Tripod Of International Business Strategy Management Essay

The industry-based view, or the structure-conduct-performance paradigm, concentrates on the opportunties and threats in the SWOT analysis. It claims to a large extent, firms’ performances rely on the conditions within the industry. In other words, the external factors determine the firm’s strategy, which in turn affects its performance (Scherer & Ross, 1990). In fact, it mainly focused on using Porter’s Five Forces Model (1980) and inter-firm rivalry to explain firms’ strategy. Hence, firms construct and apply competitive strategies so as to alter their position in the industry vis-à-vis competitors and suppliers. Thus industry factors play a critical role in determining and limiting a firm’s strategic behavior (Teece et al., 1997). The industry-based view suggests the firm should draft strategy in relation to its products and market positioning. Apple would be used as an industry-based view’s example. Its products are high-tech electronics products, such as iPhone and iPad. It faced little threat from new entrants as it requires a huge amount of capital to enter the high-tech electronics industry. However, the suppliers have considerable bargaining power and there are substitutes like Samsung Smartphones available to customers. Therefore, Apple focused on a niche market and built a supreme image to differentiate its products.

However, Mintzberg et al (2003) stated such analysis could be applicable to more than one firms, yet in reality, different firms would need tailor-made strategy to succeed. Barney (1991) also suggested it ignored possible competitors advantages of the idiosyncratic firms have in competition. Indeed, the industry condition of the above can be applicable to Microsoft as well. It cannot indicate any firm-specific differences, for instance, Microsoft held a significant amount of market share and Apple will need a comprehensive marketing strategy to attract customers to buy their products instead. Certain institutional conditions could limit the strategic choice of the firms. For example, in Japan, price competition is forbidden while price fixing is possible. Hence, a cost leadership strategy becomes illegal (Stevenson, 2009). On the whole, the industry-based view emphases the external impact on strategy development but ignored other factors such as internal resources.

In contrast, the resource based view (RBV) focuses on the ‘Strength’ and ‘Weakness’ in the SWOT analysis. It considers the resources and capabilities of firms as the root of its strategy. The competitive advantage is achieved and sustained by the possession of certain key resources, which could, for example, create value or barriers to new entrants, rather than the correct position in the external environment (Barney et al., 2001). RBV stresses the firms should position themselves strategically by firms’ specific resources and capabilities. Therefore, this view considers firm-specific differences to drive strategy and performance. As the resources and capabilities of firms are heterogeneous, it clarifies the variations of firms’ strategies within the same industry. It can reflect valuable resources that the industry based view ignored, such as production experience, technology and brand names. For example, the production experience of H&M helped the corporation to discover their targeted customers in the international market and continue to gain success. The Walt Disney Company holds a unique set of own cartoon character franchise that allows Disney to enter a range of businesses, from soft toys to movies to theme parks. Organisational capabilities can also become organisations’ competitive advantages. Japanese automobile industry, for instance, enhance its skills over time. It worked as low-cost, lean manufacturing; next in high-quality production; and then in fast product development. Companies can build up its capabilities and transform inputs into superior products, so the firm can then differentiate its products and gain success in markets (Collis, 2008).

Nonetheless, it lacks a tight definition on ‘key resources’ and explanatory power (Barney et al, 2001). It has been criticized its ‘little effort to establish appropriate context’. In fact, many proposed (Brouthers et al., 2008; Oliver, 1997) valuable, rare, and hard-to-imitate resources and capabilities in one context can turn to non-valuable, plentiful, and easy to imitate in other contexts. Barney et al (2001) also noted such weakness and claimed many failed to develop a more complete theory of firms’ advantages. For example, Dell’s capabilities in “build-to-order manufacturing” of PCs reduced storage cost and maximise cash flow in the past. However, the market demand had changed and such capability was no longer a competitive advantage. Eventually, Dell had to outsource the manufacturing process of PCs and sell its computer factories (Wall Street Journal, 2008). As a result, the resources-based view analyses the internal strength and weaknesses that the industry-based view ignored. They can be complementary to construct a competitive strategy in reality but they still remain insufficient to illustrate certain contexts. Consequently, it gave rise to a new theoretical framework- institution-based view (Peng, 2002, 2006; Peng et al, 2008) that can overcome the weaknesses.

The institutional-based view claimed other than the industry- and firm-level condition, the formal and informal rules of the game can also influence the firms’ strategy and performance. Institutions mean ‘regulative, normative, and cognitive structures and activities that provide stability and meaning to social behaviour’ (Scott, 1995). The institution-based view focuses on the interaction between organisations and institutions, and considers firms’ strategy as an outcome of such an interaction (Peng et al.,2008). Both industry- and resource-based views assumed the institutions were market-based, as they were derived based on the patterns of developed countries. However, critics discovered institutional factors such as corruptions and culture could no longer treat as background as they had significant impact on corporates’ strategies, especially in the emerging economies (Peng et al, 2009; Lau & Bruton, 2008). Therefore, Peng et al (2009) argued institutions should be treated as the third leg of the strategy tripod. For example, in China, the networking, or Guangxi of the executives in company is regarded as a key factor of corporations’ successes. Inter-firm strategy relies on the managers’ networks and companies’ alliances to grow the enterprises (Peng & Luo, 2000; Ren, Au, & Birtch, 2009). Another example will be Japanese pharmaceutical firms. There is no reward for new drugs invented (Mahlich, 2009) and their price will be fixed by the government for the perceived shelf life after negotiation. Peng (2009) found the oldest drugs are the most profitable if the price stays the same and the manufacturing cost decreases due to economies of scale. Therefore, the Japanese pharmaceutical firms were no longer motivated to place large investment in R&D. On the contrary,

The three views can provide a more comprehensive analysis on the strategic choices of corporations. All the views, hence the industry conditions, firms’ capabilities and the formal and informal constraints of a specific institutional framework, all help to shape enterprises’ strategy and performances.