Dilemma of Polish subcontractors - DiVA portal1169/FULLTEXT01.pdf · to produce quality. Something...
Transcript of Dilemma of Polish subcontractors - DiVA portal1169/FULLTEXT01.pdf · to produce quality. Something...
The dilemma of Polish
subcontractors - A study of sustaining competitiveness in a
changing environment
Authors: Ewa Chmiel
Johanna Köhnke
Pawel Kuska
Tutor: Dr. Joachim Timlon
Program: International Marketing
Subject: Business Administration
Level and semester: Masterlevel Spring 2008
Baltic Business School
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ABSTRACT
Our interest in this thesis is based on the discussion we had in previous courses about the
development of emerging countries. Since two of the writers of this thesis are from Poland we
tried to found a common interest, hence the relationship between the Polish subcontractors
and Swedish customer is analyzed.
Poland is also known as a low cost country and that make it favorable when it comes about
hiring subcontractors. The subcontractors in Poland are also known for the skills and expertise
to produce quality. Something that is important for many foreign companies. IKEA has more
than 40 subcontractors in Poland; the reason is just the factors mentioned above, to be able to
produce good quality to low cost. (www.ikea.com)
Earlier research indicate that Poland is developing rapidly compare to other emergent
countries in Eastern Europe. There have been and will be changes in the environment that
most likely will affect the competitive advantage that the subcontractors are the leader in. In
other words these changes might lead to that Poland loses its customers which choose other
markets that still are able produce at lower costs.
The main problem for the thesis is to investigate how can polish subcontractors cope with
environmental changes to sustain competitive advantage?
In order to answer this, we used a qualitative approach where the characteristics of a case
study are conducted. We collected and analyzed data in an abductive way. The interviews
with the three Polish subcontractors were made in a semi structure form via telephone. To be
able to solve the above problem an environmental analysis of Poland was done, in order to
found those factors that are mentioned as worries and are likely to change in the future. The
changes are presented from subcontractors’ perspective and recommendation how to cope
with them is given.
Keywords: subcontractors, Poland, furniture industry, environmental analysis, resources and
capabilities, sustain competitive advantage, strategy
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ACKNOWLEDGEMENTS
We would like to take the opportunity to thank our supervisor Dr. Joachim Timlon at Baltic
Business School for his valuable time, knowledge and patient guidance throughout the thesis
writing process.
We would like to thank all of our informants who answered our questions, which have made
to enhance the understanding of the subcontractors’ role in Poland.
Furthermore we would like to express our gratitude to Professor Hans Jansson for his
priceless advices during initial stage of the thesis.
Finally we would like to direct our thanks to PhD students: Mikael Hilmersson for his support
while defining our subject, and Susanne Sandberg for helping out with our interviews.
Baltic Business School, Kalmar, May26th, 2008
Ewa Chmiel Johanna Köhnke Pawel Kuska
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Table of Content
1. INTRODUCTION .................................................................................................................. 5
1.1 Background ...................................................................................................................... 5
1.2 Problem discussion ........................................................................................................... 7
1.3 Problem formulation ........................................................................................................ 7
1.4 Purpose ............................................................................................................................. 9
1.5 Delimitations and explanations ........................................................................................ 9
1.6 Disposition ...................................................................................................................... 9
1.7 Companies background .................................................................................................. 10
2.1 The approach of the thesis .............................................................................................. 12
2.2 Research strategy ............................................................................................................ 13
2.3 Research design .............................................................................................................. 13
2.4 Data collection ................................................................................................................ 14
2.4.1 Primary data ............................................................................................................ 14
2.4.2 Secondary data ........................................................................................................ 17
2.5 Research quality ............................................................................................................. 17
2.5.1 Internal validity ....................................................................................................... 17
2.5.2 External validity ...................................................................................................... 18
3. Theoretical framework ..................................................................................................... 20
3.1 Resources and capabilities.............................................................................................. 20
Resource based strategy ....................................................................................................... 22
The role of changes .......................................................................................................... 22
The role of resources and capabilities .................................................................................. 23
The Institutional model .................................................................................................... 23
Finding drivers of change in an environmental analysis ...................................................... 26
3.4 Competitive advantage ................................................................................................... 26
3.5 Synthesis ......................................................................................................................... 29
4. EMPIRICAL CHAPTER ................................................................................................. 32
4.1 What are your major resources? ..................................................................................... 32
4.2. What are your main capabilities? ............................................................................. 32
4.3. Environmental analysis ................................................................................................. 33
4.3.1 The societal sector ................................................................................................... 33
4.3.2 Organizational fields ............................................................................................... 36
4.4. Identify drivers of change ............................................................................................. 43
4.5. What is your competitive advantage? ........................................................................... 46
5.1 Resources and capabilities.......................................................................................... 48
5.1.2 Classifying capabilities ........................................................................................... 49
5.1.3 Resource based strategy .............................................................................................. 49
5.1.4 The role of change ................................................................................................... 50
5.2 Environmental analysis .................................................................................................. 50
5.2.1 Societal institutions ................................................................................................. 50
5.2.2 Organizational fields ............................................................................................... 50
5.2.3 Industry analysis ...................................................................................................... 51
5.3 Drivers of Change ...................................................................................................... 52
5.4 Competitive advantage ................................................................................................... 53
5.4.1 Establishing and sustaining competitive advantage ................................................ 53
5.4.2 Types of competitive advantage .............................................................................. 54
5.4 Summary of analysis ...................................................................................................... 55
5.4.1 Resources and capabilities ................................................................................ 55
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5.4.2 Environmental analysis ........................................................................................... 55
5.4.3 Competitive advantage ............................................................................................ 56
6. CONCLUSIONS AND RECOMMENDATIONS ............................................................... 57
6.1 Answer to research problem 1 ........................................................................................ 57
6.2 Answer to research problem 2 ........................................................................................ 58
6.3 Answer to research problem 3 ........................................................................................ 59
6.4 Answer to main research problem .................................................................................. 61
6.5 Recommendations .......................................................................................................... 62
LIST OF REFERENCES ......................................................................................................... 64
APPENDIX .............................................................................................................................. 66
Table of Figures
Figure 1. Basic institutional model .......................................................................................... 27
Figure 2. Porter´s five forces model ......................................................................................... 28
Figure 3. Functional classification of organizational capabilities ............................................ 32
Figure 4. Adjusted basic institutional model ............................................................................ 37
Table of Graphs
Graph 1. Pailed wood in mln cubic meteres ............................................................................. 44
Graph 2. Average monthly gross wages and salaries enterprise sector and budgetary sphere 46
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1. INTRODUCTION
In this chapter we present the background of our thesis. By doing this we want to create an
interest to the reader and provide the reader with the main reasons why this topic should be
studied. The background follows by the thesis research problem and ends with the purpose of
this thesis. Delimitation and disposition of the thesis is also presented.
1.1 Background
”Anybody can make a good-quality product for a high price, or a poor-quality product for a
low price. But to make good products at low prices, you need to develop methods that are
both cost-efficient and innovative”.
(http://www.ikea-group.ikea.com)
This quote was the start of this thesis. How it is possible to produce products both at low
prices and secure good quality. We further discuss this citation and since we have interest in
the Polish market and are familiar with the environmental changes this quote become the very
start of a long thesis process.
Our chosen topic how the subcontractors within the furnish industry in Poland can sustain
their competitive advantage is important to study out of three main reasons.
1. Enhance the understanding and high-light the vital need of creating a sustainable
competitive advantage to survive in a changing market.
2. Improve the knowledge about the Polish market and its characteristics that make
Poland a demanded market and its subcontractors an important sector.
3. Create an understanding how an awareness of the changes in the environment has to
be observed to sustain competitive advantage.
Enhances the understanding and high-light the vital need of creating a sustainable
competitive advantage to survive in a changing market, in other words, why firm need to
change their strategies in a changing world. To sustain competitiveness is a great concern for
every company. Making money in business requires establishing and sustaining competitive
advantage. Especially now in this age of global competition while the business environment is
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becoming more dynamic, companies need to develop strategies that could help them to stay
competitive. As competition has intensified across almost all industries, very few industries
environments can guarantee secure returns. To establish a competitive advantage is getting
more important than locating in an attractive industry (Grant, 2008).
Improve the knowledge about the Polish market and its characteristics that make Poland a
competitive market and its subcontractors an important sector. Poland is developing
dynamically; it is a stable economy, a member of the EU, which for Polish companies means
the access to the world`s biggest free market area. At the same time, Poland is a country of
much cheaper, but skilled and educated workforce. Finally, Poland is the biggest of the new
EU member states, with the biggest workforce resources, the most considerable scientific and
legal potential, and 38-million consumer market. All these advantages make Poland the most
attractive location for investment in Europe, both in the area of production and the services.
In many sectors, Polish manufacturing is much more competitive than e.g. Chinese. This
applies mainly to such sectors as: electric house appliances, metal products, automotive,
furniture. The reason for competitive advantage lies i.e. in the proximity of Poland to one of
the most important consumer markets – the EU, which also influences the costs of
transportation (http://www.business.gov.pl/Life,expenditures,78.html).
Due to the globalization the competition become more intense; to succeed it is of importance
to work with the most effective subcontractor. Companies use subcontractors in the parts of
the world where the labor costs are smaller and it is cheaper to by components to the
production (Hermansson, 2008).
Create an understanding how an awareness of the changes in the environment have to be
observed to sustain competitive advantage. Environments are hard to analyze and predict, as
they are perceived as being complex because they contain a lot of different factors that are
unfamiliar to decagons makers and are therefore hard to comprehend (Jansson, 2007). That is
why there is a need for an analysis of the industry environment in order to perceive what
forces influence the competitiveness or which forces change the advantage in a particular
industry or country.
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This background about competitive advantage, the vital role of subcontractors to the firms and
rapid development of Poland bring us to the problem discussion of this thesis.
1.2 Problem discussion
Poland is a market which has a great potential for Swedish firms. Poland has since 1984
developed to a market economy with higher GDP-growth than many other EU-members.
Comparisons to the old EU members the Polish producers have a competitive advantage in
price and costs. They are able to produce the chosen product cheaper than it is possible in
Sweden and still provide high quality. Many Swedish firms move their production and use
subcontractors in Poland because of these advantages. Unfortunately Poland is getting more
expensive due to environmental changes and countries like Ukraine and Bulgaria are
becoming the leader in low cost production. (swedishtrade.se)
Across the Eastern countries that have moved into the European Union, Poland will have
quite a big battle on to attract investments because labor rates have to rise. If they rise faster
than in countries that compete with Poland, Ukraine, Romania and Bulgaria, investors will
just go to those countries, rather than come to Poland. It will affect inward investment and it
will make Polish commodities more expensive on the global scale
(http://www.bieurope.com/cgi-bin/page.pl?pageId=816).
Earlier research showed that the rapid development in Poland may make that the cost
advantage decrease and Swedish firms might be seeking the subcontractors somewhere else.
Due to this environmental change firms are in need to recognize suitable areas where they can
maintain and create a competitive advantage.
1.3 Problem formulation
The above discussion leads us to the main problem of the thesis.
How can Polish subcontractors adapt to environmental
changes in order to sustain their competitive advantage?
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The problem is further divided into three research problems:
To understand and be able to provide recommendations there is a necessity to describe on
what Polish subcontractors currently base their competitive advantage. This will be the
starting point for further discussion concerning characteristics of and changes within external
environment and its influence on subcontractors:
The purpose of the research problem number two is to identify what kind of external factors
in the changing environment influence the subcontractors most. An environmental analysis is
required, here using the institutions approach. After analyzing these factors we are able to
move to the research problem number three:
Research Problem 2.
How does the Polish market look like and how is
it changing?
Research Problem 1.
What is Polish subcontractors current source
of competitiveness?
Research Problem 3.
What are the consequences for the Polish
subcontractors and their source of
competitiveness?
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In this research problem we are going to discuss the results of the influence of the identified
factors on the Polish subcontractors resource base.
1.4 Purpose
The purpose of this thesis can be summarized into following points:
Describe the current competitive advantage of the Polish subcontractors based on their
resources and capabilities.
Analyze the environment and identify the factors which have the biggest impact on
subcontractors’ resources and capabilities due to the changes.
Provide recommendations how Polish subcontractors can sustain their competitive advantage
in order to keep their position on the market.
1.5 Delimitations and explanations
Due to limits in time and resources a few limitations needed to be done.
• We would like to narrow our research area to the subcontractors within the
furniture industry in Poland.
• The subcontractors we interviewed have one major customer in common, IKEA.
• Interviews were conducted through the telephone.
• Our chosen subcontractors are dealing with the production.
1.6 Disposition
• Chapter 1. In the first chapter we introduce the background of our thesis. To clarify
our purpose we also present our research problem that is divided into three sub
problems. Delimitations and explanations are also introduced.
• Chapter 2. In this chapter our methodology is presented, such as research approaches,
design and quality.
• Chapter 3. This third chapter includes the theoretical framework that helps us to
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answer our research problems and increase the understanding of our subject.
• Chapter 4. Here we present our empirical findings. Based on primary and secondary
data an environmental analysis is made. Also the findings we received from the
interviews about the subcontractors’ current situation.
• Chapter 5. The fifth chapter includes the analysis we made from our empirical and
theoretical findings.
• Chapter 6. The conclusion is presented in this chapter. The aim is to answer our
research problems. Further on we will provide recommendation how subcontractors
are able to sustain their competitive advantage.
1.7 Companies background
The subcontractors we interviewed chose to be anonymous in our thesis. All the information
concerning IKEA has been collected from secondary data.
Subcontractor A is one of the top Polish manufacturers of small garden architecture and
large size building structures from glued wood. It has three production institutes in Poland in
which over 300 000 m3
of wood is processed.
Subcontractor B is present on the furniture market since 1967. It produce chairs, armchairs
and tables, however production range keep growing. Company specialized in garden oiled
furniture production.
Subcontractor C is one of the biggest chair manufacturer in Europe and one of the leading
companies in this sector in the world. Company X connects high technology with
contemporary design, at the same time saving the balance between tradition and modernity.
Customer: All case companies have one major customer, IKEA, in common. It is important
to describe it here because majority of production is dedicated to satisfy IKEAs orders.
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The main factors that drive IKEA`s way of doing business and at the same time are the reason
why it cooperates with Polish subcontractors are:
Quality home furnishing products at affordable prices
Low prices are the cornerstone of the IKEA vision, business idea and concept. The basic
thinking behind all IKEA products is that low prices make well-designed, functional home
furnishings available to everyone.
They are constantly trying to do everything a little better, a little simpler, more efficiently and
always cost-effectively. All IKEA units play an important part in creating their low prices
which then they are able to offer their customers.
Distribution and purchasing
The IKEA Group has 31 distribution centers in 16 countries, also in Poland, supplying goods
to IKEA stores, and 45 trading service offices in 31 countries. This enables them to develop
close relationships with their 1,350 suppliers in 50 countries. (www.ikea-group.ikea.com)
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2. METHODOLOGY
The aim for this chapter is to present the methods and approaches we used in our research. It
starts with which approach we used for our thesis, followed by the research strategy design
and data collection. In the end a discussion about the quality of the thesis is introduced.
___________________________________________________________________________
2.1 The approach of the thesis
The structure of the thesis is determined of the chosen methodology. The approach can be
either quantitative or qualitative depending on the way the research question is asks. The
research question in a qualitative study is a statement that identifies the phenomenon to be
studied (Corbin, 1998).
Qualitative research means any type of research that produces findings not arrived by
statistical procedures or other means of quantification (Corbin, 1998). Basically there are
three major components of qualitative research. The first component is data which come from
various sources such interviews, observations, documents, records and films. The second
components are the procedures that researches can use to interpret and organize the data. That
includes for example sampling. The third component is written and verbal reports, as articles
or books (Corbin, 1998).
According to Merriam (1998), qualitative research is a concept that helps us to understand and
explain the meaning of social phenomena with as little disruption of the natural setting as
possible. Qualitative researches are interested in understanding the meaning people have
constructed. The key concern is to understand the subject of interest from the participants’
perspectives not the researches.
Due to our research problem we want to create an understanding of the problem and explain
the causes behind the phenomenon. Since we are collecting our data from interviews and
books we feel that the qualitative approach is best suited to our thesis.
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2.2 Research strategy
Based on our thesis approach there are few strategies to consider before conducting the
research. The major one are, according to Yin (2003), experiment, survey, archival analysis,
history and case study. Each one of them represents certain way of collecting and analyzing
data and is relevant in different situations. In order to decide which strategy suits best the
analyzed situation should start with defining the types of research questions. Next step is to
define the extend of control the investigator has over the events and the degree of focus on
contemporary as opposed to historical events.
Yin (2003) continues with that a situation where the posed questions are how and why, the limited
control the researcher has over events and when the focus is on a phenomenon within its real-life
context, the preferred research strategy is the one of case study.
Yin (2003) defines a case study as:
“Investigates a contemporary phenomenon within its real-life context: when the boundaries
between the phenomenon and context are not clearly evident: and in which multiple sources of
evidence are used”.
Adapting a case study the questions what can be seen as a case occur. It can be a group, an
organization or a situation. The aim is to explain, understand or describe a certain area.
Based on our research area where we want to investigate, understand and describe a situation
a case study is best suited. There is a need or multiples sources of evidence to fulfill our
purpose. We needed to collect data from interviews and secondary data to be able to answer
our research problem.
2.3 Research design
The research design functions as a basis for the methods used to collect and analyze the data.
There are three approaches how to do this, deduction, induction and abduction (Fisher, 2004).
The author continues with using the deductive design the researcher bases the arguments on
certain theories and literature within the research area. The arguments are the logic conclusion
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from the general laws. The advantages by using a deductive approach are that the objectivity
in the research strengthens since it is based on existing theory. The disadvantage is then that it
can be hard to explore new information. Induction is the opposite situation where the
arguments are made on the base of experience and they are transferred into general rules. The
researcher assumes that observed situation is highly probable to happen in the future (Fisher,
2004). The abductive approach can be seen as a combination of deduction and induction in
order to maximize the advantages and reduce weaknesses of both approaches. The abductive
way of collecting data the researcher starts from an inductive approach and later turns into a
deductive approach. The advantage of this approach is that the researcher´s work be more
open and are not so strictly forced into one way of thinking. The disadvantage is that most of
the time the researcher allready has an understanding or experience of the study and in that
way it can be hard to start completely in an inductive way.
Due to the need of constant change of receiving the information to our study an abductive
approach is chosen. We used an abductive approach when collecting and analyzed our data.
Therefore will our discussion be open for new information and during the data collecting can
create new ideas and solutions.
It is important to point out that all ready had knowledge and in some way experience of our
research area. Through earlier research we created an awareness of our research problem and
what we might found. Due to this pre knowledge we tried to be objective so a deeper
understanding and findings could be found and collected.
2.4 Data collection
There are two ways of collecting data. Using primary or/and secondary sources. Both ways
are important for our research. We decided to make interviews as the primary data in addition
to various related theory and other document as the secondary data. The process of collecting
both the primary and the secondary data is explained below.
2.4.1 Primary data
Primary data is based on sources that have not been used before. Primary data refers to raw
data and data structures that have not yet had any form of meaningful interpretation. It is
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about discovering something new (Fisher, 2004). The most common exploratory qualitative
methods to collect primary data include interviews, observations, panels and questionnaires.
We have been using interviews to collect our primary data. Having interviews is necessary
and the only way for us to understand our research area and receive the answers we need.
Interviews Interviewing is a common way of collecting qualitative data. In all forms of qualitative
research, some and occasionally all of the data are collected through interview (Merriam,
1998). The main purpose of an interview is to obtain a special kind of information. The
researcher wants to find out what is “in and on someone else`s mind”.
Yin (2003) argues that, interviews are an important source of information. The author means
that during the interview, the interviewer need to concentrate on two things: 1) to follow one’s
own line of inquiry, as reflected by the case study protocol; and 2) to ask the questions in an
unbiased manner that also achieves the needs of one’s line of inquiry.
Interviews may be highly structured, semi-structured or unstructured (Merriam, 1998).
Interviewing in qualitative investigations is more opening ended and less structured. A less
structured alternative is the semi-structured. In other words the semi-structured interview is a
mix of the two mentioned above. In this type of interview the questions are more flexible but
they are still following a guided list with questions. In this way the interviewer and the
respondent will be more open to new ideas on the topic. This kind of interview is good when
the researcher do not know enough about the subject.
In our thesis, the semi-structured interview has been chosen, based on a number of factors.
Although the questions were written out on beforehand, there was the possibility, to a certain
degree, of being flexible once conducting the interview. Many of the questions were therefore
open-ended and rather broad in its structure, since it was desired that the interviewees would
expand on the topics and issues.
The initial contacts with the potential interview candidates were made by sending an email
with all the basic information concerning which who we are the background about our
research area, our research problem and the focus of our thesis. In the next step we contacted
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our interviewees in order to confirm their participation in our research. In the end we
proposed a telephone interview to make them ready for our call.
Each of the interview took approximately 45 minutes. Our respondents received questions
before the interview so they were familiar with the purpose of the research and had a chance
to prepare the most updated answers. As the questionnaire had a semi-structured form we
were allowed to ask more questions in order to gain deeper and wider problem analysis.
We recorded the interviews so we could go back and listen to them later. This was also
necessary since there was a need to translate the interviews from Polish into English.
Since the all the interviews were conducted over phone the ability to free discuss the
questions was limited. The interviews was followed in order of the questions and expanded in
those areas the interviewees had an interest in. That is the reason why few areas of the
questions are more developed than other in the interviews.
An interview conducted face to face is recommended, but due to time and distance the choice
of phone interviews was necessary. We feel that we still collected the information that was of
importance to our study.
Sampling A statistical procedure for finding cases to study. Sampling has two functions, it allows you to
feel confident about the representativeness of your sample and such representativeness allows
you to make broader inferences. According to Fisher (2002), the number of samples is a
critical matter. The purpose is to obtain a result that is representative for the whole population
without interviewing each member.
The chosen interviewees were picked in order to help and enhance the information to our
research problem. We started with narrowing our subject to Polish subcontractors cooperating
with the same company in Sweden within the furniture industry. In our next step we built the
sampling frame of names and telephone numbers of all the companies in the appropriate
population, in this case a furniture industry. In order to receive a representative sample we
contacted random companies from the list until we had the proper number of samples. Thanks
to such an approach each company has an equal chance of being included in the sample. In
order to collect the most appropriate results we contacted managers from certain departments.
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2.4.2 Secondary data
Secondary data is based on sources that have already been reported. It concerns scientific
concepts and theories published in books, articles, journals, the internet as well as analysis of
company performance based on annual reports. The purpose of secondary data is to broaden
the subject perspective and improve the quality of the research (Fisher, 2004).
We have collected data from various books, articles, journals, reports and official web-pages
related to our research problem. We consider these data to be helpful complement in our study
so that we can gain enhance our knowledge about the subcontractors and environmental
changes before conducting the interviews and a help to answer our research problem.
2.5 Research quality
In qualitative research, the reader often has to depend on the researcher’s description of what
is being researched. A result is trustworthy when there has been some accounting for their
validity and reliability. These aspects underlie the quantitative research so it takes different
forms in the qualitative research (Merriam, 1998). Ensuring validity and reliability in a
qualitative research involves conducting the investigations in an ethical manner. Yin (2003)
mentions several of ways that can be used to establish quality of any research.
2.5.1 Internal validity The internal validity refers to if an investigator is trying to determine whether one event led to
another event (Yin. 2003). Merriam (1998) argue that internal validity deals with the question
of how research findings match reality. In the qualitative research is that reality is holistic,
multidimensional and ever-changing. In the primary collection of data the interpretations of
reality are accessed directly through observations and interviews. When reality is viewed in
this manner internal validity is a definite strength of qualitative research.
The author continues with that are several factors that can enhance the internal validity. For
us the following factors are relevant.
Triangulation- where using multiple investigators or multiple sources of data that confirm the
findings.
Peer examination- asking someone else to comment the findings the researcher makes.
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In order to improve our internal validity we used various sources of information. We
interviewed different companies within furniture industry. We also contacted certain
departments of the companies to collect the most valid data from specialists. We ask similar
questions in our interviews to find out if we receive the same answers. A deep environmental
analysis was based on different sources of secondary data; we used statistics, articles, books
and web pages to improve our knowledge so we could use it as a foundation for our analysis
and confirm our findings. We have been supervised by people that have knowledge in the
subject that also give this thesis a high level of validity.
2.5.2 External validity The external validity refers to establishing the domain to which a study´s findings can be
generalized (Yin, 2003). Merriam (1998) claims that external validity is concerned with the
extent to which the findings of one study can be applied to other situations. The author
continuous that the issue of generalize ability centers on whether it is possible to generalize
from a single case and so in what way.
We have not tested this study in other situations and that is why we cannot generalize our
findings. On the other hand since the subject concerns a small part of the subcontractor sector
matched with a deep environmental analysis the research can be further discussed and
developed in similar areas.
2.5.3 Reliability Silverman (2005) defines reliability as the degree of consistency with which instances are
assigned to the same category by different observes or by the same observer on different
occasions. In other words if the study is repeated will there be the same results (Merriam,
1998). Yin (2003) claims that the emphasis is on doing the same case over again, not on
“replicating” the results of one case by doing another case study. The author continues with
that reliability is about to minimize the errors and biases in a study.
Since there are so many interpretations of what is happening there is no benchmark by which
to take repeated measures and establish reliability in the traditional sense (Merriam, 1998).
What it is of importance to point out the connection between the reliability and internal
validity. From a traditional perspective is more valid if there are repeated observations have
resulted in same outcome. In a qualitative research the question is not about if the findings
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will be found again, but whether the results are consistent with the data collected (Merriam,
1998).
There are several techniques to ensure that results are dependable.
The investigator´s position- the investigator should explain the assumptions and theory behind
the study, his or her position the group being studied, and the basis for selecting informants
and description of them, and the social context from which data were collected.
Triangulation- especially in terms of using multiple methods of data collection and analysis,
triangulation strengthens reliability as well as internal validity.
Audit trail- in order for an audit to take place, the investigator must describe in detail how
data were collected, how categories were derived and how decisions were made throughout
the inquiry.
All of our respondents were familiar with the subject of our research. In order to increase the
reliability of our studies we use the same questionnaire in every interview. We provide our
respondents with questions their native language. We have been using tape recorder while
interviewing in the companies to avoid the risk of misunderstanding the answers while
translating them into English. We were also aware that our research might be influenced by
the issue that the interviews was held in different language than the language of the thesis.
However, thanks to that we might be able to access information we would have not received if
the interview was in foreign language.
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3. THEORETICAL FRAMEWORK
In this chapter we present the theoretical framework for our thesis. This include theories that
provide us with knowledge necessary to build foundations for answers to our research problems.
Since in our first research sub-problem we are going to answer what is Polish subcontractors
current source of competitiveness the theory concerning resources and capabilities is
provided. Then to analyze the Polish market we use the institutional model and Porter`s five
forces model. In order to answer the second research sub-problem we use institutional model
and for the third one the theory connected with the competitive advantages. With the
theoretical background gained in this chapter we will be able to start building the answer to
our main research problem which is: how can Polish subcontractors adapt to environmental
changes in order to sustain their competitive advantages?
___________________________________________________________________
3.1 Resources and capabilities
According to Grant (2008) resources are the productive assets owned by the firm; capabilities
are what the firm can do. It is important to point out that resources does not give competitive
advantage, they have to work together to create organizational capabilities.
There are three types of resource: tangible, intangible and human. The tangible consist of
financial and physical resources. The intangible are technology, reputation and culture. The
human includes the skills, know-how, capacity for communication and collaboration and
motivation. As mentioned earlier resources are not productive on their own, they have to work
together with other resources. An organizational capability is a “firm capacity to deploy
resources for a desired end result”. Grant (2008) discuss further that the interest is to find
which capabilities can provide a basis for a competitive advantage.
Classifying Capabilities
To identify a firm`s capabilities, we need to have some basis for classifying and
disaggregating its activities. In this Master Thesis a functional analysis is being used. A
functional analysis identifies organizational capabilities in relation to each of the principal
21
functional areas of the firm. The table below classifies the principal functions of the firm and
identifies organizational capabilities pertaining to each function, Grant (2008).
A functional classification of organizational capabilities
Functional area Capability
CORPORATE
FUNCTIONS
� Financial control
� Strategic management of multiple
businesses
� Strategic innovation
� Multidivisional coordination
� Acquisition management
� International management
MANAGEMENT
INFORMATION
� Comprehensive, integrated MIS network
linked to managerial decision making
RESEARCH &
DEVELOPMENT
� Research
� Innovative new product development
� Fast-cycle new product development
OPERATIONS � Efficiency in volume manufacturing
� Continuous improvements in operations
� Flexibility and speed of response
PRODUCT
DESIGN
� Design capability
MARKETING � Brand management
� Promoting reputation for quality
� Responsiveness to market trends
SALES AND
DISTRIBUTION
� Effective sales promotion and execution
� Efficiency and speed of order processing
� Speed of distribution
� Quality and effectiveness of customer
service
22
Resource based strategy
According to Grant (2008) the strategy can be seen as a link between the firm and its
environment. The firm embodies three sets of element which are: goals and values, resources
and capabilities and structure and systems. The industry environment represents the core of
the firm´s relationship with its customer, competitors and suppliers. Grant (2008) continues
with that the task of the business strategy is then to determine how the firm will deploy its
resources within its environment so it can satisfy its long-term goal, and how to organize itself
to implement that strategy.
Grant (2008) claims that the strategy needs to be consistent with the firm´s external and its
internal environment. In a turbulent environment strategy must embrace flexibility and
responsiveness. When the firm is surrounded of threats and new opportunities are appearing
then the strategy becomes a vital tool for the firm.
The role of changes
Grant, (2008) claims that competitive advantage emerges when change occurs. The source of
the change may be external or internal to the industry. The author continues that for an
external change to create a competitive advantage, the change must have differential effects
on companies because of the different resources and capabilities. The impact of external
change also depends on firm´s ability to respond to change. As markets become increasingly
turbulent the responsiveness to external change has become more important as a source of
competitive advantage. As an industry evolves, companies must adjust their strategies and
their capabilities to shifting key success factors. Grant (2008) further discuss that the
responsiveness to the opportunities provided by external change requires on key resource-
information which is necessary to identify external change, and one key capability- flexibility.
The faster a firm can respond to changing market circumstances the less it needs to forecast
the future. It can be done by being aware of “early warning system” through direct
relationships with customers, suppliers and competitors.
Grant (2008) further discuss that competitive advantage may also be internal, in other words
innovation. That will say create value for customers from novel experiences, products,
product delivery or bundling.
23
The role of resources and capabilities
Strategy is concerned with matching a firm´s resources and capabilities to the opportunities
that arise in the external environment.
Since competitive advantage has become the primary source of superior profitability in the
unstable environment the resources and capabilities within a firm has been vital to work with.
In other words the greater the rate of change in a firm´s external environment the more likely
it is that internal resources and capabilities will provide a secure foundation for a long term
strategy (Grant, 2008). Internationalization has increased competitive pressure within most
sectors. Establishing competitive advantage through development and deployment of
resources and capabilities has become a primary goal for strategy.
3.2 The institutional network approach
Analyzing the environment can be done through an institutional network approach (INA).
Jansson (2007) claims that being combined in the INA, it provide an approach to interpreting,
understanding and managing the external environment. It also makes it possible to uncover
the societal organ of the information.
By using the institutions model events, trends and patterns are analyzed. Knowledge is created
through analysis, which is done by finding patterns in the external environment of relevance
to the business strategy and analyzing the structural factors behind this pattern (Jansson,
2007).
The Institutional model
The basic structure of institutions consists of groupings segmented into different societal
levels which are embedded in each other.
The institutional model is divided into three levels of description for the rules: micro
institutions, meso institutions and macro institutions (Jansson, 2007).
24
These basic types of societal organizations affecting the company or the sector are segmented
into two major grouping or institutional systems, organizational fields and societal sectors.
Organizational fields are described at two levels, at the micro institutional level, specific
within the organizational field, for example the sector's major customers, product and market.
The other one is government which consists of ministers and authorities that share common
frames of references and ways of acting typical for this field. The macro level is defined as
societal sector.
Figure 1. The basic institutional model (2007)
The societal sector creates a foundation of the market. All these influence the company
indirectly but are important to consider while developing the strategy. The societal sector and
the organizational field linked together create specific country environment organized as an
institutional framework. It is of importance to point out that the parts that being analyzed
should be relevant to purpose of the analysis (Jansson, 2007).
The organizational fields consist of the labor market, product/service market, government
and financial markets. These institutions influence the company directly and create formal
rules, which are a result of influence from societal institutions.
The Company
Business mores Professional and interest associations
Societal sector Country culture Educational/training system
Government
Product/service market
Family/
clan
Religion
Political
system
Legal
system
Financial market
Labour
market
Organizational fields
25
3.3 Porter`s 5 Forces Model
These five forces include three sources of horizontal competition: Competition from
substitutes, entrants and established rivals. Two vertical sources of competition are also
shown: the power of suppliers and power of buyers.
Figure 2. Porter´s five forces of competition framework (2008)
Rivalry Between
Established
Competitors - concentration
-diversity of
competitors
- product
differentiation
- excess capacity and
exit barriers
Institutions model
-capital requirements
-economies of scale
-absolute cost
advantage
-product differentiation
-access to channels of
distribution
-legal and regulatory
barrier
Threat of Substitutes The Threat of Entry
- buyers’ propensity to
substitute between
alternatives
- the existence of close
substitutes
Buyers` price
sensitivity - cost of purchases as
%
of buyer’s total costs.
- differentiation
- intensity of
competition between
buyers
Relative bargaining
power - size and
concentration of
buyers relative to
sellers
- buyer’s information
- ability to backward
integrate
Power of Buyers
Factors determining power of suppliers relative to
producers; they are symmetric to those
determining power of producers relative to
buyers.
Power of Suppliers
26
Finding drivers of change in an environmental analysis
The process of finding drivers of change starts by approaching the environment from the
perspective of the sector inside out mode. The purpose is to determine the most critical
structural factors of the environment influencing the subcontractor; these are defined as key
factors for future success for example the next five years. They are coming from both
secondary and primary data, both from a combined analysis of the environment and the
sector. The aim is to divide them into two groups. Key factors that are possible for the sector
to influence and key factors that are impossible for the sector to influence, Societal and
organizational fields. The findings of the factors that are essences of each institution are
crucial for future success for the sector (Shoemaker, 1995).
The author continues with that the next step is interviewing people in various positions to find
out how they imagine these factors will look like for the companies in the future. After that
return to the environment and study the key factors by deepening the environmental analysis
we started on earlier. The purpose is to describe further the institutions identified through
these key factors and target ones relevant to the organizational fields related to the factors
impossible to influence. An important part of this process is to broaden the analysis of the
environment in order to look for factors or institutions that might be important for future
development.
The aim for this process is to extract those institutional factors that are a source of change.
3.4 Competitive advantage
“When two or more firms compete within the same market, one firm possesses a competitive
advantage over its rivals when it earns a persistently higher rate of profit”.
(Grant 2008, p205)
As competition has intensified across almost all industries, very few industry environments
can guarantee secure returns. The goal is then to establish a position of competitive advantage
for the firm (Grant, 2008). According to Grant (2008) a competitive advantage may not be
revealed in higher profitability, a firm may abstain from current profit favor of investments in
market share, technology, customer loyalty or executive advantages.
27
Establishing competitive advantage
According to Grant (2008) for a resource o capability to establish a competitive advantage,
two conditions must be present: scarcity and relevance. If a resource or capability is widely
available within the industry, then it may be essential to compete, but it will not be a
sufficient basis for competitive advantage. A resource or capability must be relevant to the
key success factors in the market.
Sustaining competitive advantage
Profiting from competitive advantage requires that the firm first establishes a competitive
advantage, and then sustains it competitive advantage long enough to reap the rewards (Grant,
2008). The competitive advantage in production markets requires complex combination of
resources and capabilities. The greater heterogeneity of firms´ resources and capabilities the
greater is the potential for competitive advantage.
According to the author how long the advantage is sustained depends on whether resources
and capabilities are durable. Since some resources are more durable than others and that leads
to a secure competitive advantage, and whether rivals can be imitated. Resources are imitable
if they are transferable or replicable. That will say the extent to which they are mobile
between companies. Sources of immobility include geographical immobility of natural
resources, large items of capital equipment and some types of employees. Imperfect
information regarding the quality and productivity of resources creates risk for buyers. In
other words the hiring decisions are based on little knowledge how the person is going to
perform. The organizational capabilities are also immobile since they are based on team’s
resources. The dependence of the team in a wider network of relationships and corporate
culture may create difficulties for recreating the capability in the new company. Finally, If a
firm cannot buy a resource it has to build it otherwise it would be very hard to remain
competitive.
Types of competitive advantage
Competitive advantage can translate into profit potential in two ways (Porter, 1985). Cost
advantage and differentiation advantage.
28
Cost advantage means that the firm can supply an identical product at a lower cost. It creates
a unique low-cost way of making the product available. This allows the supplier to make
available a competitively priced product, with some additional margin left to enhanced profits
in other words cost leaderships. Grant, (2008) explain that cost leaderships require that the
firm must find and exploit all sources of cost advantage.
Differentiation advantage occurs when, according to Grant, (2008) it provides something
unique that is valuable to buyers beyond simply offering a low price. Porter, (1985) claims
that to create a differentiated product the characteristics of which cannot match the
competition, and for which the customer is prepared to pay a superior price, the profit
potential derives from price premium.
Grant (2008) discuss that differentiation is concerned with a firm´s positioning within a
market in relation to the product, service and image that influences the customer´s choice.
Differentiation is concerned how a firm competes, the ways it can offer uniqueness to its
customer. Such uniqueness might relate to consistency, reliability, status, quality and
innovation.
Successful differentiation involves matching customers´ demand for differentiation with the
firm´s capacity to supply differentiation. In other words successful differentiation is to
understand the customers. It also depends on a firm’s ability to offer differentiation. To
identify the firm´s potential to supply differentiation a need to examine the activities the firm
performs and the resources it has access to be necessary is the drivers of uniqueness. They are
product features and product performance, complementary services, intensity of marketing
activities, technology embodied in design and manufacture, the quality of purchased inputs,
procedures influencing the conduct of each activity, the skill and experience of employees,
location and the degree o vertical integration.
The Drivers of Uniqueness
Differentiation is concerned with the provision of uniqueness. A firm’s opportunities for
creating uniqueness in its offerings to customers are not located within a particular function or
29
activity, but can arise in virtually everything that it does. Michael Porter identifies a number
of drivers of uniqueness which are decision variables for the firm:
Product features and product performance.
Complementary services (e.g., credit, delivery, repair).
Intensity of marketing activities (e.g., rate of advertising spending)
Technology embodied in design and manufacture.
The quality of purchased inputs.
Procedures influencing the conduct of each activities (e.g., rigor of quality
control, service procedures, frequency of sales visits to a customer).
The skill and experience of employees.
Location (e.g., with retail stores).
The degree of vertical integration (which influences a firm’s ability to control inputs and
intermediate processes).
According to Grant (2008) the two sources of advantage define two different approaches to
business ideas. A firm that competing on low cost is distinguishable from a firm that
competes through differentiation in terms of, market position, resources and capabilities and
organizational characteristics. Cost advantage is highly vulnerable to unexpected sources and
to new technology and strategic innovation. Hence sustained high profitability is associated
more with differentiation than cost leadership.
3.5 Synthesis
Aim of synthesis is shortly answering to the research questions stated in the first chapter. The
answers are based on the theoretical framework.
1. What is Polish subcontractors current source of competitiveness?
30
• Resources and capabilities of the firm are the source of its competitiveness. By
identifying three principal types of resources: tangible, intangible and human
resources we will find out about Polish subcontractors current state of resource base.
• Because resources are not productive on their own, and to perform a task a team of
resources must work together the key issue are organizational capabilities. To be
competitive a firm needs to have many different capabilities in different areas of its
activity. Resources and capabilities are very important as they are the source of firm`s
profit. If we know a firm resources and capabilities we can define its competitive
advantages.
• As we already know the Polish subcontractors can supply their customers with an
identical product at a lower cost. This is the starting point for our thesis, that is why
we can answer that they are competitive because of the cost advantage.
2. What does the Polish market look like and how is it changing?
• By using institutional model we are able to describe the Polish market. By defining
different factors in the societal sector and in the organizational fields we are able to
observed what influence this factors have on the subcontractors. What is more, by
analyzing the environment we can determine the drivers of change. These factors have
the biggest influence on the subcontractors.
• By using Porter`s 5 forces model we gain information about the furniture industry. As
there are many features that determine the intensity of competition and level of
profitability we are going to use this model to describe the current state of industry.
We are going to focus on the competition from established rivals, competition from
substitutes, competition from entrants, the bargaining power of suppliers and buyers.
By doing this we know how the relations between the actors in the industry look like.
3. What are the consequences for the Polish sub-contractors and their current source of
competitiveness?
31
• To stay competitive a firm needs to know how to establish a new competitive
advantage. A firm needs to have two conditions present for a resource or capability to
establish a competitive advantage, which are: scarcity and relevance.
• Of key importance for every firm is not only establishing the competitive advantage
but also sustaining it. A company`s ability for sustainability depends on whether
resources and capabilities are durable and whether rivals can imitate the competitive
advantage.
• As the consequence companies may have to turn from the cost advantage to the other
type of a competitive advantage. This can be a differentiation advantage. By
differentiating itself from its competitors and providing something unique a firm can
stay competitive. The uniqueness can concern tangible and also intangible
characteristics. A company can compete for example with the performance of the
product or service.
Below we present a model which consists of our research questions and the theory that we
use. The aim of it is to present how research questions relate to each other and to the
theory.
Research Problem 1
What is Polish subcontractors
current source of
competitiveness?
• Institutional model:
- Societal sector
- Organizational fields
• Porter`s 5 forces model
• Establishing competitive advantage
• Sustaining competitive
advantage
• Differentiation advantage
Research Problem 2.
What does the Polish market look
like and how is it changing?
Research Problem 3.
What are the consequences for
the Polish subcontractors and
their source of competiveness?
How can Polish subcontractors adapt to environmental changes in order to sustain their
competitive advantages?
• The resources of the firm
• Organizational capabilities
• Cost advantage
32
4. EMPIRICAL CHAPTER
This chapter presents our empirical findings. First the current state of subcontractors
resource base as well as their capabilities are introduced. Then the environmental analysis is
conducted. We present the parts of the different institutions in Poland that are of importance
to the subcontractors. Then interviews are presented in a way that follows the structure how
do our companies feel about the institutions. Finally the companies’ competitive advantages
are described.
4.1 What are your major resources?
For company A the employees are the main strength. Moreover company claims that the own
research laboratory and well equipped park machine are of great importance.
Company B says that the most important resources are its employees together with the
modern machinery park, which is crucial while dealing with mass production of different and
constantly changing patterns of goods.
According to C, the company position in the market was achieved due to their modern
technology. Company connects this technology with contemporary design; at the same time
keep the balance between tradition and modernity. C continues with that the main resource is
qualified employees.
All interviewed companies stress that human resources play the crucial role in the companies'
performance. Without employees and their skills companies would not be able to achieve
their current position. However human resources are not enough to provide company with
decent profit in this industry. Tangible resources like modern machinery parks were
mentioned as vital by all of our interviewees. Companies notice as well the importance of the
intangible resources and the role of Research and Development department in improving
company's performance.
4.2. What are your main capabilities?
33
All interviewed subcontractors are aware that in order to use resources in most efficient way,
the company need to have certain capabilities. All interviewees claim to have the ability to
manage their costs and expences, in other words, the capability of financial control. This is
reflected in strong will to have more than one customer in order to secure profits in case one
of the customers leave. All subcontractors have capability of providing high quality of
products together with decent speed of distributon and customer service.
4.3. Environmental analysis
Figure 4, Adjusted Basic Institutional Model, Jansson (2007)
4.3.1 The societal sector
Legal System The Polish legal system is based on a mixture of Continental (Napoleonic) civil law and
holdover Communist legal theory; changes being gradually introduced as part of broader
democratization process (www.cia.worldfactbook).
The law in Poland is favourable for FDI. This is mainly because of implementing the
Economic Freedom Act which came into force on 21 August 2004 to improve the business
Polish Subcontractors
Legal system Economic system
Societal institutions
Labour market Product/Service market
Government Financial market
Organizational fields
34
climate in Poland by removing many restraints and uncertainties that had burdened
entrepreneurs.
The far-reaching Act introduces provisions which make setting up a business activity easier
than ever before as well as simplifying day-to-day operations. New regulations provide a
more business-friendly environment and protect entrepreneurs' interests more efficiently.
The number of documents required to commence business activity has been reduced, cutting
the time needed to fulfil all formalities. The number of business activities requiring a licence
has been also cut, as have inconveniences related to government inspections. Entrepreneurs
have never had so much freedom while conducting business activity in Poland as they do
today. Foreign persons from the EU and European Free Trade Agreement zones belonging to
the European Economic Area may undertake and run business on the basis of the same rules
applicable to polish entrepreneurs (Polish Information and Foreign Investment Agency
www.paiz.gov.pl).
Economic system Polish economy went through the transition from communism into capitalism. Poland
experienced two opposite systems, both have their strong and weak points however visible
advantages of free market seem to overweight ideology behind central planned economy.
In a free economy scarcities are resolved through changes in relative prices of goods. If the
product is in a short supply relative to the number of people who want to buy it, price of it
will rise until balance between supply and demand sides is reached. Producers and sellers will
make higher profits and production will increase to meet the demand. When the situation is
opposite, the market is over served; prices of products will fall in order to attract new buyers.
In a free market, buyers and sellers come together voluntarily to decide on what products to
produce and sell and buy, and how resources such as labor and capital should be used
(http://canadianeconomy.gc.ca/english/economy/freemarket.html).
The Polish economy experienced rapid growth in the mid-1990s, slowed considerably in 2001
and 2002, and reach high growth rates again in 2003. In early 2002, the government
announced a new set of economic reforms known as the Hausner Plan. The main aim of the
plan was to improve Poland's investment climate, particularly the conditions for small and
35
medium-sized enterprises, and prepare the economy to compete on European markets as an
EU member. Second part of the plan was to heal Polish public finances in order to create
demanded environment for eventual adoption of euro. However the plan was not completely
realized it has a significant consequences regarding Polish development (www.state.gov).
According to Gdansk Institute for Market Economics (IBnGR) the last quarter of 2007 was a
period of the fastest economic growth in 10 years. Domestic demand was the key driver of
growth, both in the last quarter and in 2007 as a whole. This high growth in domestic demand
was largely due to a fast increase in investment spending. The high increase in investment can
be regarded as a signal that the favorable economic situation will continue in the coming
years. Growth in individual consumption was slightly lower, though still high in the 4th
quarter of 2007 and the year as a whole. The high rate of growth in consumption results from
current trends on the labor market: job creation and a significant increase in wages.
According to The IBnGR predictions the GDP growth rate may reach 5.4% in 2008. In 2009
grow will be slightly slower but should not fall below 5% - the IBnGR projects it at 5.1%.
Weaker economic growth in 2008-2009, as compared to 2007 will be caused by two major
factors. A deterioration of global economic conditions and higher inflationary pressure in
Poland.
The impact of global slowdown will depend on strength and long lasting of the effect of the
US recession. In many forecast, including the latest IMF (International Monetary Fund) report
on the subject of the European economy, it is estimated that the economic slowdown will be
less dramatic in Central and Eastern Europe than in USA and the Euro zone. If the global
slowdown turns out to be temporary, in later years the investment dynamic is expected to be
at a level above that of increase in GDP. The highly activity level of national industries will
be supported by the inflow of FDI, capital from the EU funds and from transfers of foreign
incomes from work abroad. The high investments dynamic will increase the rate of future
GDP growth: on one hand, investments lead to greater efficiency of labour, on the other hand-
as shown by the NBP research regarding FDI- it leads to a modernization and increases in the
levels of innovativeness in the economy.
36
According to press interview with Slawomir Skrzypek, President of National Bank of Poland,
in the medium term it may be assumed that the Polish economy will deploy quickly and in a
balanced manner. This is supported by strong foundations: the intensive modernization of
manufacturing industry and infrastructure with the assistance of national and international
investments, the large numbers of newly created workplaces and decreasing rate of
unemployment, together with the maintenance of macroeconomic stability.
4.3.2 Organizational fields
Government Special Economic Zones (SEZ) is a governmental regulation introduced by the Ministry of
Economic Affairs and Labor that combines the needs of the investors with the needs of the
particular regions, in which they have been situated. Each zone is an administratively separate
part of Polish territory where companies can run businesses on preferential terms.
The purpose of SEZ is to speed up development of the Polish regions, develop new technical
and technological solutions in the national economy, increase the competitiveness of goods
and services, develop the potential of industry and the infrastructure and create new work
places
According to the purpose of SEZ, companies intending to enter it must fulfill certain
requirements. First of all it should create new work places; the number is specifically defined
and depends on the rate of unemployment in the region. A further important criterion is an
ability to support the development of high-tech, IT and R&D investments (www.paiz.gov.pl).
SEZ offers preferential tax conditions, as well as special premises on which entrepreneurs
may conduct business activities without being subject to the payment of income taxes
(www.mg.gov.pl).
As a part of SEZ, company has an access to fully equipped, specially prepared part of land for
a competitive price. Permission to begin trading via SEZ is granted by the management board
of each zone; which also assist in the investment process, for example by helping to contact
local authorities, or central administration and in questions relating to the purchase of the land
for investments.
37
New investments within SEZ have a significant impact on the economic development of the
Polish regions, in the decrease of unemployment and the increase in the competitiveness of
the country economy. Currently, there are 14 Special Economic Zones in Poland, each of them
consisting of several sub-zones (www.mg.gov.pl).
Product/Service market
Rivalry between firms
The competition between firms is not very high since all the subcontractors that work within
the furniture sector and are IKEA´s suppliers all have different productions. The concentration
is high since Poland is IKEA´s leading country of subcontractors (Ikea.se).
Bargaining power of customer
The bargaining power of the customer is very strong since IKEA tends to intrude their
regulations. When the cooperation starts there are a lot of requirements that IKEA puts into
the contract (case company A,B and C).
Relationship with domestic suppliers
To understand the relationship with the domestic suppliers a general discussion about tree
regulation has to be introduced.
Tree regulation
Poland as a member of European Union obeys rules and regulations that are implemented by
EU organs. In 2003 the European Commission approved Forrest Law Enforcement,
Government and Trade – FLEGT). This communication proposes the implementation of a
specific process and a package of measures to address the problem of illegal logging and
related trade, which is becoming an increasing concern. Illegal logging takes place when
timber is harvested in violation of national laws.
The principal objective is to improve governance in timber-producing countries and to set up
voluntary partnerships with them so that only legally harvested timber enters the EU. The
Action Plan targets four key regions and countries which, taken together, contain nearly 60%
of the world's forests and supply a large proportion of internationally traded timber - Central
38
Africa, Russia, Tropical South America and Southeast Asia. The Union will set up a long-
term dialogue process with timber-producing and timber-consuming countries, with a view to
extending international collaboration in the fight against illegal logging and setting up a
multilateral framework as a basis for action. In the near future, a voluntary licensing scheme
will be proposed whereby partner countries issue a permit attesting to the legality of timber
exported to the EU. The Commission will propose a regulation setting up the scheme. This
regulation will define the products to be included and describe the licence authorisation
required.
The FLEGT regulation, although is necessary because it fights against corruption and help to
protect forest resources, means less wood for all the European entrepreneurs
(www.europa.eu).
When it comes about the domestic regulations in Poland they are not favourable for Polish
furniture industry. There are limitations on the amount of wood that can be cut during the
year. These regulations are hold by the Polish institution called Lasy Państwowe. They allow
to cut about 50 – 60% in the increase, the amount of wood of which the forest resources
increase every year. The European standard is cutting 60% of the increase. In the
Scandinavian countries they are allowed to cut 85% of the increase. That is what Polish
entrepreneurs demand, but the reply of Lasy Państwowe is that economy of this kind would
damage the forest resources. In some way Lasy Państwowe slow down the furniture sector -
argue Polish entrepreneurs. The factories do not extend their production capacity because of
the lack of wood in Poland. What is more there is not worth to import wood for example from
the neighbourhood country as Slovakia. Because of the high cost of transport it is worth only
to import big amounts of wood. Most of the companies in the sector (90%) are small ones and
they do not have money to rent the train to transport the wood.
Lasy Państwowe is obliged to obey the regulation number 52 which was implemented in the
day 23.10.2006. It concerns the general way of selling the wood by the State Forest Farm
State Wood (Państwowe Gospodarstwo Leśne Lasy Państwowe). It takes into consideration
regulations on activities by Lasy Państwowe which have to base on principle of financial
independence regulatory. It states that every cost of activities must be cover from gotten
revenues. As manager of property of treasury, units of Lasy Państwowe have duty to sell
39
wood raw material in order to take care of balance on market in the way to assure the proper
level of income simultaneously respecting the act about consumer and competition protection
(www.lp.gov.pl).
The role of The Polish Economic Chamber of Wood Industry is very important in adjusting
regulations. They are anxious for legal regulations which would secure equal access to supply
sources based on known and accepted rules. Among others, they solicit for a regulation of
VAT on wood raw material adjusted to the EU standards (www.pol-wood-
chamber.drewno.pl).
*forecasting
Graph 1. Rzeczpospolita, 21.01.2008
There is still lack of wood in the market; deficit is amounted to 5 mln cubic meters
Supplier`s price sensitivity - suppliers of wood are of the utmost importance for
subcontractors in the furniture industry. The wood is the key raw material for the production.
When it comes about differentiation there are limited types of wood. The level of competition
between suppliers is not very high. They can sell every amount of wood that they have to their
customers as there is not enough wood on the market (www.lp.pl).
Supplier`s bargaining power – suppliers size is relatively similar to buyers size, they are
small firms operating in the sector. But they have strong bargaining power as they sell the raw
material which cannot be very easily received because of its low availability. The backward
40
integration is possible, but it is very hard to operate in the industry. From supplier role it is
hard to get wood from Lasy Państwowe, the new comer who does not have necessary
experience and did not take the part in negotiation in the past will have difficulties in
receiving the wood.
Labour market
For the last three years wages in Poland rose rapidly. In 2007 almost a 10% growth in wages
was observed and according to press interview with Jan Rutkowski, the World Bank expert,
this level can be reached this year as well. This is a consequence of well prospering country
economy; Poland experiences the stage of expansion in the business cycle. The increase in
wages is caused by two major factors: decreasing number of qualified workers and the
current country position in the business cycle.
According to Polish Central Bank Report concerning the situation on the labor market in
Poland 2/3 of diagnosed companies claim that they have to raise the wages to keep current
and attract new employees because they have problems with fulfilling the market demand.
According to the report, approximately 40% of polish companies are planning to increase
wages this year and the figure is higher than in previous years. Also the amount of rise is
higher than in past three years, reaching the average level of 5%. One in three diagnosed
companies is going to increase wages by 5% and one in ten is planning 10% rise. On the other
hand employees put pressure on employers and demand higher wages. According to the
report more and more companies perceive that pressure as a barrier for growth.
In three quarters of 2007, average monthly gross wages and salaries in Polish economy
amounted to 2685, 71 PLN, i.e. they were by 8.6% higher than in the same period of the last
year. In the public sector they amounted to 2964.71 PLN (an increase by 7.7% as compared to
the same period of the last year), while in the private sector they amounted to 2527.16 PLN
(an increase by respectively 9.6%). Compared to the nine months of 2006, a growth in wages
and salaries was observed in all sections of the Polish economy. The growth in manufacturing
section to which we can include the furniture industry amounted to the level of 9.6%. This can
be stated as a good result comparing to the other sectors. During the period of three quarters
of 2007, average gross monthly wages and salaries excluding annual bonuses in the national
41
economy amounted to 2637.34 PLN; it was by 8.7% higher than the previous year. When it
comes about growth in average gross monthly wages and salaries excluding annual bonuses it
was 9.6% in manufacturing. What is important the growth is stable in the whole Poland.
Compared to the nine months of 2006, a growth in average gross monthly wages and salaries
and gross monthly wages and salaries excluding annual bonuses was observed in all counties.
Graph 2. Główny Urząd Statystyczny (GUS), Poland
A growth in wages and salaries in years 2004 – 2007 is observed in all Polish sectors of
economy.
Financial market
Central Bank interest rates
The interest rates are regulated by the Monetary Policy Council, created in 1998 within the
National Bank of Poland. The President of the NBP is also the Chairperson of the Monetary
42
Policy Council. One of the main responsibilities of the Monetary Policy Council and the NBP
is to manage the stability of Polish currency, which includes controlling and monitoring
inflation rates. One of the financial instruments used by the Monetary Policy Council is the
control over short-term interest rates.
There are four main types of interest rates set by the MPC - referential, lombard, deposit and
rediscount rates. The policy of MPC is usually defined by the changes in the referential rate.
Deposit and lombard rates mark the fluctuation of overnight interest rates on the interbank
market. The last one - rediscount rate - is not an instrument for counteracting inflation
(nbp.gov).
Since 2007 NBP lift the interest rates four times, eventually by 1%. Current rate is 5, 75% and
economics forecast it may not be the final rise (www.marketwatch.com). Although increasing
rates did not affect the financial market. Polish currency kept the strong position on the
market. The changes in interest rates were caused by growing inflation in Poland. Inflation
grows rapidly from 2% last year to 4.1% in March 2008. Consumer prices were 4.1% higher
in March, well above the central bank's inflation target of 2.5%. The bank said it "does not
rule out that bringing inflation down to the target in the medium term would require further
monetary-policy tightening” (Puls Biznesu – www.pb.pl).
Increasing inflation is caused by two external factors: rising prices of food and oil worldwide.
Since Poland is too weak to influence world prices it has to adapt. High inflation create
unstable market situation, people are not confident with keeping cash as it loses value, so they
make quick purchase decisions to spend money. Central Bank fights inflation by increasing
rates, what leads to expensive capital (Gazeta Prawna). When a capital is expensive because
of high interest rates, people want to put money into the bank and earn interest. That also
attracts foreign capital to put money into the polish bank accounts. On the other hand bank
credits are more expensive and clients have to pay more for the money they want to borrow.
Companies do not take credits and do not have chance to invest money. As a result companies
are less competitive, what lead to lower profits and cost reductions.
Inflation is very valuable for the country economy but it has to be highly coordinated. Low
inflation stimulates economy to grow, helps to build stable position. Polish Central Bank
43
(NBP) controls the inflation and tries to reach the target level between 2, 5-3, and 5%.
However the task is very hard since inflation is caused by external factors.
Banking system
Polish banking system is strong and stable. Since the political transformation in 1989, Poland
managed to avoid serious shocks, experienced by other countries of the region.
Polish banking system was shaped by the processes running in this market for several years
now. From among 51 commercial banks (as of July 2007), most are fully or partially
privatized. Their privatization was realized by the biggest financial institutions in Europe and
the world. As a result, a considerable amount of Polish banks' equity is in the hands of foreign
investors.
The most important phenomena in the banking sector in the last years are: dynamic
development of credit and loan activities (mainly mortgage credits and loans), and
considerable progress in online banking, offered now by numerous banks. Moreover, over the
recent years Polish citizens started to invest their savings via investment funds and other
financial institutions. This is a sign of wealth; it means that Poles feel secure with their
income. As of the beginning of 2007, the financial resources allocated in investment funds
operating in Poland amounted to PLN 95 billion, which marks a 23% rise over the last year,
and 25% of total savings of the Poles. The development in this area shows that Poles begin to
adjust to the praxis of highly developed countries
(http://www.business.gov.pl/Banking, system, and, financial,services,in,Poland,108.html).
4.4. Identify drivers of change
Company A´s employees are more educated and experienced because the company invests in
training. The company does claim that the increasing salaries can lead to problem within the
company. A restructure of the production must then happen so the company can afford rises.
Labour market: The increasing cost of labor?
Skills of workers?
Employing new workers?
44
Company B claims that they have difficulties with recruiting new employees. The company
experienced problem to find the right person while searching for specialists. However
company admits that workers are more skilled and experienced than they used to be 3 years
ago. Company B is aware of increasing costs of labor and increases their salaries regularly.
Company C tries to respond to employees requests. They are aware of the present tendency in
Poland, which is Polish employees moving abroad due to better chances to find a well paid
work. This awareness leads to that C tries to protect itself from losing workers. The company
has now started to realize how important workers are to the result of the final product.
Understanding how vital the workers are to the firm made the company more conscious of the
need to increase payments and they plan to do it in the next five years
company A cooperating with IKEA means a lot of restrictions required by IKEA. There are
special production requirements which have to be consistent with IKEA´s standards. IKEA
conducts controls very often to check if the rules are obeyed. According to the interviewee,
IKEA is perceived as a powerful entrepreneur who can find another subcontractor anytime.
The rules concerning the raw material are something which has to be taken under
consideration. Company A gains wood only from the best ecological plants in Europe. All of
their products have a certificate which ensure the high quality and ecologically origin of the
material used in the production.
Company B stated that all the subcontractors within the furniture industry in Poland cooperate
within a platform. This means that knowledge is transferred as well as training sessions and
conferences for all the member companies are handled. The purpose is to increase
Product/Service market
Relationship with customers?
Relationship with wood suppliers?
Competitors?
Raw material?
45
productivity and lower the costs. On the other hand, IKEA also respects its subcontractors and
provide access to new technology and innovations so the total costs could be lower.
Company B was influenced by increasing prices of wood. As the rise reached the level of
almost 30%, company was forced to increase the prices in order to gain return on sales. On
the other hand IKEA was insisting on making the prices even lower. Company decided to
raise their prices. As a result IKEA moved some of the orders to China, because even though
the transport costs were higher, the total cost was still lower. However, IKEA is still the main
customer of the company and will not end this relationship fast because of the long, fruitable
cooperation based on trust and high product quality.
According to company C the bargaining power of IKEA is very strong. When they started the
cooperation a contract was signed concerning strong requirements. At the beginning of the
cooperation with IKEA they received a large order. This led to that the company had to adjust
their product line, build new plant and implement new technologies, so they could fulfill
IKEA´s requirements. Eventually IKEA changed its mind and canceled the order. It caused
the company C almost bankrupted.
The company further states that it is very hard to negotiate with IKEA; they have hard
restrictions and tend to put their conditions on force. Everything is governed to the IKEA's
way of doing business.
According to Company C their main competitors, which are companies from Slovakia and
from Poland do not have the required resources and capabilities to imitate the company.
Subcontractor C does not have any problems with raw material. They have very good
relationships with wood supplier. Mainly due to long cooperation with wood supplier they
have established their current position which means that they can get the ordered amount of
wood. They plan to increase the turnover up to 50%.
Financial Market
Do you take bank credits?
Are there any obstacles to borrow money?
Are you planning to use credit in the next five years?
46
Company A has taken a loan to enlarge its park machine. Although, comparing to the past, the
slowdown in the investment rate can be noticed. When it comes to the currency, they
cooperate with IKEA in PLN. It is favorable for the company as Polish zloty is strong.
Company B has taken credits in the past, before the prices of credits increased. Company is
not planning to take credits in the next 5 years due to previous liabilities.
As a part of SEZ, companies do not pay income taxes. This is a great benefit of being a part of
the zone, it regulates and helps the companies when they started and provide additional
advantages as the company grow. All of the subcontractors stated that they expect an increase
in their turnover during the following years, company C plans to increase its turnover even up
to 50%.
4.5. What is your competitive advantage?
According to company A their competitive advantage is that they gain wood only from the
best, ecologically leaded plants in Europe. Another advantage is timelines of delivery adjusted
to the high requirements. Long experience in cooperation with domestic and foreign partners
is also perceived as a vital capability that keeps them competitive.
Company B explains their competitive advantage as the quick implementation of various
types of products.
Government
Are there any other institutions that help you?
Do you receive any help from government, if so what kind?
Do you expect any help in the future?
What performance do you expect in the next 5 years
according to country economy?
47
Company C says that they do not focus on prices, as they do not see their prices as a
competitive advantage; instead they focus on service and high quality. The interviewee also
claims that their competitive advantage is based on the unique method of wood bend.
4.6 Synthesis The aim of empirical synthesis is to sum up all the empirical information relevant for
answering the research questions. It is necessary also for the further synthesis of analysis
which combines empirical findings with theory.
1. What is Polish subcontractors current source of competitiveness?
• All the interviewed companies realize that their current resource base is crucial for
being competitive on the market. Subcontractors work on their resource base in order
to constantly improve it.
• Companies A, B, C know how important for the state of their company are training
their employees and investing in new technology.
• The interviewed companies are aware that comparing with other countries
subcontracting for IKEA they are able to produce at lower cost.
2. What does the Polish market look like and how is it changing?
• All the interviewed companies claim to be influenced indirectly by two factors from
societal sector which are: legal system and economic system.
• Additionally, they are effected directly by four factors from organizational fields,
which are: government, product/service market, labour market, financial market.
3. What are the consequences for the Polish subcontractors and their current source of
competitiveness?
• All of the interviewed subcontractors are conscious of the environmental factors that
can cause consequences for them.
• The subcontractors are afraid that factors may have changed their current resource
base. They are aware of the fact that costs increase and they would have to adjust their
resources and capabilities to the new situation.
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5. ANALYSIS
In this chapter we analyze our empirical findings connecting it with the theoretical
framework, introduced in chapter 3. The analysis is based on our synthesis of both theoretical
framework and empirical data. The starting point are resources and capabilities of the
subcontractors. Then, in order to enhance the understanding of environmental influence on
the companies and identify the drivers of change we have to clarify the different institutions'
impact on the subcontractors. Additionally, the competitiveness of the subcontractors will be
analyzed. The aim for this chapter is to find answers to our research problems.
___________________________________________________________________________
5.1 Resources and capabilities
5.1.1 Resources
The interviewed companies have many different resources, based on the theory we can divide
them into three groups and they are: tangible, intangible and human resources.
When it comes about tangible resources, there are physical assets that can be identified as the
same in the case of more than just one Polish subcontractor. There are modern plants with
equipment of high quality. Subcontractor B claims to have very modern machinery park. This
machinery park is of key importance in producing many different patterns of commodities.
The subcontractor A also states to have modern and well equipped park machine. They are
one of the biggest Polish companies in the furniture industry. Only one of the interviewed
Polish subcontractors has direct access to the resources of the wood, but still the amount of
the wood which can be gained from the forests is strictly regulated by the institution Lasy
Państwowe.
For most companies, intangible resources are more valuable than tangible resources. In the
case of Polish subcontractors intangible resources play a vital role. In the case of the company
C R&D is of the utmost importance, the company position in the market was achieved due to
their modern technology, the innovative method of wood bending. Sharing platform opens up
the opportunity for new innovation.
The main and most important resource for all of our subcontractors are human resources.
Employees skills and know how are the base of the competitiveness. Unfortunately, as
49
mentioned in the environmental analysis, some difficulties in recruiting new employees
occurred in Poland recently, and this is something that Company B notice. Company B claims
to have problem with that as many Polish workers tend to search for work abroad. On the
other hand, the employees who are hired are well educated. What is more company invests in
training of the employees so they can gain new skills. Although identifying and appraising the
stock of human resources within a firm is difficult. According to the interviewed
subcontractors if the companies want to keep the employees working for them they have to
reply to their requests. For example company C realizes that these are employees who are so
important to the result of the final product so that is why they should be adequately paid.
5.1.2 Classifying capabilities
Capabilities are what the firm can do. To perform a task, a team of resources must work
together. The resources are deployed for a desired end result – that is what is called firm`s
capacity. All of the subcontractors have capability of the financial control in the area of the
corporate function. This is the ability to manage firms’ costs and expenses in relation to
budgeted amounts. It is connected with the amount of the customers that a subcontractor has.
It is more secure to have a couple of customers to which a company can sell 80% than one big
entrepreneur to which it sells 100% of the commodities. For instance the company C has
some problems with the control of their finance after the failed cooperation with IKEA. They
almost bankrupted because of the Swedish entrepreneur. Other capabilities are research and
innovative new product development in the area of R&D which each company uses in its
sector. The design capability in the area of product design is a capability that is common for
all the interviewed subcontractors. Additionally company C has capability of efficiency and
order processing, speed of distribution; and quality and effectiveness of customer service, all
of them in sales and distribution area.
5.1.3 Resource based strategy
According to Grant the strategy can be seen as a link between the firm and its environment.
The internal environment has to match the external; otherwise the firm will not be successful.
Since our subcontractors work together within the platform, where customer, competitors and
suppliers are the same the issue is how they will deploy their resources within their
environment so it can satisfy its long-term goal. The external environment was analyzed in the
previous part under the product/service market.
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5.1.4 The role of change
Competitive advantage emerges when change occurs (Grant 2008). If so, Polish
subcontractors have an unique chance to improve their resources and capabilities in order to
achieve competitiveness. Polish market went through great transformation although further
changes are yet to come. The external environment highly influence subcontractors and force
them to react to changes if they are willing to survive on the turbulent market. The success
depends on how well can subcontractors respond to external changes and create a sustainable
competitive advantage based on their resource and capabilities.
5.2 Environmental analysis
5.2.1 Societal institutions
“The high rate of growth in consumption results from current trends on the labor market: job
creation and a significant increase in wages”.
The situation in Poland has introduced few advantages and disadvantages for our
subcontractors. Due to the economic situation companies are generating high profits and in
that turn they can invest in high qualitative machines. This investment leads to that they are
able to produce qualitative products at low cost. This is the reason why big, foreign
companies hire subcontractors in Poland to build components. While gaining new client,
subcontractors have to produce more and they can earn higher profit. This income can be
further invested into new technology or employees. As company`s production increases, new
workers are required in order to satisfy the demand. However, new employees mean more
salaries to pay and this can be a problem for a company since wages have increased in recent
years. Subcontractors face the dilemma: if they increase production, more workers will be
needed and higher salaries will have to be paid. On the other hand, if the company do not
increase the production, it may be destroyed by competitors.
5.2.2 Organizational fields
The height of interest rates is crucial while planning credit decisions. Interest rates determine
the prices of capital. When the credit is expensive, company will postpone the decision until
the prices decrease. This can lead to that companies do not take credits and do not have a
51
chance to invest money. As a result companies are less competitive what leads to lower profit
and cost reductions. However, companies need credits in order to invest into further
development of the company. If the subcontractor is not growing it may became less
competitive and lost favorable position on the market. The possibility of taking a loan helps
for example with enlargement of park machines.
The rate of inflation is also important for the company. It determines the growth in prices of
products as well as the raw material. The increasing in prices of the raw material can be seen
as a hinder for further development to the subcontractors. The rise in prices of wood reached
the amount of 30 %. This affected relationship with IKEA since the company B had to
increase the prices and IKEA was insisting on making prices even lower. Due to that IKEA
moved some of the orders to China.
5.2.3 Industry analysis
Bargaining power of Customer The interviews all indicated that the bargaining power of the main customer is very strong.
Since a subcontractor is hired to perform a specific task in order to reduce costs, the
bargaining power of the customer is a major aspect to point out.
Two of the case companies claimed that when they start the cooperation they signed a
contract including very strong requirements.
Subcontractor B mentioned that being a supplier to a major customer can both be defined as a
main advantage and the main threat. Company tries to avoid the situation when IKEA
becomes the only client.
The advantages of working with a leading customer are, as mentioned before, the chance to
grow and develop for the firm. IKEA is an important client since they order most of the
goods. To receive the best quality from the subcontractors they build up the platform. The
subcontractors can grow and develop in a way that would not be possible if they operate on
their own.
Bargaining Power of Supplier
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The Legal System has direct impact on the laws and regulations that have to be obeyed by the
companies in Poland. Additionally, Poland as a member of European Union obeys rules and
regulations that are implemented by EU organs. The role of the Polish institution called Lasy
Państwowe is very important in adjusting regulations. Because of all the rules implemented
by Lasy Państwowe Polish subcontractors cannot get enough amount of the raw material. As
a consequence they cannot produce as much as they want. Having a good and long
relationship with the supplier makes the situation better. It is hard, though for the new comer
to get access to the amount of wood that is needed. The bargaining power of supplier is
strong.
Because of the lack of the raw material and increasing in prices Polish companies are getting
less competitive comparing with companies in other countries. In some way Lasy Państwowe
slow down the furniture sector - argue Polish entrepreneurs. If they had more wood they
could have produced more.
Rivalry between firms As mentioned before Polish subcontractors cooperate within the platform. This includes
knowledge transfer as well as training sessions and conferences for all the member
companies. The purpose is to increase productivity and lower the costs. On the other hand,
IKEA also respects its subcontractors and provide access to new technology and innovations
so the total costs could be lower. It is easy to observe that companies are not competitors to
each other because they compete in different sectors of the furniture industry. They
subcontract different commodities to IKEA.
5.3 Drivers of Change
Based on the analysis of the environment and the data from interviewees the following drivers
of change have been noticed:
Labour market
“Since the more understanding of how vital the workers are to the firm made the company
more conscious of the need to increase payments and they plan to do it in the next five years”.
“We are worried of the increasing cost of labour, if it happens we will have to find money for
higher wages for employees”.
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Due to the change in the labour market the salary will rise. In the same time the human
resources have been noticed as an important resource to stay competitive.
“The bargaining power of IKEA is very strong”.
All the firms are highly depended on IKEA. The awareness of this cooperation´s advantages
and disadvantages created a discussion concerning all of the interviewed companies.
The company B was influenced by increasing prices of wood. The rise reached the level of
almost 30%. Company was forced to increase the prices in order to gain return on sales.
Polish subcontractors have been influenced by the rising prices of the raw material. As there
is still lack of wood on the market prices are going up.
5.4 Competitive advantage
5.4.1 Establishing and sustaining competitive advantage
The competitive advantage in production markets emerge from complex combination of
resources and capabilities. Companies want to generate high profits. The best way to do it is
to establish competitive advantage. But this is just the beginning, the hard part is to make it
last long enough to earn income. According to Grant (2008) long lasting competitive
advantage depends on both how easily it can be imitated by rivals and durability of the
resources. In the case of Polish subcontractors production is mainly aimed at IKEA´s needs.
IKEA helps and suggests how companies` production can be developed.
All of our companies mentioned that to be able to produce the high quality products, their
customer requires the work with modern machinery park and skilled workforce. These create
organizational capabilities that are not very easy to transfer. The external environment in
Poland and the IKEA´s recommendation is the essence of the immobility of the
subcontractors’ competitive advantage.
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5.4.2 Types of competitive advantage
It is hard to separate two types of competitive advantage: cost and differentiation advantage in
the case of Polish subcontractors since they all combine low cost production with
differentiated products. From the subcontractors perspective the low cost of production is not
very obvious. The cost of production is low in Poland comparing to other countries of the EU.
5.4.2.1 Cost advantage
We consider a situation of the case companies from the perspective of the Swedish client.
Poland is the country with one of the fastest emerging market in the EU. Poland still need to
improve a lot to reach the level of maturity of the old EU members but due to these
inequalities Poland is so attractive to mature countries. Polish GDP per capita is lower than in
the old EU member countries. Hence majority of services and products have the same quality
as in mature countries but the cost of production is lower. This is determined by differences in
the cost of labor, raw material and capital. According to the essence of the cost advantage,
that the firm can supply an identical product at a lower cost, that is exactly what Polish
subcontractors offer to Swedish client.
5.4.2.2 Differentiation advantage
Differentiation advantage occurs when; according to Grant (2008) company provides
something unique that is valuable to buyers beyond simply offering a low price. This
uniqueness can be related for example to reliability, quality or status. The issue of
differentiation is to understand the customer demand for differentiation and match it with the
company's capacity to supply differentiation. Each one of the companies managed to create
unique value for their customers. Company A discovers the demand for products made of
high quality, ecologically grown wood. In order to satisfy the customer needs, each product
has a certificate which confirms the ecological origins. Company also provides their
customers with the warranty. Since the warranty period company offers is the longest on the
market, it can be perceived as another competitive advantage. Company B fights the
competition by high quality of the products and an ability of fast implementation of new
production lines. Thanks to this, it is able to be one step ahead the competitors what is crucial
while dealing with constantly changing patterns of products. Company C differentiation
advantage is an unique method of wood bend. Company achieved its position due to modern
55
technology. Company C has also an ability to combine this high technology with traditional
design, and keep the balance between modern and classic style.
5.4 Summary of analysis
5.4.1 Resources and capabilities
• Modern plants with equipment of high quality.
• Difficulties to access the source of the raw material.
• Importance of Research and Development for all the Polish subcontractors.
• Modern technology.
• Human resources as the most important resource.
5.4.1.2 Classifying capabilities
• Resources working together to perform a task.
• Capability of financial control.
• Security of having more than one customer.
• Design capability.
• Capabilities in sale and distribution area.
5.4.2 Environmental analysis
5.4.2.1 Societal sectors
• The stable and favorable situation has introduced few advantages and disadvantages
for our case companies.
• Companies are generating high profits that lead to more investments.
• Companies experience pressure to increase salaries if they want to keep their
employees.
• Prices of credits are rising so companies are not willing to take credits for new
investments.
• IKEA provide access to new technology and innovations so the total cost can be
decreased.
• The increasing of raw material can be seen as a hinder or further development to the
subcontractors.
56
5.4.2.2 Organizational fields
• The bargain power of the customer is strong.
• Being a supplier to a major customer can both be defined as a main advantage and a
main threat.
• Because of the lack of raw material and increasing prices Polish subcontractors is
getting less competitive with companies in other countries.
• The platform makes a non-competitive environment to IKEA´s subcontractors.
5.4.2.3 Drivers of change
• Rising salaries.
• Increasing prices of raw material.
• Strong bargaining power of customer.
5.4.3 Competitive advantage
• Two types of competitive advantage are hard to separate, as all of the case companies
combine low cost production with differentiation.
• Majority of services and products have the same quality as in Sweden but the cost of
production is lower in Poland.
• Warranty, ecologically grown wood, high quality, unique methods of production and
fast implementation are the differentiation advantages.
• The modern machinery parks and skilled workforce create organizational capabilities
that are not very easy to transfer or imitate.
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6. CONCLUSIONS AND RECOMMENDATIONS
The goal of our thesis is to answer the question: how can Polish subcontractors adapt to
environmental changes in order to sustain their competitive advantages.
The conclusion aims to integrate findings from our study. To answer the main question we
have developed three research problems concerning subcontractors’ resource base, changes
in the subcontractors’ environment and the third one which deals with the companies’
competitiveness.
In the last part we provide recommendations which are necessary for Polish subcontractors
to sustain their competitive advantage.
___________________________________________________________________________
6.1 Answer to research problem 1
What is Polish subcontractors current source of competitiveness?
As stated earlier, Poland is a very attractive market for mature countries to search for
subcontractors. Poland is situated in the heart of Europe what makes it a close low cost
country for old EU members. Polish subcontractors provide high quality service at very
attractive price. Poland is now a member of EU, although it would not access the Union if it
had not the potential to grow and reach the level of development of the old 15 EU members.
Nowadays Poland is one of the fastest developing markets in the European Union. Poland still
has the cost advantage, but it can be lost as Polish economy is growing in strength.
It is easy to observe that the cost advantage of Polish subcontractors is not entirely dependent
on their unique ability to produce at the low cost. It is rather a result of current constellation of
external factors described previously. As the environment in Poland has been changing, the
cost of labour is rising and prices of the raw material are going up Polish subcontractors may
lose their cost advantage. All of our case companies have managed to create differentiation
advantages, products they supply are first of all of high quality and innovative. It is mainly
due to modern machinery parks. As the competitive advantage we can consider also the
longest on the market warranty for the products, they also provide their customers with
products made from wood of ecological origin. They compete also with unique methods of
production and fast implementation.
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6.2 Answer to research problem 2
What does the Polish market look like and how is it changing?
Making an environmental analysis from an institutions approach is vital especially when the
market is influenced by changing factors. Conducting this approach gives an insight how the
different institutions influence each other and the company´s business strategy.
In order to identify the factors that influence our chosen subcontractors in Poland a scanning
of the environment need to be done and later analyzed from the subcontractors’ perspective.
By analyzing the companies’ environment we have found the factors that are of relevance for
our case companies. The favorable economic situation has a great impact on the labour
market. Companies are generating higher profits and that leads to new investments. Due to the
changes in the labour market the salaries are increasing and the companies feel pressure to
increase them if they want to keep their employees.
Even though the economic favorable situation gives the subcontractors an opportunity to
develop their productions, the height of interest created a situation where the companies do
not take credits. As a result the companies are less competitive what leads to lower profit and
cost reductions.
The financial sector also influences the subcontractors since that the rate of inflation. It
determines the growth in prices of the raw material and this can been seen as a hinder to
further development.
When analyzing the product and service market we have noticed that our chosen
subcontractors work in a special situation. They are suppliers to a very big entrepreneur in the
furniture industry - IKEA which bargaining power is really high. On the other hand the
relationship with a strong customer created a platform for all the subcontractors that help
them to share knowledge and increase productivity to lower costs.
The regulation of wood is also a factor that created some worries in the product market.
Because of these restrictions prices of the wood tend to go up.
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The economic situation leads to two drivers that are important to the subcontractors’ future
success, the increasing of salaries and rising prices of the raw material. The relationship of the
customer has also to be taken under consideration. Because of their strong bargaining power
they can end the relationship if the subcontractors do not fulfill their requirements.
6.3 Answer to research problem 3
What are the consequences for the Polish sub-contractors and their current source of
competitiveness?
The drivers we stated in previous research problem will influence the subcontractor heavily.
They concerns two vital aspects that includes two major and important resources of the
subcontractors; human resources and raw material.
Human resources are the main and the most important resources in the case of all the
subcontractors. As the prices of labour are rising the companies have to pay more. To keep
the employees the companies need to find additional money in order to raise salaries of the
employees. On the other hand the increase in salaries will lead to that the situation when well
qualified prefers to work abroad as they can earn more than in Poland come back. As a result
the problem of finding specialized labour will disappear.
The amount of wood is another factor of key importance to the subcontractors’ resource base.
Without the right amount of this resource they cannot develop their business in the way they
intend to as wood is the base for their activity.
Since a subcontractor is determined of its customer there a lot of other resources that will be
affected if the changes are so drastic so the customer decides to leave them and search for
other subcontractors. As mentioned before is IKEA a major customer for all our companies.
As the low cost change, due to higher labour costs, or the increasing prices in raw material
might IKEA end the cooperation.
When it comes to the modern plants, the factor of strong bargaining power of IKEA has a
great impact on it as it is the driver which pushes the companies to adjust their plants to the
requirements of IKEA. In practice it means improving the assets, improving plants and park
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machines. As stated earlier had one of the subcontractor problem to use their new machines
after leaving IKEA, since the machine parks are constructed to fit IKEA´s requirements.
The intangible resources are most likely to change, or example the influence of rising cost of
labor on R&D, Polish subcontractors have problems with hiring the best experts in that field
and pay them the salaries the employees demand.
When it comes to the influence on the intangible resources IKEA´s bargaining power is the
driver that slowdowns the working of R&D departments in the case of all the subcontractors.
The IKEA tends to impose their designs of products. That is why there is no need for Polish
subcontractors to look for different designs while cooperating with IKEA. Such a strong
bargaining power of IKEA means also introduction of new technologies which are advised by
IKEA.
The capabilities such as design capability, efficiency and order processing, speed of
distribution, quality and effectiveness of customer and service all effects if the above
resources will change. Even here is IKEA an aspect to highlight if the relationships will
change. The financial capability is very determined on IKEA presence that it can be hard for
them to sustain finance control as there are strongly dependent on the entrepreneur.
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6.4 Answer to main research problem
How can Polish subcontractors adapt to environmental changes in order to sustain their
competitive advantages?
Environmental changes have significant influence on subcontractors and this is the reason
why they should be noticed and described. The main threat is that the subcontractors will lose
their cost advantage due to these changes. Hence it is very important for the subcontractors to
think about future sources of competitiveness. They should start considering sustaining the
competitive advantage at the present time. According to our research several changes are
about to come. If the companies lose their cost advantage they will have to turn to another
competitive advantage as for instance differentiation.
Due to fast country development prices of labour are growing. As a result companies are
forced to pay their employees more. In order to be able to do that, the price of product will
have to rise to cover the expenses. Foreign companies which use Polish subcontractors
because of low costs of products may start search for another low cost production in different
cheaper countries. Here the chance for Polish subcontractors is the fact that even a product is
more expensive it is cheaper than in other countries. Polish subcontractors have the ability to
provide products of certain good quality. They should put effort to sustain this competitive
advantage. The key issue here is the differentiation advantage which should be further
developed in order to both keep the client close and sustain the competitive advantage.
Another occurring change, which is raising prices of wood, has at least two sources:
decreasing amount of wood on the Polish market and an overall rise in prices of goods,
including raw materials. This problem concerns the most one of our case companies which is
using ecologically origin wood. As the amount of the resource is decreasing the price of it will
rise. The consequences are similar as in the previous part- to cover the expenses the total cost
of product will grow.
In order to sustain the competitive advantage companies must be aware of consequences of
the changes and prepare them to cope with them. This requires flexibility and innovation in
creating unique value for the customer.
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It is very important for the subcontractors to cope with these changes. If they lose their cost
advantage there is a possibility that IKEA will leave them and search for other subcontractors.
6.5 Recommendations
Based on all of our findings we provide several recommendations to our case companies. As
stated in the conclusion the best way to remain competitive is to establish and sustain a
differentiation advantage. Due to this statement we recommend the following:
Improve relationships with current customer- Since IKEA plays such a major role and has
such an impact on the resources and capabilities there is a need to develop a strong
relationship. That creates the opportunity to get support and hold on to the cooperation.
The cooperation with IKEA can be seen as a great help since they all ready provide the
companies with knowledge and experience. Due to that the subcontractors should use this
knowledge in order to be more differentiated.
Establish new customer- The subcontractors should expand the customer size and try to
contact more companies so they are not so depended on one customer. Focus more on
differentiation the market opens up and the subcontractors are able to attract other bigger
customers that want specialized products.
Invest in human resources – As the human resources are the most important resources for all
the Polish subcontractors there should be further developed. As salaries in Poland are
increasing there is a trend for employees to work in the country. Companies should try to
attract expert employees with adequate payments. This will lead to extending the knowledge
and be able to produce highly specialized products.
Gain the raw material of the high quality- In order to gain the required amount of the raw
material, good relationships with suppliers must be sustained. The raw material of the high
quality, which in our case is the ecologically origin of wood is very important as the input to
the quality of the final, product.
Focus on intensifying marketing activities- Start to work with marketing activities is a good
way to attract new customers and to increase of the sales volume and increase income. The
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marketing should high light the competitive advantage that will never change. This is the
central – European location of Poland. The location can decrease the costs of transportation.
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APPENDIX
Interview guide
• What is your competitive advantage?
• What are your major resources?
LABOR MARKET
• The increasing cost of labor?
• Skills of workers?
• Employing new workers?
PRODUCT / SERVICE MARKET
• Relationship with customers?
• Relationship with wood suppliers?
• Competitors?
• Raw material?
FINANCIAL MARKET
• Do you take bank credits?
• Are there any obstacles to borrow money?
• Are you planning to use credit in the next five years?
GOVERNMENT
• Are there any other institutions that help you?
• Do you receive any help from government, if so what kind?
• Do you expect any help in the future?
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The University of Kalmar
The University of Kalmar has more than 9000 students. We offer education and
research in natural sciences, technology, the maritime field, social science,
languages and humanities, teacher training, caring sciences and social service.
Our profile areas in research are: biomedicine/biotechnology, environmental
sciences, marine ecology, automation, business administration and informatics, but
we have research proceeding in most subject areas of the University.
Since 1999, the University of Kalmar has the right to accept students in
postgraduate studies and to examine doctors within the subject area natural
sciences.
Baltic Business School,
at the university of Kalmar
Visiting address: Kalmar Nyckel,
Gröndalsvägen 19
SE-391 82 Kalmar, Sweden
Tel: +46 (0)480 - 49 71 00
www.bbs.hik.se