How's my Luck now?

Reflections, views and descriptions during my stay at IIM Lucknow from July 2004 to March 2006

Location: India

Tuesday, October 18, 2005

Strategic intrigue

Though many subjects have interested me quite a lot during my time here, the subject on the theories of business strategy has actually intrigued me. It is fascinating to read about the various ways of thinking about what really determines the competitive advantage of a firm. One of the views is called the resource-based view (RBV), in which the internal 'strategic assets' (intangible assets like knowhow, intellectual property, managerial competencies) distinguish one firm from another and lead to creation of competitive advantage. Prahalad and Hamel's famous 'core competence' paper falls into this category of theories.

One of the subsets of the RBV is the knowledge-based view (KBV), which identifies knowledge (both explicit as well as tacit) as a major strategic asset that drives competitive advantage. This has been particularly so in recent times, and even staid 'old economy' firms are starting to realize this. One interesting thing that a paper mentioned was that this was an age defined by two things which existed to a much lesser degree in the past: 1. a globalized world, consisting of much freer trade than in the past several centuries, and 2. increasing returns to strategic assets (as opposed to the traditional view of diminishing returns to factor inputs), whereby if a market leader and a challenger both deploy similar levels of strategic assets in business, the leader will reap greater returns than the challenger. In other words, the leader will increase his lead, while the challenger finds himself in a worse position. The question this raises is: is it inherent in globalization and free trade, in this knowledge-driven world, to cause wider and wider disparity in the incomes of countries and peoples? I have yet to read anything substantial on globalization (like the book 'Globalization and its Discontents' by Nobel laureate Joseph Stiglitz, for example), so I can't comment on it further. But this is an important question worth exploring.


Blogger CycloNurb said...

This post reminded me of an article I recently read that concluded with a similar tone. I have had a number of discussions with friends and many agree that it is time for India to push research in various fields (Biotechnology to name one) rather than just being a provider of cheap services. A number of initiatives that I know of are already in place and that is a good sign.

Quoting from the article:

Tom Friedman’s view of India’s place in the world

I will like to sign off this collection of vignettes with this
note. A well-meaning colleague forwarded to me an account
of an interview with Friedman which had him say the following:
If you lose your luggage on British Air or Swissair, the person
who answers the phone to track it down is in Bangalore. If you
have got a problem with your Dell computer, the person on the
other end of the phone you’re talking to is an Indian in Bangalore.
… The city produces about 40,000 young tech grads every
year from different engineering and computer science schools,
all of whom get absorbed [to provide] the backroom capability
for a lot of American corporations from Bangalore.
Yes, the backroom capabilities; but the ‘core competence’
jobs remain in the US! Now, we know why A. M. Naik
is angry. What Friedman does not see, but Naik does, is
that, our cleverest young people are slowly becoming the
techno-coolies for the rest of the world. You do not find
the cleverest young people in North America or Europe
working on back-office functions for the Indians or the
Chinese. What Friedman calls the miracle wrought by
Infosys and Wipro is that they have collected the cleverest
young boys and girls of India and turned them into
back-office coolies for North America, and Europe, and
Japan. On the other hand, Microsoft, or Oracle, or Cisco,
did not become the richest companies in the world by
turning the brightest graduates of MIT and Caltech into
techno-coolies who work for India and China when we go
to sleep. That is an asymmetry that has grave implications.
Globalization will then become just another word for

Link to the original article (pdf)

8:24 AM  
Blogger Tadatmya Vaishnav said...

Hi Arnav,

Thanks for the article. I have partially read Tom Friedman's 'The Lexus and the Olive Tree' and it's a nice book. That book actually gives us the picture of globalization as a leveler (or a potential leveler, at any rate).

When I posed the question in my post, I meant not only income disparity between different countries, but also that within a country. If the forces of increasing returns and free trade inherently promote wide income disparity, a very diverse and vast country like India can have problems in the future. We have neither the widespread prosperity of the West nor the iron hand of the Chinese. But perhaps I have misunderstood the argument, so I will study it a bit harder and revisit it sometime on this blog.

9:31 AM  
Blogger CycloNurb said...

My view was certainly biased towards a specific example of core comptence in technology in terms of global economies. Your post really spurred my interest in looking at this from a general point of view. I will also have to catch up on related reading and would love to continue this discussion (or more so will raise questions from what I learn).

10:54 AM  

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