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The Spatial Configuration of the Firm and the Management of Sunk Costs

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  • Gordon L. Clark
  • Neil Wrigley

Abstract

In this paper we explain why the modern corporation may persist with a decentralized system of plants differentiated by the vintage of capital and the style of management. Our goal is to show how and why firms are, at once, structured by the inherited configuration of capital and also reproduce differentiation within and outside the corporation. To do so, we use concepts and principles drawn from modern financial theory to show that a spatially differentiated configuration of production may have advantages for the firm in terms of the risk-adjusted flow of revenue, strategic options in relation to actual and potential competitors, and the management of sunk costs. Our argument focuses on the modern corporation, characterized by a separation between ownership and control as well as a dependence upon internal stakeholders for the realization of planned revenue and output targets. We argue that our framework can help theorists account for the persistence of interfirm and interindustry differences in capital profiles, despite a common presumption in favor of convergence around a simple, efficient industry standard. While the paper is an exercise in theory, it is based upon our previously published studies of corporate restructuring in manufacturing and retail industries in the United States and the United Kingdom.

Suggested Citation

  • Gordon L. Clark & Neil Wrigley, 1997. "The Spatial Configuration of the Firm and the Management of Sunk Costs," Economic Geography, Taylor & Francis Journals, vol. 73(3), pages 285-304, July.
    • Handle: RePEc:taf:recgxx:v:73:y:1997:i:3:p:285-304
    DOI: 10.1111/j.1944-8287.1997.tb00090.x
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    Cited by:

    1. Richard Perkins & Eric Neumayer, 2004. "The international diffusion of new technologies: a multi-technology analysis of latecomer advantage and global economic integration," Development and Comp Systems 0407001, University Library of Munich, Germany, revised 08 Dec 2004.
    2. Bjørnar Sæther, 2000. "Continuity and convergence: reduction of water pollution in the Norwegian paper industry," Business Strategy and the Environment, Wiley Blackwell, vol. 9(6), pages 390-400, November.
    3. Erik Stam, 2007. "Why Butterflies Don’t Leave: Locational Behavior of Entrepreneurial Firms," Economic Geography, Taylor & Francis Journals, vol. 83(1), pages 27-50, January.
    4. Cédric Durand, 2007. "Pourquoi les distributeurs échouent ou réussissent à l'étranger ?," CEPN Working Papers hal-00165653, HAL.
    5. Vasilios Kanellopoulos & Georgios Fotopoulos, 2019. "The effect of knowledge spillovers on regional new firm formation: The Greek manufacturing case," Environment and Planning A, , vol. 51(4), pages 1005-1030, June.
    6. Mark Palmer & Martin Owens & Leigh Sparks, 2006. "Interdisciplinary (Retail) Research: The Business of Geography and the Geography of Business," Environment and Planning A, , vol. 38(10), pages 1775-1783, October.
    7. Bento, Nuno & Fontes, Margarida, 2016. "The capacity for adopting energy innovations in Portugal: Historical evidence and perspectives for the future," Technological Forecasting and Social Change, Elsevier, vol. 113(PB), pages 308-318.
    8. Bathelt Harald & Zakrzewski Guido, 2007. "Messeveranstaltungen als fokale Schnittstellen der globalen Ökonomie," ZFW – Advances in Economic Geography, De Gruyter, vol. 51(1), pages 14-30, October.
    9. Robert B Penfold, 2002. "Risk, Activity Modularization, Sourcing, and Economic Geography," Environment and Planning A, , vol. 34(8), pages 1333-1353, August.

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