Sustainable business growth, value creation and dynamic competitive advantage : the Greek pharmaceutical industry

Abstract

PURPOSE: The paper assesses the efficiency in the use of inputs and its impact in the value creation measured by the EBITDA return on assets of a company. The latter is utilized to judge whether the companies involved possess a dynamic competitive advantage which creates business value.

DESIGN/METHODOLOGY/APPROACH: A two step Data Envelopment Analysis (DEA) was applied. Αn input oriented version of the model was employed, using financial data and ratios as inputs and outputs, concerning the Greek owned pharmaceutical companies which are almost entirely comprised of non listed in the Stock Exchange economic entities. In the 1st stage we measured the economic efficiency with which inputs are used. In the 2nd stage we assessed whether the economic efficiency leads effectively into the creation of a lasting competitive advantage, culminating in creating value (return on assets) above the average. We examined whether the efficiency and effectiveness of business ultimately explain the difference in their financial performance and the degree of value creation which is attributed to the endowment of VRIN resources and the existence of dynamic capabilities.

FINDINGS: We found that the efficiency in the use of assets and equity financing explains the EBITDA return on assets, the market value (effectiveness) of equity and eventually the enterprise (EV). Sustainable business growth deciphers the value creation footprint attributed to a tangible dynamic competitive advantage.

ORIGINALITY/VALUE: We argue that in the case of non listed companies, the level of value creation is measured by the effectiveness and efficiency in the use of assets and proficiencies employed. It is mirrored in the magnitude of the EBITDA return on assets and ultimately reflected in the enterprise valuation performance using multiples of value drivers such as revenues-sales and EBITDA (earnings).