Leveraging Capabilities Globally Chapter 4 Leveraging Capabilities Globally

LEARNING OBJECTIVES After studying this chapter, you should be able to: explain what firm resources and capabilities are undertake a basic SWOT analysis of the value chain to decide whether to keep an activity in-house or outsource analyze the value, rarity, imitability, and organizational aspects of resources and capabilities participate in two leading debates on crossborder capabilities and offshoring draw implications for action

SWOT Analysis SW = Strengths and Weaknesses Internal assessment of the organization leading to management decisions OT = Opportunities and Threats External 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 A 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 outsourcing offshoring inshoring captive sourcing Turning over an organizational activity to an outside supplier that will perform it on behalf of the focal firm. offshoring Outsourcing to an international or foreign firm. inshoring Outsourcing to a domestic firm. captive sourcing Setting 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 possibly lead 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 advantage only 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.