material extracted from barney (2001) review of resource-base strategy looks at internal resources...

Material extracted from Barney (2001)

Review of Resource-base Strategy


Looks at internal resources and capabilities of a company, such as…

Physical Assets Processes Experience

Policies Procedures Information

Knowledge & Expertise

Systems Management Methods

Networks Partnerships Skill Sets



Sustained Competitive Advantage – A company that possess and exploits resources &

capabilities that are…Valuable Rare Costly to Imitate (Inimitable)



Tangible Resources: Dow Chemical’s research laboratory and facilities Intel’s semiconductor fabrication facilities AT&T’s network of wire, cable, and satellites…



Intangible Resources: Toyota’s well-known and trusted brand names, New Season’s good reputation, Intel’s knowledgeable and creative workforce, Sun Microsystems’ unifying corporate culture, Subway’s international experience with different

country’s regulations on franchising,Norm Thompson Outfitters’ visionary leader with strong

motivation and communications skills,…



Capabilities Emerge over time through complex interaction between

and among tangible and intangible resources. Become stronger and more valuable strategically through repetition and practice. Skills and knowledge of firm’s employees, including functional expertise (human capital)



Capabilities Toyota’s efficient distribution systems - Just-in-time (JIT)

delivery, strong supplier relationships, and well-trained inventory specialists.

L.L. Bean’s customer segmentation procedures and systems - database management systems, effective market research efforts and strong supplier relationships.

Nike’s new product development procedures – creative workforce and innovation-driven culture, strong leadership, and effective market research.




Do these resources and capabilities lead to Competitive Advantage?

Valuable: Do a firm’s resources help it… …deal with external threats?

For example, do Toyota’s manufacturing and distribution systems and brand equity help it deal with the external threat associated with industry overcapacity and competitive pricing pressures?

…capitalize on external opportunities?For example, do Nike’s product development procedures, brand equity

and subcontracted assembly, help it deal with the external threat of the entry of many niche competitors in the footwear industry?




Rare: Do only a few companies have these resources and capabilities?

Is Toyota the only company in the industry with this unique combination of manufacturing and distribution systems and brand equity?

Is Nike the only company with the combination of new product development procedures, brand equity and subcontracted manufacturing?





Inimitability: Will firms that do not have the resources and capabilities have to spend a lot of time and money to acquire or develop them?

If Ford Motor Company doesn’t have the same manufacturing and distribution systems and brand equity as Toyota, how much time and money will it need to spend to develop them?




Is the combination of resources and capabilities…

Valuable? Rare? Inimitable? Actually used by the Firm?

Competitive Position

No No No If yes or no, still…

Competitive Disadvantage

Yes No No If yes, … Competitive Parity

Yes Yes No If yes, … Temporary Competitive Advantage

Yes Yes Yes If yes, … Sustained Competitive Advantage

Limited Diversification

Single Business

95% or more of corporate revenue come from a single business unit

Wm. Wrigley Jr. Co. - China

Review of Diversification and Integration Strategies




Limited Diversification

Between 70-95% of corporate revenues comes from a single business unit.

Hershey Foods Corporation - Korea



Related Diversification

Related-Diversified Firm: Less than 70 percent of firm revenues comes from a single business unit, and different business units share numerous links and common attributes.

Proctor & Gamble - Taiwan



Related Linked Diversification

Less than 70 percent of firm revenues comes from a single business unit, and different business units share only a few links and common attributes or different links and

common attributes.

General Electric – Research Center in Bangalore



Vertical and Horizontal Integration of Value Chain Activities

Vertical Integration: Coordinating upstream activities (those closer to the raw materials) with

downstream activities (those closer to the customer)

Using Acquisitions, Strategic Alliances, and/or Internal Development Starbucks’ Vertical International Expansion – through strong alliances with

growers (upstream), processors (upstream), and retailers (downstream)



Vertical and Horizontal Integration of Value Chain Activities

Horizontal Integration Coordinating across the same or similar value chain activities.

Acquisition, Strategic Alliance, and/or Internal Development

Pfizer’s acquisition of Pharmacia in 2003 moved it into new human pharmaceutical products and additional international markets.

Global Expansion Framework(Gupta & Govindarajan, 2001)


Mode of Entry Choice

100%

0%

Learning with Control over

Brand & Dist’n.

Aggressive, Significant Global

Competition

Limited Experience & Little need to

control brand & Dist’n

Control through Licensing,

Franchising

0% 100% Exports Local

Exports vs. Local Production

Con

trol

in

For

eign

Mar

ket

Degree of Equity ControlChoice

High

Low

Find the best way to maximize

sales

Get control via greenfield or

majority ownership JV

Acquire or partner with

competitor in the market.

Get control via greenfield or acquisition

Low High Uniqueness of Corporate Culture

Mar

ket

Gro

wth

R

ate



Product Choice

Low

High

Export Invest or Seek Strong Partner

Don’t botherConsider host

country partnerships

Low HighPayoff for Going Global

Req

uire

d A

dapt

atio

nMarket Choice

High

Low

Export, Sales Subsidiary,

Partnerships

Aggressive Entry

Don’t bother When there’s opportunity

Low HighFirm’s Capabilities

Str

ateg

ic

Impo

rtan

ce



InterestingIntuitiveOverly simplisticStaticOnly a little helpful in strategic decision-makingStrategy is DYNAMIC…that’s why the next

framework is much better…

Capability-based Global Expansion(Tallman & Fladmoe-Lindquist, 2002)


Focuses on firm’s ability to… build, protect, and exploit…

…a “bundle” of unique capabilities.



Two Types of resource-related capabilities:Business-level Component Capabilities

“Bundles” of resources that determine competitive position of the business unit in the marketplace.

The Products and Product Lines; Product Development Process; Brand Image; Manufacturing Efficiency; Quality Control; Financials- Cash on Hand, Cash Flow, Market Cap; Creativity; Corporate Culture; Leadership; Existing Alliances and Joint Ventures; Distribution Channels; International Experience; Ability to Gain New and Manage New Knowledge...

Honda – “Bundle” for Autos: Engine Technology, Corporate Culture, Leadership, Manufacturing Efficiency, International Experience



Two Types of resource-related capabilities:Corporate-Level Architecture Capabilities

Firm-wide routines that facilitate the “bundling” of the resources within business units,

andfind ways to achieve synergies across business units by “bundling”

resources of different business units.IBM Corporate Level Architecture: Integrating New Knowledge into

Widely Varying Client Relationships through Globally Dispersed and Specialized R&D Activities.



Capability LeverageUse existing capabilities to gain advantage (and

profits)Usually based on business-level component

capabilities built in home market.Capability Building

Discovering and innovating new business- and corporate-level capabilities



Capability LeverageCoca-Cola Example:

Past: little adaptation to packaging, brand, advertising, manufacturing, etc.

> Expansion Strategy: Business-level capability basedCurrent: localizing packaging, distribution, advertising,

manufacturing.> Expansion Strategy: Both (Localized) Business and (Global)

Architecture-level capabilities based

(Why didn’t the authors note this???)



CapabilityLeverageProcesses

GlobalIntegrationStrategies

InternationalExpansionStrategies

Corporate ArchitectureCapabilities

Existing

Existing

Business-levelComponentCapabilities

New

New

CapabilityBuilding

Processes

Invest toEnhanceExisting

Capabilities

Creation ofNew

Capabilities

Resource-based Strategy and

International Expansion


International ExpansionGlobal Expansion

Product:(Not adaptation, but capabilities that create and deliver the product.)

How and where is it developed?How and where is it made?How and to whom is it sold?




International ExpansionGlobal ExpansionProduct: (Not adaptation, but capabilities that create and

deliver the product.) HP Printers:

Hewlett-Packard developed all of its printer technology in Santa Clara and a few other U.S. facilities.

The manufacture of printers was being increasingly outsourced to Asian subcontractors, particularly Singapore.

The printers were then distributed worldwide. Pfizer:

Primarily internal development of new drugs, with some alliances with small biotech firms. Largest global players in consumer and animal healthcare products.

Most drugs made in-house, in regional facilities in major industrialized markets. The drugs sold worldwide.





Market (Matching market demand with Firm’s capabilities):

Where are the current and emerging growth markets for the current product portfolio?

How do the firm’s current resources and capabilities allow it to effectively compete in these markets?




International ExpansionGlobal ExpansionMarket: Capability Leverage (Existing Capabilities) HP Printers:

Strong growth in Asia-Pacific and European Markets.Singapore operations developing superior product development expertise;

located close to key markets; major transshipment location;HP brand name well recognized and respected in Asian and European

markets.Market: Capability Building (New Capabilities) Pfizer Pharmaceuticals:

High pressures to have a full ‘pipeline’ of new drugs Growth markets in oncology, depression, and specialty niches. High growth in industrialized and emerging markets. Largest pharmaceutical company after acquisition of Warner-Lambert in 2001. Strong stock price and balance sheet. Insufficient new drugs in ‘pipeline’.





Mode of Entry:How should the firm expand its operations to meet the

growth in key markets?> Degree of Control: How much control should the firm have over

its expanded operations?




International ExpansionMode: Capability Leverage (Existing Capabilities) HP Printers:

Rather than acquire competitor or supplier or work through an alliance, HP designated its Singapore operations as the world wide center for printer technology development.

Maintain 100% ownership because of uniqueness of corporate culture and proprietary nature of technology – ability to development new technologies in printers is a primary capability – expansion based off of this capability.

Mode: Capability Building (New Capabilities) Pfizer:

With consolidation in industry over past 5 years (Pharmacia acquired UpJohn and Monsanto; Pfizer acquired Warner-Lambert), presence of some struggling competitors,

Corporate culture more important than original thought, Need to control as well as enhance R&D capabilities, Acquisition of Pharmacia provided new market access, additions to existing product

portfolio (e.g., oncology, epilepsy), and much stronger ‘pipeline’ of upcoming drugs.




International ExpansionGlobal Integration

How to integrate worldwide activities into a single world strategy by managing a network of differentiated but interrelated subsidiaries, affiliates, alliances, and associations.

(We’ll talk more about integration in the ‘Managing Mergers & Acquisitions’ class.)




International ExpansionTaking another look at Midea: To be or not to be ‘Global’?Product:

How and where is it developed?How and where is it made?How and to whom is it sold?

Market: (Capability Leverage/Building)Where are the current and emerging growth markets for the current product portfolio?How do the firm’s current resources and capabilities allow it to effectively compete in

these markets?Mode:(Capability Leverage/Building)

How should the firm expand its operations to meet the growth in key markets?> Degree of Control: How much control should the firm have over its expanded

operations?

material extracted from barney (2001) review of resource-base strategy looks at internal resources...

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