Introduction In the impeccably focused market,firms can’t maintain profit sustainability as the passageway of potentialcontenders can drive down the cost to the point where monetary benefits arenil. But in reality, some firms persistently enjoy profits that are higher thanits rivals. The respective paper discusses the stance of three managementtheories, resource based, industry based and institutional based approaches andlinks each of these managerial stances towards the institutional based viewstrategies of MNEs.
Resource Based Theory Resource-based theory (RBV) is usedto explain this phenomenon by stating that ‘the unique bundle of resources thatsome firms have obtained help to shape the firms’ value-creating strategieswhich are implemented to gain a competitive advantage’. This essay will firstlyexamine the characteristics of the resources which are the basis of acompetitive advantage, then analyze the isolation mechanism which help tomaintain firms’ competitive advantage. Finally limitations of this theory willbe discussed (Mallikarjuna, 2015).
As for every major business concept,there exist countless definitions about the RBV. A concise and covering onemight be. A Management device is used for evaluating the accessible limits ofkey resources of the organization. So, asset construct vision is positioned inlight of the fact that the competitive edge is measured by the effective andproficient utilization of all the valuable assets that the organization has atits disposal. (Walker and Mercado, 2013) Coase is considered as the pioneerof significant citations that present RBV as a theory of business nature,unlike a theory like the economy of transaction costs that tries to explain whythe company is present. During the following decades, the idea of seeingcompanies as broader resources during the modeling process is due to themathematical features of some important examples of global resources (eg,technical force). An exception to this common lethargy in the literature arearticles from Penrose and Rubin, who renew the RBV approach and related it tothe growth theory of firms. Especially Penrose focused on the RBV, which shesummarized in the introduction of her work: The growth rate of the companyimplies important administrative restrictions.
The human resources needed tomanage the change are mostly internal because they are related to a singlecompany. For the expansion, it is necessary to recruit more resources of thistype. New employees cannot be totally effective at night. As a result, the processof growth is dynamically inadequate(Manroop, Singh and Ezzedeen, 2014) Since the 1970s the RBV has beenslowly rediscovered as an object of research. Of special note was the work ofAndrews, who started to phrase the traditional concept of strategy in terms ofthe resource position (strengths and weaknesses) of the firm. His approach wasnew compared to the formal economic tools which operate on the product-marketside.
The years from 1981 to 1991 can be named as the most intensive decade ofresearch in the field of RBV. During this time the most significant worksdealing with the RBV were published by Panzar & Willing, Wernerfelt andBarney. The “economies of scope” theory was the first broad concept mainlydeveloped on the RBV approach.
Economies of scope refers to lowering theaverage cost for a firm in producing two or more products since the efficiencyin the use of common and recurrent resources (e.g. Know-how or indivisiblephysical assets) can be significantly improved. Wernerfelt’s paper developedsimple economic tools for analyzing a firm’s resource position and examinedstrategic options suggested on the resource-based view. Equally, if you specifythe company’s resource profile, you can find the best asset in the productmarket.
Barney’s first detection was the distinction between static and dynamicresources. Moreover, he defined that sustainable competitive advantage is basedon the ownership of firm-specific resources. In his opinion this ownership hasto have necessary attributes, which are termed VRIN – valuable, rare,inimitable and non-substitutable. (Zhang and Dai, 2013).
Industry Based View Businesses can apply the secondapproach in order to gain the edge in the market, over their competitors.Industry based view uses similar tools and models when executing theseapproaches, hence giving a competitive advantage to organization is the ultimategoal. However, industry based view differ in various ways, regarding the marketequilibrium, their definitions and the models and the tool used. Still,industry based view complement each other even though it might seem that therespective approach portrays the other as the opposite of itself and this willbe shown in this study. (Murdoch, 2014) By definition, industry basedapproach is outside the competitive approach. As Faulkner (2007) noted, we facethe competition of “agile market positioning”. In other words,companies use tools such as the product lifecycle, Porter’s 5 forces industrymodel , the strategic group, the scenario plan, and the model; Porters GenericStrategies, Consumer grid, Mintzberg 5P’s model.
After identifying variousexternal opportunities and threats as well, also understanding the currentbehavior and external situation, the organization must make the necessaryadjustments to adapt to the external environment. (Plouffe, 2015) The assets and capacities must beheterogeneous and incompletely portable since they can be characteristicallynon-tradable, firm-particular, and co-specific. Also, assets ought to satisfyVRIN criteria to appreciate an upper hand and practical execution. Right offthe bat, assets must be significant empowering a firm to misuse openings andkill dangers by enhancing its proficiency and adequacy.
Also, assets must behard to discover among the current and potential contenders of the firm.Consequently, assets must be uncommon or one of a kind to offer upper hands.Moreover, assets ought to be supreme, which implies different firms eithercan’t get them or need to acquire them at considerably higher expenses.
Fourthly, key assets should be non-substitutable. If not, contenders willutilize deliberately identical substitutes for these assets to shape comparableabilities (Barney, 2015). In the last few years the publishedarticles were rather concentrating on analyzing and reflecting critically theapproaches which were already developed than elaborating new ones. Lockett’s,Thompson’s and Morgenstern’s published article worked on the critical reviewingof the industry based view development and they provided their own subjectiveviews in which field they think future research efforts should focus. Inaddition, Kraaijenbrink, Spender, Groen made a detailed review of the conceptof industry based view, concluding that the industry based view communitycomplied with “inappropriate economic neoclassical rationality” andreduced the possibility of progress.
His proposal was to develop industry basedview with a more practical competitive theory, especially when moving to atruly dynamic structure. Thislong-lasting effect of the industry based view concept shows it had its highpoint 20 to 30 years ago and was rather criticized and reflected than developedfurther during the past few years. Consequently, it is obvious that the issue Iam addressing in my research focus was already handled by other authors before.Priem and Butler posed a closely related question. “Is industry-based”vision” a useful perspective for strategic managementresearch?”(Priem and Butler, 2001) The two authors acknowledged in their workthe existence of a” black box “when applied to industry based view instrategic management. This black box was created by imprecise definitions,hindering recipes and static approaches. It also suggested a strictformalization of the industry based view, the response to the causal questionon how to incorporate the time component and the integration of heterogeneouspatterns of industry based view’s request, in contrast to the approachdeveloped by Priem and Butler on a pretty handy use of industry based view tomake strategic decisions.
(Hwang, 2015)Institutional Based View As per the institutional based view,an enterprise is considerably well-equipped with all the human resources,finance, expertise and technology, so to attract any potential investor with alarge sum of monetary value and the confidence to invest over the venture,ultimately bringing about substantial competitive advantage over other foreigncompanies. The vast majority of stakeholders, under which sits an efficientmanagement, is working upon the basic agenda of institutional based view, whichis the emerging interests of these institutional based view to engage in theinternational markets. Institutional based view comprise of a large proportionof the world economy and possess a global understanding of internationalcultures (Meyer, Mudambi and Narula, 2010). In order to implement the coreconcept of institutional based view, these institutional based view must havethe tendency to adapt to different countries and cultures. Alongside it isclearly very essential to comprehend the business strategies of local companiesoperating in the invested country.
Institutional based view make variousattempts to legitimize their position in the foreign market by risking everypenny invested in the region, these risks are minimized by employing strategiesrelevant to the industry and invested market. The foundational barriers to faceare the environmental regulations that are never easily adapted, some foreigncountries opt to impose competition laws, facilitating small companies tosustain their position in the market and the use of local language is itself aproblematic matter in its entirety (Dunning,2006). Onthe other hand, it is very necessary for Institutional based view to generateall the needed information on the existing alternatives a foreign marketfosters in terms of substitutes to be able to acknowledge the competitionaround. Institutional based view usually establish directions upon how theproduct fits in the market and in what way it benefits the market and thegeographical surrounding in an attempt to stay relevant. Before making anyhasty decisions, the management evaluates the worthiness of foreign investmentby scouting those countries in which they could undoubtedly enjoy an absoluteadvantage. An absolute advantage is only applicable when a country has acertain control over the production of a specific commodity that cannot becatered in the foreign market. To procure these valuable commodities, theforeign country willingly indulges in importing them, regardless of a possibletrade deficit in the near future.
The core structure of these institutionalbased view lay in the home country to which they refer to as parent company andwould certainly opt to set up its production unit in the host country, clearlythe invested region (Contractor et al., 2010). Thegeneral idea is to devise and delegate strategies after an in-depth analysis ofthe invested market and to avoid the recurring extra transport cost that is amere liability to bear. The strategy is concerned with vertical expansion ofthe production structure of these Institutional based view. The expansion isentirely based on negating transportation cost and the fluctuating currencyrates, imploring the elimination of local competition by allowing a possiblemerger and executing the principles of sequential marketing. Developingcountries very much encourage such foreign investments as it essential meanshigher wages and innovation on behalf of Institutional based view. This sort ofbusiness approach regulates the broadening of production processes byleveraging low manufacturing cost and cheap labor.
Not only it provides afeasible production combination for the Institutional based view but also itattracts small companies to conjugate with a large corporation in terms of lowcapital required at the initial level. Sometimes it seems realistic that Institutionalbased view hire local companies on contractual bases. In times of shortage insupply and an ever growing demand for their goods, institutional based viewassign a proportion of their production line to outsourcing companies (Cantwell, Dunning and Lundan, 2009). Inrelevance to sales, a horizontal expansion is exercisable by setting up salesunit in the foreign and avoid marketing through local agencies to reassureproduct accessibility to customers and manipulate price under strategies ofparent company. Institutional based view also attempt to establish itself incountries where competitor brands are found, as competition make it necessaryto match the units of their own. Sales unit is streamlined given the liberty tooperate in accordance to the market trends because they have a clear sight onthe variation of market trends, in this way, products are released forimmediate sale in the host country as well.
Institutional based view are anintegral part of technological innovation around the world, they are better-offthan small and local firms in extracting competent companies that acquiresophisticated equipment, adopt comprehensive technology management tools, andbuild innovation networks with suppliers, customers, strategic partners,universities, and public research institutes (Filatotchevand Wright, 2010).Impact of three approaches oninternationalization strategies of MNEs Amultinational is likely to invest in the field where it can make notablecontributions in terms of maintaining both quality and service with low cost onproduction procuring public relations as well. It is very necessary to have aclear vision of its goals, money invested and means of resources. A successfulstrategy can be defined by sector’s attractiveness and profitability, plus thecompeting position. A sought-after knowledge of consumer needs and wantsconcerning the target market with the awareness of competitor’s competitiveedge and the company standings in the industry, all of the factors influencethe positioning of an enterprise. The marketing 4Ps must be taken into accountto carry out a successful product introduction among the consumers and thelifecycle of a product is of equal importance in the matter (Gao et al.
, 2010). Thegradual evolvement of competitive advantage is comprised of initial upraising,collecting benefits and erosion with variating duration and intensity, whichentirely depends on the engaged sector. An offensive strategy employed in thefirst phase and the second phase is reliant upon the timely response ofcompetitors, amounts to initial investment recovery and above average profit. Adeclination observed in the third phase, as a result of low competitiveadvantage enforces to maintain initial advantage, entering first phase from anew cycle. The second cycle should be optimized for the launch of anothercompetitive offer.
The approach ultimately compels a change on a strategiclevel concerning the management and organization of the business structure,which gives a rise to flexibility, adaptability and efficient decision making.Though it is advantageous to have a competitive advantage over rival companies,but it can only be maintained for a limited time period, while the competitorwould soon come up with an equally competent alternative. The only way toultimate survival is the MNE’s ability to make repetitive advancements in theirproducts. In the light of resource-based theory it is vital to understand theimportance of sustainable competitive advantage by organizing unique set ofresources and valuably rare capabilities that are undisputed in nature.Competitive advantage through low cost with large-scale manufacturing is easilychallenged by companies manufacturing assets to attain equal share fromlarge-scale production. Comparatively,new advancements are reliable and allow low cost on manufacturing that are notvery easy to duplicate.
MNEs ought to employ various resources and assets instructuring organizational competencies, for a sustainable competitiveadvantage to be executable, heterogeneity or differentiation among firms isvital. The notion of sustainable competitive advantage is relatable tointangible assets because tangible assets can only offer a temporary advantage.Intangible assets are non-physical and can be intellectual property rights ofpatents, trademarks, copyrights and registered designs including contracts,licenses, public knowledge such as published scientific works; personal andorganizational networks; organizational culture; and, the reputation of thefirm and its products. These need to be leveraged in multiple countries andbusinesses in order for them to be effective and at the same time transferableworldwide (Peng, 2012). MNEsadopt these strategies to overcome disadvantages in foreign markets,capitalizing on the fact that local companies cannot cheaply access suchadvantages. Although intangibles like technology, marketing capabilities and astrong brand name is transferable at low cost to multiple countries. Tomaximize performance on a global level MNEs must find perfect match inrelevance to the industry structure, strategy and organizational structure.Multinationals demand a blend of worldwide standardization and specializationof assets that regulates resource flows across numerous locations.
A particularconflict is risen from the internationalization of business that affectsindustrial relations (IR), concerning both capital and labor. InternationalIndustrial relations can be defined by all those IR strategies, policies andpractices which firms, employees and their representatives pursue in responseto the internationalization of business. This all jeopardize the factors thataffect IR policies and practices determination and the configuration of IR insubsidiary operations. Thepower which employees and their representatives are capable of exercising ininfluencing these decisions is also a key consideration. The role ofinternational IR institutions is significant in this matter, working acrossnational borders, they are empowered to put condition to MNE operations. Theroles of HR and IR go hand in hand as it concerns aspects of employeemanagement in multinationals. MNEswith its diverse sets of stakeholders have been very encouraging of internationalizationimplementation.
Internationalization strategies are collectively embedded by alarge number of institutes. The adaptation of internationalization roles on behalfof institutions vary significantly between firms, countries and industries. MNCstend to prefer broad and inclusive internationalization strategies, as thesecan be standardized across subunits of their global organization (Meyer, Mudambi and Narula, 2010).Conclusion In conclusion, this essay firstlyintroduces the unique resources should be heterogeneous and imperfectly mobilewith four characteristics: they must be valuable, rare, inimitable andnon-substitutable.
Apart from that, firms should adopt isolation mechanism tomaintain its advantageous position. It is comprised of impediments to imitationand first-mover advantage. In terms of impediments, four types are mentionedincluding legal restriction, superior access to inputs and customers, marketsize and scale economies, as well as four kinds of intangible barriers.Furthermore, first-mover advantage consists of four aspects as follows:learning curve, reputation and customer uncertainty, switching cost and networkeffects.
In the last part, some limitations of this theory are examined, whichare argued as ambiguity definition, ignorance of external factors, and lack ofdynamics and redundancy of this theory. (Giannoulakis, 2016)