GLOBALIZATION: THE SOURCE OF A SUSTAINED COMPETITIVE

ADVANTAGE

Contemporary Business Thinking assignment

Presented to
Dr. Kasper Schattke

Written by Alessandro Mina, Ava Pourzandi, Philippe Latreille, Olivier

Rodriguez, Arvin Liu, Wen Ting Zhu

John Molson School of Business

Montreal
Thursday November 28th, 2013
Globalization plays a huge
role in the 21st centurys economy. In spite of its numerous definitions, one that suits the
business world would be the absence of borders and barriers to trade between nations (Parker,
2005). In a nutshell, globalization is the phenomenon revolving around mass exports and
imports. Based on Jay Barneys text Looking Inside for Competitive Advantage, we think that

globalization is the best way for a company to gain a sustained competitive advantage. More
precisely, globalization allows a company to answer the questions of value, rareness,
inimitability, and organization, which are key sources in achieving competitive advantage
according to Barney. This claim also took root after interviewing ten businesspeople on their
thoughts of the advantages, as well as the drawbacks of globalization. Their answers provided
useful insights to back up our thoughts on the importance for businesses of the current era to
globalize their operations.
Value
To Barney, a firms capacity or resource is valuable when it exploits opportunities and/or
neutralizes threats (Barney, 1995). In other words, a firms resource is considered a source of
value when it distinguishes itself from the competition. When it comes to globalization, there are
two different ways of interpreting value. The first one comes from the convenience of obtaining
goods that are cheaper than if they were to be produced locally. One of our participants, who is
involved in the application development industry said: I can easily purchase from a foreign
country for a cheaper price and have it shipped to my door within a few days. Globalization
brings more possibilities to the consumer, and is perceived as a major benefit. The second way
for a resource or capability to be valuable in global competition occurs when the consumer has
access to goods that are unavailable in his area. For instance, a participant in the food processing
industry claims that for him, globalization is the only way he can run this business. I use a lot of
almonds to make my cookies, and have no choice but to buy imported because Canada does not
produce any!. Therefore, globalization offers value by allowing companies to sell products that
clients would not be able to have access to without imports. Value in firms resources is essential,
but it is only one of the four criteria to have a sustained competitive advantage.

Question of Rareness
When seeking a sustainable competitive advantage, Barney also addresses the question of
rareness. In order to evaluate the rareness of a firm's resources and capabilities, the managers of
this same firm must question themselves on "how many competing firms already possess these

valuable resources and capabilities?". Furthermore, companies seeking to gain a competitive

advantage must "exploit resources and capabilities that are different". Rareness is among other
things a way of standing out against competing firms. Finally, if a corporation's resources and
capabilities are not rare on their own, they will not be a source of competitive advantage.
(Barney, 1995)
Due to the current dynamic fostered by globalization, the economic market has grown
extremely competitive and vast. Finding resources and capabilities that are different from those
of already well-established competitive market leaders is extremely difficult. As Mr. Sina puts it:
"Rareness itself has become a rarity". Furthermore, this economic situation renders standing out
among so many suppliers, offering similar products, exceedingly challenging (Britt, 2007). As
stated by Mr. Sina, an international business entrepreneur, whereas before corporations would
seek a physical and tangible resource or capability in order to gain a sustainable competitive
advantage, globalization has nowadays pushed business' to seek an intangible resource instead,
such as an idea, to allow them a competitive advantage. An example would be the social media
application, Snapchat, which allows its users to send pictures or videos, that expire only seconds
after, to friends and family (Goldman, 2013). Why did Snapchat prevail when so many other
similar products failed? Because the idea behind the product's concept was innovative, original
and most importantly, it was rare. Globalization has created extremely competitive markets,
which is forcing companies to come up with rare concepts in order to perform.

Imitability
Barneys theory also mentions imitability as a factor for gaining a competitive advantage.
When competitors have a hard time imitating a firms resources and capabilities, they recognize
the firms advantage over them. In order to better assess Barneys theory regarding imitability,
we will use the example of Chinese imitations. Chinese electronic products have a reputation of
being the best replicas on the market. They are cheap, and often not distinguishable from the
original model. A report from ISUPPLI Company indicates that in 2012 China had produced 160
million cheap copy cell phones to meet the domestic and foreign markets demand. However,
only 60 million cell phones were dedicated to the Chinese market. It goes to show that the
demand for these cheap cell phones is greater overseas than it is locally. It is a result from
globalization. ( Shanzhai, 2013)
In such market conditions, where so many similar products compete against one another,
the importance of history and reputation play a somewhat vital role. According to Barney: "As
firms evolve, they pick up skills, abilities, and resources that are unique to them, reflecting their
particular path through history. These resources and capabilities reflect the unique personalities,
experiences and relationships that exist only in a single firm." Confronted with so many choices,
consumers tend to choose a product they know they can trust and has the most to offer according
to its price.
After all, the main competition in the technology and innovation market is about the
firms core values and purposes. A company may possess the necessary funds to support their
products, but they dont always have the technology needed to gain the consumers trust. The
question of imitability remains of great significance for emerging companies as it concentrates
on the values of the company making the product, rather than the product itself.

Organization
When a company decides to globalize its operations, it has to change the organization of
the enterprise in order to adapt to new markets. This goes in hand with Barneys fourth question
towards achieving a sustainable competitive advantage, in relation to the organization of a firm.
The question asks: Is a firm organized to exploit the full competitive potential of its resources
and capabilities? (Barney,1995) By becoming global, companies have to adapt to different
cultures and therefore different needs of their customers. This involves that the managers have to
create new strategies in order to optimize the usage of the companys resources. Take for
example the life assurance company Lombard, which was founded in 1991 in Luxembourg.
Lombard started by only operating inside of Europe, but it recently has clients all around the
world. This globalization forced a restructure of the organization of the resources offered in
certain parts of the world, such as in Asia. As Patrick Mina, Executive Director at Lombard
International, told us: Asia is a very competitive market, where receiving a fast service is
essential, and much more important than in European markets. According to Mr. Mina, the
company had to drastically change the organization of its service, in order to satisfy the
demanding clientele of Asia. Lombard was able to take the experience they gained in Asia and
apply a better service in the European market. Globalization forced them to exploit the full
competitive potential of their resources, a strategy Barney attributes to a sustained competitive
advantage. In addition to resources, Barney also mentions the importance of achieving the
maximum potential of a firms capability. Globalization allows for a company to gain a much
bigger market share, and therefore improve its capabilities for growth.
The food chain Pret a Manger is a great example of this. After only being based in
England, the company opened restaurants in China, the United States, and France. The decision
of going global allowed the company to increase its profits. In addition, having business around
the world allows firms to have a greater pool of potential employees to choose from. This also
confirms that going global allows a company to be organized in a way that maximizes the
competitive potential of its resources and capabilities.

Drawbacks
There is always two sides to a medal and globalization does not only brings benefits to
the producers and the consumers. In our interviews, a couple of negative points were brought up
concerning the relationship between globalization and competitive advantage.
First of all, for some of our participants in the clothing industry, we learned that
globalization sometimes creates imperfect competition where the big corporations survive and
outsource, while the small companies have a hard time staying in the race. Additionally,
whenever a product is imitable, it faces an increased competition, which is sometimes unethical.
The generally cheap prices from outsourcing raise a couple of issues that can affect the
consumers (if theyre well informed) and the producers core values or vision. Child labor,
polluting practices, corruption, slavery, interdependence and triangular trade are examples of
some drawbacks attached to going global. Producers also face new competitors who are
sometimes subsidized and have better supplier partnerships. Sunrise (new industries) and sunset
(declining) industries are having more and more trouble improving their bottom lines due to this
global competition.
New customers also bring a noticeable problem; it is very difficult to forecast the
demand in a market. Additionally, globalization can expand quickly a company and thus lead to
crises and a loss of identity for the employees. For example, the political situation in a
companys country of operation can change from one day to another and result in a major loss.
If we look at Barneys VRIO framework, in order to compete on an international scale
and obtain a sustainable competitive advantage, producers need to possess a product of great
value. A product can become more or less valuable in different situations, so the producer must
stay in the appropriate markets. It also should produce something that is really rare, but the open
frontiers complicate this task. Some of our interviewees remembered that when they were
younger, exotic fruits like oranges were rare and expensive in Montreal, for example. The
rareness of the product influences the value of it. Moreover, the product shouldnt be really
imitable. This point is really hard to ensure. In the past years, Chinese companies, among others,
have developed an expertise in copying luxurious products, electronic devices and even some car

technologies. General consensus says that you diminish the chances of imitation if your
production requires knowledge workers. However, the quick flow of information makes this a lot
harder to apply.
Finally, global competition has a tendency to push the smaller producers out of the race
unless they invest huge sums of money and a great deal of energy. In summary, the biggest
drawback of globalization is that the big companies are the one who benefit the most from it,
unlike the smaller ones. ;While the sales of the Top 200 are the equivalent of 27.5 percent of
world economic activity, they employ only 0.78 percent of the world's workforce.

The majority of answers from the interviews indicated that most respondents agree that
globalization has been positive for their business. Interviewees often insisted on the increase of
market share as well as the ability to acquire products impossible to obtain without imports.
Based on our studies, globalization allows companies to offer a valuable product that is rare and
made a firm that is organized in a way to maximize its potential. Allowing a firm to offer a
unique product in a market creates value for a company, and worldwide competitive markets
forces firms to focus on the rarity of their product or service. Through globalization companies
also have to reorganize themselves to adapt to clients with different needs, in a way that
maximizes their potential. However, contrary to our original belief, globalization does not allow
companies to offer a product that is not imitable, because the flow of information makes it easy
to copy business models. Other drawbacks of globalization include pollution, unequal
distribution of capital and the potential exploitation of labor. Despite these drawbacks, we
believe firms should develop a strategy that focuses on globalizing their activities, as it is a vital
method to achieve a sustainable competitive advantage in todays technology oriented market.

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