Resource-based theory (RBT) of the firm

Transaction cost theory

During the past two decades relationships of buyer-supplier relationships has been changed considerably. Most of companies have decided to move away from transactional relationships and move toward longer-term collaborative strategic partnerships with external business partners. Transaction cost theory (TCT) can easily explain the essence of transactional relationships. According to Williamson (1981), TCT explains the existence of companies, and the ability of companies to expand or source to the external environment. Under TCT, in the buyer-supplier environment, if the level of investments in assets is low and supplier is not able to meet requirements of customer anymore, buyer can easily change supplier (Emmett and Crocker, 2008). Therefore, the nature of arm's-length relationships is based on little investment in assets with minimal information sharing (Harrison and Van Hoek, 2010). However, some specialized products require big investments or have only little amount of suppliers, so it is likely to lead to the less flexibility of the governance mechanism. Responsiveness can be a competitive advantage, but these agreements restrict organisational responsiveness due to the lack of collaboration (Arnett et al., 2001). For example, Nishiguchi (1994) made a report about differences in manufacturing processes of US, European and Japanese manufacturing companies. He found that, US and UK organisations had transnational relationship, while Japanese firms supported more collaborative approach. Two years later, in 1996, Ghoshal and Moran (1996) reported that, US buyer-supplier relationships were changing from administration based on controls to administration based on collaboration and trust. Therefore such long term relationships are replacing the transnational relationships that were supported by TCT. Some of the main advantages of the long-term cooperative relationships are flexibility of the supply chain, the reduction of total costs, exchanges of sensitive data and shared benefits. For instance, Toyota reduced the defects by 50% due to knowledge sharing with their suppliers (Dyer and Hatch, 2006). Another example of successful partnership is synchronized production planning system of Hyundai Motor Company. The company reports every change in its own master production plan to its suppliers in order to provide full information transparency. As result, Hyundai is able to reduce finished goods inventory while maintaining competitive delivery lead times (Hahn et al., 2000).Write something about profitability and market share examples.

Resource-based theory (RBT) of the firm

The key points of RBT are to define the firm’s potential main resources and evaluate whether these resources meet criteria such as valuable, rare, in-imitable and non-substitutable (Penrose and Piteils, 2009). From the perspective of RBT, long-term relations founded on the principle that each party of supply chain can gain a stronger sustainable competitive advantage than those based on a bid-buy system (Lambert and Elarm, 1998). Trust among partners is key feature for collaborative relations. It is defined as the expectations that parties will do business based on trust even during short-term deals. In addition, the emergence of trust is a slow process as the result of a successful history of projects between the participants of supply chain (Liedtka et al., 1996).According to Dyer and Singh (1998), trust is key factor of collaboration which helps organizations to obtain resources that are valuable, hard to imitate, rare and have no readily available substitute. Long-term relations are getting popular among large organizations. For example, Proctor and Gamble, Lucent Technologies, Sara Lee and Walmart have partnerships agreements with their supplier and work together in the areas of planning, forecasting and replenishment (Handfield and Nichols, 1999). These collaborative relationships enable firms to flexibility, responsiveness and low cost skills (Golhar and Lei, 1991). Moreover, this kind of relationships allows getting access to additional assets and technology which helps business to support the development of a sustainable competitive advantage (Harrison and Van Hoek, 2010). There is a high risk of error because every time information is exchanged so information flow is another key aspect of successful collaborative partnership. Due to new information technology, partners are able to improve their communication and reduce the risk (Mariotti, 1999). According to Leach (2012), 50 % of buyers have opinion that the sharing of information such as supply capacity and delivery lead times is important factor in collaboration relations. Furthermore, 40% of suppliers want buyers to keep them up to date with forecasts and promotions. Gerry Fay, chief global logistics and operations officer at electrical component manufacturer Avnet stated that, it is essential for the company to share information in order to ensure transparency of data around sales, operations planning and supply demand. When the company has more real-time visibility, it means that collaboration creates benefit for them (Leach, 2012). Based on RBT, it is concluded that efficient flow information, trust and a willingness to collaborate are likely to lead to the development of a sustainable competitive advantage.

Date: 2015-12-24; view: 825