Resource-based View Strategy versus Institution-based View Strategy in Marketing - Essay Example

Resource-based view strategy vs. institution-based view strategy in marketing Name Institution Course Module Instructor’s name Date of submission Introduction Globalization and rapid technology change impacts on modern methods of management and marketing. New technology offers better marketing platforms and distribution channels and improves production processes and enhances product and service quality. Adapting to this increases costs to the firm and effecting such changes is not always easy for the management. Globalization opens up new markets, exposes local firms to foreign competitors and different regulations in foreign markets among other challenges. Firms in respective industries have to utilise their resources optimally and base their strategy on that. The government or overseeing authorities must ensure level playing field in the industry through laws and regulations. This gives rise to institution-based strategy and resource-based view of strategy. The international wine market, which is a case study for the paper, makes a perfect example of the two views in action. This paper expounds on the two views where the case in point pits old world countries (OWC) dependent on the institution-based view strategy against new world countries (NWC) relying on their resource-based view strategy to compete for the global wine market more so the UK. Resources-based view of strategy Resource-based view strategy basically implies that the formulation of strategy by the organization or industry solely depends on the resources available other variables held constant i.e. internal view. This view analyses the strengths and weaknesses of the organization and derives development direction and strategy from them. In other terms, a firm identifies its core competences at firm and optimally utilise them to secure competitive advantage or differentiate its products (Peng 2001; Jansson 2008). One of the basic resources for all agricultural-based industries such as wine making is land. Availability of land thus becomes a resource that drives strategy. NWC had plenty of land as compared to OWC. For instance in France and Spain, the average vineyard holding was less than a hectare compared to 158 hectares in Australia. This allowed farmers in the NWC more space to grow vineyards to power the industry. As such, strategy was based on utilising land well and increasing production. Resources are important and relevant in strategy formulation if competitors do not possess them in equal measure and cannot be imitated. In this case, OWC could not amass lands the size of Australia for vineyards. Heracleous (2003) warns that a firm should strike a balance between exploiting the existing resources and developing new ones if it is to remain sustainable. Therefore, with more land resource for the NWC, the strategy should lie in utilizing land more effectively than the OWC and developing new resources. Australia, where majority of the land is dry had to improve the efficiency of the land through drip irrigation. In contrast, irrigation was strictly forbidden in France. As such, in correspondence with Heracleous (2003) suggestions, drip irrigation was a newly developed resource for Australia. The whole industry thus gained a new resource which OWC were not eager to imitate owing to their institutions. Innovation in marketing techniques, distribution, packaging and branding are a vital internal resource in international business strategy. These are some of the major intangible resources that individual players or the industry as a unit can develop to attain competitive advantage. New distribution channels for individual global players such as Coca-Cola proved vital for the success of the company (Quelch & Bartlett 2006). The NWC identified the weaknesses that lay in the distribution, marketing, packaging and branding of wines by OWC and also participated more in wine exhibition which proved vital (Orth & Krska, 2002). They thus adapted these marketing techniques which had proved successful in other industries. In the OWC, it is indicated that “fragmented producers and tight government regulations had created a long, multilevel value chain” (Quelch & Bartlett p. 24) that did little justice to the marketing process. The industry in the OWC was fragmented in that the growing, distillation and distribution were handled by different entities which were largely inefficient. In contrast, firms in the new world countries owned and controlled the whole value chain. Good marketers should be able to create new products that meet market needs where consumers never such a product ever existed. This can be achieved creating low cost alternatives to target low income earners in their market (Peng, Wang & Jiang 2008). This is one core resource that the NWC posses that the OWC do not. According to Bromiley (2005), the potential of an industry in creating such products equates performance based on the assumption that firms utilize their resources optimally. In this sense, it can be deduced that the low cost wines market segment was not served prior to market segmentation by NWC win makers (Slater 1997). The NWC managed to create a new market of low cost wines that were packed in larger, convenient and low cost packaging. Branding was the name of the game for Australian wine makers and this also helped in price wars (Kurtz, MacKenzie & Snow 2009). With better control of the value chain, producers in the NWC were able to sell their wines at lower prices as compared to players in the OWC who were limited by the high cost of their multilevel value chain hence had to rely on government subsidies to remain relevant in the market. The institution based view of strategy Institutions are defined as a set of rules of the game in a society, which are humanly devised constraints that shape the interactions amongst entities. In this context, institutions are viewed as relationships between players in one industry and also the relationships between these players and their respective government (Henry 2008). An organization’s institution context influences its competitive advantage and its performance (Jansson 2008). This institution based view is supported by two propositions 1) “individuals and firms act rationally according to formal and informal institutional structures; 2) when formal institutions fail, informal institutions regulate exchange relationships” (Peng & Khoury p. 257). To better understand the role of institutions in influencing strategy, they are treated as independent variables or as part of the external environment. Institutions interact with organizations by signalling which choices are acceptable and supportable. Inter-organizational structures are largely institutionalised and legitimised by the state. They affect the structures of a business network by legitimizing particular patterns of authority within them (Malhotra 2010; Jain 2003). For instance, the European Economic Community forbid use of appellation names on wines. There are two forms of institutions, formal and informal. The most common type of formal institutions is a set of national laws set by the government or any authorised government agency. Formal institutions are hinged on curtailing product-related diversification and enhancing protectionist policies (Kraaijenbrink, Spender & Groen 2010; Peng and Khoury 2009). Such formal institutions are based taxation levels from local players, licensing and competition laws. Wine makers in OWC relied on heavy regulation on every aspect. For instance, German laws required registration of each vineyard and appointment of a panel to taste its annual vintage for classification. In contrast, NWC deregulated the industry. In Australia, grape growers were allowed to experiment with farming methods and many large estates had on-site labs to carry tests necessary in grape growing. Such developments in grape farming enhanced the wine industry in the NWC while the strict regulation choked it in the old world. Players in NWC were able to increase their production at lower costs and carry on production throughout the year through irrigation OWC players relied on unreliable annual climatic patterns. The failure of formal institutions ushered in informal institutions. These are basically founded on culture and beliefs in an industry. They usually take effect when formal institutions fail (Hunt 2002; Peng & Khoury 2009). For instance, wine growers in OWC relied on government to grade and test their products though they were motivated by profits and business ethics to produce quality products. OWC had adopted a “set of rules” to govern the fermentation process by using oak casks and using reverse osmosis to concentrate the juice. This process was tedious and inefficient and hence constrained their potential. Wine makers in the NWC turned to more efficient computer-controlled stainless steel tanks for the same job. The use of oak casks instead of other materials was bent on upholding the colour and quality of wine and was not a requirement by government. But because of the forms institution in enforcing that, the informal ‘set of rules’ was adapted by the wine makers. The strategy by NWC wine makers to use the new fermenting containers was driven by costs, quality and efficiency while the OWC wine makers’ choice of strategy was based on tradition. Conclusion Organizations and industries in general have to base their international strategies both on their resources and institutions relevant to them. From the discussion above, it is apparent that no view is superior to the other but industries and individual firms alike need to consider both perspectives. However, the resource-based view is better suited to individual firms because it looks at the potential of a firm’s internal environment. The institution based perspective better suits the industry as a whole. References Bromiley, P. (2005). 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