Cullen 4e PPT_CH05-8Oslandsupplements

Copyright© 2007 South-Western/Thomson Learning All rights reserved

Chapters 5-8 Osland supplements


Resource-based view (RBV) – unique bundle of strategic resources available to a firm.

• basis for a competitive advantage of a firm lies primarily in the application of the bundle of valuable resources at the firm’s disposal

• sustained competitive advantage requires that these resources are heterogeneous in nature and not perfectly mobile

• valuable resources that are neither perfectly imitable nor substitutable without great effort

• if these conditions hold, the firm’s bundle of resources can assist the firm sustaining above average returns

• Source: http://en.wikipedia.org/wiki/Resource-Based_View

• basis for a competitive advantage of a firm lies primarily in the application of the bundle of valuable resources at the firm’s disposal

• sustained competitive advantage requires that these resources are heterogeneous in nature and not perfectly mobile

• valuable resources that are neither perfectly imitable nor substitutable without great effort

• if these conditions hold, the firm’s bundle of resources can assist the firm sustaining above average returns

• Source: http://en.wikipedia.org/wiki/Resource-Based_View


VRIN: Valuable, Rare, In-imitable, Non-substitutable

• Valuable - A resource must enable a firm to employ a value-creating strategy, by either outperforming its competitors or reduce its own weaknesses. Relevant in this perspective is that the transaction costs associated with the investment in the resource cannot be higher than the discounted future rents that flow out of the value-creating strategy.

• Rare - a valuable resource is rare. • In-imitable - This advantage could be sustainable if competitors are not

able to duplicate this strategic asset perfectly. Knowledge-based resources are “…the essence of the resource-based perspective.”

• Non-substitutable - Competitors are unable to counter the firm’s value-creating strategy with a substitute.

• Valuable - A resource must enable a firm to employ a value-creating strategy, by either outperforming its competitors or reduce its own weaknesses. Relevant in this perspective is that the transaction costs associated with the investment in the resource cannot be higher than the discounted future rents that flow out of the value-creating strategy.

• Rare - a valuable resource is rare. • In-imitable - This advantage could be sustainable if competitors are not

able to duplicate this strategic asset perfectly. Knowledge-based resources are “…the essence of the resource-based perspective.”

• Non-substitutable - Competitors are unable to counter the firm’s value-creating strategy with a substitute.


Criticisms of RBV:

• VRIN criteria are hard to find in real world • ignores external factors concerning the industry as a whole; Porter ought

also be considered. • Knowledge is hard to “manage.” , • Purchasable assets cannot be sources of sustained competitive

advantage, just because they can be purchased. • The concept ‘rare’ is obsolete: Because of the implications of the other

concepts (e.g. valuable, inimitable and non-substitutability) any resource that follows from the previous characteristics is inherently rare.

• Sustainable: The lack of exact definition with regards to the concept sustainable makes its premise difficult to test empirically.

• VRIN criteria are hard to find in real world • ignores external factors concerning the industry as a whole; Porter ought

also be considered. • Knowledge is hard to “manage.” , • Purchasable assets cannot be sources of sustained competitive

advantage, just because they can be purchased. • The concept ‘rare’ is obsolete: Because of the implications of the other

concepts (e.g. valuable, inimitable and non-substitutability) any resource that follows from the previous characteristics is inherently rare.

• Sustainable: The lack of exact definition with regards to the concept sustainable makes its premise difficult to test empirically.


Differentiation and low-cost

• Differentiation strategy: providing superior value to customers

• Low-cost strategy: producing at a lower cost than competitors

• What companies can do both?

• Differentiation strategy: providing superior value to customers

• Low-cost strategy: producing at a lower cost than competitors

• What companies can do both?


Niche strategy

• Some companies can exploit niches for a while because larger companies aren’t interested. Gore had been a research scientist working with fluoropolymers at DuPont & developed a process for insulating electrical wire with DuPont's Teflon, and this became Multi-tet, the company's first product. DuPont reportedly wasn’t interested.

• Large competitors don’t notice and when they do they may purchase the nuisance competitor before someone else does. Lots of high tech bad purchases that didn’t result in much except enriching the owners of the nuisance startup.

• Some companies can exploit niches for a while because larger companies aren’t interested. Gore had been a research scientist working with fluoropolymers at DuPont & developed a process for insulating electrical wire with DuPont's Teflon, and this became Multi-tet, the company's first product. DuPont reportedly wasn’t interested.

• Large competitors don’t notice and when they do they may purchase the nuisance competitor before someone else does. Lots of high tech bad purchases that didn’t result in much except enriching the owners of the nuisance startup.


Value chain advantage comes from deep process knowledge that is often not patented

• Chemical composition of substances used in a process may not be easily explicable through reverse engineering because of unknowns.

• Knowledge within value chain is hard to explicate, Quest fired veterans and couldn’t find buried cables!

• Social networks and relationships that constitute the human part of the value chain take time to develop.

• Chemical composition of substances used in a process may not be easily explicable through reverse engineering because of unknowns.

• Knowledge within value chain is hard to explicate, Quest fired veterans and couldn’t find buried cables!

• Social networks and relationships that constitute the human part of the value chain take time to develop.


Outsourcing of value chain activities

• Control of certain activities viewed as crucial. Boeing used to insist on making its own wings. Mars controls chocolate but outsources many activities.

• Where labor laws are absurd (e.g., Peru of 1970s), companies outsource as much as possible.

• Portions of R&D can be outsourced but one cannot allow sub-contractors to put it all together for advantage.

• Control of certain activities viewed as crucial. Boeing used to insist on making its own wings. Mars controls chocolate but outsources many activities.

• Where labor laws are absurd (e.g., Peru of 1970s), companies outsource as much as possible.

• Portions of R&D can be outsourced but one cannot allow sub-contractors to put it all together for advantage.


Outsourcing

• When should a multinational company outsource?• Outsourcing makes sense if an outsider can perform

a value-chain task better or more cheaply• However, tasks that are outsourced should the ones

that are not crucial to the company’s ability to achieve competitive advantage

• When should a multinational company outsource?• Outsourcing makes sense if an outsider can perform

a value-chain task better or more cheaply• However, tasks that are outsourced should the ones

that are not crucial to the company’s ability to achieve competitive advantage


Green has become a distinctive competency

• LEED buildings use less energy.• Wal-Mart has shown how parking lots, solar panels,

reduced packaging and much more can reduce costs.• More effective use of water can help avoid regulatory

problems (e.g., Sonoma Wine Company doubled production without additional public hearings)

• UPS has shown importance of scheduling & routes.

• LEED buildings use less energy.• Wal-Mart has shown how parking lots, solar panels,

reduced packaging and much more can reduce costs.• More effective use of water can help avoid regulatory

problems (e.g., Sonoma Wine Company doubled production without additional public hearings)

• UPS has shown importance of scheduling & routes.


Read Michael Porter!

• Since 1980 he has been routinely publishing books and articles that have been cited thousands of times. His writing is accessible to business people and widely used by scholars. Go to google scholar and type in his name.

• Since 1980 he has been routinely publishing books and articles that have been cited thousands of times. His writing is accessible to business people and widely used by scholars. Go to google scholar and type in his name.


Global-Local Dilemma

• Salsa, tequila, Mexican beer, tortillas, and more have become common in the US because of immigrants.

• Chip making, transmissions, engines and the like are global.

• Companies have to learn what components can be leveraged globally but what needs to be local. McDonald’s processes are global but the menu is local, even in Hawaii.

• Salsa, tequila, Mexican beer, tortillas, and more have become common in the US because of immigrants.

• Chip making, transmissions, engines and the like are global.

• Companies have to learn what components can be leveraged globally but what needs to be local. McDonald’s processes are global but the menu is local, even in Hawaii.


Regional strategies may become more common due to energy costs

• As oil prices increase, silly arrangements such as shipping fish to China from Norway to be prepared and then shipped back to Norway may disappear.

• Europe has already found near labor markets in eastern Europe that meet its needs without relying on India or China.

• Immigration crisis may force US to look to Central America and Mexico for cheap labor.

• As oil prices increase, silly arrangements such as shipping fish to China from Norway to be prepared and then shipped back to Norway may disappear.

• Europe has already found near labor markets in eastern Europe that meet its needs without relying on India or China.

• Immigration crisis may force US to look to Central America and Mexico for cheap labor.


Global Markets

• Still require culturally acceptable messages. Danish dairy coop lost Middle East market due to inflammatory free speech in Danish papers where journalists mocked Islam.

• Some markets require education about consumer products commonly sold in US.

• EU advertising too sexually explicit for US.• Laws vary for tobacco and drug ads. Our pharmaceutical

companies get customers to push doctors to prescribe. Some countries ban tobacco advertising but addictions sell themselves.

• Still require culturally acceptable messages. Danish dairy coop lost Middle East market due to inflammatory free speech in Danish papers where journalists mocked Islam.

• Some markets require education about consumer products commonly sold in US.

• EU advertising too sexually explicit for US.• Laws vary for tobacco and drug ads. Our pharmaceutical

companies get customers to push doctors to prescribe. Some countries ban tobacco advertising but addictions sell themselves.


Governmental regulations vary tremendously

• Little countries still tell huge MNCs what to do.• Some failed states are inaccessible (e.g., Somalia,

North Korea, Myanmar, Zimbabwe with more to come!)• The EU is a powerful countervailing force to US.• China’s regulations evolve and have been difficult to

decipher making local partners critical.• India is just now opening to big box retailer like Target.

• Little countries still tell huge MNCs what to do.• Some failed states are inaccessible (e.g., Somalia,

North Korea, Myanmar, Zimbabwe with more to come!)• The EU is a powerful countervailing force to US.• China’s regulations evolve and have been difficult to

decipher making local partners critical.• India is just now opening to big box retailer like Target.


Global strategic alliances

• Fujitsu and AMD made flash memory together and shared results. Spansion evolved from this but has not done well.

• Airlines routinely partner but I wonder how useful miles earned are to customers when they are so hard to use.

• Automobile industry meltdown is leading to new alliances.• Excessive financial interdependence increases vulnerability to

mistakes in one leading to disasters elsewhere

• Fujitsu and AMD made flash memory together and shared results. Spansion evolved from this but has not done well.

• Airlines routinely partner but I wonder how useful miles earned are to customers when they are so hard to use.

• Automobile industry meltdown is leading to new alliances.• Excessive financial interdependence increases vulnerability to

mistakes in one leading to disasters elsewhere


New Argonauts

• Silicon Valley companies have employed and trained thousands of Indians, Chinese, Taiwanese, Israelis, Europeans and others that have returned home and continued business with Silicon Valley. These individuals understand both countries and serve as boundary spanners.

• Silicon Valley companies have employed and trained thousands of Indians, Chinese, Taiwanese, Israelis, Europeans and others that have returned home and continued business with Silicon Valley. These individuals understand both countries and serve as boundary spanners.


http://thenewargonauts.com/


Foreign Direct Investment (FDI) – Marxist critique

• Companies own and control directly a foreign operation, which can lead to a lack of local autonomy and dependence on a foreign entity that may care little for its impact on the country. For example, Chiquita’s managers tried not to fire low-level employees nor squeeze to hard on costs that made workers suffer whereas the HQ didn’t share the same concerns.

• Greenfield investments: starting foreign operations from scratch may involve locals so little that they don’t develop skills.

• Companies own and control directly a foreign operation, which can lead to a lack of local autonomy and dependence on a foreign entity that may care little for its impact on the country. For example, Chiquita’s managers tried not to fire low-level employees nor squeeze to hard on costs that made workers suffer whereas the HQ didn’t share the same concerns.

• Greenfield investments: starting foreign operations from scratch may involve locals so little that they don’t develop skills.


Export via the Internet or sales reps

• Exporting is an easy way for a small company to get started. It can do so via the Internet or sales reps.

• Shipping can be complicated but shipping companies can assist until one learns the ropes for specific high volume markets.

• Eventually successful markets may require overseas presence.

• Exporting is an easy way for a small company to get started. It can do so via the Internet or sales reps.

• Shipping can be complicated but shipping companies can assist until one learns the ropes for specific high volume markets.

• Eventually successful markets may require overseas presence.


Licensing requires trust

• Local and foreign licensees will steal brand if permitted to do so.

• Slight modifications to recipes to adapt to local tastes can shift preferences from global company to local competitor (e.g., Central American fried or broiled chicken companies).

• Internet and global travel makes governments and local business people aware of old products so one cannot readily sell obsolete junk.

• Local and foreign licensees will steal brand if permitted to do so.

• Slight modifications to recipes to adapt to local tastes can shift preferences from global company to local competitor (e.g., Central American fried or broiled chicken companies).

• Internet and global travel makes governments and local business people aware of old products so one cannot readily sell obsolete junk.


Trust is critical for any alliance

• Panamanian government ordered United Fruit to buy from local growers.

• United Fruit made trusted veteran local employees local growers.

• This worked until the company showed a lack of sensitivity to the next generation of growers and they switched to Dole.

• Panamanian government ordered United Fruit to buy from local growers.

• United Fruit made trusted veteran local employees local growers.

• This worked until the company showed a lack of sensitivity to the next generation of growers and they switched to Dole.


Financial shenanigans

Companies circumvent profit repatriation restrictions by finding other MNC that needs local currency for building or land purchase & then get paid in hard currency offshore.

MNCs manipulate transfer prices between entities of the company to take the tax hit in low tax countries.

Offshore banking facilitates obfuscation of sketchy or dubious transactions. The line between tax avoidance and evasion is sometimes hard to discern.

Companies circumvent profit repatriation restrictions by finding other MNC that needs local currency for building or land purchase & then get paid in hard currency offshore.

MNCs manipulate transfer prices between entities of the company to take the tax hit in low tax countries.

Offshore banking facilitates obfuscation of sketchy or dubious transactions. The line between tax avoidance and evasion is sometimes hard to discern.


Political risks greatest in dictatorships but there can be some surprises

• Costa Rica appears to be a good place to invest yet it used to expropriate property from its citizens so often that it appeared risky.

• Even the US can be a fickle partner in some arenas such as family planning programs where the religious right and Catholics have “undue” influence.

• Chavez, Mugabe, Ortega, etc. are obvious examples.• EU & US are poor models for fair trade in agriculture.

Cotton subsidies in US are ruinous to West Africa.

• Costa Rica appears to be a good place to invest yet it used to expropriate property from its citizens so often that it appeared risky.

• Even the US can be a fickle partner in some arenas such as family planning programs where the religious right and Catholics have “undue” influence.

• Chavez, Mugabe, Ortega, etc. are obvious examples.• EU & US are poor models for fair trade in agriculture.

Cotton subsidies in US are ruinous to West Africa.


Country risks include:

Security risk: Big deal for wealthy expats in countries where kidnapping is practiced or lives are threatened.

Political stability risk: The oil companies somehow manage this even in sub-Saharan Africa.

Labor market risk: Closing a business or firing employees in some countries can be ruinous.

Legal and regulatory risk: There can be any number of surprises.Infrastructure risk: Natural disasters disrupt transportation,

existing roads limit transportation etc.Tax policy risk: We all know what our mysterious tax code can do

and believe it or not we train other countries’ bureaucrats!

Security risk: Big deal for wealthy expats in countries where kidnapping is practiced or lives are threatened.

Political stability risk: The oil companies somehow manage this even in sub-Saharan Africa.

Labor market risk: Closing a business or firing employees in some countries can be ruinous.

Legal and regulatory risk: There can be any number of surprises.Infrastructure risk: Natural disasters disrupt transportation,

existing roads limit transportation etc.Tax policy risk: We all know what our mysterious tax code can do

and believe it or not we train other countries’ bureaucrats!


International entrepreneurs

• Otavalo Indians of Ecuador sell products widely within region, just like the Wolof of Senegal trade widely including Italy or the chasidic diamond merchants. Examples of other particular groups that sell widely?

• 1/3 of hotel/motel space in US is owned by Indians, with the name Patel common. A network developed and they assisted one another.

• Overseas Chinese have been vital to commercial sectors of Indonesia, Philippines, Singapore etc.

• Otavalo Indians of Ecuador sell products widely within region, just like the Wolof of Senegal trade widely including Italy or the chasidic diamond merchants. Examples of other particular groups that sell widely?

• 1/3 of hotel/motel space in US is owned by Indians, with the name Patel common. A network developed and they assisted one another.

• Overseas Chinese have been vital to commercial sectors of Indonesia, Philippines, Singapore etc.


Problems associated with design

• Too much local autonomy can lead to problems. Nestles’ local managers pushed infant formula too hard and an international scandal resulted

• Nike’s arms length relationship with sub-contractors led to sweat shop allegations.

• “Cowboy” local managers don’t follow policy.• Controllers should report to global controller and not

local manager so that integrity of control is maintained.

• Too much local autonomy can lead to problems. Nestles’ local managers pushed infant formula too hard and an international scandal resulted

• Nike’s arms length relationship with sub-contractors led to sweat shop allegations.

• “Cowboy” local managers don’t follow policy.• Controllers should report to global controller and not

local manager so that integrity of control is maintained.


Problems with complex structures such as networks and matrices

• External stakeholders, government officials, and customers sometimes don’t know who to address.

• Employees don’t understand the chain of command or decision making processes.

• Complex structures are more expensive than simpler ones because of coordination costs.

• External stakeholders, government officials, and customers sometimes don’t know who to address.

• Employees don’t understand the chain of command or decision making processes.

• Complex structures are more expensive than simpler ones because of coordination costs.


How to enhance organizational design

• Local issues need voice through effective local managers. HQ just doesn’t get it sometimes.

• Important technical issues need international control. These include virtually anything that can cause trouble from chemical disasters (e.g., Bhopal) to quality flaws from shoddy Chinese imports.

• Did you know that “made in Japan” used to mean junk in the 50s & 60s? They used Deming and Juran to improve quality long before the 1980s when the US woke up.

• Local issues need voice through effective local managers. HQ just doesn’t get it sometimes.

• Important technical issues need international control. These include virtually anything that can cause trouble from chemical disasters (e.g., Bhopal) to quality flaws from shoddy Chinese imports.

• Did you know that “made in Japan” used to mean junk in the 50s & 60s? They used Deming and Juran to improve quality long before the 1980s when the US woke up.


Design for enhanced communication

• Video conferencing is used as substitute for grueling and expensive transoceanic visits.

• Regional and international meetings help create awareness and communication channels.

• Expatriate assignments increase awareness, knowledge, and communication.

• Bringing people from overseas to HQ does the same.• Redundancy is vital for effective communication.

• Video conferencing is used as substitute for grueling and expensive transoceanic visits.

• Regional and international meetings help create awareness and communication channels.

• Expatriate assignments increase awareness, knowledge, and communication.

• Bringing people from overseas to HQ does the same.• Redundancy is vital for effective communication.

Cullen 4e PPT_CH05-8Oslandsupplements

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