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Sir Dr. M. M. H. Siddiqi




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Madam Beenish Kalim

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I am very thankful to Sir Dr. Muhammad Muta¶aal bil Haq Siddiqi whose
guidance made it possible for me to complete this project. I am very
thankful to madam Beenish Kalim also who helped me throughout my
Business studies and this time also.

I am thankful to
Mr. M. Ekhlaque Ahmed Director Operation at Rajby Industries, Mr.
Akhtar Hussain Director Procurement at Rajby Industries and Mr. Athar
Sharafat Director Import & exports at Rajby Industries also who shared
precious information with me for this project.
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‘‘‘‘‘‘‘‘‘‘‘‘‘‘‘‘‘‘‘‘‘‘‘‘‘‘‘‘‘‘‘‘‘‘‘Purpose
of this study is to determine the strategic position
of Rajby Industries, to find out that in today¶s Business Professionals
point of view, which one is most important of Resource Based View and
Industrial Based view and to find out the degree of opportunities for
growth of textile Sector of Pakistan.



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The study is based on practical information, not on

‘‘‘‘‘‘‘‘‘‘‘‘‘‘‘‘‘‘‘‘‘‘‘‘‘‘‘‘‘‘‘‘‘‘‘‘‘‘‘‘
assumptions. The selected organization, which is leader of the industry,
was visited and the top most Management of the organization was
interviewed.

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The
strategic audit shows the performance of the support
service firm in different areas determined through the different
components of the strategic audit. Results would show the relative
performance, viability, and sustainable competitive advantage of the
company in providing support services to the oil and gas industry as a
means of ushering the efficiency of the industry in meeting present demand
and volume of oil reserves needed to support price stability. The result of
the strategic audit then shows the capability of the support service company
in providing the technical expertise and skills required by textile industries
to achieve efficiency and optimum productivity.

Conducting the strategic audit happens by following the framework

provided in this chapter. The chapter has two parts. One part is on the
concepts and theories of strategic audit that provides definition of strategic
audit, discusses its purpose and use for business firms, and explains the
different components of the strategic. The other part is on the empirical
application of the concepts and theories of strategic audit by considering
the results of empirical studies in applying strategic audit in various
business firms. Empirical results provide guidelines in conducting the
strategic audit by providing problems and effective means of completing a
strategic audit as well as the expected results and implications of strategic
audit.

The term ³strategy´ originated from the Greek word ³strategia ± the art of
war´. According to Webster¶s New world dictionary ³Strategy is the skill in
managing or planning´. There are vast amounts of literature on the
definition of strategy:

Coulter (2002:7) defines strategy as a series of goal-directed decisions and

actions in terms of organisation¶s skills and resources and the opportunities
and threats from its environment.

³Strategies are means to ends, and these ends concern the purpose and
objectives of the organisation. They are the things that businesses do, the
paths they follow, and the decisions they take, in order to reach certain
points and level of success.´ (Thompson, 2001:7)

Johnson and Scholes (1993) describe strategy as the direction and scope of
an organisation over the long term, which create the competitive advantage
for the organisation in the accordance with its resources, environmental
circumstances so that it can fulfil the stakeholder expectations and the
needs of the market.

³Strategy is the primary means of reaching the focal objective. The focal
objective is whatever objective is in mind at the moment. Strictly speaking,
it is literally meaningless to talk about strategy without having an objective
in mind. Viewed in the context strategy becomes an integral part of the
ends-means hierarchy´ (Thorelli 1977).

Chandler (1962) also explained that strategy is the activities of the

enterprise concerned with long-term goals and objectives to formulate, to
take the action, to allocate the resources that necessary for carrying out
goals.
The external environment of business firm creates
opportunities for exploitation in realizing potential gains. Example of
opportunities include the creation of new market segment, expansion of
business operations, joint ventures or other forms of partnerships, and
product or service development. Business firms need to exercise vigilance
in recognizing these opportunities and acting on these opportunities at the
right time to maximize gains. As such, the capability or competence of the
business firm to act on these opportunities is as important as the
recognition of viable opportunities.

³The strategic audit is a review of a company¶s situation by a person

trained in business planning and strategic thinking,´ (Lasher, 1999).
Thompson (2001) describes that the strategic audit is a type of
management audit along with a corporation-wide perspective and the
purpose is to make a comprehensive assessment of a corporation¶s strategic
situation.

Gordon (2002) claims that the strategic audits have unpredictable

results although there are so many definitions set out for that. He also
identifies the questions to cover a framework of the strategic audit and all
these questions will also fully cover the framework of this research.

· What business are we in?

· What is our current strategy?

· What forces are shaping competition?

· Where is competitive advantage?

· What is our distinctive competence?

· What of priorities, timing and resources?

· How do we best for the future?

· What provisions exist for implementation?

The business should be enough capability for having good resources

and competency to understand its condition. In strategic audit, all the
business strategies are evaluated and adjustments are made if necessary.³ A
strategic audit takes a detailed look at the prevailing strategies in key areas
of the organization³(Detailed Strategic Audit 2007). By conducting a
strategic audit , it helps not only to spot out the weakness of the business
strategy and planning process but also giving an ideas to establish the
structured , systematic and the most suitable strategic planning approach of
it .
 Strategic audit is the process concerned with the extent that business
firms understand and evaluate their resources and competence in order to
determine the capability of the firm to act on viable opportunities. Knowing
its resources and capabilities supports decision to engage in business
opportunities. Strategic audit is a process with a number of components,
which are 1) resource audit, 2) value chain analysis, 3) core competence
analysis, 4) performance analysis, 5) portfolio analysis, and 6) SWOT
analysis. The discussion of these components follows in the succeeding
sections. (Kay 1996)

Strategic audit has a number of uses encompassing various

purposes.Kuhn and Figgins (1994) explained that one purpose is
determining the root cause of problems in business operations. Since
strategic audit provides the business firm with data about its competencies
and resources, this allows the business firm to determine resource-based
problems such as lack of experience and skills in meeting the tasks for
completion throughout its supply chain or insufficient resources needed to
meet production targets. These problems could be the source of other
problems such as efficiency and performance of personnel and decision-
making of management.

Drew (1993) explained another benefit as the reduction of cost from the
efficient use of resources in the operations of the company. Since strategic
audit provides the firm with its resources and competencies, the business
firm is able to determine available resources, the manner of resource
allocation, and the problems in resource allocation and competency
building. By knowing this information, the company is able to address
resource wastage or misallocation resulting to better performance and
productivity as well as lessen cost from resource wastage.

Donaldson (1993) stated that a third benefit is prevention of business risk

because of the anticipation of possible problems linked to resource
availability and access as well as the development of contingency plans to
address these problems. Strategic audit provides the business firm with an
idea of its resource competence. As such, it is able to determine the
potential risks that the company is likely to face such as revenue losses as
well as failure to achieve sustainability because of scarcity of and limited
access to resources or inefficiencies in work completion processes. By
knowing these risks, the business firm is able to make adjustments in its
resource competencies and develop the potential of its human and capital
resources to prevent the actualization of these risks.

Campbell, Goold and Alexander (1995) and Simpson (1995)

discussed the fourth business as support in strategic decision-making that
requires information or resources and capabilities to support the
identification of various alternative actions. Strategic audit provides
information to the business firm over the state of its capital and human
resources to enable the company to derive various alternative options from
which to select the best alternative. The strategic audit supports decision on
the hiring and training of personnel as well as the acquisition of business
tools such as computer software and applications.

Coulter (2002) explains that resource audit lists down and

determines the state of the various resources that are available to the
business firm. This includes the resources owned by the company as well as
resources obtained via joint ventures and other forms of partnerships as
well as supplier arrangements. The resources of the business firm are
subject to different ways of categorization.

One category is financial resources that represent the capacity of the

business firm to allocate and provide funds for its strategic plans.
Investments in new products and expansion into new markets require
sizable funds so that financial resource is one important consideration in
investment decisions. Financial resource can refer to existing funds and
potential sources of funds. Existing funds include cash balances, bank loans
or loans from other sources, bank overdraft, working capital such as from
stocks, and maturing credit to the business firm. Potential funds represent
the amount that the business firm expects to receive based on its brand
equity and reputation building efforts to draw investment and a bigger
market share, and future stock offerings to the public. (Coulter 2002)

A second category is human resources representing the capability of

the business firm to complete tasks and accomplish processes. Human
resources refer not only to the number of people matched with the number
of tasks or positions needed but also to the knowledge and skills of the
people comprising the business organization. In addition, a consideration is
also the sufficiency of these skills in meeting the present and future needs
of the company. (Coulter 2002)
 A third category is physical resources that encompass a wide range of
operating resources from production facilities such as manufacturing plants
to marketing facilities such as distribution channels, and information
technology such as information systems and supply chain tools. These
resources support the achievement of the strategic objectives of the
company. (Coulter 2002)

A fourth category is intangible resources that enable the business to

assess means of delivering and fulfilling its strategy. Intangible resources
include goodwill or the value of assets to other people such as investors and
customers, reputation or the perceptions of investors, customers,
employees, and competitors regarding the company, brand equity or the
strength of its brands in affecting purchases, and intellectual property or
the value of its exclusive property such as patents and trademarks. (Coulter
2002)

Coulter (2002) further explained that auditing all these categories of

resources is important to derive a complete audit of the resources of the
company for purposes of decision-making and planning. As such, business
firms may not fully benefit from conducting a resource audit if these
categories are not subject to focus.

Porter (1998a) explains value chain analysis enables business firms

to gain an understanding of the various facets of its operation that create
value and identify aspects of operation that do not create value. This also
describes the different activities taking place in the business and relating to
the determination of the firm¶s competitive strengths. The value chain
analysis groups business activities into two categories, which are primary
activities and support activities. The primary activities are 1) inbound
logistics, 2) operations, 3) outbound logistics, 4) marketing and sales, and
5) service. These primary activities directly operate in the creation and
delivery of the firm¶s products and services. The support activities include
1) procurement, 2) human resource management, 3) technology
development, and 4) infrastructure. Support activities have no direct
involvement in the production process but these enhance the effectiveness
and efficiency of the primary activities.

It is rare for business firms to engage all the primary activities and
support activities. On one hand, this could be due to the limited targets of
business firms. On the other hand, this limits the ability of the firm to
determine the primary activities it requires together with the support
activities that appropriately support the primary activities. In addition, this
also limits the activities that the business firm can accomplish together with
the activities best outsourced. (Porter 1998b)

The value chain analysis has three stages. First is the classification of
the firm¶s core activities into primary and support activities. Second is the
assessment of the possibility of enhancing the value of these activities
through the competitive strategies of differentiations or cost advantage and
determining the activities that create competitive disadvantage to the firm.
Third is the determination of the strategies targeting improvements in
these activities to enhance competitive advantage or sustainable
competitiveness. (Porter 1998a)

Prahalad and Hamel (1990) explained core competence

analysis refers to the process of identifying and analyzing the capabilities
that are crucial for the business to achieve competitive advantage. The
process commences with the recognition that the competition going on
among business firms constitutes a race towards the mastery of
competences, establishing market position, and enhancing market power.
Since it is impossible for management to focus efforts towards every
activity, the company needs to determine the important activities as well as
competencies necessary to accomplish the activities that strongly affect
competitive advantage.

There are a number of criteria in determining competencies. One is

the ability to provide access to the various market segments so that a
competence should be able to support the establishment of a market base
or the expansion of the market of the business firm. Another is the
significant contribution to the positive perceptions of benefits to customers
and satisfaction from the product. A competence should foster a positive
perception on the part of consumers regarding the benefits that the
business firm or its products offer and contribute to consumer satisfaction.
The last criterion is the difficulty of imitating the competence. A
competence is something unique to the firm to make it a significant source
of competitiveness. (Prahalad & Hamel 1990; Drejer 2002)

Prahalad and Hamel (1990) further explained that in applying core

competency analysis, business firms need to recognize the need to adjust its
competencies relative to changes in the business environment. Most firms
are unable to meet accurately understand and plan on competencies
because of the failure to match competencies with the changing business
environment. Core competence analysis is a continuous or dynamic
process.

Grant (1995) explained that performance analysis determines

the relative performance of the business firm based on its ability to achieve
its objectives and its performance compared to its closest competitors.
Conducting performance analysis happens by answering a number of
questions. One question is on the manner of deploying resources across the
different business activities over time. A historical analysis considers
performance trends for a certain period such as year-on-year or quarterly.
Another question is the manner that capabilities and resources of the
company compares with that of other business firms engaged in the same
business. An industry norm analysis addresses this question by comparing
the relative capabilities and resources of competing firms. Another question
is the manner that the capabilities and resources of the business firm
compare with the best capabilities and resources in the industry.
Benchmarking analysis provides the answer to this question. The last
question is the nature and extent of the change in the financial performance
of business firms over time together with the manner that the financial
performance compares with competitors in the same industry. Ratio
analysis is the tool that determines comparative financial performance of
competitors.

The performance analysis enables the firm to determine its

performance and the manner that these compare to its internal targets and
the performance of its competitors. The result determines the problems and
issues faced by the business firm for purposes of supporting strategic
decisions and plans.

Ryan (2006) explained that portfolio analysis determines the extent

of the overall balance achieved by the different business units of a company.
Many large business firms operating internationally provide services in
more than one market segment or in various geographic markets. Large
business firms operate in different markets through business units or
divisions operating within one or more industries.

A significant objective of strategic audit is ensuring a strong business

portfolio and sufficient investments and management focus on business
units. Portfolio analysis is important to ensure that the business firm knows
the business units or divisions with strong and poor performance. This is
important to support decision on the continuity of business units as well as
the expansion of the promising business units.

There are two traditional models in conducting portfolio analysis.

One is the Boston consulting box that classifies business units into a matrix
with the horizontal axis pertaining to market share on a spectrum of low to
high and the vertical axis referring to market growth also on a spectrum of
low to high. Firms with high market share and high market growth are stars
because these operate in highly competitive industries. Firms with high
market share and low market growth are cows because of the maturity and
low levels of investment required by these firms. Firms with low market
growth and low market share are dogs not worth the investment. Firms
with high market share and low market growth are question marks because
of the potential of firms to either succeed or fail. (Ryan 2006)

The other model is McKinsey Matrix that classifies firms into market
attractiveness on the horizontal axis and competitive strength on the
vertical axis. This expands the Boston consulting box by considering a
spectrum operating on low, medium and high levels instead of just low and
high. This provides greater accuracy in analysis because of the expanded
matrix. (Ryan 2006)

SWOT analysis is the acronym for strengths, weaknesses,

opportunities and strengths. This constitutes a significant tool in auditing
the strategic position of business firms and the business environment.
Strengths and weaknesses are internal factors because these depend on
internal activities of the firms. Strength could be the specialist marketing
skills of the firm¶s personnel while a weakness could be the inability of the
firm to introduce new products or diversify its product offerings.
Opportunities and threats constitute external factors because these depend
on the relative activities of the business firm. An opportunity could be a
potential distribution channel while a threat could be the entry of a
competitor or competitors. (Pearce & Robinson 2002)

While SWOT analysis is beneficial, there are also limitations.

Pearce and Robinson (2002) explained that SWOT analysis is a guide for
strategic decision-making and not a prescription because of the
intervention of subjectivity in accomplishing this analysis. Nevertheless, by
basing the SWOT analysis on accurate data, the credibility and viability of
results increases.

Recklies (2001) back this by stating that the main weakness of the
SWOT model results from the historic context in which it was developed.
This idea is claimed back by Haberbeg et al. (2001:95) who explained ³it
was conceived in simpler times and does not cope well with some of the
subtler aspects of modern strategic theory´.

Grant (1995) further argued that there are variable factors totally
depend on the SWOT Analysis process, such as, capacity of people to
analyse strengths, weaknesses, opportunities and threats objectively or the
strategic perceptions of the organisation which was influenced by
hierarchical position, language and culture although SWOT can be
ambiguous in its own assumption.

Although conducting a strategic audit benefits the business firm by

providing comprehensive information to support overall strategic planning
and decision-making, not many firms conduct a complete strategic at the
same time or within the same period of audit. It is common for firms to
conduct one component of strategic audit such as a resource audit or SWOT
analysis without doing the other components. This is apparent in the
empirical studies since most studies only highlight the use of one or more
components of strategic audit. This implies a gap in empirical research
since studies only focus on the application of one or more components of
strategic audit and the need to investigate the reason for the limited use of
complete strategic audit by business firms by looking at an actual support
service firm providing the service needs of the oil and gas industry.

Business firms employ strategic audit or its components for a

number of reasons such as improvement in management practice or
enhancement of efficiency in its operations. There are also a number of
ways employed by business firms in conducting strategic audit such as
market research and

Florkowski and Schuler (1994) explained that multinational

corporations employ human resource audit, which is part of resource audit
component of strategic audit, in their international operations to determine
the extent of competitiveness of its human resources in meeting its needs.
Multinational corporations conduct human resource audit by comparing
the skills of its personnel with its competency needs as well as comparing
its human resource capabilities with its competitors. This means that
business firms conduct research on its internal competencies as well as on
the comparative competencies of its human resources with its competitors.

Fahy and Smithee (1999) provided that business firms could benefit
from the application of the resource-based perspectives so that in using the
resource audit, the company looks into its resource base such as capital and
human resources and considers these in relation to its targets and its
competitors. In the case of multinational firms, these distinguish resources
into firm-specific and country-specific resources before assessing these in
terms of the targets and needs of the business as a whole as well as the
different business units operating in different countries. Resource audit is
important for business firms, especially in the case of international
business firms because of the need to keep tabs of available resources in its
different business units to determine the need to boost resource accrual in
business units in need as well as to shift business units from one business
unit to another.

Gilmour (1999) explained that business firms also use strategic audit
in assessing the performance of the individual elements of the supply chain
of firms. Business firms employ strategic audit by assessing the various
elements of their supply chain individually as well as the inter-linkages
between these elements. Firms adopting a technology-based production
process use strategic audit to determine the impact of the technology to
efficiency in the stages of the supply chain by considering changes in
productivity and minimization of delays and mistakes. By observing and
recording changes in its productivity and performance, business firms are
able to determine the extent that the technology integrated into the
production process has contributed to positive performance.

Barnes (2002) discussed the use of value chain analysis, a

component of strategic audit by mobile companies to determine a basis for
future developments. Mobile companies apply value chain by conducting
market research to determine the value important to consumers as well as
looking at the key players and unique technologies emerging in the industry
to determine its competitive advantage and areas of weakness as well as
identify its unique areas of value. This serves as basis for the determination
of areas of innovation that is worth pursuing to continue providing unique
value to consumers.

Dekker (2003) discussed the use of value chain analysis by a retail

firm in the United Kingdom and its suppliers to support optimal
coordination necessary in inter-firm linkage to support activities involving
these firms across the stages of the supply chain. The retail firm and the
firm¶s suppliers conducted the value chain analysis by uniformly applying
activity-based costing as part of supply chain management. This means that
the retail firm and its suppliers are able to determine the aspects or stages
in the supply chain that create value and those that hamper the creation of
value by focusing on cost changes throughout the supply chain and
comparing these with cost-effectiveness targets. The relationship of the
retail firm with its suppliers also improved since both parties are able to
determine poor performing activities and linkages for purposes of
determining changes or improvements needed at both ends to achieve cost-
effectiveness not only by the retail firm but also by the suppliers.

Literature discusses the different effects of the use of strategic audit

on the operations and performance of business firms. All agree on the
benefits of using strategic audit in business firms.

Keyes (2004) documented the role played by strategic audit in

enabling the business firm to understand the resources and resource use of
the company in achieving a competitive position in the virtual market.
Florkowski and Schuler (1994), Fahy and Smithee (1999), and Barnes
(2002) explain the importance of resource audit in supporting a responsive
competitive and marketing strategy of the company. Gilmour (1999) and
Dekker (2003) focused on the benefits of value chain analysis in supporting
cost efficiency and improved overall improvements in the supply chain
processes of business firms. Delahaye (2004) explained that strategic audit,
particularly human resource audit led to the development of strategies that
improved resource competence. Morton (1993) and Bell et al. (1997)
explained that strategic audit also benefits firms by encouraging the culture
of regular assessment and openness to prevent fraud and issues such as
collusion.

These benefits experienced by business firms show that strategic

audit supports business improvement and efficiency. As such, the study
seeks to determine how strategic audit would benefit the support service
company by conducting a strategic audit of the firm.
Conducting a human resource strategy involves a process implying there
are a number of elements that require consideration including the needed
information, the means of collecting the information, and tools in analyzing
and interpreting data. This means a strategic audit should translate into
effective and responsive activities, changes and solutions. However, it can
happen that business firms may have limited information or misinterpret
the implications of data. This could lead to wrong decisions and
unsupported plans. As such, Frost (2003) maintained the importance of
determining the appropriate tools that meet the objectives of the company
in employing strategic audit since most business firms employ a limited
number of tools in applying strategic audit so that these end up with limited
information. This supports the purpose of the current study in employing a
complete strategic audit of a support service company instead of just using
one or more components. This is based on the assumption that one area of
operation is connected to another in the same way that one component of
the strategic audit is connected to the others and conducting a strategic
audit ensures comprehensive understanding of the resources and
competencies of the business firm. Chatterjee, Morton and Mukherji
(2000) also explained the need for business firms to integrate commitment
to their strategic audit policies to ensure easier collation of information to
support informed decision making since many firms have strategic audit
policies but do not have commitment in supporting application through the
development of uniform reporting standards and information sharing
practices.

Strategic audit, through its six components, offers benefits to the

various areas of operation of business firms. The discussion of concepts and
theories of strategic management as well as the experiences of firms in
implementing strategic audit support the beneficial contribution of
strategic audit to business firms. However, some business firms do not
experience the full benefit of strategic audit by focusing only on one
component of the auditing process, using limited tools in the auditing
process, or lacking in commitment to implement a complete strategic audit.
The current study seeks to conduct a complete strategic audit of a support
service company to determine the benefits accruing to the company from a
complete strategic audit as compared to the use of only on or more of the
components.
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‘‘‘‘‘‘‘‘‘‘‘‘‘‘‘‘‘‘‘‘‘‘‘‘‘‘‘‘‘‘‘‘‘‘‘‘‘‘Exploratory research means that hardly anything is

known about the matter at the outset of the project. You then have to begin
with a rather vague impression of what you should study, and it is also
impossible to make a detailed work plan in advance.

The gradual process of accumulating intelligence about the object of study

means also that it will be impossible to start by defining the concepts of
study. You have to start with a preliminary notion of your object of study,
and of its context. During the exploratory research project, these
provisional concepts then gradually ameliorate.

In the absence of tried models and definite concepts you must start the
exploratory study from what you have: one or more objects of study. It is
common that in the beginning of exploratory study you will take a holistic
look at the objects. It means that you start by gathering as much
information about the objects as possible, and postpone the task of cutting
away unnecessary data until you get a better picture about what ?
necessary.

Any object can be looked at from several

different viewpoints, either from the
angles of various established sciences
(like in the diagram on the right) or just
from miscellaneous practical points of
view. As soon as possible, you should
specify the viewpoint of your study and
explain how you "understand" the
object. This does not mean that you have
to to start your work by clarifying the



of your object of study, i.e. what
the object really ? . Instead, you should
try to contemplate and clarify how you
see the object: should it be defined on micro level as a result of the
individuals' instincts, drives and experiences, or maybe on macro level as
an expression of development in society. Various earlier researchers have,
for example, defined and studied the concept of "beauty" alternatively as a
property of objects, as an attribute of perception, as a message, or as a
property of God.

The method of alternating point of view (like in the diagram above) can
even be used as a research method. It is especially suited to an alone-
working explorative researcher. It will deepen his understanding and can
sometimes reveal valuable new aspects to the topic, cf. Hermeneutic
Research.

The progress of a project of study becomes easier as soon as you have

defined your point of view and your î

 After this, you will need to
gather only such empirical knowledge that is related to the problem; that
will enable you to minimize the material you will have to analyse. This does
not mean that you should disregard all the cases that do not fit into your
conjectures.
Sometimes it is difficult to define what is relevant in advance; it only
becomes apparent through analysis. In such a case you can simply start by
studying one single specimen or case which illustrates the interesting
problem, and then you continue studying a gradually growing number of
objects until it becomes apparent that you cannot get deeper into the
problem. An indication of such a   

state of study is that the study
of new items or cases no longer reveals new interesting information. You
will often need to gather quite a lot of material before you can define the
final goal of your project, and a large part of this material will not be used
in the final analysis.

The exploratory analysis of empirical field observations starts by checking

that the field reports are written down intelligibly and without ambiguity.
Often the original reports have been made in hurry; in that case they should
be clarified by the initial observer or interviewer. The same person is often
best adapted to extricate the significant findings from observations because
he/she is able to judge which details are important and which can be left
out. In the same time he/she can start building a preliminary model from
those patterns which seem to recur often, or estimate how well an earlier
known model fits the observations.

As soon as the invariance in the data becomes apparent you can omit all the
material that is no longer relevant and compress the remaining, relevant
information. This compacting is usually done with the help of 

? the
typical and frequent elements, that is by assigning short names, letters or
other symbols to them.
Analysis in exploratory research is essentially   ?
 and


? ?
 Abstraction means that you translate the empirical
observations, measurements etc. into concepts; generalization means
arranging the material so that it disengages from single persons,
occurrences etc. and focuses on those structures that are common to all or
most of the cases.

It will seldom be possible to divide exploratory study into such clear phases
as is common in the case that the object has been studied earlier. According
to Alasuutari (1993 p.22), in qualitative analysis of empirical findings, you
can distinguish two phases but these two overlap:

›
simplification of observations
›
interpretation of results (or "solving the enigma")

In the simplification phase, the material is inspected from the theoretical

point of view of the study project, and only the points relevant from this
angle are noted. Details differing from one individual to another at random
are omitted or pushed aside so that the general lines of the data can be
discerned more easily.

Simplification continues by finding the relationships between separate

observations or cases. Some tools for this work are comparison and
classification. The goal is to find the general rule or model that is valid in all
or most of the observations. This model can be, for example, development
or evolution, causality, or a conscious action to attain an outcome which is
typical in normative research. -- In any case the analysis starts from
separate cases and aspires to create one or a few general models.

"Solving the enigma" does not always mean answering exactly those
questions that were asked at the outset of the project. Sometimes the most
interesting questions are found at the end of the research, when the
researcher has become an expert on the subject. It is often said that "data
teach the researcher".

The purpose of informative exploratory research is to extract a structure

from the source material which in the best case can be formed as a rule that
governs all the observations and is not known earlier (per the definition of
exploratory study). Finding the unknown structure may need some creative
innovation, because even the most modern computerized analysis methods
cannot automatically uncover the structures concealed in data. Usually you
first have to formulate a tentative pattern for the assumed structure in the
observations and then you can ask the computer to estimate how well the
data corresponds to the model, cf. Tools for Analysis.

In normative studies the exploratory approach is not very common, and

most of the examples that were given above are indeed taken from
descriptive studies. The normative aspect usually means that you have in
your mind another case which is comparable to your object of study and
where something is more satisfactory than in your object. You can then use
this other case for describing the existing problems and inconveniences in
your object of study, in other words as a serviceable substitute for a
theoretical model, which means that you can use the (usually more
effective) method of Research on the Basis of Earlier Model which is
explained in the next paragraph.

Nevertheless, sometimes it happens even in normative study that no

suitable models can be found and your only choice is the exploratory
approach. Such is the situation when you know that the present state of the
object of study is unsatisfactory but you do not know exactly what is wrong
in it, neither do you know of any superior usable substitutes. If you, for
example, are doing methods engineering you are perhaps asked simply to
"find something" to improve the productivity of the workshop. Similarly, in
the initial stage of action research all often agree that the present mode of
working is unbearable but all known remedies seem inapplicable, and the
participants therefore start making a descriptive model of the work to be
used as a basis of development.

Also in the normative development of new products a project is sometimes

started with very vague instructions. This happens especially in those fields
of production where manufacturers are expected to design each year a new
model of their product (cars, for example) and the target for the designers
is essentially: Create a new product which is different! This kind of
exploratory research is discussed in the paragraph about the Design Driver.

Exploratory research provides insights into and comprehension of an issue

or situation. It should draw definitive conclusions only with extreme
caution. Exploratory research is a type of research conducted because a
problem has not been clearly defined. Exploratory research helps
determine the best research design, data collection method and selection of
subjects. Given its fundamental nature, exploratory research often
concludes that a perceived problem does not actually exist.
Exploratory research often relies on secondary research such as reviewing
available literature and/or data, or qualitative approaches such as informal
discussions with consumers, employees, management or competitors, and
more formal approaches through in-depth interviews, focus groups,
projective methods, case studies or pilot studies. The Internet allows for
research methods that are more interactive in nature: E.g., RSS feeds
efficiently supply researchers with up-to-date information; major search
engine search results may be sent by email to researchers by services such
as Google Alerts; comprehensive search results are tracked over lengthy
periods of time by services such as Google Trends; and Web sites may be
created to attract worldwide feedback on any subject.

The results of exploratory research are not usually useful for decision-
making by themselves, but they can provide significant insight into a given
situation. Although the results of qualitative research can give some
indication as to the "why", "how" and "when" something occurs, it cannot
tell us "how often" or "how many."

Exploratory research is not typically generalizable to the population at

large.



|

Rajby Industries was selected for the study.

 



Since its inception in 1989, Rajby industries has shown a remarkable
growth, increasing in size from a strength of 350 workers and 50 machines
to about 6600 workers and 2500 machines(till date).

The success story of the company can also be depicted by the fact that in
only into 7th year of its foundation, Rajby Industries was being counted
among the top 10 best exporters of Pakistan.

The company with an initial investment of 0.1 million US dollars in 1989

has played a key role in the economy of Pakistan with current annual
turnover of more than 55 million US dollars.




å



Rajby Industries strives to be the benchmark in manufacturing of garments
for its customers around the world. It is our prime objective to develop
strategic partnership and maintain a superior level of integrity and
interactions with our customers.





|



We aim to offer highest standards of quality products and services with
minimum lead time through scientifically engineered production systems &
techniques, state-of-the-art technology, highly professional employees &
skilled workers, and fashionably innovative product developments.






The textile fabrication department has a production capacity of 1 million
meters of fabric every month. The weaving department consists of modern
production air-jet looms & rapier looms producing different weights of
fabric ranging from 6oz ± 15oz with widths of 60-67inch for rigid finish and
54-59inch for Lycra.

The exceptional denim fabric collection includes,

1. Basic Denim
2. Fancy Denim
1. Slub Denim
2. Cross Hatch Denim
3. Broken Twill Denim
4. etc.
3. Stretch Denim
1. Cotton Stretch,
2. Polyester ,
3. COMFORT STRETCH (new)

Rajby Industries offer fabrics with innovative finishes like Flat finish,
Pigment coated, Rinse finish & Ultra soft finish.

The aggregate capacity of Cutting section is above 41,000 garments

per day. Rajby Industries perform 100% inspection of the fabric rolls
according to 4 point grading system.
Lectra CAD system enables precision pattern making and producing
efficient cut markers resulting in higher fabric utilization percentage.
Rajby Industries have also implemented certain error proofing techniques
which allow us to control different fabric defects including shade variation
and it also assists us to trace panels for re-cutting.

Rajby Industries use the latest Barudan and Tajima machines along with
our in-house designing and punching systems. Rajby Industries specialize
in all kinds of machine embroidery.

Rajby sew department operates with highly skilled sewing operators

and stringent quality control methods. Using various sewing techniques,
modern machines and engineered attachments, we maintain highest level
of productivity.

The overall capacity of Rajby sewing department is around 41,000

garments / day using over 2500 sewing machines through hanger transfer
system - switch track engineering.

With the Implementation of activities such as Work & Time Study, Method
study, Sample Activity, etc., we try to eliminate unnecessary motions to
minimize handling of products by the operators and reduce through-put-
time.

Rajby has one of the most modern garment washing plant in the country. A
well reputed and recognized laundry when it comes to distinguished
washing.

Rajby Industries fully understand that buying the finest quality fabric is not
sufficient but it is with the correct washing process, that the beauty of
garment can be enhanced

The finishing department has experienced almost all types of finishing and
packaging. From hanging and bagging to folding and tubing, this
department can meet the demands of our Customers, many times going the
extra mile.

The knack of fusing the three in crafting apparels to set a lifestyle statement
is IGNITION.
IGNITION explores color combinations, weaves and washes which today
form the most crucial elements of a winning design. The entire look and feel
depends upon these three aspects. Then it is up to our specialized skills that
render cut, design, accessories, trimming, etc to give the full ad final
demeanor of the outfit.

There at Rajby, Rajby Industries diagram the whole attire, draw the blue
print and visualize the final outcome of the design. Rajby Industries
designers keep there fingers on the pulse constantly creating new ideas
using a melting pot of the latest design concepts, for incoming trends, and
historical, cultural and futuristic influences.






!
"##




Rajby Industries was honored the trophy by PRGMEA (Pakistan
Readymade Garment Manufacturers & Exporters Association) for the µTOP
10 BEST EXPORTERS OF PAKISTAN¶ for 6 consecutive years.

Rajby Industries reached the next level of accomplishment when PRGMEA

honored it with the µBest Garment Exporter of the Year¶ award for 5
consecutive years (2002 ± 2006).


$%&'&$%





Rajby Industries was awarded certificate of SA 8000 by SAI. The audit was
conducted by SGS.

Rajby Industries is awarded µA-Level¶ of WRAP certification. The audit was

conducted by SGS.

Rajby Industries has the honor of being the first ever Garment
Manufacturer and Exporter in Pakistan to be awarded GOTS / EKO
Sustainable Textile Certification. The audit was conducted by CONTROL
UNION.

Rajby Industries is not only certified by GOTS but we have certification of

Organic Exchange ± 100 as well. The audit was conducted by CONTROL
UNION
The Garment Rajby Industries produce is certified from OEKO-TEX 100

Rajby Industries is ISO 9001:2008 Quality Management System certified

company. The audit was conducted by SGS.
‘

‘‘! ‘
|
|
||

‘‘‘‘‘‘‘‘‘‘‘‘‘‘‘‘‘‘‘‘‘‘‘‘‘‘‘ Primary
data was collected by interviewing the top most
Management of the organization.



|
||

‘‘‘‘‘‘‘‘‘‘‘‘‘‘‘‘‘‘‘‘‘‘‘‘‘‘‘‘‘‘‘‘‘Secondary data was gathered from Internet, journals and

books.

Textile industry in Pakistan needs to carefully assess where it is going and

where it wishes to go. We have to move towards increasing export earnings
from downstreams products - value-added items. Setting up of a textile
ministry, improving quality of our products and moving towards foreign
collaboration in textile industry to acquire knowhow and access to markets
and better quota administration can go a long way towards achieving our
long term objective of having fair share of the world trade.

Pakistan is one of the world's largest cotton producing nations. The

industry has 40 years of history. The industry is the major foreign exchange
earner for the country. The industry benefits from Government's emphasis
on an export led growth strategy. The main raw materials for the
downstream sector are domestic cotton yarn and fabrics. There is
abundance of land and skilled labour which has experience. In view of these
factors the Pakistan textile industry has enormous potential in the form of
raw material, skilled labour and government support. The combination of
these elements provides the basis for development of its various segments.

Segments: Various segments of the textile industry are:

* Upperstream: Raw cotton and spinning sectors

* Midstream: Weaving and finishing-dyeing (processing) sectors.

* Downstream: Made-ups, Readymade garments and knitwear sectors.

Main features of the Textile Sector:

The domestic market although large and growing at 5 per cent per annum
consumes only 25 per cent of the yarn produced which translates to
downstream production. 50 per cent of the yarn is exported, the other 25
percent is converted to fabrics etc. for exports. Pakistan produces around 8
to 10 per cent of the world's cotton but its share in total world trade for
textile and clothing is around 2 per cent in value terms. There is a
tremendous scope for improving its shares of world trade. I will come to
this later.

Pakistan currently produces around 8.5 per cent of the world's total yarn
production and accounts for 30 per cent of total world trade in yarn. Both
these figures relate to quantity. The present installed capacities are 7
million spindles and 27000 looms of which 15000 are shuttleless looms,
Additionally over 250,000 looms are in the unorganised non-mill sector.
The exact capacity and statistics of units involved in Bleaching, Dyeing,
Printing as well as other ancillary sectors are not available. There are 700
knitwear units and 4000 garment units with 200,000 sewing machines.
This industry provides employment to 42 per cent of the large scale
manufacturing sector.
A large number of the European community use bed-linen supplied by
Pakistan. In 2005, the South Asian economy was the largest supplier of
bed-linen to the union (Aziz, 2006). The European Union (EU) is Pakistan's
largest trading partner, with textiles and clothing (T&C) accounting for
almost two thirds of its sales to the union (EC's Delegation to Pakistan,
2004). As in many close relationships, however, the EU also is the cause of
a lot of worry to its partner. One example was the imposition of a punitive
import duty on Pakistani bed-linen in 2004, accusing exporters of dumping
bed-linen below cost prices at the European market. It is believed by some
that this move was actually in reaction to Pakistan's upgrading its
commercial airfleet with US-American Boeings rather than with European
Airbuses.

This paper takes a closer look is taken at the anatomy of and prospects for
trade relations between Pakistan and the EU, focusing on the Textile and
Clothing (T&C) sector.1 Features of both partners that have the potential to
promote or constrain T&C exports from Pakistan to the EU are sketched.
The focus is on EU's trade-related policies policy regarding Pakistan and
the structure of Pakistan's T&C industry. An overview over the resulting
exports to the common market is provided and possible scenarios for the
future of the contested relationship and their likely consequences in terms
of industrial and overall development are outlined. Finally, measures that
support a healthy trade partnership between Pakistan and the EU in T&C
are described.

Structural Features of Textile and Clothing (T&C) Trade:

Relationships depend on the partners' characters. Applied to T&C trade
between Pakistan and the EU, these key attributes are the EU's trade policy
and the structure and competitiveness of Pakistan's T&C industry.

An influential step to bring Pakistan closer to the EU was the decision to

provide duty-free access for Pakistani clothing products to its market under
the Generalised System of Preferences (GSP) in 2001. The stated reason for
this measure was to reward Pakistan's efforts to combat drug production
and trafficking (EC's Delegation to Pakistan, 2001). However, in 2004, the
European Commission (EC) announced the simplification of its GSP
scheme, waving goodbye to the special scheme to combat drug production
and trafficking. It expired on 31 December 2005 (EC, 2004). Import duties
of 12 percent were to be paid since January 2005. However, Pakistan's
Ministry of Commerce courted heavily and as a result Pakistan receives 9.6
percent GSP rates of import duty for a number of product categories,
including T&C sales, since January 2006. Yet, the reduction is not
substantial and the situation of the Pakistani industry compares
unfavourably with other countries in the region. Bangladesh, for example,
obtains zero duty access to the European market due to its least developed
country status. Sri Lanka equally does not pay import duties due to specific
incentives for countries having ratified certain conventions on sustainable
development and good governance.

The EU's development policy is intended to flank its trade policy vis-à-vis
developing countries. Support for trade-development linkages is one of the
six core areas of the EU's development policy. This involves improved
market access, removal of competitive constraints, enhanced cooperation in
trade-linked areas, technology transfers, private sector development
(European Council, no date). The EU intends to support reforms in
developing countries' trade policies of that also serve gender equality (EC,
2001). This is an important point for the T&C industry which is Pakistan's
largest formal employer of women in an environment with strong cultural
constraints to women's participation in the paid labour market. As a
practical consequence, the EU and Pakistan signed an agreement in
February 2004 for trade-related technical assistance for Pakistan (EU,
2004). It involves measures to enhance the competitiveness of key sectors
of the Pakistani economy, including T&C.

While the GSP inclusion drew Pakistan closer to the EU, haggling over the
alleged dumping of bed-linen on the community's market has greatly
disturbed the trade relationship. The EU imposed an anti-dumping duty of
13.1 percent on bed-linen exports from Pakistan effective from March 2004,
arguing that cheap imports from Pakistan were damaging the European
textile industry.1 While review investigations about the basis of this claim
are ongoing since January 2005, to the detriment of Pakistan's industry, no
conclusions have been drawn so far.

Apart from these bilateral issues, the global trade environment for T&C
goods has a considerable impact on the trade relation between Pakistan and
the EU. Globally, competition in T&C trade made a quantum leap in 2005.
In January 2005, the Agreement on Textiles and Clothing (ATC) expired.
An agreement under the World Trade Organisation (WTO), it was aimed at
gradually phasing out the quota system that had governed trade in T&C for
more than 30 years. Since January 2005, buyers and sellers of T&C
products no longer rely on quotas in the main markets. Established trade
relations can be abandoned for newcomers who offer the same or better
quality at equal or lower price. This means that both price and quality
competition amongst T&C producers increases. China's entry, especially,
into the WTO in 2001 signalled that from then on a great number of T&C
manufacturers across Asia, Latin America, and Africa would have to
compete with one huge, cost-efficient producer.

The rise in Chinese T&Cand other imports was anticipated in China's

accession protocol to the WTO. The Textile Specific Safeguard Clause
stipulated that other WTO members could implement protective measures
in case of a sudden surge in Chinese imports crossing 7.5 percent annual
import growth (WTO, 2001). That is what the EU resorted to after Chinese
imports of nine product categories, including T-shirts, pullovers, blouses,
stockings and socks, rose between 51 percent-534 percent between January
and May 2005 (EC's delegation to China, 2005).
The agreement the EU signed with China in June and amended in
September 2005 constrains the rise in Chinese imports in sensitive product
categories until the end of 2007 and provides breathing space to other
trading partners like Pakistan (EC, 2005).

An issue so far largely independent of official policies is the increased

demand for social and environmental compliance in T&C production. Its
labour-intensiveness of and its toll on the environment in terms of heavy
use of water and energy as well as hazardous substances, such as dyes and
bleaches, has catalysed consumer demand for ³cleaner clothes´2 in terms of
the social and environmental conditions of their production (Banuri, 1998).
It is passed on to retailers and buyers who increasingly demand social and
environmental certification of T&C producers according to international or
their own standards. Both the Government of Pakistan and industry have
mostly rejected these demands as a new form of protectionism that is a
burden for the industry's competitiveness. Research has shown, though,
that it cannot only be expedient, but also profitable for exporters to comply
with the increasingly complex demands of international clients (Khan and
Haider, 2004).

Turning to key features of the other trading partner, Pakistan's T&C

industry is the country's most important industrial sector. It caters for 9
percent of gross domestic product (GDP), about 60 percent of the country's
exports and employs 35 percent of industrial sector workers (Ministry of
Finance, 2005b), about 30 percent of whom are female (Siegmann,
forthcoming).

Broadly, the Pakistani T&C sector has two very dissimilar faces.
Historically, the focus of Pakistan's T&C sector has been on the early stages
of processing, i.e. ginning, spinning, and weaving, due to the domestic
availability of cotton. One in eight bales of the global cotton production is
harvested in Pakistan. It is becoming the third largest cotton consumer
world-wide (ICAC, 2006). For many years, Pakistani cotton and yarn
exporters remained competitive due to the availability of subsidised cotton
prices and very low labour costs for the hand-picked cotton. Their economic
importance is paralleled by the political influence they exert. Pakistan's
share of world trade in cotton yarn and cloth is about 30 and 8 percent,
respectively (Ministry of Finance, 2004). However, during the past ten
years the production and export of higher value-added items such as made-
ups and knitwear has picked up. In fiscal year (FY) 2004-5, bed-linen and
hosiery alone accounted for 22 percent and 21 percent of Pakistan's exports
to EU, respectively (EPB, 2006). During the past years, a major effort has
been undertaken to modernise the textile sub-sector in particular. An
impressive amount of US$5 billion has been invested in the T&C industry
from 1999 to 2004. Almost half of the investment went into spinning, a
fourth in weaving and a meagre 8 percent in made-up textiles (Ministry of
Finance, 2005b).

The woven and knit garment sectors represent the darker side of the
industry. Whereas the textile sector is characterised by large units and high
capital-intensity, clothing production takes places in smaller
establishments, roughly 80 percent of them in the informal sector (USITC,
2004). Labour-intensity and the employment of women workers are high,
standards regarding working conditions poorer than in the textile sector. Of
the investment volume quoted above, it obtained less than 5 percent of the
total (Ministry of Finance, 2005), i.e. about one-third of the investment
targeted in the ³Textile Vision 2005´ (Ministry of Finance, 2003).

The ³Textile Vision 2005´, a strategy paper for the Pakistani T&C sector,
developed as early as in 2000 by the Small & Medium Enterprise
Development Authority (SMEDA), identified amongst other things the
following weaknesses of the sector (SMEDA, 2000): a narrow export
product base, with a focus on low value added yarns and fabrics rather than
made-ups and garments, and a lack of focus on a trained workforce in high-
value added industries, such as clothing. Increased attention for garments
and made-up articles as well as improved quality throughout the textile
chain was advocated as a response to these challenges. This implied
technology upgrading at all stages of textile processing, human resources
development, and improved marketing. These sound ideas have not been
implemented so far. On the contrary, a lack of qualified workforce becomes
apparent in both sub-sectors.

As can be gauged from Figure 1, during the past ten years, Pakistani made-
up and knitwear exports play an increasingly important role in T&C sales to
the EU, whereas less processed cotton products, such as yarn and fabrics,
fetch less and a declining share of export income from the EU. As indicated
above, bed-linen is the most important component of made-up exports.

Pakistan's exports of bed-linen to the world market came a close second to

China's (USITC, 2004). The EU's decision to grant Pakistani T&C products
duty free access to its market under the GSP in 2001 triggered this surge in
exports as visible in the steep increase in made-ups sales after 2001. The
imposition of 12 percent import duties on Pakistani bed-linen together with
the anti-dumping imposed in March 2004 led to reduction in its sales'
growth, though, and catalysed the increase in China and Turkey's market
share in the EU (Aziz, 2006).

The rise in international T&C trade after the expiry of the quota system in
January 2005 has not provided a push to Pakistani exports to the EU.
Official statistics show that, overall, exports have increased slightly after the
quota expiry. T&C exports July to March 2004/5 were 2.1 percent higher
than in the previous FY (Ministry of Finance, 2005b). Made up textiles
sustained their strong growth performance despite the significantly higher
costs the industry incurred in terms of anti-dumping duties in addition to
the lapse of the previous GSP scheme. In the second half of the year,
however, both woven and knit apparel sales display a downward trend. This
trend is mirrored in a study recently conducted by the Sustainable
Development Policy Institute (SDPI). It casts doubts on the sustainability of
export growth. A majority of cotton, yarn, fabric, made-up, and woven as
well as knit apparel exporters faced lower product prices after the quota
expiry. Most companies exporting fabric and garments realised reduced
profits.3 Several respondents explained that increasing sales are a strategy
to deal with these reduced margins. The majority of Pakistani fabric,
knitwear, and made-up textiles exports went to the EU both in FY2003/4
and 2004/5. The question thus remains for how long companies can
survive these harsher business terms. More than one-third of the surveyed
exporters (38.5 percent), especially those of garments and made-ups, are
aware of manufacturers who have gone out of business.

'Carrots' from the EU in the form of trade preferences granted, catalysed

export growth, which was slowed down by the 'stick' of anti-dumping
duties. Given the strengthened position of competitors in the post-quota
era combined with structural weaknesses in the Pakistani T&C sector, i.e.
mainly the lack of investment in high value-added sub-sectors and in skill
development, it is questionable how sustainable this development is.

Depending on the industry, the government, and buyers' strategies,

Pakistan's T&C industry will either specialise in yarn and cloth production
and lose significant market shares in garments due to lack of
competitiveness or it will climb up the value-added chain and further shift
its export composition towards made-ups and, especially, garments
(Siegmann, forthcoming).

What would be the consequences of these scenarios? If Pakistan puts up

with its role as a major yarn and cloth producer, and accepts that others do
better and cheaper in garments manufacturing, this would imply high costs
in terms of industrial and social development of the country. The garment
sub-sector fetches higher value-added as compared to the textiles sub-
sector. As clothing items have almost become 'perishable' goods in terms of
their demand structure (Altaf, 2006), it also is the part of the global T&C
market that grows more rapidly and thus provides prospects for expansion.
As mentioned above, it also is labour- and female-intensive, and, thus,
guarantees trickle down effects to a larger share of the population as well as
a contribution to women's economic empowerment. A future trade scenario
that accepts a shrinking role of this aspect of the trade relationship with the
EU weakens the link between trade and Pakistan's industrial and overall
development--a highly undesirable future industrial pathway.

Alternatively, a setting that ensures that Pakistan does not lose its market
shares in garment exports to the EU strengthens the trade-development
bond. However, it requires a joint effort by the Government of Pakistan, the
industry and its trading partner EU. Pakistan is far from its main market,
which has increasingly become a factor determining the geography of global
T&C production. The chunk of global clothing demand that is less
dependant on proximity, namely high end clothing items, needs a talented
workforce (Altaf, 2006). The main challenge, therefore, is to promote skill
development at all levels of the industry. In the garment sector, this not
only involves managerial and technical staff, but operators as well.

For Pakistan, a paradigm shift is needed. So far, policies have implicitly and
explicitly supported the marketing of Pakistan as a cheap rather than a
skilled trade partner. Legislation has provided disincentives to
unionisation, made the implementation of minimum wages flexible and
supported labour market institutions in cotton cultivation that accepted
cotton contamination by keeping cotton pickers wages low. Overall
spending on schooling has been pathetically low in Pakistan. In the 2005/6
budget, this area accounted for a meagre 1.5 percent of public expenditures
(Ministry of Finance, 2005a). The result is that less than a third of women
and girls and not even half of all males have access to formal education
(Federal Bureau of Statistics, 2004). Although the Government of Pakistan
has set up training institutes to support its industrial engine, with few
exceptions, they are dysfunctional due to lack of skilled faculty and
adequate curricula. For an important sub-sector such as knit garment
production, no training institute exists (Khan, 2005).

Increased quality demands in an environment of harsher competition for

market shares in the EU have to be translated into a more skilled and
motivated workforce. As stated above, if the government faces these
challenges it would not only increase the prospects for sustained exports
from the garments sub-sector but also crucially contribute to Pakistan's
overall industrial and human development. Apart from the direct provision
of and support for skill development in technical, managerial skills,
marketing and design, improvement of working conditions is therefore
necessary. The government and employers need to implement existing
labour laws, extend them to contract and informal sector workers, and to
workers in export-processing zones, as well as sanction their violation.

Apart from contributing to skill development, Pakistan should also join

hands with the its industry in implementing measures that help mitigating
structural change in the T&C sector. Job losses in unskilled categories are
likely in either scenario. In particular, targeted social safety nets for
workers who are dismissed should be set up. They may include counselling,
skill upgrading, entrepreneurship programmes, access to loans etc. A
special effort should be made to reach vulnerable female workers due to the
significantly lower chances for alternative employment they face.

While the Government of Pakistan, in particular, needs to do its homework,

the EU can flank its efforts to sustain a healthy trade relationship for
mutual benefit. The inclusion of Pakistan in the new GSP is a helpful step
for guaranteeing Pakistan's access to the common market. However, more
investment in the relationship is possible. The anti-dumping duty on bed-
sheets is a major obstacle for Pakistan's most successful export item. It is
time to withdraw the duty since, in two years, the claims of dumping could
not be substantiated.

Support for skill development can be part of development assistance for

Pakistan, in terms of financial support but also through training of
faculty, and help in curriculum development. As the implementation of
labour standards will support investment in the skills of the workforce as
well as labour productivity, the EU's assistance will be useful in this area
 as well. The EU can support the transition toward social and
environmental compliance, a short-term investment, that brings long
term benefit for industrial and overall; development. At the international
level, the stance the EU, as one of its most influential members, takes in
the WTO regarding a social clause, linking trade flows with minimum
labour standards is important. Globally, sanctioning the ILO core
conventions at the level of the WTO provides a more level playing field
for competition, supports skill-based industrial development, and
benefits millions of workers.

Strategic management is a combination of three main processes which are

as follows:

›
Performing a situation analysis, self-evaluation and competitor

analysis: both internal and external; both micro-environmental and
macro-environmental.
›
Concurrent with this assessment, objectives are set. These objectives
should be parallel to a timeline; some are in the short-term and
others on the long-term. This involves crafting vision statements
(long term view of a possible future), mission statements (the role
that the organization gives itself in society), overall corporate
objectives (both financial and strategic), strategic business unit
objectives (both financial and strategic), and tactical objectives.
›
These objectives should, in the light of the situation analysis, suggest
a strategic plan. The plan provides the details of how to achieve these
objectives.

This three-step strategy formulation process is sometimes referred to as

determining where you are now, determining where you want to go, and
then determining how to get there. These three questions are the essence of
strategic planning. SWOT Analysis: I/O Economics for the external factors
and RBV for the internal factors.

›
Allocation and management of sufficient resources (financial,

personnel, time, technology support)
›
Establishing a chain of command or some alternative structure (such
as cross functional teams)
›
Assigning responsibility of specific tasks or processes to specific
individuals or groups
 ›
It also involves managing the process. This includes monitoring
results, comparing to benchmarks and best practices, evaluating the
efficacy and efficiency of the process, controlling for variances, and
making adjustments to the process as necessary.
›
When implementing specific programs, this involves acquiring the
requisite resources, developing the process, training, process testing,
documentation, and integration with (and/or conversion from) legacy
processes.

›
Measuring the effectiveness of the organizational strategy. It's

extremely important to conduct a SWOT analysis to figure out the
strengths, weaknesses, opportunities and threats (both internal and
external) of the entity in question. This may require to take certain
precautionary measures or even to change the entire strategy.

General approaches:

In general terms, there are two main approaches, which are opposite but
complement each other in some ways, to strategic management:

›
The Industrial Organizational Approach

÷
based on economic theory ² deals with issues like competitive
rivalry, resource allocation, economies of scale
÷
assumptions ² rationality, self discipline behaviour, profit
maximization
÷

›
The Sociological Approach
÷
deals primarily with human interactions
÷
assumptions ² bounded rationality, satisfying behaviour, profit
sub-optimality. An example of a company that currently
operates this way is Google.

Strategic management techniques can be viewed as bottom-up, top-down,

or collaborative processes. In the bottom-up approach, employees submit
proposals to their managers who, in turn, funnel the best ideas further up
the organization. This is often accomplished by a capital budgeting process.
Proposals are assessed using financial criteria such as return on investment
or cost-benefit analysis. Cost underestimation and benefit overestimation
are major sources of error. The proposals that are approved form the
substance of a new strategy, all of which is done without a grand strategic
design or a strategic architect. The top-down approach is the most common
by far. In it, the CEO, possibly with the assistance of a strategic planning
team, decides on the overall direction the company should take. Some
organizations are starting to experiment with collaborative strategic
planning techniques that recognize the emergent nature of strategic
decisions.

The strategy hierarchy:

In most (large) corporations there are several levels of strategy. Strategic

management is the highest in the sense that it is the broadest, applying to
all parts of the firm. It gives direction to corporate values, corporate
culture, corporate goals, and corporate missions. Under this broad
corporate strategy there are often functional or business unit strategies.

Functional strategies include marketing strategies, new product

development strategies, human resource strategies, financial strategies,
legal strategies, supply-chain strategies, and information technology
management strategies. The emphasis is on short and medium term plans
and is limited to the domain of each department¶s functional responsibility.
Each functional department attempts to do its part in meeting overall
corporate objectives, and hence to some extent their strategies are derived
from broader corporate strategies.

Many companies feel that a functional organizational structure is not an

efficient way to organize activities so they have reengineered according to
processes or strategic business units (called SBUs). A strategic business
unit is a semi-autonomous unit within an organization. It is usually
responsible for its own budgeting, new product decisions, hiring decisions,
and price setting. An SBU is treated as an internal profit centre by
corporate headquarters. Each SBU is responsible for developing its
business strategies, strategies that must be in tune with broader corporate
strategies.

The ³lowest´ level of strategy is operational strategy. It is very narrow in

focus and deals with day-to-day operational activities such as scheduling
criteria. It must operate within a budget but is not at liberty to adjust or
create that budget. Operational level strategy was encouraged by Peter
Drucker in his theory of management by objectives (MBO). Operational
level strategies are informed by business level strategies which, in turn, are
informed by corporate level strategies. Business strategy, which refers to
the aggregated operational strategies of single business firm or that of an
SBU in a diversified corporation refers to the way in which a firm competes
in its chosen arenas.

Corporate strategy, then, refers to the overarching strategy of the

diversified firm. Such corporate strategy answers the questions of "in which
businesses should we compete?" and "how does being in one business add
to the competitive advantage of another portfolio firm, as well as the
competitive advantage of the corporation as a whole?"

Since the turn of the millennium, there has been a tendency in some firms
to revert to a simpler strategic structure. This is being driven by
information technology. It is felt that knowledge management systems
should be used to share information and create common goals. Strategic
divisions are thought to hamper this process. Most recently, this notion of
strategy has been captured under the rubric of dynamic strategy,
popularized by the strategic management textbook authored by Carpenter
and Sanders [1]. This work builds on that of Brown and Eisenhart as well as
Christensen and portrays firm strategy, both business and corporate, as
necessarily embracing ongoing strategic change, and the seamless
integration of strategy formulation and implementation. Such change and
implementation are usually built into the strategy through the staging and
pacing facets.

Historical development of strategic management:

Birth of strategic management:

Strategic management as a discipline originated in the 1950s and 60s.

Although there were numerous early contributors to the literature, the most
influential pioneers were Alfred D. Chandler, Jr., Philip Selznick, Igor
Ansoff, and Peter Drucker.

Alfred Chandler recognized the importance of coordinating the various

aspects of management under one all-encompassing strategy. Prior to this
time the various functions of management were separate with little overall
coordination or strategy. Interactions between functions or between
departments were typically handled by a boundary position, that is, there
were one or two managers that relayed information back and forth between
two departments. Chandler also stressed the importance of taking a long
term perspective when looking to the future. In his 1962 groundbreaking
work  
 
  
, Chandler showed that a long-term
coordinated strategy was necessary to give a company structure, direction,
and focus. He says it concisely, ³structure follows strategy.´[3]

In 1957, Philip Selznick introduced the idea of matching the organization's

internal factors with external environmental circumstances.[4] This core
idea was developed into what we now call SWOT analysis by Learned,
Andrews, and others at the Harvard Business School General Management
Group. Strengths and weaknesses of the firm are assessed in light of the
opportunities and threats from the business environment.

Igor Ansoff built on Chandler's work by adding a range of strategic concepts

and inventing a whole new vocabulary. He developed a strategy grid that
compared market penetration strategies, product development strategies,
market development strategies and horizontal and vertical integration and
diversification strategies. He felt that management could use these
strategies to systematically prepare for future opportunities and challenges.
In his 1965 classic º
î

  
, he developed the gap analysis still
used today in which we must understand the gap between where we are
currently and where we would like to be, then develop what he called ³gap
reducing actions´.[5]

Peter Drucker was a prolific strategy theorist, author of dozens of

management books, with a career spanning five decades. His contributions
to strategic management were many but two are most important. Firstly, he
stressed the importance of objectives. An organization without clear
objectives is like a ship without a rudder. As early as 1954 he was
developing a theory of management based on objectives.[6] This evolved
into his theory of management by objectives (MBO). According to Drucker,
the procedure of setting objectives and monitoring your progress towards
them should permeate the entire organization, top to bottom. His other
seminal contribution was in predicting the importance of what today we
would call intellectual capital. He predicted the rise of what he called the
³knowledge worker´ and explained the consequences of this for
management. He said that knowledge work is non-hierarchical. Work
would be carried out in teams with the person most knowledgeable in the
task at hand being the temporary leader.

In 1985, Ellen-Earle Chaffee summarized what she thought were the main
elements of strategic management theory by the 1970s:[7]
 ›
Strategic management involves adapting the organization to its
business environment.
›
Strategic management is fluid and complex. Change creates novel
combinations of circumstances requiring unstructured non-repetitive
responses.
›
Strategic management affects the entire organization by providing
direction.
›
Strategic management involves both strategy formation (she called it
content) and also strategy implementation (she called it process).
›
Strategic management is partially planned and partially unplanned.
›
Strategic management is done at several levels: overall corporate
strategy, and individual business strategies.
›
Strategic management involves both conceptual and analytical
thought processes.

Growth and portfolio theory:

In the 1970s much of strategic management dealt with size, growth, and
portfolio theory. The PIMS study was a long term study, started in the
1960s and lasted for 19 years, that attempted to understand the Profit
Impact of Marketing Strategies (PIMS), particularly the effect of market
share. Started at General Electric, moved to Harvard in the early 1970s, and
then moved to the Strategic Planning Institute in the late 1970s, it now
contains decades of information on the relationship between profitability
and strategy. Their initial conclusion was unambiguous: The greater a
company's market share, the greater will be their rate of profit. The high
market share provides volume and economies of scale. It also provides
experience and learning curve advantages. The combined effect is increased
profits.[8] The studies conclusions continue to be drawn on by academics
and companies today: "PIMS provides compelling quantitative evidence as
to which business strategies work and don't work" - Tom Peters.

The benefits of high market share naturally lead to an interest in growth

strategies. The relative advantages of horizontal integration, vertical
integration, diversification, franchises, mergers and acquisitions, joint
ventures, and organic growth were discussed. The most appropriate market
dominance strategies were assessed given the competitive and regulatory
environment.

There was also research that indicated that a low market share strategy
could also be very profitable. Schumacher (1973),[9] Woo and Cooper
(1982),[10] Levenson (1984),[11] and later Traverso (2002)[12] showed how
smaller niche players obtained very high returns.

By the early 1980s the paradoxical conclusion was that high market share
and low market share companies were often very profitable but most of the
companies in between were not. This was sometimes called the ³hole in the
middle´ problem. This anomaly would be explained by Michael Porter in
the 1980s.

The management of diversified organizations required new techniques and

new ways of thinking. The first CEO to address the problem of a multi-
divisional company was Alfred Sloan at General Motors. GM was
decentralized into semi-autonomous ³strategic business units´ (SBU's), but
with centralized support functions.

One of the most valuable concepts in the strategic management of multi-

divisional companies was portfolio theory. In the previous decade Harry
Markowitz and other financial theorists developed the theory of portfolio
analysis. It was concluded that a broad portfolio of financial assets could
reduce specific risk. In the 1970s marketers extended the theory to product
portfolio decisions and managerial strategists extended it to operating
division portfolios. Each of a company¶s operating divisions were seen as an
element in the corporate portfolio. Each operating division (also called
strategic business units) was treated as a semi-independent profit center
with its own revenues, costs, objectives, and strategies. Several techniques
were developed to analyze the relationships between elements in a
portfolio. B.C.G. Analysis, for example, was developed by the Boston
Consulting Group in the early 1970s. This was the theory that gave us the
wonderful image of a CEO sitting on a stool milking a cash cow. Shortly
after that the G.E. multi factoral model was developed by General Electric.
Companies continued to diversify until the 1980s when it was realized that
in many cases a portfolio of operating divisions was worth more as separate
completely independent companies.

The marketing revolution:

The 1970s also saw the rise of the marketing oriented firm. From the
beginnings of capitalism it was assumed that the key requirement of
business success was a product of high technical quality. If you produced a
product that worked well and was durable, it was assumed you would have
no difficulty selling them at a profit. This was called the production
orientation and it was generally true that good products could be sold
without effort, encapsulated in the saying "Build a better mousetrap and
the world will beat a path to your door." This was largely due to the growing
numbers of affluent and middle class people that capitalism had created.
But after the untapped demand caused by the second world war was
saturated in the 1950s it became obvious that products were not selling as
easily as they had been. The answer was to concentrate on selling. The
1950s and 1960s is known as the sales era and the guiding philosophy of
business of the time is today called the sales orientation. In the early 1970s
Theodore Levitt and others at Harvard argued that the sales orientation
had things backward. They claimed that instead of producing products then
trying to sell them to the customer, businesses should start with the
customer, find out what they wanted, and then produce it for them. The
customer became the driving force behind all strategic business decisions.
This marketing orientation, in the decades since its introduction, has been
reformulated and repackaged under numerous names including customer
orientation, marketing philosophy, customer intimacy, customer focus,
customer driven, and market focused.

The Japanese challenge:

By the late 70s people had started to notice how successful Japanese
industry had become. In industry after industry, including steel, watches,
ship building, cameras, autos, and electronics, the Japanese were
surpassing American and European companies. Westerners wanted to
know why. Numerous theories purported to explain the Japanese success
including:

›
Higher employee morale, dedication, and loyalty;

›
Lower cost structure, including wages;
›
Effective government industrial policy;
›
Modernization after WWII leading to high capital intensity and
productivity;
›
Economies of scale associated with increased exporting;
›
Relatively low value of the Yen leading to low interest rates and
capital costs, low dividend expectations, and inexpensive exports;
›
Superior quality control techniques such as Total Quality
Management and other systems introduced by W. Edwards Deming
in the 1950s and 60s.[13]
Although there was some truth to all these potential explanations, there
was clearly something missing. In fact by 1980 the Japanese cost structure
was higher than the American. And post WWII reconstruction was nearly
40 years in the past. The first management theorist to suggest an
explanation was Richard Pascale.

In 1981 Richard Pascale and Anthony Athos in 
  
 î





 claimed that the main reason for Japanese success was their
superior management techniques.[14] They divided management into 7
aspects (which are also known as McKinsey 7S Framework): Strategy,
Structure, Systems, Skills, Staff, Style, and Supraordinate goals (which we
would now call shared values). The first three of the 7 S's were called hard
factors and this is where American companies excelled. The remaining four
factors (skills, staff, style, and shared values) were called soft factors and
were not well understood by American businesses of the time (for details on
the role of soft and hard factors see Wickens P.D. 1995.) Americans did not
yet place great value on corporate culture, shared values and beliefs, and
social cohesion in the workplace. In Japan the task of management was
seen as managing the whole complex of human needs, economic, social,
psychological, and spiritual. In America work was seen as something that
was separate from the rest of one's life. It was quite common for Americans
to exhibit a very different personality at work compared to the rest of their
lives. Pascale also highlighted the difference between decision making
styles; hierarchical in America, and consensus in Japan. He also claimed
that American business lacked long term vision, preferring instead to apply
management fads and theories in a piecemeal fashion.

One year later 
 ?


 
  
?  was released in America by
Kenichi Ohmae, the head of McKinsey & Co.'s Tokyo office.[15] (It was
originally published in Japan in 1975.) He claimed that strategy in America
was too analytical. Strategy should be a creative art: It is a frame of mind
that requires intuition and intellectual flexibility. He claimed that
Americans constrained their strategic options by thinking in terms of
analytical techniques, rote formula, and step-by-step processes. He
compared the culture of Japan in which vagueness, ambiguity, and
tentative decisions were acceptable, to American culture that valued fast
decisions.

Also in 1982 Tom Peters and Robert Waterman released a study that would
respond to the Japanese challenge head on.[16] Peters and Waterman, who
had several years earlier collaborated with Pascale and Athos at McKinsey
& Co. asked ³What makes an excellent company?´. They looked at 62
companies that they thought were fairly successful. Each was subject to six
performance criteria. To be classified as an excellent company, it had to be
above the 50th percentile in 4 of the 6 performance metrics for 20
consecutive years. Forty-three companies passed the test. They then
studied these successful companies and interviewed key executives. They
concluded in  
  
 


that there were 8 keys to excellence
that were shared by all 43 firms. They are:

›
A bias for action ² Do it. Try it. Don¶t waste time studying it with
multiple reports and committees.
›
Customer focus ² Get close to the customer. Know your customer.
›
Entrepreneurship ² Even big companies act and think small by
giving people the authority to take initiatives.
›
Productivity through people ² Treat your people with respect and
they will reward you with productivity.
›
Value-oriented CEOs ² The CEO should actively propagate corporate
values throughout the organization.
›
Stick to the knitting ² Do what you know well.
›
Keep things simple and lean ² Complexity encourages waste and
confusion.
›
Simultaneously centralized and decentralized ² Have tight
centralized control while also allowing maximum individual
autonomy.

The basic blueprint on how to compete against the Japanese had been
drawn. But as J.E. Rehfeld (1994) explains it is not a straight forward task
due to differences in culture.[17] A certain type of alchemy was required to
transform knowledge from various cultures into a management style that
allows a specific company to compete in a globally diverse world. He says,
for example, that Japanese style kaizen (continuous improvement)
techniques, although suitable for people socialized in Japanese culture,
have not been successful when implemented in the U.S. unless they are
modified significantly.

Gaining competitive advantage:

The Japanese challenge shook the confidence of the western business elite,
but detailed comparisons of the two management styles and examinations
of successful businesses convinced westerners that they could overcome the
challenge. The 1980s and early 1990s saw a plethora of theories explaining
exactly how this could be done. They cannot all be detailed here, but some
of the more important strategic advances of the decade are explained
below.

Gary Hamel and C. K. Prahalad declared that strategy needs to be more

active and interactive; less ³arm-chair planning´ was needed. They
introduced terms like strategic intent and strategic architecture.[18][19] Their
most well known advance was the idea of core competency. They showed
how important it was to know the one or two key things that your company
does better than the competition.[20]

Active strategic management required active information gathering and

active problem solving. In the early days of Hewlett-Packard (H-P), Dave
Packard and Bill Hewlett devised an active management style that they
called Management By Walking Around (MBWA). Senior H-P managers
were seldom at their desks. They spent most of their days visiting
employees, customers, and suppliers. This direct contact with key people
provided them with a solid grounding from which viable strategies could be
crafted. The MBWA concept was popularized in 1985 by a book by Tom
Peters and Nancy Austin.[21] Japanese managers employ a similar system,
which originated at Honda, and is sometimes called the 3 G's (Genba,
Genbutsu, and Genjitsu, which translate into ³actual place´, ³actual thing´,
and ³actual situation´).

Probably the most influential strategist of the decade was Michael Porter.
He introduced many new concepts including; 5 forces analysis, generic
strategies, the value chain, strategic groups, and clusters. In 5 forces
analysis he identifies the forces that shape a firm's strategic environment. It
is like a SWOT analysis with structure and purpose. It shows how a firm can
use these forces to obtain a sustainable competitive advantage. Porter
modifies Chandler's dictum about structure following strategy by
introducing a second level of structure: Organizational structure follows
strategy, which in turn follows industry structure. Porter's generic
strategies detail the interaction between cost minimization strategies,
product differentiation strategies, and market focus strategies. Although he
did not introduce these terms, he showed the importance of choosing one of
them rather than trying to position your company between them. He also
challenged managers to see their industry in terms of a value chain. A firm
will be successful only to the extent that it contributes to the industry's
value chain. This forced management to look at its operations from the
customer's point of view. Every operation should be examined in terms of
what value it adds in the eyes of the final customer.

In 1993, John Kay took the idea of the value chain to a financial level
claiming ³ Adding value is the central purpose of business activity´, where
adding value is defined as the difference between the market value of
outputs and the cost of inputs including capital, all divided by the firm's net
output. Borrowing from Gary Hamel and Michael Porter, Kay claims that
the role of strategic management is to identify your core competencies, and
then assemble a collection of assets that will increase value added and
provide a competitive advantage. He claims that there are 3 types of
capabilities that can do this; innovation, reputation, and organizational
structure.

The 1980s also saw the widespread acceptance of positioning theory.

Although the theory originated with Jack Trout in 1969, it didn¶t gain wide
acceptance until Al Ries and Jack Trout wrote their classic book
³Positioning: The Battle For Your Mind´ (1979). The basic premise is that a
strategy should not be judged by internal company factors but by the way
customers see it relative to the competition. Crafting and implementing a
strategy involves creating a position in the mind of the collective consumer.
Several techniques were applied to positioning theory, some newly invented
but most borrowed from other disciplines. Perceptual mapping for
example, creates visual displays of the relationships between positions.
Multidimensional scaling, discriminant analysis, factor analysis, and
conjoint analysis are mathematical techniques used to determine the most
relevant characteristics (called dimensions or factors) upon which positions
should be based. Preference regression can be used to determine vectors of
ideal positions and cluster analysis can identify clusters of positions.

Others felt that internal company resources were the key. In 1992, Jay
Barney, for example, saw strategy as assembling the optimum mix of
resources, including human, technology, and suppliers, and then configure
them in unique and sustainable ways.[22]

Michael Hammer and James Champy felt that these resources needed to be
restructured.[23] This process, that they labeled reengineering, involved
organizing a firm's assets around whole processes rather than tasks. In this
way a team of people saw a project through, from inception to completion.
This avoided functional silos where isolated departments seldom talked to
each other. It also eliminated waste due to functional overlap and
interdepartmental communications.

In 1989 Richard Lester and the researchers at the MIT Industrial

Performance Center identified seven best practices and concluded that
firms must accelerate the shift away from the mass production of low cost
standardized products. The seven areas of best practice were:[24]

›
Simultaneous continuous improvement in cost, quality, service, and

product innovation
›
Breaking down organizational barriers between departments
›
Eliminating layers of management creating flatter organizational
hierarchies.
›
Closer relationships with customers and suppliers
›
Intelligent use of new technology
›
Global focus
›
Improving human resource skills

The search for ³best practices´ is also called benchmarking.[25] This involves
determining where you need to improve, finding an organization that is
exceptional in this area, then studying the company and applying its best
practices in your firm.

A large group of theorists felt the area where western business was most
lacking was product quality. People like W. Edwards Deming,[26] Joseph M.
Juran,[27] A. Kearney,[28] Philip Crosby,[29] and Armand Feignbaum[30]
suggested quality improvement techniques like Total Quality Management
(TQM), continuous improvement, lean manufacturing, Six Sigma, and
Return on Quality (ROQ).

An equally large group of theorists felt that poor customer service was the
problem. People like James Heskett (1988),[31] Earl Sasser (1995), William
Davidow,[32] Len Schlesinger,[33] A. Paraurgman (1988), Len Berry,[34] Jane
Kingman-Brundage,[35] Christopher Hart, and Christopher Lovelock (1994),
gave us fishbone diagramming, service charting, Total Customer Service
(TCS), the service profit chain, service gaps analysis, the service encounter,
strategic service vision, service mapping, and service teams. Their
underlying assumption was that there is no better source of competitive
advantage than a continuous stream of delighted customers.
Process management uses some of the techniques from product quality
management and some of the techniques from customer service
management. It looks at an activity as a sequential process. The objective is
to find inefficiencies and make the process more effective. Although the
procedures have a long history, dating back to Taylorism, the scope of their
applicability has been greatly widened, leaving no aspect of the firm free
from potential process improvements. Because of the broad applicability of
process management techniques, they can be used as a basis for
competitive advantage.

Some realized that businesses were spending much more on acquiring new
customers than on retaining current ones. Carl Sewell,[36] Frederick
Reicheld,[37] C. Gronroos,[38] and Earl Sasser[39] showed us how a
competitive advantage could be found in ensuring that customers returned
again and again. This has come to be known as the loyalty effect after
Reicheld's book of the same name in which he broadens the concept to
include employee loyalty, supplier loyalty, distributor loyalty, and
shareholder loyalty. They also developed techniques for estimating the
lifetime value of a loyal customer, called customer lifetime value (CLV). A
significant movement started that attempted to recast selling and
marketing techniques into a long term endeavor that created a sustained
relationship with customers (called relationship selling, relationship
marketing, and customer relationship management). Customer
relationship management (CRM) software (and its many variants) became
an integral tool that sustained this trend.

James Gilmore and Joseph Pine found competitive advantage in mass

customization.[40] Flexible manufacturing techniques allowed businesses to
individualize products for each customer without losing economies of scale.
This effectively turned the product into a service. They also realized that if a
service is mass customized by creating a ³performance´ for each individual
client, that service would be transformed into an ³experience´. Their book,

 î
?

 

,[41] along with the work of Bernd Schmitt
convinced many to see service provision as a form of theatre. This school of
thought is sometimes referred to as customer experience management
(CEM).

Like Peters and Waterman a decade earlier, James Collins and Jerry Porras
spent years conducting empirical research on what makes great companies.
Six years of research uncovered a key underlying principle behind the 19
successful companies that they studied: They all encourage and preserve a
core ideology that nurtures the company. Even though strategy and tactics
change daily, the companies, nevertheless, were able to maintain a core set
of values. These core values encourage employees to build an organization
that lasts. In J ? 
   (1994) they claim that short term profit goals,
cost cutting, and restructuring will not stimulate dedicated employees to
build a great company that will endure.[42] In 2000 Collins coined the term
³built to flip´ to describe the prevailing business attitudes in Silicon Valley.
It describes a business culture where technological change inhibits a long
term focus. He also popularized the concept of the BHAG (Big Hairy
Audacious Goal).

Arie de Geus (1997) undertook a similar study and obtained similar results.
He identified four key traits of companies that had prospered for 50 years
or more. They are:

›
Sensitivity to the business environment ² the ability to learn and

adjust
›
Cohesion and identity ² the ability to build a community with
personality, vision, and purpose
›
Tolerance and decentralization ² the ability to build relationships
›
Conservative financing

A company with these key characteristics he called a living company

because it is able to perpetuate itself. If a company emphasizes knowledge
rather than finance, and sees itself as an ongoing community of human
beings, it has the potential to become great and endure for decades. Such
an organization is an organic entity capable of learning (he called it a
³learning organization´) and capable of creating its own processes, goals,
and persona.

The military theorists:

In the 1980s some business strategists realized that there was a vast
knowledge base stretching back thousands of years that they had barely
examined. They turned to military strategy for guidance. Military strategy
books such as 
 
 by Sun Tzu,  by von Clausewitz, and



J

 by Mao Zedong became instant business classics. From Sun
Tzu they learned the tactical side of military strategy and specific tactical
prescriptions. From Von Clausewitz they learned the dynamic and
unpredictable nature of military strategy. From Mao Zedong they learned
the principles of guerrilla warfare. The main marketing warfare books were:
 ›
J ?
 
by Barrie James, 1984
›
 
? 
by Al Ries and Jack Trout, 1986
›
Leadership Secrets of Attila the Hun by Wess Roberts, 1987

Philip Kotler was a well-known proponent of marketing warfare strategy.

There were generally thought to be four types of business warfare theories.

They are:

›
Offensive marketing warfare strategies

›
Defensive marketing warfare strategies
›
Flanking marketing warfare strategies
›
Guerrilla marketing warfare strategies

The marketing warfare literature also examined leadership and motivation,

intelligence gathering, types of marketing weapons, logistics, and
communications.

By the turn of the century marketing warfare strategies had gone out of
favour. It was felt that they were limiting. There were many situations in
which non-confrontational approaches were more appropriate. The
³Strategy of the Dolphin´ was developed in the mid 1990s to give guidance
as to when to use aggressive strategies and when to use passive strategies. A
variety of aggressiveness strategies were developed.

In 1993, J. Moore used a similar metaphor.[43] Instead of using military

terms, he created an ecological theory of predators and prey (see ecological
model of competition), a sort of Darwinian management strategy in which
market interactions mimic long term ecological stability.

Strategic change:

In 1970, Alvin Toffler in  
 
 described a trend towards

accelerating rates of change.[44] He illustrated how social and technological
norms had shorter lifespans with each generation, and he questioned
society's ability to cope with the resulting turmoil and anxiety. In past
generations periods of change were always punctuated with times of
stability. This allowed society to assimilate the change and deal with it
before the next change arrived. But these periods of stability are getting
shorter and by the late 20th century had all but disappeared. In 1980 in 

 ?
 
, Toffler characterized this shift to relentless change as the
defining feature of the third phase of civilization (the first two phases being
the agricultural and industrial waves).[45] He claimed that the dawn of this
new phase will cause great anxiety for those that grew up in the previous
phases, and will cause much conflict and opportunity in the business world.
Hundreds of authors, particularly since the early 1990s, have attempted to
explain what this means for business strategy.

In 1997, Watts Waker and Jim Taylor called this upheaval a "500 year
delta."[46] They claimed these major upheavals occur every 5 centuries. They
said we are currently making the transition from the ³Age of Reason´ to a
new chaotic Age of Access. Jeremy Rifkin (2000) popularized and
expanded this term, ³age of access´ three years later in his book of the same
name.[47]

In 1968, Peter Drucker (1969) coined the phrase Age of Discontinuity to

describe the way change forces disruptions into the continuity of our
lives.[48] In an age of continuity attempts to predict the future by
extrapolating from the past can be somewhat accurate. But according to
Drucker, we are now in an age of discontinuity and extrapolating from the
past is hopelessly ineffective. We cannot assume that trends that exist today
will continue into the future. He identifies four sources of discontinuity:
new technologies, globalization, cultural pluralism, and knowledge capital.

In 2000, Gary Hamel discussed strategic decay, the notion that the value of
all strategies, no matter how brilliant, decays over time.[49]

In 1978, Dereck Abell (Abell, D. 1978) described strategic windows and

stressed the importance of the timing (both entrance and exit) of any given
strategy. This has led some strategic planners to build planned
obsolescence into their strategies.[50]

In 1989, Charles Handy identified two types of change.[51] Strategic drift is a

gradual change that occurs so subtly that it is not noticed until it is too late.
By contrast, transformational change is sudden and radical. It is typically
caused by discontinuities (or exogenous shocks) in the business
environment. The point where a new trend is initiated is called a strategic
inflection point by Andy Grove. Inflection points can be subtle or radical.

In 2000, Malcolm Gladwell discussed the importance of the tipping point,

that point where a trend or fad acquires critical mass and takes off.[52]
In 1983, Noel Tichy recognized that because we are all beings of habit we
tend to repeat what we are comfortable with.[53] He wrote that this is a trap
that constrains our creativity, prevents us from exploring new ideas, and
hampers our dealing with the full complexity of new issues. He developed a
systematic method of dealing with change that involved looking at any new
issue from three angles: technical and production, political and resource
allocation, and corporate culture.

In 1990, Richard Pascale (Pascale, R. 1990) wrote that relentless change

requires that businesses continuously reinvent themselves.[54] His famous
maxim is ³Nothing fails like success´ by which he means that what was a
strength yesterday becomes the root of weakness today, We tend to depend
on what worked yesterday and refuse to let go of what worked so well for us
in the past. Prevailing strategies become self-confirming. In order to avoid
this trap, businesses must stimulate a spirit of inquiry and healthy debate.
They must encourage a creative process of self renewal based on
constructive conflict.

In 1996, Art Kleiner (1996) claimed that to foster a corporate culture that
embraces change, you have to hire the right people; heretics, heroes,
outlaws, and visionaries[55]. The conservative bureaucrat that made such a
good middle manager in yesterday¶s hierarchical organizations is of little
use today. A decade earlier Peters and Austin (1985) had stressed the
importance of nurturing champions and heroes. They said we have a
tendency to dismiss new ideas, so to overcome this, we should support
those few people in the organization that have the courage to put their
career and reputation on the line for an unproven idea.

In 1996, Adrian Slywotsky showed how changes in the business

environment are reflected in value migrations between industries, between
companies, and within companies.[56] He claimed that recognizing the
patterns behind these value migrations is necessary if we wish to
understand the world of chaotic change. In ³Profit Patterns´ (1999) he
described businesses as being in a state of strategic anticipation as they try
to spot emerging patterns. Slywotsky and his team identified 30 patterns
that have transformed industry after industry.[57]

In 1997, Clayton Christensen (1997) took the position that great companies
can fail precisely because they do everything right since the capabilities of
the organization also defines its disabilities.[58] Christensen's thesis is that
outstanding companies lose their market leadership when confronted with
disruptive technology. He called the approach to discovering the emerging
markets for disruptive technologies agnostic marketing, i.e., marketing
under the implicit assumption that no one - not the company, not the
customers - can know how or in what quantities a disruptive product can or
will be used before they have experience using it.

A number of strategists use scenario planning techniques to deal with

change. Kees van der Heijden (1996), for example, says that change and
uncertainty make ³optimum strategy´ determination impossible. We have
neither the time nor the information required for such a calculation. The
best we can hope for is what he calls ³the most skillful process´.[59] The way
Peter Schwartz put it in 1991 is that strategic outcomes cannot be known in
advance so the sources of competitive advantage cannot be
predetermined.[60] The fast changing business environment is too uncertain
for us to find sustainable value in formulas of excellence or competitive
advantage. Instead, scenario planning is a technique in which multiple
outcomes can be developed, their implications assessed, and their likeliness
of occurrence evaluated. According to Pierre Wack, scenario planning is
about insight, complexity, and subtlety, not about formal analysis and
numbers.[61]

In 1988, Henry Mintzberg looked at the changing world around him and
decided it was time to reexamine how strategic management was
done.[62][63] He examined the strategic process and concluded it was much
more fluid and unpredictable than people had thought. Because of this, he
could not point to one process that could be called strategic planning.
Instead he concludes that there are five types of strategies. They are:

›
Strategy as plan - a direction, guide, course of action - intention

rather than actual
›
Strategy as ploy - a maneuver intended to outwit a competitor
›
Strategy as pattern - a consistent pattern of past behaviour - realized
rather than intended
›
Strategy as position - locating of brands, products, or companies
within the conceptual framework of consumers or other stakeholders
- strategy determined primarily by factors outside the firm
›
Strategy as perspective - strategy determined primarily by a master
strategist

In 1998, Mintzberg developed these five types of management strategy into

10 ³schools of thought´. These 10 schools are grouped into three categories.
The first group is prescriptive or normative. It consists of the informal
design and conception school, the formal planning school, and the
analytical positioning school. The second group, consisting of six schools, is
more concerned with how strategic management is actually done, rather
than prescribing optimal plans or positions. The six schools are the
entrepreneurial, visionary, or great leader school, the cognitive or mental
process school, the learning, adaptive, or emergent process school, the
power or negotiation school, the corporate culture or collective process
school, and the business environment or reactive school. The third and final
group consists of one school, the configuration or transformation school, an
hybrid of the other schools organized into stages, organizational life cycles,
or ³episodes´.[64]

In 1999, Constantinos Markides also wanted to reexamine the nature of

strategic planning itself.[65] He describes strategy formation and
implementation as an on-going, never-ending, integrated process requiring
continuous reassessment and reformation. Strategic management is
planned and emergent, dynamic, and interactive. J. Moncrieff (1999) also
stresses strategy dynamics.[66] He recognized that strategy is partially
deliberate and partially unplanned. The unplanned element comes from
two sources: emergent strategies (result from the emergence of
opportunities and threats in the environment) and Strategies in action (ad
hoc actions by many people from all parts of the organization).

Some business planners are starting to use a complexity theory approach to

strategy. Complexity can be thought of as chaos with a dash of order. Chaos
theory deals with turbulent systems that rapidly become disordered.
Complexity is not quite so unpredictable. It involves multiple agents
interacting in such a way that a glimpse of structure may appear. Axelrod,
R.,[67] Holland, J.,[68] and Kelly, S. and Allison, M.A.,[69] call these systems of
multiple actions and reactions complex adaptive systems. Axelrod asserts
that rather than fear complexity, business should harness it. He says this
can best be done when ³there are many participants, numerous
interactions, much trial and error learning, and abundant attempts to
imitate each others' successes´. In 2000, E. Dudik wrote that an
organization must develop a mechanism for understanding the source and
level of complexity it will face in the future and then transform itself into a
complex adaptive system in order to deal with it.[70]

Information and technology driven strategy:

Peter Drucker had theorized the rise of the ³knowledge worker´ back in the
1950s. He described how fewer workers would be doing physical labour,
and more would be applying their minds. In 1984, John Nesbitt theorized
that the future would be driven largely by information: companies that
managed information well could obtain an advantage, however the
profitability of what he calls the ³information float´ (information that the
company had and others desired) would all but disappear as inexpensive
computers made information more accessible.

Daniel Bell (1985) examined the sociological consequences of information

technology, while Gloria Schuck and Shoshana Zuboff looked at
psychological factors.[71] Zuboff, in her five year study of eight pioneering
corporations made the important distinction between ³automating
technologies´ and ³infomating technologies´. She studied the effect that
both had on individual workers, managers, and organizational structures.
She largely confirmed Peter Drucker's predictions three decades earlier,
about the importance of flexible decentralized structure, work teams,
knowledge sharing, and the central role of the knowledge worker. Zuboff
also detected a new basis for managerial authority, based not on position or
hierarchy, but on knowledge (also predicted by Drucker) which she called
³participative management´.[72]

In 1990, Peter Senge, who had collaborated with Arie de Geus at Dutch
Shell, borrowed de Geus' notion of the learning organization, expanded it,
and popularized it. The underlying theory is that a company's ability to
gather, analyze, and use information is a necessary requirement for
business success in the information age. (See organizational learning.) In
order to do this, Senge claimed that an organization would need to be
structured such that:[73]

›
People can continuously expand their capacity to learn and be

productive,
›
New patterns of thinking are nurtured,
›
Collective aspirations are encouraged, and
›
People are encouraged to see the ³whole picture´ together.

Senge identified five components of a learning organization. They are:

›
Personal responsibility, self reliance, and mastery ² We accept that

we are the masters of our own destiny. We make decisions and live
with the consequences of them. When a problem needs to be fixed, or
 an opportunity exploited, we take the initiative to learn the required
skills to get it done.
›
Mental models ² We need to explore our personal mental models to
understand the subtle effect they have on our behaviour.
›
Shared vision ² The vision of where we want to be in the future is
discussed and communicated to all. It provides guidance and energy
for the journey ahead.
›
Team learning ² We learn together in teams. This involves a shift
from ³a spirit of advocacy to a spirit of enquiry´.
›
Systems thinking ² We look at the whole rather than the parts. This
is what Senge calls the ³Fifth discipline´. It is the glue that integrates
the other four into a coherent strategy. For an alternative approach to
the ³learning organization´, see Garratt, B. (1987).

Since 1990 many theorists have written on the strategic importance of

information, including J.B. Quinn,[74] J. Carlos Jarillo,[75] D.L. Barton,[76]
Manuel Castells,[77] J.P. Lieleskin,[78] Thomas Stewart,[79] K.E. Sveiby,[80]
Gilbert J. Probst,[81] and Shapiro and Varian[82] to name just a few.

Thomas A. Stewart, for example, uses the term intellectual capital to

describe the investment an organization makes in knowledge. It is
comprised of human capital (the knowledge inside the heads of employees),
customer capital (the knowledge inside the heads of customers that decide
to buy from you), and structural capital (the knowledge that resides in the
company itself).

Manuel Castells, describes a network society characterized by:

globalization, organizations structured as a network, instability of
employment, and a social divide between those with access to information
technology and those without.

Stan Davis and Christopher Meyer (1998) have combined three variables to
define what they call the BLUR equation. The speed of change, Internet
connectivity, and intangible knowledge value, when multiplied together
yields a society's rate of BLUR. The three variables interact and reinforce
each other making this relationship highly non-linear.

Regis McKenna posits that life in the high tech information age is what he
called a ³real time experience´. Events occur in real time. To ever more
demanding customers ³now´ is what matters. Pricing will more and more
become variable pricing changing with each transaction, often exhibiting
first degree price discrimination. Customers expect immediate service,
customized to their needs, and will be prepared to pay a premium price for
it. He claimed that the new basis for competition will be time based
competition.[83]

Geoffrey Moore (1991) and R. Frank and P. Cook[84] also detected a shift in
the nature of competition. In industries with high technology content,
technical standards become established and this gives the dominant firm a
near monopoly. The same is true of networked industries in which
interoperability requires compatibility between users. An example is word
processor documents. Once a product has gained market dominance, other
products, even far superior products, cannot compete. Moore showed how
firms could attain this enviable position by using E.M. Rogers five stage
adoption process and focusing on one group of customers at a time, using
each group as a base for marketing to the next group. The most difficult
step is making the transition between visionaries and pragmatists (See
Crossing the Chasm). If successful a firm can create a bandwagon effect in
which the momentum builds and your product becomes a de facto
standard.

Evans and Wurster describe how industries with a high information

component are being transformed.[85] They cite Encarta's demolition of the
Encyclopedia Britannica (whose sales have plummeted 80% since their
peak of $650 million in 1990). Many speculate that Encarta¶s reign will be
short-lived, eclipsed by collaborative encyclopedias like Wikipedia that can
operate at very low marginal costs. Evans also mentions the music industry
which is desperately looking for a new business model. The upstart
information savvy firms, unburdened by cumbersome physical assets, are
changing the competitive landscape, redefining market segments, and
disintermediating some channels. One manifestation of this is personalized
marketing. Information technology allows marketers to treat each
individual as its own market, a market of one. Traditional ideas of market
segments will no longer be relevant if personalized marketing is successful.

The technology sector has provided some strategies directly. For example,
from the software development industry agile software development
provides a model for shared development processes.

Access to information systems have allowed senior managers to take a

much more comprehensive view of strategic management than ever before.
The most notable of the comprehensive systems is the balanced scorecard
approach developed in the early 1990's by Drs. Robert S. Kaplan (Harvard
Business School) and David Norton (Kaplan, R. and Norton, D. 1992). It
measures several factors financial, marketing, production, organizational
development, and new product development in order to achieve a
'balanced' perspective.

The psychology of strategic management:

Several psychologists have conducted studies to determine the

psychological patterns involved in strategic management. Typically senior
managers have been asked how they go about making strategic decisions. A
1938 treatise by Chester Barnard, that was based on his own experience as a
business executive, sees the process as informal, intuitive, non-routinized,
and involving primarily oral, 2-way communications. Bernard says ³The
process is the sensing of the organization as a whole and the total situation
relevant to it. It transcends the capacity of merely intellectual methods, and
the techniques of discriminating the factors of the situation. The terms
pertinent to it are ³feeling´, ³judgement´, ³sense´, ³proportion´, ³balance´,
³appropriateness´. It is a matter of art rather than science.´[86]

In 1973, Henry Mintzberg found that senior managers typically deal with
unpredictable situations so they strategize in 

, flexible, dynamic, and
implicit ways. He says, ³The job breeds adaptive information-manipulators
who prefer the live concrete situation. The manager works in an
environment of stimulous-response, and he develops in his work a clear
preference for live action.´[87]

In 1982, John Kotter studied the daily activities of 15 executives and

concluded that they spent most of their time developing and working a
network of relationships from which they gained general insights and
specific details to be used in making strategic decisions. They tended to use
³mental road maps´ rather than systematic planning techniques.[88]

Daniel Isenberg's 1984 study of senior managers found that their decisions
were highly intuitive. Executives often sensed what they were going to do
before they could explain why.[89] He claimed in 1986 that one of the
reasons for this is the complexity of strategic decisions and the resultant
information uncertainty.[90]

Shoshana Zuboff (1988) claims that information technology is widening the

divide between senior managers (who typically make strategic decisions)
and operational level managers (who typically make routine decisions). She
claims that prior to the widespread use of computer systems, managers,
even at the most senior level, engaged in both strategic decisions and
routine administration, but as computers facilitated (She called it
³deskilled´) routine processes, these activities were moved further down the
hierarchy, leaving senior management free for strategic decions making.

In 1977, Abraham Zaleznik identified a difference between leaders and

managers. He describes leadershipleaders as visionaries who inspire. They
care about substance. Whereas managers are claimed to care about process,
plans, and form.[91] He also claimed in 1989 that the rise of the manager
was the main factor that caused the decline of American business in the
1970s and 80s. Lack of leadership is most damaging at the level of strategic
management where it can paralyze an entire organization.[92]

According to Corner, Kinichi, and Keats,[93] strategic decision making in

organizations occurs at two levels: individual and aggregate. They have
developed a model of parallel strategic decision making. The model
identifies two parallel processes both of which involve getting attention,
encoding information, storage and retrieval of information, strategic
choice, strategic outcome, and feedback. The individual and organizational
processes are not independent however. They interact at each stage of the
process.

Reasons why strategic plans fail:

There are many reasons why strategic plans fail, especially:

›
Failure to understand the customer

÷
Why do they buy
÷
Is there a real need for the product
÷
inadequate or incorrect marketing research
›
Inability to predict environmental reaction
÷
What will competitors do
ƒ
Fighting brands
ƒ
Price wars
÷
Will government intervene
›
Over-estimation of resource competence
÷
Can the staff, equipment, and processes handle the new strategy
÷
Failure to develop new employee and management skills
›
Failure to coordinate
 ÷
Reporting and control relationships not adequate
÷
Organizational structure not flexible enough
›
Failure to obtain senior management commitment
÷
Failure to get management involved right from the start
÷
Failure to obtain sufficient company resources to accomplish
task
›
Failure to obtain employee commitment
÷
New strategy not well explained to employees
÷
No incentives given to workers to embrace the new strategy
›
Under-estimation of time requirements
÷
No critical path analysis done
›
Failure to follow the plan
÷
No follow through after initial planning
÷
No tracking of progress against plan
÷
No consequences for above
›
Failure to manage change
÷
Inadequate understanding of the internal resistance to change
÷
Lack of vision on the relationships between processes,
technology and organization
›
Poor communications
÷
Insufficient information sharing among stakeholders
÷
Exclusion of stakeholders and delegates

Criticisms of strategic management:

Although a sense of direction is important, it can also stifle creativity,

especially if it is rigidly enforced. In an uncertain and ambiguous world,
fluidity can be more important than a finely tuned strategic compass. When
a strategy becomes internalized into a corporate culture, it can lead to
group think. It can also cause an organization to define itself too narrowly.
An example of this is marketing myopia.

Many theories of strategic management tend to undergo only brief periods

of popularity. A summary of these theories thus inevitably exhibits
survivorship bias (itself an area of research in strategic management).
Many theories tend either to be too narrow in focus to build a complete
corporate strategy on, or too general and abstract to be applicable to
specific situations. Populism or faddishness can have an impact on a
particular theory's life cycle and may see application in inappropriate
circumstances. See business philosophies and popular management
theories for a more critical view of management theories.
In 2000, Gary Hamel coined the term strategic convergence to explain the
limited scope of the strategies being used by rivals in greatly differing
circumstances. He lamented that strategies converge more than they
should, because the more successful ones get imitated by firms that do not
understand that the strategic process involves designing a custom strategy
for the specifics of each situation.[94]

Ram Charan, aligning with a popular marketing tagline, believes that

strategic planning must not dominate action. "Just do it!", while not quite
what he meant, is a phrase that nevertheless comes to mind when
combatting analysis paralysis.

"‘#
‘$
%
& ‘
A theoretical framework is a collection of
interrelated concepts, like a theory but not necessarily so well worked-out.
A theoretical framework guides your research, determining what things you
will measure, and what statistical relationships you will look for.

Theoretical frameworks are obviously critical in deductive, theory-testing

sorts of studies (see Kinds of Research for more information). In those
kinds of studies, the theoretical framework must be very specific and well-
thought out.

Surprisingly, theoretical frameworks are also important in exploratory

studies, where you really don't know much about what is going on, and are
trying to learn more. There are two reasons why theoretical frameworks are
important here. First, no matter how little you think you know about a
topic, and how unbiased you think you are, it is impossible for a human
being not to have preconceived notions, even if they are of a very general
nature. For example, some people fundamentally believe that people are
basically lazy and untrustworthy, and you have keep your wits about you to
avoid being conned. These fundamental beliefs about human nature affect
how you look things when doing personnel research. In this sense, you are
always being guided by a theoretical framework, but you don't know it. Not
knowing what your real framework is can be a problem. The framework
tends to guide what you notice in an organization, and what you don't
notice. In other words, you don't even notice things that don't fit your
framework! We can never completely get around this problem, but we can
reduce the problem considerably by simply making our implicit framework
explicit. Once it is explicit, we can deliberately consider other frameworks,
and try to see the organizational situation through different lenses.




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Cases are objects whose behavior or characteristics we study. Usually, the
cases are persons. But they can also be groups, departments, organizations,
etc. They can also be more esoteric things like events (e.g., meetings),
utterances, pairs of people, etc.

Variables are characteristics of cases. They are attributes. Qualities of the

cases that we measure or record. For example, if the cases are persons, the
variables could be sex, age, height, weight, feeling of empowerment, math
ability, etc. Variables are called what they are because it is assumed that the
cases will vary in their scores on these attributes. For example, if the
variable is age, we obviously recognize that people can be different ages. Of
course, sometimes, for a given sample of people, there might not be any
variation on some attribute. For example, the variable 'number of children'
might be zero for all members of this class. It's still a variable, though,
because in principle it could have variation.

In any particular study, variables can play different roles. Two key roles are
independent variables and dependent variables. Usually there is only one
dependent variable, and it is the outcome variable, the one you are trying to
predict. Variation in the dependent variable is what you are trying to
explain. For example, if we do a study to determine why some people are
more satisfied in their jobs than others, job satisfaction is the dependent
variable.

The independent variables, also known as the predictor or explanatory

variables, are the factors that you think explain variation in the dependent
variable. In other words, these are the causes. For example, you may think
that people are more satisfied with their jobs if they are given a lot of
freedom to do what they want, and if they are well-paid. So 'job freedom'
and 'salary' are the independent variables, and 'job satisfaction' is the
dependent variable.

There are actually two other kinds of variables, which are basically
independent variables, but work a little differently. These are moderator
and intervening variables. A moderator variable is one that modifies the
relationship between two other variables.
For example, suppose that the cases are whole organizations, and you
believe that diversity in the organization can help make them more
profitable (because diversity leads to fresh outlooks on old problems), but
only if managers are specially trained in diversity management (otherwise
all that diversity causes conflicts and miscommunication). Here, diversity is
clearly an independent variable, and profitability is clearly a dependent
variable. But what is diversity training? Its main function seems to be
adjust the strength of relation between diversity and profitability

For example, suppose you are studying job applications to various

departments within a large organization. You believe that in overall, women
applicants are more likely to get the job than men applicants, but that this
varies by the number of women already in the department the person
applied to. Specifically, departments that already have a lot of women will
favor female applicants, while departments with few women will favor male
applicants. We can diagram this as follows:

Actually, if that model is true, then this one is as well, though it's harder to
think about:

Whether sex of applicant is the independent and % women in dept is the

moderator, or the other around, is not something we can ever decide.
Another way to talk about moderating and independent variables is in
terms of interaction. Interacting variables affect the dependent variable
only when both are acting in concert. We could diagram that this way:

An intervening or intermediary variable is one that is affected by the

independent variable and in turn affects the dependent variable. For
example, we said that diversity is good for profitability because diversity
leads to innovation (fresh looks) which in turn leads to profitability. Here,
innovation is an intervening variable. We diagram it this way:

Note that in the diagram, there is no arrow from diversity directly to

profitability. This means that if we control for innovativeness, diversity is
unrelated to profitability. To control for a variable means to hold its values
constant. For example, suppose we measure the diversity, innovativeness
and profitability of a several thousand companies. If we look at the
relationship between diversity and profitability, we might find that the
more diverse companies have, on average, higher profitability than the less
diverse companies. But suppose we divide the sample into two groups:
innovative companies and non-innovative. Now, within just the innovative
group, we again look at the relationship between diversity and profitability.
We might find that there is no relationship. Similarly, if we just look at the
non-innovative group, we might find no relationship between diversity and
profitability there either. That's because the only reason diversity affects
profitability is because diversity tends to affect a company's innovativeness,
and that in turn affects profitability.

Here's another example. Consider the relationship between education and

health. In general, the more a educated a person is, the healthier they are.
Do diplomas have magic powers? Do the cells in educated people's bodies
know how to fight cancer? I doubt it. It might be because educated people
are more likely to eat nutritionally sensible food and this in turn
contributes to their health. But of course, there are many reasons why you
might eat nutritionally sensible food, even if you are not educated. So if we
were to look at the relationship between education and health among only
people who eat nutritionally sensible food, we might find no relationship.
That would support the idea that nutrition is an intervening variable.

It should be noted, however, if you control for a variable, and the

relationship between two variables disappears, that doesn't necessarily
mean that the variable you controlled for was an intervening variable. Here
is an example. Look at the relationship between the amount of ice cream
sold on a given day, and the number of drownings on those days. This is not
hypothetical: this is real. There is a strong correlation: the more you sell,
the more people drown. What's going on? Are people forgetting the 'no
swimming within an hour of eating' rule? Ice cream screws up your
coordination? No. There is a third variable that is causing both ice cream
sales and drownings. The variable is temperature. On hot days, people are
more likely to buy ice cream. They are also more likely to go to the beach,
where a certain proportion will drown. If we control for temperature (i.e.,
we only consider days that are cold, or days that are warm), we find that
there is no relationship between ice cream sales and drownings. But
temperature is not an intervening variable, since it ice cream sales do not
cause temperature changes. Nor is ice cream sales an intervening variable,
since ice cream sales do not cause drownings.
‘

 å||

‘‘‘‘‘‘‘‘‘‘‘‘‘‘‘‘‘Variables that I have chosen for this study are:

a) Resource Based View

b) Industrial Based view

c) Strategic Position

The resource-based view (RBV) of the firm has become

an influential theoretical perspective in recent international business (IB)
research. Tracking the evolution of the RBV literature in TB, this article has
three objectives. First, it documents the extent to which the RBV has
diffused to TB research. Second, it explains the rationale behind such
diffusion. Finally, it provides a state-of-the-art review of the substantive
work through a proposed organizing framework, focusing on multinational
management, strategic alliances, market entries, international
entrepreneurship, and emerging markets strategies. Overall, a broad,
expanding, and cumulative knowledge base is emerging to connect TB and
strategy research through the RBV. The article concludes with a discussion
of the implications of such a development in the intellectual marketplace,
with an emphasis on future research directions. (c) 2001 Elsevier Science
Inc. All rights reserved.

Spearheaded by the work of Wernerfelt (1984) and Barney (1991), one of

the key developments in recent strategic management and international
business (IB) research has been the emergence of the resource-based view
(RBV) of the firm. Tracking the evolution of the RBV literature in IB since
the publication of the landmark Journal of Management special issue in
1991, this article addresses three key questions. First, how influential has
the RBV become? This question will be answered by mapping out the key
contributions to the RBV literature in IB during 1991 through 2000. The
second question focuses on what is behind the diffusion of the RBV in IB.
Drawing on the diffusion-of-innovations literature, I suggest that the RBV
may be considered as a theoretical innovation, whose attributes facilitate its
diffusion, and that an understanding of the trajectories of the strategy and
IB fields is necessary to understand the RBV's diffusion. Finally, what is the
current state-of-the-art of RBV research in IB? To answer th is question, I
propose an organizing framework to review the substantive work to find out
what new insights are gained. This article concludes with a discussion on
the possible directions of future development of the RBV in IB.

A citation-based approach is used to document the extent to which the RBV

has penetrated IB research, by focusing on articles in leading IB journals
which cited two key RBV papers, Barney (1991) and/or Wernerfelt (1984),
during 1991 through 2000. The selection of these two papers is driven by
their widely acknowledged influence (Priem & Butler, 2001; Wernerfelt,
1995). Among the journals, I first examine the Journal of International
Business Studies (JIBS), which has consistently been ranked as the number
one journal in IB (Dubois & Reeb, 2000; Phene & Guisinger, 1998) and as
one of the leading outlets for business research (Inkpen & Beamish, 1994;
MacMillan, 1991; Tahai & Meyer, 1999). Then, given (1) the strategy roots
of the RBV and (2) the substantial IB work published in the Strategic
Management Journal (SMJ), I also included all IB papers in SMJ. Finally, I
examined five mainstream management outlets, the Academy of
Management Journal (AMJ), Academy of Management Review (AMR),
Journal of Management (JM ), Journal of Management Studies (JMS), and
Organization Science (OS), (1) all of which have been found as leading
forums (Tahai & Meyer, 1999).
The benefits of such an approach are (1) a clear and manageable focus on
publications in international management (Boddewyn, 1999), (2) relative
objectivity, and (3) consistency with well-accepted academic norms in
assessing the influence of a body of work (Peng, Lu, Shenkar & Wang,
2001). The drawback is the inability to exhaust IB research in
nonmanagement disciplines given IB's interdisciplinary nature (Toyne &
Nigh, 1997). However, since management has asserted the most significant
influence on IB research among all business disciplines, (2) this drawback
is not deemed to be significant. Overall, it is believed that the benefits of
this approach outweigh its drawback.
In Table 1, a total of 61 articles have been identified. Starting with three
annual citations in 1991, the two key RBV papers had a total of 22 citations
in 2000, indicating healthy growth of their influence. To further assess the
RBV's impact on TB vis-a-vis other disciplines, in Figure 1, I drew on the
Social Science Citation Index to plot the cumulative citations to a key RBV
paper, Barney (1991), during 1992 through 2000. With a total of 526
citations to Barney (1991)-58 (11%) of which are IB papers--as of December
15, 2000, the overall growth of the RBV's influence becomes more evident
when viewed with such a "big picture."
To assess the individual contributions to this literature, I followed similar
reviews (e.g., Peng et al., 2001) to examine both "total" and "adjusted"
appearances of authors whose work appears in Table 1. The method was
that an article published by one author counts as a full credit for the author
and his/her institution, an article published by two authors counts as one-
half credit for each author and institution, and so forth. Shown in Table 2,
during 1991 through 2000, a total of 20 scholars had at least one adjusted
appearance in these seven top-tier journals, led by Tallman in adjusted
appearances (2.83) and Peng in total appearances (5). Overall, there is
significant international diversity among these leading scholars. As of
December 2000, while American universities dominated the list with 12
"adjusted" authors, Asian and European schools each housed four
"adjusted" authors. These leading contributors can be found in France,
Great Britain, Hong Kong, Singapore, South Korea, and the United States,
ind icating the global reach of RBV research in IB.
In summary, the RBV literature in IB has become a burgeoning one, with
contributions from a wide variety of authors and institutions around the
world. With this overview as a background, the next section sheds some
light on the driving forces behind such growing influence of the RBV.

The RBV's growing influence has provoked a significant debate on its

standing in the intellectual marketplace, with one side of the debate arguing
for its paradigm status (Conner, 1991, p. 121; Mahoney & Pandian, 1992, p.
373; Peteraf, 1993, p. 189) and another side critiquing its lack of tight
definition and explanatory power (Porter, 1991; Priem & Butler, 2001;
Williamson, 1999). Given the inconclusiveness of this debate on the status
of the RBV (Barney, 2001), I would simply suggest that the RBV represents
an "innovation."
An "innovation" is "an idea, practice, or object that is perceived as new by
an individual" (Rogers, 1983, p. 11). According to this definition, I believe
that even the RBV's critics would accept that it represents a theoretical
innovation. A critical insight of the diffusion-of-innovations literature is
that "it matters little whether or not an idea is 'objectively' new ... If the idea
seems new to the individual, it is an innovation" (Rogers, 1983, p. 11). The
key question is that despite its shortcomings, why the RBV ever gained such
influence.

Specifically, five characteristics of an innovation, as perceived by users,

helps explain its diffusion (Rogers, 1983, p. 15). First, the greater the
perceived relative advantage, the more rapid the innovation's diffusion. The
RBV's focus on firm-level determinants of company performance--relative
to traditional industry-level variables--is widely regarded as a key
advantage. Second, the compatibility of an innovation with existing values
also drives its diffusion. The RBV not only draws on the behavioral insights
of Penrose (1959), but also extend five major industrial organization (IO)
economics theories of the firm (Conner, 1991). As a result, the RBV is
compatible with both behavioral and economic schools of thought in
strategy (Mahoney & Pandian, 1992).

Third, simple innovations will be adopted more rapidly. On the surface,

despite the difficulties associated with empirical work (Godfrey & Hill,
1995), the RBV logic is (deceptively) simple and easy to understand. Fourth,
a high level of trialability, which is "the degree to which an innovation may
be experimented with on a limited basis" (Rogers, 1983, p. 15), also
facilitates its diffusion. The RBV's trialability, because of its linkages with
many parts of the existing literature, enables scholars to employ it in
parallel with other theoretical perspectives in the same studies (Peng &
York, 2001).

Finally, the RBV has benefited from high visibility forums and events, such
as the JM and SMJ special issues in 1991 (Bartlett & Ghoshal, 1991), the
"fundamental issues in strategy" conference in 1990 (Rumelt, Schendel &
Teece, 1994), the "emerging vision in TB" conference in 1992 (Toyne &
Nigh, 1997), and the recognition of Wemerfelt's (1984) article as SMJ's best
paper in 1994 (Wemerfelt, 1995). In this process, the role of credible,
"neutral" opinion leaders is instrumental (Rogers, 1983, p. 27). For
example, at the "emerging vision in TB" conference in 1992, opinion leaders
such as Doz (1997), Hitt (1997), and Kogut (1997) stood behind the RBV,
thus influencing many others (such as the present author who was a Ph.D.
student at that time (3)) to follow this path.

Overall, innovation adoption decisions can be classified into three groups:

(1) "optional" (made by individuals), (2) "collective" (made by consensus by
a group), and (3) "authority" (made by higher authorities) (Rogers, 1983, p.
29). It is possible that some innovations lacking the five desirable attributes
above are still adopted, because they may be selected by some higher
authorities. However, this is not likely in the case of academic research. In
the intellectual marketplace, the adoption of a theoretical perspective
always represents an "optional" or "collective" decision made when
researchers craft their individual or joint work. Therefore, I suggest that
given its rapid diffusion, the RBV, as a theoretical innovation, encompasses
all five of the most desirable qualities that are conducive for its diffusion.
In addition to the RBV's own attributes, we also need to be aware of the
larger picture of the evolution of the strategy and LB fields to better
understand its diffusion. Such diffusion took place during a time of flux
(the 1990s) when both relatively young fields engaged in extensive soul-
searching (Boddewyn, 1999; Toyne & Nigh, 1997; Rumelt et al., 1994).
Specifically, I identify three driving forces behind such diffusion: (1) the
nature of IB researchers as innovators, (2) the overlap between the IB and
strategy research agenda, and (3) the crossing of the trajectories of these
two fields.

First, as a field of "great diversity and dynamism," IB is "grounded in a wide

range of disciplines and functional applications, yet willing to draw freely"
from other fields (Bartlett & Ghoshal, 1991, p. 7). As a result, LB scholars
tend to be "innovators," who are "active information seekers about new
ideas" (Rogers, 1983, p. 22). Historically, LB has been one of the first
adopters of some of the earlier innovations, such as transaction cost
economics (TCE) (Buckley & Casson, 1976; Hennart, 1997). Thus, it is not
surprising that some IB scholars became interested in the RBV early on.
Second, there is increasing synergy in the core research questions that TB
and strategy scholars pursue (Dess, Gupta, Hennart & Hill, 1995;
Hoskisson, Hitt, Wan & Yu, 1999; Ricks, Toyne & Martinez, 1990; Toyne &
Nigh, 1997). Until the 1970s, IB research was influenced by economists,
who were interested in macrolevel trade and investment flows between
countries. Beginning in the 1970s, LB research became more interested in
firm-level analysis of foreign direct investment (FDI) and of multinational
corporations (MNCs) (Bartlett & Ghoshal, 1991). This research was
especially interested in two questions: "why some firms possess unique
resources and competencies--relative to their competitors of other
nationalities--and why they choose to use at least some of these advantages
jointly with a portfolio of foreign-based immobile assets" (Dunning, 1995,
p. 466). As IB went through this transformation, it found that strategy
offers the closest ally (Doz, 1997). (4) This alliance is primarily driven by
the fact that mor e than any discipline (except IB), strategy has been most
explicitly interested in the international dimension (Toyne & Nigh, 1997, p.
468). In fact, "What determines the international success and failure of
firms?" has been identified as one of the five most fundamental questions
in strategy (Rumelt et al., 1994, p. 564).

Finally, the crossing of disciplinary trajectories might have also facilitated

the RBV's diffusion. During the 1970s and 1980s, as IB moved away from
economics to embrace management, strategy went through an opposite
transformation, by leaving its initial management roots (i.e., "business
policy") and increasingly invoking IO economics reasoning (Hoskisson et
al., 1999). It seems that IB and strategy met on the middle ground via the
RBV as both fields are "in search of a theory" (Doz, 1997, p. 490). As a
result, "there has been a virtual explosion" in international strategy
research (Ricks et al., 1990, p. 230). The next section will try to "settle the
dust" of this explosion.

To provide a substantive review of the emerging RBV literature in IB (see

Table 1), I first identify four areas of central interest in recent work,
organized according to a 2 X 2 matrix along the dimensions of firm size and
international sophistication: (1) MNC management, (2) strategic alliances,
(3) market entries, and (4) international entrepreneurship (Figure 2).
While historically IB activities seemed to be the exclusive territories for
large firms, this may no longer be the case any more (McDougall & Oviatt,
2000). Also, I pay explicit attention to both mature operations and start-
ups, as well as the increasingly important alliance activities that bridge
these two areas (Dunning, 1995).

After reviewing these four areas of research, I will move on to highlight one
of the most recent developments in the literature, that is, the realization
that emerging economies are likely to become the new battleground for IB
competition and that researchers need to pay careful attention to the
institutional context in which IB activities take place (Peng, 2000, 2002).
Overall, the review in the following sections focuses on new insights gained
by applying the RBV vis-a-vis other perspectives in IB.

A key insight of traditional IB research is that MNCs face a substantial

"liability of foreignness," which leads to nontrivial costs. To overcome such
a liability, both TCE (Buckley & Casson, 1976; Caves, 1996) and "eclectic"
(Dunning, 1993) perspectives stress that MNCs need to equip their overseas
subsidiaries with certain firm-specific advantage. The RBV extends these
perspectives by specifying the nature of these resources and capabilities, (6)
such as administrative heritage (Bartlett & Ghoshal, 1989; Collis, 1991),
organizational practices (Tallman, 1991, 1992; Zaheer, 1995; Zaheer &
Mosakowski, 1997), and bargaining power (Moon & Lado, 2000).

Another stream of research focuses on international diversification. This

work is both inspired and frustrated by the large body of diversification
research with mixed findings. Most existing studies only measured the
product diversity of firms, and did not capture the degree of international
diversity (Dess et al., 1995). The RBV has served as a bridge by urging
scholars to investigate the resources underlying both kinds of
diversification. Specifically, "experience with product diversification can
build managerial capabilities that allow more effective management for
international diversification" (Hitt, Hoskisson & Kim, 1997, p. 770). Testing
this proposition, Tallman and Li (1996) reported that international
diversity has a positive effect on multinational performance. Hitt and
colleagues (1997, p. 767) produced more fine-grained findings:
"International diversification is negatively related to performance in
nondiversified firms, positively related in highly product-diversified firms,
and curvilinearly r elated "in moderately product-diversified firms."

Both Hitt and colleagues (1997) and Tallman and Li (1996)--as well as the
majority of traditional diversification studies--used U.S. samples, thus
raising the question about the generalizability of the findings. Two recent
studies on Japan addressed this problem. Interestingly, while both invoked
a similar RBV logic, their findings were at odds with each other.
Specifically, Delios and Beamish (1999) found that international
diversification is positively associated with profitability, whereas Geringer,
Tallman, and Olsen (2000) reported a negative link. Thus, their "take-
away" messages could not be more different. Delios and Beamish (1999, p.
724) argued that "there is value in internationalization itself because
geographic scope was found to be related to higher firm profitability,"
whereas Geringer and colleagues (2000, p. 76) cautioned that
"multinational diversification is apparently less valuable in practice than in
theory." Overall, it seems that much more future work needs to look at
whether internatio nal diversification, independently and/or in association
with product diversification, adds value.

The IB literature has long recognized the centrality of ownership- or firm-

specific advantage to the raison d'etre of the MNC (Caves, 1996; Dunning,
1993). Specifically, MNCs exist because of their capabilities to transfer and
exploit knowledge more effectively in the intrafirm context than through
external markets. However, this research has typically taken a top-down
approach, emphasizing how the headquarters provides capabilities to
subsidiaries. The reality is that subsidiaries can also play an important part
in the development of the MNC's firm-specific advantage. However, very
little is known on how the MNC's geographically dispersed capabilities
within the firm can contribute to firm-level (MNE-wide) advantage. A
number of recent studies attempted to fill this gap.

Birkinshaw (1996) and colleagues (Birkinshaw & Hood, 1998; Birkinshaw,

Hood & Jonsson, 1998) reported that subsidiary growth is driven by its own
distinctive capabilities developed through the entrepreneurial efforts of
subsidiary management, rather than given by parent management. If
subsidiary capabilities remain locally focused and globally underutilized,
they cannot become the MNC's firm-specific advantage (Luo & Peng, 1999,
p. 289). However, subsidiary managers' initiative to promote the wider
application of their unit's capabilities is often seen by parent managers as
evidence of subsidiary managers acting in their own or their country's
interests rather than in the interests of the MNC as a whole (Birkinshaw et
al., 1998, p. 235). As a result, subsidiary managers' efforts to facilitate
outbound knowledge transfer will only be successful (1) when their
incentive structure is linked with such outflows, and (2) when the target
unit (sister subsidiaries or the headquarters) is motivated to learn (Gupta &
G ovindarajan, 2000). Overall, the RBV literature on subsidiary capability-
building adds to our understanding that capability flows within the MNC
are not necessarily a one-way process originating from the headquarters
(Peng & Wang, 2000). It is through subsidiary capabilities and initiatives
that more knowledge flows can be facilitated.

A new subfield within human resources (HR), "international strategic

human resource management" (ISHRM), has emerged recently (Schuler,
Dowling & Decieri, 1993). Taylor, Beechlor and Napier (1996, P. 965)
developed a theoretical model of ISHRM for three levels, (1) the parent
firm, (2) the subsidiary, and (3) the employee, each of which is examined by
several RBV studies. First, at the parent firm level, primary attention has
been focused on top managers. Drawing on the RBV insight that top
managers may represent some of the most valuable, unique, and hard-to-
imitate resources, Athanassiou and Nigh (1999, 2000) and Roth (1995)
reported that the more an MNC internationalizes, the more likely its top
managers will have significant international experience. Such attributes
represent firm-specific tacit knowledge that is difficult to access by other
MNCs whose top managers do not possess similar knowledge, thus leading
to higher firm performance (Carpenter, Sanders & Gregersen, 2001). In
terms of HR development, Daily, Certo and Dalton (2000) confirmed that
executives' international experience is very attractive to other firms
interested in acquiring such tacit knowledge, and Carpenter and colleagues
(2001) reported that internationally experienced CEOs are able to extract
more rents in the form of higher compensation.

Second, at the subsidiary level, three findings emerge. The first insight is
that it seems important to staff subsidiaries with entrepreneurial managers,
if the MNC is interested in tapping into the capabilities of these
geographically dispersed units (Birkinshaw et al., 1998). The second finding
is that to facilitate subsidiary capability development and knowledge
sharing, the MNC needs to provide sufficient incentive to subsidiary
managers, such as linking bonuses with these desirable behaviors (Gupta &
Govindarajan, 2000). The third result is that the MNC needs to seek a fit
between its HR practices such as compensation and the local culture
(Schuler & Rogovsky, 1998).

Finally, at the employee level, two recent studies in Korea found that firms
which value people as a source of competitive advantage are more likely to
attain higher performance (Bae & Lawler, 2000; Lee & Miller, 1999).
Overall, it seems that the RBV has provided ISHRM with a powerful
analytical perspective connecting HR with firm-specific advantage. Given
that socially complex relationships may be one of the most difficult-to-
imitate resources (Barney, 1991), deepening our understanding of this
connection may not only propel the further progress of ISHRM, but also
help solve major empirical problems in the RBV (Godfrey & Hill, 1995).

Since the 1980s, both the corporate world and the academic fields of IB and
strategy have experienced an "alliance revolution" (Dunning, 1995). While
strategic alliances is a multifaceted phenomenon, the RBV focuses on one
aspect, organizational learning. It advances a core proposition that
capabilities to learn from partners may be a tacit resource underlying a
firm's competitive advantage (Hamel, 1991). Empirical studies have largely
confirmed this assertion. For example, learning from partners is found to
represent a primary motivation for firms to enter alliances (Glaister &
Buckley, 1996; Hitt et al., 2000; Shenkar & Li, 1999). For MNCs, the
intensity and diversity of learning from local partners facilitate local
knowledge acquisition and strengthen firm performance in host countries
(Luo & Peng, 1999; Makino & Delios, 1996). For local firms, learning from
MNC parents is likely to enhance survivability and performance (Fahy et
al., 2000; Lyles & Salk, 1996).
Some alliances (e.g., those between Toyota and its suppliers) are designed
to exploit relationship-specific assets (Dyer, 1996; Peng, Lee & Tan, 2001),
and the threat of a "learning race" is not significant. However, alliances
between competitors do represent a scenario most likely to generate a
"learning race" (Hamel, 1991). Dussauge, Garrette, and Mitchell (2000, p.
100) argued that there are two kinds of alliances between competitors: (1)
"link" alliances in which the partners contribute asymmetric knowledge,
and (2) "scale" alliances in which the partners provide similar knowledge.
They found that compared with scale alliances, interpartner learning occurs
more often in link alliances.

However, despite significant progress, none of these studies directly

observes learning, which is a highly intangible act. As a result, isolating and
measuring such an intangible resource as learning and its impact on
performance remains one of the key empirical challenges in further RBV
work on strategic alliances (Godfrey & Hill, 1995).

Market entries are a classic strategic problem in IB. Largely influenced by

TCE, traditional studies treat each particular entry as a "transaction"
(Anderson & Gatignon, 1986), and the key concern is whether to rely on
external market measures (e.g., exporting) or to internalize operations (e.g.,
FDI) (Buckley & Casson, 1976). The RBV raises the level of analysis from
the transaction to the firm, suggesting that "a particular entry decision
cannot be viewed in isolation. It must be considered in relation to the
overall strategic posture of the firm" (Hill, Hwang & Kim, 1990, p. 117). The
RBV differs from TCE on three key dimensions. First, whereas TOE
predicts entry modes because of failure in the external market (e.g.,
licensing) under an assumption of opportunism, the RBV attributes such
failure to a different underlying assumption, that is, the heterogeneity of
firm resources (Capron, Dussauge & Mitchell, 1998). In other words, "the
[licensing] market does not fail because of opportunism but, rather, becau
se of superior capabilities of the multinational [licensor] in deploying its
know-how and limitations to the capabilities of the other firm [licensee] in
efficiently and effectively acquiring and integrating the particular
knowledge" (Madhok, 1997, p. 46). A second difference is that while TOE
generally focuses on one-time entries based on a set of relatively static
conditions, the RBV highlights a dynamic, longitudinal process in which
multiple entries take place each building on capabilities and learning from
the previous entry experience (Chang, 1995; Chang & Rosenzweig, 2001;
Kogut, 1997).
The third difference is concerned with firm-specific advantage, whereas
TCE focuses on their exploitation and the RBV emphasizes both their
exploitation and development (Madhok, 1997, p. 49). Although TCE
unpacks the rationale behind MNCs' exploitation of their proprietary
advantages abroad (Buckley & Casson, 1976), it seems less capable of
explaining recent entries focusing on foreign research and development
(R&D). Specifically, why do R&D-focused entries take place in the absence
of strong advantages on the part of investing MNCs? The RBV suggests that
such entries can be viewed "as an option to maintain access to innovations
resident in the host country, thus generating information spillovers that
may lead to opportunities for future organizational learning and growth"
(Peng & Wang, 2000, p. 80). Thus, the RBV asserts that market entries are
not only "pushed" by firm-specific advantages possessed by the MNC, but
also "pulled" by the resources and capabilities of the target firm abroad that
may help the in vesting MNC develop new advantages (Shan & Song, 1997).
Continued from page 8

While the dependent variable of TCE studies is typically the entry modes,
RBV studies aim to link entry modes--in particular, acquisitions--with
postentry performance. In contrast to the traditional idea that national
cultural distance between the target and the acquirer hinders cross-border
acquisition performance, Morosini, Shane and Singh (1998, p. 137)
demonstrated that cultural distance may actually enhance acquisition
performance by "providing access to the target's and/or the acquirer's
diverse set of routines and repertoires embedded in national culture."
Vermeulen and Barkema (2001) found that despite the high initial costs of
acquisitions (as opposed to "greenfield"), acquisitions may broaden a firm's
knowledge base and decrease inertia, thus possibly leading to better
performance in the long run.

While focusing on the strategic aspects of market entries, scholars usually

pay little attention to the actual channel through which entries take place
(Melin, 1992). Since entering foreign markets entails a great deal of
knowledge, firms without such knowledge, especially smaller ones, are
typically thought to be unlikely to entertain foreign market entries (Liesch
& Knight, 1999). However, recent work suggests that this may not
necessarily be the case. Knowledge-based resources critical for market
entries do not have to reside within the boundaries of the firm. Instead,
they can be found in specialist organizations such as export intermediaries,
which can help facilitate the "quantum leap" in internationalization among
smaller firms (Peng & Ilinitch, 1998).

This research highlights the dilemma on how these hard-to-measure,

knowledge-based resources can be "rented" to client firms (Chi, 1994).
First, from the clients' standpoint, they are concerned with whether the
intermediary, who is an agent, will actually perform as promised. Second,
from the intermediary's perspective, it needs (1) to leverage its resources by
taking advantage of the information asymmetries between its clients and
foreign markets to profit from such opportunities, and (2) to assure its
clients that its knowledge-based resources will indeed be deployed to
advance the clients' interests. For intermediaries, the solution lies in an
integration between the RBV and TCE/agency theory perspectives, by
following the RBV logic to "be bold" and, at the same time, respecting the
TCE and agency theory concerns by not being "too bold" (Peng, 1998; Peng,
Hill & Wang, 2000; Peng & York, 2001). Future research in this direction is
likely to help further integrate the RBV with other perspectives by shedding
light on the intricacies of actual channels of entries.

Historically, IB research focuses on large MNCs, and entrepreneurship

studies concentrate on small and medium-sized enterprises (SMEs) within
a domestic context. Some SMEs may eventually become MNEs through a
time-consuming, sequential process in their international involvement,
sometimes called a step-by-step, "stage" model (Johanson & Vahlne, 1977).
However, such a "stage" model is increasingly challenged by empirical
findings that some SMEs are able to internationalize more rapidly than the
model predicts (Knight, 2000; Lu & Beamish, 2001). As a result, the
academic demarcation segregating IB and entrepreneurship has begun to
erode and a distinctive new subfield, "international entrepreneurship," has
emerged (McDougall & Oviatt, 2000).

The RBV has played an important role behind the emergence of

international entrepreneurship by solving a key puzzle: How can some
SMEs succeed abroad rapidly without going through different stages
suggested by the "stage" model? The answer typically boils down to the
superb tacit knowledge about global opportunities (Peng, Hill & Wang,
2000) and the equally superb capability to leverage such knowledge in a
way not matched by competitors (Mitchell, Smith, Seawright & Morse,
2000; Peng & York, 2001). The RBV logic suggests that "precisely because
it is difficult to obtain, a surplus of tacit knowledge on internationalization
is likely to provide the firm with a competitive advantage in foreign
markets" (Liesch & Knight, 1999, p. 385).
Some recent RBV work has further challenged the "stage" model.
Specifically, Autio, Sapienza and Almeida (2000) demonstrated that firms
following the prescription of the "stage" model, when eventually
internationalizing, must overcome substantial inertia because of their
domestic orientation. In contrast, firms that internationalize earlier need to
overcome fewer of these barriers. Therefore, SMEs without established
domestic routines may outperform their competitors who wait longer to
internationalize. In other words, contrary to the inherent disadvantages in
internationalization associated with SMEs as suggested by the "stage"
model, there may be "inherent advantages" of being small when venturing
abroad (Liesch & Knight, 1999, p. 385).

Overall, the RBV literature on international entrepreneurship, measured by

the number of articles, seems to be still in its infancy. However, the impact
of this emerging literature, just like the impact of SMEs that it aims to
capture, is increasingly being felt. As more and more SMEs venture abroad,
it seems safe to predict that this literature will grow more sustainably in the
new millennium.

While most research reviewed above focuses on developed economies,

research interests on emerging economies have been growing significantly
since the 1990s. Hoskisson, Eden, Lau and Wright (2000) recently
identified the RBV as one of the top three most insightful theories when
probing into emerging economies. (7) Given the prominence of institutional
differences between emerging and developed economies, RBV research
capitalizes on recent institutional work uncovering the intricacies of
competition in emerging economies (Peng, 2000, 2002). This section
focuses on the strategies of (1) MNCs, (2) state-owned enterprises (SOEs),
(3) privatized firms, (4) start-ups, and (5) conglomerates. While this section
overlaps to some extent with the four areas reviewed earlier, its distinction
lies in its unique institutional context, which is less understood in
traditional research.

Although surveys of the MNC literature typically include a chapter on

MNCs in developing countries (Caves, 1996, chapt. 9; Dunning, 1993,
chapt. 19), such a chapter is often one of the weakest, not because of the
authors' fault but because of the paucity of research (Wells, 1998). As
emerging economies become increasingly important, such a dearth of
knowledge is gradually replaced by a small but growing body of literature
on MNCs in these new markets (Meyer, 2001; Peng, Au & Wang, 2001).

In emerging economies, MNCs' traditional liability of foreignness is

magnified (Meyer, 2001). Confronting a higher degree of uncertainty,
MNCs have to figure out (1) when to enter, (2) how to enter, and (3) how to
win. The entry timing question, largely unresolved in existing research
(Lieberman & Montgomery, 1998), has been tackled by Isobe, Makino and
Montgomery (2000) and Luo and Peng (1999), who found significant early
mover advantages in China. Moreover, they called for greater resource
commitment (Isobe et al., 2000) and more diverse experience in a variety
of local settings to maximize the gains from such learning (Luo & Peng,
1999).

Among different entry modes, acquisitions, which are used less frequently,
are not well understood. For example, in Central and Eastern Europe,
Uhlenbruck and De Castro (2000, p. 398) found that organizational fit
between the acquirer and the target firms, long considered a critical
resource behind acquisition success, is actually "negatively related to
performance." However, with limited research to draw on, it is difficult to
know whether (and how) such a finding is generalizable.

The alliance literature on emerging economies is more substantial (Lyles &

Salk, 1996; Yan & Gray, 1994). A key insight is the emergence of a local
partner perspective (Peng, 2000, p. 219). Research in Hungary, Poland and
Slovenia suggested that local firms are interested in using alliances to
acquire advantages over their domestic rivals (Fahy et al., 2000; Hooley et
al., 1996). As a result, it is not surprising that local firms use a different set
of criteria when selecting partners. Specifically, while MNCs value access to
local markets, indigenous firms in China, Mexico, Poland and Romania
strongly prefer partners' financial assets and technical capabilities (Hitt et
al., 2000; Shenkar & Li, 1999).

Finally, when managing alliances, MNCs need to strike a balance between

their strategic interests and those of local partners (Yan & Zeng, 1999). In
Hungary, Steensma and Lyles (2000, p. 847) found a dilemma: "Strong
foreign parent support is conducive to IJY survival by enhancing IJV
learning ... However, doing so appears to decrease the likelihood of IJV
survival." They therefore advocated a 50/50 share of management control
even when the MNC may be the dominant equity contributor, thus
challenging the conventional wisdom in favor of dominant foreign control.

While historically outside the "radar screen" of LB and strategy research,

SOEs increasingly command research attention because they often compete
and/or collaborate with MNCs (Tan & Litschert, 1994). During the
transitions, SOEs "can no longer afford to be passive now but have to join
the competition" (Peng & Heath, 1996, p. 507). The RBV suggests that to
compete means to grow the firm, or to find better ways to exploit
underutilized resources (Penrose, 1959). However, SOEs typically have a
shortage of technological, financial, and managerial resources, thereby
ruling out the possibility for internal (or hierarchical) growth, at least
initially. At the same time, because of the underdevelopment of financial
markets, mergers and acquisitions (M&As) may also be difficult. As a result,
SOEs often resort to a compromise strategy which is neither market nor
hierarchy, featuring "boundary blurring" through strategic alliances and
networks with both foreign and domestic firms to develop their capabilities
(Peng & H eath, 1996; White, 2000).
Overall, developing capabilities constitutes "one of the
most important SOE strategies during the transitions" (Peng, 2000, p.
100). While many believe that SOEs represent organizational dinosaurs
soon to die out (or at least be privatized), market transitions in many
countries suggest that SOEs as an organizational form are likely to persist,
thus necessitating our attention.

While a wave of privatization has swept through many emerging

economies, little attention has been devoted to its organizational and
managerial implications (Zahra, Ireland, Gutierrez & Hitt, 2000). Recent
RBV work has started to address this imbalance. However, studies focusing
on resources hypothesized to facilitate postprivatization performance have
not provided corroborative evidence. For example, in Russia, Ukraine, and
Belarus, insider privatization leads to negative implications for corporate
restructuring. However, even outside shareholding, considered as a critical
resource to promote restructuring by both agency theory and the RBV, has
largely failed to effectively combat managerial opportunism in privatized
firms (Filatotchev, Buck & Zhukov, 2000).

Two avenues seem likely to generate desirable firm-level outcomes after

privatization. First, developing effective capital markets to discipline
managers is necessary. However, such development takes a long time. A
second and more immediate --and more relevant to IB and strategy
research--approach is to attract more MNCs to invest in these countries to
spearhead the efforts in restructuring, a role many MNCs are capable of
taking on (Doh, 2000; Uhlenbruck & De Castro, 2000).

Throughout emerging economies, market transitions have opened the

floodgates of entrepreneurship (Peng, 2001). The RBV has helped specify
the resources with which entrepreneurs can leverage. Compared with their
larger competitors such as MNCs and SOEs, start-ups cannot afford to
compete on tangible resources, and can only compete on intangible
resourcefulness, that is, the ability of doing more with less. An example of
such resourcefulness is the micro-macro link identified by Peng and Luo
(2000), who suggested that entrepreneurs attempt to translate their micro,
interpersonal ties with managers at other firms and with government
officials into improved macro, organizational performance. In an
environment whereby formal institutional constraints (e.g., laws and
regulations) are weak, informal institutional constraints (e.g., interpersonal
ties) may play a more important role in facilitating economic exchange and
hence assert a more significant impact on firm performance (Peng & Heath,
1996). The RBV suggests that the social capital embedded in these ties,
networks, and contacts can be regarded as an intangible resource that is
difficult to replicate, thus giving start-ups possessing such ties a significant
advantage (Peng & Luo, 2000; Mitchell et al., 2000).
The "pecking order" of competition in emerging economies usually pits
MNCs against each other (and sometimes against larger local firms). Rarely
do MNCs feel compelled to compete and/or collaborate with
entrepreneurial firms. Start-ups, however, are upsetting such a "pecking
order," and are increasingly worthy of the attention from MNCs--and the
attention from researchers as well.

Sometimes called business groups, diversified conglomerates, which seem

to be out of vogue in developed economies, not only seem to persist, but
also enhance firm performance in many emerging economies. Therefore, a
fundamental puzzle remains: How can conglomerates in emerging
economies add value at a high level of diversification, a task their
counterparts in developed economies have largely failed? The RBV argues
that conglomerates' capability in multiple industry entries "can be
maintained as a valuable, rare, and inimitable skill only as long as
asymmetric foreign trade and investment conditions prevail" (Guillen,
2000, p. 362). In emerging economies, these conglomerates "replace poorly
performing or nonexistent economic institutions (such as banks or external
labor markets) that are taken for granted in developed countries" (Chang &
Hong, 2000, p. 429). Moreover, Chang and Hong (2000), Guillen (2000),
and Khanna and Palepu (2000) found that as competition heats up and
these economies become better regula ted, the benefits from unrelated
diversification are harder (but still possible) to attain, thus supporting the
RBV assertion that the reduction in the rarity and inimitability of resources
is likely to render them less valuable (Barney, 1991).

A major point of contention in the diversification literature has been the

measure of relatedness, traditionally based on product market
characteristics. Prahalad and Bettis (1986) introduced a broader,
managerially based common "dominant logic" that can potentially explain
nonproduct-based linkages within a conglomerate. Building on this
perspective, research on emerging economies leads to a more
encompassing notion, termed "institutional relatedness," which refers to an
organization's linkages with dominant formal and informal institutions in
the environment which confer resources and legitimacy (Peng, 2000).
Thus, it is the combination of a firm's product relatedness and institutional
relatedness that determines its optimal scope in a given institutional
framework. It is possible for a firm, which appears to have little product
relatedness and, consequently, would be classified as an "unrelated"
conglomerate, to actually enjoy a great deal of institutional relatedness.
Since institutional relatedness is of ten less visible than product
relatedness, firms' capability to derive synergy from institutional
relatedness thus becomes a more difficult-to-imitate resource giving rise to
competitive advantage (Barney, 1991; Guillen, 2000).

In addition to shedding light on the diversification-performance puzzle, this

research is also significant for TB research for two reasons. First, the scale
and scope of these conglomerates make them the most likely competitors
and/or collaborators for MNCs in emerging markets. Second, some of these
conglomerates are likely to venture abroad, and become "Third World
multinationals" (Au, Peng & Wang, 2000; Peng, Au & Wang, 2001; Wells,
1998), thus deserving our research attention.

Overall, this article contributes to the literature by (1) documenting the

extent to which the RBV has diffused to TB research, (2) explaining the
rationale behind such diffusion of a theoretical innovation, and (3)
providing a state-of-the-art review of the substantive literature. A broad,
expanding, and cumulative knowledge base is emerging to connect IB and
strategy research through the RBV. Tracking this evolution in the 1990s,
this article is both a celebration of the achievements accomplished and a
call for more sustained and rigorous research efforts in the new
millennium.

Overall, it seems that the RBV has provided a powerful theoretical

perspective within which a substantial body of TB research is embedded. IB
research historically has been critiqued as phenomenon-driven with
scattered, unconnected topics. The RBV helps address this criticism, by
presenting a unifying framework through which a large number of diverse
research topics, ranging from the global strategies of MNCs to
entrepreneurial activities of start-ups active in certain emerging economies,
can be viewed as subscribing to the same set of underlying theoretical and
competitive logic. In other words, the RBV has made IB research more
theoretically rigorous.

A key question is: How would the IB research reviewed above have evolved
independently without the RBV? It is important to note that not all the
articles in Table 1 used the RBV as their main theoretical basis. Given that
scientific knowledge is socially constructed (Kuhn, 1970), it is possible that
as the RBV becomes more institutionalized, it may take on a life of its own,
resulting in more citations to the key papers without really building on this
perspective (Mizruchi & Fein, 1999, p. 677). Although it is difficult to assert
that the five research areas in IB would not have emerged in the absence of
the RBV logic, it is clear that the RBV did have an impact on these areas.
While not all these five areas have benefited from the RBV equally, I believe
that the three younger areas (strategic alliances, international
entrepreneurship, and emerging markets) are really propelled by the RBV,
whose contributions are more visible. In comparison, the two more
established domains (MNC and market entries) are enrich ed by the RBV,
whose impact is relatively more marginal.

While, so far, this article has focused on the diffusion of the RBV from
strategy to IB, it is equally important to recognize that IB research has also
significantly pushed the frontiers of strategy research in general, and RBV
work in particular (Bartlett & Ghoshal, 1991). Some of the IB research
reviewed here, such as global strategies, subsidiary capabilities, strategic
alliances, and emerging markets strategies, is clearly at the leading edge of
strategy research, thus helping set the terms for the strategy research
agenda. It is fascinating to note that some topics regarded as "IB only" 10
years ago (e.g., globalization) have now been routinely featured in
mainstream strategy journals. Overall, IB research directly helps answer
one of the top-five fundamental questions in strategy identified by Rumelt
and colleagues (1994, p. 564): "What determines the international success
and failure of firms?"
‘

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The BCG Growth-Share Matrix is a portfolio planning model developed by

Bruce Henderson of the Boston Consulting Group in the early 1970's. It is
based on the observation that a company's business units can be classified
into four categories based on combinations of market growth and market
share relative to the largest competitor, hence the name "growth-share".
Market growth serves as a proxy for industry attractiveness, and relative
market share serves as a proxy for competitive advantage. The growth-
share matrix thus maps the business unit positions within these two
important determinants of profitability.

This framework assumes that an increase in relative market share will

result in an increase in the generation of cash. This assumption often is true
because of the experience curve; increased relative market share implies
that the firm is moving forward on the experience curve relative to its
competitors, thus developing a cost advantage. A second assumption is that
a growing market requires investment in assets to increase capacity and
therefore results in the consumption of cash. Thus the position of a
business on the growth-share matrix provides an indication of its cash
generation and its cash consumption.

Henderson reasoned that the cash required by rapidly growing business

units could be obtained from the firm's other business units that were at a
more mature stage and generating significant cash. By investing to become
the market share leader in a rapidly growing market, the business unit
could move along the experience curve and develop a cost advantage. From
this reasoning, the BCG Growth-Share Matrix was born.
The four categories are:

›
Dogs - Dogs have low market share and a low growth rate and thus
neither generate nor consume a large amount of cash. However, dogs
are cash traps because of the money tied up in a business that has
little potential. Such businesses are candidates for divestiture.
›
Question marks - Question marks are growing rapidly and thus
consume large amounts of cash, but because they have low market
shares they do not generate much cash. The result is a large net cash
comsumption. A question mark (also known as a "problem child") has
the potential to gain market share and become a star, and eventually
a cash cow when the market growth slows. If the question mark does
not succeed in becoming the market leader, then after perhaps years
of cash consumption it will degenerate into a dog when the market
growth declines. Question marks must be analyzed carefully in order
to determine whether they are worth the investment required to grow
market share.
›
Stars - Stars generate large amounts of cash because of their strong
relative market share, but also consume large amounts of cash
because of their high growth rate; therefore the cash in each direction
approximately nets out. If a star can maintain its large market share,
it will become a cash cow when the market growth rate declines. The
portfolio of a diversified company always should have stars that will
become the next cash cows and ensure future cash generation.
›
Cash cows - As leaders in a mature market, cash cows exhibit a return
on assets that is greater than the market growth rate, and thus
generate more cash than they consume. Such business units should
be "milked", extracting the profits and investing as little cash as
possible. Cash cows provide the cash required to turn question marks
into market leaders, to cover the administrative costs of the company,
to fund research and development, to service the corporate debt, and
to pay dividends to shareholders. Because the cash cow generates a
relatively stable cash flow, its value can be determined with
reasonable accuracy by calculating the present value of its cash
stream using a discounted cash flow analysis.

Under the growth-share matrix model, as an industry matures and its

growth rate declines, a business unit will become either a cash cow or a dog,
determined soley by whether it had become the market leader during the
period of high growth.
While originally developed as a model for resource allocation among the
various business units in a corporation, the growth-share matrix also can be
used for resource allocation among products within a single business unit.
Its simplicity is its strength - the relative positions of the firm's entire
business portfolio can be displayed in a single diagram.

Limitations:

The growth-share matrix once was used widely, but has since faded from
popularity as more comprehensive models have been developed. Some of
its weaknesses are:

›
Market growth rate is only one factor in industry attractiveness, and

relative market share is only one factor in competitive advantage. The
growth-share matrix overlooks many other factors in these two
important determinants of profitability.
›
The framework assumes that each business unit is independent of the
others. In some cases, a business unit that is a "dog" may be helping
other business units gain a competitive advantage.
›
The matrix depends heavily upon the breadth of the definition of the
market. A business unit may dominate its small niche, but have very
low market share in the overall industry. In such a case, the definition
of the market can make the difference between a dog and a cash cow.

While its importance has diminished, the BCG matrix still can serve as a
simple tool for viewing a corporation's business portfolio at a glance, and
may serve as a starting point for discussing resource allocation among
strategic business units.

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The SPACE matrix is a management tool used to analyze a company. It is

used to determine what type of a strategy a company should undertake. The
Strategic Position & ACtion Evaluation matrix or short a 
º ? is a
strategic management tool that focuses on strategy formulation especially
as related to the competitive position of an organization.

The 
º  ? can be used as a basis for other analyses, such as the
SWOT analysis, BCG matrix model, industry analysis, or assessing strategic
alternatives (IE matrix).

To explain how the SPACE matrix works, it is best to reverse-engineer it.

First, let's take a look at what the outcome of a SPACE matrix analysis can
be, take a look at the picture below. The SPACE matrix is broken down to
four quadrants where each quadrant suggests a different type or a nature of
a strategy:

›
Aggressive
›
Conservative
›
Defensive
›
Competitive
This particular SPACE matrix tells us that our company should pursue an

?
  
. Our company has a strong competitive position it the
market with rapid growth. It needs to use its internal strengths to develop a
market penetration and market development strategy. This can include
product development, integration with other companies, acquisition of
competitors, and so on.

Now, how do we get to the possible outcomes shown in the SPACE matrix?
The SPACE Matrix analysis functions upon two internal and two external
strategic dimensions in order to determine the organization's strategic
posture in the industry. The SPACE matrix is based on four areas of
analysis.

Internal strategic dimensions:

Financial strength (FS)

Competitive advantage (CA)

External strategic dimensions:

Environmental stability (ES)

Industry strength (IS)

There are many SPACE matrix factors under the internal

strategic dimension. These factors analyze a business internal strategic
position. The financial strength factors often come from company
accounting. These SPACE matrix factors can include for example return on
investment, leverage, turnover, liquidity, working capital, cash flow, and
others. Competitive advantage factors include for example the speed of
innovation by the company, market niche position, customer loyalty,
product quality, market share, product life cycle, and others.

Every business is also affected by the environment in which it operates.

SPACE matrix factors related to business external strategic dimension are
for example overall economic condition, GDP growth, inflation, price
elasticity, technology, barriers to entry, competitive pressures, industry
growth potential, and others. These factors can be well analyzed using the
Michael Porter's Five Forces model.

The SPACE matrix calculates the importance of each of these dimensions

and places them on a Cartesian graph with X and Y coordinates.
 ‘
SPACE Matrix for Rajby Industries
‘
‘
‘
‘
‘
‘
‘
‘
‘
‘
‘
'‘*
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|

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å+


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&|
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-+.

Respondent No. RBV IBV

1 0.5 0.5
2 1 0
3 0 1
H0: 1= 2

H1: 1 2

X y d=x-y d2
0.5 0.5 0 0
1 0 1 1
0 1 -1 1
™d=0 ™d2=2

i 
d= = =0



 i 
Sd= i


 

Sd=1
6
t=
 


t=


t=0

-4.303 0 4.303

There is no difference between the two so H0 is accepted.


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,|
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.

Respondent No. Strong Competitive Weak Competitive

Position Position
1 1 0
2 1 0
3 1 0
H0:
1=
2

H1:
1
2

X y d=x-y d2
1 0 1 1
1 0 1 1
1 0 1 1
™d=3 ™d2=3
‘

i 
d= = =1



 i 
Sd= i


 

Sd=0
6
t=
 


t=



t=  ’


-4.303 0 4.303 t

There is a significant difference between the two so H0 is rejected and

alternate hypothesis is proved.




%


|/|
,|

|


+,.

Respondent No. Opportunities are There are no

present Opportunities
1 0 1
2 0.5 0.5
3 0 1
H0: 1= 2

H1: 1 2

X y d=x-y d2
0 1 -1 1
0.5 0.5 0 0
0 1 -1 1
™d=-2 ™d2=2
i 
d= = = -0.666



 i 
Sd= i


 

Sd= 0.577
6
t=
 


t=


t= -1.999

-4.303 0 4.303

-1.999

There is an insignificant difference between the two so H0 is accepted.

+‘!  ‘
1. Resource Based View is more important than Industrial Based view.

2. Rajby Industries has Strong Competitive Strategic Position.

3. Textile industry of Pakistan has still opportunities for growth.

)‘%% ‘
1.Rajby Industries should adopt Aggressive Strategies.

2.Our organizations need more attention concerning RBV like

Organizational Culture, Financial Stability and Employee Satisfaction
etc.

3.Government should make efforts to build confidence of investors in

Textile sector and should tell them that this sector has still bright
opportunities.

‘
‘
‘
‘
‘
‘
‘
‘
 ‘ 

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