, social complexity, and their conceptual overlap. Moreover, this observation
also relates to the identified dimensions of value creation, which are not distinctly
delineable in all aspects, and our conceptualisation of value, with which we attempted
to integrate multiple perspectives and conceptions.
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Discussion of Results and Conclusions
(3) Emphasis on single-site view. In the course of refining our research questions and
familiarisation with the various aspects of our research topic, we shifted our focus
from an initial intention to analyse location-fixity in multi-site settings to a deeper
discussion of a single location-bound site. As outlined before, this shift became
necessary due to the absence of thorough theoretical conceptualisations of locationfixity
in existing research. As a consequence, we decided to split our research in two
distinct parts, with the multi-site perspective building on the insights from the research
on single sites. Due to this extension of scope and focus on understanding individual
sites, we consequently delimited the second part, merely touching upon the
implications of value-driven resource management across location-fixed sites.
Therefore, as we could establish the conceptual basis for local exposure for single
sites, we commend the analysis of location-fixity's multi-site implications to further
research.
(4) Rivalling explanations of competition's influence on institutional exposure.
Pertaining to the moderating relationship between the firm's competitive environment
and its institutional exposure we were not able, within the scope of our research, to
obtain a conclusive answer as to the direction of the effects. While the results from our
interviews strongly pointed to an influence of the competitive environment, the
interviewees' deliberations were ambiguous. We therefore decided to integrate this
moderating construct in our research framework, while leaving open which of the
rivalling explanations prevails.
(5) Unidirectional effects of institutional exposure. Due to the scope of our research
topic and the logic of our research framework, we merely discussed the firm's
institutional exposure towards its stakeholders and excluded a closer reflection on
issues of bilateral exposure 172 . Further research with an emphasis on these relations
between the location-fixed firm and its stakeholders could bring light to this question.
6.7 Directions for future research
On the basis of the identified limitations we would like to commend a number of
possible themes and directions to future research. Therefore we would like to suggest
the following issues for further analysis and inspection.
172 Related aspects, such as reciprocity in human behaviour and power imbalances in stakeholder-firm
relations, have been superficially touched upon in the development of our framework, albeit without
commensurate elaboration.

Discussion of Results and Conclusions
6.7.1 Methodological and empirical directions
Our research framework has been developed on the basis of an embedded multiple
case study, including insights from three unrelated industries. With reference to the
described limitations of our approach, particularly pertaining to our findings'
generalisability, we therefore recommend to replicate the cases within other, so far not
empirically considered industries within the group of UCI. The resulting findings
would not only contribute to further external validation of our work, but also lead to
new insights, thus adding empirical evidence to the broader context of our research
topic. Above all, further insights could be gained in respect of the effects of local
exposure on value creation opportunities, as well as the significance of the identified
moderators - possibly also suggesting additional moderating factors. Moreover, this
opportunity could also be used to validate and extend the insights on the multi-site
resource management of UCFs.
In addition to case replication, we also recommend to complement the case studies
with some quantitative methodological elements, including the collection of data on a
wider scale by means of questionnaires. This additional dimension for triangulation
would strengthen the internal validity of the present results. To this effect we suggest
to choose one or more globally present UCFs as research object, with a significant
number of geographically widespread sites. Such a setting would possibly also allow
further insights on the effects of different institutional and cultural environments, as
well as the liabilities of foreignness. Moreover, it would permit a closer analysis of
value creation in the relations between the corporate parent and the individual site,
respectively in inter-site relations of location-fixed businesses.
With regard to the moderating factors between location-fixity and institutional
exposure, we were not able to single out an unequivocal answer on the effects of the
firm's competitive environment: Further assessment of this moderator would be
interesting in view of the firm's strategic choices for its organisational embedding.
Research results thus would support firms in addressing the expectations and demands
of local stakeholders, in their positioning against local competitors, and in their
decisions on fields of cooperation with - respectively differentiation from - their
competition.
6.7.2 Theoretical directions
Further research on UCFs. Having specified the utilities and concession-bound firm
within our research, which stands out by a particular set of characteristics, we feel that
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Discussion of Results and Conclusions
additional analysis of the thereto related phenomena would be needed, in order to
advance according theoretical and managerial insights. Gil and Beckman (2009: 8)
rightly observe, that
studies grounded in infrastructure settings offer a rich field for scholarly inquiry
and new managerial insights, as well as for testing the validity of extant theories
and conceptual framing in different settings and under different conditions. These
studies can also shed light on best practices suitable to manage the infrastructure
sector.
We therefore suggest three relevant fields for further research on UCFs. First, we have
chosen to analyse the UCF in the context of its local environment, with the single site
as unit of analysis, respectively the firm's interaction with its local environment.
However, we have only superficially considered the UCF's inter-unit relations,
respectively the relations between the sites and the corporate parent. It would be
interesting to return to the second part of the research framework once again, in order
to develop a deeper understanding of the specificities in those relations, and how the
corporate parent may support its foreign sites with regard to political and regulatory
processes, and the general liabilities of foreignness.
Related to the liabilities of foreignness, we have touched on the issue of economic
nationalism with regard to internationally active multi-unit UCFs. While the
consequences and effects of economic nationalism are highly relevant to UCFs - in
particular due to their national strategic relevance, their sovereign mandate, and the
quasi-monopolistic industry structures - there is little research on the firm-level effects
within organisation theories. Thus, in order to complement the existing research
mainly attributed to political science, the firm-level analysis of the effects of economic
nationalism could generate relevant theoretical insights within institutional economics
and strategic management research. In addition, the results may have important
practical implications for corporate strategists and business developers of UCFs.
The third recommendation in respect of researching UCFs pertains to the subject of
obsolescing bargain, which we briefly touched upon in chapter four. We believe that a
better understanding of governments' incentives to break their long-term commitments
would certainly benefit UCFs in managing their exposure to the public stakeholders.
We therefore suggest an empirical study of the frequency, as well as the consequences
of obsolescing bargain situations for UCFs in their relations with the state.
Considering that the concept of PPP has increased in popularity during the past
decade, and that many countries are only in the beginning of (partly) privatising their

Discussion of Results and Conclusions
state-owned firms, the relevance of such research becomes evident. The findings
would contribute to the identification of suitable contracting and governance
structures, and other effective safeguards. Thus, understanding the triggers of
obsolescing bargain and deriving effective incentive and protection mechanisms
therefore would not only benefit institutional and strategic research, but also improve
managerial means to protect the firm's interests.
Moderators to the relation between location-fixity and institutional exposure. As
mentioned before, the empirical evidence on the moderators between location-fixity
and institutional exposure is either contradictory, as is the case for the firm's
competitive environment, or superficial in the case of the firm's local economic
relevance. On one hand, the clarification of the rivalling explanations on the effect of
competition would generate insights on UCFs' strategic choices to lower their
exposure in a competitive environment. On the other hand, a thorough analysis of
UCFs' relevance within the local economy and how its role affects its institutional
exposure would benefit an understanding of the related processes in local politics and
public administration.
6.8 Final conclusions
By means of this dissertation we have aimed to contribute to a better understanding of
the particular circumstances of utilities and concession-based firms - a category of
firms defined for the purpose - and their opportunities for value creation. Through the
resulting research framework we have underlined a holistic view of the UCF,
combining institutional and strategic perspectives and taking adequate account of the
UCF's context, respectively its local environment. It was our aspiration to not only
contribute to a new lens on infrastructure-heavy industries from a theoretical side, but
to additionally help practitioners in focusing their limited resources for local
embedding in value-creating ways, and to better understand the corporate parent's
value contribution in multi-site settings.
Our key contributions therefore are threefold: Firstly, by analysing the characteristics
and workings of location-fixity, we have drawn attention to the relevance of the spatial
dimension and immobility for the firm's value creation opportunities. From a
theoretical perspective, we thus have conceptualised spatial fixity as an additional
dimension to strategic management's concept of asset specificity. From a practitioner's
point of view, our insights contribute to an increased awareness on the influences of
local dependence with regard to options for future development, and to a better
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350
Discussion of Results and Conclusions
understanding of the firm's local exposure towards its individual stakeholders.
Thereby, the insights on public stakeholders are of particular relevance to the firm's
value creation.
Secondly, the identification of two key dimensions of embedding capabilities, and the
respective sub-categories has relevance to theory and practice. In distinguishing
between economic and social embedding capabilities, we bridge the institutional focus
on relational factors in the firm's context, and the more instrumental view of strategic
management and transaction-cost economics. We thus add to the notion, that socially
responsible firm behaviour incurs costs in the short term, but has a return on
investment in the medium and long term. The conceptualisation of embedding
capabilities contributes to managerial decision-making with regard to the firm's
strategic paths, and with regard to the supporting embedding activities that are needed
to facilitate strategy implementation. Most importantly, by understanding the relevant
dimensions of embedding, managers gain insights on the possibilities to mitigate the
negative effects of local exposure, respectively to leverage the positive ones.
The third key contribution pertains to the resource management of multi-site UCFs.
Since the global expansion of many UCFs raised questions of business logic and value
contribution over the past years, our insights support the view that even for locationfixed
businesses there are distinct possibilities for value creation in multi-site
management. As a consequence, our insights might influence corporate strategists'
recommendations with regard to internationalisation. In addition, through our research
we have identified areas, where corporate parents should offer support and experience
to their location-bound sites, respectively areas which we recommend to be handled
solely through the local management. Finally, the specification of embedding
capabilities and emphasis of their importance might also influence the firm's recruiting
profile for local site managers, thus contributing to an aligned understanding of the
firm's behavioural values and approach to local relationship-building.
Our findings' utility and relevance are enhanced by the fact that we are in the middle
of a global wave of privatisation, which started a quarter of a century ago in the UK
and continues to date in Europe, throughout Asia, and to some extent in the United
States. The involvement of private parties in formerly state-controlled activities is
additionally fostered by a growing need for new infrastructure, and the modernisation
of existing infrastructure in fast developing countries 173 , such as China or India.
173 A recent report from the OECD estimates the spending required to update infrastructure in
developed countries and to develop appropriate infrastructure in emerging economies at USD 53

Discussion of Results and Conclusions
However, privatisation processes are not always smooth, and sometimes significantly
hurt the private investors, as the recent case of Ferrovial's engagement in British
Airport Authorities (BAA) illustrates, where the Competition Commission
recommended the breaking up of BAA's monopoly on London's airports shortly after
the change of ownership. Understanding the characteristics of UCFs and the resulting
exposure towards the local environment therefore may have very practical relevance.
We have shed light in particular on the firm's institutional exposure towards its public
stakeholders, crucial in private investor engagements, the successful setting up of
PPP's, and in the public and private parties' alignment of interests. By acknowledging
the importance of elements of governance, adequate local adaptation to overcome
liabilities of foreignness, and relational aspects in the management of their public
stakeholders, firms are not only better prepared for the strategic management of their
cognitive-cultural and political risks, thus protecting their undertakings, but also to
leverage their resources in value creating ways.
We would like to conclude with an observation by Gil and Beckman (2009: 7f), who
contend that “surprisingly, … infrastructure has still received limited attention from
management studies even if research on the interplay among the regulation, politics,
and economics of infrastructure has a long empirical and analytical tradition”. With
the present dissertation we have taken a step towards filling this gap, providing
managers of UCFs with valuable insights on their business specifics, and hoping to
bring impetus also for future research to follow.
trillion between 2007 and 2030; advising developed nations to invest at least 2.5% of their GDP in
infrastructure (OECD, 2007).
351

352
Appendices
Appendix 1: Overview on case study objects
Appendix 2: List of interview partners
Appendix 3: Interview guideline, example
Appendices

Appendices
Appendix 1: Overview on case study objects
Case: Axpo Group
Industry Energy
Organisation
Form
Founded in 2001
Financial holding; the group comprises Axpo AG, Centralschweizerische Kraftwerke AG (CKW) and
Elektrizitäts-Gesellschaft Laufenburg AG (EGL), as well as Axpo Informatik AG.
Revenue 2008/2009: CHF 7'550m
Employees 2008/2009: 4'100 FTE
Axpo Holding AG
Central-
Elektrizitäts-
Axpo AG schweizerische
Gesellschaft Axpo Informatik AG
Kraftwerke AG Laufenburg AG
Description Axpo trades with electricity, gas and energy-related financial products in all of Europe and supplies 3
million people and thousands of companies in Switzerland with what they need for day-to-day living and to
keep the economy going: energy.
Corporate
Philosophy
The cornerstones of Axpo’s strategy:
- to expand its position as an energy supply company in Switzerland
- to ensure reliability of supply with its own production capacities
- to expand its trading activities in order to improve links to other countries and to make the most of
opportunities on the European market
We have common values.
We communicate openly, actively and honestly. We say what we do and do what we say. Our conduct is
characterised by integrity, personal responsibility, trust, tolerance and respect.
We create added value.
We want our customers and partners to benefit from working with us. This is why we offer innovative
products and services.
We shape our future.
We want to be constantly profitable and create added value for our shareholders. In this way we can ensure
that we have the freedom to act and that we will remain competitive.
We are proud of our employees.
We employ qualified, motivated and performance-driven employees with excellent social and specialist
skills. We offer an attractive working environment that fosters above-average performance. We expect our
managerial staff to set an example to all employees.
We act prudently.
Our conduct towards people and the environment is shaped by responsibility and security awareness.
We are pacesetters.
We identify and exploit new opportunities at an early stage.
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354
Financial
interests
Joint ventures and other equity-consolidated companies - 74; thereof abroad - 15
Fully consolidated companies - 18
Ownership Limited company, wholly owned by the cantons of North-Eastern Switzerland
Axpo's Hydropower Assets
Canton of Zürich 18%
Elektrizitätswerke des Kantons Zürich 18%
Canton of Aargau 14%
AEW ENERGIE AG 14%
St. Gallisch-Appenzellische Kraftwerke AG 13%
Elektrizitätswerk des Kantons Thurgau AG 12%
Canton of Schaffhausen 8%
Canton of Glarus 2%
Canton of Zug 1%
Owned and operated Operated (majority stake) Minority stake
1. Hydraulisches Kraftwerk Beznau
2. Kraftwerk Fätschbach
3. Kraftwerk am Löntsch
4. Kraftwerk Rüchlig
5. Kraftwerk Wildegg-Brugg
6. Kraftwerk Rathausen (CKW)
7. Kraftwerk Emmenweid (CKW)
8. Kraftwerk Sarneraa (CKW)
1. Aarewerke AG
2. Albula-Landwasser Kraftwerke AG
3. Argessa AG
4. Kraftwerk Augst AG
5. Calancasca AG
6. KW Eglisau-Glattfelden AG
7. Elettricità Industriale SA
8. Kraftwerke Frisal AG
9. Kraftwerke Ilanz AG
10. Kraftwerke Linth-Limmern AG
11. Kraftwerke Mattmark AG
12. Kraftwerke Mauvoisin AG
13. Misoxer Kraftwerke AG
14. Rheinkraftwerk Neuhausen AG
15. Axpo Hydro Surselva AG
16. Kraftwerk Reckingen AG
17. Kraftwerke Reichenau AG
18. Elektrizitätswerk Rheinau AG
19. Kraftwerk Rupperswil-Auenstein AG
20. Kraftwerke Sarganserland AG
21. Tecnicama AG
22. Kraftwerke Vorderrhein AG
23. AG Kraftwerk Wägital
24. Calancasca AG (CKW)
25. Engadiner KW AG (CKW)
26. FM Mauvoisin SA (CKW)
27. KW Göschenen AG (CKW)
28. KW Mattmark AG (CKW)
29. KW Wassen AG (CKW)
30. Misoxer KW AG (CKW)
Appendices
1. Blenio Kraftwerke AG
2. Electra-Massa AG
3. Engadiner Kraftwerke AG
4. Grande Dixence SA
5. Kraftwerke Hinterrhein AG
6. Maggia Kraftwerke AG
7. Kraftwerk Ryburg-
Schwörstadt AG
8. Rheinkraftwerk Säckingen
AG
9. Kraftwerk Schaffhausen AG
10. Kraftwerke Zervreila AG

Appendices
Case: Flughafen Zürich AG
Industry Airport operation & maintenance
Organisation
Form
Public limited company, functional organisation
Operations
Marketing &
Real Estate
Board of Directors
CEO
Founded in 2000 as a result of the airport operator's privatisation
Revenue 2009: CHF 820m
Employees 2009: 1'549 FTE
Finance Services
Description As a transport hub Zurich Airport connects Switzerland with destinations all over the world. It is also a
shopping, cultural and services centre. Through its employees' motivation and commitment, as well as their
professional know-how and hospitality, Zurich airport has been able to continuously strengthen its good
reputation and to become one of the best-in-class airports worldwide.
Corporate
Philosophy
Other decisive factors for the sustainable development of Zurich Airport are the consistent implementation
of measures to protect the environment, and the active integration of business partners, local residents and all
relevant authorities into the activities of the airport.
It operator, Flughafen Zuerich AG, has been awarded a concession by the Swiss Federation to operate Zurich
Airport until 2051.
Management Principles
- we behave in the way we expect our employees to behave
- we focus on the company’s objectives and orient our employees’ goals on them
- we communicate openly, appropriately and punctually
- we permit critical questions about existing and planned activities
- we create a credible environment of mutual trust for employees and team members
- we challenge and support employees, help them to learn from mistakes, and reward good performance
- we clearly communicate expectations (goals, priorities, quality, responsibility)
- we communicate decisions clearly and comprehensibly, abide by them and put them into action
consistently
- we delegate responsibility wherever possible, but always together with the necessary competencies and
required information
Mission Statement
We perceive it as our duty to strengthen Switzerland as a business centre, as a country with a rich tradition of
culture, know-how and sport, and as an attractive tourist destination, by operating a well-developed and
efficient gateway to the world.
As a lively and inter-cultural commercial centre we provide innovative services of national and international
appeal in line with the broad-ranging needs of our clients.
We make the best possible use of our know-how in Switzerland and abroad by developing and implementing
projects aimed at enhancing economic performance and efficiency.
We distinguish ourselves from our competitors by consistently implementing positive Swiss values – i.e.
“Swissness”.
355

356
Financial
interests
Appendices
We focus on consumers (passengers and visitors to the airport). We take note of their expectations, their
behaviour and their profiles, as well as their assessment of the quality of services at Zurich Airport, and
incorporate our findings into our decision-making processes. We are always friendly and helpful towards our
clients. We set out to ensure that consumers perceive Zurich Airport as open, reliable, safe, convenient and
welcoming, but also as diverse, innovative, forward-looking, unique and trendsetting.
Bangalore International Airport Ltd. (BIAL) 5.0%
A-port S.A. (Brazil) 15.0%
A-port Operaciones S.A. (Chile) 32.6%
Ownership Publicly traded company with two major public shareholders (31.12.2009):
Canton of Zurich 33.3%
City of Zurich 5.0 %

Appendices
Case: Holcim
Industry Cement and Building Materials
Organisation
Form
Founded in 1912
Revenue
Financial holding
Executive
Committee
Regional Line
Responsibility
Functional
Responsibility
2009: CHF 21'132 m
2008: CHF 25'157 m
Employees 2009: 81'500 FTE
Audit Committee
Internal Audit
A
Board of Directors Holcim Ltd.
CEO
357
Governance, Nomination &
Compensation Committee
B C …
Region a Region b Region c …
X Y Z …
Description Holcim is one of the leading suppliers of cement and aggregates (crushed stone, sand and gravel) as well as
ready-mix concrete and asphalt, and related services.
Corporate
Philosophy
Vision
Our vision is to provide foundations for society’s future.
We have evolved from a single company acquiring interests in local companies around the world into a
leading global group that can meet the challenges of an increasingly competitive global marketplace. Our
central strategies and standards empower Group companies, while enabling their autonomy and leveraging
their local strengths to the benefit of all.
We are trusted partners to the communities in which we live and work. We provide enduring value and
constancy through the jobs we create, our active social involvement in each local community, and our
stewardship of the environment and sustainable resources for future generations. We provide foundations for
people’s growth through our commitment to developing the full potential of our employees and partners.
Mission Statement
Our mission is to be the world’s most respected and attractive company in our industry – creating value for all
our stakeholders.
We are a worldwide supplier of cementitious materials and related services to the construction markets. We
strive to leverage our shared experience and knowledge throughout our global network, actively applying this
excellence to where it has the greatest benefit – in the markets and communities in which we operate.
We regard our stakeholders, especially our customers, distributors and suppliers within the construction
industry, as partners and endeavor to integrate them in our decision-making process – working collaboratively
to develop innovative professional solutions

358
Financial
interests
Our goals are to:
- Continually set the highest standards of customer satisfaction in our industry
- Secure the strongest competitive position in our markets
- Partner with suppliers to deliver value-for-cost procurement for the Group and our customers
- Be recognized as an employer of first choice
- Empower our employees and integrate them fully into our global network
- Selectively grow our worldwide presence of companies
- Demonstrate our commitment to sustainable development
- Be acknowledged as a valued and trusted partner in our community
- Be the most recommended stock in our industry
Principal joint ventures / equity-consolidated companies - 57 worldwide (2009)
Ownership Publicly traded company with three major shareholders (31.12.2009):
Thomas Schmidheiny 18.2 %
Capital Group Companies Inc. 5.0 %
Eurocement Holding AG 6.5 %
Free Float (as defined by the SIX Swiss Exchange) 82.0 %
Appendices

Appendices
Appendix 2: List of interview partners
359

360
Appendix 3: Interview guideline, example
Appendices
Interview mit
Christian Lindner, Leiter Primäranlagen & Bau und
Martin Everts, Leiter Business Development Axpo AG
Einführung
Dieses Interview ist Teil einer Case Study zu Ihrem Unternehmen, welche im Rahmen eines
Dissertationsprojektes an der Universität St. Gallen durchgeführt wird.
Das Forschungsthema beschäftigt sich mit Standortgebundenheit von Unternehmen, ein Umstand der
in hohem Masse auch auf die Energiebranche zutrifft. Standortgebunden ist ein Unternehmen dann,
wenn zum einen die eingesetzten Ressourcen standortgebunden sind, aber auch wenn das
Unternehmen durch die vielfältigen Beziehungen zu seinem Umfeld lokal eingebettet und somit
immobil ist. Beispiele dafür sind die Verbindung mit kritischen Zulieferern oder Kunden vor Ort,
regulatorische und politische Vernetzung, sowie die Einbettung in die lokale Gemeinschaft.
Im Rahmen des Forschungsprojektes soll untersucht werden,
- was Standortgebundenheit ausmacht,
- inwiefern Standortgebundenheit die Zusammenarbeit zwischen mehreren Standorten beeinflusst,
und
- unter welchen Bedingungen diese einschränkend wirkt oder vorteilhaft genutzt werden kann.
Aus den Ergebnissen werden Handlungsempfehlungen für die Praxis erarbeitet, die helfen sollen,
gezielter mit den Konsequenzen der Standortgebundenheit umzugehen, und deren Eigenschaften im
Hinblick auf Wertgenerierung (value creation) und Realisierung von Synergien zu nutzen.
Mit Hilfe dieses Interviews sollen Erkenntnisse über die Erfahrungen in Ihrem Tätigkeitsbereich
gewonnen werden, um den Sachverhalt und die Wirkungszusammenhänge der Standortgebundenheit
für die Energiebranche transparenter zu machen.

Appendices
TEIL I: Unternehmensstruktur und Ihre Rolle im Unternehmen
Abläufe im Unternehmen werden über die Struktur (Aufbauorganisation), Prozessregelungen
(Ablauforganisation) und Selbstorganisation (informelle Organisation) definiert. In diesem ersten
Interview-Teil stehen die Aufbauorganisation Ihres Unternehmens im Vordergrund, sowie die
Beziehung des Hauptsitzes mit den Tochterunternehmen oder Beteiligungen.
1. Bitte beschreiben Sie kurz die Struktur Ihres Unternehmens (Organigramms, Standorte).
2. Welche Funktion und Rolle nehmen Sie im Unternehmen ein (Positionsbezeichnung, evt. mit
Kommentar / Anmerkungen)?
3. Bitte beschreiben Sie grob die Zusammenarbeit zwischen Axpo AG und der Axpo Holding.
Welche Rolle nimmt die Holding ein bezüglich der verschiedenen Beteiligungen?
TEIL II: Standortgebundenheit, Branchenspezifika und Zusammenarbeit zwischen den
Standorten
Der Begriff Standortgebundenheit kann aus verschiedenen Perspektiven betrachtet werden. Im
Forschungskontext dieses Projektes wird Standortgebundenheit unter folgenden drei Dimensionen
beleuchtet:
- Ressourcenaspekt: Bindung an kritische Ressourcen, welche an diesem bestimmten Standort
verfügbar sind und nicht oder nur unter hohen Kosten verlegt werden können
- Beziehungs- und Einbettungsaspekt: Bindung an bestimmte Akteure - Unternehmen, Politiker,
Regulator, lokale Gemeinschaft - welche kritisch für das Verfolgen des Unternehmenszwecks sind
- Regulatorischer Aspekt: regulatorisches Regelwerk und strukturelle Faktoren, innert welchen
sich das Unternehmen zu bewegen gelernt hat und unter welchen es sich legitimiert
4. Was bedeutet Standortgebundenheit für Ihr Unternehmen auf den drei erwähnten Dimensionen?
Was charakterisiert sie und woraus ergibt sie sich?
5. Wo sind die markantesten Unterschiede im Vergleich zu einem herkömmlichen
Produktionsbetrieb? Sehen Sie diese Unterschiede als Vorteil, als Nachteil?
6. Inwiefern beeinflusst Standortgebundenheit die Zusammenarbeit zwischen Ihren Standorten?
Wirkt sie sich auf Kosten, Umsatzpotentiale oder andere Möglichkeiten zur Wertgenerierung
Ihres Unternehmens aus?
7. Bitte beschreiben Sie einige Beispiele für Zusammenarbeit zwischen Ihrem Unternehmen und
den Beteiligungen, bzw. zwischen den verschiedenen Standorten.
- gibt es Unterschiede?
- gute Beispiele?
- schlechte Beispiele?
361

362
Appendices
8. Tauscht Ihr Unternehmen physische oder immaterielle Ressourcen (intangible resources) aus?
Inwiefern spielen Wissen und Fähigkeiten eine Rolle in der Zusammenarbeit zwischen den
Standorten?
TEIL III: Ressourcenaspekt der Standortgebundenheit
Ressourcen sollen in diesem Kontext als greifbare Ressourcen (tangibles), aber auch als Kompetenzen
und Fähigkeiten (intangibles) verstanden werden. Für das Unternehmen kritische Ressourcen können
definiert werden als "firm-specific assets that are difficult if not impossible to imitate; examples are
trade secrets and certain specialized production facilities and engineering experience" [Teece, D. J.,
Pisano, G., & Shuen, A. (1997)].
9. Welches sind aus Ihrer Sicht die erfolgskritischen Ressourcen (tangible / intangible) der Axpo
AG?
- in Bezug auf einzelne Standorte / Grossprojekte und deren Management
- als Gesamtunternehmen im Management mehrerer Standorte
10. Welche Aspekte stehen bei Axpo bezüglich dem Management mehrerer Standorte im
Vordergrund? 174 Gibt es Beispiele für die Nutzung von Synergien?
� Bitte um Angabe der Wichtigkeit der einzelnen Aspekte
0 … keine, 1 … gering, 2 … mittel, 3 … hoch, - … keine Angabe
- Operative Synergien:
Leistungsvorteile von Unternehmen aus vorteilhaftem Einsatz ihrer operativen Ressourcen über das
Gesamtgeschäft
__ Economies of Scope (Verbundvorteile)
__ Steigerung der Produktivität, Reduktion von Ineffizienzen
__ Austausch von Best Practices
__ Wachstumssynergien (z.B. neue Produkte durch kombinierte Ressourcen)
__ ____________________________________________________
- Marktmacht-Synergien:
Leistungsvorteile von Unternehmen aus vorteilhaftem Einsatz ihrer Verhandlungsressourcen über das
Gesamtgeschäft
__ Preisgestaltung
__ Bundling, Bündelung von Leistungen
__ Gegenseitige Absatzbeziehungen
__ Konsolidierungsdruck aus Branchenentwicklung
__ ____________________________________________________
174 Kategorisierung auf Basis von Knoll (2008).

Appendices
- Finanzielle Synergien (Financial Engineering):
Leistungsvorteile von Unternehmen aus vorteilhaftem Einsatz ihrer finanziellen Möglichkeiten über das
Gesamtgeschäft
__ Optimierung der Kapitalstruktur (interner Kapitalmarkt)
__ Reduktion der Gesamtsteuerlast
__ Finanzielle Skalenerträge
(Transaktions-/Emissionskosten von Fremd-/Eigenkapital)
__ Reduktion des Unternehmensrisikos
__ ____________________________________________________
- Corporate Management Synergien
Leistungsvorteile von Unternehmen aus vorteilhaftem Einsatz ihrer Management-Ressourcen über das
Gesamtgeschäft
__ Unternehmerische Fähigkeiten
__ Fähigkeiten im Organisationsdesign
__ Strategische Fähigkeiten
__ ____________________________________________________
TEIL IV: Beziehungs- und Einbettungsaspekt der Standortgebundenheit - Interaktionsebene
Es liegt in der Natur von Unternehmen, dass sie mit ihrem Umfeld in Interaktion sind, um ihre
Funktionalität zu erhalten. Beziehungen bestehen beispielsweise durch den lokalen Arbeitsmarkt,
Lieferantennetzwerke, oder Absatzmärkte. Diese Einbettung in das lokale Umfeld (local
embeddedness) kann auch umschrieben werden als "the way in which organisations or actors become
tied in to the local business and institutional environment" [Alderman (2004)]. Der folgende
Gesprächsabschnitt konzentriert sich auf die Umfeld-Beziehungen von Axpo AG, und in welcher
Weise diese erfolgsrelevant sind.
11. Was bedeutet 'local embeddedness' für Ihre Branche, Ihr Unternehmen, das Management der
Standorte?
12. Welche Rolle spielen in Ihrer Branche die Stakeholder rund um einen Standort für dessen
Wertschöpfung? Welches sind die relevanten Stakeholder?
13. Wie wichtig ist es in Ihren Projekten, dass ein Teil der Wertschöpfung des Unternehmens vor Ort
bleibt?
14. Bitte beschreiben Sie einige Beispiele für die Zusammenarbeit zwischen einem Standort und den
relevanten Stakeholdern? Gibt es Unterschiede? Gute und weniger erfolgreiche Beispiele?
Standortgebundenheit bedingt meistens auch eine Komponente der gegenseitigen Abhängigkeit
zwischen Unternehmen und Region. Die folgenden Fragen sollen ausloten, mit welchen
Möglichkeiten die Region Standortabhängigkeit für Unternehmen attraktiv(er) machen kann.
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364
Appendices
15. Welche Erfahrungen haben Sie an den verschiedenen Standorten in der Zusammenarbeit mit
regionalen Administrationen gemacht? In welchen Rollen sehen sich die lokalen Volksvertreter
hauptsächlich?
16. Hat sich die Zusammenarbeit zwischen (Tochter-)Unternehmen und den Regionen, in denen Sie
Standorte haben über die Jahre verändert?
17. Was könnte eine Region aus Ihrer Sicht unternehmen, um die Standortattraktivität für den
jeweiligen Standort zu erhöhen und somit die Vorteile von Standortgebundenheit und
Verankerung zu erhöhen?
18. Inwiefern könnte die Region dazu beitragen, die Risk Bearing Capacity des Standorts zu erhöhen
(ein Beispiel wäre die Sicherung der Ressourcen-Verfügbarkeit über Zeit, also z.B. bei einem
Holzkraftwerk die lokale Verfügbarkeit von Holz, oder bei einem Flughafen die Betriebszeiten /
Lande- und Startkapazität)?
19. Was wäre Ihre Vision der idealen lokalen Zusammenarbeit? Welche Plattformen / Strukturen
bräuchte es dafür?
TEIL V: Regulatorischer Aspekt - strukturelle Ebene
In den meisten Branchen mit hoher Standortgebundenheit spielt das regulatorische Umfeld eine
bedeutende Rolle. Regulatorische Aspekte sind beispielsweise gesetzliche Verpflichtungen, Auflagen,
Einschränkungen bez. Wettbewerb, Preisgestaltung, Konzessionen und Property Rights, etc.
20. Wie signifikant schätzen Sie die regulatorischen Aspekte für Ihre Branche ein?
21. Ist der regulatorische Rahmen insgesamt eher einengend oder bietet er auch Chancen? Was sind
die negativen Auswirkungen und welches die Vorteile?
22. Stufen Sie Ihr Unternehmen als pro-aktiv oder reaktiv ein, mit Bezug auf regulatorische Themen?
23. Bitte beschreiben Sie die Rolle des Regulators in der Interaktion mit Ihrem Unternehmen. Wie
nimmt Ihr Unternehmen den Regulator wahr?
24. Welche Beziehung pflegt Ihr Unternehmen zum Regulator? Wie ist der Zugang zum Regulator
organisatorisch geregelt?

Appendices
TEIL VI: Mini-Cases
Auf der Basis der vorangehenden Fragen soll in diesem Gesprächsteil je ein erfolgreiches (z.B. Linth-
Limmern) und ein weniger erfolgreiches Projekt gegenübergestellt werden, wo Axpo AG ihre
Interessen unter Berücksichtigung der lokalen Stakeholder verfolgt.
25. Grosse Infrastruktur-Projekte in Ihrer Branche haben zumeist eine hohe Öffentlichkeitswirkung,
sowie eine stark politische Komponente. Könnten Sie kurz beschreiben, wie die Axpo Holding,
respektive die Axpo AG in der Beziehungspflege mit den relevanten Akteuren vorgeht?
26. Linthal 2015 ist ein Projekt mit grossen Auswirkungen auf die Natur und die Region. Die
Projekteignerin KLL ist ein Partnerunternehmen des Kantons Glarus (15% Aktienanteil) und der
Axpo AG (85% Aktienanteil). Ihr Sitz ist vor Ort in Linthal. Welche Aspekte sind aus Ihrer Sicht
entscheidend gewesen, dass dieses Projekt mit der Unterstützung der Bevölkerung und
verschiedenster Stakeholder realisiert werden kann?
27. Welche Rolle spielt die Präsenz vor Ort durch den Firmensitz der KLL in Tierfehd, Linthal?
28. Welche Rolle spielt die Region Linthal und der Kanton Glarus im Projekt? Nimmt die Region
eine aktive Rolle ein, um die Standortgebundenheit des Projekts für Axpo AG/KKL attraktiv(er)
zu machen?
29. Gibt es ein weniger erfolgreiches Projekt, das Sie gut kennen? Was unterscheidet dieses Projekt
Ihrer Ansicht nach am meisten vom Vorzeigeprojekt Linth-Limmern?
30. Welche Punkte waren aus heutiger Sicht massgebend für die negative Entwicklung? Welches
waren Ihrer Ansicht nach die entscheidenden Meilensteine?
Wir kommen zum Schluss des Interviews.
Gibt es etwas, was Sie gerne ergänzen möchten? Anmerkungen, Kommentare, oder Stichworte, die im
bisherigen Gespräch nicht vorgekommen oder zu kurz gekommen sind?
365

366
Begrifflichkeitsklärungen
Appendices
Ressourcen Greifbare Ressourcen (tangibles) und Kompetenzen / Fähigkeiten
(intangibles) eines Unternehmens.
Risk bearing ability
(Risikotragfähigkeit)
Kritische Ressourcen können definiert werden als "firm-specific assets that
are difficult if not impossible to imitate; examples are trade secrets and
certain specialized production facilities and engineering experience" [Quelle:
Teece, D. J., Pisano, G., & Shuen, A. (1997). Dynamic Capabilities and
Strategic Management. Strategic Management Journal, 18(7), 509-533.]
The sum of net income retained by the institution over time plus freely usable
paid-in capital contributed by its shareholders minus special reserves divided
by the sum of its risk assets
Synergien Der gemeinsame Ertrag des Ganzen ist grösser als der Ertrag der Summe
seiner Teile
Corporate Management Synergien Leistungsvorteile von Unternehmen aus vorteilhaftem Einsatz ihrer
Management-Ressourcen über das Gesamtgeschäft
Cross-Business Synergien Der Wert, welcher über Zeit durch die Summe der Unternehmensteile
geschaffen und erhalten (captured) wird, im Vergleich zum Wert dieser Teile
als separate Einheiten
Finanzielle Synergien Leistungsvorteile von Unternehmen aus vorteilhaftem Einsatz ihrer
finanziellen Möglichkeiten über das Gesamtgeschäft
Marktmacht-Synergien Leistungsvorteile von Unternehmen aus vorteilhaftem Einsatz ihrer
Verhandlungsressourcen über das Gesamtgeschäft
Operative Synergien Leistungsvorteile von Unternehmen aus vorteilhaftem Einsatz ihrer
operativen Ressourcen über das Gesamtgeschäft
Standortgebundenheit
(Location-fixity)
Immobilität der eingesetzten Ressourcen, sowie starke lokale Einbettung des
Unternehmens durch vielfältige Umfeld-Beziehungen.
Beispiele dafür sind die Verbindung mit kritischen Zulieferern oder Kunden
vor Ort, regulatorische und politische Vernetzung, sowie die Einbettung in
die lokale Gemeinschaft.

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Curriculum Vitae Annette Karoline Ulmer
Date and place of birth
February 6, 1976 in St. Gallen, Switzerland
Education
Curriculum Vitae
2006 – 2010 University of St. Gallen (CH), Institute for Systemic
Management and Public Governance, doctoral thesis at the
chair of Prof. Dr. Thomas Bieger
1995-2000 University of St. Gallen (CH), undergraduate and graduate
studies of business administration; exchange semesters at
the University of Geneva (HEC; CH) and University of
Western Ontario (CA)
1988-1995 High School, Bundesgymnasium Dornbirn (AT)
Work experience
2010 – today Flughafen Zürich AG, Vice President International
Business Development
2005 – 2009 Flughafen Zürich AG, Senior Project Manager, various
functions in international business development
2003 – 2005 Lindt & Spruengli (Switzerland), Key Account Manager;
and Lindt & Spruengli (North East), Brand Manager
2001 – 2002 Swiss Air Lines, Project Manager
2000 – 2001 Swissair, Management Traineeship