5.3 Parameters
5.3.1 The dichotomy of resources: Shared and exclusive (type-a and -b)
Chapter 4 introduced the resource-based view of firm (RBV), under which a firm could be seen as a bundle of resources (Penrose, 1959). These resources determine its decision and performance (Barney, 1991; Peteraf, 1993). However, only some resources may be valuable,
2The view that a cartel’s market share in the export market is much smaller than in the domestic market is also proposed in Davidow and Shapiro (2003)
rare, inimitable and organised enough to lead to profitability in the long run (sustained competitive advantages) (Barney, 1991). As a consequence, the RBV allows the objective of export cartel formation to be viewed in a new light: firms may form an export cartel because it allows a more productive use of resources in the long run.
In the context of export cartels, this study proposes that resources can be categorised into two types: Shared and Exclusive resources. The amounts of both types of resources are denotedai2 R+ (0,1] andbi2 R+ (0,1], where i = {1,2} denotes the firms, respectively.
The categorisation of resources is often relationship-specific, i.e., it depends on what resources each pair of firms possess. For example, one firm may possess well-trained human resources while the other firm possesses special information about the export market, both of which are used in a pricing activity. In such a scenario, if what one firm possesses is what the other firm needs, then human resources and market information are considered shared resources.
Conversely, if the benefits of an exclusive use of human resources and special information about the export market within each firm is higher than the benefit of sharing these resources between firms, these resources should be seen as exclusive. Even though the categorisation of resources is often relationship-specific, there are some characteristics or situations under which certain resources are likely to be either shared or exclusive resources by nature. Next, the categorisation of resources will be discussed further.
Shared (type-a) resources
Shared resources are resources that are more productive when being shared between firms (when a firm chooses to form an export cartel) than when used within the firm for a given activity (Kogut, 1988). Shared resources could be either property-based (e.g., human, intellectual properties, and physical properties) or knowledge-based (e.g., organisation, technology, and management) (Das and Teng, 2000).
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In this study, the definition of a cartel is comparable to what business studies literature calls a strategic alliance. A strategic alliance is defined as ’a coalition, where partners remain independent firms but which coordinate some of their activities while being competitors in other areas’ (Fuller and Porter, 1986). One of the main rationales behind the motives of a strategic alliance and the mode by which it is conducted is the complementarity be-tween resources that partner firms possess (Tsang, 1998). From the RBV, Eisenhardt and Schoonhoven (1996) proposed that firms are more likely to form a strategic alliance when they are ’attempting pioneering technical strategies’, ’in high-velocity industry such as [the]
semiconductors industry’ or ’led by well-connected top management teams’. Later in this study, we model these cases either as the cases in which a firm possesses a considerable amount of the shared (type-a) resources or the cases in which the productivity of the shared resources is increasingly expanded when being used across firms3.
Bruce Kogut proposed that a firm may combine resources across firms either to acquire the other’s resources or to maintain one’s own resources while benefiting from another’s resources (Kogut, 1988). Ramanathan et al. (1997) characterised shared resources as "inputs owned by different parties (firms) and inseparable from the other assets of the firms", and thus imperfectly mobile (i.e., a decision to compete automatically disallows firms to use each other’s shared resources). One of the model’s assumptions was that the rights over resources were well established, which means imperfect imitability. These two assumptions on the properties of resources are quite robust as, even in the absence of well-established rights, mobility and imitability may be imperfect due to other barriers, such as causal ambiguity, asset interconnectedness, and resources indivisibility (Dyer and Singh, 1998).
If the shared resources owned by different firms are similar in nature, they may be called supplementary (scale-generating) resources, e.g., financial resources. The purposes of matching supplementary resources are for example, risk-sharing, enhancement of market
3In the language of my model, this means that the sharing coefficient (s), the concept which will be introduced below, is high in comparison with the sharing coefficient threshold ( ¯s)
power, and the achievement of economies of scale. Moreover, the member firms may also operate in other different industries and their supplementary resources, such as human resources, might have expertise in different industries from each other. Therefore, sharing supplementary resources across firms may also provide a solution to different problems across industries. The fact that shared resources could be a vehicle to transfer knowledge across firms and industries is closely linked to the concept of learning in production, which is the most fundamental driver of industrial systems and innovation dynamics (Chang and Andreoni, 2016). Conversely, if shared resources are dissimilar in nature, they may be called complementary (synergy-generating) resources, e.g., resources with technological complementarity (Dyer and Singh, 1998). The synergy effect may occur due to growth opportunities such as exploiting each other’s distribution channels in order to expand the product’s market coverage and acquiring each other’s technology (Pearl and Rosenbaum, 2013). Furthermore, sharing complementary resources across firms potentially creates a snowball effect, whereby a change of production processes and structures in one sector induces changes in the others (Rosenberg, 1969).
Exclusive (type-b) resources
Exclusive resources are resources that are more productive when being exploited within the firm that owns it (when a firm chooses to compete) than being shared across firms (within a cartel). They are resources that firms use in order to compete against other firms. The literature on RBV implicitly assumes that resources are exclusive, unless stated otherwise (Das and Teng, 2000). In the RBV literature, shared resources are considered only if the decision is to be made whether to cooperate or to form a strategic alliance. Otherwise, firms are assumed to make a decision about their activities only considering the exclusive resources they own, in order to achieve competitive advantages over competitors. The RBV literature has proposed that each firm decides its strategy based on (exclusive) resources it possesses at
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the time, in oder to maximise the value along the value (or supply) chains (Mentzer et al., 2001; Rayport and Sviokla, 1995).
Exclusive resources are diverse in terms of characteristics. Apart from Jay Barney’s proposition that resources have to be valuable, rare, inimitable, and well-organised (the so-called VRIO framework in Barney (1991)), there are two fundamental conditions under which resources are likely to be exclusive (rather than being shared resources).
Firstly, the resources should have non-increasing return to scale (i.e., constant or decreas-ing return to scale). This condition can be seen as a situation under which shardecreas-ing resources across firms does not lead to the scale effect but rather reduces the value of the resources. In other words, exclusive resources, when being shared across firms, will benefit some firms at the expense of the others (a zero-sum game). As there is usually a learning/transfer cost when resources are to be transferred across firms, the net benefit to all the firms in the industry of sharing exclusive resources is usually negative and, therefore the firms are worse off than when they keep their exclusive resources to themselves. For example, a firm may operate at or above its minimum efficient scale (MES) already. Therefore, an increase in scale by combining resources across firms does not benefit the firms but rather makes them less efficient. Another example of exclusive resources is the trade secret, which is defined as "a way for a firm to safeguard the income that flows from a piece of knowledge" (Martin, 2010).
Therefore, a firm usually pays more than it gains by sharing the trade secret with the other firms.
Secondly, the resources possessed by a firm at the time are sufficiently standalone, i.e., they could be used to produce the final product without the need for complementarity. This condition can be seen as a situation under which sharing resources across firms does not lead to a synergic effect. It could be because exclusive resources are complementary with generic resources which could be easily acquired by any firm. For example, the best lecturer still uses an ordinary whiteboard (generic resources) to teach, but they combined this with their unique
teaching skills (exclusive resources). Usually, these resources are highly specialised and firm-specific such that the other firms in the same industry cannot conduct the same activity using the resources they possess with equal efficiency. For example, intrinsic knowledge–the knowledge that is impossible to explicitly explain by any means and, therefore, is inimitable in nature–allows a firm to build a better piece of machinery, train its workers more effectively, or devise a more productive system of work (Liebeskind, 1996).