Similarities and differences between resource-based and competitive positioning strategy views

¶ … 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.

Differences in the Two Strategies

Although these views are similar in many ways, there are also many differences. Resource-based view can account for changes in the marketplace and can help to analyze in a dynamic market place. The competitive positioning view works best in a perfect market, with relatively stable conditions. It tends to treat market position as relatively static and not capable of considerable change. For example, it would be difficult to foresee that a small firm could gain a competitive advantage that would place it in a higher market position than a corporate giant. Using the resourced-based view, this type of movement is a possibility if the small firm can gain an advantage that would allow it to do so. The resource-based view is much more readily adapted to the changing face of the business world today. It is much more suited to explaining the dynamic nature of business, rather than relying on a static model as its basis.

The resource-based view has the flexibility to look at individual firms within a certain cluster, or it can compare the clusters themselves. In doing so it can provide a better picture of overall market conditions. The competitive positioning view is better suited for comparative analysis of individual firms. However, it is difficult to get an idea of overall market trends and shifts between categorical groups.

The resource-based view focuses on intra-firm resources and the individual capabilities of the firm. The competitive positioning view relies more on outside influences in the ability of the firm to gain a competitive advantage. The competitive positioning view does not account for the complex factors that can affect the ability of the business to gain an advantage in an imperfect market system.

The competitive positioning view is an excellent tool if one only wishes to consider a single company. It is useful as a tool for making investment decisions on a single company. However, it does not provide an excellent analysis of the company in relation to its potential for expansion. The availability of resources may limit the company's potential for expansion. The company's position today may not be reflective of limitations that may hinder its potential for expansion in the future.

A prime example of the ability of small companies to create a competitive advantage based on local resource management can be seen in the food processing industry. Small-scale food processors in Finland were able to build and sustain a competitive advantage in the local market by using their available resources to survive and compete against larger companies in the same industry (Forsman 2000). Using the competitive positioning view, the ability of the smaller company to compete against the large corporation, even on a local scale would seem like an anomaly.

This example demonstrates that in some cases, careful resource management and strategy can allow a small company to not only survive, but to be competitive on a local level. The competitive positioning view would suggest that the small company would have a difficult time competing with the larger company and establishing an economy of scale. This is more than likely to be true and the small company may only be limited to competition at a local level. Therefore, the competitive positioning view still holds true for small local firms in their ability to establish a larger economy of scale.

Williams (2009) suggests that supply chain strategies can be either defensive or offensive in nature. Resource-based strategies are generally offensive. Whereas, competitive positioning strategies can be considered defensive. Attia and Hooley (2007) agree that competitive positioning is an essential component of marketing management. However, their research highlights the value of resources in underpinning their competitive position. Without attention to resource management, even if a company does gain a highly sought competitive position, they will not be able to sustain it. Resources are important, even for those that take the competitive position viewpoint.

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.