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GSBS6481 International Business Strategy
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Week 3: The Resource-Based View of International Business Strategy
Capabilities
Tangible versus intangible resources and capabilities
The value chain
Outsourcing and offshoring
VRIO framework
Complementary assets
Key concepts
Peng, (2021), Global Strategy, 5th ed. USA: Cengage Learning.
Chapter 3 Leveraging Resources and Capabilities
Barney, J. 1991. Firm resources and sustained competitive advantage. Journal of Management, 17(1), 99-120, available through the UoN library link
Lessard, D., Lucea, R., & Vives, L. 2013. Building your company’s capabilities through global expansion, MIT Sloan Management Review 52(2), 60-67. available through the UoN library link
Key concepts
Resource-based view:
Differences in firm performance are driven by differences in firm resources and capabilities
Tangible and intangible assets a firm uses to choose and implement its strategies
Capability: What a firm does with their resources
Key concepts
Tangible resources:
Physical assets eg. land, cash, plant and machinery, and technology
Intangible resources:
invisible assets eg. Knowledge, organisational culture, relationships
Complementary assets:
noncore asset that complements and supports the value-adding activities of core assets eg. IT systems, outsourced partners
Key concepts
Dynamic Capability
A firm’s ability to build and protect competitive advantage
Including: the ability to identify and seize opportunities and to reconfigure existing assets
Distinctive Competency:
a superior characteristic, strength, or quality that distinguishes a company from its competitors, eg. innovation, a skill, design, technology, brand recognition, marketing, workforce, customer satisfaction, or even being first to market. Eg. Apple’s ability to innovate
Theoretical background
Resource-based View of International Business Strategy
Resources and capabilities
The VRIO framework
Value chain analysis
Case activities
Article discussions
Case study “Enhancing Value, Rarity, and Inimitability at Burberry
Industry and Business Unit Effects on Profitability
Rumelt; McGahan and Porter
Theories of the firm
Why do firms exist?
What determines their scale and scope?
Holmstrom & Tirole (1989, p.65)
Or in other words, where do profits (above-normal returns) of the firm come from?
Key theories of the firm
Neoclassical perfect competition theory – the firm exists to combine resources to produce an end product
IO economics – firms exists to exercise monopoly power
Schumpeter – the purpose of firms is to create or adopt innovations that make rivals’ positions obsolete
The Chicago School – firms exist to enhance efficiency in production and distribution
Transaction cost economics – firms exist to save transaction costs
Theories of the firm (cont.)
Source: Conner 1991 JoM
The Resource-based View (RBV)
Two Key Assumptions:
Resource heterogeneity
Each firm has a unique combination of resources and capabilities such that no two firms are “twins.”
Resource immobility
Resources and capabilities unique to one firm cannot easily migrate to competing firms.
The firm is defined by a bundle of unique resources and capabilities
The task of general management is to adjust and renew these resources and relationships as time, competition, and change erode their value
Resources: What a firm Has…
Resources represent inputs into a firm’s production, such as capital equipment, skills of employees, brand names, finances and talented managers
And KNOWLEDGE
Capabilities: What a firm Does…
Capabilities represent the firm’s capacity or ability to integrate individual firm resources to achieve a desired objective.
And putting the knowledge into action
Tangible vs. intangible resources and capabilities
Resources and capabilities that are observable and easily quantified
Broadly organized in three categories:
Technological
Intangible
Resources and capabilities not easily observed or difficult (or impossible) to quantify
Examples include:
Innovation
Reputation
Competing on Resource/Capabilities/Competence
Electronics
35mm SLR camera
Compact fashion camera
EOS autofocus camera
Digital camera
Video still camera
Plain-paper copier
Color copier
Color laser copier
Laser copier
Mask aligners
Excimer laser aligners
Stepper aligners
Inkjet printer
Laser printer
Color video printer
Calculator
Notebook computer
Canon: Products and Core Technical Capabilities
Carborundum
Scotchtape
Road signs
& markings
Post-it notes
Audio tape
Surgical tapes
& dressings
Floppy disks &
data storage
Pharmaceuticals
Housewares/kit-
chen products
New-product
development &
introduction
technologies
CAPABILITIES
Materials sciences
Health sciences
Microreplication
Evolution of Capabilities and Products: 3M
Superior Resources do not necessarily mean Superior Performance:
Transfer Fees and Team Performance in European Soccer
Top performers (Top teams in Spain, Italy & England 1998-2003) Highest expenditures on new players (Top 3
in Spain, Italy & England)
Valencia (Sp) Barcelona (Sp)
Real Madrid (Sp) Chelsea (Eng)
Deportivo La Coruna (Sp) Lazio (It)
Juventus (It) Manchester United (Eng)
AC Milan (It) Inter Milan (It)
Parma (It) Juventus (It)
Manchester United (Eng) AC Milan (It)
Arsenal (Eng) Arsenal (Eng)
Liverpool (Eng) Real Betis (Sp)
The VRIO Framework
VRIO – A matrix analysis of the “sticky” nature of resources and capabilities of a firm and the difficulty of their replication elsewhere.
The four criteria for assessing resources and capabilities and identity those that would lead to sustained competitive advantage
Costly to imitate
Explaining the VRIO in a YouTube video clip
A VRIO Framework Video Tutorial available at https://youtu.be/SD8XJw_qeNI
The VRIO Framework: Value
Value = benefits – costs
Only value-adding resources can lead to competitive advantage, whereas non-value-adding capabilities may lead to competitive disadvantage.
‘Valuable’ in a sense they enable a firm to implement its strategy
The VRIO Framework: Rarity
The Question of Rarity
Valuable common resources and capabilities can lead to competitive parity but no advantage.
Valuable rare resources and capabilities can provide, at best, temporary competitive advantage.
Resources and capabilities that add value in new areas needed to keep up with the competition (benchmarking).
Once competitors develop equal abilities, then no unique and distinctive capability remains on which to build a competitive advantage.
The VRIO Framework: Imitability
The Question of Imitability
Valuable and rare resources and capabilities are a source of sustained competitive advantage only if competitors have a difficult time imitating them
Imitation of tangible resources (such as plants, software, or trucking fleet) is easy.
Imitation of intangible resources (knowledge, managerial talents, and organizational culture) is much more difficult.
Costly to Imitate
Capabilities that other firms cannot develop easily, usually due to:
Unique Historical Conditions
Causal Ambiguity
Social Complexity
The VRIO Framework: Organization
The Question of Organization
How is a firm organized to develop and leverage the full potential of its resources and capabilities?
Complementary assets
The VRIO Framework: Features of a Resource or Capability
Class activities
Please read the short case “Enhancing Value, Rarity, and Inimitability at Burberry” (available in the course site), and answer the following discussion questions
1, Why did Burberry find itself trailing other luxury brands?
2, What resources that Burberry identified that enabled the company to turn around?
3, Would the resources lead to sustained competitive advantage? Why or why not?
Analyzing the value chain
A chain of vertical activities used in the production of goods and services that add value
Firm’s undertake a basic VRIO analysis of its resources to decide whether to keep an activity in-house or outsource it
Division of Value Created in Steel Production Chain
Offshoring and outsourcing
Foreign location
Domestic location
Outsourcing
Outsourcing – Turning over an organizational activity to an outside supplier that will perform it on behalf of the focal firm.
Offshoring – Outsourcing to an international or foreign firm.
Inshoring – Outsourcing to a domestic firm.
Captive sourcing/FDI
Offshoring
Domestic in-house
Article discussion
Lessard et al.: Building your company’s capabilities through global expansion, available through the UoN library link
Important questions:
Will a company’s current capabilities provide a competitive advantage in a target market?
Will that new location give the company an opportunity to enhance its capabilities?
Lessard, et al. (2013) Building your company’s capabilities through global expansion. MIT Sloan Management Review 54, 60-67. (available through the link in the course BB site)
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