Wednesday, June 27, 2007

Resource based view for competing in International market

The companies in 1990’s and onwards have started rejecting the idea of competing on the basis of operational efficiency and technological improvements. They adopted rather, a resource based view, which combined the internal perspectives of the company with the external perspectives that is, the market conditions.
v This method derives its strength in the fact that, it has an ability to explain the reasons for certain companies’ profitability, the proper usage of core competence and how to develop diversification strategies.
v No two companies can have the same set of valuable resources because each company has a unique set of experiences, skills and assets and the organizational culture built over time. And resources combine all physical as well as intangible assets of the company and also the organizational capability embedded in company’s routines, processes and cultures. Based on these resources, a company must define its strategies so that the resources can be deployed in the best possible way. Hence the resources should be a competitively distinct.
v The resources are considered valuable on the following criteria:
1. Inimitability of the resources: how hard it is to copy by the competitors. It is attained by the two things:
Ø Physical appearance
Ø Path dependence as to how the product is arrived at
Ø Causal ambiguity as to why the company achieved success in its ventures
Ø Economic constraints
2. The durability of the resources: how quickly the resources depreciate.
The company must try to acquire a resource which has sustainability over time to help it gain a competitive advantage. The early mover advantage can be surpassed by a better technology if the continuous innovation is not made.

3. The Appropriability: capturing the value created by the resource in maximum proportion. Hence the company must try to build up the resources which help gain most profitability for the company.
4. The Substitutability: how easily can a unique resource be trumped by a different resource? If a resource can be easily replaced by its competitors’ alternative, then the resource is not quite helpful for gaining competitive advantage.
5. Competitive superiority: determine which resource is better. This is difficult as identifying resource as a major criterion to bring about profitability and such decision must be based on thorough research.
v Strategic implications: The companies must build the strategies on the resources which pass all five tests for valuable resources. Since the competitors are also trying to adopt the same technique, one must ensure that the value created does not erode easily. For that, the company should go for three steps:
1. Invest in resources and make them as valuable as possible.
2. Upgrade resources to avoid substitution and imitation over a long period.
3. Leverage the resources into all the markets where they can contribute to the competitive advantage or in the new market which can lead to corporate resources.
4. The strategic errors during diversification made by the companies are:
A. The replication of the success into new market becomes impossible due to causal ambiguity and path dependence.
B. The overestimation of profitability in attractive industries though it requires huge capital investment. If not so, other entry barriers are quite prominent.
C. Leveraging the generic resources to gain competitive advantage in a market with a specific competitive dynamics.

Hence, this can be said that a company which succeeds in blending two different insights of capabilities and competition represents an enduring logic which could sustain over a longer period of time in a dynamic market.

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