LEARNING OBJECTIVES

After studying this chapter, you should be able to:1. explain what firm resources and capabilities are

2. undertake a basic SWOT analysis of the value chain to decide whether to keep an activity in-house or outsource

3. analyze the value, rarity, imitability, and organizational aspects of resources and capabilities

4. participate in two leading debates on crossborder capabilities and offshoring

5. draw implications for action

SWOT Analysis

SW = Strengths and WeaknessesInternal assessment of the organization leading to management decisions

OT = Opportunities and ThreatsExternal assessment of the business environment to identify the uncontrollable events that might impact management decisions

Resources and Capabilities

Resources (or capabilities) - The tangible and intangible assets a firm uses to choose and implement its strategies.

Tangible resources and capabilities - Assets that are observable and easily quantified.

Intangible resources and capabilities - Assets that are hard to observe and difficult (or sometimes impossible) to quantify.

Analyzing the value chain:in-house versus outsource

value chainA chain of vertical activities used in the production of goods and services that add value

Undertake a basic SWOT analysis of the value chain to decide whether to keep an activity in-house or outsource it

Outsourcing

outsourcingTurning over an organizational activity to an outside supplier that will perform it on behalf of the focal firm.

offshoringOutsourcing to an international or foreign firm.

inshoringOutsourcing to a domestic firm.

captive sourcingSetting up subsidiaries abroad—the work done is in-house but the location is foreign

Benchmarking

An examination as to whether a firm has resources and capabilities to perform a particular activity in a manner superior to competitors.

Commoditization

The point at which an industry specific activity becomes common across industries, and the need to keep it proprietary no longer exists.

VRIO framework

The resource-based view that focuses on certain aspects of resources and capabilities:

(V) value - Only value-adding resources can possiblylead to competitive advantage

(R) rarity - Only valuable and rare resources and capabilities have the potential to provide some temporary competitive advantage

(I) imitability - source of competitive advantageonly if competitors have a difficult time imitating them

(O) Organizational - How can a firm (such as a movie studio) be organized to develop and leverage the full potential of its resources and capabilities?

VRIO framework

Offshoring versus Not Offshoring

original brand manufacturers(OBMs)

Firms that combine low-cost and high-quality manufacturing to completely bypass the work of Western firms.

Domestic Resources versus International(Cross-Border) Capabilities

Do firms that are successful domestically have what it takes to win internationally?

Offshoring versus Not Offshoring

Because digitization and commoditization of service work is only enabled by the recent rise of the Internet and the reduction of international communication costs, whether such offshoring proves to be a long-term benefit or hindrance to Western firms and economies is debatable.

Proponents argue that offshoring creates enormous value for firms and economies.

Critics of offshoring argue against it on strategic, economic, and political grounds.