Review of Resource-base Strategy

1. Review of Resource-base Strategy Looks at internal resources and capabilities of a company, such as… Material extracted from Barney (2001)

2. Review of Resource-base Strategy • Sustained Competitive Advantage – • A company that possess and exploits resources & capabilities that are… • Valuable • Rare • Costly to Imitate (Inimitable)

3. Review of Resource-base Strategy Tangible Resources: • Dow Chemical’s research laboratory and facilities • Intel’s semiconductor fabrication facilities • AT&T’s network of wire, cable, and satellites…

4. Review of Resource-base Strategy 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,…

5. Review of Resource-base Strategy 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)

6. Review of Resource-base Strategy 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.

7. Review of Resource-base Strategy 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? Material extracted from Barney (2001)

8. Review of Resource-base Strategy Do these resources and capabilities lead to Competitive Advantage? 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?

9. Review of Resource-base Strategy Do these resources and capabilities lead to Competitive Advantage? 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? Material extracted from Barney (2001)

10. Review of Resource-base Strategy Material extracted from Barney (2001)

11. Review of Diversification and Integration Strategies Limited Diversification Single Business 95% or more of corporate revenue come from a single business unit Wm. Wrigley Jr. Co. - China

12. Review of Diversification and Integration Strategies Limited Diversification Between 70-95% of corporate revenues comes from a single business unit. Hershey Foods Corporation - Korea

13. Review of Diversification and Integration Strategies 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

14. Review of Diversification and Integration Strategies 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

15. Review of Diversification and Integration Strategies 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)

16. Review of Diversification and Integration Strategies 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.

17. Global Expansion Framework(Gupta & Govindarajan, 2001) Market Growth Rate Control in Foreign Market

18. Global Expansion Framework(Gupta & Govindarajan, 2001) Required Adaptation Strategic Importance

19. Global Expansion Framework(Gupta & Govindarajan, 2001) • Interesting • Intuitive • Overly simplistic • Static • Only a little helpful in strategic decision-making • Strategy is DYNAMIC…that’s why the next framework is much better…

20. Capability-based Global Expansion(Tallman & Fladmoe-Lindquist, 2002) Focuses on firm’s ability to… • build, • protect, and • exploit… …a “bundle” of unique capabilities.

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

22. Capability-based Global Expansion(Tallman & Fladmoe-Lindquist, 2002) Two Types of resource-related capabilities: • Corporate-Level Architecture Capabilities • Firm-wide routines that • facilitate the “bundling” of the resources within business units, and • find 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.

23. Capability-based Global Expansion(Tallman & Fladmoe-Lindquist, 2002) • Capability Leverage • Use 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

24. Capability-based Global Expansion(Tallman & Fladmoe-Lindquist, 2002) • Capability Leverage • Coca-Cola Example: • Past: little adaptation to packaging, brand, advertising, manufacturing, etc. • Expansion Strategy: Business-level capability based • Current: localizing packaging, distribution, advertising, manufacturing. • Expansion Strategy: Both (Localized) Business and (Global) Architecture-level capabilities based • (Why didn’t the authors note this???)

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

26. Resource-based Strategy and International Expansion • Global 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?

27. Resource-based Strategy and International Expansion • Global Expansion • Product: (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.

28. Resource-based Strategy and International Expansion • Global Expansion • 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?

29. Resource-based Strategy and International Expansion • Global Expansion • Market: 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’.

30. Resource-based Strategy and International Expansion • Global Expansion • 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?

31. Resource-based Strategy and International Expansion • Mode: 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.

32. Resource-based Strategy and International Expansion • Global 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.)

33. Resource-based Strategy and International Expansion • Taking 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?