The Highlighted Elements Through Resource Based Theory Commerce Essay

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Resources based theory (RBT) basically highlights the internal environment in terms of the resources and capabilities as the core determination of firm performance. The company that adopts this strategy mainly focuses on the strategic resources that are available in the company and use them to achieve sustainable competitive advantage. Various studies had been carried out to further analyse the relationship between the strategic resources and the firm performance and many of them arrives at the conclusion that by focusing on the resources, firms are able to achieve superior performance. However, some researchers argue that there are a few limitations in this strategy in terms of firm performance and strategy development in certain industries. Besides, some had also argued that the external environment is the core determination of the firm performance rather than the internal environment and therefore should focus on Porter's industrial analysis. On the other hand, some even argued that in order to maximize the firm performance, firms should focus on both analysis which are the internal and external environment analysis.

In resource based theory, resources are the core determination of firm performance. Basically, the resources are categorised into three categories which includes tangible resources that covers all the physical assets, intangible resources which covers the culture, reputation and patents and lastly the human resources. Kotelnikov (2001) suggested that in resource based theory, firm's unique resources and capabilities are the reason that firms are able to generate superior firm performance. Based on Johnson & Scholes (2002: 154), unique resources basically are those resources that critically promote competitive advantages. They have the sustainable ability to provide value in the firm's products, different from the competitors' resources and very difficult to imitate. This will eventually enables firms that implemented resources based strategy to achieve economic profit which is also known as rent. However, most of the time, the rent generated from the competitive advantage does not reflect high performance due to the 'appropriation of the rent by different stakeholders' (Anderson, 2011: 92). For example, the rent generated by the skill of an employee is appropriated back to the employee in term of salary. This is eventually not reflected in the financial performance of the company. According to most of the RBT scholars, 'human resources in term of the knowledge and capabilities of the employees are the most important resources' (Anderson, 2011: 92). In order to develop the sustainable competitive advantages in the firm through the human resources, the pool of human capital must be willing to demonstrate productive behaviour and consists of high skills. In addition, many companies nowadays are on the move in training their employees. They believe that by doing so it will benefit the employees in term of skill developments and as well as the new ideas that leads to higher innovation. By having a unique human resources, firms are able to create core competence that may lead to competitive advantages. However, according to Anderson (2011: 89), human resources are not considered as a strategic resource due to its mobility. Employees can transfer from places to places and even to the rivals. This will eventually cause the company to lose its strategic resources. This shows that not all of the human resources are strategic and able to result in high performance unless companies are able to retain its employees. According to Anderson (2011: 89), the possession of resources will help to determine high firm performance. By only having threshold resources in the company and without proper management, firm will not be able to achieve superior firm performance. In olden days, firms' performance is limited by the resources but nowadays the firms' performance are mostly limited by their ability to manage the resources. Normally, firms that just start up will have the problem in managing their resources due to the limitation in experience and knowledge. Therefore it shows that resources based strategy is not applicable to all of the companies.

Based on the resources based theory, one of the assumptions is that different firms will eventually possess different resources. Therefore in order to develop core competency, firm should focus on the capabilities that are consistent with its strategy. The core competency that is developed will eventually become the competitive advantages for the firm to generate rent. This can be illustrated in Toyota, car manufacturing company that implement resource based theory in developing the hybrid car. Through the development of the petrol-and-electric hybrid car, Toyota had achieved its core competence. The fuel saving technology and the human resource expertise that are owned by Toyota had eventually become the strategic resource for them. The hybrid car was a success in United States. Eventhough adding the hybrid engine car will cost thousands, consumers are not hesitate to pay more for the fuel saving engine. This eventually creates value in the product and hence differentiates it from other rivals' products. According to resource based theory, in order to create sustainable competitive advantage, there are four criteria that must be achieved. They are the valuable, rare, costly to imitate and nonsubstitutable capabilities. According to Rangone (1999), 'the knowledge based resources such as innovation capability or different production capabilities are identified as the important strategic resources.' Costly to imitate capability is identified as the capability that other rivals are difficult to develop. Most of the time, this capability is developed because of their unique historical conditions (Hitt, Hoskisson & Ireland, 2007: 83). This can be illustrated through Airasia which is known in many countries for its low fare carrier. 'Now everyone can fly' a slogan that is used by Airasia reflects its capability. By providing the carrier services at low cost, airasia are able to develop its core competence that eventually attracts more market shares that lead to sustainable competitive advantage. On the other hand, its rival in Malaysia, Malaysia airline is too 'deep' in their own strategy that it is very costly for them to change their strategy to compete with airasia. Other than that, nonsubstitutable is another characteristic for sustainable competitive advantage. The resources can only be rare, valuable, and even costly to imitate when the capability of the company cannot be copied by the rivals. However, when the rivals are able to possess the equivalent of substitute resources, the company resources are not able to produce capability that able to sustain the competitive advantage. This can be illustrated in the case of Dell, the personal computer manufacturer. Dell is well known for its direct sales model and many competitors are trying to duplicate the way how Dell carries out their sales. Eventhough the model is transparent enough, no other competitors are able to develop or duplicate the same strategy that Dell has did. This eventually shows that the Dell's direct sales model capability is nonsubstitutable and will result in sustainable competitive advantage (Hitt, Hoskisson, & Ireland, 2007: 83). The above reason shows the reasons why some of the firms such as Dell and Toyota are able to outperform other firms when implementing resources based strategy and also able to generate rent from it. Besides, resources based strategy is also important in adding value to the firms' products. A value chain shows the process of a product moves from a raw material stage to the final consumer stage. Based on Hoskisson, Hitt, Ireland and Harrison (2008: 81), in order for a value chain to be a source of competitive advantage, a resource or a capability must allow the firm to perform an activity in the way that is superior than the way competitors perform it or to perform the value-creating activity that competitors are not able to perform. This can be illustrated by Federal Express who involves in the delivery business that reconfigures the outbound logistic which is the primary activity in the value chain to create value in the process (Hoskisson, Hitt, Ireland & Harrison, 2008: 83).

Based on Michael V Russo Paul A. Fouts (1997), the early resource based theorists found that the successfulness of the firm is actually depending on the external environment of a firm. However, Wernerfelt (1984) and Hamel (1990) disagree with the opinion and therefore started to develop the theory that focusing on the internal environment of a firm which is now known as the resources based theory. It focuses on the resources in the firms that able to produce capabilities that help to create sustainable competitive advantage. Some researchers argued that the resource based theory does not really show the dynamic and firm relationship between the firms' performance and strategic resources. Based on Porter's industry analysis model, it focuses on the external environment of the firm rather than the internal view. The five forces consists of five elements which are the supplier power, buyer power, threat of substitute, threat of new entrance and lastly the intensity of the rivalry. In this analysis, the firm performance actually depends on these few elements. The supplier power is part of the value chain of the firms. Suppliers are able to influence the price of the resources through their bargaining power. If the bargaining power of the suppliers is high, firm will not be able to appropriate rent from the performance. Other than that, the threat from the new entrance is another issue. Most of the time, there are a few firms that are able to create a barrier for the new firms to enter. This aims to protect the above average profit that the firms are making. Besides the porter's five force external analysis, the general environment of the firm should also be taken into consideration. The general environment is also known as the external environment that includes the dimensions such as the international dimension, technological, sociocultural, economic, and the political dimension. All these elements affect the firm from the outside in approach. The rapid changing of the environment nowadays has altered the way how businesses carry their business especially the technology dimension. In recent years, technology has been changing rapidly. The internet access which is now the necessity for all of the business and individuals has provided the means of communication and flow of information throughout the world. Most of the firms even alter their internal processes to suit the rapid changing technology. In addition, there is no boundary in all the business. Businesses of companies nowadays are carried outside of their home countries as well. The international environment eventually provides new market, customers, resources, technology and even the new competitors. That is the reason why every company nowadays have to compete on a global basis. This has also change the way firms structure their businesses to be more competitive in the global basis. For example, many firms outsource their production to China for the low manufacturing cost.

However, there are still vagueness existed between the role of the firms and the external environment. Therefore, Barney (1986) suggested that the firm resources will not be valuable when the external analysis alone is taken into consideration. Therefore he suggested that the external environment should be taken into consideration within the resource based theory. This also means that by fitting the internal capability of the firms into the appropriate external environment, firms are able to execute a viable strategy. Barney (1991: 106) suggested that to make the resources valuable, SWOT analysis can be used to identify the opportunities, threats, weakness and strength of the firms. The weakness and the strength within the firms must be identified in order to suit the opportunities in the external environment. For example, the strength of the firms may be the ability to handle the resources within the firms and therefore should be focused on to fit into the external environment accordingly. The SWOT analysis will eventually help the firm to execute the best strategy in order to increase the firm performance. As a conclusion, in order to develop the best strategy, both the internal view and the external environment according to the industries must be taken into consideration. Then only the firm will be able to achieve superior firm performance.