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5. Empirical Results

5.1 Prevalent patterns and antecedents of price and quality competition among Swiss firms

5.1.1 Combination patterns and interrelationships between price and quality competition: substitution, complementarity or mutual independence?

Given the highly divergent adaptation and coping strategies related to price and quality competition, it might be expected that firms are hardly able to persist in environments were both of them are on a very high level, and that for reasons of organizational consistency, they are eager to search niches where one of the two challenges is insignificant or absent.

On the other hand, it is evident that many recent developments in the world economy have the effect that more and more firms have to become (or remain) highly competitive simultaneously on both dimensions. For example, many export-oriented industrial firms face the challenge of having to offer highest quality goods and to compete harshly with low-price competitors (e. g. from emerging countries) at the same time, and current reorganization models (focusing on “lean production” or “total quality management”) are designed to ease incompatibilities between enhancing product quality and diminishing costs.

By crossing the two frequency distributions, it becomes evident that Swiss firms spread so widely on the nine-cell table that no expected negative relationships can be seen. In fact, the correlation between price and quality competition is insignificant in the industrial sector (Table 5.1) and even slightly positive in the service branches (where almost 12% experience highest pressures from both sides) (Table 5.2).

About 75% percent of all industrial businesses face markets where both quality and price competition are at least on a medium level, while less than one percent operate in an environment where both pressures are rather low.

In the service sector, significantly more businesses report low competition. Most of them offer their service on rather narrow domestic markets where they often enjoy local monopolies or the protection of cartel prices.

Table 5.1: Percentages of firms with different combinations of price and quality competition: firms in the industrial Sector (N=459)

Price competition	Quality Competition			Total
	low	medium	high
low	0.7	3.7	0.7	4.8%
medium	9.6	29.0	5.9	44.4%
High	10.2	31.2	9.4	50.8%
Total	20.5%	63.6%	15.9%	100%

	Value	df	Sign (2-tailed)
Pearson Chi-Square	3.121	4	.538

Table 5.2: Percentages of firms with different combinations of price and quality competition: firms in the Service Sector (N=308)

Price competition	Quality Competition			Total
	low	medium	high
low	4.2	6.8	2.3	13.3%
medium	10.7	28.6	7.1	46.4%
High	5.2	23.4	11.7	40.3%
Total	20.1%	58.8%	21.1%	100%

	Value	df	Sign (2-tailed)
Pearson Chi-Square	13.384	4	.01

5.1.2 Firm size and firm age as concomitants of competitive intensity

Given that intensive price competition is mainly found in mature branches and under consolidated market conditions, it could be expected that highest levels are reached by well established older and larger firms: businesses dedicated to the traditional paradigm of Fordist mass production. On the other hand, maximum quality competition should be typical for recently founded firms, particularly smaller enterprises still in their stages of initial growth.

Some of these hypotheses are well borne out by Table 5.3 which shows highest degrees of price competition for larger firms operating at least since 1983 and middle-sized businesses founded 1955 or before; and highest levels of quality competition for the youngest firm cohort (founded after 1983) with less than 30 employees.

On the other hand, it is less easy to explain why lowest price competition is prevalent among the oldest small firms on the one hand and among the most recent large firms on the other. Referring to the first of these two samples, we might follow the “social Darwinist” hypothesis that smaller firms are unlikely to survive for long when competition is very high, because they face too many challenges which they cannot effectively master because of their scarce resources. In other words: very old small firms are likely to belong to a “fortunate” category of rather protected enterprises which have evaded competition by specializing on uncontested smaller niches (e. g. firms enjoying local monopolies or secure long-term supply contracts with larger firms). In fact, these same firms also show rather low levels of quality competition.

Symmetrically, large firms of recent origin may also be likely to profit from rather uncompetitive market conditions, because otherwise, they would not have been able to grow as rapidly as they did. In fact, their fortunate position is additionally highlighted by their low values of quality competition (a condition even more pronounced among larger enterprises founded between 1956 and 1983).

Table 5.3: Intensity of Competition*: comparing firms of different size and age
 

Period of foundation		Price competition			Quality competition
		Firm size			Firm size
	(N=)	< 30 empl.	31-200 empl.	> 200 empl.	< 30 empl.	31-200 empl.	> 200 empl.
-1900	(114)	3.68	4.33	4.30	3.12	3.32	3.35
1901-30	(142)	3.80	4.28	4.44	3.20	3.30	3.52
1931-55	(177)	3.88	4.39	4.32	3.32	3.42	3.42
1956-71	(182)	4.11	4.14	4.61	3.41	3.55	3.08
1972-83	(141)	4.00	4.18	4.44	3.33	3.27	2.89
1984-96	(111)	3.74	4.00	3.40	3.59	3.27	3.20

* Average values on a scale from 1 (very low competition) to 5 (maximum competition).

With the exception of the youngest firm cohort, the intensity of price competition increases significantly with firm size among all categories of age (table 5.3). Thus, it is evidently not true that larger Swiss firms enjoy more competitive protections (e. g, related to their highly consolidated market reputation, their monopoly power or their higher degrees of institutional embedments). This result may mirror the general regularity that most sizable Swiss firms have to compete internationally because their production is to voluminous for the small domestic market. Additionally, it may also explain why size and quality competition are also positively related among older enterprises. Instead, new firms show the expected negative correlations typical for dynamic new product lines and expanding, yet unconsolidated customer markets (Table 5.4).

Table 5.4 : Correlations between firm size and intensity of quality competition: comparing older and younger firms.
 

5.1.3 Is price competition affecting organizational growth or decline?

Given the rather high competitiveness of Swiss firms (also on international markets), we don’t expect that high levels price competition generally causes them to stagnate or falter. Nevertheless, the assumption remains reasonable that high challenges on the price front may result in shrinking nominal sales: because even when constant volumes are marketed, they will generate less revenue when they have to be sold at sinking prices.

As the crosstabulations of Table 5.5 show, the expected negative correlations between price competition and firm expansion are limited to the tertiary sector. Here, the share of expanding businesses reaches maximum (and the rate of shrinking as well as stagnating firms lowest) levels when price competition is weak or inexistent, while exactly the reverse conditions hold when intensive price pressures prevail.

Table 5.5: Level of price competition and development of earnings: firms in the Industrial and in the Service Sector
 

Development of earnings (1995-97)	Industrial firms			Service firms
	Price Competition			Price Competition
	low	medium	high	low	medium	high
Decrease	47	25	35	20	32	43
Stagnation	21	26	28	31	25	21
Increase	32	49	37	49	43	37
Total ( N = )	100 (91)	100 (111)	100 (206)	100 (90)	100  (79)	100 (112)
Pearson Chi-Square	Value	df	Sign.	Value	df	Sign.
	6.94	4	.139	12.068	4	.017

In the industrial sector however, a slight relationship in the opposite direction can be seen. In particular, firms with decreasing earnings are most frequently found in markets where price competition is low, and expanding businesses are most often found when medium competition prevails. Thus, industrial firms seem to behave like certain individuals who have to be challenged by certain medium environmental pressures in order to be driven to high performances, while they become lazy and unproductive when no such pressures exist, or when pressures are so overwhelming that no resources for effective coping strategies are left.

This productive “stimulation effect” stemming from medium price competition levels becomes most pronounced in the sample of larger firms which are significantly less likely to shrink when middle (instead of high or low) levels price competition prevails. Instead, smaller enterprises are more likely to contract when price challenges are high and to expand when they are low (Table 5.6). This conforms well to the hypothesis that smaller firms are less able to cope actively with environmental challenges because they have less “slack resources” at hand.

Table 5.6: Level of price competition and development of earnings: smaller and larger firms in the industrial and in the Service Sector

In the preceding introductory chapter, it has been argued on theoretical grounds that price competition and quality competition demand highly contradictory measures for successful adaptation, so that at least some firms may be quite unable to expand successfully when both of them are intensive (see 3.5)

Thus, while price competition for itself has evidently no considerable impact on organizational development, we may still argue that growth opportunities are hampered when high price and quality competition are simultaneously present.

In fact, the percentage of unsuccessful (=shrinking) firms reaches a maximum (40%) when the intensities of both price and quality competition are high, and a minimum (18%) when both of them are low (Table 5.7).

On the other hand, maximum percentages of expanding firms are found in niches where high quality competition and low price competition are combined (Table 5.8). Evidently, many Swiss firms get stimulated to high performances when they are challenged to produce high-quality goods - but only when they don’t face heavy restrictions to minimize current costs. Symmetrically, absence of quality competition may work as a disincentive: making them less fit for survival and growth when they face intense competition on the level of costs and prices.

Table 5.7: Percentage of firms with shrinking sales (1995-97) under different combinations of price and quality competition (1995)
 

Price competition	Quality Competition
	low	medium	high
low	18%	33%	27%
medium	37%	24%	21%
High	36%	35%	40%

Table 5.8: Percentage of firms with expanding sales (1995-97) under different combinations of price and quality competition (1995)
 

Price competition	Quality Competition
	low	medium	high
low	46%	27%	54%
medium	46%	46%	50%
High	29%	42%	32%

5.2 Competitive intensity and staff qualifications

5.2.1 The general impact of price and quality competition on the qualificational composition of staff

For three reasons, it is to be expected that the current as well as the envisaged composition of firm staff (in terms of different skill levels) covaries with the degree of price and quality competition to which a company has recently been exposed.

First, competitive environmental relations have a direct impact on the problems and role duties with which many members are confronted. Thus, advanced technical qualifications may be needed for reaching and maintaining high quality levels of products and services; sophisticated social skills are indispensable for persuading customers who can choose among many other attractive offers; and creative management performances are necessary in order to outperform competitors in timely innovations and marketing endeavors.

Secondly, competitiveness has an indirect impact on staff roles by determining the form of organizational structures and processes a firm has to adopt in order to cope effectively with environmental challenges. Thus, intensive price competition may engender deskilling because companies are induced to apply “Fordist” production methods relying on highly specialized and undemanding Taylorist roles. And vice versa, intensive quality competition may catalyze the adoption of “lean production” and “total quality” methods: with the effect that almost all employees have to possess rather sophisticated skills.

And thirdly, additional statistical covariances may be caused by the fact that competitiveness is a correlate of a more complex pattern of interdependent forces and conditions. As hypothesized above, high price competition can be a concomitant of a “mature” market structure which engenders a low need for innovations because products are not changing in quality or functionality anymore. And symmetrically, intensive quality competition is often embedded in dynamic phases of product development and rapidly changing market structures which will induce high needs for sophisticated personnel even if competition is weak or inexistent.

Table 5.9: Mix of staff skills and intensity of price competition
Contrasting firms in the industrial and in the service sector
 

	Industrial sector			Service sector
Percentage of personnel with	Level of price competition			Level of price competition
	low	medium	high	Low	medium	high
Academic degrees	4.0	3.3	3.0	10.2	7.3	6.9
Advanced diplomas	11.6	12.7	10.8	12.2	13.9	13.9
Apprenticeship	45.7	42.7	43.1	45.3	52.4	45.7
Unskilled	34.0	37.1	38.7	20.8	19.8	25.8
( N = )	(91)	(116)	(220)	(91)	(85)	(117)

As seen in Table 5.9, industrial enterprises as well as service firms tend to have lower shares of academic personnel and higher percentages of unskilled employees when intensive price competition prevails. In both sectors, the rise of unskilled personnel doesn’t go along with a reduction of apprenticed employees, so that no substitution between these two lowest skill level seem to take place. Only in the service sector, however, price competition seems to engender a partial substitution of academic staff by employees with advanced vocational diplomas, while industrial firms reduce the share of both qualification levels to a similar degree.

Quality competition has also highly similar impacts in both economic sectors. In almost perfect symmetrical opposition to price competition, it goes along with a significant expansion on the two highest skill levels and a lower percentage of unskilled employees. All these effects are somewhat more pronounced in the industrial than in the service sector. As in the case of price competition, the demand for apprenticed staff seems to be unaffected by the degree of competitive environmental pressures (Table 5.10).

These intersector convergences support the provisional hypothesis that causal relationships between competition and staff skill levels may be of a highly general nature, because they don’t seem to be moderated by product- or technology-related factors.

Of course, much more detailed analysis on the level of specific industries and services would be necessary to corroborate such a far-reaching conclusion - analyses which cannot easily be done with the existing sample because not enough cases are available for the various specialized branches.

Table 5.10: Mix of staff skills and intensity of quality competition
Contrasting the industrial and the service Sector
 

	Industrial sector			Service sector
Percentage of personnel with	Level of quality competition			Level of quality competition
	low	medium	high	low	medium	high
Academic degrees	2.3	2.4	4.4	6.8	7.2	9.9
Advanced diplomas	8.5	11.6	12.7	12.7	13.1	14.3
Apprenticeship	44.1	43.5	43.5	45.9	47.6	48.2
Unskilled	40.7	38.0	35.1	26.0	22.3	20.9
( N = )	(88)	(139)	(188)	(57)	(91)	(128)

5.2.2 The general impact of price and quality competition on envisaged changes in staff competition

It might be hypothesized that current competitive pressures have rather limited impact on current staff, because the size as well as the composition of employees is mainly determined by conditions of the past and cannot be easily modified when factors of competitiveness are changing (e.g. because hiring and firing is hampered by various laws and informal traditional norms), Instead, present competition may well determine whether firms have the intention of increasing or decreasing their staff, and if they do, which skill levels will be predominantly affected. When they face intensive price competition, cost pressures may force them to implement general downsizing strategies involving all staff categories, and/or to introduce more standardized production methods which allow them to substitute expensive highly educated members by cheaper personnel on lower levels of skill. Such deskilling may be more common in the industrial than in the tertiary sector, because the production of physical goods lends itself better to routinized technical procedures than the production of services (particularly when these are offered to other businesses).

On the other hand, quality competition will engender expansion measures on the level of higher wage groups, because high skills are crucial for improving and maintaining high quality standards, and because cost minimization is not a predominant concern.

Table 5.11: Envisaged growth of labor force on different skill levels (1996-98) : contrasting firms with different intensity of competition (1995) (firms in the industrial sector)
 

	Intensity of price competition			Intensity of quality competition
Percentage of firms which envisage an expansion of staff with
	low	medium	high	low	medium	high
Academic degrees	14.1	20.5	20.1	15.8	20.9	25.0
Advanced diplomas	33.3	41.4	38.5	28.9	42.3	43.9
Apprenticeship	42.7	48.7	46.7	43.9	50.1	43.1
Unskilled	11.1	14.4	16.2	17.1	14.6	17.3
( N = )	(74)	(101)	(174)	(76)	(119)	(145)

As can be seen in Table 5.11, the first of these hypothesis is not borne out for firms of the industrial sector, because firms coping with low price competition show no consistent lower tendency to envisage a net expansion of their staff. To the contrary, price competing industrial businesses are more likely to expand personnel on all qualificational levels. This may indicate that they are in fact successfully competing (or that they intentionally expand in order to be able to save costs by realizing more economies of scale). On the other hand, at least service firms conform somewhat to the second hypothesis insofar as they react to high price competition by a reduced tendency to increase academic personnel, and by a heightened inclination to hire additional staff on the second-lowest level of skill (Table 5.12).

Table 5.12: Envisaged growth of labor force on different skill levels (1996-98): contrasting firms with different intensity of competition (1995) (firms in the service sector)
 

	Intensity of price competition			Intensity of quality competition
Percentage of firms which envisage an expansion of staff with
	low	medium	high	low	medium	high
Academic degrees	26.4	22.6	17.7	15.6	21.2	25.6
Advanced diplomas	34.3	39.0	34.5	39.0	35.9	37.5
Apprenticeship	31.7	24.7	40.0	33.3	27.3	28.8
Unskilled	10.0	5.4	8.6	7.0	6.1	10.0
( N = )	(69)	(71))	(85)	(45)	(70)	(105)

Looking at quality competition, high intensity is associated with increased expansion of academic personnel in the industrial as well as the service sector, and in industry as well with a significant growth of employees with advanced vocational diplomas. On the other hand, the need for more unskilled personnel is not consistently affected (Tables 5.11 and 5.12).

Contrary to the popular theories asserting an irreversible shift from the secondary to the tertiary sector, it is evident from these data that in the case of Switzerland more industrial than service firms have been in the course of expansion in the period 1997-1999, particularly on the two lowest levels of skill.

It might be suggested that intensive price competition inhibits the adjustment of skill levels to market requirements because cost-cutting pressures are so imperative that there is just not enough money available for hiring additional high wage employees. This assumption is corroborated by Table 5.13 which shows that significant positive correlations between quality competition and upskilling intentions only exist when the level of price competition is low.

Table 5.13: Correlations between intensity of quality competition (1995) and the planned expansion of staff on different skill levels (1996-99) contrasting firms under different levels of price competition
 

Quality competition / Percentage of firms which envisage an expansion of staff with	Price competition
	high	low
Academic degrees	+.06	+.19*
Advanced diplomas	+.06	+.26**
Apprenticeship	-.08	+.12
Unskilled	-.01	-.15
( N = )	(461)	(146)

*p < .05 **p < .01

5.2.3 Firm size as an intervening factor

The theoretical expectations concerning the impact of price competition on staff skill levels is borne out only for smaller businesses, which tend to reduce academic employees and increase unskilled personnel when cost pressures are very high. (Table 5.14). Contrarily, larger firms show lowest shares of highly skilled staff (academicians as well as employees with advanced degrees) when price competition is low. But considering extremely few large firms face low levels of price competition, no secure conclusions from these figures can be drawn. In fact, the expected differences show clearly up when firms on medium and high competition levels are compared.

Table 5.14: Mix of Staff Skills and Intensity of Price Competition: contrasting smaller and larger firms
 

	Smaller firms (<30 employees)			Larger firms (>200 employees)
Percentage of personnel with	Level of price competition			Level of price competition
	low	medium	high	low	medium	high
Academic degrees	8.1	5.8	4.5	2.6	6.3	4.4
Advanced diplomas	11.8	16.2	12.8	7.8	13.2	12.2
Apprenticeship	46.1	47.8	48.4	46.2	45.3	39.7
Unskilled	24.1	22.7	27.5	38.1	32.1	38.9
( N = )	(124)	(103)	(165)	(10)	(31)	(50)

On the other hand, the impact of quality competition is much more pronounced in larger than in smaller firms. Thus, the share of highly skilled personnel reaches extremely low levels in large enterprises exposed to low quality competition, while their percentage of unskilled employees is correlatively very high (Table 5.15)

In smaller businesses, the skill level is generally higher regardless of environmental conditions, and (with the exception of academic personnel) the effects of intensive quality competition - while pointing in the predicted direction - are too weak to warrant any valid interpretations.

Table 5.15: Mix of Staff Skills and Intensity of Quality Competition: contrasting smaller and larger firms
 

	Smaller firms (< 30 employees)			Larger firms (>200 employees)
Percentage of personnel with	Level of quality competition			Level of quality competition
	low	medium	high	low	medium	high
Academic degrees	4.4	4.3	8.4	2.4	4.5	6.6
Advanced diplomas	13.3	12.3	15.1	5.9	14.6	13.6
Apprenticeship	47.2	46.8	47.6	38.4	43.0	43.8
Unskilled	25.9	25.7	22.7	48.3	33.8	31.6
( N = )	(76)	(127)	(164)	(22)	(33)	(34)

All together, the findings support at least partially the hypothesis that larger firms have more leeway to adapt their human skills to environmental competitive conditions. When a firm is small, it still needs a certain nucleus of skilled employees for securing its primary functions even when product quality requirements are not very pronounced, and given its small absolute size, this nucleus will easily constitute a rather significant percentage of the whole staff. By contrast, larger firms can make use of various economies of scale (e. g. because the same highly-skilled persons can easily serve a much larger organization), and given their larger production output, they have far better possibilities to introduce Taylorist (= routinized and skill-saving) methods of production.

5.2.4 Organizational age as an intervening variable

On the lowest skill levels, older and newer firms show no differences in the way they adapt to the two modes of competition. Both samples show a similar tendency to increase the share of unskilled staff when intensive price competition prevails, and to decrease it when quality competition is dominant (Tables 5.16 and 5.17).

This indicates that recently founded firms are as well as traditional enterprises disposed to apply “Taylorist” methods of deskilling when they are forced (or allowed) to minimize costs in the sphere of human resources.

On the other hand, they diverge highly in the degree to which they adapt their labor force on higher levels of skill. When newer firms face low price competition or high quality competition , they primarily expand their highest skill segments (employees with advanced or academic degrees), while older firms mainly increase their second-lowest skill segment: personnel with ordinary vocational education.

Table 5.16: Mix of Staff Skills and Intensity of Price Competition: Contrasting Older and Younger Firms
 

	Older firms (founded before 1930)			Younger Firms (founded after 1971)
Percentage of personnel with	Level of price competition			Level of price competition
	low	medium	High	low	medium	high
Academic degrees	4.5	2.5	3.6	13.8	7.1	5.4
Advanced diplomas	9.0	11.9	10.3	12.3	15.8	12.7
Apprenticeship	52.7	47.0	44.7	42.5	46.6	41.8
Unskilled	23.4	33.1	35.5	26.8	23.2	34.8
( N = )	(22)	(92)	(111)	(26)	(112)	(91)

Table 5.17: Mix of Staff Skills and Intensity of Quality Competition: Contrasting Older and Younger Firms.

	Older firms (founded before 1930)			Younger Firms (founded after 1971)
Percentage of personnel with	Level of quality competition			Level of quality competition
	low	medium	High	low	medium	high
Academic degrees	2.1	3.7	4.0	4.5	6.5	11.9
Advanced degrees	8.4	12.3	9.6	12.4	13.9	17.4
Apprenticeship	46.9	45.4	51.2	44.6	44.4	42.7
Unskilled	37.3	32.5	28.2	32.5	28.1	24.7
( N = )	(54)	(126)	(36)	(45)	(130)	(47)

This finding is highly consistent with Stinchcombe’s hypothesis that under all environmental circumstances, older firms are perpetuating structural attributes they have acquired “genetically at the time of their birth; and that one of these traits is a rather low share of highly educated staff (Stinchcombe 1965).

Thus, we might cautiously conclude that older firms are characterized by internal inertias which limit their capacity to upgrade their performances by making use of higher educational knowledge. Instead, they tend to shift these burdens on personnel with rather low vocational education . By doing this, they may well be able to offer “solid reliable quality” typically associated with craft-like productions,. but not well capable of implementing any product or process innovations which have to be considerably based on sophisticated R & D.

5.2.5 Market dynamics and organizational development as intervening variables

The same competitive conditions may affect organizational structures, strategies and processes very differently under conditions of current (or envisaged) expansion, stagnation or decline.

Thus, firms operating in shrinking markets have little leeway to adapt on the level of personnel, because future earning perspectives are not bright enough to hire expensive additional employees. Downsizing firms in particular have little opportunity to change their staff composition in the direction of higher skills, because dismissals have often to be made by other criteria than qualification (e. g. by rules of seniority).

Under expanding conditions, firms have much more room for rational adaptation because they can decide precisely what kind of additional personnel they want to recruit; and they will be quite well disposed to commit themselves to highly paid employees (who usually have to be guaranteed long-term security of their jobs).

Consequently, it is not surprising to find that the share of highly qualified personnel is highest under conditions where quality competition is high and price competition is low (Table 5.18). Under such circumstances, firms evidently are at the same time urged to upskill their staff (in order to secure high-level quality) and also able to adapt in this way (because cost pressures are rather low).. Symmetrically, lowest shares are found when intensive price (and cost) pressures combine with low quality-related competition.

In shrinking markets, firms of almost all categories hold a lower percentage of academic staff. They also minimize such expensive employees when prices are highly contested and quality competition not too intensive, but - diametrically opposed to expanding markets - they keep them also on low levels when quality competition is high.

Table 5.18a: Percentage of employees with academic degrees in firms with different combinations of price and quality competition: contrasting firms in expanding vs. shrinking markets
 

Price Competition:	Firms in expanding markets			Firms in shrinking markets
	Quality competition			Quality competition
	low	medium	High	low	medium	high
low	8.8	2.5	14.7	4.5	4.2	2.6
medium	10.3	5.8	4.1	3.5	1.5	2.1
high	1.6	8.0	5.7	1.9	2.6	5.8
(N = )	(36)	(50)	(94)	(86)	(119)	(165)

Table 5.18b: Impact of price and quality competition on the percentage of employees with academic or advanced degrees: contrasting firms in expanding and in shrinking markets. (Linear Regression Models)
 

		Unstand. B	Stand. BETA	t	Sign.	Adjusted R Square (sign.)
Expanding Markets (N = 179)	Constant	21.205		2.952	.004	.054 (.007)
	Price competition	-2.977	-.150	-2.041	.043
	Quality Competition	3.456	+.189	2.584	.011
Shrinking Markets (N= 367)	Constant	7.732		2.130	.034	.013 (.092)
	Price Competition	.434	+.032	.622	.554
	Quality Competition	1.390	+.106	2.031	.043

Symmetrically, low-skilled work forces as a correlate of low quality competition are also somewhat most frequently found in firms operating in expanding markets (Table 5.19a and 5.19b).

This can easily be explained within the framework of traditional theories of industrial organization. The traditional Fordist paradigm implies that when firm have to cut costs in order to maintain competitive prices, they do this by implementing “Taylorist” structures resulting in higher formalization, centralization and role specialization and (at least on subordinate levels) in a general downgrading of demanded skills. In addition, this view implies (at least implicitly) the assumption that markets are ever expanding, so that it pays out to invest in such heavy-handed strategies of reorganization (there are good chances that the resulting rigid structures can be maintained), and that the resulting large-scale mass production will be absorbed.

Table 5.19a: Percentage of unskilled employees in firms with different combinations of price and quality competition: comparing firms in expanding and shrinking markets
 

Price Competition:	Firms in expanding markets			Firms in shrinking markets
	Quality competition			Quality competition
	low	medium	High	low	medium	high
low	34.6	16.6	21.9	26.1	35.5	28.2
medium	35.9	28.4	23.0	37.5	29.2	30.8
high	52.3	31.1	28.8	41.6	33.8	35.3
(N = )	(36)	(50)	(94)	(86)	(119)	(165)

When markets are stagnating or shrinking, these conditions are no longer fulfilled. Instead, high price competition may enforce lean (or “Toyotist”) production styles which allow to produce craft-like customized goods (demanding rather highly skilled personnel) on reasonable low levels of total cost.

Table 19b: Impact of price and quality competition on the percentage of unskilled employees: contrasting firms in expanding and in shrinking markets. (Linear Regression Models)
 

		Unstand. B	Stand. BETA	t	Sign.	Adjusted R Square (sign.)
Expanding Markets (N = 179)	Constant	30.448		3.351	.001	.069 (.002)
	Price competition	4.013	+.158	2.175	.031
	Quality Competition	-5.181	-.222	-3.062	.003
Shrinking Markets (N= 367)	Constant	30.975		4.390	.000	.017 (.042)
	Price Competition	2.557	+.098	1.888	.060
	Quality Competition	-2.494	-.097	-1.875	.062

Therefore, it is to be expected that only expanding firms in expanding markets show a clear tendency to react to price competition with a major deskilling of their staff. This hypothesis is clearly borne out in Table 5.19a and 5.19b which show highest effects of price competition on the share of unskilled personnel when markets are in expansion. Under shrinking conditions, the degree of quality competition evidently has no impact when price competition is low, and when it is high, the theoretically expected effects are visible, but rather weak. (Tables 5.19a and 5.19b)

Overviewing all these findings, it seems safe to conclude that expanding markets provide a more propitious environment than shrinking markets for adapting the labor force to external competitive needs.

In the following, this same hypothesis is additionally tested by analyzing the joint impact of competition and market conditions on the expansion of staff envisaged for the subsequent time period (1998-00).

While it has to be expected that firms which operate in expanding markets are more likely to envisage a general expansion which implies additional recruitments on all levels of skill, we additionally expect that they are more responsive to their environmental conditions. Again, the main reason is that expanding companies are better able to optimize their staff because they are basically free to hire exactly the personnel they need, while shrinking firms risk to get an ever more maladaptive staff mix because various rigid norms and nonfunctional selection criteria (e. g. seniority, age, family status) have to be observed when employees are dismissed [13].

Furthermore, we might guess that they are focusing this upsizing disproportionately on higher levels of skill, because market expansion in itself typically goes along with many complex problems (e. g. dealing with new products and customers, facing unpredictable new competitors etc.) which require the application of sophisticated knowledge and skills.

Table 5.20: Level of Quality Competition (1995) and expected growth of labor force on different skill levels (1998-00): contrasting firms in expanding and in shrinking markets
 

	Expanding markets			Shrinking markets
Percentage of firms which envisage an expansion of staff with	Level of quality competition			Level of quality competition
	low	medium	high	low	medium	high
Academic degrees	26.4	27.7	50.0	10.5	17.1	8.1
Advanced diplomas	47.1	52.4	56.4	24.4	36.0	32.6
Apprenticeship	41.7	44.9	37.5	41.6	41.6	33.3
Unskilled	24.2	14.7	13.9	11.4	11.3	16.3
( N = )	(34)	(94))	(36)	(67)	(176)	(37)

As shown in Table 5.20, all these theoretical expectations are basically borne out. Thus, very few firms in contracting markets intend to hire additional academic staff in the coming years, and this reluctance does not diminish when they have to cope with intensive quality competition. Under expanding conditions, about a quarter of all enterprises plan new academic recruitments when quality competition is low, and half of them when it is very high. On the other hand: while staff with advanced diplomas is also less often increased when markets are shrinking, a similar positive correlation with quality competition holds as in expanding markets.

When firms in contracting markets want to grow, they are most likely to do this on the second-lowest skill level (employees with apprenticeship), particularly when quality competition is so low that no additional staff with advanced degrees is necessitated.

Finally, it is interesting to note that intentions to supplement additional unskilled personnel are most prevalent when firms operate in expanding product markets under low quality competition, and that they decline sharply when quality competition is high. In shrinking markets, firms seeking unskilled staff are almost as infrequent as those seeking employees with academic degrees (Table 5.20).

To summarize, it can be concluded that “market development” has to be treated as a causal variable and as an intervening variable at the same time. As a causal factor, it offers an environment which (1) facilitates changes in skill mix on all levels, but (2) necessitates to concentrate new recruitments on rather high levels of skill. And as an intervening variable, expanding markets seem to widen the space enterprises have available for far-reaching adaptations on the level of human resources, while shrinking markets provide constraints which reduce a firm’s capacity to deal effectively with high levels of quality competition.

5.2.6 Domestic vs. international market orientation as an intervening variable

While domestically oriented and exporting firms tell us that they are exposed to roughly similar degrees of quality competition, the factual pressures resulting from it may nevertheless not be the same. Thus, export-oriented businesses are much more likely to face the world’s most qualified and dangerous competitors existing within their field: challengers equipped with far higher staff skills and far superior resources for R & D.

Table 5.21: Correlations between the intensity of quality competition and the percentage of different skill segments in the firm’s labor force: contrasting firms with different share of exports (Pearson Correlation Coefficients)
 

Intensity of quality competition / Percentage of personnel with	Percentage of goods/services exported
	0	1-30%	31-60%	> 60%
Academic degrees	+.05	+.11	+.22	+.23*
Advanced diplomas	+.02	-.01	+.04	+.25**
Apprenticeship	+.04	-.01	+.14	+.06
Unskilled	-.07	-.07	-.12	-.23*
( N = )	(252)	(174)	(61)	(112)

* p < .05 ** p < .01

In fact, the findings show that the theoretically expected relationships between quality competition and staff skill levels are significant exclusively in the case of outspoken export businesses selling more than 60% of their total output abroad. While firms with the next lower export rates (30-60%) still show weaker (statistically not significant) correlations pointing in the same direction, fully domestic enterprises don’t show any statistical relationships at all (Table 5.21).

These highly consistent results strongly corroborate the hypothesis that export orientation is a necessary precondition for quality competition to have any influence on the composition of a firm’s human resources.

5.2.7 Comparing successful and less successful firms

In order to identify functional relationships between competition pressures and optimal forms of organization, it is useful to look at the more successful firms, because these are most likely to be adequately adapted to their current environmental challenges. In the case of unsuccessful businesses, on the other hand, at least one reason for failure may lay in their lack of adaptive responses on the level of human resources, caused by inertia, inadequate perception of needs, managerial deficiencies, or many other reasons.

As our survey contains no data about cash flow, profits or other conventional measures of economic success, we have to rely on the recent development of sales as a near proxy. Thus, we assume that firms which have increased their turnover in recent years are “successful”, despite the fact that their expansion can have exogenous sources (e. g. a general expansion of markets in their specific branch).

Similarly, we suppose that shrinking firms are more likely to be maladjusted, while acknowledging that even optimally structured businesses may be doomed when their markets are in general contraction.

For example, the rather low direct correlations between quality competition and skill levels may be explained by the fact that many firms do not adapt “rationally” to their perceived environmental conditions: either because they maintain traditional low-skill technologies and structures, or because they don’t find (or have not yet found) enough high-level employees on the labor market.

If this is true, we could still find that firms failing to adapt would be “punished” by lesser economic success, while adaptive enterprises would be honored by increased opportunities to expand their sales.

On the empirical level, this hypothesis would imply that within the subsample of highly successful firms,, quality competition is positively related to the skill level of staff, while no such correlations can be found in the case of stagnating or even contracting enterprises.

In accordance with these theoretical argumentations, successful (=expanding) firms show by far the highest correlations between intensity of competition and staff skill structures: thus supporting the hypothesis that they are most responsive to their specific environmental conditions. In this general respect, thy contrast sharply with the shrinking businesses which show no significant correlations at all (Table 5.22).

Secondly, all statistical relationships among expansive firms are corroborating our theoretical expectations. Thus, high price competition is associated with fewer academic staff and more unskilled personnel, while the effects of high quality competition are exactly reversed.

Evidently, the impact of quality competition seems more pervasive, because it also encompasses stagnating businesses and personnel with academic degrees.

Table 5.22: Correlations between the intensity of competition and percentage of different skill segments in the firm’s labor force: comparing expanding and shrinking firms (Pearson Correlation Coefficients)
 

Intensity of competition / Percentage of personnel with	Price competition			Quality competition
	Development of sales (95-97)			Development of sales (95-97)
	Expansion	stagnation	shrinkage	expansion	stagnation	shrinkage
Academic degrees	-.13*	-.10	+.08	+.21**	+.06	+.10
Advanced diplomas	-.05	+.04	-.04	+.14*	+.21*	-.01
Apprenticeship	-.07	-.03	-.01	-.03	-.05	+.03
Unskilled	+.17*	+.11	+.04	-.15*	-.17*	+.02
( N = )	(276)	(194)	(105)	(265)	(189)	(102)

* p < .05 ** p < .01

Table 5.23 shows that in the case of quality competition, firm success has different correlates in the two economic sectors. In the case of industrial firms, the percentage of academic personnel seems to be a critical success factor when quality competition is high, while no negative effects seem to be associated with high shares of unskilled employees. In the tertiary sector, analogous tendencies can be found, but with reversed weights. When service firms operate under tight quality competition, their success seems to depend much less on a large share of highest-skill, but much more on a lowered percentage of unskilled employees. Evidently, there are no conditions under which the size of middle-skilled segments is associated in any way with economic success or failure.

Table 5.23 Correlations between percentage of staff on different skill levels (1997) and expansion/shrinkage of firm sales (1995-97): contrasting industrial and service firms firms under different levels of quality competition
 

Expansion of Sales / Percentage of personnel with	Industrial firms		Service firms
	Quality competition		Quality competition
	high	Low	high	low
Academic degrees	+.25**	+.09	+.13	+.06
Advanced degrees	+.17*	+.08	+.16	-.16
Apprenticeship	-.06	-.04	+.04	+.09
Unskilled	-.11	-.00	-.23*	+.16
( N = )	(163)	(193)	(111)	(128)

* p <.05 ** p < .01

On a theoretical level, it is evident that both types of competitions constitute highly different environmental constraints, so that firms which want to cope successfully with them are force to follow highly divergent - even contradictory - strategies - on the level of their activities as well as on the level of personnel recruitment and organizational structure.

When intensive price competition creates an incentive to lower costs by hiring less skilled personnel, we may well assume that such strategies are only viable when lower skills are not harmful to sales because quality competition is low. And vice versa: when high quality competition makes it instrumental to expand employee segments with advanced and academic education, such upgradings can only be made when the minimization of costs is not imperative (because price competition is moderate or absent).

Table 5.24: Correlations between percentage of staff on different skill levels (1997) and expansion/shrinkage of firm sales (1995-97): contrasting firms under different combinations of competition

Expansion of Sales / Percentage of personnel with	Price competition high		Price competition low
	Quality competition		Quality competition
	high	Low	high	low
Academic degrees	+.06	+.01	+.23**	+.10
Advanced degrees	+.19*	-.01	+.10	-.03
Apprenticeship	-.01	-.16*	-.07	+.04
Unskilled	-.09	+.16*	-.13	-.02
( N = )	(149)	(172)	(148)	(158)

* p <.05 ** p < .01

In fact, the correlation coefficients in Table 5.24 are highly compatible with these two argumentations. They clearly demonstrate that

- under intensive quality competition, the positive impact of academic personnel on firm success (measured as expansion of sales between 1995 and 97) is only significant when price competition is low;

- under intensive price competition, higher shares of unskilled personnel have only a positive impact on business expansion when quality competition is low (Table 5.24).

5.3 The scope of advanced training

While all firms try to cover their basic needs of qualification by recruiting personnel with the desired formal vocational education, this strategy alone will never be sufficient to procure all skills needed for optimal organizational performance,

First of all, the knowledge gained in formal vocational education is likely to be rather generalized, so that it does not take into account the highly particular needs of any concrete enterprises: needs related to their highly divergent production technologies, organizational characteristics, marketing strategies, customer relationships etc. This gap is especially pronounced in the case of businesses with highly idiosyncratic technological systems (e. g. oil refinement or energy producing plants) or highly particularistic clients (e. g. private banking). As an implication of lean production methods and “total quality management” (aiming at continuous improvements of all procedures by means of intensive intraorganizational communication), the significance of this firm-specific sphere of knowledge seems to increase.

Secondly, formal vocational skills have been acquired sometimes in previous years, so that it is subject to obsolescence caused by technological and organizational as well as economic and cultural change. While firms in well-established branches and stable products (e. g. nourishments or textiles) may still offer roles which can be handled well by even older employees, more innovative businesses need new skills not (yet) provided in formal vocational education.

And finally, firms may not be able to recruit the optimum mix of skilled personnel:

a) because strict job security standards preclude the possibility to get rid of inadequately qualified older employees in order to substitute them with more fitting younger personnel;

b) because the needed personnel is not available on the current labor market.

Given these insufficiencies, firms have to rely on additional (and partially also substitutive) strategies to secure all the needed qualifications. Almost all of them will rely on the most informal and least costly means: letting new entrants acquire experience “on the job” or charging supervisors and senior collaborators with the task of giving them the necessary advice and instructions.

While such informal procedures are universally applied even in highly traditional settings in order to close the “gap of specificity” between generalized vocational skills and the highly idiosyncratic needs of the firm, they are not adequate when additional skills (e. g. related to new technologies or product markets) have to be produced. In such cases, formalized programs of advanced training become imperative: programs initiated and carried through either by the firm itself or by extraorganizational institutions.

Table 5.25 demonstrates that within our sample, more than 80 percent of all firms use such formalized procedures for upgrading their human resources.

In both economic sectors, we observe that smaller firms are most likely to be completely unengaged or to commit them selves either to internal or external programs exclusively, while larger enterprises prefer to combine internal and external procedures.

The size factor seems more crucial in the industrial sector where 29% of all small firms (but only 2% of the largest) are totally unengaged on these formal levels of advanced training.

Table 5.25: Percentages of firms making use of internal or external programs of formalized advanced training
 

Mode of formalized advanced training	Industrial Firms			Service Firms
	Firm size			Firm Size
	Small (<30)	Medium (30-200)	Large (>200)	Small (<30)	Medium (30-200)	Large (>200)
None	29	16	2	24	14	9
Only internal	35	38	28	25	30	27
Only external	14	8	7	18	11	4
Both	22	38	62	34	44	60

 

What relationships between the intensity of competition and the scope of advanced training have to be expected?

First of all, it can by hypothesized that high quality competition makes it necessary to enlarge such involvements, because - as stated by TQM [14] philosophy - reliably high quality standards can only be maintained when most employees possess rather high specific skills (including an adequate understanding of the production process as a whole).

Secondly, it might be guessed that too harsh price competition may curb a firm’s capacity to provide advanced education, because such programs are costly (in terms of teaching expenses as well as in terms of lost working hours).

By combining these two propositions, we may deduce that involvement in advanced training reaches highest levels when quality competition is intensive and price competition low, while it will be lowest when the reverse conditions hold.

As shown in Table 5.26, both of these theoretical expectations are neatly borne out. In fact, the linear regression analysis strongly suggests that price and quality competition act as two independent countervailing causal factors.

Following the notion of “slack resources” (as a prerequisite for advanced training) one step further, we could guess that such resources are particularly scarce when firms operate in shrinking markets where they have to expect diminishing earnings, while they may be sufficiently high even under intensive price competition when expanding markets promise rising sales. Additionally, firms with a pessimistic outlook (as well as their employees personally) may find commitments in advanced training less profitable because they judge it to be unlikely that such investments will ever have a sufficient return.

Table 5.26a: Percentage of staff included in programs of advanced vocational training and degree of competition (total sample)
 

Price competition	Quality Competition
	low	medium	high
low	33%	40	43
medium	34	33	34
High	26	26	34

Table 5.26b: Impact of price and quality competition on the percentage of staff included in programs of advanced training (Linear Regression Models)
 

	Unstand. B	Stand. BETA	T	Sign.	Adjusted R Square (sign.)
Constant	36.183		6.487	.000	.022 (.007)
Price competition	-3.197	-.11	-2.981	.003
Quality Competition	2.737	+.10	2.604	.009

Again, these hypotheses are consistently corroborated by the percentage figures of Table 5.27a. As to be expected, enrollment in advanced training is generally lower under shrinking market conditions, and it is particularly low when such pessimistic perspectives coincide with a market where price competition is high and quality competition medium or low.

Table 5.27a: Percentage of staff included in programs of advanced vocational training and degree of competition: contrasting firms in expanding an in shrinking markets
 

Price competition	Expanding markets			Shrinking markets
	Quality competition			Quality competition
	low	medium	High	low	medium	high
low	34%	45	54	28	32	36
medium	27	36	34	35	36	33
High	37	28	36	22	27	34

On the other hand, highest percentages of staff are participating when markets are expanding and the most fortunate competitive constellation (low price and high quality competition) prevails.

Nevertheless, there is no indication that price competition effects are neutralized when markets are in expansion; to the contrary, they are most pronounced in these cases (at least when quality competition is medium or high).

As can be inferred from the linear regression models, market expansion seems to be an intervening variable amplifying the impact of both types of competition on enrollment; while market shrinking seem to depress enrollment largely independent of competitive circumstances (Table 5.27b).

Table 5.27b: Impact of price and quality competition on the percentage of staff included in programs of advanced training: contrasting firms in expanding and in shrinking markets. (Linear Regression Models)
 

		Unstand. B	Stand. BETA	t	Sign.	Adjusted R Square (sign.)
Expanding Markets (N = 179)	Constant	34.469		2.800	.006	.051 (.015)
	Price competition	-4.249	-.13	-1.697	.093
	Quality Competition	5.789	+.19	2.524	.013
Shrinking Markets (N= 367)	Constant	28.375		3.730	.000	.010 (.183)
	Price Competition	-1.257	-.05	-.22	.386
	Quality Competition	2.430	+.10	1.708	.089

Apart from market development, major differences might also be expected between export firms and firms focusing on domestic markets:

When exporting firms are exposed to high price competition, they are likely to be under extreme pressures to reduce costs (in order to succeed against cheap competitors from low-wage countries). Thus, their resources for advanced training may be very restrained.

When high quality competition prevails on international markets, it is likely that extremely high upgradings in performance have to be achieved in order to prevail against firms with much higher human resources and expenses for R&D. As a result, very high enrollment rates should be expected.

Thus, international markets seem to function as amplifiers: by dramatizing the differences between high price low-quality competition firms (with minimal involvement rates of 20%) and businesses confronted with reverse conditions which show the highest values of all subsamples (46%).

Table 5.28a: Percentage of staff included in programs of advanced vocational training and degree of competition: contrasting firms selling on domestic and on international markets
 

Price competition	Mainly international markets			Only domestic markets
	Quality competition			Quality competition
	low	medium	High	low	medium	high
low	30%	43	46	33	40	39
medium	33	32	32	37	33	36
High	20	26	34	27	27	35

 

Table 5.28b: Impact of price and quality competition on the percentage of staff enrolled in programs advanced training: contrasting firm-selling on domestic and on international markets (Linear Regression Models)
 

		Unstand. B	Stand. BETA	t	Sign.	Adjusted R Square (sign.)
Mainly international Markets   (N = 179)	Constant	34.425		3.943	.000	.035 (.006)
	Price competition	-3.921	-.14	-2.376	.018
	Quality Competition	3.348	.13	2.224	.028
Only Domestic Markets (N= 367)	Constant	35.475		4.780	.000	.020 (.036)
	Price Competition	-2.671	-.10	-1.851	.065
	Quality Competition	2.881	.11	1.968	.050

Any firm’s commitment to advanced training will not only be conditioned by environmental (e. g. competitive) conditions, but as well by various intraorganization factors. In particular, it might be suggested that involvement rates covary positively with the skill level of the labor force, because higher-skilled employees are usually better able to acquire new knowledge: particularly in programs which heavily rely on theoretical materials and on self-directed learning. Very often, high educational certificates are not demanded because they go along with specific knowledge and competences, but because they indicate that a person has been (and will continue to be) motivated and capable of internalizing and mastering considerable packages of knowledge and/or because besides specific contents, generalized “learning-to learn” capabilities have been acquired).

In addition, positive correlations may also result from the fact that intraorganizational programs for advanced training can be more encompassing when a large number of highly educated employees are available for teaching purposes.

In accordance with these hypotheses, Table 5.29 clearly indicate that when competitive intensity is controlled, enrollment figures are still positively related to the percentage of staff with academic or advanced vocational degrees, and negatively correlated with the share of unskilled employees. But it also shows that the strength of these correlations is systematically related to the mode and intensity of competition.

Evidently, correlations are more pronounced when price competition is low than when it is high; but less pronounced when quality competition is low (rather than high).

The first regularity is easily explained by considering that intensive price competition reduces the availability of slack resources, so that capacities for advanced training are generally reduced (e. g. higher skilled employees are to much absorbed by regular production activities, so that they have no time for teaching). And the second finding conforms well to the assumption that low quality competition reduces the need for advanced training, because upgrading performance is not an imperative goal.

Table 5.29: Correlations between the percentage of staff involved in advanced training programs and the percentages of different skill levels among employees: according to the degree of price and quality competition
 

Percentage of personnel with	Level of price competition		Level of quality competition
	high	low	high	low
Academic degrees	+.12*	+16*	+.22**	+.09
Advanced degrees	+.18**	+.26**	+.17**	+.09
Apprenticeship	+.09	-.03	+.11	+.03
No vocational skills	-.20**	-.27**	-.26**	-.20
( N = )	(313)	(169)	(286)	131)

* p < .05 ** p < .01

Similar to recruitment practices, programs of advanced training are not automatic responses to competitive (or other environmental) circumstances, but deliberate firm policies which may be enacted too late or not at all, or which may even go in a counteradaptive direction.

Thus, correlations between competitive intensities and shares of involvement may well be diminished by all firms not behaving in such a “rational” manner. Nevertheless, such maladaptive businesses may be punished by stagnating or even shrinking earnings, while “adaptive” enterprises may be rewarded by growth.

If this argumentation is true, the expected correlation between competition and enrollment should turn out to be higher in the subsample of successful firms.

For testing these proposition, correlations between competitive intensity and advanced training enrollments were calculated separately. Nevertheless, such maladaptive businesses may be punished by stagnating or even shrinking earnings, while “adaptive” enterprises may be rewarded by growth.
 

In fact, these hypotheses are only weakly borne out by the findings in Table 5.30.Firms in the service sector are conforming insofar as expanding businesses show the expected positive correlation between quality competition and enrollment, while stagnating and shrinking firms even tend to the negative. But industrial enterprises evidently not behaving in this way, and responsiveness to price competition seems generally unrelated to business success.

Thus, we might provisionally draw the conclusion that enlarging advanced training helps service enterprises to succeed when competition demands to upgrade quality standards, while similar advantages are not accruing to industrial producers.

Table 5.30: Correlations between the intensity of competition and the percentage of staff enrolled in programs of advanced training: expanding and shrinking firms in the industrial and the service sector (Pearson Correlation Coefficients)
 

Intensity of Competition/ Percentage of staff in advanced education	Price competition			Quality competition
	Development of sales (95-97)			Development of sales (95-97)
	expansion	stagnation	Shrinkage	expansion	stagnation	shrinkage
Industrial Sector	-.01	+.01	-.17	+.02	+.14	+.13
(N = )	(129)	(88)	(100)	(125)	(84)	(97)
Service Sector	-.12	-.13	-.01	+.24*	-.15	-.08
(N = )	(103)	(59)	(74)	(96)	(59)	(70)

* p < .05 ** p < .01

5.4 The scope of introductory training

In addition to the various formal and informal qualifications internalized in antecedent processes of socialization and education, any job also requires highly specific role-related skills which can only be acquired by practicing it for a certain time. Thus, routinized behavioral habits are necessary in order to handle the specific tools and machineries with maximum efficiency and reliability and a minimum of fatigue, and detailed knowledge about organizational procedures and informal collaboration networks has to be gathered in order to solve problems effectively and in accordance with established rules.

Of course, the average time needed for acquiring these operative skills depends on a multitude of different variables: with environmental conditions and technological factors as well as with cooperative arrangements within work units and cultural and structural characteristics of the encompassing organization.

Thus, quite extended introductory phases are needed in organizations which provide a large variety of hand-tailored services to a variety of highly different customers (e. g. advertising agencies or business-counseling firms) or in rather small traditional production settings where handicraft-like production methods are still in use.

On the other hand, minimal initial work experience is required in common retail stores selling standardized consumer items or in highly “Taylorized” firms engaged in large-batch mass production on the basis of highly specialized and simplified roles.

In order to tap this most specific dimension of work skills, our managerial informants were asked how many days of initial work experience were needed on the average for filling out “typical roles on the operative level” within their firm, and whether this introductory time period has become longer or shorter within recent years. By focusing on roles of lower operative levels, it can be expected that the learning time indicated will covary mainly with the overall organizational methods applied in the production department, but much less with the conditions in more specialized functions (e. g. in administrative or marketing units) and on higher (e. g. professional or managerial) levels.

Consequently, we have good reasons to speculate that

Intensive price competition goes along with rather short introductory periods (particularly when quality competition is low, because cost-saving Taylorized production methods (facilitating flexible hire-and-fire policies) will prevail.

Intensive quality competition will cause longer learning time because average operative roles demand rather sophisticated skills and because firms rely on TQM-methods which imply a sharp increase in “tacit knowledge” particular to the specific firm.

In the industrial sector, two consistent regularities stand out: introductory time is evidently lowest when quality competition is absent and price competition is moderate or high; and the positive effect of quality competition on operative role complexity is much higher when price competition is moderate than when it is high. On the other hand, rather long periods for acquiring work experience are also needed when competitive pressures in both dimensions are low. This indicates that apart from competition, there may be a second basic cause for extended learning periods: traditional handicraft-like production methods which have best survived in rather “protected” businesses little affected by competitive pressures.

Table 5.31 Average number of working days new entrants need for becoming efficient and routinized workers under various competitive conditions: contrasting industrial and service enterprises
 
 

Price competition	Industrial sector			Service Sector
	Quality Competition			Quality Competition
	low	medium	High	low	medium	high
low	96	75	57	49	44	95
medium	51	77	107	108	68	76
High	54	64	63	53	70	83

* Summative index based on the 12 skills shown in Tables 4.4 (scale from 0 to 12).

Such traditional residuals may be less present in the service sectors where low learning requirements prevail when both modes of competition are absent. Service firms also show pronounced positive effects of quality competition but (diametrically opposed to industrial companies) only when price competition is either high or low. In contrast with industrial firms, they also don’t seem to “Taylorize” their roles structures when price competition is high.

The effects of both quality and price competition are very much amplified when firms operate in expanding markets, while they almost vanish when they face stagnating or shrinking conditions. (Table 5.32). In particular, very simple operative roles seem to prevail when growing markets go along with low quality and high price competition.

This accord well with the hypothesis that expanding markets offer best chances to introduce Taylorist production methods, because large-scale mass production is possible and even highly expensive investments in complex technologies and organizational designs are likely to pay out in the near future.

Table 5.32 Average number of working days new entrants need for becoming efficient and routinized workers under various competitive conditions: contrasting firms in expanding and shrinking markets
 

Price competition	Expanding markets			Stagnating/Shrinking markets
	Quality Competition			Quality Competition
	low	medium	high	low	medium	high
low	73	71	83	67	55	64
medium	69	71	136	79	73	64
High	37	83	99	53	64	60

On the other hand, such role-simplifying strategies seem to be much hampered when firms operate on international markets. Under all competitive conditions, exporting firms report longer periods of initial role socialization than firms which sell their products or services exclusively on domestic markets (Table 5.33). This may at least partially be due to the fact that most exporting firms sell their services or products to other corporations: i. e. highly qualified customers which usually articulate higher quality demands than typical individual consumers.

Table 5.33: The impact of competitive intensity on the number of working days needed for becoming a fully productive, efficient worker: contrasting exporting and non-exporting firms
 

Price competition	Exporting firms			Non-exporting firms
	Quality Competition			Quality Competition
	low	medium	High	low	medium	high
low	120	67	81	46	54	64
medium	57	81	95	98	56	83
High	61	61	74	46	75	63

Finally, it is not surprising to find that “Taylorist” reaction strategies to high-price / low quality competition are much more pronounced in the case of larger firms (Table 5.34). Evidently, certain levels of large-scale production have to reached in order to make investments in such cost-saving methods economically feasible. In smaller firms, deskilling is hampered by the fact that everybody around has (at lest sometimes) also to deal with more sophisticated tasks.

Table 5.34: The impact of competitive intensity on the time needed for becoming an efficient and routinized worker. (number of working days): Contrasting smaller and larger firms

Price competition	small firms (less than 30 employees)			large firms (more than 200 employees))
	Quality Competition			Quality Competition
	low	medium	high	low	medium	high
low	74	53	75	95	33	43
medium	75	74	104	58	70	109
High	61	68	77	33	57	88

Concerning the amount of introductory training, informants were additionally asked whether the average time needed to become a fully productive workers has recently increased, decreased or remained on the same level. Given that .41% of alls businesses reported an increase (and only 6.6% a decline), the conclusion is warranted that within most economic settings, work roles are currently becoming more complex and demanding (e. g. because of measures of downsizing or lean production) while conventional “Taylorist” strategies of role simplification are restricted to rather few (mostly larger-sized) firms.

In full accordance with theoretical expectations, firms which face intensive quality competition are most likely to have complexified their roles, particularly in cases where price competition is low or absent. (Table 5.35).

Interestingly, expanding firms seem well able to adjust role demands to high quality competition even when price pressures are very high, while stagnating and shrinking businesses are only responsive when price competition is very low (Table 5.36). Seen from another angle, these findings may indicate that when a firm operating under high quality competition and price competition is still able to install more demanding work procedures, it is probably highly productive and likely to expand.

Table 5.35: Percentage of firms in which the time needed for mastering operative work-roles has recently increased: comparing industrial and service firms facing different intensities of competition
 

Price competition	Industrial Sector			Service Sector
	Quality Competition			Quality Competition
	low	medium	High	low	medium	high
low	42	33	61	13	39	50
medium	31	48	44	57	33	42
high	40	53	51	19	44	42

Table 5.36: Percentage of firms in which the time needed for mastering operative work-roles has recently increased: comparing expanding and nonexpanding firms facing different intensities of competition
 

Price competition	Expanding firms			Non-expanding firms
	Quality Competition			Quality Competition
	low	medium	High	low	medium	high
low	35	53	59	19	24	55
medium	38	48	47	43	42	42
high	40	55	60	32	40	37

5.5 The Impact of Competition on the importance of various skills

By focusing exclusively on the formal level of vocational education, the antecedent empirical analysis was severely insufficient to grasp the full impact of competitiveness on the requirements for skills. First of all, it has to be acknowledged that preferences for formal certificates are also (and in some cases foremost) determined by status considerations and/or specific occupational traditions, not by functional necessities associated with specific environmental conditions, work problems and organizational roles. And secondly, many essential work skills are “informal” in the sense that they can either be acquired outside formal educational settings (e. g. foreign language or computer skills) or not be systematically acquired at all (e.g. social competencies and character-related skills).

In order to understand more fully how competition impinges on the work skill requirements on the level of specific roles, our managerial informants were asked to evaluate the importance of 26 different work skills for average employees working in their company on the operative level. (on a five-point scale from 0 (= absolutely unimportant) to 4 (=absolutely indispensable).

While knowing that competitiveness may have a more direct and stronger impact on particular boundary roles (particularly on the managerial level), we may still hypothesize that pure intraorganizational functions and lower operative levels may also be affected - at least insofar as they are shaped by their organizational strategies, structures, procedures and technologies which are in turn determined by the competitive environmental conditions.

On a most general level, we may hypothesize that high price competition lowers the requirements and narrows the range of required skills, because it gives rise to cost-saving (Taylorist) production strategies which are associated with rather specialized , routinized and undemanding roles. In particular, we expect that more generalized skills not immediately related to the job should get lower ratings, because the have no place in rigorously structured production systems where the skill demands of all work roles are invariant and explicitly known in advance.

Quality competition, on the other hand, can be expected to broaden the range and raise the level of required skills, because sophisticated workers are needed for upgrading quality levels of products and services and maintaining high regular standards during time. In particular, the new “Total Quality Management” methods imply that all employees on all levels are drawn into firm-wide learning processes in order to increase continuously their understanding of production processes as well as their personal qualifications: a strategy which in turn presupposes that employees are skilled enough to acquire additional skills.

As seem from Table 5.37, most of the respective correlations coefficients are disappointingly low or insignificant, at least some of these expectations are borne out.

Looking at the entire sample, high price competition has evidently the effect of lowering the salience of rather generalized skills which are only weakly related to the specific job:(general education, foreign languages, computer skills and communicative skills), while these same qualifications are more required under intensive quality competition. The lower demand for planning and organizing skills and for “self guidance” capacities underlines the assumption that intensive price competition goals along with Taylorist” production methods associated with highly controlled and restrictive roles. “Manual dexterity” (the skill most tightly associated with concrete work behavior) is the only qualification boosted by such conventional socio-technical systems.

Quality competition, the other hand, seems to raise the need for personal creativity and flexibility as well as for various social qualifications needed for the maintenance of highly communicative and team-oriented structures.

Table 5.37: Correlations between intensity of competition and the importance of various skills for ordinary operative employees: industrial and service firms and total sample
 

	Industrial Firms		Service firms		All firms
Type of skill	Price Comp.	Quality Comp.	Price Comp.	Quality Comp.	Price Comp.	Quality Comp.
General education	-.11*	+11*	-.06	+.10	-.14**	+.11*
Foreign Languages	-.01	+.08	-.16*	+.06	-.11*	+.07*
Computer skills	-.05	+.10*	-.15*	+.05	-.13**	+.11*
Special vocational knowledge	-.08	+.08	-.02	+.03	-.06	+.04
Longer-term work experience	-.03	+.01	+.05	+.04	-.02	-.01
Manual dexterity	-.01	-.09	+.14*	+.04	+.11**	-.08*
Planning and organization skills	-.07	+.04	-.07	+.10	-.10**	+.06
Communicative skills	-.04	+.14*	-.14*	+.08	-.11**	+.08*
Skills to cope with conflicts	-.02	+.07	+.01	+.14*	-.02	+.10**
Creativity, innovativeness	-.09	+.07	+.02	+.08	-.05	+.09*
Autonomy, self-guidance	-.17**	-.04	-.03	+.03	-.11**	-.01
Flexibility	-.08	+.03	+.03	+.17**	-.04	+.11**
(N = )	(442)	(430)	(305)	(296)	(831)	(806)

* p < .05 ** p < .01

Many of these correlations vanish or become insignificant when the total sample is broken down into industrial and service organizations. Thus, the negative impact of price competition on the need for foreign languages and computer skills (and its positive correlation with manual skills) is seen exclusively in the tertiary sector, while its lowering effect on general education and self-guidance seems to be restricted to industrial firms. Similarly, quality competition seems to have divergent consequences: increasing primarily the need for computer and communicative skills in the industrial sector and the demands for flexibility and conflict resolution skills in the service branches (where dealing with customers is the foremost operative task).

Interestingly, neither the salience of special vocational knowledge nor the requirements for longer-term work experience are in any way affected. These two items may well be seen as core competencies intrinsically related to the production of goods and services alike: so that they maintain their foremost significance irrespective of competitiveness (or other environmental factors).

Given that the general downskilling effect associated with Taylorist production methods,, it might be expected that the total scope of required competencies is lower when intensive price competition prevails. On the other hand, this effect may well be weakened or neutralized when firms face high quality competition at the same time, because this would force them to maintain rather high skill levels despite the pressures to cut labor costs.

Consequently, we expect lowest skill diversity when price competition is high and quality competition rather low.

For testing this hypothesis, we calculate a summative index which expresses how many (out of 12) competencies are considered to be “essential” or even “indispensable” for doing the average operative jobs.

Conforming to our theoretical expectations, the results of Table 5.38 show that the required diversity of skills declines with increasing levels of price competition, and that this effect is most pronounced when quality competition is low. In the industrial as well as in the service sector, price-competing firms are only able to perfectionize cost-cutting Taylorist procedures when they don’t face countervailing upskilling pressures stemming from quality competition.

Older firms (founded 1930 or before) are most likely to keep skill demands minimal when they operate under medium or high price competition. This indicates that they have realized classical principles of Taylorist organization more pervasively than younger firms which seem to be committed to more homogeneous higher-skill work forces even when cost pressures stemming from price competitiveness are rather high

Table 5.38: The impact of competitive intensity on the average number of skills* which are rated to be “essential” or “indispensable” for ordinary operative employees

1) Contrasting industrial and service enterprises
 

Price competition	Industrial sector			Service Sector
	Quality Competition			Quality Competition
	low	medium	high	low	medium	high
low	6.2	5.0	5.5	6.5	5.9	7.0
medium	5.3	6.1	5.5	5.6	6.3	6.0
High	4.0	5.4	5.2	4.8	5.7	6.7

5) Contrasting older and younger firms

Price competition	Old firms (founded before 1930)			New firms (founded after 1971)
	Quality Competition			Quality Competition
	low	medium	high	low	medium	high
low	5.8	4.9	5.6	6.1	6.5	7.1
medium	3.7	5.8	5.4	6.4	6.1	6.2
High	3.7	5.4	5.4	5.4	6.4	5.9

As expounded above (see 5.2.6), export orientation may be considered a salient intermediary variable which moderates the causal impacts of competitive intensity on the requirement for human skills.

Thus, highly pronounced price as well as quality competition may create more profound problems for exporting firms than for enterprises which produce for domestic markets, because when competitors originate from many different countries, at least some of them are likely to be highly superior in efficiency, innovativeness or any other salient trait.

Consequently, correlation coefficients between competitiveness and skill demands should be higher in internationally oriented than in pure domestic firms.

As shown in Table 5.39, this expectation is at least partially borne out. Thus, exporting firms are more likely to lower their demand for foreign language skills, computer knowledge planning and communicative skills, creativity and self-guidance capacities when they face high price competition. Instead, much less divergences are seen in the case of quality competition where only three out of 12 coefficients are significant in both subsamples.

Table 5.39: Correlations between intensity of competition and the importance of various skills for ordinary employees: contrasting exporting and nonexporting firms
 

	Exporting Firms		Nonexporting Firms
Type of skill	Price Comp.	Quality Comp.	Price Comp.	Quality Comp.
General education	-.11*	+11	-.11*	+.15**
Foreign Languages	-.13*	+.10	-.06	+.06
Computer skills	-.12*	+.11*	-.08	+.11*
Special vocational knowledge	-.12*	+.06	-.06	+.05
Longer-term work experience	-.08	-.02	-.03	-.04
Manual skills	+.06	-.12	+.03	-.07
Planning and organization skills	-.15**	+.12*	-.04	+.02
Communicative skills	-.12*	+.09	-.04	+.05
Skills to cope with conflicts	-.07	+.13*	+.08	+.05
Creativity, innovativeness	-.12*	+.06	-.01	+.11*
Autonomy, self-guidance	-.17**	+.02	-.04	+.01
Flexibility	-.10	+.10	+.03	+.09
(N = )	(363)	(351)	(424)	(409)

* p < .05 ** p < .01

Like in previous steps of our analysis, we may hypothesize that the correlative relationships between competitiveness and skill demands are weakened by those “irrational” firms which do not adequately perceive what skills are necessitated for adapting most successfully to their environmental conditions. Such informational deficiencies may be particularly severe here because managers cannot be supposed to have adequate insight into the specific work roles on the operative levels - especially in larger enterprises where they are physically and structurally quite removed from the subunits where the daily production of goods or services takes place.

Following these considerations, we can deduce that higher correlations would prevail in the subsample of more successful (=expanding) firms, because their market success may at least partially be conditioned by the fact that required job skills have been adequately perceived.

In fact, this hypothesis is neatly corroborated in Table 5.40, at least for the case of price competition.

Table 5.40: Correlations between intensity of competition and the importance of various skills for ordinary employees: contrasting expanding and nonexpanding firms
 

	Expanding Firms		Nonexpanding Firms
Type of skill	Price Comp.	Quality Comp.	Price Comp.	Quality Comp.
General education	-.20**	+08	-.11*	+.15**
Foreign Languages	-.18**	+.14*	-.06	+.06
Computer skills	-.17**	+.12	-.08	+.11*
Special vocational knowledge	-.10	+.04	-.06	+.05
Longer-term work experience	-.19**	+.17**	-.03	-.04
Manual skills	+.21**	-.12	+.03	-.07
Planning and organization skills	-.20**	+.17**	-.04	+.02
Communicative skills	-.12*	+.10	-.04	+.05
Skills to cope with conflicts	-.19**	+.07	+.08	+.05
Creativity, innovativeness	-.07	+.10	-.01	+.11*
Autonomy, self-guidance	-.17**	+.04	-.04	+.01
Flexibility	-.11	+.14*	+.03	+.09
(N = )	(285)	(275)	(445)	(436)

* p < .05 ** p < .01

Thus, successful firms are much more likely to adjust their skill requirements to competitive relations: reducing their needs for a broad range of generalized skills on the one hand and raising it for manual dexterity on the other. Nonexpanding firms, on the other hand, show almost no reaction to price competitiveness, except by downgrading the importance of “general education”.

Concerning the impact of quality competition, no definite conclusions seem warranted: except by noting that successful firms are somewhat more prone to upgrade the salience of foreign language, organizational skills and flexibility, while stagnating or shrinking companies rely more on creativity and general education.

Thus, we might cautiously conclude that deskilling “Taylorist” rationalization strategies are (still) a highly functional for business success when price competitiveness is very pronounced, while “upskilling” strategies (e.g. associated with lean production methods) may prove not quite as functional when high quality standards have to be reached (or maintained).

6. Conclusions

Based on a contingency model of organizations which stresses the causal interrelationships between environmental constraints and intraorganizational structures, this paper has tried to corroborate the hypothesis that the degree of competition to which a firm is exposed in its sales markets has heavy impacts on its demand for staff skills and its disposition to upgrade such skills by advanced training.

Contrary to most previous studies which have treated “competition” as a one-dimensional concept, we have found good theoretical reasons to make an analytical distinction between the degree of price-related and quality-related competition, because they give rise to highly divergent problems and are likely to evoke quite contrary strategies of procedural and structural adaptations.

These hypotheses were clearly borne out by the empirical findings which showed that price and quality competition

- are two distinct environmental conditions with seemingly quite different antecedents, because they are only weakly correlated with each other;

- have highly contradictory effects on the dependent variables: so that almost zero overall effects are found when the two dimensions are not kept separated.

- display impacts which are highly differently mediated by a number of moderating variables (such as age or size of the firm).

By contrast, intensive quality competition is most often found among younger and smaller enterprises: firms which then feel the need to make heavy investments in highly-skilled employees.

With increasing age, the firm’s sensitivity toward both competitive impacts seem to decline. Because of internal inertias or external “legitimation factors” which shield them from environmental impacts, they especially tend to maintain low percentages of academic personnel irrespective of their situational conditions.

There is an asymmetry in the causal status of both dimensions: in the sense that price competition acts as an overriding condition. Whenever it is high, firms seem to become insensitive to quality competition, because they may lack the “discretionary resources” needed for upgrading their skills.

For similar reasons, responses to quality competition are much more pronounced when firms operate in expanding (rather than shrinking) markets, and when they are themselves in a process of growth (rather than stasis or decline).

Firms operating in international markets also show increased sensitivities. Evidently, they are likely to be exposed to particularly challenging competitors on the price front as well as in the field of quality standards, so that they may face extinction when they are not ready (or not capable) to adapt.

While all firms certainly have the choice of adapting in the ways described or they may get punished when they don’t. This conclusion is at least in accordance with the finding that successful (=expanding) businesses show higher correlations between competition and staff composition than unsuccessful (=stagnating or shrinking) firms.

Given the cross-sectional design of the empirical analysis, it is evident that no secure conclusions about the prevailing directions of causalities can be drawn.

While the time lag between the measurement of the explanans (1996) and the explananda (1998) is conforms with the older contingency paradigm which sees organizations as systems affected by given environmental conditions, there is still the possibilities that the correlations found can at least partially be explained the other way round: e. g. by the regularity that organizations are more likely to expose themselves to certain competitive market conditions when they possess a certain skill composition within their staff, or when they are characterized by a “learning culture” which encourages advanced training.

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