Introduction where monetary benefits are nil. But in reality,

Introduction

            In the impeccably focused market,
firms can’t maintain profit sustainability as the passageway of potential
contenders can drive down the cost to the point where monetary benefits are
nil. But in reality, some firms persistently enjoy profits that are higher than
its rivals. The respective paper discusses the stance of three management
theories, resource based, industry based and institutional based approaches and
links each of these managerial stances towards the institutional based view
strategies of MNEs.

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Resource Based Theory

            Resource-based theory (RBV) is used
to explain this phenomenon by stating that ‘the unique bundle of resources that
some firms have obtained help to shape the firms’ value-creating strategies
which are implemented to gain a competitive advantage’. This essay will firstly
examine the characteristics of the resources which are the basis of a
competitive advantage, then analyze the isolation mechanism which help to
maintain firms’ competitive advantage. Finally limitations of this theory will
be discussed (Mallikarjuna, 2015).

            As for every major business concept,
there exist countless definitions about the RBV. A concise and covering one
might be. A Management device is used for evaluating the accessible limits of
key resources of the organization. So, asset construct vision is positioned in
light of the fact that the competitive edge is measured by the effective and
proficient utilization of all the valuable assets that the organization has at
its disposal. (Walker and Mercado, 2013)

            Coase is considered as the pioneer
of significant citations that present RBV as a theory of business nature,
unlike a theory like the economy of transaction costs that tries to explain why
the company is present. During the following decades, the idea of seeing
companies as broader resources during the modeling process is due to the
mathematical features of some important examples of global resources (eg,
technical force). An exception to this common lethargy in the literature are
articles from Penrose and Rubin, who renew the RBV approach and related it to
the growth theory of firms. Especially Penrose focused on the RBV, which she
summarized in the introduction of her work: The growth rate of the company
implies important administrative restrictions. The human resources needed to
manage the change are mostly internal because they are related to a single
company. For the expansion, it is necessary to recruit more resources of this
type. New employees cannot be totally effective at night. As a result, the process
of growth is dynamically inadequate
(Manroop, Singh and Ezzedeen, 2014)

            Since the 1970s the RBV has been
slowly rediscovered as an object of research. Of special note was the work of
Andrews, who started to phrase the traditional concept of strategy in terms of
the resource position (strengths and weaknesses) of the firm. His approach was
new compared to the formal economic tools which operate on the product-market
side. The years from 1981 to 1991 can be named as the most intensive decade of
research in the field of RBV. During this time the most significant works
dealing with the RBV were published by Panzar & Willing, Wernerfelt and
Barney. The “economies of scope” theory was the first broad concept mainly
developed on the RBV approach. Economies of scope refers to lowering the
average cost for a firm in producing two or more products since the efficiency
in the use of common and recurrent resources (e.g. Know-how or indivisible
physical assets) can be significantly improved. Wernerfelt’s paper developed
simple economic tools for analyzing a firm’s resource position and examined
strategic options suggested on the resource-based view. Equally, if you specify
the company’s resource profile, you can find the best asset in the product
market. Barney’s first detection was the distinction between static and dynamic
resources. Moreover, he defined that sustainable competitive advantage is based
on the ownership of firm-specific resources. In his opinion this ownership has
to have necessary attributes, which are termed VRIN – valuable, rare,
inimitable and non-substitutable. (Zhang and Dai, 2013).

Industry Based View

            Businesses can apply the second
approach in order to gain the edge in the market, over their competitors.
Industry based view uses similar tools and models when executing these
approaches, hence giving a competitive advantage to organization is the ultimate
goal. However, industry based view differ in various ways, regarding the market
equilibrium, their definitions and the models and the tool used. Still,
industry based view complement each other even though it might seem that the
respective approach portrays the other as the opposite of itself and this will
be shown in this study. (Murdoch, 2014)

            By definition, industry based
approach is outside the competitive approach. As Faulkner (2007) noted, we face
the competition of “agile market positioning”. In other words,
companies use tools such as the product lifecycle, Porter’s 5 forces industry
model , the strategic group, the scenario plan, and the model; Porters Generic
Strategies, Consumer grid, Mintzberg 5P’s model. After identifying various
external opportunities and threats as well, also understanding the current
behavior and external situation, the organization must make the necessary
adjustments to adapt to the external environment. (Plouffe, 2015)

            The assets and capacities must be
heterogeneous and incompletely portable since they can be characteristically
non-tradable, firm-particular, and co-specific. Also, assets ought to satisfy
VRIN criteria to appreciate an upper hand and practical execution. Right off
the bat, assets must be significant empowering a firm to misuse openings and
kill dangers by enhancing its proficiency and adequacy. Also, assets must be
hard 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 either
can’t get them or need to acquire them at considerably higher expenses.
Fourthly, key assets should be non-substitutable. If not, contenders will
utilize deliberately identical substitutes for these assets to shape comparable
abilities (Barney, 2015).

            In the last few years the published
articles were rather concentrating on analyzing and reflecting critically the
approaches which were already developed than elaborating new ones. Lockett’s,
Thompson’s and Morgenstern’s published article worked on the critical reviewing
of the industry based view development and they provided their own subjective
views in which field they think future research efforts should focus. In
addition, Kraaijenbrink, Spender, Groen made a detailed review of the concept
of industry based view, concluding that the industry based view community
complied with “inappropriate economic neoclassical rationality” and
reduced the possibility of progress. His proposal was to develop industry based
view with a more practical competitive theory, especially when moving to a
truly dynamic structure.  This
long-lasting effect of the industry based view concept shows it had its high
point 20 to 30 years ago and was rather criticized and reflected than developed
further during the past few years. Consequently, it is obvious that the issue I
am 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 management
research?”(Priem and Butler, 2001) The two authors acknowledged in their work
the existence of a” black box “when applied to industry based view in
strategic management. This black box was created by imprecise definitions,
hindering recipes and static approaches. It also suggested a strict
formalization of the industry based view, the response to the causal question
on how to incorporate the time component and the integration of heterogeneous
patterns of industry based view’s request, in contrast to the approach
developed by Priem and Butler on a pretty handy use of industry based view to
make 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 a
large sum of monetary value and the confidence to invest over the venture,
ultimately bringing about substantial competitive advantage over other foreign
companies. The vast majority of stakeholders, under which sits an efficient
management, is working upon the basic agenda of institutional based view, which
is the emerging interests of these institutional based view to engage in the
international markets. Institutional based view comprise of a large proportion
of the world economy and possess a global understanding of international
cultures (Meyer, Mudambi and Narula, 2010).

            In order to implement the core
concept of institutional based view, these institutional based view must have
the tendency to adapt to different countries and cultures. Alongside it is
clearly very essential to comprehend the business strategies of local companies
operating in the invested country. Institutional based view make various
attempts to legitimize their position in the foreign market by risking every
penny invested in the region, these risks are minimized by employing strategies
relevant to the industry and invested market. The foundational barriers to face
are the environmental regulations that are never easily adapted, some foreign
countries opt to impose competition laws, facilitating small companies to
sustain their position in the market and the use of local language is itself a
problematic matter in its entirety (Dunning,
2006).

            On
the other hand, it is very necessary for Institutional based view to generate
all the needed information on the existing alternatives a foreign market
fosters in terms of substitutes to be able to acknowledge the competition
around. Institutional based view usually establish directions upon how the
product fits in the market and in what way it benefits the market and the
geographical surrounding in an attempt to stay relevant. Before making any
hasty decisions, the management evaluates the worthiness of foreign investment
by scouting those countries in which they could undoubtedly enjoy an absolute
advantage. An absolute advantage is only applicable when a country has a
certain control over the production of a specific commodity that cannot be
catered in the foreign market. To procure these valuable commodities, the
foreign country willingly indulges in importing them, regardless of a possible
trade deficit in the near future. The core structure of these institutional
based view lay in the home country to which they refer to as parent company and
would certainly opt to set up its production unit in the host country, clearly
the invested region (Contractor et al., 2010).

            The
general idea is to devise and delegate strategies after an in-depth analysis of
the invested market and to avoid the recurring extra transport cost that is a
mere liability to bear. The strategy is concerned with vertical expansion of
the production structure of these Institutional based view. The expansion is
entirely based on negating transportation cost and the fluctuating currency
rates, imploring the elimination of local competition by allowing a possible
merger and executing the principles of sequential marketing. Developing
countries very much encourage such foreign investments as it essential means
higher wages and innovation on behalf of Institutional based view. This sort of
business approach regulates the broadening of production processes by
leveraging low manufacturing cost and cheap labor. Not only it provides a
feasible production combination for the Institutional based view but also it
attracts small companies to conjugate with a large corporation in terms of low
capital required at the initial level. Sometimes it seems realistic that Institutional
based view hire local companies on contractual bases. In times of shortage in
supply and an ever growing demand for their goods, institutional based view
assign a proportion of their production line to outsourcing companies (Cantwell, Dunning and Lundan, 2009).

            In
relevance to sales, a horizontal expansion is exercisable by setting up sales
unit in the foreign and avoid marketing through local agencies to reassure
product accessibility to customers and manipulate price under strategies of
parent company. Institutional based view also attempt to establish itself in
countries where competitor brands are found, as competition make it necessary
to match the units of their own. Sales unit is streamlined given the liberty to
operate in accordance to the market trends because they have a clear sight on
the variation of market trends, in this way, products are released for
immediate sale in the host country as well. Institutional based view are an
integral part of technological innovation around the world, they are better-off
than small and local firms in extracting competent companies that acquire
sophisticated equipment, adopt comprehensive technology management tools, and
build innovation networks with suppliers, customers, strategic partners,
universities, and public research institutes (Filatotchev
and Wright, 2010).

Impact of three approaches on
internationalization strategies of MNEs

            A
multinational is likely to invest in the field where it can make notable
contributions in terms of maintaining both quality and service with low cost on
production procuring public relations as well. It is very necessary to have a
clear vision of its goals, money invested and means of resources. A successful
strategy can be defined by sector’s attractiveness and profitability, plus the
competing position. A sought-after knowledge of consumer needs and wants
concerning the target market with the awareness of competitor’s competitive
edge and the company standings in the industry, all of the factors influence
the positioning of an enterprise. The marketing 4Ps must be taken into account
to carry out a successful product introduction among the consumers and the
lifecycle of a product is of equal importance in the matter (Gao et al., 2010).

            The
gradual evolvement of competitive advantage is comprised of initial upraising,
collecting benefits and erosion with variating duration and intensity, which
entirely depends on the engaged sector. An offensive strategy employed in the
first phase and the second phase is reliant upon the timely response of
competitors, amounts to initial investment recovery and above average profit. A
declination observed in the third phase, as a result of low competitive
advantage enforces to maintain initial advantage, entering first phase from a
new cycle. The second cycle should be optimized for the launch of another
competitive offer. The approach ultimately compels a change on a strategic
level 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 competitor
would soon come up with an equally competent alternative. The only way to
ultimate survival is the MNE’s ability to make repetitive advancements in their
products. In the light of resource-based theory it is vital to understand the
importance of sustainable competitive advantage by organizing unique set of
resources and valuably rare capabilities that are undisputed in nature.
Competitive advantage through low cost with large-scale manufacturing is easily
challenged by companies manufacturing assets to attain equal share from
large-scale production.

            Comparatively,
new advancements are reliable and allow low cost on manufacturing that are not
very easy to duplicate. MNEs ought to employ various resources and assets in
structuring organizational competencies, for a sustainable competitive
advantage to be executable, heterogeneity or differentiation among firms is
vital. The notion of sustainable competitive advantage is relatable to
intangible assets because tangible assets can only offer a temporary advantage.
Intangible assets are non-physical and can be intellectual property rights of
patents, trademarks, copyrights and registered designs including contracts,
licenses, public knowledge such as published scientific works; personal and
organizational networks; organizational culture; and, the reputation of the
firm and its products. These need to be leveraged in multiple countries and
businesses in order for them to be effective and at the same time transferable
worldwide (Peng, 2012).

            MNEs
adopt these strategies to overcome disadvantages in foreign markets,
capitalizing on the fact that local companies cannot cheaply access such
advantages. Although intangibles like technology, marketing capabilities and a
strong brand name is transferable at low cost to multiple countries. To
maximize performance on a global level MNEs must find perfect match in
relevance to the industry structure, strategy and organizational structure.
Multinationals demand a blend of worldwide standardization and specialization
of assets that regulates resource flows across numerous locations. A particular
conflict is risen from the internationalization of business that affects
industrial relations (IR), concerning both capital and labor. International
Industrial relations can be defined by all those IR strategies, policies and
practices which firms, employees and their representatives pursue in response
to the internationalization of business. This all jeopardize the factors that
affect IR policies and practices determination and the configuration of IR in
subsidiary operations.

            The
power which employees and their representatives are capable of exercising in
influencing these decisions is also a key consideration. The role of
international IR institutions is significant in this matter, working across
national borders, they are empowered to put condition to MNE operations. The
roles of HR and IR go hand in hand as it concerns aspects of employee
management in multinationals.

            MNEs
with its diverse sets of stakeholders have been very encouraging of internationalization
implementation. Internationalization strategies are collectively embedded by a
large number of institutes. The adaptation of internationalization roles on behalf
of institutions vary significantly between firms, countries and industries. MNCs
tend to prefer broad and inclusive internationalization strategies, as these
can be standardized across subunits of their global organization (Meyer, Mudambi and Narula, 2010).

Conclusion

            In conclusion, this essay firstly
introduces the unique resources should be heterogeneous and imperfectly mobile
with four characteristics: they must be valuable, rare, inimitable and
non-substitutable. Apart from that, firms should adopt isolation mechanism to
maintain its advantageous position. It is comprised of impediments to imitation
and first-mover advantage. In terms of impediments, four types are mentioned
including legal restriction, superior access to inputs and customers, market
size 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 network
effects. In the last part, some limitations of this theory are examined, which
are argued as ambiguity definition, ignorance of external factors, and lack of
dynamics and redundancy of this theory.  (Giannoulakis, 2016)