A Literature Review The relationship between CSR and MNCs

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CHAPTER 2

For the past two decades, corporate social responsibility (CSR) has been the subject of academic scrutiny due to an increased pressure placed on corporations to be more accountable for the well-being of society. Much research has been done on CSR and its impact on multinational corporations (MNCs) (Gande, Fortanier & Van Tulder 2009; Kytle & Ruggie 2005), but research on an industry wide level, especially within the Information Technology sector is underrepresented (Cetindamar & Husoy 2007).

Furthermore, most CSR research done on an international scale is confined within the American and European context (Birch & Moon 2004). In addition, CSR impact on MNCs' competitive advantage within a Singapore context seems to be limited, and any research done has been mainly confined within the boundaries of CSR awareness (Ramasamy & Ting 2004) and corporate social reporting (Andrew et al. 1989; Foo & Tan 1988; Newson & Deegan 2002; Tsang 1998). The standard definition of MNC is a firm that "controls and manages production establishments - plans - in at least two countries" (Caves 1996, p. 1). Therefore, MNCs have a wide extension of corporate ownership and corporate decision power across national borders, making them more responsive to international obligatory rules and regulations (Jones 1996). For example, the European Union and North America have codified many policies to govern the activities of MNCs, thus creating a certain level of "social obligations" for MNCs to comply with (Harris 1999; Vyakarnam 1992).

With more stringent policies in place and greater pressure by civil society, CSR is seen as a strategy to counteract these ascending demands as well as a source of competitive advantage, enabling corporations to differentiate themselves against one another (Branco & Rodrigues 2007). CSR has evolved from being detrimental to a company's profitability to being beneficial to a company in the long run (Porter & Kramer 2002).

This research will revolves around the main research question Does CSR has an impact on Corporations' competitive advantage? and will also examines existing literatures to establish the relationship between CSR and corporations' competitive advantages. The research report will first provide an overview of competitive advantage and CSR; follow by an overview of key intangible competitive advantage such as brand equity, corporate reputation and employee commitments. The research questions will revolve around the key concepts such as CSR, brand equity, corporate reputation and employee commitments. Therefore this research paper is keen to examine key research questions such as 1) Does CSR enhance brand equity? 2) Does CSR enhance corporate reputation? 3) Does CSR enhance employee commitments?

2.1 Introduction

Based on the research background and motivation described in chapter one, this study proposed that corporate social responsibility are an integral strategy a corporation can adopt to enhance its competitive advantage. For the reasons mentioned above, chapter 2 will look at related literatures and the relationship between each variable. Upon the literature review, an assumption will be proposed and a study framework will be developed. Detailed introduction of each variable is given below:

2.2 Corporate Social Responsibility

CSR can be seen as a firm voluntary commitment to go beyond its implicit and explicit obligations to accommodate society's raising expectation on corporate behaviors (Carroll 1999; Carroll & Buchholtz 2008). According to Centidamar and Housoy (2007), CSR can be a corporate strategy adopted by corporations to improve the well being of society by addressing the legal and moral obligations that had been imposed on them by society and international and national government agencies. Therefore, corporations need to recognize that their corporate behaviours in their daily operations will have a direct impact on the environment, communities, employees and shareholders (Tinto & Watts 2000). Thus, CSR requires the corporations to go beyond statutory obligations and encourages them to voluntarily embark on socially responsible programmes that could help enhance the quality of life for their employees, local community and society at large (Dias 2000). The following subsections will look into the various definitions of CSR; follow by some key framework of CSR, namely, Carroll's (1991) Dimensions of Pyramid of Corporate Social Responsibility and Elkington's (1999) Dimensions of Triple-P Bottom Line.

2.2.1 The Definition of Corporate Social Responsibility

The concept of CSR has been the subject of academic scrutiny in recent decades, and researchers had come up with numerous definitions due to varying perspectives (de Bakker, Groenewegen & den Hond 2005). Initially, the concept was entirely link to economic aspects where corporation's sole obligation was to maximize shareholder returns (Branco & Rodrigues 2007; Zanisek 1979). One of the most prominent supporters of shareholder theory was Friedman. Friedman felt that there was a conflict of interest when managers are concurrently responsible to accomplish profitability objectives set by the business owners as well as taking initiatives to improve the wellbeing of society. This dual managerial role could potentially affect the livelihood of the corporation because it is continually being forced to perform socially responsible actions that directly conflict against private organizations' core objective, which is to generate profitability that enhances shareholders' value (Friedman 1962; Friedman 1971; Brown & Hass 1974; Friedman 1989).

In contrast to Friedman, McGuire (1963) had strongly defended that corporations does have responsibilities towards the environment that went beyond their economic and legal obligations due to the cause-related impact corporate behaviours have on society at large. Contrary to Friedman's shareholders theory, a study conducted by Long and Rao (1995) had indicated that socially irresponsible behaviours is not compatible with the goal of maximising shareholders' wealth. This study had indicated that, following the announcement of unethical business conduct, shareholder wealth effects derived from unethical conduct such as environmental pollutions, insider trading, employee discrimination, bribery and illegal payment had resulted in persistent and cumulative negative returns for a period of approximately one month (Long & Rao 1995).

With the growing awareness on the benefits of CSR, corporations are increasingly using it as a concept for cause-related marketing (Drumwright 1996; Handelman & Arnold 1999; Vaaland, Heide & Grønhaug 2008) in areas such as philanthropic giving, humanitarian aid, protection of the environment, resource conservation and community development (Quazi & O' Brien 2000).

According to Maignan and Ferrell (2001) CSR should be recognized as a broad concept since it takes in both normative and philosophical issues associated to corporations' role in society. This was because corporations have the moral obligations to minimize the negative impact to its social environment when conducting their business operations (Pride & Ferrell 1997).

With numerous definition of CSR found in the literature (de Bakker, Groenewegen & den Hond 2005). CSR can be best defined by Davis and Blomstrom (1975, p. 5) as "protect and improve both the welfare of society as a whole and the interest of the organisation". Although there are other definitions being put forward, but the general concept is rather consistent (Maignan & Ralston 2002; Michael 2003). Therefore, with stronger alignment in opinions that skew towards the ethical dimension of doing business, corporations have started to realize the importance of conducting activities that are not detrimental to both its internal and external stakeholders. Failure to do so can be detrimental to a corporation's profitability, license to operate, reputations and image because unethical conducts will generate bad publicity (Long & Rao 1995), which in turn will deters investors' decisions and consumer purchasing intension (Wong 2009), and to a wider extends leads to a stoppage in operations by governmental agencies (Bhattacharyya 2010).

A wide array of behaviours can be categorized as CSR. These behaviours are not confined to the boundaries of charitable donations and cause-related marketing but had also spill over to areas such as investment in green technology, commitment to health and safety issues, commitment to health and safety issues, employee volunteerism programs, work-life balance policy, conducive work environment, sustainable wage, supply chain management and educational sponsorship event (Russian Managers Association 2006; Tan & Chong 2009; Wong 2009; Maignan & Ralston 2002).

CSR has also been defined as a corporation's duty to respect the rights of the individual as well as to promote the wellbeing of its stakeholders in its operations (Manakkalathil & Rudolf 1995). Stakeholders can be divided into primary and secondary stakeholders. Primary stakeholders include shareholders, employees, customers, business partners, communities, future generations and the natural environment (Carroll & Buchholtz 2008). Secondary stakeholders include local, state and federal governments; regulatory bodies, civic instructions and groups, special interest groups, media, competitors, trade and industry groups (Carroll & Buchholtz 2008).

One of the most widely cited and used proposals to explain the construct of CSR is the Carroll's framework (Wartick & Cochran 1985; Burton, Farth & Hegarty 2000; de los Salmones, Crespo & Bosque 2005), also known as the Pyramid of Corporate Social Responsibility. Carroll (1991) suggests that total CSR has four integral components. These components are economic, legal, ethical, and philanthropic responsibilities. In addition to Caroll's framework, one of the most influential works on CSR will be that of Elkington (1999). He had argued that CSR is a combination of three integral components, that contains a people, profit and planet dimension (Elkington 1999). These three dimensions are also known as the Triple-P Bottom Line (Cramer 2002; Shell 2001). The introduction of the triple-P strategy have shifted CSR away from a purely reactive instrumental tool used by management to counteract social upheavals and legal requirements, to a strategy that place huge emphasis on proactive and interactive strategic network management where longer-term relationships with stakeholders are prominent in the corporation's strategic planning (Cramer 2002).

2.2.1.1 The Dimensions of Pyramid of Corporate Social Responsibility

Carroll's framework as shown in exhibit 1 portrays economic dimension as the main driver for the other three responsibilities and it refers to the corporation's obligation to enhance productivity and profitability that helps maintain economic wealth. Simultaneously, when corporations pursue profits (economic responsibility), they are also expected to carry out their business activities incompliance with the law (legal responsibility); to do what is right, just and fair for its stakeholders (ethical responsibility); and to be a good corporate citizen by embarking on voluntary or philanthropic activities that could improve the welfare of the society (philanthropic responsibility). These four components are distinctive but together make up a holistic CSR (Carroll 1991). However, if the corporation failed to make a profit, then the other three responsibilities are unlikely to be attainable.

Exhibit 1:

Source: Adapted from Archie B. Carroll, "The Pyramid of Corporate Social Responsibility: Toward the Moral Management of Organizational Stakeholders," Business Horizons, July-August 1991, pp. 39-48

2.2.1.2 The Dimensions of Triple-P Bottom Line

Both the economic and financial aspect (profit) forms the prerequisite for business continuity. In strategic management theory, this is also referred to as long-term competitive advantage or "sustainable competitive advantage that points towards the manner in which companies position themselves in relation to other companies in the same sector so that they can tap into profit sources for a prolonged period" (van Tulder & van der Zwart 2006, p. 142).

The people dimension reflects the social-ethical components of the triple-p strategy. It refers to corporation's responsibility towards issues of social justice for both its internal and external stakeholders. Some CSR initiatives included in the people dimension includes work-life balance (Stainer 2009), positive labour relationships, safe working and living environment (Graefland & van de Ven 2006), elimination of child and forced labour in the supply chain, progressive social policies, ethnic minority employment, decent working conditions in both host and home countries (Cramer 2005; Keinert 2008) as well as training and education (Keinert 2008).

The planet dimension is also known as the ecological and public dimension (Cramer 2002). This dimension focuses on the integration of environmental protection and operational management of a corporation that has a strong linkage to corporate sustainability (Gray 2010). According to Lo and Shen (2007, p. 345), corporate sustainability can be defined as "a business approach that creates long-term shareholder value by embracing opportunities and managing risk from economic, environmental and social dimensions". Therefore, sustainability refers to the present action taken by corporations to minimize the depletion of natural resources so that future generations could have access to a clean and well-functioning environment (David & Gallego 2009; Aras & Growther 2010). According to Wong (2009) and Sutton (2004) CSR initiatives that falls under corporate sustainability includes recycle programs, usage of renewable resources; production process reengineering that could help minimize carbon emission, minimize the usage of hazardous substances in the production process, eco-friendly products and services as well as restoration programs such as reforestation or plant a tree campaigns.

The linkage between the dimensions of Triple-P and key sources of competitive advantages, such as reputation, branding and employee commitment will be explored further in section 2.1, 2.2 and 2.3.

2.3 Competitive Advantage

In a highly globalised world, all corporations aspire to achieve a competitive advantage so that they can outperform their rivals. Generally, competitive advantage can be derived from a source of superior performance. Although there are potentially many sources of competitive advantage ranging from economies of scale, large pool of labour forces, and concentrations of financial services (Giguère 2005), the main anchor of developing and sustaining a long term competitive advantage will have a great dependence on a corporation's value creation ability (Lepak, Smith & Taylor 2007). The notion of value creation has many variances due to deviating viewpoint coming from different creators of value. For example, value can be view from a shareholders standpoint, where value creation comes from maximizing the shareholders return via higher share prices (Porter 1985; Sirmon, Hitt & Ireland 2007). Additionally, value from a stakeholder's perspective can be seen as the social-economic benefit, such as job creations, that are created by the business/operational activities conducted by a corporation (Defourny & Nyssens 2008).

Furthermore, a growing number of strategic management literatures had indicated that the traditional cost-competitive strategy adopted by many corporations is rarely viable as traditional form of competitive advantage derived from production innovations; reengineering, new methods of delivery and product design can be easily replicated by competitors (Sousa & Bradley 2008; Porter 2003). The non-viable nature of traditional competitive advantage has further strengthen the need to achieved value-based competitive advantage through effective deployment of corporation's resources and capabilities to deliver value in excess of production cost (Barney 2001).

Resources are factors that a corporation owns, control and uses for the purpose of creating value (Amit & Shoemaker 1993), whereas capabilities refer to a corporation's skill at using its resources to create goods and services; combination of procedures and expertise on which a firm relies to create value (Grant 1996). According to Makadok (2001), since corporations develop and use capabilities to create value in conjunction with other resources, capabilities can also be considered a specialized, intangible resources. Generally resources are categorized into tangible and intangible resources (Itami 1987).

Tangible resources include assets that are financial in nature (for example, cash, debt and equity) or have physical properties (for example, buildings, equipment, inventory, land and raw materials) (Haanes & Fjeldstad 2000). Intangible resources include those nonphysical assets that the company uses to produce goods or provide services, or expects to generate future benefits (Lev 2001). Such assets include legal assets (example, contracts, copyrights, patents, designs and trademarks), human assets (example, individual employee knowledge, skills and expertise), informational assets (example, competitor, customer and market intelligence), organisational assets (example, organisational structure and culture), relational assets (example, customer, distributor, alliance, partner and supplier relationships), reputational assets (example, brand name, company and product/service reputations that reduce perceived risk or have symbolic values (Haanes & Fjeldstad 2000).

Since tangible resources are easier to identify and value, they are less likely to be a source of competitive advantage than intangible resources. This is because their tangible nature gives competitors a head start on imitation or substitution. According to Tan and Chong (2009), some of the key intangible resources that can help a corporation enhance its competitive advantage and value includes branding, reputation and employee commitments.

In the following sub sections, the different method of competitive advantage will be explored. These different methods of competitive advantages are cost, product/service differentiation, and niche strategies. This will be followed by a detailed examination of key intangible assets such as reputation, branding and employees' commitment.

2.3.1 Cost-Competitive Advantages

Cost leadership requires a corporation to establish a lower cost base than its domestic and international rivals (Doole & Lowe 2008) can result from "obtaining inexpensive raw materials, making plant operations more efficient, designing products for ease of manufacturing, controlling overhead cost, and avoiding marginal customers" (Lamb, Hair & McDaniel 2009, p. 37). There are two apparent advantages accrue from a cost-leadership strategy. Firstly, the lower cost structure will enable a corporation to charge a lower price than its rivals and yet make a similar amount of profit (Kaplan & Haenlein 2006). Additionally, if corporations within the same industry charge similar prices for their products and services, the cost leader is still able to make a higher profit than its rivals because of lower cost structure (Kim, Nam & Stimpert 2004). Secondly, if competition intensified within the industry and corporations begin to compete on price, then the cost leader will be able to withstand competition better than its rivals because it has lower cost structure (Allen et al. 2008).

There are numerous sources of cost-competitive advantages. These sources includes economies of scales, experience curves, product design, reengineering and production innovations (Menguc, Auh & Shih 2007).

2.3.1.1 Economies of Scale

Economies of scale is a cost advantages obtained by spreading fixed costs over a greater number of units produced (Doole & Lowe 2008). Economies of scale result from a variety of know-how that are related to higher volumes of productions relative to a given asset base: spreading fixed cost over greater volume, specializing in a specific production process, practicing superior inventory management (Ward, Bicklord & Leong 1996), exercising purchasing power (Colla 2004), spending more effectively on advertising (Ahn, Lee & Kim 2010) or research and development (Nightingale 2000).

Economies of scale result primarily from the first reason, where corporations spread fixed cost over greater levels of outputs. It stands to reason that within the feasible range of production at a given facility, increasing output will enable the firm to spread its fixed costs over greater levels of production. For example, according to Nightingale (2000), R&D costs account for a significant portion of a pharmaceutical corporation's total cost, larger scale enables the corporation to cut average cost by spreading R&D costs over more units of production.

In addition, according to Liker (2004) as well as Liker and Meier (2006), greater scale often encourages the use of more sophisticated inventory management systems. Some of these systems, though not cost-effective at lower volumes, bring significant rewards at sufficiently large scales of production. Toyota, for instance, persuaded suppliers to locate operations in facilities adjacent to its centralized facilities in the US. In turn, the carmaker was able to implement just-in-time inventory techniques that didn't work when smaller scale manufacturing operations were more widely dispersed in the US (Liker 2004; Liker & Meier 2006). Similarly, when numerous inputs are involved, the price depends, in part, on the volume purchased. According to Colla (2004), that is why large retailers like Wal-Mart and Carrefour often have more leverage in negotiating price.

If branding plays a key role in the corporation's strategy, large scale often provides a significant advertising advantage. According to Anh, Lee and Kim (2010), in order to influence consumer decisions, advertising must first reach a certain threshold at which it creates awareness. If two corporations of significantly different size allocate the same proportion of revenues to advertising, they will achieve significantly different level of awareness. Thus, large corporations that allocate more total dollars for advertising and in return achieved greater level of awareness. In addition, large firms can bargain for price discounts in various media that are not extended to smaller players (Ahn, Lee & Kim 2010).

However, according to Liker (2004) as well as Liker and Meier (2006), economies of scale that was experienced in the Toyota's US plant will not be possible if employees are not committed towards total quality management (TQM). TQM is a philosophy that focuses on constantly improving the quality of a corporation's product and services (Dean & Bowen 1994; Powell 1995) and requires the commitment of both employers and employees throughout the corporation (Liker 2004; Liker & Meier 2006). This is further supported by studies conducted by Beck and Yeager (1996) as well as Dooley and O'Sullivan (1999) which indicated that low employee commitment is a main cause of TQM failure, and thus a hindrance to economies of scales. Therefore, corporations should have policy that could help them achieved greater division of labour and employees' commitment so as to realize the benefit of economies of scale. Division of labour is a subdivision of tasks such that employees can specialize in one subtask (Press 2008). Specialization has a favourable impact on productivity, mainly because it enables employees to become very skilled at performing a standard task (Press 2008).

2.3.1.2 The Learning Curve

In addition to scale of economies, other factors can contribute to lower operating cost. Two corporations of the same size, for example, may have significantly different operating costs because one has progressed farther down the learning curve - in other words, the corporation has excelled at the process of learning by doing. According to Liao (1988), the basic principle holds that incremental production costs decline at a constant rate as production experience is gained; the steeper the learning curve, the more rapidly costs decline. This is because employee learns by repetition how best to carry out a task. In other words, employee productivity will increase over time, and unit costs fall as individuals learn the most efficient way in which to perform a particular task (Melnyk et al. 1998).

The findings of Melnyk et al (1998) is consistent with an earlier study done by Luft, Bunker and Enthoven (1979), which indicated that more experienced medical providers posted significantly lower mortality rates for a number of common surgical procedures, suggesting that learning effects are at work in surgery. According to a study done by Tucker, Nembhard and Edmonson (2007), employees and corporations commitment to learning was essential in fostering better practices in doing task. Thus once again, employee commitment plays an integral role in assisting corporations achieved optimal learning curve.

2.3.1.3 Product Design

According to Prahalad and Hamel (1990), product design can sometimes be altered to lower a corporation's production cost. For example, when Canon decided to enter the photocopier industry, incumbents such as Xerox had formidable advantages in scale and experience. Canon, however, redesigned the photocopier so that it required fewer parts and allowed for simpler assembly. The new design dropped Canon's costs below those of Xerox and enables the new entrant to gain significant market share at Xerox's expense (Porter & Millar 1985). Canon's success will not be possible, if it did not have a holistic human resource policy that enhances employees' commitment to quality.

According to Clinton and Williamson (1994), a corporation must have programs that could motivate employees to work with suppliers on "a regular basis to discuss and solve various problems regarding quality, delivery, pricing, product design, materials specifications and packaging" (Clinton & Williamson 1994, p. 15). Some programs that could enhanced employees' commitment towards product design includes a corporate culture that advocate an open and problem solving atmosphere, quality circles, team approach to problem solving, intrinsic and extrinsic rewards that could strengthen employees' self motivation to improved the product design and quality as well as training and development in areas of product quality improvements (Liker 2004; Liker & Meier 2006).

2.3.1.4 Production Innovation

According to Lamb, Hair and McDaniel (2009), production innovation can be defined as anything new or novel technology and production process developed by a corporation to lower the average cost of production. Successful innovation is about developing new products and/or managing the corporation in a novel ways that creates value for consumers (Kim & Mauborgne 1997). Additionally, research conducted by Zeithaml (1988), reveals that consumers equate value with four basic categories: (1) low price, (2) what is wanted in a product/service, (3) the quality received for the price paid and (4) benefits received for what is paid (price).

Majority of the consumers within the low price category perceive value as something that increases as the price they pay for a product or service decreases (Zeithaml 1988; Sweeney & Soutar 2001). Consumers in category two (value is what is wanted in a product/service) focus on the benefits received as the most important component of value. That is, the benefits received, rather than the price paid, are most important to the consumers (Zeithaml 1988; Ulaga 2003). Consumers in category three (value is the quality received for the price paid) tend to equate value with the trade-off between price and quality. In other words, value is created for the customer when he or she receives quality at a fair price (but not necessarily the lowest price) (Zeithaml 1988; Sweeney & Soutar 2001). Lastly, consumers in category four (the quality received for the price paid) equate value with all the benefits that they will receive in relation to price (Zeithaml 1988). According to research done by Sawyer and Dickson (1984) had suggested that value creation can be defined by the ratio of attributes (weighted by their evaluations) to price (weighted by its evaluations). That is, value is defined as the highest amount of possible benefit received divided by the price paid. For example, a customer can get more from a liter of frozen juice than a liter of milk (assuming both costs the same) because the juice can be watered down and thus more drinks can be made, then he or she receives higher value from the juice relative to the price.

Viewing value from the consumer's perspective highlights the fact that companies exist to satisfy consumers. According to Drucker (1973) "to satisfy the customer is the mission and purpose of every business". According to Tether et al (2005), value creation via production innovation will not be possible if a corporations fails to create an organisational culture that enhances employees' commitment and motivation in coming up with production innovation ideas. For example, "3M allows its engineers to spend 15% of their time on any project that happens to interest them" (Tether et al. 2005, p. 10) had given a boost to product innovation. The relationship between employees' commitment and production innovation was also reemphasized by studies done by Liker (2004) as well as Liker and Meier (2006).

2.3.1.5 Reengineering

Given drastic unexpected changes in the business environment, such as the emergence of aggressive new competitors or technological breakthroughs, strategic managers need to develop a new strategy and structure to raise the level of their business performance. According to Hammer and Champy (1993), reengineering is the "fundamental rethinking and radical redesign of business processes to achieve dramatic improvements in critical, contemporary measures of performance such as cost, quality, service, and speed" (Koontz & Weihrich 2008, p. 152).

According to Hill and Jones (2009, p. 189), a business process is "any activity (such as order processing, inventory control or product design) that is vital to delivering goods and services to customers quickly or that promotes high quality or low costs". Similarly, Belmiro et al. (2000) had also noted that business process cut across function and is not the responsibility of a single particular function. For example, Hallmark had successfully reengineered its card design process. Before reengineering took place, editors, writers and artist worked in different functions to create different varieties of card. After reengineering, the same group of editors, writers and artist began working in cross functional teams to produce cards for different occasions, such as Mother's Day, Christmas and Birthday. The time taken to introduce the new cards to the market had dropped drastically, from years to months, helping Hallmark achieved production efficiency and lower its operation cost (Hill & Jones 2009).

Because re-engineering focuses on business processes and not on functions, a corporation that re-engineers always has to adopt a different approach to organizing its activities. Corporations that take up reengineering ignore the existing of tasks, roles and work activities. They start the reengineering process with the consumer (not the product or service) and ask how they can reorganize the way in which they do their work - their business process - to provide the best quality and the lowest cost goods and services to the consumer (Hill & Jones 2009).

Frequently, when corporations embark on reengineering, they realize there are more effective ways of organizing their activities (Hammer & Champy 1993). After reengineering, one person or a few people may perform a business process that used to involve members of ten different functions working sequentially to provide goods and services, and the smaller team may do so at a fraction the original cost (Cooper & Markus 1995). Often, individual jobs become increasingly complex, and people are grouped into cross-functional teams as business processes are re-engineered to reduce cost and quality (Lee & Chuah 2001). Therefore, according to Almor, Tarba and Benjamini (2009), as effective reengineering make corporations more efficient, reengineering will often lead to layoffs of employees. However, longitudinal studies had reported a decline in employee commitment, job performance, job satisfaction, trust and morale when downsizing were conducted ineffectively (Tombaugh & White 1990; Sadri 1996; Armstrong-Stassen 1998; Grunberg, Anderson-Connolly & Greenberg 2000), thus giving reengineering a high failure rate (Bashien, Markus & Riley 1994).

According to Reger et al (1994), reengineering fails because people resist change. In addition, corporations "are bound to continue having trouble implementing change until they learn that people resist not change per se, but the way they are treated in the change process and the roles they play in the effort" (Cooper & Markus 1995, p. 39). Therefore, it would be inadequate to merely reengineer the corporations but reengineer must also look into how employees are being managed during the phases of change (Champy 1995). According to Bashien, Markus and Riley (1994), committed and empowered people are a key success component of reengineering. The corporations should not only engaged these committed and empowered people to operate the newly reengineered process, but also to reengineer them at the beginning of the reengineering process (Bashien, Markus & Riley 1994). This is because the reengineering design teams consist of employees who perform fundamental activities in the process that is being redesigned. Therefore the success of the reengineering project has a huge dependent on these employees' knowledge, creativity, and openness to radical change.

For example, the reengineering work that was conducted during the Westpac-Bank and Bank of Melbourne merger and acquisition provide a good example of successful reengineering (Dow & Gustavson 2000). Westpac-BML provided clear direction of the eventual M&A outcome, employees and management in both banks work together to smooth the M&A transition process and continuous training were provided to make employees more employable if they were retrenched (Dow & Gustavson 2000). Westpac-BML had empowered employees by involving them in the reengineering phases. In addition, leaders in the Westpac-BML understand that employees have the real power in the organisation because they are the ones dealing with the reengineering work.

According to Spreitzer (1995), empowering employees implies delegating more authority, involvement and operating responsibility to them that requires good interaction between employees and leaders in order to build effective reengineering results. Furthermore, Westpac-BML realized that cost cutting and layoffs are inevitable when two banks merge but the tension had been minimized by the continuous training given to affected employees as well as matching them for potential relevant job. Additionally, Westpac-BML had also created an environment that consolidates progression and encouraged changes through elimination of unnecessary interdependencies. This can be seen from the fact that Westpac's IT team recognized that running the customer IT database system coherently with BML simply add pressure to the bottom line which also undermined business operation efficiency and customer satisfaction. Westpac eliminated BML customer IT database because it was not sophisticated enough to handle an increasing product and customer portfolios. Retrenched employees were given due notice and ample training to help them seek new employment. Thus, morale and commitment in both banks were high and employees were willing to exert and fully participate in the change process (Dow & Gustavson 2000).

2.3.1.6 Cost Competitive Advantages Are Rarely Sustainable

The numerous ways available to achieve a cost-competitive advantage had made cost competitive strategy attractive. However according to Pfeffer (2005), few corporations can maintain a long-term cost-competitive advantage. Competitors can use each of these sources of cost advantages to help erode a low-cost leader's position. For example, technology is transferable. Bell Labs invented fiber optic cable that dramatically increased the number of calls that could be transmitted simultaneously through a two-inch cable. This reduced the cost of voice and data transmission. Within five years, fiber optic technology had spread throughout the industry (Lamb, Hair & McDaniel 1999).

Secondly, for most production processes or product categories (i.e., running shoes and laptop computers), there are alternative suppliers. Over time, high-cost producers tend to seek out and find lower-cost suppliers. This ultimately lets them compete more effectively with the industry's low-cost producers (Lamb, Hair & McDaniel 1999). Lastly, knowledge of cost competitive strategy can also be obtain through merger and acquisition thus making cost-competitive advantages less viable in the long-run (Dow & Gustavson 2000). Nevertheless, the literature pertaining to cost-competitive advantage had indicated that employees' commitment plays a crucial role in implementing successful cost competitive strategy (Bashien, Markus & Riley 1994; Clinton & Williamson 1994; Spreitzer 1995; Dow & Gustavson 2000; Liker 2004; Tether et al. 2005; Liker & Meier 2006; Tucker, Nembhard & Edmondson 2007), without employees' commitment cost-competitive strategy will likely be a failure (Bashien, Markus & Riley 1994).

2.3.2 Differentiation Competitive Advantages

The objective of differentiation strategy is to achieve a competitive advantage by creating a product that consumers perceive to be unique in some important way (Allen & Helms 2006; McCraken 2002). According to Allen and Helms (2006), the differentiated corporation's ability to satisfy a consumer's need in a way that its competitors cannot means that it can charge a premium price. The ability to increase revenue by charging premium prices (rather than by reducing costs as the cost leader does) allows the differentiator to outperform its competitors and gain above-average profits (Porter 1985; Porter 2003). The premium price is usually substantially above the price charged by the cost leader, and customer pay it because they believe the product's differentiated qualities are worth the difference (Allen & Helms 2006; Hlavacka et al. 2001; Venu 2001; Cross 1999). For example, Rolex watches do not cost much to produce; their design remained almost the same for many years, and they simply serve the same function as any other watches. However, consumers buy a Rolex because they perceived the unique quality in its ability to confer status on it wearer (Hammond 2008).

According to Paurav (2008), product's appeal to customers' psychological desires can become a source of differentiation. The appeal can manifest itself in terms of prestige or status (Rolex watch) (Hammond 2008), in the safety of one's family (such as Volvo cars) (Svensson & Wood 2003) or association with social causes. For example the Body Shop's concern about social causes such as the rain forests, animal testing, package recycling, and Third World economic development also draw the admiration and respect of consumers (Aaker 1996). Differentiation can also be tailored to age groups or socioeconomic groups (Moschis & Friend 2008). Therefore it can see that the bases of differentiation are endless. A corporation that pursues a differentiation strategy strives to differentiate itself along as many dimensions as possible. The less it resembles its rivals, the more it is protected from competition and the wider is its market appeal (Allen & Helms 2006).

Differentiation safeguards a company against competitors to the degree that customers develop brand loyalty for its products (Cross 1999; Hlavacka et al. 2001; Porter 1985). According to Shugan (2005), brand loyalty can be seen as buyers' willingness to stay with a particular company's product for the brand and not the superior product attribute. Literatures of strategic management had suggested that the advantages of the differentiation strategy can be discussed in the context of the five forces model (exhibit 2), which suggested that brand loyalty is a valuable asset because it protects the corporations on all fronts (Cross 1999; Hlavacka et al. 2001; Porter 1985).

Firstly, powerful suppliers are rarely a problem because the differentiated corporation's strategy is geared more towards the price that it can charge than towards the costs of production because a differentiator can tolerate moderate increases in input prices better than the cost leader can (Cross 1999; Hlavacka et al. 2001; Porter 1985; Porter 2008). Secondly, differentiators are unlikely to experience problems with power buyers because the differentiator offers the buyer a unique product. Because the differentiator is the main supplier of the product, it commands brand loyalty and will be able to pass on price increases to willing consumers via premium pricing (Cross 1999; Hlavacka et al. 2001; Porter 1985; Porter 2008). Thirdly, according to Hill and Jones (2009, p. 163) "differentiation and brand loyalty also create a barrier to entry for other companies seeking to enter the industry". In order to compete, new entrants are forced to develop their own distinctive competency thus will incur tremendous expenses (Hill & Jones 2009).

Finally the threat of substitute products depends on the ability of competitors' products to meet the same consumers' needs as met by the differentiator's products before customers' brand loyalty can be broken (Hill & Jones 2009). In the case of microprocessors, Intel has spent considerable sum on its 'Intel Inside' campaign, such that consumers will actively look for an Intel microprocessor in any person computer that they may consider purchasing. With its strong brand recognition, Intel has been able to charge a premium price for its products, even though competitors such as AMD have been producing faster microprocessors for a couple of years (Leuthesser, Kohli & Suri 2003).

According to Pettigrew, Thomas and Whittington (2002), the main problems with a differentiation strategy centre on the corporation's long-term ability to maintain its perceived uniqueness in consumers' eyes. For the past decades, competitors had quickly moved to imitate and copy successful differentiators in many industries such as computers, cars and home electronics (Hill & Jones 2009). According to Hills and Jones (2009, p. 163) had noted that "patents and first-mover advantages last only so long; as the overall quality of products produced by all companies goes up, brand loyalty declines, so do prices". One of the classic examples would be the story of American Express that was once link to high status and prestige. It lost its competitive advantage to Visa and MasterCard because it failed to preempt competitors' strategy of allying with airlines, hotels or car companies to develop new kinds of cards (Spiro & Landler 1992; Baig 1996; Frank 1996; Beyer 1999; Rolfe 1999).

Exhibit 2:

Therefore, when a product has uniqueness in consumers' eye, differentiators can charge a premium price. According to Hill and Jones (2009, p. 163) "the disadvantages of a differentiation strategy are the ease with which competitors can imitate a differentiator's product and the difficulty of maintaining premium price", this is more apparent when the differentiation are derived from a product design or features, which rivals can imitate easily. Based on Tan and Chong (2009), differentiation that originate from intangibles sources, such as reputation and branding will be more secure. Thus, the difficulty in imitating the intangible resources will allow a differentiator to reap the benefits of this strategy for a longer period of time. Therefore, intangible sources of competitive advantages such as reputation, brand and employees' commitment will be explored.

2.3.3 Intangible Resources as a Source of Competitive Advantages

As mentioned in section 2.3 through section 2.3.2, intangible resources such as employees' commitment plays an important role in helping corporations achieved cost-competitive advantages (Bashien, Markus & Riley 1994; Beck & Yeager 1996; Champy 1995; Clinton & Williamson 1994; Dooley & O'Sullivan 1999; Dow & Gustavson 2000; Liker 2004; Liker & Meier 2006; Spreitzer 1995; Tether et al. 2005; Tucker, Nembhard & Edmondson 2007). Whereas, intangible like branding plays an integral role in helping corporation achieved differentiation competitive advantages (Aaker 1996; Allen & Helms 2006; Cross 1999; Hammond 2008; Hill & Jones 2009; Leuthesser, Kohli & Suri 2003; Shugan 2005). In this section we will explore three critical resources of competitive advantages as identify by Tan and Chong (2009), they are reputation, branding and employees' commitment.

2.3.3.1 Reputation

According to Fombrun and van Riel (2004), a strong corporate reputation provides a lasting source of competitive advantages because it can help muster support of financial analysts, the media, consumers, employees and investors. In addition Fombrun and van Riel (2004) had go on to add that beside the financial value derived from corporate reputation, a good reputation can also help a corporations reduce media backslash and financial losses during a crisis. Based on game theory "reputation of a player is the perception others have of the player's values…which determines his or her choice of strategy" (Weigelt & Cramerer 1988, p. 443). Thus, applying Weigelt and Cramerer theory into strategic management perspective, reputation can be seen a mechanism that influence a corporation's business strategy towards the society. Additionally, business strategist such as Caves and Porter (1977) regard reputation as a priceless market asset because it creates a barriers for new entrants and competitive advantages for existing market players.

For marketers, reputation is about images in the minds of consumers, with respect to product, the term corporate image can be used (Belch & Belch 2001). According to Doole and Lowe (2008, p. 462), "corporate image is becoming increasingly important in creating a central theme running through diverse product ranges" to demonstrate a vision of the values of the company which can be recognized by employees and consumers alike. Corporate image also plays a vital role in business-to-business marketing (Christopher & Gaudenzi 2009), for example, when quoting for international capital projects (Cove & Salle 2000; Pitt, Dacin & Brown 2010). Decisions are likely to be made on the grounds of the perceived reputation of the corporation (Cove & Salle 2000; Pitt, Dacin & Brown 2010). According to Maathuis (1999), image refers to the immediate impression that exist among an individual, group or networks. Thus, reputation can be seen as the consolidation of different images in the stakeholders' mind that forms an immediate mental perception of a corporation.

2.3.3.2 Branding

Closely linked with the reputation of a corporation is the issue of branding. The role of branding becomes more important as companies expand their business operations across international boundaries. Brands allow consumers to identify products or services which promises specific benefits, such as performance price quality, image or associations (Peirce & Ritchie 2007). De Chernatony (1989) suggests that the constituents of a brand can include both tangible benefits , such as quality and reliability and intangible benefits which may bring out a whole range of feelings, such as status, being fashionable or possessing good judgement by purchasing a particular brand.

According to Aaker (1996, p. 83), "organisational attributes are more enduring and more resistant to competitive claims than are product attributes" because of three particular reasons. Firstly, it is easier for rivals to copy imitate a product than to duplicate a organisation that consist a unique set of culture, people, values and programs (Aaker 1996; Hill & Jones 2009). Secondly, an attributes of an organisation usually apply to a set of product/service category, a rival in only one product/service category may find it tough to compete (Yang 2005). Thirdly, because organisational attributes such as innovative are difficult to assess and communicate, competitors will find it hard to demonstrate the perceived gap (Yang 2005). Thus, both Aaker (1996) and Yang (2005) had indicated that branding should be done through a brand-as-organisation perspective, which can also be known as corporate brand.

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