The Unequal Influence of Structure and Strategy on European Manufacturing Firm Performance

Purpose – To analyse the contribution of firm structure (size, clustering and foreign ownership) and strategy (subsector specialization) to the financial performance Return On Assets [ROA] of almost 10,000 European textile-clothing firms. Methodology/approach – A panel regression analysis is conducted for five European countries that are representative of a Southern European model of clustered Small and Medium Enterprises (SMEs) specialized in low-value-added products (Spain, Italy and Portugal) and of a Northern European model of large vertically integrated firms specialized in high-value-added products (France and Germany) in 2002–2009. Findings – The Northern European model has generated better financial performance than the Southern European model due to the joint role of its structure (large size) and strategy (specialization). Nevertheless, we find a positive effect of clustering in the Southern European model. Research limitations – Clusters were defined at the NUTS II level instead of the NUTS III level. The coefficient of specialization was calculated for the pre-liberalization average. Practical implications – Explaining the different levels of competitiveness shown by the same territorial organizational model in an industry. Originality/value of the chapter – Work that has studied the behaviour of the firms within this territory-industry relationship is still scarce. Given that the viability of clusters and of European manufacturing have been put into question, our work evidences that the efficacy of the decisions related to the firm's structure and strategy needs to be tested jointly so that the way in which the firm addresses environmental changes can be appraised.