Lecture 3: Resource-Based View and Internationalization PDF

LECTURE 3. RESOURCE- BASED VIEW AND INTERNATIONALIZATION YULIA MURATOVA 9 SEPTEMBER 2024 ASSOCIATE PROFESSOR DEPARTMENT OF MANAGEMENT AARHUS UNIVERSITY  AGENDA ​1. What...

LECTURE 3. RESOURCE- BASED VIEW AND INTERNATIONALIZATION YULIA MURATOVA 9 SEPTEMBER 2024 ASSOCIATE PROFESSOR DEPARTMENT OF MANAGEMENT AARHUS UNIVERSITY  AGENDA ​1. What are resources and capabilities ​2. Why should we care about a firm’s resources and capabilities? ​- a value chain analysis: can we do this ourselves? -​ motivation for internationalization -​ can a firm succeed in a foreign market? ​3. VRIO and a firm’s competitive advantage 4. Exercise/Discussion YULIA MURATOVA 9 SEPTEMBER 2024 ASSOCIATE PROFESSOR DEPARTMENT OF MANAGEMENT AARHUS UNIVERSITY  RESOURCES AND CAPABILITIES Organization is a bundle of resources Resource – input into the production process, tangible or intangible Capability – an organizational routine or a complex pattern of coordination between people and between people and other resources: firm’s capacity to deploy resources Resources: what we have Capabilities: what we do well Machines, buildings, raw materials, patents Physical Ways of achieving higher machine efficiency Ability to raise and manage funds when Cash flow, suppliers of funds, equity Financial necessary Experience, knowledge, judgement, risk Human Individual employee’s ability to write reports taking Organizational culture, management control Organizational Managers’ ability to motivate employees systems, compensation policies YULIA MURATOVA 9 SEPTEMBER 2024 ASSOCIATE PROFESSOR DEPARTMENT OF MANAGEMENT AARHUS UNIVERSITY EXAMPLES FROM RESEARCH Source: Newbert, S.L. (2007).Empirical research on the resource-based view of the firm: An assessment and suggestions for future research. Strategic Management Journal, 28: 121-146. CHARACTERISTICS OF RESOURCES AND CAPABILITIES  heterogeneous across firms  immobile  have barriers to resource imitation due to: Specificity (unique historical conditions & path dependency) Causal ambiguity (which resources and how produce value?) Social complexity (are resources embedded in people?) WHY CARE ABOUT A FIRM’S RESOURCES AND CAPABILITIES? -1 A VALUE CHAIN ANALYSIS: Outsource, sell the unit, or lease its services to other No firms Keep doing it Do we really need to perform Yes Acquire necessary this activity in- resources and house? Do we have the capabilities in house Yes resources and capabilities that add value in a way better No than rivals do? Access resources and capabilities through strategic alliances Peng, M. 2016. Global 3. Chapter 4. Leveraging Resources and Capabilities. Cengage Learning, p. 54 OPTIONS TO LOCATE FIRM ACTIVITIES: Mode of activity Location of activity CELL 1 CELL 2 Captive sourcing/FDI Offshoring Foreign location CELL 3 CELL 4 Domestic location Domestic in-house Onshoring  Offshoring – international/foreign outsourcing (turning over an activity to an outside supplier)  Onshoring – domestic outsourcing  Captive sourcing – setting up subsidiaries to perform in-house work in foreign locations Peng, M. 2016. Global 3. Chapter 4. Leveraging Resources and Capabilities. Cengage Learning, p. 55  ANOTHER WAY TO LOOK AT THE LINK BETWEEN RESOURCES AND THE ENVIRONMENT resources capabilitie strategy s identification of resource gaps Environment Competitors YULIA MURATOVA 9 SEPTEMBER 2024 ASSOCIATE PROFESSOR DEPARTMENT OF MANAGEMENT AARHUS UNIVERSITY  WHY CARE ABOUT A FIRM’S RESOURCES AND CAPABILITIES? -2 MOTIVES FOR INTERNATIONALIZATION: ​Market-seeking: technological competence/unique product, overproduction/excess capacity, extend sales of seasonal products, unsolicited foreign orders/customer demands, managerial urge, growth opportunities in other countries, domestic market is small and saturated, regulations & restrictions at home ​Efficiency-seeking: economies of scale, tax benefits/incentives in host markets Resource-seeking: access to physical resources (raw materials, labor) ​Strategic asset-seeking: access to knowledge/know-how YULIA MURATOVA 9 SEPTEMBER 2024 ASSOCIATE PROFESSOR DEPARTMENT OF MANAGEMENT AARHUS UNIVERSITY ASSET-EXPLOITATION VS ASSET- SEEKING (MAKINO ET AL., 2002) A firm succeeds by balancing between exploration and exploitation of resources and capabilities (=assets) FDI as asset-exploitation FDI as asset-exploration (market-, resource-seeking (strategic asset-seeking motives) motive) Classical assets: These assets usually are: ability to acquire factors of production at technology lower costs management, marketing expertise efficient production networks of distributors superior distribution facilities brands differentiated product technological or marketing expertise ! To go for asset-exploration, a firm needs to posses superior Assets of EM firms: absorptive capacity – a firm’s ability to ability to develop small scale identify, assimilate and exploit (evaluate, labor intensive work acquire and integrate) knowledge from the flexible processes and products environment (e.g., other firms)  LOCATION CHOICE AND MOTIVATION FOR INTERNATIONALIZATION The way to interpret the figure: Where do firms from the newly industrialised economies (NIEs) - Taiwan, Singapore, Hong Kong, South Korea –Internationalize and why? internationalization into developed countries (DCs): for market-seeking (differentiated goods) and strategic asset-seeking purposes internationalizatoin into large least developed countries (LDCs): for market- seeking (standard goods) and resource- seeking (labor) purposes internationalization into small least developed countries (LDCs) for resource-seeking (labor) purpose YULIA MURATOVA 9 SEPTEMBER 2024 ASSOCIATE PROFESSOR DEPARTMENT OF MANAGEMENT AARHUS UNIVERSITY  BUT THE LOCATION CHOICE DEPENDS ON FIRM CAPABILITIES Labor-intensive production capability Technology-based assets Prior technology-seeking experience YULIA MURATOVA 9 SEPTEMBER 2024 ASSOCIATE PROFESSOR DEPARTMENT OF MANAGEMENT AARHUS UNIVERSITY Why care about a firm’s resources and capabilities? -3 WILL THE FIRM SUCCEED IN A FOREIGN MARKET? Resources and capabilities of the firm  COMPETITIVE ADVANTAGE Competitive advantage of a firm is: (1) an advantage over competitors gained by offering consumers greater value (2) when a firm implements a value-creating strategy that is not simultaneously being implemented by any current competitor #1 temporary competitive advantage Two types of competitive advantage: #2 sustained competitive advantage: it is #1 plus when other firms cannot duplicate the benefits of the strategy YULIA MURATOVA 9 SEPTEMBER 2024 ASSOCIATE PROFESSOR DEPARTMENT OF MANAGEMENT AARHUS UNIVERSITY  WHEN A RESOURCE IS A SOURCE OF A SUSTAINED COMPETITIVE ADVANTAGE? 1. Resource is valuable (V): helps to exploit opportunities and neutralize threats (so valuable for a specific purpose in a specific context, not just by itself) ​2. Resource is rare (R): not ubiquitous among competitors ​3. Resource is inimitable (I): difficult to obtain ​4. Resource must be supported by the organization (O) In other words, we can say that the resource can become a source of a firm’s competitive advantage when it is VRIO YULIA MURATOVA 9 SEPTEMBER 2024 ASSOCIATE PROFESSOR DEPARTMENT OF MANAGEMENT AARHUS UNIVERSITY  VRIO FRAMEWORK Is resource/capability... O- Inimitable supported Competitive Valuable? Rare? ? by the implication Organization ? Competitive No disadvantage Yes No Competitive parity Temporary Yes Yes No competitive advantage Sustained Yes Yes Yes Yes competitive YULIA MURATOVA 9 SEPTEMBER 2024 ASSOCIATE PROFESSOR DEPARTMENT OF MANAGEMENT AARHUS UNIVERSITY advantage EXERCISE: MARKET-SEEKING MOTIVATION Gamma’s resources and capabilities The characteristics of the host market Type Characteristic Financial Unstable access due to institutional changes; The Chinese market: resources experience with the national development and investment bank 1. Growing interest in niche brands Human 30 dedicated people; managing director has no resources experience in the industry; lack of proactivity to 2. European brand origin is a plus drive international expansion 3. Growing per capita income Internation Saudi Arabia, USA through trade shows; al domestic collaborators have extensive 4. Large market size experience international experience 5. Strong competition from local brands and Intellectual Some use of trademarks, but not in recent years famous property since the emphasis is on constant product innovation European luxury brands Brand Unique niche product; clear brand message; 6. Some adaptation of the product is required target is the affluent segment; sporadic social media presense 7. Weak intellectual property rights Production Flexible use of reliable outsourcing partners; 8. Emphasis on using social media for brand capacity usually small orders; experience in adapting the awareness and purchasing  QUESTIONS: Q1: From a resource-based view perspective, would you recommend Gamma to enter China? Q2: Would your recommendation change if you applied an institution- based perspective? YULIA MURATOVA 9 SEPTEMBER 2024 ASSOCIATE PROFESSOR DEPARTMENT OF MANAGEMENT AARHUS UNIVERSITY DEPARTMENT OF MANAGEMENT A ARHUS UNIVERSITY