Chapter 4 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

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

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?

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.