Comparing resource-based view and competitive positioning strategies

¶ … Businesses are changing rapidly in response to changes in the economy, technological advances, and the continuing process of globalization. In response to these changes, businesses are developing new paradigms in regards to strategic analysis. One of the more recent strategies to emerge is the resource-based view. This view represents a new way of looking at a firm. The following will compare the resource-based view of strategic analysis with the more traditional view that relies on competitive positioning.

The Resource-Based View of Business Strategy

According to the resource-based view, businesses are heterogeneous collections of resources. The unique collection of resources that comprises the company determines their distinct market performance (Wilk and Fensterseifer 2003). Resources are inputs into the firm's production process. These resources can be divided into tangible and intangible resources. Tangible resources are those things that are used to physically produce the goods, such as raw materials, purchased components, etc. Intangible resources are items such as brand equity, core competencies, and market segmentation.

There are two different ways to examine companies using the resource-based view. The first is to examine the individual firm. However, it may be more effective to view them in clusters that have similar resources and capabilities (Wilk and Fensterseifer 2003). These clusters share a certain set of regionally-based resources, such as climate or environmental conditions that define their product. Examining the resources and competitiveness of the cluster could give the researcher insight into the potential competitiveness of a firm within that cluster.

The resource-based view has the advantage of being able to view competitive groups, which can give provide additional information in terms of the potential competitiveness of a single firm. Using cluster analysis allows the analyst to view the competitiveness of the entire cluster, providing them with a macro-view of the market. For instance, one may consider all wine makers in the Napa Valley, California. The competitiveness of this cluster could be compared to wine makers in Southern Brazil. Comparing regional clusters gives the researcher a better view of how the firm may perform on a global basis and is more suited to the scenario of increasing globalization.

Resources can lead to a competitive advantage. For instance, if a resource is rare, they can gain a competitive advantage as compared to their competitor by possession of that resource. One example may be having access to an abundant natural resource, such as a unique soil mix that affects the flavor of the wine. Access to certain types of resources can give the firm a cost advantage over their competitors, who may have to expend capital to gain access to those resources. An example of this may be location in close proximity to a needed component, creating a cost savings in shipping and transportation as compared to competitors.

The analysis of strategic alliances is an important factor in the resource-based view. Alliances represent collective strengths (Das and Teng 2000). However, conflicts among partners in the alliance can create a weakness that affects all members of the alliance (Das and Teng 2000). Alliances are considered a company resource that can help to determine its competitive advantage. The resource-based view must take into account not only the existence of alliances, but it must also take into account the quality and strength of those alliances in making its analysis. This can be an advantage of this analysis method, if this information can be determined or it can be a weakness if this information is not known.

The Port of Singapore has capitalized on resources, including operations and technology to help improve its competitive position, in comparison to other locations (Gordon, Lee, and Lucas 2005). Some of these resources can be replicated by other ports, such as improved infrastructure, or better-educated workers. However, some cannot be replicated and will remain an advantage, such naturally sheltered harbor (Gordon, Lee, and Lucas 2005).

Resource weakness is a key factor that weakens the company's ability to gain a competitive advantage (West and DeCastro 2002). However, resource strength can prove a key advantage, as the case of the Port of Singapore demonstrates. The competitive positioning view does not have the ability to assess this valuable aspect of competitive advantage. This is a key reason for the development of the resourced-based view to explain competitive advantage in the emerging business environment.

The ability to assess the resource-based approach empirically poses several challenges, which may be a key factor in a lack of studies regarding this view (Fahy and Smithee 1999). The inability to define core competencies in a concrete manner is problematic when considering a research study on the resource-based method (Fahy and Smithee 1999). This one area will need to be addressed more thoroughly in the future in order to facilitate research into this area. Resources, particularly those that are intangible are difficult to define in terms that can be directly measured using empirical methods. The development of measures that fit into an empirical framework is necessary in order to gain the same level of empirical knowledge that exists for the competitive positioning-based view of strategy.

The Competitive Positioning-Based View of Strategy

The competitive positioning view of strategy is based on the concept that the marketplace position of the firm can lead to better performance of the company. Those companies that are the largest and have the greatest market share will have a continued advantage in terms of their competitive edge. Using this strategy, competition is based on a continual contest for position. Everyone is striving to be number one, because being number one gives the firm an advantage and helps them to attract future sales. Market position itself is a competitive advantage. Strategies that rely on competitive positioning depend on the ability to build market of scale.

The competitive positioning view divides companies within a group into core, secondary, and solitary firms (McNamara, Deephouse, and Luce, in press). These categories represent strategic groups whose movements and actions are considered predictable according to their category. One of the key weaknesses of the competitive positioning view is that it does not account for interactions between these groups.

Competitive positioning was developed in an atmosphere that was largely domestic. It was not designed to consider group resources. In the international business environment, one must consider the relationship of the domestic firm to that of the international marketplace (Carpano, Rahman, and Roth 2003). Domestic companies must compete for international business, which means that one can talk about their competitive position from a domestic perspective and from an international perspective.

It is possible for a company to be in two different positioning categories, depending on the scale of the market being discussed. This can create two different views of the company. This often calls for two different strategies to be operating simultaneously in the same company. For instance, a company may have a domestic division and an international division. However, from a resource perspective, both divisions are operating with the same pool of resources. Disconnecting the two competitive positions can lead to competition within the firm for the same resources. This is a key disadvantage of the competitive positioning view, as it can lead to inefficiencies in the use of company resources.

The competitive positioning view is an excellent tool for viewing a company that exists in a domestic market that has an established formal structure. However, technology advances have made this type of market difficult to find. The key strength of the competitive positioning view is that one can gain a precise picture of the company in question. If one wishes to consider the financial position or investment potential for a company, it is important to know where it stands in relation to its competition in terms of scale. This viewpoint must also consider the potential for new markets and the likelihood that the company will be able to capture a significant portion of the new market share. The competitive positioning view is an excellent tool for this type of analysis.

The competitive positioning view is based on a company's ability leverage their competitive position and has a considerable advantage when the barriers to entry are high, or when they possess a distinctive competency that differentiates them from the rest of the industry (Hubner 2007). Alliances can play an important role in competitive positioning, particularly in geographically diverse markets (Gottinger 2007). As globalization continues, alliances will become important to the competitive positioning view of corporations. The emergence of the resource-based view suggests that competitive positioning may be more complex than it was at first thought.

The competitive positioning view places its emphasis on the ability to gain an economy of scale. It relies on the ability to defend one's market position and to make entry into the market difficult to limit competition. The possession of technology to speed production is one method for achieving this advantage. The view of competitive positioning is based on the ideal that to succeed first, is rewarded by the largest market share and the ability to be a price maker rather than a price taker. There is an advantage in this strategic view to become the biggest and best, and to do it quickly in order to secure one's position in the market place.

The greatest strength of the competitive positioning strategy is the ability to describe market conditions in a perfect market. However, its reliance of a single factor for its analysis, the size of the company in comparison to other companies in the market is a key weakness. The following will summarize the comparison and contrasts between the resource-based view and the competitive positioning view of strategic planning.

Similarities of the Two Views

The resource-based view and the competitive positions view have several similarities. Many of these similarities stem from the fact that they both depend on factors that are external to the company. For instance, the activities of consumers and overall conditions in the economy can affect their market position. A major glut in a different sector of the economy may affect their competitive advantage, as consumers adjust their spending habits to accommodate the necessary changes.

One example of resource shifting by consumers occurs when fuel or food prices rise. Significant rises in basic commodities may mean that consumers cut back on entertainment spending. These affects can be localized or they can be wide spread. Changes in consumer spending due to factors in a different portion of the economy are beyond the control of the firm, or the categorical group.

Both the resource-based view and the competitive positions view are affected by governmental actions. These actions may affect the firm either directly or indirectly. One example of a direct action would be environmental clean up legislation that shifts the burden of preventing or cleaning up environmental damage to the firm. Another example would be raising taxes. Indirect governmental affects would include actions that affect a firm's suppliers. If supplies are affected by higher taxes or specific legislation they may need to raise their prices, creating rising costs for the firm. These types of changes would affect the company regardless of whether one used the resource-based or competitive positioning view of the company.

Competitor actions represents another factor that impacts both the resource-based view and the competitive positions view in a similar faction. Regardless of the analysis technique, the company must take actions to respond to the these external factors. Several internal factors also affect the resource-based view and the competitive positioning view in a similar fashion. For instance, innovation, the possession of trade secrets, skills and knowledge have an impact on the competitive advantage of the company. Neither the resource-based view nor the competitive positioning view have a mechanism to adequately account for these factors.

Applying These Strategies in the Modern Business Setting

We have examined two differing views of the changing business world of today. The resource-based view is able to explore the changes that are taking place as smaller and smaller companies are able to take advantage of and compete on a global marketplace. It can explain differences in success in geographically separated places. The competitive positioning view would suggest that once a company has an economy of scale in one location, it can use it leverage its position in different locations. Now let us examine how these two strategies can be applied in the modern for-profit business setting.

As companies must learn to market in cultures other than their own, it is becoming more apparent that the geographic factors in the market play a much more important role in determining success than size alone. This tendency supports the use of the resource-based view as the more relevant strategic method for assessing the modern business climate.

This is not to say that the resource-based view is the best match for every situation that one will encounter in the business community. The key question that is suggested in this essay is which method is better for an examination of the modern business climate. The answer to this question is not as simple as it would at first appear.

Whether to choose the resource-based view or the competitive positioning approach depends on the goal of the analysis, the size of the firm in question, its competitive environment, available resources, the core competencies and the goals of the company. The competitive positioning view is more appropriate when examining large corporation that operates in a highly structured market. If the company is so large, that it has access to vast resourced, then resources become less important. However, when they expand into a different market, resources can become more important. When a company decides to operate in a different market setting, their core competencies, knowledge of the market and knowledge transfer within the organization become important resources that must be considered in the strategic analysis.

This examination of two differing strategic views found that the competitive positioning view is the most widely researched of the two. It is much older than the resource-based view and was highly effective in analyzing the competitive advantage in the hierarchical, single location, market that existed in the past. Size was a reliable predictor of company success in the past. However, now the focus is beginning to shift towards the resource-based view and its ability to adapt to a changing global environment. The subjectivity of intangible resources makes the resource-based view more difficult to measure in empirical terms. However, the importance and value of resources to the competitive positioning of the company will make is priority for researchers in the future.

In order to answer the key question examined in this research, it is apparent that these two views are both appropriate, but only in the proper business environment and context. The competitive positioning view is better for determining the competitive advantage when an economy of scale is present and the market is relatively uniform in all other aspects. However, the resource-based view is the more appropriate when the market is geographically diverse, or when one company has a definitive resource related advantage. As we have seen, a small company can dominate a local market, even in the presence of a company that has an established economy of scale when one considers the broader spectrum.

The appropriate method depends on the circumstances and characteristics of the market. It also depends on the ability of the company to use and access resources within the local community. The resource-based view is better suited for examining the big picture and considering all of the relationships on a macro level. The competitive positioning view is much more suited to examining the position of an individual company within the market. However, it is now evident that portions of both views will provide the best assessment of companies in relation to their ability to survive in an increasingly dynamic environment.