RBV in Micro Businesses

Due to the dearth of literature on the MB RBV perspective, this discussion will begin with the RBV discussion for small businesses and consequently make the case for MB.

The RBV of the firm, which is a well-established theory in the firm level of large business, has also become an important theoretical aspect in explaining the situation of smaller businesses. Smaller firms also face the necessity to procure critical resources that will create a sustainable competitive advantage among competitors (Barney, Wright and Ketchen, 2001). RBV acknowledges that smaller firms are weaker than larger firms because they lack the necessary resources and capabilities for survival and growth (d’Amboise and Muldowney, 1988; Eden, Levitas and Martinez, 1997; Gooderham et al., 2004). For example, a stimulating RBV perspective on how a small and medium sized enterprise can develop a sustainable competitive advantage based on detailed analysis of 14 case studies was put forward by Rangone (1999). This study identifies the importance of three basic capabilities: ‘innovative capability’, ‘production capability’, and ‘market management capability’ in small business that can match with the resource based perspective of the firm. Literature identifies several other resources that small businesses possess that would give them the competitive edge which is associated with the RBV, for example: external relationship (Street and Cameron, 2007); small business orientation or entrepreneurial orientation (Runyan, Droge and Swinney, 2008); knowledge-based resources (Wiklund and Shepherd, 2003); human resources (Mayson and Barrett, 2006); export performance resources (Dhanaraj and Beamish, 2003); working capital management resources (Howorth and Westhead 2003); innovative resources (Hewitt-Dundas, 2006); and internationalisation related resources (Westhead, Wright and Ucbasaran, 2001). These studies not only identify or confirm that a particular resource can be tapped into the management of small firms, but also show how these resources can be developed, leveraged, and further combined for enhancing business performance.

Subsequently, authors have used the theory of RBV to identify and explain various resources that can help bring competitive advantage to smaller firms. As explained in Section 4.2.1 of this chapter, RBV also explains the strategic rationale behind the adoption of RL for obtaining a competitive edge. Nonetheless, literature reveals that RBV can acknowledge the resource- intense nature of small businesses. Hence, it can be argued that smaller business, if integrating RL into their agenda, may achieve similar advantages.

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It has not been easy to make a similar case for much smaller businesses such as MBs. Very limited existing theoretical and empirical research on MB resource-based approaches has created a problem to build upon the existing literature. Kelliher and Reinl (2009) attempt to discuss the resource taxonomy of micro firms using the RBV approach. These authors highlight the learning attributes of these types of firms as resources, and analyse these through the RBV approach. The authors suggest that:

‘The micro-firm’s underlying unique competitive advantage is centred on their capacity to learn at a faster rate than the rate of change in their environment, this taxonomy seeks to hone management practice in promoting and capturing individual and organisational learning in this environment. Specifically, micro-firm management competencies are found to be relationship management when interacting with the firm’s business environment, opportunity (resource) management at organisational level, the owner/manager’s inclusive micro-firm management practice leadership and communication skills within the firm, and the promotion of individual learning underlying HRD’ (Kelliher and Reinl, 2009, pp.529-530).

Researchers like Hermel and Khayat (2011), with context to rapid internalisation in micro firms, emphasise the significance of leveraging internal and external resources. These authors suggest that quick internalisation is made possible through ‘managerial abilities’, ‘innovation’ and ‘network’ capabilities. Tu, Hwang and Wong (2014) examine the co-operation between supplier and consumer in product and service innovation in micro firms. Their study found that cooperation with supplier is more helpful in this respect than cooperation with consumers. Duarte Alonso et al. (2016), in the context of micro and small Italian wine firms, found that resources like product quality, managerial/staff capabilities, and knowledge were some of the more significant resources these businesses possessed, which again has alignment with the theory of RBV. This study, however, also found that sustainable competitive advantage, despite the existing resources, may not be achieved as these firms face various barriers like finances and red tape. Various authors recognise the limited amount of research in this area and have made a call for further study to develop better understanding (Kelliher and Reinl, 2009; Grande, Madsen and Borch, 2011). For instance, with context to understanding the relationship between entrepreneurial orientation and RBV, questions have arisen like ‘are these theories also valid for micro-sized firms…?’ (Grande, et al., 2011, p.91). Thereafter, some research on the relationship between micro firms and resource-based view theory has been conducted in recent years (see, e.g. Kearney, Harrington and Kelliher, 2014; Bhattacharyya and Jha, 2015; Wang, 2016). It can, however, be argued that these existing studies are lacking in terms of both quantity and quality, which does not provide a

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concrete base for understanding the resources, capabilities, and competitive advantages in relation to micro firms.

Furthermore, phenomena such as RL may be beneficial to smaller firms like MBs; however, special capabilities are required to undergo this process:

‘Reverse logistics capabilities represent the internal capabilities and processes that the firm deploys to effectively implement its reverse logistics activities… Reverse logistics capabilities include the accuracy and the availability of information that is used, and the process and timeliness of reverse logistics information. Reverse logistics capabilities also include the internal and external connectivity and usefulness of that information. These capabilities represent a bundle of information-related processes that enable a firm to better manage its reverse logistics activities that may in turn relate to cost savings’ (Jack, Powers and Skinner, 2010, pp.229-230).

Due to the paucity of literature on MB RL, and the limited literature on MB resource-based perspectives, it has not been easy to suggest whether MB possess the required resources and capabilities to go through the process of RL in order to achieve sustainable competitive advantage. Consequently, this analysis leads to the first research question:

RQ1: Do micro businesses have the capabilities to go through the process of reverse

logistics for sustainable competitive advantage?

RBV may have the potential explanatory power around the resources and capabilities needed for RL, however this theory has not been free from criticism. For instance, it has been argued that competitive advantage may not be sustainable in dynamic, quick changing market environments (Eisenhardt and Martin, 2000; Fiol, 2001). Hence, the key to converting these dynamic capabilities into a source of competitive advantage is by applying these capabilities ‘sooner, more astutely, or more fortuitously’ (Eisenhardt and Martin, 2000, p.1117). Large firms with adequate resources may be able to tap into the benefits of their existing capabilities for sustainable competitive advantage in the changing market environment. However, smaller firms including MBs, due to their resource constrained nature, may struggle to do this. Nonetheless, the flexible nature of these businesses which results in quick adaptation to any changes in market may be able to change the existing capabilities for sustainable competitive advantage. However, empirical research is needed to examine this assumption. Furthermore, RBV has also been criticised as being unable to adequately conceptualise other organisational dynamics, especially costs (Foss and Foss, 2004). For this reason, this existing research has also used the theory of Transaction

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Cost Economics (TCE), which is believed to have the potential to examine the cost situation of a firm to make a rational economic decision.