The resource-based view of competitive advantage states that for a firm to maintain

The resource-based view

The resource-based view provides a conceptual framework to assess the strategic fit of resources originating from China in the context of the developing world. Originally proposed by Birger Wernerfelt (1984) and later developed and refined by Jay B. Barney (1991) and other scholars, the resource-based view of the firm has found considerable support in the business literature. A major premise of the resource-based theory is that competitive advantage is a function of the resources and capabilities of the firm (Wernerfelt, 1984; Conner, 1991; Peteraf, 1993). Barney (1991) has listed four attributes of resources that can give rise to a firm's competitive advantage: value, rarity, imperfect imitability, and lack of substitutability.

Valuable resources help a firm exploit opportunities and/or avoid threats in the environment (Barney, 1991) and enable it to develop and/or implement strategies to improve its efficiency and effectiveness (Capron and Hulland, 1999). When we discuss the value of a resource, it is important to ask, ‘valuable to whom'? As explained in the next section, low cost and relevant products may act as critical sources of value related to Chinese high-technology products to consumers in the developing world. Chinese technology firms' resources are also characterised by rarity, imperfect imitability and lack of substitutability, which can be attributed to the organisational routines, systems and cultures of Chinese firms and the government (Nelson and Winter, 1982), among others.

2.9.2 The Resource-Based View

The resource-based view is an important theory in enhancing our understanding of the outsourcing decision. In particular, the resource-based view can assist in the analysis of organisational capabilities, which can link outsourcing to organisational performance and in turn competitive advantage. It is possible to relate the resource-based view to analysing the capabilities of an organisation relative to competitors and suppliers in an outsourcing context. According to Barney (1999), a resource with the potential to create competitive advantage must meet a number of criteria including value, rarity, imitability and organisation. Resources and capabilities are considered valuable if they allow an organisation to both exploit opportunities and counter threats. Therefore, these resources should enable the organisation to meet the factors critical to success in their business environment. The rarity criterion is related to the number of competitors that possess a valuable resource. Clearly, where a number of competitors possess a valuable resource then it is unlikely to be a source of competitive advantage and therefore is a suitable candidate for outsourcing. A valuable resource that is unique amongst both current and potential competitors is likely to be a source of competitive advantage. Valuable and rare resources can be a source of competitive advantage and should be performed internally and developed. The imitability criterion is concerned with considering the ease with which competitors can copy a valuable and rare resource possessed by an organisation. In effect, this analysis is concerned with determining the sustainability of the competitive advantage in the resource. Finally, Barney (1999) argues that a firm must be organised to exploit its resources and capabilities. The organisation criterion includes a number of elements including the reporting structure, management control systems and compensation policies. It is important to emphasise that even though a firm may possess a range of valuable, rare and costly to imitate resources, ineffective organisation will prevent the full exploitation of these resources.

Many proponents of the resource-based view have argued that competitive advantage is created from resources and capabilities that are owned and controlled within a single organisation. Therefore, resources that are internal to the organisation drive competitive advantage. However, some scholars have extended the scope of the resource-based view to focus on resources that span the boundaries of the organisation (Das and Teng, 2000; Matthews, 2003) – sometimes referred to as the ‘extended resource-based view’. Proponents of this literature propose it as a means of understanding how firms can gain and sustain competitive advantage. For example, Dyer and Singh (1998) argue that it is possible for organisations to combine resources in unique ways across organisational boundaries to obtain an advantage over their competitors. Firms can develop valuable resources by carefully managing relationships with external entities including suppliers, customers, government agencies and universities. Therefore, a firm can gain and sustain competitive advantage by accessing its key resources in a way that span the boundaries of the firm. Research has suggested that there is the potential for productivity improvements in the value chain when organisations are willing to make relation-specific investments and combine resources in unique ways (Dyer, 1996). Organisations that make relation-specific investments are able to combine resources in unique ways to generate relational rents and gain competitive advantage over organisations that are unable to do this.

2.1 The Firm as a Set of Resources

The resource-based view seeks to understand why firms grow and diversify. The theory grew largely out of Penrose's (1959) study, in which she cites unused managerial resources as the primary driver of growth. Penrose recognized that internal managerial resources are both drivers and limits to the expansion any one firm can undertake. This stream of literature was expanded in the 1970s and early 1980s on the heels of significant diversification and firm expansion (Rubin 1973, Teece 1980, 1982).

The resource-based view advances the importance of firm-specific resources, that is, those resources that maintain value in the context of the given firm's markets and other resources that are difficult to replicate by other firms (Wernerfelt 1984). Such resources include managerial ability, customer relationships, brand reputation, and tacit knowledge regarding specific manufacturing process. Resources are not the same as competencies or capabilities. Rather, a firm's access to resources and ability to mobilize and combine these resources in specific ways determine the firm's competence in a given product area. As a firm gathers resources for one business, these resources will, to differing extents, be sufficiently fungible for use in other product lines or markets (Teece 1982). Some of these resources will maintain excess capacities over time, especially since the units required for operations in one area are not necessarily consistent across multiple fields.

In some cases it is knowledge which is the ‘excess resource’ (Teece 1982, 1986). It is this excess capacity, coupled with profit-seeking behavior, that drives decisions to diversify. Some scholars have noted that such resources are transferable in a limited sense between firms, but such endeavors require organizational interaction beyond market contracting to include acquisitions or hybrid forms of governance (Chi 1994). This point will be considered in Sect. 4.

Resource based view

According to the resource-based view (RBV) of the firm [13] a company can outperform other companies by the way the company combines its technical, human, and other resources. When people are considered to be a key resource, it is important to maximize their capabilities and knowledge and to prevent its outflow by using ergonomics. The RBV attempts to reach sustained competitive advantage by choosing and developing resources that are valuable, rare, costly to imitate, and exploitable by the organization. By improving ergonomic job and workplace design, ergonomics can contribute to the maximization of the use of valuable, rare, and costly human resources, and hence to the maximization of sustained competitive advantage and to economic performance above normal.

Resource-based view (RBV)

The discussion of business strategy in this study begins with a theoretical review of the resource-based view (RBV) of the firm. Strategy is the fit between the firm’s external situation and its internal resources and capabilities (Grant, 1991). Significant changes in the business environment will require organizational changes – different resources and capabilities – in order to realign the firm with its environment. A RBV perspective focuses inwardly on the firm’s resources and capabilities to enhance its competitive advantage (Barney, 1991; Penrose, 1959; Peteraf, 1993). The RBV approach helps us understand how firms achieve and sustain competitive advantage through resource building as well as leveraging the existing resources.

A firm is a bundle of resources and routines that influence growth (Barney, 1991). From the resource-based perspective, a firm’s competitive advantage comes from its superior resources. A firm is therefore advised to choose its strategy based on its resources (Barney, 1991; Penrose, 1959; Peteraf, 1993). According to the RBV, only the ‘valuable, rare, imperfectly imitable and non-substitutable’ resources are sources of the sustainable competitive advantage (Barney, 1991). The underlying assumption is that unique sets of resources and associated capabilities protect the firm from imitation by competitors and provide the basis for an accumulation of superior profits through differentiation of its product and services (Porter, 1986). Unique resources and capabilities ensure profits, expand business opportunities and improve the performance of the firm. Resources can be classified into physical resources such as plant and machinery, human resources such as managerial and technical staff, and organizational resources such as information and experience.

Possessing unique resources is not sufficient for competitive advantage. A firm needs to have the capability to deploy those resources. According to Grant (1991), a capability is a set of skills vested in people or the organization that enables the firm to deploy the asset to achieve the competitive advantage. ‘While resources are the source of a firm’s capabilities, capabilities are the main source of its competitive advantage’ (Grant, 1991: 119). The link between a firm’s resources and capabilities and the competitive advantage of a firm remains a central concern of the scholars in the area of strategic management (Barney, 1991; 2001; Grant, 1991; Leask, 2004; Peteraf, 1993; Porter, 1986; Wernerfelt, 1984). Competitive advantage is at the heart of the strategy (Porter, 1985), based on the resources and capabilities available to the firm. Resource-side issues have to be dealt with by the practising strategists (Priem and Butler, 2001b). A firm is said to have a sustained competitive advantage when it outperforms its competitors by deploying firm resources more cost efficiently or more distinctively (or both) than its competitors (Barney, 1991; Porter, 1985).

Differences in the underlying resources of the firms enable them to engage in some competitive actions and not others. If a firm owns the resources that are ‘strongly shielded’ from competitive pressures, its strategies will mainly focus on how to maintain, strengthen and augment the existing competitive resources (Williams, 1992). These kinds of resources include higher order, complex and intangible resources such as knowledge, patents and skills and competencies. If the resources of a firm are easily transferred or replicated, such as cheap labour or imitable technology, there are several avenues for it along which to compete. It may pursue a strategy that is proactive, risk taking and innovative instead of a cost leadership or differentiation strategy (Miller, 1983). Alternatively, the firm adopts a strategy of short-term harvesting or it invests in acquiring new sources for competitive advantage (Grant, 1991). In order to upgrade a firm’s competitive advantage and broaden the firm’s strategic opportunity set, the resource gap in the firm must be filled (Grant, 1991).

Although some resources and capabilities are standard across all economies, others are especially prominent in emerging economies (Hoskisson et al., 2000). This is because the value of particular resources depends on the specific market context in which they are applied (Barney, 2001). Priem and Butler (2001a) note that greater efforts should be made to establish appropriate contexts for the RBV. In emerging economies, resources that are valuable in a market context such as managerial expertise and financial resources are likely to be scarce because they had not been fostered under the previous State-organized economic system. In addition, a good relationship with the government is considered to be a crucial resource in these countries (Hoskisson et al., 2000; Peng, 2005).

Moreover, according to RBV, the strategic decisions of firms will be shaped by the cognitive capabilities of their managers (Wright et al., 2005). Strategic restructuring may be impeded not only by constraints related to the lack of organizational resources, but also by a lack of managerial ability to undertake change (Mahoney, 1995). Strategic flexibility is the joint outcome of a firm’s resources and its ability to coordinate their uses. Managers’ flexibility in reconfiguring, developing and using resources are the most critical tasks in distinguishing successful from unsuccessful firms in emerging economies (Uhlenbruck et al., 2003).

RBV thus enables us to identify two dimensions of business strategy useful for this study. One has to do with identifying the existing resources and capabilities of the firm, while the other deals with identifying the resources needed for the growth of the firm. That some firms are able to survive and compete despite fierce competition indicates that they possess certain advantageous resources and capabilities (Bruton et al., 2000). Identifying these resources and capabilities helps the managers of the firm to maintain their current competitive advantage. As a competitive market develops, the development of new resources becomes more important (Hoskisson et al., 2000). Developing new resources helps managers improve the competitive advantage of their firm and expand business opportunities.

However, RBV is criticized for being overly narrow at its analytical core, because it argues that all performance differences are explicable in terms of the differential efficiency of the resources underlying strategies (Foss, 2002). Often the firm achieves a sustainable competitive advantage because it reduces opportunistic behaviour and allows for firm-specific investment (Mahoney, 2001). In addition, RBV is criticized for failing to answer questions about how the resources can be obtained (Priem and Butler, 2001a). Firms must create new resources and capabilities if they want to survive in the long run. New resources and capabilities can be acquired through development by investing internally, development through external governance such as purchase from the market, or development through merger and acquisition (M&A) and development through a networking structure (Penrose, 1959; Williamson, 1985; Luo, 2003). The issue of strategic choices on how to seek previously unavailable resources is especially pertinent to transition economies.

At this point, it is possible to take a broader view to address the key issues of strategy, while still keeping the efficiency perspective characteristics of the RBV (Foss and Mahnke, 2002). Transaction cost notions are useful for developing such a broader view.

4.2 Literature Review

A resource can take many forms and contribute in various ways to the profit of a firm. The resource-based view (RBV) argues that a firm’s sustained competitive advantage is based on its valuable, rare, inimitable, and nonsubstitutable resources (Barney, 1991). The capability of firms to create or acquire these resources affects their performance and competitiveness over their competitors. In a transition country like China, where the government controls many important strategic resources, state-affiliated firms are granted preference to access these resources. For example, existing researches show that less than 10% of bank loans were extended to the private sector (Firth, Lin, Liu, & Wong, 2009); Kwong (2009). Zhu et al. (2012) indicated that the lack of government support and protection for innovations is an institutional barrier to research and development (R&D) in small and medium-sized enterprises, the majority of which are private firms. Private enterprises are discriminated by the government and state-affiliated firms in resource allocation.

Social networks, which mean guanxi in the Chinese context, connect private entrepreneurs with other stakeholders in society. The personal networks of an entrepreneur affect how the firm acquires resources and generates value during this process. B2G networks, which refer to connections between private entrepreneurs and government officials (Park & Luo, 2001), are important as they allow private firms to access resources easier. From the RBV perspective, the government connections of the private entrepreneurs are a form of internal capability for their firms. Close ties with government officials enable the private firms to better communicate with the regulatory agencies, which increase the trust between the firms and the government departments that influence the allocation of resources.

Institutional theory also suggests that social networks supplement formal institutional mechanisms (Potter, 2002). Informal organizations and rules help to deal with issues that are ambiguous in the laws and regulations. The implementations of policies in China are subject to the interpretation of government officials. This motivates private entrepreneurs to use personal connections to evade regulations and access resources and preferential treatments (Guthrie, 1999). The improvement of the institutional environment and market mechanism may gradually reduce the importance of government connections in business transactions (Peng & Zhou, 2005).

Other literature, however, suggest the use of social networks is deeply embedded in the Chinese business culture (Chung & Hamilton, 2001; Luo, 2007). Chung and Hamilton (2001) highlight three dimensions of guanxi relationships in business: normative, affective, and instrumental. The normative dimension describes the expected obligation that arises from relationships such as those of kin. The affective dimension broadly covers the bonds of friendship that establish and maintain a relationship. The instrumental dimension emphasizes a quid pro quo consideration of cost and benefit of a relationship. When a social network is established, the people who are involved in that network become familiar with one another, which sets up expected obligations among connected members (Chung & Hamilton, 2001). A person who has received a favour is expected to return it in some form at some time in the future (Lovett, Simmons, & Kali, 1999). This rule of reciprocity requires connected members to give and return favours to others in order to maintain their own face and to avoid making others lose face. The logic of reciprocal favours motivates people to invest in a relationship first and to acquire a favour that will be returned by others in the future. This unique cultural trait has significant influence on how Chinese connect to others. The rule of reciprocity means that B2G networks in China are not narrowly transaction-based in general. Both entrepreneurs and government officials weigh the costs and benefits of relationships as well as their obligations toward the relationships, balancing the normative, affective, and the instrumental dimension of guanxi. From the perspective of government officials and regulatory departments, B2G networks enable them to find support from private firms in terms of economic development or personal benefits, which increases their willingness to invest in B2G networks to support private firms (Ma, Lin, & Liang, 2012).

This study focuses on the perception of private entrepreneurs of the role of B2G networks in helping them to access financial resources and new technology. Existing literature show that connections with government officials and managers in state-owned banks help firms to acquire financial capital (Gu, Hung, & Tse, 2008). Relationships with government officials help private firms to forecast policy changes, and therefore, they can invest in new technology in advance to gain a first-mover advantage (Li, Zhou, & Shao, 2009). Government connections also helps private firms to access government assistance, such as subsidies and support for R&D (Wei et al., 2011). However, existing research views government connections as homogeneous. It does not distinguish connections with officials in different regulatory departments and state-affiliated organizations, or between officials in local government and those in higher-level government. However, these different state-related identities may differently influence how private firms are treated. Since the private sector is an important contributor to local economic development and employment, local government officials have a stronger incentive to maintain a good relationship with private entrepreneurs and seek their supports for policy implementation (Ma et al., 2012). Haggard and Huang (2008) suggested that officials in higher-level government favour private firms less compared with state or foreign firms. We further investigate whether private entrepreneurs’ ties with officials in regulatory departments differ in how they help private firms to access resources.

Theoretical contribution

The contributions of this study, compared to the present state of knowledge, are summarized in Figure 6.2 and are discussed below.

Our study makes several contributions to the theoretical discussion of business strategies. First, the discussion of business strategies in this book moves beyond the typical resource-based view by integrating the insights of institutional theory with the resource-based view and transaction cost economics to study the evolution of learning strategies by which competitive firms in the Chinese CE sector have adapted to the dynamic changes of the institutional environment. With the longitudinal two-phase data, this study focuses on how to exploit firm-specific resources and at the same time develop new ones so as to opitimize fit with the external environment.

Second, the dominant view that government-oriented firms are associated with fewer positive learning strategies should be reconsidered. The advantage that privately-owned firms have over government-oriented firms is not as large as previously believed. Privately owned companies are said to be superior to government-oriented ownership in employing competitive strategies because privately owned firms have a single and clear objective of profit maximization, hard budget constraints and better incentive mechanisms. These determinants may also exist in competitive government-oriented firms. Government-oriented firms are not all alike. Managers of competitive SOEs, which are mostly under control of local government, in general have more managerial autonomy than do managers of firms under the ownership of central government, and act in a more entrepreneurial and market-inspired competitive spirit.

Third, in discussing business strategies, the study identified the processes by which firms are able to maintain a dynamic strategic fit in a changing environment. The study explicitly incorporates this dynamic perspective into the study of the fit between firms and their changing institutional environments.

Our study also contributes to the theoretical discussion on the nature of enterprise governance. This study argues that firms within the same category of ownership manifest different characteristics of corporate governance. Ownership does not formally ordain governance form. The evidence shown in this study is different from that of the existing literature concerning the categorization of different types of corporate governance of various firms. Most of the existing literature holds that SOEs, COEs and DPOEs reflect unique types of corporate governance. However, Chinese firms during the transition economy display some similar patterns of corporate governance. Both SOEs and large urban COEs can be categorized as conforming to a government-oriented governance pattern. Competitive government-oriented firms, once production units in the centrally planned economy, are now organized with a substantial degree of managerial autonomy and a separation of management from ownership. To a great extent these firms in China are characterized by a separation of management from ownership. In addition, SOEs, COEs and DPOEs share some common key features: different ownership classes, remaining Party/government influence and affiliated directors. One needs to keep in mind that, in China’s transition economy, many firms are in the process of transformation from traditional (that is, State) to more complex and less clear-cut ownership structures. The kinds of uncertainty in the conception of ownership regimes are intrinsic to the very transformation processes being studied here.

Finally, our study combines business strategy and corporate governance factors in the discussion of performance, which is underdeveloped in the past literature that has focused on the link between business strategies and performance or corporate governance and performance. The findings suggest that the relationship between corporate governance and performance is not as straightforward as was predicted. The cases used in this study explain why, in China, corporate governance has no apparent effect on firms’ performance. Indeed, theoretical arguments on business strategy and corporate governance become incomplete if such an association is not established.

From an economic perspective, this study supports the proposition that business strategy is mainly a function of market and incentive structures rather than of ownership per se. It also lends credence to suggestions that government-oriented firms in many countries are less competitive, not because they are owned by the State, but because of a lack of explicit goals and objectives and because of State demands that can compromise the pursuit of efficiency and profitability (Heracleous, 2001). In this light, private ownership is neither a necessary nor a sufficient condition for market-oriented learning strategies. The cases studied in this research constitute a potent challenge to the widely held view that private ownership is an indispensable prerequisite to market-oriented learning strategies.

Moreover, evidence found in the cases in the context of China’s transition economy does not support the dominant theory that the strategy configuration is directly influenced by the ownership type an organization takes (Tan, 1996, 2002). This study argues that government-oriented firms are not necessarily less positive in taking exploitative and explorative learning strategies than the firms with a privately owned type of corporate governance.

Example: Platform Revolution

The technology-enabled platform revolution is a creation of digital-native. Back in 2007, the five major mobile phone manufacturers—Nokia, Samsung, Motorola, Sony Ericsson, and LG—collectively controlled 90% of the industry’s global profits. That year, Apple’s iPhone burst onto the scene and began gobbling up the market share. By 2015, the iPhone singlehandedly generated 92% of global profits, while all but one of the former incumbents made no profit at all. In 2016, private equity markets gave Uber (founded in 2009) a valuation higher than GMs (founded in 1908). It took Airbnb (founded in 2008) 7 years to reach one million rooms compared to 58 years for Marriott. Today, Airbnb is more profitable than all of the incumbents, as shown in Table 2.5, with zero ownership in real estate assets. Alstyne et al. (2016) argues that when a platform enters the market of a pure pipeline business, the platform virtually always wins.

Table 2.5. Platform Revolution in Hospitality Industry (Hagiu and Rothman, 2016)

Conventional “pipeline” businesses have dominated industry for decades; they create value by controlling a linear series of activities—the classic value-chain model with inputs at one end and an output that is worth more: the finished product. The technology-enabled platform economy comprises a distinctly new set of economic relations that depend on the Internet, computation, and data. The ecosystem created by each platform is a source of value and sets the terms by which users can participate (Kenny and Zysman, 2016). Platforms combine both demand and supply to disrupt existing industry structures, such as those we see within the “sharing” or “on demand” economy. These technology platforms, rendered easy-to-use by the smartphone, convene people, assets, and data—thus, creating entirely new ways of consuming goods and services in the process. In addition, they lower the barriers for businesses and individuals to create wealth and altering the personal and professional environments of workers. These new platform businesses are rapidly multiplying into many new services, ranging from laundry to shopping, from chores to parking, from massages to travel (WEF, 2016).

The move from pipeline to platform is inherently disruptive, which involves three key shifts (Alstyne et al., 2016):

From resource control to resource orchestration. The resource-based view of competition holds that firms gain advantage by controlling scarce and valuable—ideally, inimitable—assets. With platforms, the assets that are hard to copy are the community and the resources its members own and contribute, be they rooms or cars or ideas and information. In other words, the network of products and consumers is the chief asset.

From internal optimization to external interaction. The emphasis shifts from dictating processes in pipeline to persuading participants in platforms, and ecosystem governance becomes an essential skill. Platforms create value by facilitating interactions between external producers and consumers. They often shed even variable cost of production because of this external orientation.

From a focus on customer value to a focus on ecosystem value. Pipelines seek to maximize the lifetime value of individual customers of products and services, who in effect sit at the end of a linear process. By contrast, platforms seek to maximize the total value of an expanding ecosystem in a circular, iterative, feedback-driven process.

Third Statement: Managers are Seeking Interpretation and Social Interaction

Managers are seeking the efficient solution for the firm's development. To find that demands interpretation of the environment and of their own possibilities (statement of the internal resources; cf. the resource based theory of the firm, e.g. Penrose, 1959; Grant, 1991). A seeking interpretation becomes the result of the attempt to efficiently develop the firm. The managers within the firm look for the best interpretation of the future way to go and the best kind of innovations. However, they are uncertain of which interpretation and which solution is the best. Therefore, they turn to other people—particularly the employees—to discuss and develop the best solution. They engage in reflexive strategic behavior, which is an interactive social process that creates innovation (as already stated; cf. also Gallouj, 2002).