Resource Based View is still a hot topic although the theory is more than 20 years old. In this assignment, we will argue whether resource-based view analysis (RBV) has a strong relationship with firm’s performance, especially in achieving a sustainable competitive advantage. Besides, this assignment focuses on contention that RBV is the best strategy route in developing a firm’s strategy. RBV will be discussed and evaluated. Generally, RBV focuses on the internal environment of an organisation and looks for the values that derived from resources, capabilities and competencies. Based on my analysis, RBV is not the best strategy that can fits all situations of the company and Porter’s industry analysis is needed to complement RBV in order to achieve a sustainable competitive advantage in different kinds of environment and contexts.
Resource based view (RBV) focuses on the internal factors that contribute to a firm’s growth and performance. It highlights the importance of firm’s resources and capabilities. Both of them will together form a competency that can create a competitive advantage. Resources can also be divided into tangible resources and intangible resources. Capabilities of the firm in utilizing the resources have a big impact on how a firm will be able to stand out among other competitors. Competitive advantage arises when a firm has a lower cost structure, products differentiation and niche markets (Hill and Jones, 2007, p. 77). RBV also concerns in value creation in order to compete with others. (Peteraf, 1993; Montgomery& Wernerfelt, 1988). On the other hand, in order to survive in this competitive world, a firm needs to fully prepare itself to achieve sustainable competitive advantage (SCA), which means having a superior performance in a longer term compared to other rivals. According to Barney (1991), resources need to be valuable, rare, imperfectly mobile and non-substitutable in order to achieve SCA. However, there are some critiques on RBV as a strategy route in the development of a firm’s strategy. It is insufficient that a firm just specifically focuses on RBV to achieve SCA. Porter’s industry analysis and activity based view that are focus on external factors as a profitability source can be used to complement those insufficient. In conclusion, RBV fits with Porter’s industry analysis at the same time can help a firm to achieve a sustainable competitive advantage.
The rationales of a firm to choose Resource based view as a strategy in developing a firm’s strategy are probably due to the culture of the organization, leadership and entrepreneurship. Different organizations are having different cultures and each leaders and entrepreneurs have their own perspectives and views. There are few merits of RBV as a strategy route in the development of a firm’s strategy. RBV is an explanation of performance differences between firms that assumes high performing are made up of bundles of resources that give them an advantage in the marketplace (Barney and Arikan, 2001). It locates the source of superior profitability inside the firm but not outside the market and industry structures by focusing on the resources, capabilities and competencies.
Resources are productive assets belonged to a firm and divided into tangible and intangible resources. Firms’ performance also depends on how resources are being utilized. Tangible resources are physical entities, such as land, buildings, plant and others. For instance, British Airways possesses tangible fixed assets with a book value of £8. 2 billion compete effectively in the world of airline industry. Intangible resources are nonphysical entities that are created by managers and other employees, such as brand names, the reputation of the company, knowledge and the intellectual property. Resources are encouraged to be different from rivals so that it can create competitive advantage. Besides, threshold resource meet customers’ minimum requirements are used to meet the criteria for survival of a firm. On the other hand, capabilities refer to a company’s skills at utilizing and deploying its resources and putting them to productive use in order to achieve higher return on investment, margin and performance. (Hill and Jones, 2007, p. 78). They are embedded in organizational routines. Both resources and capabilities of a firm will together form its competency which can be leveraged to create competitive advantage (Thompson et al. 2010, p. 110). Competence means that firm’s attribution to compete in the marketplace. A company has a competitive advantage over its rivals when its profitability is greater than the average profitability of all companies in its industry (Hill and Jones 2007). This means that in RBV, contribution of resources, capabilities and competencies will enhance a firm’s performance, achieve higher return on investment and profit margin. It also helps to attain a competitive advantage through a lower cost structure, products differentiation and niche markets (Hill and Jones, 2007, p. 77).
RBV also concerns in creating value to customers so that it can boost its position in the market place (Peteraf, 1993; Montgomery& Wernerfelt, 1988). This proves that RBV brings advantage to a firm. Both tangible and intangible resources are fully utilized, capabilities, and competencies have also marked their importance in value creation significantly (Hill and Jones, 2007, p. 83). In research and development, and brand positioning are crucial to increase the customers’ perspective, attribution to the products and favorable impression. Customers are willing to pay more for the branded products. It involves in the innovative and creativity which allows the products to be more attractive to customers. For example, Starbucks which innovating coffee drinks and an attractive strong ambience have enhanced it to the forefront among coffee retailers (Thompson, Strickland and Gamble, 2010, p. 108).
In today’s fast paced and ever changing world a firm need to achieve sustainable competitive advantage in order to survive against its competition over a long period of time. SCA arises when RBV as a strategy route is not being implemented by current or potential competitors and unable to duplicate it. The attainment of SCA can be expected to lead to superior performance measured in conventional terms such as market share and profitability where (Bharadwaj et, al., 1993). Barney (1991) points out that in order to generate a sustainable competitive advantage, a resource must be valuable, rare, imperfectly mobile and non-substitutable. Valuable resources allow a firm to carry out the strategies which can enhance its efficiency and effectiveness. The resources that possess rare and inimitable characteristics make competitors are not able to duplicate this strategic asset completely and allow the firm to achieve SCA. Resources are essential to be heterogeneously distributed among firms so that it will be difficult for other competitors to access it. The resources will be protected from being imitated if they consist of special location, path dependency, casual ambiguity and social complexity. On the other hand, the firm must make sure that there will be no equivalent resources that can be exploited to carry out the similar strategies then the products will not be similar to other rivals and therefore achieve SCA. Barney (1991) mentioned that strategic resources are potential in underpin SCA. Organisational culture, for example innovation culture, is one of the firm resource which plays an important role in sustaining competitive advantage (Barney 1991). Also, culture is important in fitting the strategy and competitive context in order to achieve its potential. Besides, a firm is advised to evolve the capabilities based on developing progressions of path-dependent learning so that it will stand out among other competitors (Dierickx and Cool, 1991; Teece et al. 1997). In addition, a firm must also set the right prices that opponents are not able to match to capture the potential rents and gain superior returns.
Toyota is one of the examples that outperform among other automakers and maintain its competitive advantages over others. It becomes the world largest automaker. It utilizes resources and capabilities and form its competency that far superior to other competitors. Toyota has differentiated itself from other rivals, such as General Motors by its superior quality and productivity which allows it to raise the utility of a product. Toyota brand has build confidence in consumers’ perspective and become more convincing. This help to gain the value creation among customers. In these ways, firm can charge higher prices and gain more profit. Toyota pioneered a lean production system that can hardly be imitated and assimilated. It will attain superior efficiency and product of the firm as the functions can perform its activities that consistent in high product quality, which leads to differentiation and lower costs. This system consists of a whole range of manufacturing techniques, for example just-in-time inventory systems, self-managing teams, and reduced setup times for complex equipment. Toyota utilizes high-tech performance features and upscale quality to compete in luxury car market with a supply chain management and low cost assembly capabilities by producing Lexus models. The pricing advantage compared to Mercedes and BMW models has attracted lots of consumers. Other rivals can hardly imitate them in this low manufacturing costs and differentiated products (Thompson, Strickland and Gamble, 2010, p. 156). Toyota also keeps on learning and upgrading their resources and capabilities to stay ahead of imitators (Hill and Jones, 2007, p. 100). Toyota’s hybrid cars have successfully created new markets add value for the consumers. On the other hand, rivals are putting their best effort to catch up Toyota. Besides, Apple has also outperformed itself from other rivals. It produces many products such as iPhone, iPad, iPod and others. It makes use of the capabilities and heterogeneous resources when innovating the products and improving them continuously. Constant innovation has made it stand out among other competitors. It is very difficult for other rivals to copy or imitate Apple’s product design and functionality. Apple’s softwares are all specifically developed for its hardwares, the resources are rare, non-substitutable and hard to imitate. This provides that Apple distinguish itself from others. Apple is also very well known in its quality which added value to customers and it had won a larger customer base.
However, there are some criticisms about RBV as a strategy route in development of a firm’s strategy. According to Priem and Butler (2001), RBV lacks of detail, unclear and not able to be tested. It is tautological. Firms can hardly implement it. Kraaijenbrink et al. (2001) added that the value of a resource is too indefinite to offer for useful theory and the definition of resources is impracticable and extremely broad. He also pointed out that RBV does not indicate how different types of resources may contribute in a different manner to a firm’s SCA. RBV is also criticized that they do not put a lot of effort on developing practical implications of this theory and different involvements lack a particular integrating framework. Important issue of how resources can develop and change over times is neglected. Besides, RBV which only focus in internal factors are criticized for being static and introspective that people thought that it is not able to achieve SCA (Porter, 1991). Nevertheless, individuals in organization who play the role dynamically are assumed to be self evident and consequently less addressed.
Most scholars, for instance, Barney, 1991, Mahoney and Pandian, 1992, Porter, 1991) have the same opinion that both internal external factors must be taken into consideration when analyzing firm performance. Porter’s view is different with RBV. Porter (1980) pointed out that firm’s profit will depend on the industry structure within which organisations compete, how they position themselves against that structure and exploit in the market It focus on the external environment. Porter’s five forces are essential in recognizing firm’s resources which can develop opportunities and counterbalance threats. Observing on opportunities will allow the firm to develop new products and technologies; threats will help the firm to preserve its position in the market. Porter also emphasizes 2 generic strategies which are low costs and product differentiation. Besides, Porter (1985) also developed an activity-based-view that concentrates on a value chain and configures activities by using drivers. Activity and its drivers link resources and performance (Porter, 1991). Activity-based strategic plans which sketches out who will do what and when will do it, helped to translate the implementation of plans into more detail. This has complemented the demerit part of RBV.
In conclusion, resource based view is a good strategy and it remains importance for a firm to achieve a sustainable competitive advantage by emphasizing in its resources, capabilities and competencies. Nonetheless, it is not an excellent way that a firm just slavishly focus on internal factors and neglects the external industries within its operation. It is important that a firm needs reorientation and diversification in the product market to standout among other rivals (Pehrsson, 2004). Therefore, Porter’s industry analysis as well as activity based view is advised to complement RBV. Neither of them can be substituted or removed. As a result, a firm will be able to achieve sustainable competitive advantage in a better way and outperform among its rivals by taking RBV and porter’s industry analysis at the same time.
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