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Apple Inc. is a renowned American multinational corporation known for designing, manufacturing, and marketing a wide range of consumer electronics and software products (Apple Inc., 2008). The company's annual sales reached an impressive $32.5 billion by the end of the last fiscal year, reflecting a remarkable 35% increase from the previous year (Apple Inc., 2008). Notably, Apple was also voted as America's most admired company, securing the top spot in a global survey (Fortune, 2008). Such achievements underscore the company's exceptional competitive advantage. This essay explores the foundation of Apple's competitive advantage through the lens of the "resource-based view" (RBV) framework, shedding light on the unique resources and capabilities that enable Apple to thrive in its highly competitive industry.
The "resource-based view" (RBV) is a strategic management framework that focuses on a firm's internal strengths, specifically its resources and capabilities, as the key drivers of competitive advantage (Barney, 1991; Wernerfelt, 1984).
In contrast to external models such as Porter's classic five forces model, the RBV assumes that external opportunities and threats are relatively uniform across firms, with variations arising from differences in their internal resource configurations (Collis, 1991).
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This perspective draws inspiration from the work of Penrose (1959), who conceptualized a firm as a unique "collection of productive resources."
The RBV posits that by formulating a strategy built upon these unique resources, a firm can unlock new opportunities and generate superior returns over extended periods (Wernerfelt, 1984). Two fundamental assumptions underlie the RBV: a firm's resources and capabilities must exhibit heterogeneity, and they must possess limited mobility to establish a sustainable competitive advantage (Barney, 1991; Peteraf, 1993).
A competitive advantage is characterized as a "value-creating strategy not currently or potentially being implemented by any other competitors" (Barney, 1991).
It can be attained either through cost leadership, where a firm delivers benefits at a lower cost than its rivals, or differentiation, where a firm offers products superior to those of its competitors (Porter, 2004). When competitors cannot replicate these advantages, it evolves into a sustainable competitive advantage (SCA) (Porter, 2004).
Apple's competitive strategy revolves around differentiation, anchored in its unparalleled capacity for innovation. The company has consistently ranked as the world's most innovative enterprise (BusinessWeek, 2007), which has reduced consumers' price sensitivity and enabled Apple to command premium prices (Porter, 1985) despite fierce price competition (Apple Inc., 2008). Through continuous development of innovative products that disrupt existing technologies, Apple has gained first-mover advantages in its markets, establishing mobility barriers that deter competitors from adopting a similar approach (Barney, 1991).
The inability of competitors to achieve a first-mover advantage suggests the heterogeneity and limited mobility of Apple's resources, reinforcing the notion of its competitive advantage (Barney, 1991).
While Apple's capacity for innovation is at the forefront of its competitive advantage, viewing it from the RBV perspective reveals that innovation may stem from internal activities and processes through which Apple deploys its resources and competencies (Johnson et al., 2004).
Firm resources encompass "all assets, capabilities, organizational processes, firm attributes, information, knowledge, etc., that enable a firm to conceive of and implement strategies" (Daft, 1983, cited in Barney, 1991). These resources can be categorized as tangible (e.g., offices, retail stores, factories, capital) and intangible (e.g., knowledge, reputation, management) (Johnson et al., 2004).
Barney (1991) identifies four criteria that a firm's resource must meet to harbor the potential for SCA: value, rareness, imperfect imitability, and non-substitutability (see Figure 1).
Value: A resource is deemed valuable when it enhances the efficiency and effectiveness of a strategy while capitalizing on external opportunities or mitigating external threats (Barney, 1991). The concept of value sometimes draws a direct connection with the environmental model, resembling Porter's five forces framework. This connection makes the 'value' variable appear exogenous to the RBV (Priem and Butler, 2001). However, Peteraf (1993) lauds the model for its internal focus, which uncovers potential sources of competitive advantage not solely attributed to the external environment, a crucial factor given the difficulty of identifying areas of value (Newbert, 2008). It's important to note that not all resources can independently generate SCA; their full potential value is realized when combined and deployed via other capabilities or resources.
For instance, Steve Jobs, the CEO and co-founder of Apple, is undoubtedly one of the company's most valuable resources. His value extends beyond creating groundbreaking products like the iPod (Economist, 2005); it lies in his ability to foster a corporate culture that promotes individuality and excellence, attracting talented individuals to the company (Apple Inc., 2008). This influx of talent has contributed to the accumulation of superior knowledge and expertise within Apple. Recognizing the benefits of resource integration, Apple has brought all functions, from design to engineering, in-house (BusinessWeek, 2005). This vertical integration has enhanced the efficiency and effectiveness of Apple's resources and capabilities, surpassing those of its competitors.
Rareness: Rarity implies that a resource is not readily available. Hoopes et al. (2003) argue that rarity may not be an absolute necessity. While the concept of rarity features prominently in the works of Wernerfelt (1984) and Barney (1991), they contend that any resource meeting the other criteria (value, inimitability, and non-substitutability) will inherently be rare. However, Newbert (2008) disagrees, asserting that rarity is indeed a variable crucial to competitive advantage. It is worth noting that firms do not necessarily require both rare resources and rare competencies to achieve competitive advantage.
For instance, the raw materials used by Apple for manufacturing its products are readily available, but the patented processes by which they are manipulated and assembled to create the final product are what make the resulting resource-competence combination rare. The rarer and more valuable this combination, the stronger the competitive advantage.
Imperfect Imitability: A resource is imperfectly imitable when another firm cannot replicate it perfectly, and it cannot be easily obtained (Peteraf, 1993; Barney, 1991). Apple's extensive portfolio of patents serves as a prime example of this. Patents create a tangible entry barrier for competitors seeking to emulate Apple's strategy, thereby sustaining this aspect of its competitive advantage.
As previously mentioned, Apple's reputation for innovation is also imperfectly imitable. It has been shaped through unique historical events such as the launch of the first Macintosh in 1984 or the iPod in 2001 (Barney, 1991). Furthermore, the Apple brand itself stands as one of the company's most valuable resources, instrumental in its ability to leverage strategic competencies across diverse markets, including personal computers (Macintosh), digital media (iPod, iTunes), and mobile communications (iPhone) (Apple Inc., 2008).
Non-Substitutability: Non-substitutability refers to the inability of competitors to replace a resource or competence with an equivalent alternative (Barney, 1991). While a competitor may not be able to imitate a resource or competence, it might find a strategically equivalent substitute. As noted by Priem and Butler (2001), multiple approaches and resource configurations can achieve similar outcomes. Therefore, a firm's competitive position may still be threatened by substitute resources, potentially reducing the potential for rent earnings by making the demand curve more elastic (Peteraf, 1993).
Once a resource or capability with the potential to create SCA is identified, its heterogeneity must be preserved (Peteraf, 1993). This necessitates ongoing investment in the conditions that underpin the competitive advantage to protect and fortify the position (Wernerfelt, 1984). As Wernerfelt (1984) aptly puts it, it's akin to being "a high tree in a low forest"; by maximizing rent on resource-based strategies, other firms attempting to replicate them will find little to gain once the resource depreciates (Grant, 1991).
In conclusion, the RBV framework has provided valuable insights into the foundations of Apple Inc.'s competitive advantage. While the RBV's clarity and practical implications may be subject to debate (Priem and Butler, 2001; Newbert, 2008), it has shed light on the strength of Apple's resource base, though quantifying its exact contribution to the firm's competitive advantage remains challenging.
It is important to note that the RBV does not fully account for environmental factors, which also play a significant role in influencing a firm's competitive position. Resources represent just one potential source of competitive advantage, and as such, the RBV offers a one-sided perspective. A more comprehensive approach would involve integrating the insights from both resource-based and environmental models of competitive advantage, recognizing that they are two sides of the same coin.
Nonetheless, given the fierce competition in Apple's markets, it is evident that the company has leveraged its internal strengths to capitalize on external opportunities and mitigate external threats. Therefore, it is fair to conclude that the RBV contributes significantly to explaining the sources of Apple's competitive advantage.
An Analysis of Apple Inc.'s Competitive Advantage. (2016, Jun 12). Retrieved from https://studymoose.com/apples-competitive-advantage-essay
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