Assessing the Resource Base of US and Japanese Auto Producers: A Stochastic Frontier Production Function Approach

The “resource-based view of the firm” has become an important conceptual framework in strategic management but has been widely criticized for lack of an empirical base. To address this deficit, we use the econometric methodology of stochastic frontier production functions to assess sources of inter-firm differences in efficiency. Using data on Japanese and US automobile manufacturers, we develop measures of resources and capabilities and test for linkages with firm performance. The results show the influence of manufacturing proficiency (as indicated by the level of WIP inventory) and scale economies at the plant and firm level. We apply the parameter estimates to account for Toyota’s superior efficiency relative to General Motors and other producers. ______________________________________________________________________________________ *We thank Chris Knittel, two anonymous referees, and seminar participants at Stanford, INSEAD, University of Texas at Austin, and the UCLA Innovation Workshop for insightful comments. Tatsuo Ushijima aided in collecting the Japanese data.