Chapter 4

Leveraging Capabilities Globally

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 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

value chain
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
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.