Entrepreneurship and family and small businesses are considerably different from each other, but at the same time they are intimately connected. Without an entrepreneur, innovations do not come into the market, contributing to other issues, such as job creation, capital creation, finding alternatives to the needs and desires of consumers, etc. And without family and small businesses, a great deal of resources and wealth would be forfeited to coming generations because they would not have been properly transformed. There are certain different concepts of family businesses based on several factors and characteristics.
“Family businesses are those where policy and decision are subject to significant influence by one or more family units. This influence is exercised through ownership and sometime through the participation of family members in management. It is the interaction between two sets of organizations, family and business, that establishes the basic character of the family business and defines its uniqueness.” — P. Davis. (Meaning of Family Business: Types and Characteristics, 2020)
There are different types of approaches that can affect the strategic management and decision making of a family business firm and they are as follows: Socioemotional wealth (SEW), The agency perspective, The resource-based view(RBV) and The institutional perspective.
For this article, which is to determine on any strategic management theory and apply that theory perspective to a family business and that paradigm is’ resource based view(RBV)’ which will be evaluated after reviewing the available academic literature. And then the operational implementation of the theory can also be seen by the comprehensive study of the two family-owned business firms, namely’ hyundai’ and’ toyota,’ as both businesses fall under the same sector so that the distinction and similarities in strategic decision-making can be easily understood. At last, recommendations and advice would be provided for the future.
REVIEW OF ACADEMIC LITERATURE
What is resource based view (RBV) theory of strategic management ?
The Resource based view theory(RBV) is a model that sees resources as key to superior firm performance. If a resource exhibits VRIO attributes, the resource enables the firm to gain and sustain competitive advantage. (Jurevicius, 2020)
Shankar and Astrachan (1996) note that the criteria used to define a family business can include: Percentage of ownership; Voting control; Power over strategic decisions; Involvement of multiple generations; and Active management of family members. (Meaning of Family Business: Types and Characteristics, 2020)
The Resource-Based View (RBV) of competitive advantage provides a theoretical framework from the field of strategic management for assessing the competitive advantages of family firms.(Habbershon and Williams, 1999). This RBV theory has emerged as one of the most dominant paradigms in the field of strategic management and planning in last few decades after some of the well known researchers have studied on this particular theory. We can understand the theory in detail with the help of the below figure.
(Jurevicius, 2020)
In this theory the resources are studied and it combines both it’s tangible and intangible assets of the company because over a span of time important resources are the source of innovation and progress. As per the RBV supporters, it is far more practical to take advantage of potential opportunities using current methods in a creative way than to seek for new skills for each separate opportunity. Throughout the RBV model, resources play a critical role throughout helping organizations reach higher operational productivity. There are two types of resources: tangible and intangible.
Tangible assets are physically present things. For instance Land, buildings, machinery, equipment, capital etc Physical resources of the firm can easily be bought in the market because rivals can sooner or later acquire the identical assets so they confer little advantage to the companies in the long run.
Intangible assets are everything else that has no physical presence but can still be owned by the company. Brand reputation, trademarks are the examples of intangible assets. Unlike physical assets, brand reputation is built over a long time and is something that other companies cannot buy from the market. Intangible resources usually the main source of sustainable competitive advantage.
The two most important assumptions of the RBV are that the resources must be heterogeneous and immobile.
- Heterogeneous: the first assumption is that if all the companies have same amount of resources they could not apply different strategies to outcompete their rivals. And capabilities, inventories, skills, workforce and other resources that organization possess is different from company to company. Then only companies can achieve some competitive advantage in the market or else perfect competition will take place in the market. so to avoid it companies should always apply different type of resources and gain advantage.
- Immobile: the resources are immobile and cannot move from company to company so the rival companies cannot replicate any resources in a short time period especially intangible resources like brand equity, knowledge, goodwill etc. but the tangible resources can be replicated easily by the competitors.
The VRIO framework which is an important part of RBV theory helping it in gaining sustainable competitive advantage.
- V- value: the value of the resources can be found out if they are helping organization in offering comparatively valuable service to the customers.
- R- rarity: rarity in the resources is necessary or else it will create a lot of competitive disadvantage to all the companies.
- I – imitability: if the company resources are valuable and rare in the market then company have to make sure that it is not easy and cheap to imitate the resource it should be costlier for rivals to imitate or find a substitute.
- O- organization: And to gain the above there advantages in the resources the company must be well organized so that they can exploit all this factors ad achieve competitive advantage in the market.
(Smith, Weaver, Jackson and Leconte, 2020)
Conceptual aspects of resource based view theory (RBV).
Family as a resource provider (Zellweger, 2017):
The primary distinguishable types of resources that families provide to the company include financial capital, physical capital, social capital, human capital and reputation.
I. Financial Capital (Zellweger, 2017):
The amount of money invested by family members in the firm for long-term returns is a competitive advantage for the firm. As the family members are also waiting for a higher amount of return. Money or financial capital invested by a family firm can be in the form of equity shares, long term loans etc. but it will raise a limited amount of capital which can be a drawback for a company in the future when they wanted it to be publicly listed company. But this financial support can help a company in the time of losses or in the worst case scenarios like bankruptcy because of lack of strategic planning and inadequate decision making
II. Human Capital (Zellweger, 2017):
Human capital within a family business is commonly characterized as the expertise and skills gained by employees operating within the company, which will enhance the company’s long-term success. Human capital is a critical perspective relating to this resource view theory. As optimum use of the resources is done only if there is highly trained professional working in the company. Which will also leads to reduce the costing and create a positive impact on growth rate of the company.
III. Social Capital (Zellweger, 2017):
Social Capital is a relation and network that a company builds and maintains with every other company and individual to get the resource advantage in the field. By maintaining a relation with every other company it can give an advantage in knowing every changes that a company makes and can understand that various aspects can be affected by the social capital like the innovation in the products and services, available market resources etc.
IV. Physical Capital (Zellweger, 2017):
Physical capital typically refers to tangible assets owned by a family firm that provide comparative advantages such as machinery, equipment, technologically upgraded instruments, land, transportation facilities etc.
V. Reputation (Zellweger, 2017):
Recent studies have shown that family firms make decisions not only to enhance economic performance but also to achieve socio-emotional goals, such as the projection of a positive image or the preservation of the firm’s and the family’s reputation (Sageder, Mitter and Feldbauer-Durstmüller, 2016) Family firm leaders work to create a successful firm in the long run, so they focus on customer loyalty and build long-term relationships with stakeholders (Zellweger, Kellermanns, Eddleston and Memili, 2012).This long-term orientation incentivizes family firms to create a strong image (Zellweger, Kellermanns, Eddleston and Memili, 2012).
Family as a resource manager (Zellweger, 2017):
The efficient use of available resources within a family firm also determines its performance.
It can be classified by some important aspects like selecting and allocating resources, creatively using the resources for better outcomes, shedding resources when it gives low outputs and high operating costs.
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