Uniwersytet Ekonomiczny we Wrocławiu

Wydział Zarządzania, Informatyki i Finansów

mgr Jolanta Gorgól

STRATEGICZNE KOMPETENCJE

TRANSNARODOWYCH SIECI HIPERMARKETOWYCH

Rozprawa Doktorska

(THE STRATEGIC COMPETENCES OF HYPERMARKET TNCs)

(PhD Thesis)

Promotor:

Prof. dr hab. Ewa Stańczyk-Hugiet

Wrocław, 2017

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Acknowledgement

I would like to express my deep appreciation to my supervisor Professor Ewa Stańczyk-Hugiet for her

support and encouragement. Her great scientific authority, experience and wisdom were like a light of

lighthouse, helping me to keep the right direction in my travel through the PhD ocean.

My sincere thanks also goes to Professor Barbara Czarniawska from University of Gothenburg School

of Business Economics and Law and Professor David A. Buchanan from Cranfield University School of

Management for scientific discussion and advice.

I would like to thank all the academic staff from Wrocław University of Economics Faculty of

Management, Computer and Science, in particular Prof. Jerzy Niemczyk, Prof. Janusz Lichtarski, Prof.

Marzena Stor, Prof. Bartosz Jasiński, Dr. Katarzyna Piórkowska, Dr. Sylwia Stańczyk, Dr. Aleksandra

Sus, Dr. Edyta Pieniacka, Dr. Michał Organa and Aneta Surmiak for their friendly atmosphere and

constructive conversations and advice. Thanks to the office staff, specially Agnieszka Szeliga and

Aurelia Domaradzka for their kindness and support.

Special thanks to my friends: Dr. Wojciech Suder from Cranfield University for constant support in the

literature research process, Monika Sławińska-Sławecka and Anika Radzka-Nowaczewska for

consultancy and long supportive discussions in the area of human resources and linguistics, legal

councel Aleksandra Sobolewska-Olszak for consultancy in the legal corporate issues, Charlotte Fay von

Karsa and Izabela Gryz-Meguelatti and my sister Ewa Joanna Palacz for friendship and never ending

support during challenging days of PhD project.

I would like to thank very, very much to my husband Zbigniew Gorgól for his patience, support and love,

and hundreds of hours of listening about Tesco, Walmart and retailing, for being with me and supporting

me every day- in great and hard moments of PhD process. I would like to thank very much my parents

for financial support during my PhD studies, my dear Mother for her love and teaching me to never give

up, and my Father for lessons full of fun. I would also like to thank my son Alexander for his supportive

understanding, patience, pride from mummy and for two years of waiting for family weekend.

Thank you to All of you for helping to make my dream possible…

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I

THE TABLE OF CONTENTS

THE INTRODUCTION ………………….………………………………………………………………………………………………. 1

Chapter I: ORGANIZATIONAL STRATEGY AND SOURCES OF ADVANTAGE ………….……………………..… 10

1. THE INTRODUCTION TO STRATEGY OF ORGANIZATION ………………………….………………………………… 11

2. THE MARKET STRATEGIES AND ADVANTAGE …………………………………………………………………………….. 18

2.1. The Strategies Exploiting Market Power ……………………………..………………………………….… 19

2.1.1. The Competitive Forces Paradigm ……………………………………………………………… 19

2.1.2. Shapiro’s Conflict Approach …………………………………………………………………..… 21

2.2. The Strategies Exploiting The Strengths of Organization ……………………………………………. 23

2.2.1. The Resource-Based View (RBV) ……………………………………………………………….. 23

2.2.2. Competence-Based Strategies ………………………………………………….……………….. 26

2.2.3. Dynamic Capabilities Approach ………………………………………………………………… 38

2.2.4. Competences and Capabilities in Different Approaches – The Summary ….… 47

2.2.5. Knowledge-Based Strategy: Knowledge & Learning Dynamism ………….………. 52

3. THE INTEGRATIVE STRATEGY ……………………………………………………………………………………..……………… 59

3.1. THE INTEGRATIVE STRATEGY:

SYNERGY OF MARKET AND NONMARKET STRATEGIES ……………………………………………… 60

3.1.1. The Overview of Integrative Strategy ………………………………………………………… 60

3.1.2. Nonmarket Strategy and Company Performance ……………………………………... 62

3.2. BI-DIRECTIONAL CONNECTIONS BETWEEN ORGANIZATIONS AND INSTITUTIONS ……… 65

3.2.1. The Institutional Context of Nonmarket Strategy (NMS) ……………………….…… 65

3.2.2. Impact on Institutions on Nonmarket Strategy ………………………………..………… 66

3.3. OPERATIONALISATION OF NONMARKET STRATEGY ………………………………………………….. 70

3.4. CORPORATE POLITICAL ACTIVITY

– A KEY PERFORMANCE OF NONMARKET STRATEGY ……………………………………………… 75

3.5. RELATIONS AS FUNDAMENTS OF NONMARKET STRATEGY ………………………………….…….. 80

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II

Chapter 2: TRANSNATIONAL HYPERMARKETS AND THEIR ENVIRONMENT …………….………………… 85

1. THE WORLD OF RETAILING IN XXI CENTURY ……………………………..……….……………………………………… 86

1. 1. The Sector of Global Retailing ……………………….………………………………………………………… 87

1.1.1. Multinational Retailing Industry …………………………………………..…………………… 87

1.1.2. Trends in Global Retailing ………………..………………………………………………………… 89

1.1.3. Negative Aspects of Retailing Globalisation ………………………………………………… 95

1.1.4. Balancing on Ice of Global Retailing CSR ……………………………………………………… 99

1.2. TRANSNATIONAL CORPORATIONS IN RETAILING …………………………………………………..… 102

1.2.1. From the Grocery Shop to the Supply Chain …………………………………………… 102

1.2.2. Retail Embeddedness ……………………………………………………………………………… 106

1.3. THE FUNDAMENTS OF COMPETITION BETWEEN RETAILERS ……………..…………………….. 108

1.3.1. Internationalisation of Retailing …………………………………………………………..… 108

1.3.2. Multichannel Diversification ………………………………………………………………..… 118

2. THE GLOBAL MARKET IN THE ANTHROPOCENE ………………………………………………..……………………… 126

2.1. FEW WORDS ABOUT GLOBALISATION ……………………………………………………………………… 127

2.2. GLOBAL ENVIRONMENTAL GOVERNMENT ……………………………………………………………… 129

2.3. TNCs AND LEGISLATION MANUFACTURING INDUSTRY …………….………………………………. 132

2.4. TRANSNATIONAL RETAIL IN PERSPECTIVE OF GLOBALISATION ………………………………... 138

2.4.1. Globalisation of Retailing- Overview …………………….…………………………………. 138

2.4.2. Retailing as a Perfect Monopoly …………………………………………………………….. 140

2.4.3. Institutions and Retailing:

Legislation & Jurisdiction Power of Corporate Retailing …………….……………. 142

Chapter 3: THE METHODOLOGY OF RESEARCH …………………………………………………………………….... 146

1. CHARACTERISTICS OF THE RESEARCH PROCESS ……………………..……………………………………..……….…. 147

1.1. MOTIVATION AND THE AREA OF RESEARCH …………………………………………..………………… 148

1.2. THE RESEARCH PRINCIPLES ……………………….…………………………………………………………….. 152

1.3. THE RESEARCH DESIGN ………………………..………………………………………………………………..… 154

1.3.1. Critical Assumptions and Definitions of the Research Process ………………….… 154

1.3.2. Qualitative Methods and Formulation of the Problems ……………………..……… 156

1.3.3. Justification of the Qualitative Method ……………………………………………………. 158

1.3.4. Ethnography as A method of Gathering Data for Grounded Theory ........…… 161

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III

1.3.5. Data Sources …………………………………………..………………………………………………. 166

1.3.6. Adoption of Grounded Theory ……………………………………………………………….... 169

1.3.6.1. Short Reflection on Grounded Theory ……………….…………….……….. 168

1.3.6.2. Motivation for Applying Grounded Theory in the Research ……….. 173

1.3.6.3. Stages of Application of Grounded Theory ……….………..……………… 174

1.3.6.4. The Limitations within the Grounded Theory Process

in the Perspective of Presented Thesis …………….………………… 195

2. THE SAMPLE DESCRIPTION ……………………………………………………………………………………………………… 198

2.1. The INTRODUCTION ………………………………………………………………………………………………… 199

2.2. WALMART .....……..………………………………………………………………………………………………….… 202

2.3. TESCO …………………………………………………….………………………………………………………..…… 222

Chapter 4: THE RESULTS: THE COMPETENCE EMERGENCE CONCEPT IN TNCs’ RETAILING …….… 237

1. THE COMPETENCE EMERGENCE CONCEPT: ORGANIZATIONAL LEVEL …………………………………….... 238

1.1. THE COMPETENCE EMERGENCE CONCEPT – ORGANIZATIONAL LEVEL ……………….….... 240

1.1.1. CEC, STAGE I: From Synthesis of Capability to Organizational Skilfulness ….. 240

1.1.1.1. The Synthesis of Organizational Capability ……………………..………… 240

1.1.1.2. The Induction of Organizational Capability ……………………………..… 242

1.1.2. CEC, STAGE II: From Organizational Skilfulness to Competitive Advantage .… 245

1.1.2.1. The Process Description …………………………………………………………… 245

1.1.2.2. Valuation of Organizational Capability, Skilfulness

and Competence ……………………………………………………………………… 247

1.1.2.3. Competences Interconnectedness and Competence

Transferability ………………………………………………………………………….. 254

1.1.2.4. The Competitive Advantage in the CEC Perspective

and Definition of Strategy ………………………………………………….……… 256

1.2. KNOWLEDGE INCREMENTALISM IN THE COMPETENCE EMERGENCE CONCEPT ……….. 260

1.2.1. Knowledge, Information & Data ………………………………….………………………….. 260

1.2.2. The Organizational Learning and the CEC …………………………………………….……. 262

1.3. HUMAN FACTOR IN COMPETENCE EMERGENCE CONCEPT …..……………......................... 273

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IV

2. THE COMPETENCE EMERGENCE CONCEPT: THE CORPORATE LEVEL …………….………………………….… 276

2.1. THE COMPETENCE EMERGENCE PROCESS IN THE PERSPECTIVE OF THE TNC ……………. 277

2.1.1. The Strategic Capability Gap & Creation of the Total Environment ……………………….. 277

2.1.2. The Permanent Competitive Advantage in the Total Strategy

And the Superior Competitive Strategic Competence of TNC ….……………………………. 282

2.1.3. Total Strategy in Perspectives of Walmart and Tesco ………………………………….………… 286

2.1.3.1. The Organizational Risks as the Total Environmental Turbulences …………. 286

2.1.3.2. The Examples of the Manifestations of the Superior Competence and

Total Strategy in Organizational Performance of Tesco and Walmart …….. 288

THE SUMMARY AND CONCLUSION ………………..………………………………………………………………………. 307

BIBLIOGRAPHY …………………………………………………………………….………………………………………………… 314

LIST OF TABLES ……………………………………………………………………….……………………………………………….. 350

LIST OF EXHIBITS ….……………………………………………………………….…………………………….……………………. 351

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The Introduction

1

T H E I N T R O D U C T I O N

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The Introduction

2

The main aim of this thesis, after the introductory observation of the global retailers, was

to provide the knowledge to confirm, that the hypermarket TNCs take over the global

environment in order to create a permanent and competitive strategic advantage on the

global scale. This led to the research hypothesis, stating that the process of creating the

permanent and competitive strategic advantage on the global scale requires the utility

of the superior unique organizational competences. The adoption of abductive reasoning

in the investigation process has met that challenge and provided more: The Competence

Emergence Concept as a Grounded Theory.

The Competence Emergence Concept, drawing from the analysis of the industry of the top

hypermarket TNCs, surprisingly appeared as an answer for the fundamental question: how

to achieve and sustain a competitive advantage in the growing dynamism of the external

global environment. The Concept, adopting the potential of the Grounded Theory, leads the

reader step by step through the process of building the organizational advantage: from the

beginning: the synthesis of organizational potential to the final end- the permanent

competitive strategic advantage on the total scale1. The investigation of the stages of that

process is achieved by:

- Explaining the dynamics of the organization, by merging not only two approaches, which

are the competence-based views and the resource-based views and positioning approaches,

but presenting how internal potential and the right positioning are adopted by the most

successful corporations of the globe in order to create Total Strategy and Total Environment

(leading to blurring the borders of organization);

1 Adopting “Total Strategy” the TNCs evolve from global players into total players- their activity exceeds the trade orientated processes and becomes present in the different phenomena of the Globe from human everyday life to the global governance

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The Introduction

3

- Presenting step by step how the organization can harness and utilises its potential in the

process of creating an organizational advantage;

- Clarifying the differences between:

a) an organizational capability, a skilfulness and a competence, differentiating between the

operational competences, the strategic competences and the competitive strategic

competences;

b) the organizational advantage, the organizational strategic advantage and the competitive

strategic advantage, simultaneously delineating these phenomena;

- Defining and delineating the phenomena such as business competition and the

organizational strategy,

- Analysing the issues like organizational learning and importance of the human factor;

- Presenting, how the hypermarket TNCs, adopting Total Strategy, become Total

Organizations leading to the permanent strategic competitive advantage.

The last three decades was period, in which the global convergence influenced the

appearance of transnational business entities (running great number of their activities across

many states borders). In 2007 only 89% of the global agrochemical market was dominated by

ten players. Between 50 and 60% market share was owned by the ten biggest corporations

of the industries, such as agricultural, pharmaceutical or biotechnological. Food and

beverage processors controlled 26% of the global stake and one hundred grocery chains sold

40% of global grocery products (ETC Group, 2008). In 1990 there were no retail players on

the US Fortune 500 list, but already in 2013 only 250 biggest players sold goods nearly for

US$ 4,4 trillion “with an average size of more than US$17,4 billion” (Deloitte, 2015, p.

G.19). The revenue of three top hypermarket chains2: Walmart Stores, Inc., Carrefour S.A.

and Tesco Plc. in 2015 has exceeded US$652 billion (Deloitte, 2017, p. G11). The publications

discussing the sources of the multinational retailers consider two major strategies leading

to the growth of retailers: multichannel diversification (McGoldrick 2002; Newman & Cullen,

2 Hypermarket/Supercenter/Superstore for years have been the dominant operational format of top global grocery retailers: Wal-Mart Stores, Inc., Carrefour S.S. and Tesco PLC (Global Powers of Retailing, Deloitte, 2008-2014), hence for the purpose of that paper the term hypermarket TNC was adopted

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The Introduction

4

2003; Gilbert, 2002; Levy & Weitz, 2012, Gorgól & Stańczyk-Hugiet, 2010) and

internationalization (Tordjman, 1990; Burt, 1993; Alexander & Myers, 2002; Salmon &

Tordjman, 2002; Dunning, 2008; Wrigley, 2005; Readon, Henson & Berdegue, 2007; Coe,

Wrigley & Currah, 2005). Despite the growing number of media reporting changes on the

local and international retail markets (e.g. The Grocer, Retail Week), we still experience a

deficiency of the scientific publications discussing the retail from the strategic management

point of view, in particular from the global governance perspective. The appearance of the

global supply chain oligopolies, which led to the organizational global convergence in

retailing (USDA, 2016), raises the international debate about the borders of the TNCs, the

competition in business and leads to the question about the future of the world governance.

Walmart and Tesco performances have earned a great number of admirers and critics

(Gereffi & Christian, 2009; Jones & Mair, 2016). That polarisation of the different views,

from business focus to human focus, from love and admiration to hate, describing activities

of Walmart and Tesco, allows the researcher to understand the organizational strategy, not

only reduced to the key performance indicators characteristic for retailing publications (like

sales numbers, promotions’ returns, market share, supply chain management). The polarised

perspective provides a total view at the performance of the hypermarket chains. The

adaptation of different perspectives increases the probability of discovering the most

valuable and hidden, from competitors, knowledge, which is the secret fuel propelling the

business machine, not only to win the grocery competition, but also to become the global

multichannel rocket in retailing Formula One.

That polarisation was also reflected in the steps of the following research. The mixture of

admiration and criticism allowed the author of that dissertation for fascinating research

around the globe with two top hypermarket chains: Tesco and Walmart.

An attempt to answer the question about the real sources of their competitive advantage,

i.e.- what it causes, how it happens, and how to measure it, has leaded author to investigate

the topic of the organizational behaviours and competitive advantage in the strategic

management approaches. The sources of competitive advantage were located outside the

organization, e.g. Porter’s Positioning View (Porter, 1979), Shapiro’s Conflict Approach

(1989) or were an internal part of an organization as its resources (e.g. Resource- Based View

(Barney, 1991; Sopińska, 2015; Cyfert & Krzakiewicz, 2016; Matwiejczuk, 2015; Krupski 2007;

Zakrzewska-Bielawska, 2013; Wernerfelt, 84; Rumelt, 1984; Peteraf,1959), an organizational

potential e.g. Dynamic Capabilities Approach (Teece 1994 and Teece et al. 1997; Collis,

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The Introduction

5

1994; Eisenhardt & Martin, 2000; Piórkowska, 2015; Krzakiewicz & Cyfert, 2016; Stańczyk-

Hugiet, Piórkowska & Stańczyk, 2016; Zollo & Winter, 2002; Zahra & George, 2002, Helfat

et al, 2006; Helfat et al., 2013; Penc-Pietrzak, 2015; Wójcik-Karpacz, 2016; Weinert, 2015)

or Competences Views (Bratnicki, 2000; Rokita, 2005; Obłój, 2007; Matwiejczuk, 2011;

Czakon, 2008; Prahalad & Hamel, 1990; Sanchez & Hene, 1997a, 1997b, 2004; Selznick, 1949,

1952, 1957; Miles & Snow, 1989; Snow & Herbiniak, 1980).

Despite the great amount of publications, the review of the literature on the strategic

management led the author to acknowledging an intellectual challenge. The inconsistency

in the terminology in the strategic management publications created the problem with

“establishing the reliable research constructs and their determinants” in the research

process (Piórkowska, 2016, p. 113). As the “area of the strategic management in its

ontological, epistemological and methodological interdisciplinarity of the issues related to

the formulation and realisation of the strategy […] creates a number of difficulties in

providing high quality level research (Hambrick 2004, 2007; Hill, Kern & White, 2012; Hitt,

Boyd & Li, 2004; Oxley, Rivkin & Ryall, 2010; Suddaby, 2010)- it becomes one of the

elementary challenge for the researchers involved in strategic management” (Piórkowska,

2016, p. 113). The ethnographic observation of the organizational activities and the analysis

of the organizational performance allowed the author of that dissertation for the descriptive

presentation of the top retailers performances. It also enabled to describe their distinctive

competences/capabilities in vocabulary of chosen strategic management approaches (like

capabilities, core or distinctive competences, dynamic capabilities etc.). However, it did

not explain the competence phenomena, its emergence and the influence on the competitive

and sustainable, superior advantage. It did not answer, why one of the groceries possessing

similar capital, products, stores etc. becomes top global retail chain and sustains its position

for years, leading to nearly durable, permanent competitive advantage. Luckily, for the

author, the underestimation of the linguistic consistency, resulting in a vocabulary stew of

interchangeably used general terms like resources, capabilities, competences, competency,

dynamic capabilities (Dreyer 2003; Freiling, 2004, Arend & Bromiley, 2009; Gorgól 2017; Stor

& Kupczyk, 2015), has become a trigger to adopt the Grounded Theory. An adoption of the

Grounded Theory allowed meeting the challenge and to examine the phenomena ontological

and epistemological features and distinctions.

The clarification and unification of terminology was necessary, hence the explanation of the

strategic management phenomena started in the English language dictionary, thorough

analysis of the historical origin of the key words. In the second stage, the extensive database

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The Introduction

6

of gathering knowledge about Tesco and Walmart Stores performance was enlarged from the

organizational ethnography perspective (Yanov, 2009) to the views profiting from different

perspectives adopted in the multi-site ethnography (Marcus, 1995, 1998; Falzon, 2009;

Kentor, 2007), network ethnography (Berthod, Grothe-Hammer, Sydow, 2016; Howard, 2002)

and global ethnography (Burawoy, 2000; Gille & Ó Rian, 2002). The scope enlargement

enabled for investigation of specific environmental turbulences, i.e. the changes in

international externality, that could be or were connected with hypermarkets’ transnational

activities (Rouleau, de Rond, Musca, 2014). The grounded theory process of abduction

(continuous testing) led to exploration of the relations between the organization and

external environment.

The combination of knowledge codified in the English dictionaries with that of

organizational, multi-site and network ethnography, collated in the abduction process, has

allowed for separation of the meaning of the capability (organizational potential) from the

skilfulness (the positively tested organizational potential) and the competence (the

skilfulness providing organizational advantage). The synergy of linguistic, ontological and

epistemological dimension, enabled for clearing the definitions of the researched objects,

their delineations, and explaining the relations between each other. In this way, the CEC,

which was built to describe the top hypermarket TNC’s performance, has become a universal

approach for other organizations at the end of research travel, explaining the process of

achieving and sustaining the competitive advantage in the XXI century.

The steps above can be summarised in two aims of that research:

1. The identification of the hypermarket TNC strategic sources of sustainable

advantage and their process of emergence and utility;

2. The explanation of the relationship between organizational potential and

competitive strategic advantage.

The objectives were complemented by the following questions appearing in the abduction

process:

- What is the difference between the organizational capability, the skilfulness and the

competence?

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The Introduction

7

- What are the competences of the global retailers? How do they appear?

- Do the organizational competences have a direct impact on the environment that is

external to organization?

- When do the competences have strategic impact?

- What is the process of building the organizational advantage?

- What are the dynamics of the organization?

- What role the employees play in the competence emergence process?

- What is learning and knowledge in the organizational dynamics in the perspective of

the competence emergence process?

The research process was based on the analysis of performances of two top grocery TNCs:

Walmart Stores, Inc. and Tesco Plc. In the overwhelming scope of the research sample,

including the analysis of the external global changes, the abduction process and grounded

theory principles required a constant narrowing of the scope and focus on the organizational

competences and the organizational competitive advantage.

The dissertation structure consists:

Introduction

That first part is an introducing summary of the dissertation including the most important

issues concerning the dissertation, but not revealing too many details.

Literature review

The core aspect of this investigation, which is the utilisation of the organizational potential

in the process of achieving and sustaining competitive advantage (the impact on the external

environment), has forced a selection of different theoretical perspectives that shone light

on different perspectives of the activities related to the retail TNCs’ performance (like the

positioning views, the resource-based utility approaches, the non-market strategies). That

is why, the following chapter discusses the issues of the organizational strategy in the

perspective of the location of the sources of competitive advantage. The chapter consists

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The Introduction

8

of two parts. First part, describes the genesis and overview of strategy in management. The

second part, discusses selected types of strategy from the purpose of that thesis point of

view- the multinational trade organizations and their global successful strategies. That part

includes the market strategies like (the strategies exploiting the market power like

positioning view and Shapiro’s conflict), the strategies exploiting organizational strengths

(RBV, CBV, DCV, KBV) and integrative strategy with special focus on nonmarket strategy and

relations between the actors.

Transnational Hypermarkets and Their Environment

The following chapter describes the impressive internal and external environment of global

transnational retailers with special focus on hypermarket/supermarket chains. The chapter

consists of two parts. The first part is the overview of global retail sector and its trends,

multinational players and their core strategies (internationalisation and multichannel

diversification). The second part includes, the external to the retailers, global environment,

discussing selected aspects in perspective to transnational retailing.

Methodology of the research including the sample description

The chapter describes the issues involved within the methodology of the research. A first

part explains author’s motivation for that research and its justification including the short

review of the publications concerning international retailing and discusses applied

qualitative methods for collecting data and research analysis. The ethnography was adopted

for gathering data for the research and the Grounded Theory – for the analysis. A second

part focuses on the dissertation formalities presenting the aims of objectives, details of

research designs, its critical assumptions and definitions applied for the publication, data

sources, etc. The last part presents the investigated sample: Walmart Stores, Inc. and Tesco

Plc.

Results

The following chapter presents the results of the research: author’s Competence Emergence

Concept (CEC) and its application in hypermarket TNC’s strategy. The chapter consists of

two major parts. First part of the chapter describes the clue of the organizational

competence emergences process at the organizational level: a capability activation into

skilfulness and organizational competence. It presents the process of synthesis of capability

components and their induction, the appearance of capability outcome, its valuation process

and importance of human factor and knowledge utility. That part explains the process of

building competitive advantage and relationship between organizational potential and

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The Introduction

9

strategic competitive advantage (or disadvantage), answering the questions about

competition and strategy of organizations form the CEC perspectives.

The second part expands the organizational CEC into corporate strategic level, providing

information about the source of sustainable, global advantage of hypermarket TNCs and their

Total Strategy. To illustrate the following stages of CEC, from the perspective of global

retailing, the author provides the examples from Walmart Stores, Inc. and Tesco Plc.

performance.

The conclusion

That Chapter presents consistency between the aims, major thesis and hypothesis of

research process, with its results. It also explains the contribution to knowledge, made by

this study.

Reassuming the above it can be stated, that following dissertation analysed the process of

gaining and sustaining competitive advantage. The research process, investigating two

strongly correlated areas: the external scope and the organizational scope (Cyfert, 2012),

allows for the analysis of the organizational competence- a fundamental aspect of

organizational performance leading to strategic advantage. The adoption of the

organizational competence perspective and creation of the CEC, have provided answers for

the questions: how the retail TNCs build and sustain their superior advantage and sustain it.

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C h a p t e r I

T H E O R G A N I Z A T I O N A L S T R A T E G Y A N D

S O U R C E S O F A D V A N T A G E

Chapter Description

The following chapter discusses the issue of organizational strategy in the perspective of the

advantage coming from the location of the sources. The chapter consists of two parts. First

part describes the genesis and overview of strategy in management. The second part

discusses selected types of strategy with emphasis on the thesis point of view- the

multinational trade organizations and sources of their strategic advantage. This part includes

the strategies exploiting market power (Positioning view and Shapiro’s conflict), the

strategies exploiting organizational strengths (RBV, CBV, DCV, KBV) and integrative strategy-

utilising both- the potential from internal and external environment of organization (with

special focus on nonmarket strategy and relations between the actors).

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1. THE INTRODUCTION TO STRATEGY OF ORGANIZATION

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The Organisational Strategy and Sources of Advantage

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The Genesis of The Strategy

Oxford English Dictionary derives strategy term from Greek stratēgia- generalship, which

comes via stratēgēma from stratēgein- “be a general”1. The Greek strategos – was

commander elected by the citizens of Athens to assume leadership during war (Cummings,

2002). As Cunningham and Harney (2001) start in their fascinating trip titled “Strategy and

Strategists” (2012) it was 500 years before Christ when the family feuds changed into state

battles and Chinese General Sun Tzu in his military treatise The Art of War formed the

concept of strategy, signifying the role of strategy and depth of its conception and design.

Growing complexity of conflicts exacted utility of larger and larger number of resources,

thus Sun Tzu created detailed description of military planning and deliberation (Cunningham

& Harney, 2012). The incorporation of strategy into the business lexicon took place 2500

years later.

The Review Across The Strategy

On the beginning of the second half of the XX century the corporate business world was

ready to move beyond planning, guiding and coordinating the environment of corporation.

The pressure on the market consideration has appeared. Attention on the market structure

was influencing the questions concerning competition. “How do the firms compete?” was

reflecting the situation on the market (Rumelt et al. 1991 in: Cunningham & Harney, 2012).

As Cunningham and Harney present in their publication (2012), the terms “corporate

strategy” (Ansoff, 1965) and “business policy” (Andrews, 1971) appeared at the turn of the

seventh and eight decade of the XX century to respond to the needs of economy of those

days. The “business policy” approach after over 24 centuries from The Art of War still kept

the managerial power in the hands of few- commanders (top managers). Taking strategic

decisions was separated from its execution at the bottom level of organizations. Ansoff’s

“corporate strategy” focused on the emergence of multi-divisional companies (with their

complexity and need for multi-level administration), and was “an analytical approach to

business policy for growth and expansion” (Ansoff, 1965 in: Cunningham & Harney, 2012;

Chandler, 1962; Hoskinsson et al., 1999). However, Ansoff payed attention to the role of

strategy as the goals to be achieved (Ansoff’s “ends”)2, and the strategy was a road of

“meaning” the organization had to travel to achieve its “ends”, his approach mostly focuses

1 Oxford Dictionary Online: stratos -army and agein – to lead 2 Strategy derives from stratagem- a plan or scheme, especially one used to outwit an opponent or achieve the end (www.oxforddictionaries.com/definition/english/stratagem)

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The Organisational Strategy and Sources of Advantage

13

on external environment: “strategic decisions are primarily concerned with external, rather

than internal, problems of the firm and specifically with the selection of the product-mix

which the firm will produce and the markets to which it will sell” (Ansoff, 1987).

The growth and complexity of organizations were parallel to the rise of the importance and

complexity of the external environment. Thus development of the strategic management as

a theory, was inevitable and ”formal analytical processes for the development of strategy

were critical to organizational success” (Cunningham & Harney, 2012, p. 6). Definitions of

the strategy started to evolve. The turn of the fifties and sixties was the time of appearance

of the theories signifying the strategic importance of resource deployment (Penrose, 1959;

Chandler, 1962), however, the value of Penrose’s theory of growth had to wait till the new

re-discovery nearly 40 years later, due to very strong international impact of publications of

Michael Porter from Harvard Business School. The Porter’s papers were so meaningful, that

instead of focusing and developing the issue of internal organizational resources the

“pendulum was to swing in the opposite direction” (Cunningham & Harney, 2012, p. 6). The

discussion about competitive positioning of the company and the structure of its industry

(coming from industrial organization economics) has become hot topic of the strategic

management. The step from strategic planning to strategic positioning was taken. Miles et

al.’s (1978) with his typology of business level strategies and Porter (1980) with his Five

Forces Model provided foundation for the theoretical academic and scientific ground for

management of strategy. The environmental turbulence was heating the growing

international competition and the competitive war has begun and was becoming

scientifically reflected in numbers of publications. Porter followed Ansoff’s approach to the

environment as “common thread” focusing on profit maximization and rational analysis

(Cunningham & Harney, 2012, p. 7).

Despite its popularity and value, in the growing international competition, the industrial

changes and the environmental turbulence, one day the Porter Fiver Forces approach has

become not sufficient enough in supplying the information about sources of strategic

competitive advantage. And it was time, when after the years of silence Edith Penrose with

her Growth Theory (published in 1959) has been noticed by Wernerfelt in 1984. Penrose’s

firm as “a bundle of productive resources” has opened the era of Resource Based View (RBV).

As we can say as Edith Penrose was a mother of RBV, as Jay Barney (1991) could be

considered as its father. The questions how do the companies survive, how they own, what

steps they take facing the more and more challenging environment focused Barney’s

attention on companies’ internal potential. Building on his publications (1991), step by step

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from the features of resources, their value, rarity, inimitability and non-substitutability, as

organizational sources of competitive advantage, the strategic management focus moved

towards the selection and deployment of the company’s core competencies as fulfilment to

resources in the creation of strategic competitive advantage (Prahalad & Hamel, 1990). The

pressure of growing speed and competitiveness, the changes in the global economy,

discussion about long-term successful surviving on the international market and the

fascination and access to communication and transport technologies in 80s, led to creation

of the Dynamic Competitive Approach. Teece, Pisano and Shuen (Teece, 1994; Teece, Pisano

& Shuen 1997; Teece 2007) made the attempts to explain how the organizations develop and

manage their internal assets- capabilities in order to create strategic competitive advantage.

How burning issue they have raised was reflected in the number of the publications from

around the globe following the new and modern “Dynamic View”. Despite its unclearness

(see: chapter below), the Dynamic Capability Approach built on the Penrose’s theory, payed

a special attention to two issues: the role of humans (managers) and their abilities in

organizational capabilities development and the problem of learning and path dependence

not only in creation, but also in sustaining the competitive advantage. In that perspective,

the strategy has become treated as act of crafting, not fight, with importance of manager’s

role as learning and experimenting artist with capability to judge (Andrews, 1971; Mintzberg,

1987). In 80s of XX century the identification and growing awareness of importance of

knowledge and learning process within organization and in publications of strategic

management become a new strategic weapon. First- learning process provided the higher

probability of competitiveness sustainability. Second: knowledge become trigger for change

and innovation (Grant, 1991; Cyfert & Krzakiewicz, 2015; Krzakiewicz & Cyfert, 2016;

Cunningham & Harney, 2012; Stańczyk-Hugiet, 2007). Growing complexity of multinationals

and increasing number of co-opting companies, development of hidden or explicit relations,

the increase of global activities started to be analysed in networking perspective (Andersson

& Mattsson, 2005; Grandori & Soda, 1995; Niemczyk, Stańczyk-Hugiet & Jasiński, et. al

2012).

A variety of scientific approaches in the strategic management theory only shows how large

and complex is a topic of business war being waged every day. Strategic management theory

tries to understand how the firms develop their behaviours to create competitive

interactions with other firms (Sanchez & Heene, 1997). As firms constantly develop their

strategies, the strategic management as science tries to follow these changes and develop

itself in strategic schools. “The consequence of so many strategic approaches is number of

its types and criteria” (Krupski, 2007, p. 36). For example STRATEGOR (1995) differentiates

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The Organisational Strategy and Sources of Advantage

15

costs strategies, differentiation strategies, global strategies, relational strategies. Krupski,

Niemczyk and Stańczyk-Hugiet (2009) propose selection of strategies into general strategies

and domains strategies (e.g. behavioural strategies, corporate level development strategies,

domain strategies), functional strategies (e.g. marketing strategies, financial strategies,

personal strategies, logistic strategies), elastic strategies (e.g. scenarios strategies,

resources strategies like knowledge, relations, cultural strategies). Mintzberg on the other

hand (Mintzberg, Ahlstrand & Lampel, 2005) proposes ten schools of strategic management

based on conception of strategy from strategy as a process of conception (school of design),

strategy as a formal process (school of planning), strategy as an analytical process (school

of positioning), strategy as a visionary process (entrepreneurial school), strategy as a mental

process (cognitive school), strategy as a process of learning (learning school), strategy as a

process of negotiation (school of power), strategy as a collective process (cultural school),

strategy as a reactive process (environmental school) and strategy as a process of

transformation (configurational school), while Cunningham and Harney (2012) proposes very

clear criteria of strategy timeline with three eras:

I. Military era,

II. Industrial era:

1. Schools of Planning 1960s with Chandler (1962), Ansoff (1965), Andrews (1971) as the

major architectures,

2. Schools of Positioning 1970-1980s with Porter (1980 & 1985) as representative,

III. Knowledge-based era:

1. School of Capabilities with Barney (1991), Stalk et al. (1992), Grant (1996),

2. School of Networked innovation with Teece (2007), Stacey (1995), Chesbrough and

Appleyard (2007).

Reviewing the great number of scientific publications and their authors we can achieve

infinite number of criteria of types of strategies providing a challenge for delineating.

However, for the purpose of that thesis the next chapter will focus only on selected

approaches to provide more detailed background for future analysis. Despite the impressive

trials, at the beginning of the XXI century the one perfectly matching answer concerning the

sources of sustainable advantage hasn’t been provided yet. We still face a challenge of lack

explanation about creation and sustaining strategic advantage in strategic management

theory. The globalisation of the market, growing strength of powerful multinational

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corporations do not help to find the answer. What is happening on the global market of the

second decade of the XXI century is greatly descripted by Cunningham and Harney (2012, p.

9) citing On War authored by Prussian General von Clausewitz (1832):

“According to von Clausewitz, ‘real’ war was a dynamic process of constant interactions. In

this concept, no prescription could ever be complete: war was dictated by chaos and chance,

and knowledge was cultivated through experience. Likewise, von Clausewitz recognized how

the impact of human factors of rear, fatigue, and confusion on men in battle rendered even

the simplest action difficult and unpredictable. He stressed the uniqueness of situations as

opposed to attempting to prescribe a best time of it. From this perspective, success

stemmed from developing capabilities in exploration, being adept and flexible, and

following instinct (Von Ghyczy et al., 2001 in: Cunningham & Harney, 2012)”.

A War – The Heart of Strategy

When we look at the miniature description of history of strategic theory cited above, we

could see, that the competitive aspect is a fundament of every strategy, regardless the

scientific view. However, it can be stated that knowledge-based view with the networking

approach are free from warriors and fights, focusing on learning, cooperation, and people

related in win to win relations (Cunningham & Harney, 2012) it is worth to add, that

knowledge and alliances are also used during a war. To win the war we have to win as many

battles as possible, often supported by coalitions. To win the war, to possess the sustainable

power over the land and its assets, we have to possess maximum knowledge about

geopolitical environment, our enemies and present or future coalitions. To win the war and

become long time emperor we need to create, utilise and manage as many resources as

needed.

The economy of the second decade of XXI century is like a war with multinationals playing

role of huge armies. These armies utilise the resources from the global environment. The

example is a coopetition process (Stańczyk-Hugiet, 2013; Luo, 2004; Zakrzewska-Bielawska,

2013, 2014; Czakon, 2014) supported by the development of newest technology allowing for

management and the multilevel control. The technology is utilised to empower the

organization. However, despite its new technical sword, these organizational armies still

need to be leaded by their superior resources- the generals with their passion to

achievement. In that perspective the philosophical question appears: is the war a heart of

strategy or war is an abyss of the generals’ souls..?

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The Strategic Perspectives and the Competence Emergence Concept

The great number of criterions can be used to explain the strategies the organization chooses

to create and sustain its competitive advantage. The transnational phenomena and their

embeddedness required from the author of that thesis a very broad investigation. The

analysis of the hypermarket TNCs strategy could be taken in the different perspectives, like

the network perspective, the relational perspective, the evolutional perspective or the

transactional cost perspective etc. However, for the purpose of that research3, investigating

the sources of strategic advantage of TNC and the organizational process of building the

competitive advantage, the criterion for analysis became a location of the sources of

advantage in relations to organization and competitive advantage emergence process.

Hence, for investigation, author selected the strategies pulling the advantage form the

firm’s external environment (e.g. positioning view, the game theory), the strategies building

on internal organizational strengths (e.g. resource-based view, the competences approach)

and strategies capitalising on utility of both: resources from internal and external

environment of organization (e.g. integrative strategy). The other perspectives (especially

the network and relational perspective, the transactional cost perspective and the

evolutional perspective) author would like to investigate in the further research.

The multinational trade organizations of the XXI century have become the very successful

actors on the international scene utilising a great variety of sources from all over the world

to strengthen their global advantage. The following thesis is an attempt to discover the

strategic sources of enormous power of top retail TNCs. The chapter below reviews most

critical strategies from the research point of view utilising the criterion of division of

strategies according to the location of sources of advantage and reflects their importance in

the relation to TNCs competence emergence grounded theory.

3 The requirements concerning the size of the dissertation limited the selection of discussed approaches

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2. THE MARKET STRATEGIES AND ADVANTAGE

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The Organisational Strategy and Sources of Advantage

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2.1. THE STRATEGIES EXPLOITING MARKET POWER

2.1.1. THE COMPETITIVE FORCES PARADIGM

The Overview of Positioning Approach

The competitive forces paradigm (Porter, 1979) rooted in the structure – conduct –

performance helps the firm to position successfully, to defeat that position in its industry

and to escape the zero-profit condition earning supernormal profits by picking an attractive

industry, entering or expanding output and building defences from competitors (Teece,

2013). Industry structure playing central role in determining and limiting strategic action of

the players, the entry barriers, bargaining powers, threats and rivalry among incumbents

determine how to create a superior market position and to defend against competitive forces

(Porter, 1979). When rents are created at the industry or subsector level rather than a firm

level we talk about more attractive subsectors of industries or industries. It comes when

they have structural impediments to competitive forces (e.g. entry barriers), which supply

more valuable opportunities for sustainable competitiveness formation. The economic rents

in the competitive forces frameworks are monopoly rents (Teece, 1997). As Stabryła (2002,

p. 28) reminds “the immanent elements of the positioning view is the economic analysis

and forecasting”. In his analysis Porter (1998) presents an interesting view on importance of

the value of possessing good competitors for the organizational strategy. “While competitors

can surely be threats, the right competitors can strengthen rather than weaken a firm’s

competitive position in many industries” (Porter, 1998, p. 201). The good competitor

increases the competitive advantage through absorbing demand fluctuations, enhancing the

company ability to differentiation, serving unattractive segments, providing a cost umbrella,

improving bargaining position with labour or regulations, lowering antitrust risk, increasing

motivation.

The corporate strategy, according to Porter (1987) is the overall plan for a diversified

company. After analysis of the diversification of 33 large U.S. companies, and the problems

they had met after acquisitions of new businesses, Porter started to differentiate between

two levels of strategy: business unit (competitive) level and corporate (companywide)

strategy. The corporate strategy meets the problems “what businesses the corporation

should be in” and how to manage these businesses (Porter, 19874). The corporate strategy

is the overall strategy, that “makes the corporate whole add up to more than the sum of its

4 At: https://hbr.org/1987/05/from-competitive-advantage-to-corporate-strategy

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The Organisational Strategy and Sources of Advantage

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business unit parts” (Porter, 19875). The competitive strategy concerns the creation of

competitive advantage in each type of business the company competes. The erosion of the

corporate performance after acquisitions motivated Porter to delineating the successful

corporate strategy providing the value to the shareholders. Hence, Porter proposes the

Essential Test to specify the conditions under which diversification will succeed:

- The attractiveness test (the selected industry should be attractive),

- The cost-of-entry test (the cost of entry cannot be equal to the future profits),

- The better-off test (the new business unit “must gain competitive advantage from its link

with the corporation or vice versa”6).

Analysing the corporations Porter observes four concepts of corporate strategy, that are

adopted into practice: portfolio management, restructuring, transferring skills, and sharing

activities. Despite their value, author finds, that every concept has its own limitations and

quite often their implementation leads to failure. Porter meeting the challenge signifies the

importance of objective look at the company’s existing businesses and the value they provide

as corporations. Hence, he proposes the following plan to conduct a proper review for each

corporation before taking the diversification:

1) To study interrelationships between the existing business units of organization;

2) To select the core businesses that will be fundaments of the corporate strategy;

3) To create the horizontal organizational mechanisms to facilitate interrelationships

among the core businesses and lay the groundwork for future related diversification;

4) To develop the diversification opportunities allowing for sharing activities;

5) To develop the diversification through the transfer of skills when the opportunities

for sharing activities are limited or exhausted;

5 At: https://hbr.org/1987/05/from-competitive-advantage-to-corporate-strategy 6 At: https://hbr.org/1987/05/from-competitive-advantage-to-corporate-strategy

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The Organisational Strategy and Sources of Advantage

21

6) To pursue the restructuring strategy, when the managerial skills fits to it, or when

there is no of the company, when it fits the organizational skills of management or

there is no good opportunities for corporate interrelationships;

7) To pay dividends to shareholders to let them be portfolio managers.

To consolidate the corporation strategy Porter proposes creation of good theme, to let all

the business unite. The synthesis of successful competitive strategy and corporate strategy

Porter defines as the Bermuda Triangle and the most meaningful risk is underestimation of

importance of understanding how the corporation will provide the value to the shareholders

after diversification.

The Criticism of Positioning Approach

Despite the great value for strategy analysis of positioning approach has its limitations. The

critical is its immobility, the assessment of the strategic situation is “snap-shot”. The view

lacks of continuation in time (Thyrlby, 1998). The Porter’s approach may face the challenges

on the turbulent markets with high competition and environment growing change. As Dulčić,

Gnjidić and Alfirević (2012) remain, the strategy study in time longer than a moment is

critical for managers valuating environmental conditions (e.g. market trends). The second

major weakness of discussed approach is its focus on external environment, not enough

strong interest on organization in perspective of its potential (a boundle of capabilities)

(Teece, 2007).

2.1.2 SHAPIRO’S CONFLICT APPROACH

The Overview of Conflict Approach

The second model describing exploitation of power is Shapiro’s strategic conflict approach

(1989) taking advantage of the game theory by analysing the interactions between the

competing firms. It reveals how a firm influences its rival’s behaviour and actions, and as

result how it shapes market environment (e. g. investments in capacity or advertising). The

effectiveness of the conflict strategy depends on irreversible commitments (Teece, Pisano

& Shuen, 1997). By manipulation of the market environment, a company makes profits and

the results of the games depend on the specific situation. The equilibrium of strategic

behaviour crucially depends on prediction of opponent motion in a particular situation

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The Organisational Strategy and Sources of Advantage

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(Teece, Pisano & Shuen, 1997). However, the multilevel analysis of the strategic steps

pursued intuitively and formally can be referred as “dynamic”, Teece, Pisano & Shuen

(1997), highlights that “their dynamism” refers to changes in technology and market forces

and feedback effects on firms. Rents from the game are the ultimate result of intellectual

manager’s ability to play. “The adage of the strategist steeped in this approach is ‘do unto

others before they do unto you”. (Teece, Pisano & Shuen, 1997, p. 513).

The Criticism of Conflict Approach

According to Teece et al. (1997, p. 513) conflict approach too much simplifies the complexity

of competition (its development, accumulation, combination) and protection of unique skills

and capabilities and may lead to impression that success in the marketplace is the result

only of sophisticated plays and counterplays.

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2.2. STRATEGIES EXPLOITING THE STRENGTHS OF ORGANIZATION

2.2.1. THE RESOURCE-BASED VIEW (RBV)

In RBV “position of competitive advantage will be only temporary if others can imitate the

unique features of the product or service”

(Barney, 1991; Peteraf 1993 in: Collis 1994, p. 144).

The Overview of RBV

The Resource Based View (RBV) focuses on the resources of the firm and the advantages they

can create. The RBV has its roots in evolutionary economics (Nelson & Winter, 1982). It

defines a firm as bundles of resources (Rumelt, 1987) and capabilities (Amit & Schoemaker,

1993) which are the sources of competitive advantages. One of the most cited definitions of

resources was supplied by Grant (1991), who defined resources the firm can possess and use

as inputs that could be tangible or intangible. Grant (1991) separates between resources

(tangible, intangible and personnel - based) and capabilities. Tangible resources include

material assets: financial capital, physical assets of the firm like plant, equipment and raw

materials. The specifics of tangible assets is their easy duplication and take over by the

competitors. Intangible resources are much harder to duplicate or to take over. They include

a reputation, a brand image, a quality and the personnel-based assets including knowledge

assets like technical know-how, the organizational culture, loyalty. The personnel – based

resources are firm specific, they develop over time and they are difficult to copy by the

competitors (Grant, 1991; Amit & Schoemaker, 1993; Prahalad & Hamel, 1990). In the RBV

perspective, the firm to be productive requires the cooperation and coordination of bundles

of resources. A capability is the capacity for a bundle of resources to perform activities

(Grant, 1991). In the other words, capabilities differently cover organization’s ability to

assembling, integrating and deploying valued resources (Amit & Schoemaker, 1993;

Schendel, 1994 in: Yang, Ramirez & Thomson). Simplistically we can say that resources were

considered as input to a products or services, and capabilities were process-oriented and

representing a structure that was used to convert input into output (Yang et al., 2007). Grant

(1991 in: Henry, 2011, p. 143) proposes a framework for strategy formulation comprising five

stages: 1/ Identification and classification of organization’s resources, […] strengths and

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weaknesses of competitors, identification of opportunities for better resource utilization;

2/ Selection of the capabilities with potential (bigger than rivals) identification of

corresponding resource and capability (resource input to each capability), and the

complexity of inputs; 3/ Appraisal of the rent-generating potential of bundles of resources

and capabilities by their ability for achieving sustainable competitive advantage and

potential returns; 4/ Selecting the most appropriable strategy for exploiting the

organization’s resources and capabilities in relations to the external environmental

opportunities; 5/ Identification of the resource gaps to be filled. Constant improvement of

the organization’s resource base.

The bundle of resources and capabilities may become a source of competitive advantage.

Assembling and deployment of the firms internal and external resources in effective way,

and the firm ability to take advantages of opportunities in its environment, leads to

competitive advantage (Wernerfelt, 1984). Resource heterogeneity (concerning resources

and capabilities) and resource immobility are specific for group of resources being able to

create competitive advantage (Wernerfelt, 1984; Barney, 1991; Peteraf, 1993; Cyfert &

Krzakiewicz, 2016). Ownership of the resources or capabilities not possessed by competing

organizations let the firm to obtain “at least a temporary competitive advantage” (Yang et

al., 2007, p.3). In the other words, we can summarise following Barney (1991), that all the

resources, that the firm has access to, may not be strategically relevant, since some may

actually prevent an organization from conceiving and implementing a valuable strategy. A

competitive advantage arises when an organization is implementing a value-creating

strategy, that is not being implemented by the current or potential competitors. A sustained

competitive advantage occurs, when the organization is activating a value-creating strategy,

that is not being implemented by current or potential competitors and when “these

competitors are unable to duplicate the benefits of this strategy (Barney, 1991 p. 102). To

provide the potential for a sustainable competitive advantage the resources of organization

must have four attributes: they have to be valuable, rare, inimitable and non-substitutable

(V.R.I.N). Resources are valuable when they enable for formulation of strategies improving

organization’s effectiveness and efficiency (Barney, 1991, Henry, 2011). Unique location,

path dependency, casual ambiguity, social complexity are the factors supporting resources

inimitability, rarity and non-substitutability. The new importance of the vertical integration

and diversification in strategy in the RBV was included in the definition of the firm as

capturing rents on scarce, frim-specific assets, whose services are difficult to sell in

intermediate markets (Teece Pisano & Shuen, 1997; Penrose, 1959; Williamson, 1975;

Wernerfelt, 1984).

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One of the major contributions to the RBV approach and its dynamic continuation was made

by Edith Penrose. It was her, who highlighted “the productive services available to a firm

from its own resources, particularly the productive services available from management

with experience within the firm“ (Penrose, p. 5 in: Teece, 2013, p. 114). Studying MNEs in

oil industry setting a theory of the growth of the firm (Penrose, 1959/1995) she defined the

firm as an “autonomous administrative planning unit, the activities of which are

interrelated and are coordinated […], collection of productive resources the disposal of

which between uses and over time is determined by administrative decision- the physical

resources of the firm consist of tangible things – there are also human resources available

in a firm- strictly speaking, it is never resources themselves that are the ‘inputs’ in the

productive process but only the services that they render ” (Penrose, p. 15 in: Teece 2013,

p. 114). Penrose saw the firm as a pool of utilized resources “organized in an administrative

framework” represented by the final products, the organization managed by the

entrepreneur’s mind. This was not economy of scale only the capacities of management

setting the limit to which a firm could growth. Innovation as very much

entrepreneur/manager ability allows to see the market and technological opportunities

through the individual lenses and perspectives. Possessing the talent to decentralisation,

manager gains potential advantage for the company. Managerial strategies for developing

new capabilities and controlling over scarce resources require factors like skill acquisition,

management of knowledge and know-how (Itami & Roehl 1987; Shuen, 1994 in: Teece et al.

1997)- the intangible and invisible assets of organization (Itami and Roehl, 1987 in: Teece,

Pisano & Shuen, 1997) which are the “greatest potential for contributions to strategy”

(Teece, Pisano & Shuen, 1997, p. 515).

The Criticism of RBV

Despite of large literature concerning RBV, Yang et al. (2007) remain that that approach has

the following limitations. First one is accusation of tautology and problem with finding,

selecting and exploring successful and unique resources which are extremely difficult to

identify, because of their hidden embeddedness. The second problem appears with the

complementarity of the resources and value coming from augmentation. The third limitation

of RBV is the risk of ignorance of surrounding resources: the approach does not answer how

resources are developed, integrated, released and in this way how do they create return

(Teece, 1997; Teece, Pisano & Shuen, 1997). The last doubts concern the issue, how certain

organizations achieve competitive advantage in high-velocity markets successfully coping

with rapid and unpredictable changes (Martin & Eisenhardt, 2000). To the mentioned

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limitation it is worth to add that RBV “focus on a single firm and on single transactions,

providing less insight into the process by which multiple firms, working collaboratively,

develop individual and common capabilities” (Lorenzoni & Lipparini, 1999, p. 319).

2.2.2. COMPETENCE-BASED STRATEGIES

Introduction: The Genesis of Competence-Based Views (CBVs)

Adam Smith (Foss forthcoming) in Wealth of Nations (1776) described process of cumulative

causation, a virtuous circle of economic growth and welfare based on learning by doing

process of workers supplying positive results of the learning process on company productivity

and growth (Hodgson, 1998). The workers within the firm can learn by doing (get professional

skills) and thus actively influence the productivity growth and efficiency improvement

(larger sales-larger markets). As Hodgson (1998) signifies, Smith’s approach was not a story

of static equilibrium, but dynamic growth and development view, based on progressive

enhancing of individual skills. The asymmetrically distributed skills and capabilities amongst

individuals were described later by Babbage (1832/1963 in: Freiling, Gersch and Goeke, 2008

and List 1841/62 in: Freiling et al., 2008) who discussed coordination problem of workers.

E.g. List (1841/62) created the “law of the confederation of productive forces” stating that

productivity is a result of two aspects: division of labour and joining the different activities

within the company. As Freiling, Gersch and Goeke (2008, p. 3) remind, that List’s “opens a

road to the competence discussion of the 1950s […] and 1990s” stating that the only way to

full exploitation of the a division of labour advantages is unification of the productive forces

controlled by entrepreneur. Freiling et al. (2008, p. 3) highlights binding of entrepreneurship

with entrepreneurial functions and first capability-based considerations as component of one

nucleus7. After nearly 150 years from Smith, it was Frank Knight (1921), who in his theory of

the firm emphasized stronger than Smith the role of knowledge and the pervasiveness of

uncertainty. Leaning on the biological evolution metaphor of the firm he treated “the firm

as a means of coping with uncertainty by “grouping” together activities in larger units of

organization” (Hodgson, 1998, p. 38). The managers decisions were based on the specific

personal judgements and assumptions in the uncertainty context.

It was Penrose (1959) in her “Growth of the Firm” that raised the issue of company as

bundles of resources, however these were Wernerfelt (1964) and Barney (1991) who gave

7 “Incidentally, even in the work Edith T. Penrose we can identify exactly the same link” (Freiling et al., 2008, p.3)

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the Competence-Based view publicity and Teece (1994, 1997, 2007), that by his dynamic

capabilities approach, has put Penrose on a pedestal after 40 years from the first publication

of her theory. Thanks to Hamel and Prahalad (1990), and Sanchez and Hene (1997a, 1997b,

2004) the competence-based concept was born. The publications discussing the

Competence-Based View there were dominated by two following competence approaches:

core competence view and corporate distinctive competence view (discussed below).

THE CORE COMPETENCES APPROACH

The Overview of Core Competences Approach

Prahalad and Hamel (1990, p. 4) signify that however selecting the right strategy wouldn’t

be possible without “collective learning in the organization, especially how to coordinate

diverse production skills and integrate multiple streams of technology”, there is something

more needed to fuel the organizational engine. It is “management’s ability to consolidate

corporatewide technologies and production skills into competencies that empower

individual business to adapt quickly to changing opportunities” (Prahalad & Hamel, 1990,

p. 4). To overcome restrains of price-performance-end product-strategies, and growing

turbulence of external environment, authors proposed a solution which was not restricted

only to additional costs of research and development, but stand on more efficient and

effective work of company management like collective learning, communication,

involvement, deep commitment to working across organizational boundaries, harmonising of

technology defined as core competences of the company. Core competences approach also

raised the issue of multi-units organizations (diversified corporations) management.

Prahalad and Hamel selected the three company portfolio perspectives: product portfolio,

businesses portfolio and core competences portfolio. To become a core, the competences

need to meet thee major conditions: to provide access to a wide variety of markets, to

benefit the end product significantly, to be difficult to imitate by competitors (Prahalad &

Hamel, 1990).

The company in core competences approach resembles a tree with core products (the trunk

and major limbs), business units (smaller branches) and leaves and fruits (end products).

What nourish and stabilize the tree (organization) is the root system: core competences. In

that approach organization creates “unique, integrated systems that reinforce fit among

[…] firm’s diverse production and technology skills- a systemic advantage your competitors

can’t copy’’ (Prahalad & Hamel, 1990, p. 1). The critical in building the core competencies

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were investing in technologies, infusing the resources throughout the business units and

forging the strategic alliances and cultivating a core-competency mind-set (with importance

of competency-savvy managers working across the organizational boundaries, sharing the

resources and thinking behind the borders). The clue of the approach is the core

competences spreading across multiple businesses units. The core competences approach

gone beyond the boundaries of SBU approach (Table 1.1) and treated business units as

potential reservoir of core competence.

Table 1.1. Two Concepts of the Corporation (Prahalad & Hamel, 1990, p. 10)

Prahalad and Hamel (1990) indicates two biggest sins of strategic management of

organization, that obstructive the competitiveness development. These are

underinvestment in developing of the core competencies and the core products, and

imprisoning the resources. Hence they proposed the organizational tree in order to reflect a

strategic architecture- a “road map of the future that identifies which core competencies

to build and their constituent technologies” allowing for answering the questions concerning

competitiveness preservation (Prahalad & Hamel, p. 11).

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The Criticism of Core Competence Approach

Hamel and Prahalad’s research was based of manufacturing and know–how organizations and

it was strongly focused on defining the part of core competences in inventing new markets,

exploiting the emerging ones, delighting the customers with the products they even could

not imagine. In that view the core competencies are nearly equal to technology (Drejer, A,

2002). The weakness of that approach lies in reduction of the sample of the organizations to

R&D market and focusing competition mostly on technical innovations. According to Dreyer

(2002) the approach misses the explanation of how possessing the world-class competencies

corresponds to what the customers want, or which possibilities result from the development

of the new core competences. Core competence approach focused on specialisation in no

raison d’être in the world of globalisation (growing numbers of patents, protectionism,

licencing). Too strong fascination on the technical development, too much attention on

turbulence of technological aspects of business environment and ignorance of its other

aspects and changes at the end of the XX century (like the world of trade barriers,

governmental protectionists policies, cartels etc. success is not ceteris paribus approach)

increase the risks of strategic failure. That technological fascination may lead to false

impression that all the organizations possessing the core competences achieve sustainable

advantage (success) (Yadav, 2013). However, the rapid development of technology between

1980s and 1990s influenced the appearance not only the competence-based strategy, but

also the development of theoretical area of management of technology and learning

organization, which are still actual decades later (Drejer, 2002).

THE DISTINCTIVE COMPETENCE APPROACH

The Overview of the CDC Approach

The growing market turbulence and competition exacted the firms’ ability to create their

core competences in the way they are distinctive to the others (Selznick, 1949, 1952, 1957

in: Hit & Ireland, 1985). […] Distinctive competence represents those activities in which a

firm, or one of its units, does better relative to its competitors (Hit & Ireland, 1985, p. 273).

The distinctive competences may reflect the functional areas of the firms like management,

production, marketing etc. (Miles & Snow 1989; Snow & Herbiniak; 1980; Hitt Ireland & Palia,

1982). As Hit and Ireland (1985) states distinctive competence transfer in the corporate-

wideness (between business units) becomes a clue of successful synergy of management- the

relatedness of the company units of activities (Rumelt, 1974; Yip, 1982), and can lead to

competitive advantage. In the environment of growing competition, when a portfolio

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becomes not sufficient to sustain competitive advantage, “the performance improvement

through development of corporate level distinctive competencies linked to success across a

firm’s separate business” may be the clue (Kichel, 1982 in: Hit & Ireland, 1985, p. 274). The

distinctive competences may also appear as a result of linking with other firms in order to

stimulate the dynamics of flows of resources. The flow of resources within the networks is a

characteristic feature of corporations’ activities and may result in vertical integrations

process. Thus ability to quick linking up with others firms may become strategic aspect.

The Criticism of DCV

The DCV approach may face the similar accusations and bring the same risks as core

competences view. However their inevitable value in building strategic advantage, the

distinctive competences reduced to production of distinctive products may be not be enough

resistant for growing global competition and technological raise. Focus on the material

fundaments of success (e.g. know how or design) forces the constant competitive run with

raising speed in the industry, that can finally be toxic for every company (e.g. growing costs

of R&D, too short selling period running to market saturation by the products).

COMPETENCE-BASED VIEW RELATIONSHIP WITH RBV

The Competence-Based View (CBV) derives from two streams: the Resource-Based View

(RBV) appearing as explanation for performance differences between the companies

(Freiling, 2004) and individual learning (Prahalad & Hamel, 1990). As the RBV discusses the

availability and efficiency of the resources leading to the competitive advantage, the CBV

moves further and focus on active and efficient utility of resources, which allowed for step

forward in relation to competitors. Hence, both approaches have commonalities coming from

the antecedents (Freiling, 2004, p. 30):

- they both are dynamic in nature (leading to change) and relay to making economic decisions

uncertainty, however stating on certain type of “bounded rationality”;

- they notice resources and motivation asymmetrical dispersion across the economic actors

(Barney, 1991, p. 105 in: Freiling, p. 30);

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- they treat the organizational environment as ready to be shaped by proactive behaviour of

firms, described as moderate voluntarism (instead of determinism) (Ringlstetter, 1988 in:

Freiling, 2004, p. 30).

In both approaches the resources are “regarded as the root of firm’s survival,

competitiveness and performance (Penrose’s (1959) “firm as a bundle of resources”)

(Freiling, 2004, p. 30). Driven by human rational decisions these resources are in constant

move (Amit & Schoemaker, 1993). Their development and deployment depend on the

decision-makers’ individual path dependency (everyone takes “his-specific-rational”

decision), and thus it leads to differences in decision-making processes (Freiling, 2004, p.

31). Competence perspective by acknowledging the importance of time and economic history

of company activities (Teece, Teece et al. 1994, 1997, 2007) provides the answer on the

company internal features like hidden knowledge (called “tacit knowledge”), complexity of

employees, organizational competences, abilities, routines (Dierickx & Cool, 1989).

Building on similarities of RBV and CBV it is very tempting to classify the Competence-Based

View as part of the Resource-Based View, to treat the CBV as complementary for the RBV,

through binding the company resources with the market. However, Freiling (2004) warns,

that it is not the right way, and both theories are individual and independent (despite the

fact, that competence-based approach derives from the RBV). To justify his approach,

author provides the following arguments:

1. In the CBV competences unfold potential of resources in processes of adaptation to the

markets’ requirements (Dierickx & Cool, 1989),

2. Competences may build the resources by the asset refinement processes (Hunt, 2000,

Sanchez, 2001),

3. In the RBV resources are internal to organization and in the Competence-Based View they

may be also external.

Expanding the arguments Freiling states (2004, p. 31), that differences between both

theories appear in the chain of causality: when in the RBV the fundaments of organizational

performance specifics are the superior resources, in the Competence-Based View the fuel

for competitive advantage are actions of competences unfolding the “potential of resources

and enable(ing) the firm to adapt to the requirements in target market instantly in a non-

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random manner”. The competences just filled the gap between idiosyncratic resources and

organizational performance. The Competence-Based View supplies the new conceptual

perspective capturing complexity and dynamism of the assets, the resources and the

competences interplay (Sanchez, 2001).

The last one and the critical factor differentiating the RBV from the CBV is positioning of the

resources and the competences. In the RBV the resources lie internally (however they are

market oriented). In the CBV competences may be internal or external to organization,

hence the organization is defined as an open system with flowing or stocked assets (Dierickx

& Cool, 1989). By referring to the external resources company becomes phenomenon with

open boundaries (Madhok, 2002, p. 554 in: Freiling, 2004, p. 32). Hence, the firm meets the

challenge of combining firm-addressable with firm-specific resources in attaining goals

(Sanchez & Heene, 1997, p. 306). In that perspective the company competitive advantage

may depend on external networks utility, the relations with the partners in blending

capabilities (Lorenzoni and Lipparini, 1999). Dryer and Singh (1998) calls it “relational

view” of competitive advantage. As the RBV was analysing the company individually, as a

single object with respect to the market, the Competence-Based View focuses more on

multi-players game with its dynamism, industrial foresight, creative destruction, taking into

account systemic, cognitive, holistic and dynamic perspective of competences.

THE COMPETENCE-BASED VIEW AS A SCIENTIFIC THEORY (CBT)

Hamel and Prahalad Core-Competence Approach (1990, 1993, 1995) has become a trigger

for Sanchez and Hene (1997) who made an effort to develop concept into scientific theory,

proposing the conceptual bridge between the economic and the organizational theories. The

competition presented in dynamic way by Hamel and Prahalad (1990-1995), usefully

balancing complexity and dynamism of the real-world competition with “the need for

sensemaking by humans with limited cognitive capabilities for understanding dynamic

complexity” become a source for new theory development, including concepts of dynamism,

cognitivism and holism and competence-based interactions (Sanchez & Hene, 1997, p. 306).

“[…] A fundamental aspect of competence theory is that competition is fundamentally a

contest between managerial cognitions (Sanchez, Hene and Thomas, 1996) in which

managers compete to imagine, develop and leverage the organizational competences that

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both determine near-term competitive outcomes and shape the competitive environments

of the ‘industries of the future” […] (Sanchez & Heene, 1997, p. 307).

The CBV considers the company as an open system with active combination of the different

resources, “fostered and utilized by making use of competences”, with strong focus on

interconnectedness of assets along with interconnections with organizational activities

(bundling and re-bundling), that supply the potential for responding market challenges

(Freiling, 2004, p. 36). All these activities are managed by the individuals within the firm,

becoming “hubs leads”8 to knowledge generation and storage and knowledge hunting in the

socially complex resource networks, defined as “absorptive capacity” (Cohen & Levinthal,

1990).

Every firm as an open system has to develop its strategic logic to achieve its strategic goals.

Strategic logic is organization’s rationale which allow for identification and triggering

strategic actions. It shapes the processes of management leading to identification, acquiring

and utility of tangible and intangible resources (Sanchez & Heene, 1997). A firm is a carrying

out its goal –seeking actions system that utilises the firm-specific and the firm-addressable

resources by the managerial processes and their mechanisms. The companies can differ in

the perspective of their competitive or cooperative interactions and may be distinguished

by features like their strategic goals, strategic logics for taking actions for goals, by the

availability of resources and their utility in pursuing goals and by the specific ways for firm-

specific and firm-addressed resources deployments (Sanchez & Heene, 1997).

The CBT distinguishes between the assets, the resources and the competences (Freiling,

2004). The basic unit of Competence-Based Theory are the assets- homogeneous external or

internal factors, serving the firm as input for value-added processes. The result of successful

assets refinement processes are the resources. These are the resources, that providing a

heterogeneity of the owning firm in competition and responsible for the firm’s presence,

performance and competitiveness. The assets and resources are deployed and coordinated

by the organizational, the learning-based competences- the abilities enabling the

organization to realise the strategy (achieve the goals) and sustain the competitive

advantage (Sanchez at al. 1996; Sanchez, 1997; Freiling, 2001 in: Freiling, 2004, p. 30).

Sanchez and Heene (1997) proposes the different number of dimensions of competence

theory:

8 Barney’s (1991) “social complexity”

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a) The competence dynamism – the dynamic interactions between the industry and the

firms can be analysed on different levels (interactions of individuals and groups within firms,

between firms and resource providers outside the firm, between firms and customers,

between competing and cooperating firms). That dimension signifies processes of building

and leveraging competence. By going beyond the prior strategy analysis of industry

competition based on the ‘demand side’ dynamics of firms’, the competence theory adds

new ‘supply side’ dimension to the industry dynamics (the companies compete to acquire

inputs of the resources and the capabilities for competence creation and leveraging);

b) Competence systemic and cognition – fundamental becomes a company as an open

system of interrelated assets stocks and organizational cross boundaries flows (Dierickx &

Cool, 1989) seeking for goal (Sanchez & Heene, 1996a). In that perspective strategic change

is leaded by manager’s perception of strategic gaps between firms present stocks and flows

of assets and capabilities and the stocks and flows, that can be needed for implementing

the right strategy. However the managers, driving the strategy are restricted by their casual

ambiguities (Lippman & Rumelt, 1982), building on their managerial path dependence, they

also become the sources for the heterogeneity (Freiling, 2002). The critical aspect of

managerial job is perceiving possibilities for building the new competences and for new ways

to leverage them. That comes with braking cognitive limits and imagination of new kind of

competences sets. “Strategic managers must continuously learn how better to manage their

own learning processes, as well as improving a supporting the learning process of others in

their firms” (Sanchez & Heene, 1997, p. 309);

c) Holistic approach to managing the competences – the company strategy requires

stretching and leveraging (Prahalad & Hamel, 1993), hence the managers have to select a

winning set of competencies fitting the right goal activity. Building and leveraging activities

of the firm supply two sources of value for the firm: the net present value of the expected

cash flows coming from current operations, and a value of a firm’s real options. That leads

to investments generating satisfying future cash flows. Competence building process allows

company for creating strategic options and competence leveraging is exercising existing

strategic options.

“Thus, the ‘quintessential dynamic of the firm in competence-based competition is a

virtuous circle of competence building and leveraging that creates and exercises strategic

options” (Sanchez & Thomas, 1996 in: Sanchez & Heene, 1997, p. 310).

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That allow for developing the distinctive patterns for the resources flows creating the

economic value. The competence theory signifies also the problem of ‘Double-loop learning’-

the importance of cooperation between managers and researchers helping managers to

understand current competences in process to improve their activities concerning the firm

competencies (present and future context) (Sanchez & Heene, 1997). To win the CBV

theoretical challenge Freiling, Gersch and Goeke (2008) propose the Lakatos (1970)

conceptualising framework. First they build the fundamental modus of competence-based

thinking as the cornerstones, secondly- they transform cornerstones into Lakatos’ “hard

core”. The cornerstones of the CVB selected by Freiling et al. (2008, p. 6) include:

a) The economic research stream,

b) Equipment of economic agents with scarce and mostly imperfect mobile factors (Barney,

1991),

c) The decisions are made under circumstances of incomplete, asymmetrically dispersed

information,

d) Each decision includes reflection, learning and exercising; hence it result in appearance

of idiosyncratic capabilities and entrepreneurial theories in every time,

e) The new decisions often dependent from previous one (history, individual and

organizational paths matters),

f) The factors (in particular of resources and competences) available to firms by bundling

and specification process become heterogeneous (firm uniqueness) (Barney, 1991 & Penrose

1959),

g) Firm as entity embedded in constrained business environment, however driven by

entrepreneurial action shaping outer conditions in perspective to firm-specific goals.

The authors (Freiling et al., 2008) build a consistent framework of Competence-Based Theory

of the firm on commonalities between Market Process Theory and competence-based

research, starting from philosophy of science and select the list of hard core elements

following Backhouse (1998):

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- Subjectivism (Market process theory of New Austrian Economics, (Mises, 1949) that play

crucial role in in explaining the idiosyncratic nature of the firm in tune with the RBV and the

CBV (economic agents differ from each other (what they know, what they want, what they

do, what they possess (e.g. skills), and take the heterogenic specific decisions based on

knowledge, motivation, expectations and individual abilities- the endowments that are

subject to change in time, resulting the asymmetry;

- Radical uncertainty – (Shackle, 1972, p. 3)- the competence based approach faces the

radical uncertainty, just like the market processes, “[…] the man’s decisions is non-existent

until those decisions themselves are made. What does not yet exist cannot now be known”;

- Methodological individualism (Spender, 2006 & Kinkaid 2006)- all decisions can be traced

back to single individuals and their contributions to aggregated phenomena (Kinkaid’s

“varieties of individualism”(2006), Foss’s (2005) “methodological individualism”), thus

social behaviour can be explained in individualistic terms and organizational competences

can be explained by analysing intra-and inter[personal behaviour (economic character of

CBV, sociological methodological interactionism (Nooteboom, 2006);

- “Homo agens”(Mises, 1949)- “homo agents” as “acting man” look constantly for new

opportunities to improve situation (Lachmann, 1986); subject to entrepreneurial actions and

modifications to achieve expected outcome are combinations of objectives, means and

alternatives (the critical are: alertness and economizing);

- Moderate voluntarism- (Prahalad & Hamel, 1990) – agents may impact environment and

create favourable conditions (proactive creative management), however under

environmental restrictions (e.g. market standards and regulations, power possessing etc.);

- Time matters- (Dosi, 1982; Dierickx & Cool, 1989; Arthur, 2000)- time is a major issue in

competence research due to historicity and challenge with defining outcomes of

actions/events; events are inter-temporally connected and can be triggered into

accumulation process (self-energising process), however it is important to remember, that

“actions are not only surrounded by other actions […] but also go along with time lags as

regards their effect (the isolating mechanisms and flexibility and inertia problems).

The mentioned list created by Freiling, Gersch and Goeke (2008) builds a strong

methodological foundation for Competence-Based Theory, however Freiling (2004) also

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underlines, that the Competence-Based Theory may also be applied as an alternate Theory

of the Firm, supplying the answers to the Theory of the Firm (particularly theory of the

unique firm) by including the problems of firm emergence, development and breakdown,

the firm types of boundaries including horizontal and vertical boundaries and covering

internal organization of the firm (Table 1.2).

Table 1.2. Competence-based contributions to a Theory of the Firm (Freiling, 2004, p. 48)

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2.2.3. DYNAMIC CAPABILITIES APPROACH

The Introduction to Dynamic Capabilities Approach

Dynamic Capability Approach was created to answer the fundamental strategic management

question concerning achieving and sustaining competitive advantage in growing dynamism

of the external environment. Teece with his co-authors, Pisano and Shuen (1990a, 1990b,

1994, 1997) have endeavoured to develop the framework which explains how certain firms

create wealth and build their competitive advantage in the regimes of rapid change (Teece,

Pisano & Shuen, 1997). Due to the considerable criticism of dynamic capabilities approach,

accusations of tautology, mixed use and interpretation of terminology, lack of consistency

and congruence, mystery and confusion and not meeting the conditions of a scientific theory

(Thomas & Pollock, 1999 in: Wang & Ahmed, 2007; Williamson, 1990 and Kratz & Zając, 2001

and Newbert, 2007 in: Bareto, 2001; Bareto ,2001) the article below is separated into parts.

First part describes the genesis and the development of the approach, second presents the

types of capabilities, and the third is a critical discussion. The article is finished by the

author’s conclusions and recommendations.

Genesis and Development of Dynamic Capabilities View

The origin of that approach was, like with RBV and CBV, Penrose’s analysis and her Theory

of Growth (1959, 2007) (Teece, 2007). Penrose stated, that a firm’s resources are comprised

of a bundle of services. A firm can create economic value not simply due to mere possession

of resources, but also based on effective and innovative management of resources (Penrose,

1959; Mahoney, 1995 in: Kor & Mahoney, 2004; Cyfert & Krzakiewicz, 2016). Following that

path, Teece et al. (1997) were finding the sources of the competitive advantage in the

distinctive ways of coordinating and combining a firm’s processes. These processes are

created and shaped by the specific positions of a firm’s assets and the firm’s path based on

evolution (history and experience) (Teece et al., 1997). According to Teece et al. (1997),

the winners in the global marketplace are characterised by time responsiveness and rapid

and flexible innovation in product creation, coupled with capability of management to

effective coordinating and internal and external redeployment of competences (Teece et al.

1997). Why do some companies have large stock of valuable technological assets and struggle

to achieve the sustainable competitive advantage? Because they do not possess the dynamic

capabilities- “the firm’s ability to integrate, build, and reconfigure internal and external

competences to address rapidly changing environments” (Teece at al., 1997, p. 516).

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For dynamic capabilities, the strategic issue was the identification of “the foundations upon

which distinctive and difficult-to-replicate advantages can be build, maintained, and

enhanced”, how the organization “achieves new and innovative forms of competitive

advantage given path dependencies and market positions” (Leonard-Barton, 1992 in: Teece

et al. 1997, p. 516). The competitive advantage of the firms, according to “early” Teece

(1997), lies in the firm’s managerial and organizational processes, which are shaped by VRIN

assets position and inherited firm evolutionary path. Managerial and organizational processes

are routines or patterns of current practice and learning. Their major role is

coordination/integration, replication, reconfiguration, cooperation and reconfiguration

(Barney, 1991; Priem & Butler, 2001; Locket et al., 2009). CBV was the scientific reaction

for challenge of too a static RBV.

“Strategic management has always been about matching the internal knowledge and work

of the organization to the external challenges posed by its environment” (Drucker, 1958 in:

Dreyer, 2002, p. XIII). However, it is the Dynamic Capabilities Approach that strongly

emphasizes importance of path dependence combined with the learning ability of an

organization (Teece 1994, 1997).

Bareto (2010, p. 259) distinguishes six elements within the major theoretical underpinning

of the Teece et al. (1997) approach: nature, role, context, creation and development,

outcome, as well as heterogeneity, which are elaborated upon below:

1) Categorization of the nature of the concept “ability=capacity” as a special kind of

capability, its essential role in strategic management (as extension to RBV),

2) Specification of the desired role (integration/coordination, building\reconfiguration of

internal and external competences) and end of that capability, with significance of rules of

routines, path dependency and external competences (evolutionary economics context),

3) Focus on the particular type of context- external, rapidly changing environments (RBV

extension in environmental turbulence with entrepreneurial perspective (Schumpeter,

1934),

4) Stating that dynamic capabilities are built rather than bought, they evolve embedded in

organizational processes shaped by firms’ asset positons and paths from the past

(evolutionary perspective),

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5) Emphasis on the heterogeneity of dynamic capability across firms, as a result of specifics

of paths, assets unique positions, distinctive processes (similarity to RBV),

6) Stating that the outcome of dynamic capabilities is sustained competitive advantage

(RBV perspective in achieving and sustaining a competitive advantage).

Teece et al.’s definition of dynamic capabilities also has evolved. In 1994, Teece and Pisano

defined dynamic capabilities as “the subset of the competences and capabilities that allow

the firm to create new products and processes and respond to changing market

circumstances”(Teece & Pisano, p. 541). Inn 1997 Teece, Pisano and Shuen were writing

about “firm’s ability to integrate, build, and reconfigure internal and external competences

to address rapidly changing environments”. Subsequently in 2000 Teece (p. 35) used as

definition the “ability to sense and then seize the opportunities quickly and proficiently”.

Finally, in 2007 he enlarged the definition of dynamic capabilities by maintaining that it “can

be disaggregated into the capacity (a) to sense and shape opportunities and threats, (b) to

seize opportunities, and (c) to maintain competitiveness through enhancing, combining,

protecting, and when necessary, reconfiguring the business enterprise’s intangible and

tangible assets” (Bareto, 2010, p. 260). As Di Stefano, Peteraf and Verona (2009, p. 17)

stated in their analysis of 250 publications discussing the Dynamic Capabilities Approach:

“One such issue, and arguably the most critical for the robust development of the field, is

how to define dynamic capabilities. Due to the complexity of the construct, this has perhaps

sparked the most debate and produced the most confusion. While Teece et al. (1997) first

defined the term, their definition has been expanded and refined by subsequent authors.

In the process, it has also been modified, producing conflicting understandings regarding

critical issues, including the nature of dynamic capabilities and their effect on

organizational outcomes (Di Stefano, Peteraf & Verona, 2009, p. 17-18).

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Table 1.3. Examples of definitions of dynamic capability

(The summary of: Bareto, 2010, p. 260 and Menon, 2008, p. 3)

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Table 1.3 presents the examples of definitions of dynamic capabilities between 1994 and

2007. DCs were defined as abilities/capacities (e.g., Helfat et al. 2007; Teece, 2000, 2007;

Winter, 2003; Zahra et al. 2006), specific and identifiable processes and routines (Eisenhardt

& Martin, 2000), “regular and predictable behavioural patterns inside the firm” (Nelson &

Winter, 1982, p. 14) learned and stable patterns of collective activities (Zollo & Winter,

2002) or capacity as “ability to perform a task in at least a minimally acceptable manner”

but also its repeatability in distinguishing process from a onetime change (Helfat et al.,

2007, p. 4) (Bareto, 2010, p. 260).

Variety of Types of Capabilities

Dynamic capabilities may differ in the perspective of their impact on organizational

processes. Hence, the most often cited authors organize the dynamic capabilities according

to three levels based on the hierarchy of their complexity (Menon, 2008). The fundamental

first-level of capabilities includes day to day, basic activities- processes capabilities which

are defined as functional capabilities (Collis, 1994; Andreeva & Chaika, 2006), zero-level

capabilities (Winter, 2003), underlying sub-processes also known as “how we earn a living

now” capabilities (Pavlou & Sawy, 2006), or just capabilities (Wang & Ahmed, 2007). The

second order capabilities are these more related to the dynamic improvement of processes

(Menon, 2008)- Amit and Schoemaker’s (1993, p. 35) “repeated process or product

innovations, manufacturing flexibility, responsiveness to market trends, and short

development cycle”. Collis (1994) referred to them as capabilities related to dynamics,

Winter (2003) defined them as first-level capabilities, Andreeva & Chaika (2006) and Wang

and Ahmed (2007) saw them as- core capabilities. The third-level covers capabilities enabling

the creation of power allowing firms to develop new strategies faster than their respective

competitors, thanks to greater recognition of the hidden value contained within different

resources (Menon, 2008). These capabilities can be defined as creative capabilities (Collis,

1994), higher-level capabilities (2003), dynamic capabilities (Andreeva & Chaika, 2006),

second order capability (Pavlou & Sawy, 2006) etc. The examples concerning the hierarchy

of DCs, as Menon (2008) reminds, do not only supply a wealth of definitions, but are also

represent a small sample of using the same terms for describing different entities.

Menon (2008, p. 7), in his attempt to conceptualise the activities in the dynamic capabilities

literature pertaining the of core processes proposes the following:

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1. Sensing activities: understanding customer needs and market dynamics (Pavlou & Sawy,

2006), alertness to environmental information (Teece & Pisano, 1994), responding to market

intelligence (Amit & Schoemaker, 1993), disseminating market information (Kogut & Zander,

1996);

2. Learning activities: identifying new solutions (Zott, 2003), brainstorming, experimenting,

and variation (Pisano, 1994; Zott, 2003), knowledge brokering (Eisenhardt & Martin, 2000),

pursuing new initiatives (Van den Bosh et al., 1999), knowledge articulating and codifying

(Zander & Kogut, 1995), generating new thinking (Henderson & Cockburn, 1994), innovative

problem solving (Iansiti & Clark, 1994), inter-organizational learning (Doz & Shuen, 1989,

Mody, 1990);

3. Reconfiguration: reconfiguring operational competencies which influence competitive

advantage (Pavlou & Sawy, 2006), innovative redeployment of existing resources (Helfat &

Peteraf, 2003), evolving intra firm resources through imitation and experimentation (Zott,

2003), patching- reconfiguring resources into the right chunks at the right scale to address

shifting market opportunities (Eisenhardt & Brown, 1999), resource redeployment following

horizontal acquisition (Capron, Dussauge & Mitchell, 1989), attractive new combination of

resources (Galunic & Rodan, 1998), combining resources into new combinations (Kogut &

Zander, 1996), revamping (not destroying) existing operational competencies (Grant, 1996),

experimentation creating multiple alternatives in decision making (Eisenhardt & Tabrizi,

1995), need for internal and external transformation (Langlois, 1994), reconfiguring firm’s

asset structure (Amit & Schoemaker, 1993), architectural innovation (Abernathy & Clare,

1986);

4. Coordination and Integration: pattern of collective activity (Zollo & Winter, 2002),

distributing and assigning knowledge resources, sharing individual knowledge in the group

(Okhuysen & Eisenhardt, 2002), capturing synergies among tasks and resources (Eisenhardt

& Galunic (2000), appointing the right person to the right unit (Eisenhardt & Brown, 1999),

integrating strategies during corporate acquisitions (Singh & Zollo, 1988), keeping managers

informed of collective activities (Brown & Eisenhardt, 1997), interrelating diverse inputs to

jointly execute a collective activity (Grant, 1996), integrating the inputs of distinct entities,

(Dougherty, 1992), efficiency of internal coordination and integration (Aoki, 1990).

It comes close to Teece’s “Orchestration” foundation of dynamic capabilities and business

performance stated on sensing, seizing and managing threats/ transforming dynamic

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capabilities (Teece, 2013, p. 49) and supply the information how broad is the topic of DCV.

The Menon (2008) analysis of the core activities in dynamic capabilities literature can be

resumed in Arend and Bromiley’s (2009, p. 86) words, that DCV “offers a rich and relevant

base from which to advance our understanding of strategic organizational change”, but still

cannot be treated as a theory. The great number of publications Arend and Bromiley (2009)

defined as “halo effect”.

Criticism of the Dynamic Capabilities Approach

The biggest challenge leading to confusion in Dynamic Capability Approach is a vocabulary

stew. Reflected in Table 1 it is underestimating of linguistic definitions of major terms (e.g.

the ability, capacity, capability and competence), that leads to scientific chaos. As a result,

the organizational potential for action is mixed with introduced action (process) and with

the results of introduced action (the outcome). What is a source of the competitive

advantage: the potential for action (capability for action), introduced action (process) or

the result of action (impact/change/outcome)? Adopting that perspective we can state, that

even presented above Teece’s definitions describe the DCs differently- as competences and

capabilities allowing for creation of the new products (1994), the abilities to create

competences (1997), an ability to select right potential (2000) or a processual capacity

(2007). In perspective of the organizational change and creation of company advantage we

could critically ask: what is a dynamic capability? Is it an organizational potential for change,

a process of changing, or achieved change? The Dynamic Capability Approach has not

resolved that the total challenge jet, despite number of interesting propositions resolving

different aspects of DCV (e.g. the drivetrain of Di Stefano, Peteraf and Verona, 2014).

“Researchers refer dynamic capabilities to a wide range of resources, processes and

capabilities. As a result, the literature is featured by a mixed use and interpretation of

terminologies” (Wang & Ahmed, 2007, p. 2) […], and it is full of antinomies (Rindova &

Kotha, 2001 in: Wang & Ahmed, 2007; Arend & Bromiley, 2009) e.g. DCV as structured and

persistent (Zollo & Winter, 2002) or emergent and evolving (Rindova & Kotha, 2001), direct

source of competitive advantage (Teece & Pisano, 1994; Teece et al., 1997) or an indirect

source of competitive advantage (Eisenhardt & Martin, 2000; Zahra et al. 2006, in: Arend &

Bromiley, 2009). Kraatz and Zając (2001, p. 653) described dynamic capabilities approach

as “vague and elusive” and Winter (2003), including contradictions made attempt to solve

the mystery and confusion of the CDC.

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Table 1.4. The inconsistencies of DCV, (based on: Arend & Bromiley, 2009; Bareto, 2010;

Czakon, 2010; Kraatz & Zając, 2001; Newbert, 2007; Thomas and Pollock, 1999;

Wang & Ahmed, 2007; Williamson, 1999; Winter, 2003; Menon, 2008)

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The deep analysis of the DCV was made by Arend and Bromiley (2009), who summarised the

most important accusations concerning the DCV:

1. Lack of clear explanation how the DCV does provide new value to already existing concepts

(absorptive capacity, architectural innovation, intrapreneurship, strategic fit, first-mover

advantage, organizational learning and change management discuss the same problems),

2. Missing coherent theoretical foundations (mixing the terms- dynamic capability label for

very different, sometimes opposite constructs),

3. Poor empirical support,

4. Foggy practical implications (Arend & Bromiley, 2009, p. 75).

Growing number of authors calls for clearness in dynamic capability approach or abandoning

the topic (Table 1.4).

The Summary of the DCs View

The biggest tautology of the Dynamic Capabilities is assuming that the companies need them

to compete and only companies with dynamic capabilities have a chance to build advantage

(Arend & Bromley, 2009). What does happen if the company does not have dynamic

capabilities? Isn’t it competitive? What are the capabilities? Are they similar to competences?

If we follow the definition that a capability is not a performance, but a potential for

performance (Dosi, Nelson & Winter, 2000; Dougherty, Barnard & Dune 2004), the

capabilities approach should be the discussion about organizational potential, the potential

of organization to dynamism. But what is the organization without dynamism? Is the

organization without dynamism still business phenomenon or it is just a form registered in

the system/on paper?

If we assume that dynamism is immanent feature of life, that every single life phenomenon

realizes itself by dynamic processes (even frogs in winter hibernation needs slow

physiological processes to live) we can state, that company dies without dynamics- it just

doesn’t exist. The processes dynamism is the life sign of the organization. Change is

immanent to organization existence. Facing strong arguments of critiques it can be stated,

that lack of terminological discipline and inherency of the scientific gaps in DCV looks so

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meaningful, that even wealth of publications proposing solutions hasn’t helped- they discuss

different phenomenon using the same term of dynamic capabilities.

2.2.4. COMPETENCES AND CAPABILITIES IN DIFFERENT APPROACHES

- THE SUMMARY

Despite the different definitions of the competences and the capabilities in the strategic

management literature for the purpose of the scientific dialog these terms are in reviews

defined as one category – “what the company does or can do utilising its assets to create

and sustain the competitive advantage”. The summary below discusses from one side the

terminological chaos, and from the other side the theoretical richness of the organizational

competences and capabilities. In this way it presents the growing importance for appearance

of new perspective for sources for competitive advantage in turbulent environment of XXI

century.

Hang and Ståhle (p. 139) summarise the major approaches discussing the organizational

resources and propose the three perspectives at the resources:

1. “What you have” Perspective – Competences as resources: the Resource-Based View

born competences, including most valuable resources from the business point of view. The

most important aspect here is obtaining the specific resources or competences.

2. “What you know and you are capable of” Perspective – Competences as integration

capabilities: dynamic capabilities approach born competences. The most important issue

here is applying the resources/competences in the routines and practices of organization.

3. “How you learn and use knowledge” Perspective - Competences as innovative learning

processes: constitution of the potential for facilitating organisational and strategic change

through three kinds of knowledge: knowledge about competence itself, knowledge about

competence acquisition and knowledge how to produce resources and capabilities.

The competences perspectives described above, their basic assumptions, focus and

dimensions of competences management transitions presented by Hong and Stahle (2005, p.

140) are summarised in the Table 1.5.

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Table 1.5. Competence approaches in terms of related perspectives, basic assumptions,

focus and dimensions of CM transition (Hong & Ståhle, 2005, p. 140)

In the past literature concerning capabilities and competences it is difficult to distinguish

between a core competence and, for instance a critical skill or a unique capability. […]

“capabilities and core competencies seem to be one and the same concept” (Drejer, 2005,

p. 66). Thus Drejer (2005, p. 67-68) introduces three meaning distinctions within

competences’ “map”:

a) Firm Specific versus Public Domain (e.g. intangible and tangible assets (Aaker, 1989),

tangible resources and intangible assets (Wernerfelt, 1984),

b) Human versus Technological (“where the former is technological (hardware) and latter

human (software)” e.g. assets and skills (Hall, 1995; Aaker, 1989),

c) Product, Process, and Administrative Competencies (product technology and process

technology (Hayes & Wheelwright, 1979a, 1979b)”, product-based competencies and

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process-based competencies, organizational and social capital (Eriksen & Mikkelsen, 1993),

production competencies (Cleveland et al. 1989) and administrative competencies (Drejer,

2002), competencies as “everything” apart from product and process” (Miles & Snow, 1978).

Within product, process and administrative competencies distinction Drejer (2002, p. 69)

distinguishes the following types of competition: the product-based competencies, the

process-based competencies, the administration-based competencies, the firm-specific core

competencies, the public domain core competencies and the introducing core and support

competencies.

Alternative definitions of competences

Leonard-Barton’s (1959) definition indicates, that the competencies are dynamic and

constantly challenged because: “organizations, like the people who populate them, have

invested in knowledge building over the years and have developed particular skills, they

still must continue to build and change those skills in response to changing environments…”

(Drejer, 2002 p. 79). To constantly improve competences managers must know how to

manage the creating knowledge activities and understand what constitutes a core capability

(competence). Leonard-Barton, following Hamel, signifies the rule of competence in

providing “gateway to new opportunities that the organization must exploit in order to

survive” (Drejer, 2002, p. 79). The special attention Leonard-Barton pays to the problem of

innovation and the rule of technology and the role of employee knowledge and skill.

Presenting definition of core technical capability as fungible to the core competence she

identifies their dimensions: skills and knowledge of employees, physical technical and

managerial systems and values and norms determining the type of knowledge (all are

organizational learning related) (Drejer, 2002, pp. 79 - 80).

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Table 1.6. Examples of literature concerning competence-based strategy

(based on: Drejer, 2002, pp. 62-63 and Menon, 2008)

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However, competence-based view was an attempt to solve that issue in the process- based

approaches, it missed the explanation of how the competencies correspond with the

customer needs (Drejer, 2002). The advantage in positioning view comes from utilising

external to company, industrial powers and overcoming the external risks by building entry

barriers to the firm’s market segment, and managing portfolio of product/market segments

in a balance way what leads to sustainability of competitive advantage (product-market

strategy). However, the experience of the business day to day reality proves that

competitive power of the products in the marketplace is not synonymous with sustainable

competitive advantage (Porter, 1991; Drejer, 2002, p. 57) and “the real-world firm is often

operating in many product-markets, and the firm changes over time, e.g. thorough internal

growth or mergers” (Drejer, 2002, p. 63). The Porter’s Five Forces Model misses the

translation of product-market strategy into organizational actions.

These theoretical imperfections of positioning and competence-based views leads Foss (1993

in: Drejer, 2002) and Drejer (2002) to the statement, that “these two approaches should be

integrated in order to secure sustainable competitive advantage” (Drejer, 2002, p. 58), they

“cannot exist without contributions from each other, […] they are two sides of the same

coin and, furthermore, the work on competencies is a necessary and valuable supplement

to business strategy theory” (Drejer, 2002, p. 64).

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2.2.5. KNOWLEDGE-BASED STRATEGY: KNOWLEDGE & LEARNING DYNAMISM

THE REVIEW OF KNOWLEDGE-BASED VIEW

The growing importance of the firms as environments fostering organizational learning

leaded to growth of significance of knowledge in the strategic aspects of management

(Teece, 1990; Kogut and Zander, 1992; Grant, 1996; Madhok, 1996; Osterloh et al. 1999;

Davenport & Prusak, 2000; Bratnicki 2000; Perechuda, 2005; Stańczyk-Hugiet, 2007, 2009;

Czakon, 2011) moved knowledge to the position of a key-success factor for the competitive

advantage (Stańczyk-Hugiet, 2009). The wealth of definitions describing presence of

knowledge in organizations can be summarised into two processes (Stańczyk-Hugiet, 2009):

the knowledge management process: creation or identification, organization (codification),

implementation, transferring (distributing) (Sarvary, 1999; Skyrme, 1998; Stankiewicz, 2005;

Mikuła 2006; Brdulak, 2005; Gladstone 2004; Arthur 1996; Szulanski 1996; Probst, Raub &

Romhardt, 1999) or the psychological process: socializing, internalizing, combining,

externalizing (Nonaka, 1991), and protecting (Grant 1991, Teece 1997).

Stańczyk-Hugiet (2007) in her paper distinguishes between the general strategy, the

knowledge strategy and the strategy of knowledge management. The author defines

knowledge strategy as a result of comparison of knowledge possessed by one organization

with knowledge owned by its competitors, together with defining knowledge necessary to

realisation of general strategy. Its essence is correlation of the general strategy of

organization with its knowledge based processes with technology and the organizational

forms. As Stańczyk-Hugiet signifies (2007), possessing knowledge strategy means: balancing

and adapting the knowledge based resources together with knowledge necessary to product

or service offering at the competitive level. Hence from that point of view critical is

selecting the right VRIO resources and their participation in strengthening position of the

organization in product-market category. The knowledge strategy is dynamic and evolutional

(Stańczyk-Hugiet, 2007). It is “an application of a resource-based, internal strategy directed

towards improving competitive performance” (Jones, 2006, p. 5; Zack, 1999).

In the KBV the knowledge is treated as a driver for strategy. The rapid development of

innovations at every level of the organizational activity has raised the questions concerning

creation and processing of knowledge (Nonaka, 1994; Takeuchi, 2013). Hong and Ståhle

(2003, p. 3) remind that the knowledge management is “extremely wide concept” pulling

from wealth of scientific disciplines like philosophy (“what is knowledge?”), organizational

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development perspective (“how to create and master knowledge together?”), from business

perspective (“how to extract value from knowledge?”) and technological perspective (“tools

for storing, delivering and mining knowledge”). Knowledge based view of the strategy fulfil

the other schools of strategy, by introducing the new perspective placing humans at the

centre of strategy, handling strategy as the dynamic process and possessing a social agenda

(Takeuchi, 2014). Knowledge, born in interactions between people and the environment, is

interactive process emerging between humans, based on their subjectivity and experience

(Takeuchi, 2014; Stańczyk-Hugiet, 2007). “Knowledge which resides in an individual, is

amplified into organizational knowledge through an interactive process” (Takeuchi, 2014,

p. 73). Using other words: knowledge consists human (Polanyi, 1967) and dynamic aspects,

created by human interactions and including social agenda of guiding the firm to do what

(Takeuchi 2014; Nonaka, 1994). Nonaka & Takeuchi adopting Polanyi (1967) state that “[…]

organization knowledge is created through a continuous dialogue between tacit and explicit

knowledge” (Nonaka, 1994, p. 14). Tacit knowledge which is personalised, hidden, having in

common with intuition and instinct, even magic, is hard to communicate and formalize,

when explicit (codified) knowledge is transferable, formal and systematic. Thus,

organizational knowledge appears in conversion between tacit and explicit knowledge

through four modes: tacit knowledge to tacit knowledge (socialization), explicit knowledge

to explicit knowledge (combination), tacit knowledge to explicit knowledge (externalization)

and explicit knowledge to tacit knowledge (internalization) (Nonaka et al., 1994; Takeuchi,

2014). Organizational knowledge development appears when all modes are managed by the

organization in a continual cycle. The socialisation appears mainly within the team or field

group interactions and externalisation comes with dialogue enabling the employees to

articulate their views (Nonaka et al., 1994).

THE CRITICISM OF KNOWLEDGE-BASED VIEW

Despite the large citation concerning tacit and explicit knowledge, that view also faces the

criticism and accusation of confusion, that are reflected in the different publications

(Hedesstrom & Whitley, 2000). Orlikowski (2002, p. 250 in: Jones 2006, p. 4) reminds that

“Polanyi’s original conception of tacit knowing was based in the performance of practice,

of know –how, not know-what, as she claims “enacted’- every day and over time” in people’s

practices)”. The sample of tacit knowledge terms proliferation we can see in the Table 1.7.

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Table 1.7. Examples of tacit knowledge definitions reflecting confusions within

the knowledge management approach (Hedesstrom & Whitley, 2000, p. 1- 2)

KNOWLEDGE MANAGEMENT

Hong and Ståhle (2003, p. 11) define knowledge management as “transformation of the

ideas to knowledge as well as transformation of knowledge to added value (to) help people

and organizations to 1. Find, share and use information, 2. Enhance knowledge creation and

3. Master renewal and innovativeness”. In their paper they emphasize the stages of

knowledge management (KM) theories developments (Table 1.8):

1) First Generation includes standard implementations like the techniques of knowledge and

the competence mapping and creation of knowledge repositories (data bases) with codifying

and measuring knowledge assets of the organization (balanced scorecard or intellectual

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capital). Defining knowledge as an individual skill or asset, that is required, identified,

codified and measured for the company purpose, and analysing the knowledge and

competence through utility of external look are two characteristic features for that period

(Ahonen, 2000).

2) Second Generation focused on social learning, flexibility and organizational ability to face

the future through networking, communication, collective cooperation. Knowledge became

a construct of collective practices described in literature as: communities of practices (Lave

and Wenger, 1991), community of knowing (Boland & Tenkasi, 1995), informal networks of

expertise and user innovation (von Hippel, 1988, 1989), communication-intensive

organizations (Blackler, 1995), the ba concept (Nonaka & Konno, 1998), knowledge cycle -

SECI (Nonaka & Takeuchi, 1995),

3) Third Generation revolve on critical competences and capabilities considering knowledge:

self-organizing capability of knowledge and creating new knowledge;

Table 1.8. Generations of Knowledge Management (Hong & Stale, 2003, p. 12)

The shift of knowledge impact developed from problem solving to creativity and from

rationality to interpretacy.

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KNOWLEDGE STRATEGY

If we follow Stańczyk-Hugiet (2007) approach concerning importance of supremacy of

knowledge strategy over strategy of knowledge management we can state, that knowledge

strategy manifests itself at the strategic level and strategy of knowledge management at

both levels: strategic and operational. Knowledge strategy with its fundament of uniqueness

of knowledge resources (bundling resources within the general strategy) may become a

source of the competitive advantage (Stańczyk-Hugiet, 2007, p. 46). The author distinguishes

five groups of knowledge strategy according to different criteria:

1) Knowledge strategies in the perspective of the impact on knowledge resources;

2) Knowledge strategies in the perspective of environment turbulence;

3) Knowledge strategies in the behavioural perspective;

4) Knowledge strategies in the perspective of accepted method of development

implementation;

5) Knowledge strategies of the knowledge redundancy (Stańczyk-Hugiet, 2007, p. 68 – 82).

For the purpose of that thesis author would like to focus on two groups selected by Stańczyk-

Hugiet (2007, p. 64): knowledge strategies in perspective of the impact on knowledge

resources and knowledge strategies in perspective of environment turbulence. The example

of the first group is the exploitation and exploration strategies. The exploitation strategy is

focused on the exploitation and leveraging effect on the superior knowledge resources and

their strategic impacts.

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Exhibit 1.1. Types of knowledge strategy and their impacts on general strategy types, dynamics,

risks and competitiveness (based on: Stańczyk- Hugiet, 2007, p. 66 – 67)

The second - exploration strategy is based on seeking for new knowledge from the

environment that is external to the company. Both exploitation and exploration strategies

appear as the stages of knowledge growth within the organization and they mutually depend

from each other (Zack, 1999, p. 136, Stańczyk – Hugiet, 2007, p. 65). However, the

exploitation strategy dominates within the more stable industry and exploitation strategy is

characteristic for more dynamic industries. (Stańczyk – Hugiet, 2007, p. 65). Pulling from

that approach we can say, that the dynamism of strategy and risk of its implementation

growths proportionally to the type of strategy. In parallel to dynamics and risk growth of

knowledge strategy increases also competitiveness (Exhibit 1.1). Second group of selected

strategies mentioned by Stańczyk-Hugiet (2007, p. 64-68) are the knowledge strategies in

the perspective of environment turbulence, where the creation, utility, transfer and

retention of knowledge processes become the strategic essences. In that view knowledge

strategy defines the “knowledge resources the organization should possess or should have

access to use, control or achieve advantages”. In that perspective author (Stańczyk-Hugiet,

2007) identifies four strategies according to position the organization may appear:

a) lack of internal and external turbulences (stable and predictable situation): knowledge

strategy based on concentration on possessed knowledge resources;

b) presence of internal turbulence, lack of external turbulence (stable and predictable

external environment, internal situation facing changes and lack of predictability e.g.:

leadership change, reorganization): knowledge strategy based on codification of knowledge;

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c) lack of internal turbulence, presence of external turbulence (stable internal situation,

strong competition and unpredictability in the industry): knowledge strategy seeking for new

knowledge;

d) presence of internal turbulence, presence of external turbulence (strong internal and

external turbulences, significant problems with organizational balance): knowledge strategy

based on knowledge diversification (Stańczyk – Hugiet, 2007, p. 68-69).

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3. THE INTEGRATIVE STRATEGY

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3.1. THE INTEGRATIVE STRATEGY:

SYNERGY OF MARKET AND NONMARKET STRATEGIES

3.1.1. THE OVERVIEW OF INTEGRATIVE STRATEGY

The business strategy failure may have different sources. There are situations when well-

formulated product-market strategies end up stilled by the direct government interaction or

strong reaction of public pushing government to take the formal steps, or the situations

when the company’s strategy ends up in the unintended consequences not compatible with

the company’s core values (Baron, 1995).

Exhibit 1.2. The business environment (Bach, 2010, p. 1)

The reasons of the company failures sometimes do not lie in the intra-organizational

environment (their products, services, efficiency of operations, organization, distribution),

or inter-organizational networks like the suppliers or alliances, but they come from the

forces outside the market defined as nonmarket forces. The nonmarket forces are generated

by governments, interest groups, activists or public and may have power to block new

entrances, influence market prices, costs of competing (Exhibit 1.2).

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Table 1.9. The differences between market and nonmarket environments (Baron, 1995, pp. 2 - 5)

These powers can unlock the market, impact the regulations and the market players: they

can improve a company success or cause a disaster. However these forces are revealed

outside the markets, they are linked to markets (Baron, 1995). Hence, the awareness of

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them and creating an integrative strategy becomes “to be or not to be” for some companies

(Bach, 2010; Baron 1995, 1997; Mellahi et al., 2015). Baron (1997, p. 1) states that „an

integrative strategy captures the synergies between competitive strategies that seek

superior performance in the marketplace and nonmarket strategies that shape the

competitive environment”. The market and nonmarket strategies fulfil each other by their

differences (Table 1.9). The rules of the market competition are critical for many companies

and their activities, hence the firms try to take active part in the processes shaping these

rules. Nonmarket strategy (NMS) is a link between the companies interests and mentioned

rules and the synergies of market and nonmarket strategies become a core of effective

integrated strategy and to achieve a success the company has to “assess both their

consequences in the marketplace and their incentives for the nonmarket strategies that

shape the competitive environment and hence competitive opportunity”. (Baron, 1997, p.

1). Nonmarket strategy is based on managing the institutional or societal context of

economic competition and it includes the firm’s activities outside of the market place that

can help gain competitive advantage (Baron, 2009, in: Minor, 2015) like public politics

strategies (e.g. lobbying, cooperation with regulators) and private politics strategies (e.g.

cooperation with activists).

3.1.2. NONMARKET STRATEGY AND COMPANY PERFORMANCE

Bach and Allen (2010) draw the path for successful development of nonmarket strategy

through the six lenses described above (Exhibit 2.2), while Mellahi, Frynas, Sun and Siegel

(2015, p. 8) building on the analysis of 2014 articles between 2000 and 2014 following Aguinis

and Glavas (2012) show the links- the relationship - between the company nonmarket

strategy and its performance. Continuing discussion of Doh et al. (2012) Mellahi et al. (2015,

p. 19) embrace theoretical lenses for introducing the “internal-external dichotomy to

highlight conceptual complementarities in investing the nonmarket strategy-performance

nexus”. Their Integrative Model of the Nonmarket Strategy- Performance Relationship

(Exhibit 1.3) explains how the nonmarket strategy can lead to the organizational

performance, motivated by the external and internal drivers, thanks to the number of

mediating and moderating mechanisms on both sides- external and internal to the

organization. Their Framework supplies “explanations of how the institutional context and

social actors can constrain or enable nonmarket capabilities and managerial autonomy. (It)

can be used to fruitfully explore the following four key sets of relationships” (Mellahi et

al., 2015, p. 20).

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Exhibit 1.3. An Integrative Model of the Nonmarket Strategy-Performance Relationship

(Mellahi et al., 2015, p. 11)

The emerged outcomes, in Mellahi et al.’s Model of launching NMS are also viewed from

dichotomous perspective. The external outcomes could be reflected in the organizational

reputation, the stakeholder relationships, a positive investor assessment, a consumer

loyalty, an activeness to prospective employee and the internal outcomes include financial

performance, organizational productivity, employee commitment, knowledge and capability

creation or risk reduction. Mellahi et. al’ Framework (2012) presented the most important

factors of their Framework through five theoretical lenses, however for the purpose of that

paper only two of them (the Resource-Based View and the Resource Dependence Theory)

are presented in the Table 1.10.

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Table 1.10. Theoretical perspective of resource dependent theory (RDT)

and RBV in relation to the Integrative Model (Mellahi et al., 2015, pp. 9 – 10)

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3.2. BI-DIRECTIONAL CONNECTIONS BETWEEN ORGANIZATIONS

AND INSTITUTIONS

3.2.1. THE INSTITUTIONAL CONTEXT OF NONMARKET STRATEGY (NMS)

In the NMS context we can see the bi-directional connections between institutions and

organizations Feinberg, Hill and Darendeli (2015). The legislators create the rules, the

regulations the companies have to face and follow. Hence the organizational actions in

response to regulations may target external environment by influencing the forms of the

authorizing legislations, implementing regulations and enforcement practices (Birnbaum,

1985). Internally they can respond (by structural and process changes) through adaptation

to the new regulatory requirements or diversifying out of the regulated space (industry) to

evade from the regulations (Cook et al. 1983 in: Birnbaum, 1985, p. 136). From bi-directional

connections perspective (Feinberg et al., 2015) it can be stated, that the institutions shape

organizations, and the institutional actors play the role in institutional change (Greenwood

& Suddaby, 2006, Hirsch & Lounsbury, 1999 in: Feinberg, Hill & Darendeli, p. 2).

The effectiveness of the company nonmarket strategy is determined by the structure of the

regulations, political rivalry, firm’s ability to cope with the context and the rivals (Bonardi,

Holburn & Vanden Bergh, 2006). The economic growth and efficiency may differ as result of

different institutional arrangements affecting behaviour of the firms (Levine, 1997; Rajan &

Zingales, 1998). According to Feinberg et al. (2015, p. 3) firms may “achieve legitimacy by

fitting into the formal and informal rules and norms and cognitive categories that comprise

institutional logics” (Scott, 2008). That institutional logic influences the interests,

identities, assumptions and attention of individual executives and organizations (Thornton,

2004) and allow them for taking actions leading to legitimacy of the achievement resulting

in the clusters of firms using the same optics (Thornton, 2004; Biggart & Guillen, 1999 in:

Feinberg et al. 2015, p. 3).

Feinberg et. al. (2015) also reminds, that organizations shape institutions, they improve their

performance by proper positioning within the arena of institutional context and shaping that

arena as much as they can.

“A well-established stream in the international business literature shows that firms can and

do improve their performance by scanning, anticipating and influencing the political

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environment in host countries (Alon, Gurumoorthy, Mitchell & Steen, 2006; Boddewyn &

Brewer, 1994; Eden & Lenway, 2001; Oliver & Holzinger, 2008). […] global firms conform

to rules, norms and cognitions of the actors in a host country” (however) they also take

active part in “in manipulating practice and symbols to try to affect both perceptions of

what is legitimate and their fit within those perceptions (Bitektine, 2011). […] the firms

utilise their boundary spanning scope both to derive advantage from variation in

institutional arrangements and try to shape institutional arrangements to their linking

(Vasudeva, Zaheer & Fernandez, 2013)” (Feinberg, Hill & Darendeli, 2015, p. 3 - 4).

Doh, Lawton and Rajwani (2012), in their institutional perspective of the nonmarket strategy

review building on established research, signify the importance of multi-approach aspect of

nonmarket strategy view reflected in growing numbers of articles concerning corporate

political activity (CPA) (Hillman & Hitt, 1999; Hillman et al, 2004; Keim & Zethaml, 1996;

Lawton, McGuire & Rajwani, 2012; Schuler et al., 2002; Zelner, Henisz & Holburn, 2009,

public administration (Boyne, 2002, Rashman et al. 2009), and obligations of the company

concerning society and environment (e.g. CSR) (Boddewyn & Doh, 2011; Husted & Allen,

2010; Yaziji, 2010; Yaziji & Doh, 2009). It raises discussions about the interactions between

different institutional environments and the firms on nonmarket board (Henisz, 2000 in: Doh

et al., 2012).

The “NMS (nonmarket strategy) maps the institutional situation to a set of possible

nonmarket actions, such as building coalitions, lobbying legislators or regulators, making

campaign contributions, and providing information to affect institutions that might defend

or create revenues” (Doh et al. 2012, p. 3).

3.2.2. IMPACT OF INSTITUTIONS ON NONMARKET STRATEGY

Doh et al. (2012) discuss the three dominant perspectives of institutional theory within three

perspectives: macro-perspective: new institutional economics (with international and

national level of analysis), country-perspective: neo-institutional perspectives (national,

subnational and non-national level of analysis) and contextual point of view perspective:

national business systems (international/cross-national level of analysis), and provide

information how these perspectives may influence NMS.

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The first one- New Institutional Economics approach derives from microeconomics. It

differentiates between the roles of two players: an economic and industrial organisation and

political governance responsible for institutional structures. The institutional economic

appearance is reflected in the NMS, where “political and regulatory uncertainty shape the

nonmarket strategy choices” (Bonardi et al., 2006 in: Doh, et al. 2012, p. 6) with strong

importance of uncertainty on the international and national markets. The exchange process

in institutional economics depends on the rationale of agents, regulations and market

context and the institutional rules and regulations have impact on company productivity and

profits (North, 1990) and local market productivity growth (Hotho & Pedersen, 2012). Hence

we can say that institutions influence the ability of the company to maintain a competitive

advantage, especially during time of entering a new market (importance of difference

between turbulence of home and host country (Doh, et al. 2012, p. 6). In that view, low

turbulence, predictable and stable country helps to reduce the costs of company activity

(Hotho & Pedersen, 2012; North, 1990), leading to strong capital market appearance

(Hillman et al. 1999).

Bonardi et al. 2006 (in: Doh et al. 2012, p.7) signifies the importance of dependence of the

company impact and achieved results on the company experience with policy-makers (path

dependence).

“Strategies deployed by management are a function of a degree of institutional impact on

the firm and the firm’s strategic predisposition toward the nonmarket environment (Ring

et al., 1990). As Jacobson et al. (1993) suggested, the ways managers of multinational

enterprises (MNEs) structure economic transactions will limit the costs resulting from

institutional interventions” (Doh et al., 2012, p.8).

The relationship between supplier and buyers does cover the problem of sources of

transaction costs, what may be critical because of embeddedness of economic transactions

in a nonmarket context.

The second approach reminded by Hotho and Pedersen (2012) in Doh et al. (2012) is Neo-

Institutionalism (referring to institutional or organizational sociology) with its importance

of social forces within the processes of enacting and enforcing public policies by influencing

and constraining the political actors. The companies start to respond these pressures by

influencing the political actors collectively on national or subnational level (Lawton &

Rajwani, 2011). NMS in neo-institutional perspective discusses the social obligations and

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strategies of the firms, how they interact with the external stakeholders (Boddewyn & Doh,

2011; Husted and Allen, 2010; Yaziji, 2010). In that approach the firm is not a product of

socially prescribed and institutional pressures, but a social structure that force agency and

influence institutional environment. That view presents the civil society norms and actions

as dictating the investments and policies of government and this way carves the firms’

foreign markets choices (Doh et al., 2012). A major element of that perspective is that

“societal actors have demonstrable effects on the competitive advantage of firms and the

competitive dynamics of industries and can affect profitability (MacAvoy, 1992 in: Doh et

al. 2012, p. 8). The firms become embedded within their social environment (Hillman & Hit,

1999; Holburn & Vanden Bergh, 2008) and they can face advantage, but also disadvantage

reflected in the obstacles they have to overcome.

Table 1.11. Institutional perspectives on nonmarket research (Doh et al., 2012, p. 31)

National Business Systems approach to nonmarket strategy (Whitley, 1999; Whitley, 2007)

is the third institutional perspective mentioned by Doh et al. (2012) that overlaps with new

institutional economic and neo-institutional perspectives. It covers problems of variations in

political-economic models that require attention to differences in actor and stakeholder

interests at cross-national level. It comes from the differences between forms of capitalism

institutionalising economic rules shaping strategies, structures and competitiveness of the

companies and it underlines the institutional context in which organizations were located

(Whitley, 1999, 2007) and the institutional context as a key for organization analysis and

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understanding. In national business context (primarily though not necessarily national) it was

stated that the study of organization and management should be scanned with a

comparative perspective, present in the construction of explanations and in the methodology

of the discipline (Morgan, 2007). In that approach Whitley (2007) signified the relationship

between owners and managers and their relationships. National Business Systems tries to

answer the need for understanding the impact of institutional differences across jurisdiction

and the impact of these differences on performance (Jackson & Deeg, 2008 in: Doh et al.

2012, p. 9).

“Governments worldwide are responsible for inputs to a national business system (human

capital through schooling, resource use through legal systems), and the current lack of

sophisticated study of these institutional arrangements prevents scholars from appreciating

how, for example, Brazil or India develops world –class firms” (Doh et al., p. 9).

Summarising it can be stated, that research focused on national business systems tries to

explain how national business system persists, utilise their power in social relationships

through formal and informal institutions (Djelic, Nooteboom & Whitley, 2005). Table 1.11

summarizes Doh et al. (2012) approach in perspective of three cross-cutting theoretical

strands underpinning the strategy.

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3.3. OPERATIONALISATION OF NONMARKET STRATEGY

“The role and impact of institutions on strategy vary depending on home or host country,

industry, strategic group, and firm specificity” (Doh et al. 2012, p. 11). In their paper Doh

et al. (2012) analysing number of other scholars publications discuss three strategy dominant

perspectives influencing the NMS: from Industrial Organization View (at industry/firms

level), Resource and Capabilities View (firm/SBU level) and Network View (firm/strategic

group level).

a) Positioning Approach Perspective

The Industrial Organization View built on classic perspectives (Mason, 1939; Bain, 1968) fully

acknowledges the role of external environment (Porter, 1980). The government becomes

important as a force in: 1) creating barriers to entry through regulations, or a force in

decreasing barriers to entry by regulations, 2) stimulating the industry by direct (subsidies)

or indirect (taxes reductions) support of the firms to succeed on the national or international

scale. The public policy, the regulations, the social preferences strongly influence the

market attractiveness (Doh et al., 2012, p. 12). Industry organization perspective “studies

have looked at NMS as being an inescapable priority for business leaders in every country

(Baron, 1995). Strategic theories of CSR (McWilliams, Siegel & Wright, 2006) which assert

that a company’s social practices are integrated into its business and corporate-level

strategies, are integral to NMS”(Baron, 2001). Thanks to the CSR the companies target

socially responsible consumers and link them with product sales and thus they gain

competitive advantage. The CSR by creation of good corporate citizen image provides the

company chance for benefits. Doh et al. (2012, p. 2013) remind, that Porter (1980)

introduced three basic approaches to strategic CSR: a product differentiation strategy, a

low-cost strategy and a strategic interaction strategy. Porter and Kramer (2002) discuss the

difficulties in developing strategies within the regulatory and social elements of their

industries and finds that the main reason lies in “divergence of economic interests and

ethical objectives in business operations” (Doh et al. 2012, p. 13). However they do not

adapt term of nonmarket strategy- they state, that market opportunities can appear as

results of appearance of value chain opportunities benefiting society and/or the environment

Doh et al. 2012.

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b) RBV Perspective

The firms’ and strategic business units’ resources and capabilities perspective is the second

one proposed by Doh et al. (2012, p. 15).

“A number of scholars have suggested that firms resources and capabilities can be

integrated into the nonmarket environment, notably in respect to relations with politicians

or regulations (Bonardi et al. 2006, Capron & Chatain, 2008 […]) and social actors (Hillman,

Keim & Shuler, 2004, McWilliams & Siegel, 2011)”.

Fainsod (1940) has already mentioned that an industry receives beneficial regulations

through its capacity to the accommodation of proper resources: financial (political campaign

financing), human (the use of lobbyists and lawyers), and political (political coalition

building). Yoffie and Bergenstein (1985) treat the firm as accumulating nonmarket capital

(Doh et al. 2012). The nonmarket strategy can increase the costs of competitors’ activities

by blocking the use of substitute resources e.g. legislation blocking access to important

contract of government’s project (McWilliams et al., 2002 in: Doh et al.) and the nonmarket

capabilities may become the source of the success or failure of the NMS. That is why the

identification and the employment of the specific and right nonmarket processes, deploying

and integrating political resources, may become a core of advantage, for e.g. charitable

campaign run by the company involving all the business units and employees resulting the

growth of the firm legitimacy in the specific, expected community (Lawton & Rajwani, 2011;

Lawton, Rajwani & Doh in: Pearce & Doh, 2005; Doh et al. 2012). Dahan (2005) describes

nonmarket capabilities as mainly technical- economic expertise in managing lobbying. The

nonmarket resources from his perspectives should possess organizational attributes (person

responsible for that activities), public image qualities (stakeholders apprehension),

reputation resources (responsibility of individuals and the company), financial commitment

(direct finance, political campaigns contributions or indirect finance, events and

conferences) (Doh et al. 2012, p. 16). Oliver and Holzinger (2008) combined the RBV with

the NMS to test the company capacity to deploy skills and political resources to successful

managing and influencing public policy process. They argue that “the effectiveness of

political strategies will be a function of firms’ dynamic political management capabilities”

(Oliver & Holzinger, 2008, p. 1).

There are also some criticisms concerning RBV and NMS. Dahan reminds (2005, in: Doh et al.

2012, p. 15), that studies of MNS do not pay enough attention to the managerial coordinative

processes and capabilities needed to assembling and leveraging political resources in

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building robust NMS. The critics of RBV in nonmarket strategy approach also discuss the

challenge of addressing the potential collective nature of these nonmarket resources (Dah

et al. 2012). However, despite the criticism growing number of scientific research (Mellahi

et al., 2015, Frynas et al (2006), Yoffie & Bergenstein, (1985), Lawton, (1996 & 1999) proves

how resources may be leveraged by MNS (Doh et al., 2012).

c/ The network perspective

The last perspective discussed by Doh et al. (2012, p. 17) is Network Perspective, analysing

the personal relations between firms and governmental agents. These relations in strategic

lens lead the company to gaining or retaining a competitive advantage. These kinds of

networks may be important and core for every company. The linkages with government

officials can provide: unique, valuable and mostly hidden information concerning

governmental activities (Frynas et al., 2006; Hillman et al., 1999), and a firm’s access to the

policy-making process, may enhance the company reputation (political and social) and thus

improves the firms activity in the legislating or regulating processes. Possessing nonmarket

capital can influence the company’s effectiveness in the political and social processes. The

nonmarket capital is defined (Shaffer & Hillman, 2000) as the “ability of firms to influence

political and social actors and agendas using reputation, relationships, expertise and

finance” (Doh et al., 2012, p. 18) e.g. social or reputation capital (Oliver & Holzinger, 2008).

Shafer and Hillman (2000, p. 178 in: Doh et al., 2012) signify that nonmarket capital pulls

from resources that are “embedded within available through and derived from the network

of relationships possessed by a social unit”. The company’s investment in the capability to

implement successful nonmarket strategy thanks to access to decision makers, knowledge

and expertise Frynas et al. (2006 in: Doh et. al., 2012) describes as another component of

nonmarket capital. Mahon, Heugens and Lamertz (2004) signify the importance of

relationships as nonmarket capital (e.g. political influence, access to policymakers and

knowledge about public policy arena) providing benefits to the companies. The great

example of nonmarket capitals are connections with elected officials, that are based on

interactions between partners and their resource commitment (Rowley et al, 2000).

Rowley et al. (2000) distinguishes two types of involvement between the actors: weak ties,

rare in contacts, involving less of a resource commitment (e.g. marketing agreements and

licencing and patent agreements between companies) and strong ties, based on partners’

investments, covering stronger commitments of resources and frequent interactions (e.g.

equity alliances, joint ventures) (Doh et al., 2012). The companies analysing the importance

of ties for their strategy have to choose the right option. The stronger ties, based on trust,

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mutual gain, reciprocity and a long- term perspective can yield strategic benefits (Uzzi,

1997; Larson, 1992). Thus, the firm may gain an in-depth understanding of pending political

events or social impacts, develop goodwill and a history of reciprocity with elected officials,

access to parliaments and advisory committees (e.g. providing preferential market entry and

expansion ties of German Metro Cash and Carry and Yuri Luzhkov, mayor of Moscow) (Doh et

al. 2012, p. 20).

Table 1.12. Strategy perspectives on nonmarket research, (Doh et al., 2012, p. 33)

Doh et al. (2012, p. 32) integrated market and nonmarket strategies describing conceptual

and practical complementarities and synergies:

- New Institutional Economics - Industrial Organization: competition within the industry is

influenced by institutional-economic conditions and choices, such as antitrust policies,

- New Institutional Economics – Resource Based View: the resources and capabilities within

the firms, their appearance and development depend on legal, regulatory and governmental

policies,

- New institutional economics – Network perspective: the favouritism of certain political

leaders, making political network relationship more or less valuable may be effect of

different political – economic systems,

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- Neo–Institutional Perspective – Industrial Organization: the industry effectiveness and the

role and influence of organizations within the value chain may be a result of social actors

preferences expression,

- Neo–Institutional Perspective - Resource-Based View: the firms can be challenged by social

actors to force the company’s ability to build legitimacy and strengthen reputational assets

and they can develop capabilities to influence the social actors to achieve the goals for the

firms,

- Neo-Institutional Perspective – Network Perspective: determining the network relationship

and its value can be determined by the nature of differing social systems and their

conditions,

- National Business Systems – Industrial Organization: differences in national business

systems result differing industry-specific competitive environments,

- National Business Systems – Resource-Based View: national systems differences demand the

improvement and utility of political resources and fitting capabilities,

- National Business Systems – Network Perspective: Network relationships may appear in

different forms, involve different actors, and bring different outcomes depending on broader

business system they appear.

Doh et al. (2012), in presented above review of their work, made a great attempt to describe

the logical path between the institutional and the strategic organizational perspectives and

providing overview how the institutional perspectives have growing impact to knowledge

about nonmarket importance in international business:

“The institutional environment is a dynamic and self-renewing system, framed by state,

international, and nongovernmental forces and populated by corporations large and small

interest groups, and individuals striving to have their voices heard (Coen, 1998; De

Figueiredo & Tiller, 2001; Lawton & Rajwani, 2011) (Doh et al., 2012, p. 26).

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3.4. CORPORATE POLITICAL ACTIVITY

– A KEY PERFORMANCE OF NONMARKET STRATEGY

Overview of CPA

The Corporate political activity (CPA) and corporate social responsibility (CSR) are two

strategic strands of NMS. However they emerged in isolation from each other (Mellahi et al.

2015), they complement and buffer each other and according to researchers specialising in

that area, they should be treated integrated (Baron, 2001; Siegel, 2009; Mellahi et. al.,

2015). For the purpose of that thesis author focuses special attention on CPA. Corporate

political activity has emerged from many disciplines like strategic management, marketing,

economics, sociology, finance and political science and appeared as a perspective for

explaining the company performance in the political arenas (Hillman, Keim & Schuler (2004)

in: Lawton, McGuire & Rajwani, 2012, p. 2). Through campaign contributions, direct

lobbying, government membership on company boards, voluntary agreements, political

action committees, and ethically problematic actions like briberies or revolving door the

companies influence the governmental activities (Adly, 2009; Lawton, et al. 2012; Delmas &

Montes-Sancho, 2010; Hansen & Mitchell, 2000; Blanes i Vidal, Draca & Fons-Rosen, 2010;

Draca, 2014). The critical environmental changes on the global scale, appearance of

transnational corporations and state-led corporations and capitalism (e.g. China or the Gulf

States) provoke deeper and larger discussions on connections and activities between

institutional and private equities, not only on local, but international scale (Baron, 2010;

Dunning, 2000; Draca 2014). The call for institutional convergence (Dawson) reflects the

growing importance and size of impact of the MNEs on the local governments (e.g. large size

of the company, the corporate strategy and institutional environments are the main factors

determining the firm’s choice in designing the organizational structural form for their

lobbying activities, Lawton et al. 2012, p. 4).

Building on the literature concerning the CPA Lawton et al. (2012, p. 3) indicate that

“corporate political activity is not a management process in its own right […], it occurs

under the aegis of a broader public relations function”. They signify the strategic

importance of public relations in building relations with the strategic publics modelling and

constraining the company mission. Citing Grunig et al. (1995) Lawton et al. (2012, p. 3)

describe the public relations as “a management function […] concerned with identifying the

stakeholders that they affect and that affect them”, while for Pinkham (1998) government

affairs are the subset or function of corporate communications and public relations. A lot of

authors (Baysinger, 1984; Baysinger and Woodman, 1982; Bonardi et al. 2006, Capron and

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Chatain 2008; Frynas et al., 2006; Hillman et al., 2004; McWilliams et al. 2006; Oliver and

Holzinger, 2008) tackle the importance of firm resources, that “can be integrated into the

non-market environment, notably in respect of relations with political authority, such as

politicians or regulators” (Lawton et al, 2012, p. 4) (Table 1.13).

Table 1.13. Summary of publications concerning resources and capabilities in perspective of CPA

(Lawton et. al. 2012, p. 5).

As it was mentioned before, the organizations use the CPA mainly to create value reflected

in profits (Bonardi, et al. 2006; Frynas et al. 2006; Yoffie & Bergenstein 1985; Draca 2014).

The important features to the CPA success are the volume of activities and the collaborations

within the industry. Both groups of factors have impact on the company strategy and

cooperation- competition within industry (Vining, Shapiro & Borges, 2005; Coen, 1998).

There are three core organizational motives for introducing CPA: maintenance, defence and

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advantage of the company’s domain (Baysinger, 1984; Keillor et al., 2005 in: Lawson et al.,

2012). A variety of political behaviours can bae adapted to accomplish the firm’s strategy

e.g. business-government relations, corruption, political inducements and contributions and

overt lobbying (Baysinger, 1984; De Figueiredo & Tiller, 2001 in: Lawton et al., 2012).

Reduction of uncertainty and transaction costs, increasing long-term sustainability are the

major benefits to the firm (Hillman et. al., 1999; Lawton et al., 2012). What is specific for

CPA strategy is exchange between the public officials and the firm: the firm has to offer

something valuable for the officials in exchange for fulfilling the companies’ expectations

(e. g. creating wanted regulations or legislations). To reach the political goals (Dahan,

2005b) firms use number of political resources “characterised as organizational resources

(i.e. In-house office or permanent regulatory person), they also contain relational resources

(i.e. formal relationships or information relationships with political actors, public image (i.e.

perception of stakeholders, reputation resources (i.e. individual and firm responsibility), and

financial resources (i.e. direct finance-political campaign contributions or indirect finance –

events and conferences).

Typology of corporate political strategies

The literature discussing political involvement of the firms characterises the major features

of the firms engaged in the political activity: they are large (often multinationals) and they

depend strongly on the political environment, they possess a material interest in the public

policy in question, and the political issues are important from their strategy point of view

(Oliver & Holzinger, 2008, p. 505). The industry concentration and strong influence on the

companies’ activities are the characteristics of the political players’ environments.

The firm’s political strategy in the RBV perspective focuses on creating or maintaining the

value in political environments. This may happen in two ways: by influencing the political

environments or by complying with public policies or regulations (when influence is

impossible) (Oliver & Holzinger, 2008). Political compliance appears at the company level

and covers the activities leading to conformity with political demands and the expectations

to maintain or create value, by anticipating or adapting to public policy (Rowley &

Moldoveanu, 2003; Oliver & Holzinger, 2008). Thus we can say, that companies can choose

between competition driven and compliance driven strategies (Buysse & Verbeke, 2003, p.

453 in: Oliver & Holzinger, 2008). Building on that assumptions Oliver and Holzinger (2008,

p. 506) select four alternative political management strategies: reactive strategy, defensive

strategy, anticipatory strategy and proactive strategy, building on differences between

sources of effectiveness and achieved nature of the effectiveness. That view is presented in

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Table 1.14. Categories of political management strategies (Oliver & Holzinger, 2008, p. 507)

the perspective of dynamic capabilities influencing and sustaining company performance

(company efficiency and legitimacy, first mover advantages, firm reputation, protection of

current assets and market position, redefining the institutional definitions of political

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demands and policies). The strategies build their advantage using capabilities located in the

internal and external environments. The compliance strategies, including reactive political

strategy and anticipatory political strategy, utilise the internal capabilities, while the

influence strategies, like the defensive and proactive political strategies build on the

external capabilities. Their most important aspects are presented in Table 1.14.

Analysing the results, the author describes the four categories of strategies (Oliver &

Holzinger, 2008). The reactive strategy (RPS) and anticipatory strategy (APS) as strategies

provide short-term (RPS) and short- to medium-term (APS) competitive advantage. The

reactive strategy creates advantage through efficiency and legitimacy effects and

anticipatory strategy (APS) through first mover advantage and enhanced reputation. While

defensive strategy (DSS, focused on protection of already possessed assets and market

position) does not create sustainable competitive advantage or create it a little. The most

effective strategy appears when proactive political strategy (PPA) provides medium- to long-

term competitive advantage through redefining public policy to company strategy and

interests.

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3.5. RELATIONS AS FUNDAMENTS OF NONMARKET STRATEGY

As positioning approach (Porter) is the best frame for market position analysis, the

relationships lie at the heart of nonmarket strategies. “The relationship unfolds outside of

markets is not governed by the laws of demand and supply but rather by complex formal

and informal rules governing such settings” (Bach, 2010, p. 2). In the relational view the

firm may be seen as actor seeking developing and exploiting core competencies and

capabilities. The core is the quality of internal and external relationship the company

establishes (Hall & Soskice, p. 6). Zakrzewska-Bielawska (2012) defines a relational strategy

as a constant and dynamic process of choices concerning forming relations and withdrawal

from relations. These choices, taken in the conditions of uncertainty, lead to value creation,

keeping the development potential and creating the relational rent (Bielawska-Zakrzewska,

2012). Zakrzewska-Bielawska (2012, p. 22/23), after Stańczyk-Hugiet (2013), proposes the

different types of inter-organizational relations, according to the different classifications

criteria:

- The direction of relation (Mattson, 1989), e.g. from strategic to periphery relations, from

complementary to competitive relations, from complex (network) relations to simple

relations (between two objects), etc.,

- The inter-organizational companies behaviours (Bengston & Kock, 2002), e.g. competition,

cooperation, coopetition, coexistence,

- The nature of relation (Lefaix-Durand, Paulin, Kozak & Beauregard, 2005), e.g. from

hostility to cooperation,

- The relation management (Lefaix-Durand, Paulin, Kozak & Beauregard, 2005), e.g. from

transaction to the relational supervision,

- The items dependence, e.g. from total independence to total dependence (Child &

Faulkner, 1998); the independent and dependent relations (Pham, 2005),

- The getting of benefits (Hung, 2005), e.g. from the one-sided relations, through mutual,

exchange, symbiotic, from manipulative to exploiting,

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- The mechanism of coordination (Gereffi, Humphrey, Sturgeon, 2005), e.g. market,

modular, relative, slavery and hierarchic relations,

- The relations evolution (Hite & Hestery, 2001) e.g. from the natural social relations to the

market relations; from historical path-dependency to intentional management of net of

relations,

- The goal of relations (De Wit & Meyer, 2007), e.g. the relations focused on resources

sharing, integration of activities, relations leading to the mutual synchronization,

- The structure of the power (De Wit & Meyer, 2007), e.g. the mutual independence, mutual

dependence, uneven independence, uneven dependence,

- The entity of relation (De Wit & Meyer, 2007), e.g. the horizontal relations with suppliers

and customers, the direct relations with competitors, relations with institutions etc.,

- The temporality of relation (Andersson & Mattson, 2010), e.g. long time- relations, short-

time relations, temporal relations.

In the integrative perspective the relational strategies are also defined as complementary

to market strategies (the company dimension and market dimension), because in the

relational strategies approach the critical becomes the additional- non-market dimension

(defined as “the outside market dimension” STRATEGOR, p. 262 - 268 in: Krupski (2007, p.

42). “The necessity of complementing the internal competences by the organizations, by

the possibility great number of relations with the external objects, is a consequence of

present conditions of competing and constitutes the basic conditions formulated in the

conception of strategic management as: portfolio of relations” (Zakrzewska-Bielawska

2012, p. 20). Hence, STRATEGOR emphasizes that there are three dimensions becoming

fundamental for creating relational strategy: value (attractiveness) of the company domain,

the competences of the management and the company activity safety defined as competition

restriction. The examples of relational strategies are presented in Table 1.15.

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Table 1.15. Different types of relational strategies (STRATEGOR, 1995, p. 259)

Crossing the three dimensions and analysing them in the strong and weak perspective

STRATEGOR proposes eight different strategies: Champion Strategy (strong domain, strong

management competences, strong security), Independent Strategy (strong domain, strong

management, weak security), Adventure Strategy (strong domain, weak management, weak

security), Affiliation Strategy (strong domain, weak management and security),

Philanthropist Strategy (weak domain and management, strong security), Engineering

Strategy (weak domain and security, strong management) and Suiciding Strategy (weak

domain, management and security).

“A fundamental assumption underlying research on the relationship between institutions

and firms is that both can form and leverage “boundary-spanning personal and institutional

linkages between firms and the constituent parts of public authorities” (Sun, Mellahi &

Wright, 2012, p. 68 in: Feinberg, Hill & Darendeli, p. 4). It provides advantages. These

connections intermediating between firms and institutions. The example of critical

connection is political connection, that can provide direct financial advantage and

institutional change (Feinberg, Hill & Darendeli). Hillman and Hitt (1999) reminds the

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importance of difference between relational political connections build on persona close

links and transaction based connection focussed on the issue.

The political connections between the managers and the politicians (Feinberg et al., 2015)

can be founded on “exogenous” sources (e.g. same school (Bertrand et al. 2006; Cohen,

Frazzini & Malloy, 2009), family relationships (Morck, Stangeland & Yeung, 1998), belonging

to political party (Li, Meng, Wang & Zou, 2008) or business group (Khanna & Palepu, 2000),

or just geographic ties to politicians (Faccio & Parsley, 2009). “[…] the personal relationships

between individuals in our dataset largely predate associations of these individuals with

particular firms and so political connections were not determined by the nature of the firms

themselves (Gomez & Jomo, 1997, p. 353 in: Feinberg et. al., 2015, p. 4). The political

connections may be formed as a result of business activity, the relations created by managers

of the firms within the cooperation with the institutions (e.g. companies working as

government suppliers). The last, third sources of political connections proposed by Feinberg

et al., (p. 5) are these arising endogenously as a part of firm’s corporate political strategy.

This includes “hiring former politicians or including them on corporate boards (Lester,

Hillman, Zardkhoohi & Canella, 2008), placing firm executives in political positions

(Goldman, Rocholl & So (2009); Hillman, Zardkhoohi & Bierman, 1999), making campaign

contributions, PAC contributions or other monetary gifts (Stratmann, 1999; Cooper, Gulen

& Ovtchinnikov, 2010)”. The corporate activities cannot afford to ignore lobbying affecting

directly the policy of governments (Feinberg et al. 2015).

The value of connection is issue dependent (context, situation, time, players etc.). The

connection may protect from environmental threats (e.g. liberalisation negative impact

decreasing access to finances, capital market restrictions, product restrictions) or may

provide advantage (e.g. liberalisation positive impact increasing access to the finances,

markets, resources, decreasing entry barriers etc.). The firms embeddedness in the local

power administrations mitigates various political and contractual risks, influence learning,

and access to resources, information and political favours (Delios & Henisz, 2003; Frynas,

Mellahi & Pigman, 2006; Peng, Wang & Jiang, 2008; Feinberg, Hill & Darendeli, 2015). It is

worth to remember about two negative aspects of political connections: they may be

associated with cronyism and corruption (Feinberg et al. 2015; Doh et al., 2012, p. 3) and

may result the destruction of the image of the company by connections with the wrong

political institutions (e.g. with political dictators).

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THE CHAPTER SUMMARY

The chapter above discusses selected strategic views from their sources of advantage

location point of view (external and internal to organization). With a different focus on the

number of strategies, depending on their importance for that thesis, the approaches were

selected to present in a small sample how rich in scientific discussion is problem of successful

advantage and how crucial and challenging is selection of its successful sources.

Every presented perspective questions different aspects of organizational strategy and its

sources of success. Despite their scientific richness and discussions, from internal to external

sources of advantage, from environment and its competitive game to renascent internal

potential of the organization, they have not succeed yet to discover the universal source of

organizational success.

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C h a p t e r II

T R A N S N A T I O N A L H Y P E R M A R K E T S

A N D T H E I R E N V I R O N M E N T

Chapter Description

The following chapter describes the impressive internal and external environment of global

transnational retailers with special focus on hypermarket/supermarket chains. The chapter

consists of two parts. The first part is the overview of global retail sector and its trends,

multinational players and their core strategies (internationalisation and multichannel

diversification). The second part includes the external to the retailers global environment,

discussing selected aspects in perspective to transnational retailing.

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1. THE WORLD OF RETAILING IN XXI CENTURY

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1.1. THE SECTOR OF GLOBAL RETAILING

1.1.1. MULTINATIONAL RETAILING INDUSTRY

When English supermarket Tesco started cooperation with dunnhumby in 1995 launching

Tesco Clubcard it was hard to imagine, that in two decades this hypermarket chain as

owner of dunnhumby will be analysing private data of hundred millions of consumers

around the world. In 2015 the shares of dunnhumby are valued at up to 1 billion pounds

(Kalluvila, 2015). In 2013 the aggregate retail revenue of the Top 250 retailers exceeded

$4,3 trillion with the average size $17,42 billion (Deloitte, 2015, p. G19)1. In 2013 –

another challenging year for retail sector: recession, fiscal austerity, weak export markets

in Europe, US and Japan economy slow recovery, Chinese economy deceleration, all these

factors make consumers spending more careful. However the revenue growth for the Top

250 Global Powers of Retailing continued to slow profitability improved (Deloitte, 2015, p.

G7) over 90% of the top retailers were profitable the composite year-to-year growth retail

revenue reached 4,1%. The composite net profit margin was 3,4% (Deloitte, 2015, p. G19).

Table 2.1. Top 10 Retailers in 2014 (Deloitte, 2016, p. 23).

1 Deloitte (2015, p. G19): Minimum retail revenue required to be among Top 250 was $3,7 billion.

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Retail sector defined as the final stage of distribution from production to consumers

(Eurostat, 2009) create only in EU 7,4% of value added and its employment exceeds over

17,5 million.

The food and other fast moving consumer goods retailers (hardlines and softlines)2 are still

a majority of the Top 250 in number and size of companies and with average 2013 revenue

exceeding $22 billion are the least geographically dispersed (operations in an average of

4,9 countries and 40% operating only within their domestic borders) (Deloitte, 2015).

Despite these facts foreign operations delivered over 23% share of FMCG retailers’

combined goods. “[…] the overall sector results disguise the global expansion activity of

several of the largest companies that operate in dozens of countries and derive the

majority of their sales from foreign operations” (Deloitte, 2015, p. 25). Diversified

retailers offer a variety of products operating in variety of formats (ex. department stores,

hypermarkets, general merchandise discount stores, specialty stores and non-store

channels as catalogues, direct and Internet sales).

Table 2.2. Product Sector Profits in 2013 (Deloitte, 2015, p. G25)

2 In XXI we witness shift of many luxury hardlines as electronics (including TV sets, computers) to group of fast moving consumer goods as a result of drop in prices (e.g. import from Asia to Europe)

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1.1.2. TRENDS IN GLOBAL RETAILING

During the last decade we witness many trends in the global retailing. The main trends

are: acceleration of retail globalisation (including monopolisation of the sector), increasing

share and diversity of services, growing importance of private labels, increasing value of

information and knowledge on the global scale (Deloitte, 2007-2015; Knezevic & Renko,

2011, Wrigley, 2008, Gorgól & Stańczyk-Hugiet, 2010). These trends reflect one critical

issue: the appearance of food market oligopolies (Singh, 2012; Aoyama, 2007, Coe & Hess,

2005, Elickson, 2004). For example in the UK four groceries control over 70% share of the

market, in France- six control 90%, and in the USA- six chains control 60% (Exhibit 2.1).

The Acceleration of Retail Globalization

The acceleration of retail globalization (mainly the US and world – class emerging

retailers) and consumer spending shift toward Asia from developed countries (result of

developed markets saturation) are continuous processes. Several emerging-market

retailers have experienced success in home and other markets. There is a group of

specialised products retailers from emerging economies interested in investment in

developed more affluent markets (not food or mass merchandise). We witness a noticeable

multilayers development of global retail sector. The strength and fluency in going global

strategy (competitive advantage, local managerial talent utility, local relationships

development, have emergency plan, have money for investment).

The Services Variety

A growth of services variety becomes proportionally reversible to FMCG sales: less money

are spent on products- more money stays in the customer’s pocket. Growing competition

between retailers, the price wars, clothing and food prices deflation allow customers to

save more money for services like holidays, travelling, mortgages or additional insurances

etc.

Supermarkets’ Private Labels

The retailers’ private label power growth is the third important trend. The rapid growth

of private-labels (retailers’ store brands or their own brands) increases the risk of

substitution and decreases the power of suppliers3. Proliferation of private label brands

3 e.g. Kroger (US) private label sales in 2006 reaches 18,2%

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Exhibit 2.1. The Supermarkets Oligopolies: example of the UK, French and the US markets (Statistica.com, 2016; Kantar Worldpanel, 2016)

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appears in all FMCG sectors (food and household products, consumer durables and

pharmaceutical products). What is characteristic: the private labels are not low quality

(cheap equivalents) in relation to generic brands anymore (e.g. Tesco Finest4). Over 97,5%

of food retailers were offering private label/store brands as “a key part of their

merchandising strategy in 2008 (Senauer & Seltzer, 2010). Only between 2007-2012 the

private label market has dramatically grown up by 25% to over US$350 billion

(Euromonitor, 2014). In 2015 private label’s market is in a mature stage and the retailers

gradually move away from offensive promotions and discounting to supply better quality

and products value still available at low prices” (Euromonitor, 2014, IRi Worldwide, 2014,

p. 5).

Exhibit 2.2. Private label’s value share by country (IRI Worldwide, 2014, p. 7)

According IRi Worldwide (2014, p. 12) research: in most countries the private labels prices

have been lower than national brands (the narrowest gap in the UK, Spain and Italy and

largest gap in Germany).

“For supermarkets, private label (PL) and the higher margins they achieve are a much

needed antidote to the challenging environment. […] So significant is the move to private

label that in some retailers, in some categories, branded products have disappeared from

the shelves completely.” (Atterby, Kantar Wordplanel in: Gray, 2014).

4 Tesco started its private label activity from introducing cheap products line - „Tesco Value” and developed its own-label portfolio adding more Tesco’s lines e.g. high value and price “Tesco Finest” products

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Supermarkets’ private labels are an excellent and constants source of the retailer

profitability. In comparison to the manufacturers the supermarkets possessed critical and

valuable weapon: information about selling products: what (exact product item), where

(country, city, city district, street, alley in the shop, shelve), when (data, season, time),

by whom (customer personal information collection) in what price (in comparison to the

products of other brands) is the best seller. The collected knowledge supplying great and

deep data about consumers behaviours, market’s trends etc. allows supermarkets to

create their brands. The grocery retailers starting from low price (value) brands have

expanded their products portfolio to luxury brands. Thanks to collected knowledge the

hypermarkets do not have to do so much research concerning launching new products in

comparison to the manufacturers. Questionable is the case when supermarket’s own

brands look and taste similar to the products of best sellers- manufacturers’ top brands

(e.g. Tesco Kick energy drink and Red Bull energy drink).

Information Matrix Growth

Information codified into knowledge is the next trend in global retailing of XXI century.

Market saturation and growing dynamism of retailing and complexity their activities force

the actors to use more and more sophisticated tools for realizing their strategy. The new

application of already known technologies like satellite navigation (GPS), radio-frequency

identification (RFID), Digital Video (including thermovision), Biometrics, Magnetic

Resonance Imaging (MRI), DNA Sequencing, Voice Recognition, Wireless transmission, the

Cloud, Smart Mobile devices allow the retailers for collecting and managing the data from

all retailers’ networks environment. Managing the stocks, tracking deliveries (through the

products entire life cycle), securing goods, accepting mobile phone payments, Internet

selling, stocking, managing and selling to the subcontractors or other business players

concerning data about products distribution and consumer behaviour - these activities are

a daily bread for global retailers thanks to synergic technology application. The most

famous example of building success based on technology and data management is

dunnhumby5- “the world’s leading customer science company” year after year taken over

by Tesco Plc. In 2015 dunnhumby analyses the data from nearly one billion customers

worldwide (what and where customers want and how much are going to pay), then

personalise the customers’ experiences (in all customer environment creating a lifetime

loyalty) and transform clients-retailers into customer priority organization. In pragmatic

way dunnhumby deliver measure value leading to retailers long-term success (dunnhumby,

5 Split in 2015 into Dunnhumby and 84.51°

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2015). In 2015 when the shares of dunnhumby are valued at up to 1 billion pounds

(Reuters.com). dunnhumby is called Tesco family silver (Richards, 2014).

“We started looking in the obvious places, like the Teradatas, but we couldn’t afford

that. We have a hybrid of technologies. We use Oracle as our main data warehouse

engine, to receive it and store it. We use SAS for a lot of our analytics. And we’ve used

both White Cross and Sand Technology as our analytic engine for applying our learnings to

larger volumes of data. And on top of that, we’ve built quite a lot of our own technology

to basically get the best out of the technology. So, for example, we could have built a

massive singe data warehouse. What we did, instead was build a number of small ones

that you could add the results of together. So I could look at the 1-percent sample or 10-

percent sample or 100-percent sample of the data, depending on what business issue I’m

addressing. If it’s a top-line question, 1-percent sample is fine: five me an answer in five

minutes on an NT Box. If I need to apply it to every customer and influence when we, for

example, send the statement out to those 10 million customers, there’s now about 4

million variations of what we send. So virtually every letter is close to the one-to-one

vision. We don’t actually do it on a one-to-one basis. We do it on a segment basis, using a

number of different drivers. But to make that happen, we clearly have to apply it to the

100 percent data, and it takes a day on a big, analytic server” (Clive Humby, 2004, p.6).

Technological inventions lead to empowering the retailers, however the questionable are

advantages supplied to the customers. The warnings concerning secret customers spying6,

sense of collecting intimate and private data about customers and their relatives raise the

internationally asked questions concerning data privacy and secrecy, life intimacy of

customers.

Ethically discussable are the questions used by supermarkets to know customers’ finance

situation, physical and mental health, criminal record, religious and political views etc.

(Laurance, 2007)7. As Deloitte (2015, p. G11) prophesies in 10 years the adoption of

technology in grocery shops can lead the customers to the store of the future (Exhibit 2.3):

6 Wal-Mart and Procter & Gamble have already been accused by customers for installing alive RFID tag in Infinity lipsticks in 2003 (Garfinkel, 2003) 7 e.g. Tesco Plc was collecting these kinds of data providing Tesco Clubcard to its customers in 1995 (Laurance, 2007)

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Exhibit 2.3. Shopping experience in the close future (Deloitte, 2015, p. G11.)

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1.1.3. NEGATIVE ASPECTS OF RETAILING GLOBALISATION

“11.5. The buying power of the Large Multiples in the food market must continue to be

a matter of concern for the competition authorities.

11.6. There is a possibility that in the future food retailing would be in the hands of a

very small number of players, which could lead to less consumer choice and

higher prices. The Commission and Member State Governments need to be aware

of such a possibility”

(NAT/262, European Economic and Social Committee, 2005)

Retail sector concentration, its diversification into different industries (e.g. properties,

pharmaceuticals, health service, banking etc.) increases the supermarkets’ market power

and influences their cooperation within the supply chain, strengthening their power over

workforces and over the consumers (e.g. in 2013 Wal-Mart Stores Inc. held over 11,4% and

in 2014 over 24% of market share in the United States, Tesco Plc in the UK - 30% and

Carrefour about 20,5 (Statistica, 2016; Neville, 2013; Vidalon & Denis, 2014).

The liberalisation of the international trade and global growth of transnational retail

chains have resulted the growing emerging need for global retailing regulations and control

of transnational activities of retailers. Being global can be tempting. It provides tools to

“improve and control” competition and illegally maximise the profit (e.g. through

oligopolies). The retail industry in the developed markets has become retailing oligopolies

(Singh, 2012). The example of oligopolistic practices may be cartel illegally bounding the

retailers by secret agreements concerning dumping selling and buying prices (e.g. diary

cartel in the UK in 2006 (Wallop, 2007), which has driven to bankruptcy of supermarkets

suppliers, or discrimination of trading partners by “refusing to deal with the certain

customers”, and forcing monopolistic trading rules (e.g. retailer selling one brand of the

small supplier conditionally on the sale of other product (European Commission, 2004, p.

4). The cartel’s agreements can illegally help all the cartel members increase their

product price margin, despite constant demand for product. The cartel can use the same

strategies with product suppliers exerting pressure and hence to drive the suppliers to lose

their cash flow stability.

The importance of the problems is reflected in growing legislation concerning the

transnational activities. For example the EU tries to regulate competition by the European

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Competition Network (EU Competition Commissions of all Members) and executes it by

national courts (EU Commission, 2004, p. 5). The Article 81 of the EC Treaty (restrictive

agreements) states that “agreements between companies or ‘undertakings’ which lead to

an appreciable restriction of competition are prohibited. In fact, they are automatically

void, so that the normal rule ‘agreements need to be respected’ does not apply. The

European Commission or a national competition authority can order companies to end

such illegal agreements and impose fines on companies for having concluded them. This

applies also to unwritten agreements, as well as to concerted practices (EU Commission,

p.6).

In the 19th of February 2008 the project “Abuse of power by supermarkets. Declaration of

the European Parliament on investigating and remedying abuse of power by large

supermarkets operating in the European Union” was called by 140 EU Parliament members

to “investigate the impact that the concentration of the EU supermarket sector is having

on small businesses, suppliers, workers and consumers and, in particular, to assess any

abuses of buying power which may follow from such concentration and to propose

appropriate measures, including regulation, to protect consumers, workers and producers

from any abuse of a dominant position or other negative impact identified in the course

of this investigation” (European Parliament, 2008).

EXAMPLES OF THE ILLEGAL AGREEMENTS IN THE EU

Article 81 of the EC Treaty

(restrictive agreements)

Fix purchase or selling prices or other trading conditions

Limit production, markets, technical development or investment

Share markets or sources of supply between competitors or apply discriminatory

conditions to companies that are not parties to the agreement, placing them at

competitive disadvantage.

Table 2.3. The examples of illegal agreements in the EU. Based on Article 81 of the EC Treaty

(European Commission, 2004, p. 6)

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However the legislation is growing, these types of monopolistic illegal practices are very

hard to catch and prove8. The example of these type of practice was diary cartel and fine

of £6.5m Tesco had to pay to settle cartel probe (Binham & Felsted, 2013). Cartel with

other retailers allowed cartel members to improve their profit without cost reduction and

price growth. These types of retailer behaviours bring the question about the authenticity

of the price wars between the retailers. “Control over who sets final retail prices is often

significant, and varies between products and different national contexts” (Coe & Hess,

2005, p. 455).

The EU Commission tries to protect international market from monopolistic and

oligopolistic trade practices within the industry (e.g. “Article 82 of the EC Treaty - a

guidance about abuse of the dominant position”9). The tractate treats about domination on

the market or the major part of it, overcharging the customers, dumping the prices or

locking the new entrances from the market or discriminating groups of the customers are

prohibited. Also Banana Link Organization (2005) provides the examples of the illegal

monopolistic practices in the purchasing channels and highlights major negative impacts of

global purchasing:

1) Shifting power- by pushing the suppliers to be ready with just in time delivery, the

retailers influence the supplier demand on workers (overtime, flexible contracts). As a

result we witness lack of predictability in supply chain- orders go up and down

dramatically and it entails the job insecurity and lack of permanent employment;

2) The rise of corporate power (by mergers and acquisitions) leading to expanding the

retail empires, reducing choice for consumers and suppliers;

3) Unfair demands & risk shifted by: “last minute” price decreasing, negotiating the price

after the product delivery to the buyer, delaying payments, reducing lead times (between

sending the order and date of goods delivery), withhold to sign the contract, changing the

size of the order at a short notice, by promotions 2 for 1 usually sponsored by suppliers;

8 For security of informant the UK Government created the Serious Fraud Office providing the possibility to report the crime 9 “position taking into account its market share and other factors, such as whether there are credible competitors, whether the company has its own distribution network and whether the company has favourable access to raw materials (the factors allowing the company to evade the normal competition)” (European Commission, 2004, p.7)

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4) Concentration of power by purchasing the local companies in developing countries as a

result the market price level is controlled by company, not by market, “Suppliers are

squeezed by retailers to reduce the prices and, in turn demand from their workers longer

hours at a faster pace, whit worsening working conditions and job security […]. Overseas’

suppliers are subjected to the same […]. The extreme imbalances of power are having a

damaging impact on poor countries, exacerbating a trend towards declining conditions for

workers and contributing to widespread labour rights violation” (Make Fruit Fair

Organization, p. 2).

5) The prize population has to pay:

a/ precarious employment,

b/ instead of entitled benefits, the workers can be fired for being sick or pregnant,

c/ a risk for women workers, desperate to keep their jobs, of being intimidated by the

managers or owners of the company,

d/ lack of time spent by parents with children (work longer hours) resulting the family

problems;

6) Squeezing prices by playing one producer off against the other (resulting poverty

wages). In the same period the world price for the product can fall and the retailer price

can be steady or grown. There is no balance between the monopolies of traders (retailers)

and producers leading to the “Banana Split” (Exhibit 2.4).

Exhibit 2.4. Banana Split- the drastic difference between cost of production and earnings of

retailer (Responsible Purchasing Organisation, 2005)

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1.1.4. BALANCING ON ICE OF CORPORATE SOCIAL RESPONSIBILITY (CSR)

The Corporate Social Responsibility Dilemma

The Internet technology and global information fast flow have become double-edged sword

for retailers trying to keep their brand image as attractive as possible. Media all around

the globe provide the stories about negative cases associated with transnational retail

activities and Internet is a perfect communication channel for superfast news flow on the

global scale. Child labour, tragic working conditions in Asia, gender discrimination, local

employment reduction, natural environment pollutions, cartels and suppliers destruction

are accusations the retailers have to deal. The CSR tries to cope with these types of

challenges as an integral part of the global strategy of retailers (Stefańska & Śmigielska,

2015, p. 29, Mellahi et al. 2015). The CSR strategy as a “concept which integrates social

and environmental issues in companies’ business operations as well as their interactions

with stakeholders on a voluntary basis” (Commission of the EU Communities Papers, 2001,

p. 6 in: Stefańska, p. 36) was born to protect retail brand reputation. Stefańska and

Śmigielska (2015, p. 4) reveal following factors behind the development of CSR:

1. Globalisation leading to social and cultural change, and consequently to the unification

of consumption and lifestyles,

2. Concentration and integration of enterprises allowing for achieving dominant position in

the market,

3. Economic crisis triggering intense global debate regarding financial institutions profits

and managers astronomical salaries,

4. Concentration of global income in the hands of few,

5. Growing awareness of environmental climate change (e.g. greenhouse gas emissions)

negative transcorporations’ impact on the global environment (e.g. disaster in the Gulf of

Mexico),

6. Increasing attention to social movements against discrimination and inequality (e.g.

human rights protection, gender equality),

7. Technological growth, especially in communication, knowledge transfer.

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The Risks and Advantages of Retail CSRs

The retail company reputation and strategy in perspective of CSR may be influenced

positively or negatively in number of different perspectives e.g.: company – shareholder,

company – employees, company – suppliers, company – consumers (Uddin, Hassan &

Tarique, 2008, p. 203), company – natural environment or free dimensions of CSR

positioning: human responsibility, product responsibility and environmental responsibility

(Martinuzzi et al. 2011, p. 15). The right policy sustaining the retail TNC’s activity has

become element of corporate strategy locally and internationally. Increasing numbers of

institutions, standards, regulations and consumer changing attitude reflects changes in

global retail. Śmigielska and Stefańska (2015, p. 28) in their article “Theoretical

foundations of CSR in retailing” selected eight groups of determinants influencing

retailer’s image in the context of CSR. First group covers the determinants of range of

products e.g. products safety, product information with focus on their comprehension,

credibility and ethics, suppliers sources safety and fair trade, ecological packaging, cause-

related campaigns. Second group includes packaging with their environmental friendly raw

materials and transport economy (space), information concerning product. Third group is

connected with price and the authors include fair remuneration strategy for suppliers and

price information transparency. Fourth group concerning location includes aspects as

friendly policy relating to local communities, local infrastructure improvement, opening

stores in the areas of low outlets availability. Promotion activities supporting local

communities, fulfilling local needs by offering the needed products and creating brands

having social value are the determinants of the next two groups: promotion and brand. The

seventh selected group contains extra facilities like baby care room, defibrillator, friendly

parking spaces (with special approach to the people with disabilities or children). Attitudes

concerning employees are the eight group of CSR determinants. They include equal

employment obligation standards (ex. disabled employees hiring obligation), flexibility of

employment (ex. for women), providing fair and benefiting working standards. The last

group of determinants concerns the green policy ex. eco-friendly store building materials,

CO2 emissions reduction, green energy sourcing, recycling programs (Śmigielska &

Stefańska, 2015).

The Retail “Green”

The climate change does not influence the retailer green activity locally but also globally.

The retail corporations compete on the level “who will be more green”. The top UK

retailers: Tesco, John Lewis, Waitrose and Kingfisher that are the members of The

Corporate Leaders Group on Climate change “have called at the Bali Summit for a binding

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agreement on climate change in order to encourage businesses to innovate and invest in

low-carbon technologies” (Hristov & Reynolds, 2007, p. 65). The brand reputation is not

the only profit they can achieve. The local governments supply the CSR activities by for

example the tax allowances in the UK or the green technologies support (The UK

Government)10. The development and application of the technologies reducing the carbon

emissions are supported financially by different international and local organizations as

EPSRC in the UK, Government Environmental Transformation found (EFT). For retailers it

creates the chances for building underinvested low carbon stores (Hristov & Reynolds,

2007).

The green buildings and technologies still haven’t solved problem with the waist created

by the FMCG and their packaging. According to the Environmental Agency only in the UK in

2002/03 the level of waist kept 12,5 million tones and according to WRAP about 50% of the

waist landing in the landfill come from good purchased from the top 5 supermarkets

(Hristov & Reynolds, 2007). The positive action reducing plastic bags however welcomed

positively by customers has not solve the problem of multilayers packaging for food

products (“product in plastic bag in plastic bag in plastic bag”) and become another source

of profit for retailers (high price of plastic bag available near the cash registers). Also the

trend for recycling raise the questions about the carbon emitted in the process of recycling

the plastic goods. In January 2007 “Tesco has pledged to reduce packaging by 25% and

provide on-pack information on recyclability. […] Recently Tesco announced that it would

work with the (Carbon) trust to assess the carbon footprint of 30 own–brand products”

(Hristov & Reynolds, 2007, p. 66) however the “revolution in green consumption” was

dropped in 2012 because of too much work for supermarket (Vaughan, 2012). The very

modern idea of recycling also raises the questions about recycling process footprint on the

atmosphere of our globe.

In the XXI the customer awareness of CSR is growing, but reality and research still show,

that as long as there are no legal rules and their executions most of the retailer’s words

are froth (Martinuzzi at all, 2011).

“Given the market mechanisms and the laws governing the market, it is very difficult to

persuade managers, especially in times of economic crisis of or strong pressure from

competitors, to assume the perspective of sustainable development and strive to improve

the world for future generations” (Stefańska & Śmigielska, 2015, p. 29).

10 UK Crown, https://www.gov.uk/green-taxes-and-reliefs/capital-allowances-on-energyefficient-items

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1.2. TRANSNATIONAL CORPORATIONS IN RETAILING

1.2.1. FROM THE GROCERY SHOP TO THE SUPPLY CHAIN

Evolution of Retailer

Retailing is commonly defined as collection of activities in business adding value to the

products or services which are sold to consumers. Gilbert (2003, p.6) defines retail as “any

business that directs its marketing efforts towards satisfying the final consumer

based upon the organization of selling goods and services as a means of distribution”.

According to the Standard Industrial Classification system (SIC) a company can be

categorized as a retailer if the most of its activity measured in terms of sales is retailing

(Newman and Cullen, 2003, p. 6).

In the XXI century retailing is not anymore an activity involving sales of ready products in

the stores or services like haircut or doctor’s check, but also comprises services for other

business entities (B2B). One of the example is sales of consumer data from one retailer to

the other. From two decades the power of retail has been growing rapidly. After 1990s we

witness the emergence of a group of food and general merchandise retailers (Dicken, 1993

in: Wrigley, Coe, Currah, 2003; Wrigley, 2008, Gorgól & Stańczyk-Hugiet, 2010). For the

purpose of that thesis called supermarkets or hypermarkets interchangeably11. By 2003 the

dominating group of top retailers has been born and Treadgold (1991) defined them

transnationals. Top retail/FMCG chains like Wal-Mart, Carrefour, Tesco, Metro, Ahold,

Auchan, Casino, Ito-Yokado, Aldi, Delhaize, Costco, Ikea run their sales activities in many

countries (from 10-30) and different key regions, demonstrating clear global strategy,

learning and sharing knowledge within-organization (Wrigley, Coe & Currah, 2003). By their

deep and large territorial embeddedness in markets and cultures of consumption, planning

and property systems and logistical and supply chain operations they become complex

configurations of intra-, inter- and extrafirm relational networks. Influenced by the

economic, political and institutional environments locally and internationally their

organizations qualitatively differentiate from global purchasing networks. The

grocery/FMCG retailers are not anymore only chains of shops in different countries (Exhibit

2.5). The retailers are not anymore only members of commodity chain linking

manufacturers with consumers (Hristov & Reynolds, 2007, Gorgól & Stańczyk-Hugiet,

2010).

11 Because of the problems with strict definitions and exchange use in different countries the words as supermarket and hypermarket the names will be used interchangeably

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Exhibit 2.5. Evolution of supply chain in the grocery business12.

More and more independent from manufacturers data (Farris & Ailawadi, 1992, McGoldrick

2002) the retailers step by step take the control over the total chain, playing key roles in

organizing decentralized production networks in various countries (mostly from the Third

World), (Gereffi, 2001; Wrigley, Coe & Currah, 2005, p. 439) and shaping the demand for

product (McGoldrick, 2002). Gereffi (2001 in: Wrigley, Coe, Currah, 2005, p. 439)

emphasizes, that the most of production of commodities are carried out, shaped by the

specific rules and the norms defined by the retail TNCs for their networks of

subcontractors. Their substantial control includes the decision of how, when and where

production takes the place (Havinga, 2014).

“International mergers and acquisitions and aggressive pricing strategies have

concentrated market power in the hands of a few major retailers, now building

international empires. These companies have tremendous power in their negotiations with

producers and they use that power to push the costs and risks of business down the supply

chain” (Oxfam, 2004, p. 6).

The shift from position of being a trade agent of manufacturers and farmers to become

customer representative, the formation of “consumer driven globalised economy”

(Dawson, 2007, p. 373), as a source of retailer power impact the suppliers into negative

12 On the beginning of XXI century retail TNCs may distribute not only FMCG but also knowledge and marketing data in B2B relations (e.g. in 2009 Tesco by dunnhumby cooperates with over 150 corporate FMCG customers), source: Clive Humby, dunnhumby, 2009).

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way. The oligopolistic and oligopsonistic top global retailers wield power in relation to

local suppliers. The creation of oligopsonistic retailers dominated the local manufacturers

(Waterman, 1996; Aoyama, 2007) pressing the prices of supplied goods that “ripple

vertically down the supply chain globally” (Aoyama, 2007, p. 427). The emergence on the

retail market of TNCs is a dual process including vertical oligopsony and horizontal

oligopoly (Aoyama, 2007). The vertical oligopsony drives down the commodity chain when

horizontal oligopoly drives corporation activity across the borders of the countries (what is

rare for the manufacturing sector). The stage of global oligopoly leads the retailer to the

structural paradox in retail. (Aoyama, 2007). The transnational retailer has to balance

between its need for standardisation (in economy of scale) and localisation (level of

customer acquisition on the variety of markets). The retailers must keep equilibrium

between “the same” product in the global approach and “individual/suitable” product in

the local approach. The successful adaptation of that structural paradox ends as successful

internalisation (Aoyama, 2007).

The other example of bargaining power over suppliers is development of retailers’ own

brands, “both in terms of retailer branded products and the retailers’ names as brands”

they overshadow the manufacturers labels (McGoldrick, 2002, p. 3; Gereffi, 2001a in

Wrigley, Coe & Currah, 2005, p. 439). Dolan and Humphrey, (2000) and Gereffi (2001a, p.

1620) underline the competitive advantage coming from “designing retail ends of the

chain”- products’ control (product differentiation strategies: competing not only on price,

but also on product characteristics as variety, quality, innovation, reliability etc. (Wrigley,

Currah, 2005, p. 439). The retail TNCs becoming gatekeepers in the distribution channel do

not allow consumers anymore to select from available products offered by the

manufacturers to the grocers, but they choose the products they wish to stock on their

shelves (McGoldrick, 2002). They decline the role of the wholesalers by taking over the

wholesaling part, thanks to using the transportation and warehousing subcontractors and

developing its own logistics.

Transnational retailers, specially hypermarket chains differ from other transnationals (e.g.

manufacturing). Dawson started separation of retailers from global purchasing networks in

1994 (Dawson, 1994). The special dispersion of retail TNCs in the multi-establishment

enterprise and economy of huge scale do not stay in the way to balance centralized and

decentralized decision making. The relativity between the company’s establishment to its

size and the exit costs if decisions are withdrawn, the speed of income generation after

starting decision, the different cash flow characteristics and the value of stock are aspects

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differentiating retail TNCs from manufacturing TNCs (Dawson, 1994, p. 270 in: Wrigley,

Coe, Currah, 2005, p. 440). Retail TNCs do not have to protect knowledge concerning

patents or copyrights, but Doherty (1999, in: Wrigley, Coe, Currah, 2006, p. 440) highlights

that competitive advantage in retail TNC is based on specific for retail know-how like form

of expertise on logistics, supplier negotiations, merchandising, financial management,

advertising, management systems (Dawson, 1994). Dawson and Mukoyama (2003) (fc.

Wrigley, Coe, Currah, 2005) identify eight factors of retail TNC’ organization and

management: the multi- establishment nature of the retail TNC reflected by special

disaggregation and large networking, the relationship with suppliers which can become

intangible asset for retail TNC, the different cost structures, the local cultural sensitivity,

the creation of unique bundle of services for consumers and the relationship with

consumer, facing various market imperfections (e.g. local norms and regulations, politics).

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1.2.2. RETAIL EMBEDDEDNESS

What is so special about retailing of XXI century? Its embeddedness. Retail TNC “must

stretch both its distribution and sourcing activities- and the assets and activities linked to

those activities – over multiple national boundaries” (Wrigley, Coe, Currah, 2005, p. 440).

However that term is created by economy geographers it can be implemented into the

strategic management of TNCs driven by and driving inter-, intra- and extra-relations

(Exhibit 2.6). The economic geographers Wrigley, Coe and Currah (2005) by using

“embeddedness term” perfectly pointed out that retail TNC “plays firms” and “firm

places” locally and on the global scale13. The authors (2005) emphasize the importance of

simultaneously stretching activities from sourcing to distribution and assets and labour

involved in these processes. Wrigley, Coe and Currah (2005) select three types of

embeddedness: the societal embeddedness accenting the important of social aspects of

running business, the network embeddedness referring to the business network relations,

and the territorial embeddedness anchoring to the places they run business with. Authors

define the retail TNC as synergic net of relations, impulses, linking directly or indirectly all

members of the net, a symbiotic neat leading to the constant growth in all possible

directions.

13 „Placing firms’- the complexity of embeddedness process in which the place organization operates influence the ways of organization behaviour “Firming place”- the global economy is constituted as “spaces of network relations” including transnational retail activities

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Exhibit 2.6. Retail TNCs relationships (Coe, Wrigley, 2007, p. 348).

Transnational retailers’ activities are the excellent examples of vertical, backward and

forward integration: by organizing its international distributions centres, manufacturing its

own labels or by wholesaling (Clarke, 2000, in: McGoldrick, 2002, p. 3). Active in many

ways on international scale using labour from many countries they run shopping and

wholesaling operations on the global scope, taking advantage from foreign experiences and

engaging foreign capital (Dawson & Mukoyama, 2008). Every day these transnationals play

global game by integration, multichannel diversification and internationalisation. Stating

their awareness everywhere it is possible. Retail TNCs as the complex configurations of

intra-, inter- and extrafirm relational networks are highly embedded and shaped in

economic, political and institutional context of both home and host economies. It is high

territorial embeddedness in markets and cultures of consumption, planning and property

systems, and logistical and supply chain operations that defines the distinctive theoretical

and organizational challenge of the retail TNC (Wrigley, Coe & Currah, 2005).

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1.3. THE FUNDAMENTS OF COMPETITION BETWEEN RETAILERS

1.3.1. INTERNATIONALISATION OF RETAILING

The Overview of Retail Internationalisation

From historical point of view retailing was the first business activity which become

international (Leknes & Carr, 2004). Definition of internationalisation appeared as a

synonym of geographical growth of cross-borders business activities in 1920s (Ruzzier,

Hisrich & Antoncic, 2006) and the evolution of that theory develops simultaneously to

evolution to international business. It was also described as ”outcome of forces pushing

the retailer from the domestic market” (Gilbert, 2003, p. 408) . Internationalisation may

focus on processes and firm’s operations (Welch & Luostarinen, 1993; Calof & Beamish,

199514; Johanson & Mattson, 1993), networks, relationships and firm’s operations process

and internal environment (Lehtinen & Penttinen, 1999), resources transfer (Ahokangas,

1998) and internal processes (Ruzzier, Hisrich & Antoncic, 2006; Knezevic & Szarucki,

2013). Alexander (1997) highlighting the varying conditions of international players activity

defined internationalisation as: “the management of retail operations in markets which

are different from each other in their regulation, economic development, social

conditions, cultural environment, and retail structures” (in: Gilbert, 2003, p. 400). The

Gilbert’s definition (2003, p. 400) focuses more on business processes defining retail

internationalisation as “the process of a retailer transferring its retail operations,

concept, management expertise, technology, and/or buying function across national

borders”.

Alexander (1997, in: Coe 2003) selects six periods of retail internationalisation history.

Genesis lasting nearly 150 years (1800-1945) with small expansion of luxury stores in big

cities, Emergence-1 (1945-1960) with transfer of US retail system of supermarkets to

Western Europe and Japan, Emergence-2 (1960-1974) involving international investments

of big players of Western European retail in Western Europe and in the USA. Emergence-2

was operated in majority by “cash-rich European retailers reaching the limits of their

international markets”. It was also a slow beginning of falling barriers regulating

international trade. The third period between 1974 and 1983 called by Alexander Crisis

was a natural consequence of economic crisis in seventies. Renaissance began from 1983 to

1989. It was a real rebirth of retail business in Western Europe, US and Japan (Japanese

14 Internationalisation - “the process of adapting firms’ operations to international environments” (Calof &

Beamish (1995, p. 36)

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retailers in Western Europe and the US). The sixth period - Regionalisation started in 1989

and ended in 2000 was a period described by Alexander “regionalised expansion by US and

European retailers” in the area of European Single Market and NAFTA. During that time

new markets like Eastern Europe and East Asia have been introduced. One of the forces

driving economic globalization in the last decade of XX century were top grocery/FMCG –

retailers (Wrigley, 2010, p. 4). It can be stated that we witness the acceleration of change

in retail in the transnational scale. “The recent growth of the biggest retail players is

proportional to the global market changes” (Palacz, 2009, p. 18). The speed of the

changes within FMCG industry requests the new approach to retail and qualify the biggest

retail players to the new TNCs group who exploit differences between countries and

locating each element of the value chain in that country or region where it can be

conducted most effectively and efficiently (Kogut, 1985). The period starting after

Regionalisation become a super rapid expansion of global major players on the

international retail arena. As Coe (2003) reminds in 1990 Carrefour was present only in six

countries including France and Tesco and Wal-Mart operated only in their home countries.

By 2002 Carrefour was running its activities in 30 countries, Wal-Mart in 11 and Tesco in

10. International rapid growth has become the global growth (Coe, 2003). International

retailers have become the global retailers. They transfer retail management technology

and establish international trading relationships (Alexander (1997), Coe, (2004). Because of

its complexity retail internationalisation is not easy to describe. It includes many variable

facets (Dawson, 1994; Davies, 1998; McGoldrick, 2002) as knowledge flows, transfer of

management expertise between different domestic retail systems (Coe, 2004, p. 5)

international expansion, foreign competition, international alliances, global sourcing

(McGoldrick, Dawson in: Coe, 2004) and transnational buying office (McGoldrick, 1995;

Coe, 2003).

Coe, following Dawson and McGoldrick, selects three “mechanisms of retail

internationalisation” (Coe, 2003, p. 5). Fist one is the “operation of overseas retail

outlets” significantly growing in parallel to globalisation process, second – the “global

sourcing” in the world of low trade barriers, excellent distributions and logistic systems,

and the third- the “transfer of management expertise between different domestic retail

systems”. The internationalization of retailing manifests itself in the wider scope than only

international activities as sourcing of goods for resale, the shops operations, the

employment of foreign labour, the adoption of foreign ideas or capital. Its international

aspects, that are present in all functions of retailer (Dawson & Mukoyama, 2008). “The

temporal and spatial aspects together with the magnitude of the process of retailer

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internationalisation operate within various cultures and environments and so provide a

set of foundations from which analysis of the overall process may proceed” (Dawson &

Mukoyama, 2008, p.2).

The decisions, whether to internationalise or not, are based upon three groups of key

factors facilitating in the process of retail internationalisation: push factors, facilitating

factors and pull factors (Gilbert, 2003; Wrigley & Lowe 2007; McGoldrick, 2002; Dicken,

2002; Coe, 2003). First group are “Push factors” which includes perceived/imminent

saturation in domestic markets, spreading of risk, consolidation of buying power, public

policy constrains e.g. strict planning policies on store development constraining growth,

economic conditions e.g. national economic recession or limited growth in consumer

spending, too high operating costs (e.g. labour, rents, taxation), negative population

changing affecting size of the market, maturity of format. “Facilitating factors” as second

group cover use of surplus capital, access to cheaper sources of capital, entrepreneurial

vision, inducements from suppliers to enter new markets, removal of barriers to entry,

ICT’s. The last group- The “Pull factors” are unexploited markets, underdevelopment of

some markets or week competition within them, pre-emption of rivals, higher profit

potential, consumer market segments not yet exploited, inevitable economic or living

standard growth, potential segment growth, access to new management, advantageous

operating costs, opportunity for innovation, reaction to manufacturer internationalisation,

following existing customers abroad (Coe, 2004; Gilbert, 2003).

Internationalisation Retail Strategy

Levy and Weitz (2012, p. 12) defines retail strategy as “a statement identifying (1) the

retailer’s target market, (2) the format the retailer plans to use to satisfy the target

market’s needs, and (3) the bases on which the retailer plans to build a sustainable

competitive advantage”. The shift from opportunistic strategy (decision about

internationalisation taken by small group of people, often leading to business failure) to

opportunity strategy (decision about internationalisation is the answer for company

potential fitting to the host market) (Dupuis & Fournioux, 2008), leaded discussion about

retail internationalisation strategy to retail competences role in going global.

“The retailer’s core skills like its capacity to adapt its business formula which consists of

store concepts, logistics, and organizational capacity, and, finally, its capacity to organize

its relationships with suppliers and customers. This competitive advantages must be

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understood and applied successfully within the domestic market before successful

transfer is possible to new countries” (Dupuis & Fournioux, 2008, p. 52).

Exhibit 2.7. Retail TNC strategy diamond (own model based on: Dupuis & Fournioux, 2008, p. 53)

The strategic decision concerning retail internationalisation has to provide the answer to

the main questions: who, what, where, when (Exhibit 2.7). That process can start on the

basis of decisions about formats and retailer’s formula, markets, timing and ways of

international achieving the operations. Strong retail business formula in the home market

and its export flexibility, size of domestic market (financing overseas investments) and

control of the supply are potential fundaments for international success).

What is successful retail internationalization strategy? According to Gorgól and Stańczyk-

Hugiet (2010) it is synergy of smooth deployment of core competences of retailer with

advantages coming from home and host markets of retailer, expressed in the right

strategic decisions, leading to successful operations on the global scale.

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Internationalisation Operations in Retailing

However the size of retail TNCs and their instantly growing market power can become

intimidating, when we look from bigger distance at their internationalisation strategy we

can see that it only reminds the local strategy in the larger- global scale. Facing

glocalization (“go globally and act locally”) the TNCs transfer the business formula

adapting it to the local market, choose the segments, assortments etc. Despite the

commonality there is one difference- the risk of failure probability and its price. The

internationalization formula combines following stages (Dupuis & Fournioux, 2008, p. 58):

1) PREPARATION – pre-entry phase - including the place selections and research (potential

region/country), choosing the entry mode (subsidiary, joint-venture, franchise,

acquisition), appointing store formats (selection and adaptation),

2) MARKET ENTRY – business partner searching, selecting the first format of the store,

opening the store in the right time and proper location; the retailer in his movements has

to be flexible and fast and adapt immediately to the new market (e.g. not to lose

potential clients), that is why the company must have relevant, efficient (measurement

tools set up for front and back offices) and quick (continuous information transfer) control

system not to miss out on marketing, economic and financial facts to make right business

decisions,

!- CRITICAL MOMENT - to continue or to withdraw – at the end of the second phase

depending on the new business progress the decision about continuation or withdraw15 is

taken; the positive result of the second phase of the process is identified more with proper

network deployment than with profit generation,

3) THE GROWTH – networking phase relying on the first launch - the retailer expands its

geographic activities and logistics; the proper growth indicator is the retailer

embeddedness in host economy at every level of its business activity (PESTEL).

15 The international retail failures can include: - false decisions concerning mistakes within assessment of the market situation (economic risk, cultural distance), - wrong evaluation of intra and inter type competition, competition strengths (suppliers, actors, capacity to change), - poorly assessed parent company business situation estimation (when unsuccessful company in home market dream about success in host market), - insufficient management experience (Dupuis and Fournioux, p. 66; Gorgól & Stańczyk-Hugiet, 2010)

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4) MATURITY – the repositioning phase - the retail business has to start looking for new

challenges because of its activity saturation on the market reflected in the lack of growth;

the retailer can reposition and/or set-up of a multi-format or multi-channel strategy.

Exhibit 2.8. Critical moments in international retailer life cycle

(Based on: Dupuis & Fournioux, 2008, p. 58)

As we can see on Exhibit 2.8 there are minimum four moments in the international life

cycle critical for operations: pre-entry decision, first location decision, new country

location growth decision and repositioning decision.

The Significance Of The Entry Barriers

In internationalisation the significant influence on business failure have barriers to new

markets’ entry. One of them is economy of scale. Within retail transnational corporate

business game it can provide a great strength however can also pull a risk of foreign

operation (Butler, 2013)16. The global approach can be a risk coming from managerial

arrogance and lack of individual approach to single market.

“Economies of scale, however, have a dark side, called diseconomies of scale. The larger

an organisation becomes in order to reap economies of scale, the more complex it has to

16 Tesco failure of US division generated £2bln (Butler, 2013)

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be to manage and run such scale. This complexity incurs a cost, and eventually this cost

may come to outweigh the savings gained from greater scale” (The Economist, 2008).

However, the economy of scale can also support the entrance by possibility of decreasing

the profit margin (the corporate outsourcing) needed in reaching the competitive prices,

the transnational management process can become a victim of too large scope of its

activity and too big distance to single, local/individual market.

The second big entry barrier can be a capital required for entry. The cost of planning

permissions, growing during last ten years dramatically cost of land and properties in

Europe (especially in the UK) can help the bigger players with their appearance (with

bigger financial assets) but will refuse the smaller players. “The of entry will be higher in

markets where expected profits are higher” (Schivardi & Viviano, p. 150).

Access to supply and distribution channel can also become an advantage or disadvantage

for the retailer. Lack of access to networks of manufacturers, logistics and transport (often

depending on the fright cost and labourer cost) can freeze the potential new market

“retail intruders”. Planning permissions for the warehouses can affect the size of the

stocks and potential sales.

Customer can also create a great advantage or major barrier for the retailer. The customer

characteristic can limit potential entrance. Customer’s age, maturity17 and welfare can

limit the potential entrance. The price level the consumer wants - can pay, the shopping

habits, a number of customers using cars specify the potential retailer formula and his

potential strategy on the market (e.g. with big parking outside the city centre) – all these

factors can become obstacles on the way to success. The retailers every day try to answer

the question how to increase the customers’ loyalty. Elisabeth Roche from Technology

Research Services, META Group in her Customer Relationship Management (2005) remains

that the companies should take care of their customers and to create the cooperation

between seller and buyer which makes potential customer leave expensive, painful and

inefficient. Roche (2005) provides seven good advices how to make the customer “less

ready to change the shop”. First is personalization based on personal marketing with

collecting and analysing data about customers, their buying habits, choices, preferences is

the first advice. Second is mass customisation as a next step after personalization- when

17 e.g. the more mature customers prefer to make shopping locally and buy single items and small amounts of products

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company knowing what does make a customer happy personalize products standards. The

rule “safe is better than good” is the third one the retailers should remember testing and

launching new products and services. The loyalty programs (e.g. Customer Credit Card in

M&S, Tesco’s Clubcard) and brand affinity allowing the customer to feel good as a

customer of that exact company, together with customer’s collaboration are next facets

increasing customer loyalty. Roches reminds that becoming “a standard” for the customer

and reducing his need and willingness to test something else: “being the only choice is […]

a good way to keep customers” (Roche, 2005, p.2).

The experience and learning ability are also factors influencing the potential entrance of

the new players. Longer activity on the market supplies knowledge not only for retailers,

but also for their suppliers and customers. The expected retaliation of the rivals existing

already on the market can be also a barrier for entrance (e.g. potential long term price

war like Banana War in the UK). That threat requires the perfect plan for the long term

strategy and often require meaningful investment assets.

Legislation and government action are the next very important facets which can be inviting

or refusing for the entrance on the local (national) market. Regulation of retail trade

activities, opening times for the shop (e.g. per day, per week, working or not working

weekends) makes the place attractive or not attractive for the businesses. Planning

permission, product licensing driven by the governmental institutions like in the UK The

Office of the Deputy Prime Minister (DPM), Office of Fair Trading and International

Competition Commissions. Differentiation of products, the product variety saturation or

lack of these products can create the high demand on the market and make a potential

entrance easy.

The Internationalisation of Sourcing Activities

As opening new sales places internationally was nothing new in international trades, the

taking over control of the global sourcing had a global trade impact (Shaw, Dawson & Blair,

1992; Dawson & Mukoyama, 2008). Free decades ago the tropical fruits were rarities in

Europe associated mostly with special Christmas period. The foreign goods distribution

were under import agents and wholesalers’ control (Dawson & Mukoyama, 2008).

International sourcing started to increase on the beginning of 1990s (Dawson & Mukoyama

2008) with acceleration of import and amounts of imported products on the beginning of

XXI century when top retailers increased their international operations organizing regional

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buying offices (specially in China) and consolidating purchasing activities (Gereffi &

Korzeniewicz, 1994 in: Dawson & Mukoyama, 2008). The retailers started to import food

and manufactured products. Several countries become suppliers of specific products: e.g.

Norway and Chile supplies salmon, Spain – vegetables, East Asian- clothing, shoes,

electrical equipment, furniture, household hardware, sport equipment, US and Mexico-

fruits (Gereffi, 1999; Leslie & Reimer, 1999; Hughes & Reimer, 2003; Dawson & Mukoyama,

2008). For example in 2003 Wal-Mart’s imported from China $15 billion in purchased goods

(“an amount larger than the retail sales of all but the 50 or so largest retailers in the

world”) (Dawson & Mukoyama, 2008, p. 3).

Cost reductions was the main reason off economy of scale (supply from East Asia, Central

Europe,) e.g. Marks and Spencer in late 1990s shifting sourcing abroad to cut costs (Dawson

& Mukoyama, 2008). Local purchasing offices controlled by retailers allowed also for

increasing the range of imported products- the growth of assortment variety and reduction

of the import risk (e.g. problems with local production). The possessing of supermarket’s

purchasing offices and development of supermarkets’ own private brands started the

aggressive competition between manufacturers and retailers. The global own brands of

supermarket transferred to the growing number of countries has become characteristic for

multinational retailers.

Exhibit 2.9. Growth of purchasing network control (own elaboration)18

18 The examples of retail strategies (Collis, p. 23 in: Pieniacka 2015): a/ The Local Strategy reduces retailer activities to domestic region. Based on export most of its activity does domestically, “except limited foreign sales” reducing financial risk of business (“financial hedge to offset risk”). b/ In Multidomestic Strategy there is lack of integration of economies with “profitability in its own right” (Collis, 2002). The multidomestic company even running business “on its own right” in unrelated market can lead to “mimetic diversification” which decreases risk by following and copying successful competitors activity. Multidomestic strategy can run to collusions and “cross parry” as they are physically hedged in one country and run dispersing business in aim to meet other country expectations. c/ Global Strategy is based on assumption that as markets are correlated, the strategy should “maximise performance in the world as whole” (Collis, p.10). Allocation of resources in global strategy equilibrates

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To achieve bigger impact (lower costs specially for smaller retailers) retail corporations

influenced appearance of multi-alliances e.g. European Marketing Distribution (EMD),

Associated Marketing Services (AMS) or several b-firm agreements to develop international

sourcing (e.g. in 2002 Casino & Auchan created International Retail and Trade Services). In

2004 EMD united retailers as Axfood, Cactus, Eruomadi, Markant AG, Musgrave, Nisa

Today’s ESE Italia, ZEV Markant, Delhaize, Honiker, and AMS companies like Ahold,

Caprabo, Dansk Supermarked, EDEKA, Jeronimo Martins, Kesko, Superquinn (Dawson &

Mukoyama, 2008, p.9).

Dawson and Mukoyama (2008) compiled seven major changes in process of retailer-supplier

relationship on global scale. We could it all summarize in one word: “MORE”: more

assortments, relations, market power, new products development, more savings etc. It

resulted in more specialised logistics and warehousing operations, growing level of

professionals working in retail industry, pressure for innovation and development of high-

tech systems (e.g. RFID systems, Customer Data Integration), complex financing and

openness for relationships. The control of the purchasing networks proportionally growth

to global market power of transnationals (Exhibit 2.9).

marginal return across the countries as the activity in some countries may not bring profit. The aggression in that strategy maximises the business turnover (“judo economics”). d/ Transnational Strategy, which is dispersed as Global Strategy, but focused on coordination of its networks and expectation of highest possible effectiveness in every market. The activity between cross boundaries is an advantage of utilisation of different types of sources and different types of targets. That strategy is used by global retailers on the first of the XXI century.

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1.3.2. MULTICHANNEL DIVERSIFICATION

The Introduction to Multichannel Diversification in Retailing

Very strong competition, low profit margins and growing saturation in all the levels of

hypermarket business activities are the factors pushing retailers to growth (Leknes & Carr,

2004). The way to growth on the corporate level in many directions is diversification. The

retail TNCs diversify into the new assortments and services, formats and markets creating

constantly new sales channels (Gielens & Dekimpe, 2001 in: Sohl, 2012; Wrigley, Coe and

Currah, 2005; McGoldrick, 2002; Gilbert, 2003; Gorgól & Stańczyk-Hugiet, 2010; Pieniacka,

2015). Johnson, Scholes and Wittington (2005, p. 282) defines diversification strategy as

“strategy which takes the organisation into new markets and products or services”.

However if we take into consideration growing in all direction embeddedness and that

major factors of transnational retailing is change, mentioned definition can become too

narrow, especially if we talk about supermarkets’ activities. Answering the need for retail

growth description McGoldrick (2002, p. 156) proposes the new model of multichannel

diversification (Exhibit 2.10).

Exhibit 2.10. McGoldrick’s Retail Growth Vectors (McGoldrick, 2002, p. 156)

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The retail formats, product/service diversification and geographical diversification are

specific for hypermarket TNCs and they distinguishing them from TNCs. That is why they

will be described in more detailed way.

New Formats

“The retail format is the store package that the retailer presents to the customer”

(Newman & Cullen, 2003, p. 16): it supplies information to the customers about available

product assortment, expected level of product prices and offer of available services.

McGoldrick (2002) reminds, following Brown (1986), that retailing misses a proper

classification of retail formats and hence its specific definitions of formats can vary. The

problem appears also with boundaries between formats which are blurred (McGoldrick,

2002). For example Key Note (2001b in: McGoldrick, 2002, p. 62) using floor space criteria

defines hypermarket with over 50 000 square feet floor space and Levy & Weitz (2012, p.

38) define hypermarket from 100 000 square feet. However in literature we can find

attempts to separate these definitions by shops wider description e.g. supermarket has a

parking provision, hypermarket has extensive car park, supermarket are mostly located in

the city/village, hypermarket outside the city centre there is move to use the names

interchangeably (McGoldrick 2002, p. 62). As McGoldrick (2002) states, that that problem

appears, because of the growing constant competition between the retailers and the

markets are more and more heterogeneous and competitive (Gonzalez-Benito, 2001;

Morganosky, 1997) and the players instantly need to hold control not to lose an opportunity

for profit coming from creating new retail format with a host of retail mix within the same

target (Levy & Weitz, 2012). Formats differ on assortment size, service, customer

demography (Arnold, 2000), size, institutional factors, location, form of organization, sales

philosophy (Brown, 1986), grouping of outlets and drawing power of outlets (Wileman,

(1993). The author (McGoldrick, 2002, p. 56) selects a number of different dimensions

defining and positioning retail format, e.g. single store – groups of stores, location in town-

out of town, proximity- destination, size small or large, mature or innovative, food seller -

non-food, specialized – generalized, niche – commodity, discounter or high added value,

experiential or functional, store based – home based. Newman and Cullen (2003) supply

attributes for formats definition like location, size, merchandise, price and atmosphere

and service. Newman and Cullen (2003, p. 17) propose different view on retail formats:

neighbourhood-based stores for customer convenience (incl. old fashioned general stores,

variety stores with mixed and scrambled merchandise, convenience grocery stores: long

working hours and wide range of grocery products), on stop shopping stores providing

complete shopping service for a major part of consumers (supermarkets selling mostly

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grocery with some cloths and homewares, relatively old fashioned department stores losing

market to specialist stores, mostly French and American – based hypermarkets and

superstores supplying large shopping assortment under one umbrella), low rent specialist

stores selling products like computers, fancy dresses, mass merchandisers known as

category killers providing comprehensive range within particular product areas,

discounters (discount stores with selling limited lines at low prices and fluctuating stocks,

off-price stores (e.g. factory outlets), warehouse clubs usually located off town centres.

From 1970s we observe constant drop of number of small outlets for large retail formats,

however the second decade of XXI century becomes the big return to local shopping in

European countries. Profits coming from growing supermarket power and their economy of

scale influenced dramatically process of closing small, mainly family shops (McGoldrick,

2002). The number of large stores, mainly superstores and the hypermarkets has increased

dramatically from 1970s. The top retailers take advantage from holding different formats

(Gauri, Trivedi & Grewal, 2008; Gielens & Dekimpe, 2008; Kumar, 1997 in: Sohl, 2012). It

allows for tailoring the business to the expected segments. Supplying fast moving customer

goods and basic services they can reach very large targets (Table 2.4).

Table 2.4. The examples of Tesco Plc store formats available in the UK (Tesco.com, 2009)19

19 Tesco Ltd, on 12.05.2009, at:

http://www.tesco.com/investorInformation/report99/pdf/rev_pdfs/sections/8stor_fo.pdf

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Product/Service Diversification

On the beginning of the XXI century the “consumers are jaded” by the saturation of the

law prices markets (Deloitte, 2009, p. 44). The hypermarket chains following their every

vector growth strategy (McGoldrick, 2002) diversify their assortment into food and non-

food products and services. Larger portfolio also comes with lower risk of running business

(Lang & Stulz, 1994; Lubatkin, 1997 in: Sohl 2012, p. 7) and ‘”retailers have the greatest

competitive advantage and most success when they engage in opportunities that are

similar to their present retail operations and markets” (Levy & Weitz, 2012 p. 124).

However most of the consumers do not realize that present chains are gigantic

transnationals, not only the grocery shops (Table 2.5).

Table 2.5. The 250 top global retailers’ product sector profiles in 2013 (Deloitte, 2015)

The supermarket chains do not supply only the groceries anymore. The customers can tank

petrol on the supermarket petrol stations, watch supermarkets production movies, go to

supermarket’s doctors and pharmacies, keep money and take loans in supermarket’s

banks, travel with supermarket’s travel agencies etc. To the loyal customers retail chains

have final service: they can organize a funeral (e.g. Tesco or Wal-Mart). However as for

part of consumers (specially young group) that service can be shocking, the reality shows

that it is a part of perfect segmented retail chains strategy (targeted to old or terminally

ill customers from developed countries). The activity of transnational retailers does not

limit to business to consumer activity. They also supply marketing data to their

subcontractors and even competitors. The great example is acquisition of dunnhumby by

Tesco. dunnhumby in 2009 was analysing shopping transactions of 350 million customers in

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the 25 markets. In 2015 dunnhumby was called as Tesco family silver (Retail-week.com)20.

Only in 2009 it supplied data analysis to over 150 corporate customers (Humby, 2009)-

mainly TNCs.

Diversification of Sales Channels

Multichanneling in retailing combines sales and service activities supplied to consumers

through more than one channel (Zhang at al. 2010, p. 1; Levy & Weitz, 2012). One of the

major reasons of creation of the “sophisticated distribution systems to ensure optimum

service for the supply of goods to the customer” was the pressure from the customers

expecting more convenient shopping at acceptable costs (Gilbert, 2003, p. 213). However

“multichannel retailing is not a new phenomenon” the most significant change had a place

with Internet appearance in 1990s (Zhang at al. 2010, p. 3) which created not only the

virtual shop space, but also communication system for all logistic processes of

multichannel retailers. However there was a risk that Internet will have destroying effect

on brick and mortar retail business (Christensen, Anthony & Roth, 1994; Zhang at al.,

2010), because of risk of cannibalization and overflow (Deleersnyder at al., 2002; Falk et

al., 2007, in: Zhang, 2010) the latest results of benchmarking studies proved that the

retailers with best financial performance were multichannel players (Kilcourse & Rowen

2008; Geyskens, Gielens & Dekimpe, 2002; Zhang, 2010). As Zhang et al. analyse (2010) the

different channels opened the retailer activity to new segments, strengthening bound with

customers supplying satisfaction to different shopping needs (Konus, Verhoef & Neslin,

2009). Despite the risk21, that Internet shopping may decrease the customer’s loyalty

(Ansari, Mela & Neslin, 2005), the research shows that the “customers add new channels

for shopping instead of replacing their existing channels” (Zhang, 2010, p. 25: Dholakia,

Zhao & Dholakia, 2005; Jin, B., Park & Kim, 2010; Kumar & Venkatesan, 2005). “If

multichannel retailers had only encountered cannibalization and conflict in the

development of multiple channels, the phenomenon would have been short-lived” (Zhang,

2010, p. 25). Despite the constrains (e.g. broadband Internet access, operational

problems, costs of management), strategic challenges (e.g. organizational structure, data

management, analysis and security, evaluation and performance measurements) and

potential risks (cannibalization and customer confusion and/or loss) the fluent

management of multichannel retailing of XXI century TNC remind the orchestra

20 Source: http://www.retail-week.com/comment/comment-tesco-should-hold-back-from-selling-the-dunnhumby-family-silver/5064936.article 21 “There are no one-size-fits-all solutions”. Cross channel management requests strong awareness of factors which influence multichanneling decision: company history, outside capital attractiveness, management structure, branding strategy, transferability to new channels, information systems, executive talent attractiveness. (Zhang at al., 2010, p. 12)

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conducting, what is reflected in reports concerning the global retailing (Deloitte, 2008-

2015). Despite temporary musical false from time to time we witness an exciting concert

of profits synergy22.

Geographical Diversification

Pieniacka (2015, p. 44) summaries the publications concerning diversification and provides

number of reasons for geographical diversification in different strategic views: the

globalization of the markets and competition, the economy of scale, growing market

power, following the customers, risk reduction, transaction cost reduction, resources

availability, ambitions for learning and experimenting.

Table 2.6. The internationalisation of retailing- Top grocery retailers running operations in more than 10 countries (own elaboration based on: Deloitte, 2016)

22 Zhang at all. (2010, p. 17) selected five categories of potential synergies: cross-channel customer communication and promotions, leveraging cross-channel information and marketing research from one channel to improve decisions in other channels, cross-channel price comparisons, digitization, shared common physical assets and operations.

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In global retail apart from growth there is one more – key reason for diversification: the

saturations of the markets (Gilbert, 2003), called as “bypass limitations” by Johnson,

Scholes & Wittington (2005, p. 292). David Hughes, professor of agribusiness and food

marketing at the Centre for Food Chain Research at Imperial College in London summarised

the situation of supermarkets:

“They’ve got nowhere else to go. Their domestic markets are saturated, so they are

looking for countries with large populations, high population growth, per capita GDP

edging toward consumer levels, high income growth, and low supermarket

presence”(Priel, 2004).

Wrigley (2010, p. 8) adds also following forces influencing international growth of retailers:

a chance for longer term growth opportunities in emerging economies, tight regulation of

home markets and capacity of the largest firm to utilise their capabilities and resources.

The retailers try to build on already possessed capabilities and resources and enter familiar

markets (Levy & Weitz, 2012, p. 124). In the situation of high risk expansion to different

culturally markets the top retailers try to use local resources by acquisition or joint

venture (e.g. Tesco).

Segment diversification

However segment diversification- looking for new targets is not a new idea in TNCs retail,

there is one emergent aspect witch deserves the interest: the customer position change

in transnational retail business (Gorgól & Stańczyk-Hugiet, 2010, p. 96). Tesco Clubcard

designed by dunnhumby and the global data collected year after year from two decades

supply synergy of information about customers: their every shopping decision, detailed

private data (as family status, life style, life community, the employment, religious, our

politics, mental and physical health) allow retailer to tailor the business activity to every

single customer. Of course in that view one question appears: does the customer have still

a free choice?

“Information about consumer decisions are monitored and anticipated by the corporation.

The Clubcard owner starts to become diversification process filter, every diversification

decision cannot be taken without earlier analysis and every diversification decisions is

taken thanks to that analysis” (Gorgól & Stańczyk-Hugiet, 2010, p. 98).

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Exhibit 2.11. The diversification process after dunnhumby: Customer as a part of the company

(Gorgól & Stańczyk-Hugiet, 2010, p. 98)

FILTER:

well known NEW or

PRESENT consumer

Present Segment

Assortment

Markets

Channels & Formats

Growing Market Share New Segments New Formats New Channels New Products & Services New Geographic Regions

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2. THE GLOBAL MARKET IN THE ANTHROPOCENE

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2.1. FEW WORDS ABOUT GLOBALISATION

The beginning of XXI century is a period when human activity dominates the climate and

the global environment. The human footprint appears not only on the eco-system but at

most of the processes on the Earth. Increasing number of economic transactions with a

large number of other economic entities throughout the world, emergence of global

networks of value added chains, growing exchanges co-ordinated to serve the world-wide

interests of the globalising entity and myriad of forms of transactions describe the

globalisation’s processes (Dunning, 1997, p. 34). The globalisation is reflected in the

appearance of global firms (e.g. multinationals, transnationals23) owning or controlling

subsidiaries, engaging in value-added business alliances and networks on the international

and intercontinental scale. As Dunning describes (1997), the changes appear on both size:

organizational and environmental. The characteristic features of global firms are global

sourcing including raw materials, labour, capital, intermediate products, engaging in

financial transactions time and place independent, selling goods and services on their main

markets around the globe. The characteristic feature of the countries fully opened to the

forces of globalization is geographical diversification in financial, trading and investment

relationship, and value added that is associated with global transactions significantly

participating in these countries gross national product (GPN). The renaissance of market-

oriented policies (including privatization of state-owned enterprises, the liberalization and

deregulation of markets (especially for services) and growing competitive pressure on

business enterprises for innovations and quality of goods and services were main sources of

globalisation growth (Dunning, 1997). It influenced the scoping of the value-added

activities and searching for wider markets (a result of truncated product life cycles with

parallel rising costs of R&D) and led growing effectiveness of core competences of the

firms and between the firms. Dunning (1997) reminds, that globalisation had led to

changes in two economic scopes of activities: at micro level growing flexibility of firms’

activities including production, relationships with other firms on capitalising on

competencies, and at macro level- by changing costs and benefits of alternative systems

for allocating scarce resources, and the demands being made by globalization on national

governments and supranational regimes. The author also signifies (Dunning, 1997, p. 48),

that FDI is not always a sufficient condition for a successful global strategy, it is “strategic

23 For the purpose of that dissertation the terms multinationals and transnationals are used interchangeably, however with reminding that transnational company is treated as type of top multinational with its characteristic cross-borders activities on the global scale

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asset acquiring investment (that) is […] integral part of a restructuring of the resources

and capabilities of firms, and […] a respond to globalisation”.

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2.2. GLOBAL ENVIRONMENTAL GOVERNMENT

The private actors increasingly influence the global environmental politics (Falkner, 2012),

that results in the more permanent and institutionalised actions, than only cooperation

between the private actors (Falkner, 2012). For example taking lobbying actions during

multilateral agreements (MEAs) the MNEs target potential advantages. Through utilising the

institutional arrangements, interacting within the industry and its non-market environment

(Baron, 1995, 1997, 2009 ), the corporations from year to year increase their influence on

the states actions. The number of publications at the turn of XX and XXI century reflects

the growing awareness of the environmental changes on the global scale (Biermann, 2007;

Latham, 1999; Rosenau & Czempiel, 1992; Biermann et al., 2012; Faulkner, 2003;

Pauwelyn, Wessel & Wouters, 2012; Dellas et al., 2011; Overbeek et al., 2010). “Scholars

have observed the increasing similarities among transnational governance arrangements in

terms of decision-making procedures, organisational structure and communication”

(Pattberg & Widerberg, 2015, p. 691) and started discussion about the problem of global

environment government, appearance of new structure and dispersion of global authorities

(Pattberg & Stripple, 2008; Andova, 2010; Biermann et al. (2009); Orsini, Morin & Young

(2013), they also call “for the existence of “social choice mechanisms” (Falkner, 2012, p.

72).

“Private governance” emerges at the global level where the interactions among private

actors, or between private actors on the one hand and civil society and state actors on the

other, give rise to institutional arrangements that structure and direct actors’ behaviour

in an issue-specific area. These structuring effects resemble the “public” governing

functions of states and intergovernmental institutions, and for this reason the notion of

governance, and indeed authority, has been applied to private actors” (Falkner, 2012, p.

73)

Building on Biermann and Pattberg (2008) Pattberg and Widerberg (2015) select key trends

in the Global Environment Government. The first one is the proliferation of actors (new

actors and new roles): with growing impact of actors not being central governments and

their institutions, the appearance of multi-stakeholder governances including civil society

organisations (CSOs), experts’ networks, multinational corporations, global industry

associations, new governmental agencies including intergovernmental organisations and

international courts. The core issue becomes “the ability of non-stake actors to exercise

authority in cross-border environmental politics” (Pattberg & Widerberg, 2015, p. 687).

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The agency is treated as the power possessed by individual or collective actors to influence

the course of events or the process’s outcomes, that is increasingly located in sites beyond

the state and intergovernmental organisations. As Pattberg and Widerberg (2015) state,

many of the present active institutions of global environmental governance are driven by

non-state actors. The non-governmental organisations cooperate with governments in

introducing international norms into practice. Profit and non-profit actors participates in

global institutions e.g. British Retail Consortium and its legislative role.

The second trend pointed by Pattberg and Widerberg (2015) is the appearance of the new

governance mechanisms and the instruments in addition to the traditional system managed

by governments reflected by the increasing number of institutions and mechanisms taking

part in setting and implementing norms within global governance, denoting a shift from

intergovernmental regimes to public-private and private-private global policy-making. It is

reflected in number of terms and specific definitions e.g. appearance of “transnational

environmental regime”, public-private partnership, multi-stakeholder partnership, global

public policy networking (Pattberg & Widerberg, 2015, p. 688). The authors signify the

deep similarity to intergovernmental environmental regimes in case of norms, rules,

decision-making procedures, however all these activities pull from cooperation between

non-state actors.

The last trend selected by the authors is the appearance of proliferation and intensified

interaction between governance levels (e.g. sub-national and transnational) and functional

arenas (e.g. public and private rule-making). The growing interactions between the actors,

the institutions and the policy levels are the result of emergence of the new actors and

new regulatory instruments and mechanisms. “Global governance of the environment […]

is not limited to ‘governance that is global’- that is, the coordination of activities that

span the globe, at least in its aspiration, but includes governance at all levels of the

political system” (Pattberg & Widerberg, 2015, p. 688). Appearing system of multi-level

governance is defined by interdependencies among the different levels and it covers the

terms of regulatory content, normative commitments and involved actors. The growing

institutionalisations of global environment governance comes with policy at national and

subnational levels. Global standards are implemented and executed locally and result in

coexistence of policy making at the subnational, national, regional and global levels in

more issue arenas, resulting in conflicts and synergies between regulations (Pattberg &

Widerberg, 2015). The system of governance is losing its national principality and in result

it develops functional positive and negative in consequences overlaps among different

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levels of regulations (Pattberg & Widerberg, 2015). Pattberg and Wide substantial rise in

the number of non-state actors at the global level is often taken as proof that the nature

of world politics has changed:

“However, it is not simply the increased numbers that make the difference. Instead, the

ability of a broader set of actors to effectively steer particular aspects of the world

political system in certain directions distinguishes global governance from traditional

conceptions of international politics (Rosenau & Czempiel, 1992). This new agency has

been empirically scrutinized in the environmental arena with regard to a range of

different actors, from certification organisations and environmental consultancies to

social entrepreneurs and multinational corporations (Dellas et. al. 2011) (in: Pattberg &

Widerberg, 2015, p. 689).

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2.3. TNCs AND LEGISLATION MANUFACTURING INDUSTRY

Corruption as Source of Corporate Power

The XXI century is also a period of decreasing public confidence in political institutions and

impact of corporations on them (Falkner, 2012). The financial crisis in 2008 proved how

TNCs’ activities can create turbulences in the international environment and exhibited the

weaknesses of institutional systems, their regulations and jurisdictions (like national

governments or international institutions e.g. EC) who were expected to protect interests

of the consumers of the globe from the risks provided by the private business

organizations. That appearance of corporate ties binding the national and international

institutions resulting growing TNC’s power for asymmetrical growth in comparison to

decreasing institutional strength (Dunning, 1997) and authority, resulted also the

dramatically dropping confidence to the national institutions and their activities. With the

corporate impact on regulations the discussion about corruption on the corporate-

state/international governmental institution become urgent.

“Transnational corruption is one of the most complex, serious, and intriguing forms of

criminal activity the developing world. […] The various schemes repeatedly employed by

corrupt actors worldwide (are): bribery, kickback brokers, front companies, bid rigging,

official-owned enterprises, theft from government accounts, and abuse of public assets

(Ware & Noone, 2005). The examples of strategies used by corporations are presented in

the Table 2.7.

The US (as country of origin majority of TNCs) with its growing transparency of regulations

concerning lobbying activities are a great sample to analyse the importance of impact of

the corporations on the state offices decisions. Despite the system transparency, according

to CBS News “64% (of US citizens) believes that “government is pretty much run by a few

big interests looking out for themselves” (CBS News/New York Times, 2004, in: Blanes i

Vidal et al. 2010, p. 2), that is reflected in the increasing number of lobbyist close to

Washington and dramatically growing spending on lobbying. Only in the US during election

in 2006 (the year of the mentioned survey) the official costs of lobbying exceeded US $2,63

billion with official number of lobbyist around Washington reaching nearly 15 000 (Open

Secrets Organization, Center for Responsible Politics). The TNCs are profit organizations

and it would be naivety to believe that billions spent for lobbying are only donations to the

political tray without expectation of return (Draca, 2014). As Acemoglu and Robinson

reminds (2008, p. 283):

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“Democratic political institutions emerge and survive for extended period of time, but

they are captured by the elite, which is able to impose its favourite economic institutions

(or at the very least, they are able to have a disproportionate effect on the choice of

economic institutions)”.

Table 2.7. Strategies to circumvent the spirit of the law which are adopted by corporations

as a response to blocked goal attainment (Braithwaite, 1979, p. 128)

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In the thirst two decades of the XXI century the largest number of TNCs are the US born

companies. Thanks to the Lobbying Disclosure Act of 1195, Legislative Transparency and

Accountability Act of 2006, Honest Leadership and Open Government Act of 2007 the USA

is one of the countries with the most transparent involvement of private sector in

legislations (Draca, 2014). As both groups American TNCs and US institutions have global

impact on international business and politics and because of the mentioned lobbying

transparency they provide a significant data for analysis of connections between the global

players and global power. However, the articles of Draca (2014), and Blanes i Vidal, Draca

and Fons-Rosen (2010) hit the readers by uncovering the data concerning the lobbying

spending and estimated wages of politics coming from lobbying24. On the beginning of XXI

century the political environment with its legislation and jurisdiction is just another type

of business focused on policy-making with its market for political consulting services with

very strong growth and domination of trends in the level of political money (Draca, 2014).

It appears discussable, that the Institutions (national, international) who are officially

appointed to protect interest of their citizens started to remind the factories of

legislations with corporations as governors (Draca, 2014; EC, 2008; Lessing, 2010; Bai 2010;

Obama 2006; McCain 2007; in: Blanes i Vidal et al. 2010, p. 2). The growing TNCs’ demand

for the political connection proportional to the growth of corporations, has become a value

the companies are ready to pay for (Draca, 2014, p. 12). Political connections matter for

firm value (Fisman, 2001; Johnson and Mitton 2003; Faccio 2006; Ferguson & Voth 2008, in:

Blanes i Vidal et al., 2010, p. 5). “Lobbyists are able to ‘cash in on their connections’,

since connections are an asset with a separate value to their experience, human capital

or general knowledge of how government works (Blanes i Vidal, p. 4). According to

conventional wisdom, experience in government allows former officials to develop a

network of friends and colleagues the they can later exploit on behalf of their clients

(Revolving Door Working Group, 2005; Burger 2005; Zeleny 2006; Johnson and Kwak 2010,

in: Blanes i Vidal, Draca & Fons-Rosen, 2010, 2010, p. 2).

“[…] The impact of institutions on economic outcomes depends on the interaction

between de jure political power, whose allocation is determined by political institutions,

and de facto political power, which is determined by the equilibrium investments and

organizations of different groups. De facto power is often essential for the determination

of economic policies and the distribution of economic resources, but it is not allocated by

24 On the national scale only the Washington’s wages were resistant to decline in financial crisis in 2009 (Draca, 2014, p. 7).

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institutions; rather it is possessed by groups as a result of their wealth, weapons, or

ability to solve the collective action problem” (Acemoglu, Robinson, 2008, p. 268).

The amounts of money invested by the private business or non-profit organizations in

lobbing reflects:

1. The growing demand for the legislation reflected in amount of money spent for lobbying

and challenges with introducing regulations concerning transparency and control in

lobbying.

2. Year to year growing private business “re-investments” into institutional workers (or ex-

workers) proving the constant return on these type of investments (Blanes i Vidal et al.

(2010) research explains the linking of lobbying and staff salaries).

Lobbying supported by high amounts of money becomes the “daily bread” for the

significant members of different industry players. The crisis of democratic legitimacy has

been also spotted as one of the results of lobbying (Blanes i Vidal et al., 2010). The

dramatic increase of wealth of politicians with growing spending for US lobbying exceeding

amount of US$3Bn (amount per year between 2008-2015) brings the questions concerning

the governmental institutions independency and their real rule in politics. Only in the USA

the retail industry lobbying official reported costs raised 6 times in 15 years achieving

US$60M in 2015 (Exhibit 2.12).

Exhibit 2.12. Annual Lobbying on the US retail sales: 2001 - 2015

(Open Secrets Organization, Center for Responsive Politics)

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The Revolving Door Challenge

The phenomenon of movement of officials between public and private sector employment

is called “revolving door”. Draca (2014, p. 4) reminds, that flow of personnel appears on

the top levels: “between jobs in key policy making departments in government and

specific sectors of the economy”. The flow is connected with very high salaries for

migrants and “have the explicit remit to influence government policy” (Draca 2014, p. 4).

The scale of the problem is well reflected in the lobbyist’s revenue fluctuations. As shows

the Blanes i Vidal et al. (2010, p. 26) analysis: “lobbyists with past working experience in

the office of a US Senator suffer a 24% drop in revenue-around US $177 000 when their ex-

employers leaves office. The effect is immediate, it is discontinuous around the exit

period and it persists in the long-term”25.

However, the mention research has not provide the directed evidence on the existence of

a ‘payback’ for lobbying clients, the authors believe, that it is “unlikely that the rents

extracted by ex-starrers are politically neutral. The fact that corporate or interest group

clients are eager to hire the services of individuals with a past history of working for

powerful politicians suggests that they must believe that they are getting a return in

terms of favourable legislative outcomes” Blanes i Vidal et al. (2010, p. 26).

The revolving door is present in the most of the countries- the difference lies in

transparency of these kinds of activities for public. However it can be defined as beneficial

in results by enhancing the efficiency of public and private sectors through better

communication and expertise and experience exchange (Transparency International

Georgia, 2013), the number of scandals (Clausen, J. et al., 2011) proves domination of

negative aspects of that issue. It is “the real concern […] that ex-government employees

are being paid for their connections and capacity to gain privileged access to lawmakers

rather than their policy expertise” (Draca, 2014, p. 12). The revolving door movement

holds the real risk for conflicts of interests and supplies the ground for abuse of former

official knowledge, influence and information collected for private personal profits or

commercial gains (Transparency International, 2013, p. 8). It can be stated, that revolving

door supports mostly private interests and be reflected at the different situations:

1) Exploiting Influence and Official contacts after leaving the Institution, exploiting

possessed relations with the other (still working) Officials,

25 The authors reminds that their data is based on official documentation and they state that the real value of political connections that revolving door lobbyists acquire is undercounted (Vidal, et al., p. 26)

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2) Using commercially sensitive information gained during the Officials employment in the

Institution and granting the favourable decisions for private sectors players (new or

potential Official’s employers and their groups of interests),

3) Utilizing the sensitive information purring from the governmental institutions using

Officials working for governmental institutions (benefiting only possessors of the

information),

4) Representing interests of private entity after taking Office/the Officials (by forming

policy, enforcing regulations, awarding contracts),

5) Favouring the potential employers by the Officials (promise of lucrative jobs offers after

public service employments) (OECD, TI Hungary, TI UK).

Clausen (2011) points out the number of conflict of interest emerging from revolving door:

a/ the problem of institutional prevention of the private business interests buying favours

from public officials by offering lucrative jobs ones the officials leave public service; b/

the possibility of Officials exploiting their previous status to unduly influence their former

staff and colleagues on behalf of new employers(s); c/ access of companies to valuable

information and connections with decision-makers that are not available to those that

cannot afford to hire an ex-Official; d/ impact on regulations concerning public interest

and guard. Linking revolving door with competition policy may have damaging impact on

competitive environment and free and fair-trade economy and lead to growing

empowerment of the lobbying private entities. The major condition to play the “revolving

door” game is possessing enough capital for founding. Hence, the revolving door become

“a toy for big boys”- the global players, who can afford to pay the price. Revolving door

strategy leads to dilution or weakness of the policy, wrong management of the state

resources, loss of public trust in government and public emotional engagement. The other

words we could say, that analysing the direct influence of the revolving door into

competition between the firms we can state that it destroys the competitive environment

and free and fair economy favouring the interests of lobbying firms, who can influence

their industry environment e.g. controlling new market entrances. The clue is that the

democratic political institutions emerge and survive for extended period of time, but they

are captured by the elite, which is able to impose its favourite economic institutions (or at

the very least, they are able to have a disproportionate effect on the choice of economic

institutions) (Acemoglu & Robinson, 2008).

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2.4. TRANSNATIONAL RETAIL IN PERSPECTIVE OF GLOBALISATION

2.4.1. GLOBALISATION OF RETAILING - OVERVIEW

MNCs contribute to the removal of barriers to trade and investment in effect boosting

scope and independency of their strategies (Boyd & Buckley, 1995, p. 188-189). The

authors win in the global competition at two major levels. At the policy level they benefit

from investment – bidding rivalry between governments resulting cheap loans, subsidies

and tax concessions. At the social policies level they pull advantage from lower production

costs (attracting FDI). The policy harmonization and cooperation between governments

decrease the possibility for competition between countries. The augmentation of MNEs

capabilities in strategic alliances for market- and technology- sharing can lead to

enhancement of their firm specific advantages through relational ties within their industry

group, benefiting only risk-sharing and sustained entrepreneurial cooperation (Boyd &

Buckley, 1995), but also to innovation and knowledge development on the large global

scale. Different levels of competitiveness: national and international depending on the

scale of policy - making dynamics.

One of the global impact factors are transnational retailers, that within distribution sector

provide the majority of contributions. From 1980s to 1990s the retail industry has been

rapidly changed by dramatic concentration of the market: from the markets based on the

small enterprises to the markets with global players. The growth of retailers’ power

induced competition between retailers’ suppliers and reduced suppliers’ market power

(Grant, 1987, Wrigley & Lowe, 2002, in: Wrigley & Lowe, 2010). The introduction of

information and communication technologies to the retail sector enabled the retailer to

become supply chains ‘channel captains’ (shift from ‘supply push’ to ‘demand pull’

(Wrigley, 1998, p. 116 in: Wrigley, 2010, p. 2). ICT development allowed for “just-in-time”

and “lean retailing” management philosophy (e.g. EPOS allowing for tracking orders from

manufacturer to retailer- and Tesco’s inventory holdings reduced in one decade (1981-

1991) by 75% from 41 to 11 days (Wrigley & Lowe, 2010, p. 2).

The retail FDI (mostly European and US) acceleration started in the late 1990s with

grocery/general merchandise players. The retailers were exporting capital, formats,

knowledge and stores’ networks. The emerging economies like Central/Eastern Europe,

East Asia and Latin America were the major destinations, however there were also few

significant flows between ‘mature’ economies (e.g. Wal-Mart’s acquisition -led entry into

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the UK and Germany) (Wrigley & Lowe, 2010, p. 8). According to Wrigley and Lowe (2010,

p. 8) the retail FDI acceleration was driven by different forces: growth opportunities of

emerging economies with large ‘traditional’ retail systems, the rise of home markets

regulations and consolidations of these markets, and the increase in capacity of the largest

retail firms to “leverage their increasing core-market scale and free cash flow for

expansionary investment […] in order to secure the longer-term higher growth

opportunities offered by the emerging markets” (Wrigley, 2000a, p. 306 in: Wrigley &

Lowe, 2010, p.8).

While the retail “going global” facilitators were trade liberalisation and access to many

emerging economies, low-cost capital availability, “first movers” benefits, information and

communication technologies (ICT), macro-economic opportunities (Wrigley & Lowe, 2010,

p. 9). They year 1998 with removal of retail FDI restrictions greatly impacted the market

and resulted in multinationalisation, consolidation of the players, retail format

diversification and their international expansion (Natawidjaja et al. 2007, p. 126). Readon

et al. (2003, 2005, 2006, 2007, in: Wrigley, 2010) described two perspectives for the

transformation of traditional retail structures:

1) GEOGRAPHICAL EMERGENCE (direction: from the richest to the poorest targets)

- First Wave (early 1990s): North America & Western Europe retail formats and practices

emulation by local firms, (also first movers’ observation on the local markets) (e.g. South

America, East Asia excl. China & Japan, northern-Central Europe, South Africa),

- Second Wave (mid-late 1990s) & Third Wave (early 2000s): fuelled by growth of retail FDI

transformation of local retail structures (e.g. Mexico, Central America, Southeast Asia,

south-Central Europe, China, Eastern Europe, Russia, India),

- Fourth Wave (late 2000s): transformation of retail structures in poorer countries (in South

Asia (outside India) South East Asia and sub-Saharan Africa).

2) PRODUCT OFFER PROGRESSIVE EXPANSION (direction from: processed food and non-food

to semi-processed products and at least to growing proportions of fresh produce products).

The import of new practices and innovations as the results of direct operations of the

retail TNCs on new markets and indigenous retailers competitiveness based on imitation of

TNCs, together leaded to expansion, consolidation and multinationalisation of the

‘modern’ retail sector in new, emerging markets. In the other way we can say that it

resulted the reduction of traditional/informal retail channels (Wrigley, 2010, p. 11).

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2.4.2. RETAILING AS A PERFECT MONOPOLY

One of the mentioned before trends of globalised industry of retailing (Exhibit 2.1) is

constant consolidation of sector through the mergers and acquisitions. The size of

transaction is reflected in the numbers: for example two mergers in 2014 (between Harris

Teeter Supermarket with The Kroger and Hess Retail Corporation with Speedway LLC)

exceeded the amount of US$ 5 000 Million. Blurring the boundary between grocery and

non-grocery market (Euler Hermes, 2016) the consolidation of power in the hands of few

retailers negatively influences the competition by decreasing number of shops, workers,

number of promotions and products variety (Inderst & Shaffer, 2007) and increasing the

product prices after merger (Huang & Stiegert, 2010; Allain, Chambolle, Turolla & Villas-

Boas, 2013).

“When the current business environment hampers investment in new capabilities

(knowledge or market share), retailers massively resort to mergers & acquisitions. The

global number of deals increased by +7% in 2015 and should exceed USD200bn in value in

2016. However it also implies a higher threat of restructuring and divestments for the

sector, and along the supply chain.” (Euler Hermes, 2016, p. 1).

The average revenue between 2007 and 2016 of the top 20 publicly traded retailers has

increased by over 30% when its operating profit only growth by less than 10% (Euler

Hermes, 2016). The number of mergers and acquisition transactions in US retailing only in

2014 reached the level of 400 transactions of total costs of US$20 Billion (Mazone &

Associates, 2015).

Exhibit 2.13. The US retail market- Mergers and Acquisitions deals

(Mazone & Associates, 2015, p. 8)

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Exhibit 2.14. Retail “shopping” Retail- the size of the acquired retailers increase

(Mazone & Associates, 2015, p. 8)

The state governments try to control situation of mergers and concentration in retailing

introducing new rules and legislations, for example France trying to control the unlimited

growth of supermarkets, as an answer to market concentration (in 2000 the five retail

chains controlled 73%), introduced two legislations: the Galland law – aimed at preventing

below-cost pricing which also had a side effect- a raise in retail prices and Raffarin law –

increasing barriers to entry, limiting organic growth of retail groups and triggering

important merger operations that have led to an increase in the retailer’s market power

(Allain & Chambolle, 2011). Chambolle et al. (2012) reminds that the corporate retailers

benefit from weak local competitive conditions and exert significant market power in local

markets.

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2.4.3. INSTITUTIONS AND RETAILING:

LEGISLATION & JURISDICTION POWER OF CORPORATE RETAILING

The TNCs strategic competence is well reflected in the involvement of institutions in

granting of reciprocated privileges for the private sector organization (e.g. reducing

uncertainty) (Dunning & Lundan, 2008, p. 5). “Institutions, according to North (1990) are

defined as ‘formal rules’ (e.g. constitutions, laws and regulations) and ‘informal

constraints’ (norms of behaviour, conventions and self-imposed codes of conducts)

(Dunning & Lundan, 2008, p. 4). The globalisation of food supply chains, growing power of

retailers and the shift from public to private food governance allow the corporate retailers

to become powerful food regulators (Havinga, 2015, p. 59-60). They strengthen their

legislation and jurisdiction power in two ways. First way is creation of the system of

private standard governance regulating retailing activities through creation and ownership

of internationally recognisable bodies e.g. British Retail Consortium (Association of British

retailers), IFS Management GmbH (non-profit company owned by retail federations from

Germany and France), Food Marketing Institute (Association of US food retailers and

wholesalers), Foodplus GmbH (European retailers), Danish Agriculture and Food Council

(non-profit association of farming and food industry) or Food Safety System Certification

22000 (Foundation for Food Safety Certification (non-for-profit organization) etc. (Havinga,

2015). As Verbruggen and Havinga states (2015):

“[…] meta-regulations in (transnational private domain) […] is less concerned with the

goal of enhancing rule compliance and efficiency in enforcement, but instead is more

prominently concerned with the bolstering of the integrity, legitimacy and accountability

of private regulatory regimes and coordination between such regimes (Verbruggen &

Havinga, 2015, p. 1).

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Table 2.8. Characteristics of examples of food safety standards recognized by the Global Food

Safety Initiative (source: Havinga, 2015, pp. 65-67)

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The second way is influencing the public governance by lobbying which becomes a

“problem for democracy, because extensive research shows that campaign and lobbying

expenditures yield policy outcomes that disproportionately reflect the interests of the

affluent” (Ruetschlin & Mcelwee, 2014).

Table 2.9. The types of lobbying in retailing (Based on: UK Government.com, Higgins, 2016,

Ruetschlin & Mcelwee, 2014, OpenSecrets.org)

One of the most criticised retailing lobbying methods is revolving door (movement of

personnel between roles as legislators and regulators) and its impact on the legislation and

regulation. The most visible for the market is personnel exchange appearing between the

members of major public governmental and regulating bodies (e.g. White Hall in the UK or

Capitol in the US) to retail corporation and vice versa. The examples lobbying connected

with retail industry are presented in the Table 2.9.

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THE CHAPTER SUMMARY

The chapter was an attempt to present the picture of the global retailing in global

environment, the processes of constant growth of the multinationals and their

transnational activity.

Despite the great managerial success reflected in global growth and expansion the

chapter also questions the darker side of power of appeared and strengthening

retail oligopolies and disadvantages and risks they provide for the competition,

democracy and natural environment.

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C h a p t e r III

T H E M E T H O D O L O G Y O F R E S E A R C H

Chapter Description

The following chapter presents methodology of this research. First part describes the

motivation behind this work including review of publications concerning international

retailing. The second part in formal way presents the general thesis and major hypothesis

with the aims and objectives of this dissertation. The third part, explains details of research

design, i.e. - its critical assumptions and definitions used for the publication, data sources

etc. This part also discusses the two qualitative methods adopted for the purpose of this

research: the ethnographic method for gathering research data and the grounded theory

method for building the concept of competence emergence.

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1. CHARACTERISTICS OF THE RESEARCH PROCESS

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1.1. MOTIVATION AND THE RESEARCH

The decision about continuing research about retail TNCs at PhD level was motivated by four

major drivers:

1. Absence of consistent theory explaining how the organizational resources lead to

competitive strategic advantage, what are the organizational capabilities and the

competences and what roles they play in the management of organization.

2. Absence of scientific explanation providing knowledge about a real source of advantage

of a few top global retailers, i.e. - how it happens that only few amongst all grocery chains

possess the global power and sustain their global advantage for many years?

3. Growing presence and importance of the retail TNCs and increasing scope of their

Anthropocene footprint, from the economic aspects, through natural environment and

international legislations, to human life conditions.

4. Lack of publication on strategic management discussing the global hypermarket chains in

the perspective of the global strategic advantage (despite the papers about diversification

and internationalisation in retailing).

The XXI century was a period of appearance and dynamic growth of the retail TNCs. In 1990

there were no retailers on the US Fortune 500 list, but already in 2013 their revenue

exceeded US$ 250 billion (Deloitte, 2014, p. G19). The revenue of the three top retail TNCs:

Walmart Stores Inc., Carrefour S.A. and Tesco PLC exceeded 98 billion US dollars (Deloitte,

2014, p. G11). The publications discussing the sources of the multinational retailers consider

two major strategies leading to the growth of the retailers: multichannel diversification

(McGoldrick 2002; Newman & Cullen, 2003; Gilbert, 2002; Levy & Weitz, 2012) and

internationalization (Tordjman, 1990; Burt, 1993; Alexander & Myers, 2002; Salmon &

Tordjman, 2002; Dunning, 2008; Wrigley, 2005; Readon, Henson & Berdegue, 2007; Coe,

Wrigley & Currah, 2005). Despite the growth of specific media reporting changes on the local

and international retail market (The Grocer, Retail Week etc.), we still face a deficiency for

specific scientific publications discussing retailing strategy in global perspective, the

strategy which leads not only to the extreme profit, but also to the appearance of global

oligopolies.

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The growth of corporations, operational speed and scope of transactions, and the blur of

organisational boundaries on the global scale become a source of challenge for the

researchers, who tried to make an attempt to analyse the organizational processes in

transnational scale (Alexander & Doherty, 2010, p. 929). Alexander and Doherty (2010) in

their paper “International retail research; focus, methodology and conceptual

development” provide the deep review of international retail publications (quoted as

follow). The period of growing publications the authors divide into three time frames. First

one begun at the turn of eighties and nineties of XX century. The growing retail international

activity influenced the emergence of publications about international retailing concerning

market orientation (Piercy and Alexander, 1988), retailer operational size (Treadgold, 1988),

retailing branding (Alexander, 1989, 1990a,b) and international activity (e.g. Burt, 1989;

Hallsworth, 1990; Pellegrini, 1991). The appearance of International Journal of Retail &

Distribution Management reflected growing need for professional publications and analysis

of the industry and its players (Alexander & Dougherty, 2010). The Alexander & Dougherty

(2010) publication present the number of publications of last decade of XX century discussing

issues like strategies of distribution on international scale (Fernie, 1995), motivational

structures (Alexander 1995), geographical expansion (Burt, 1993; Davies & Ferguson, 1995),

market positioning (McGoldrick, 1995). They focused on “conceptualisation of the process

and how international retailing activity fitted within conceptualisations of international

business generally or challenged previous assumptions in the wider literature (Sternquist,

1997; Vida and Fairhurst, 1998; Doherty, 1999; Alexander and Myers, 2000; Vida et al.,

2000) (Alexander & Doherty, 2010, p. 929). That conceptualisation resulted in two outcomes:

appearance of large volumes of work concerning international retail (Alexander, 1997;

Sternquist, 1998) and recognition of the topics requesting more detailed research and

consideration in different perspectives e.g. internationalisation and management.

The third wave of publications mentioned by Alexander and Doherty (2010) discussed topics,

such as market selection (Gripsrud & Benito, 2005; Alexander et al. 2007, Myers and

Alexander, 2007, Swoboda et al, 2007), methods of entering the market (Doherty, 1999,

2000, 2009; Quinn, 1999; Gielens & Dekimpe, 2001; Doherty & Alexander, 2004, 2006; Palmer

and Owens, 2006; Huang and Sternquist, 2007; Park & Sternquist, 2008), divestment process

(Alexander & Quinn, 2002; Burt et al., 2002, 2003, 2004; Wrigley & Currah, 2003; Palmer,

2004; Alexander et al., 2005; Palmer and Quinn, 2007; Carins, Doherty, Alexander, & Quinn,

2008; El-Amir & Burt, 2009). Period between 1995 and 2010 included publications

researching internationalisation of food retailers and the larger formats (Arnold & Fernie,

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2000; Christpherson, 2007; Bianchi & Ostale, 2006), niche retailing (Foscht et al., 2006;

Picoy-Coupey, 2006, Hutchinson et al., 2007) fashion retailing (Moore, 1997, 1998, Lopez

and Fan, 2009), luxury brand internationalisation (Moore & Birtwistle 2004, 2005). The

impressive number of research concerning international growth and changes of retail sector

was made by economic geographers like Mukoyama (2008a, 2008b), Dawson (1992, 1994,

2007, 2008a, 2008b, 2013), Wrigley (1998, 2000a, 2000b, 2003, 2005, 2007, 2009, 2010), Coe

(2003, 2004, 2005, 2006, 2007, 2008, 2009, 2015), Currah (2005, 2003), Lowe, (2007, 2010,

2012), Reardon (2003, 2005, 2006, 2007) etc. Continuing publications review after 2010 we

can find publications concerning strategy and marketing (like CRM, branding,

multichanneling diversification (Sohl, 2012; Gilbert, 2003; Pieniacka, 2015, Stefańska &

Śmigielska, 2015; Humby, Hunt & Phillips, 2007). Effectiveness in providing competitive

value resulted the research concerning global sourcing in retailing, operations in the

perspective of global purchasing networks (Wai-chung Yeung & Coe, 2014; Coe, Hess, Yeung,

Dicken & Henderson, 2004), innovations in retailing (Reinartz, Dellaert, Krafft Kumar &

Varadarajan, 2011; Shankar & Yadav, 2011). The International Journal of Retail &

Distribution Management focused on retailing in international aspect, the growth of

marketing publications we can observe in the International Marketing Review.

In 2016, still following Alexander and Doherty (2010), we can state that “the development

of international retailing research […] has […] taken the research area strongly in the

direction of marketing” (p. 932), “area of company performance has not emerged as

strongly as might have been expected” (p. 932) and “strategy debate has become somewhat

lost in the research agenda” (p. 931). Number of publications (Hutchinson, Alexander, Quinn

& Doherty, 2007; Evans, Bridson, Byrom & Medway, 2008; Swoboda, Zentes & Elsner, 2009;

emphasise the relative lack of strategic questions (Alexander & Doherty, 2010, p. 931). Thus,

the authors calls for deeper retailing research concerning revisiting the broader strategic

issues and better understanding the strategic direction of leading international operations,

strategic development within and organisation and institutional framework. They signify that

“corporate orientation has attracted far less attention in recent years” (Alexander &

Doherty, p. 935).

Publications from the second decade of XXI concerning retailing still do not provide enough

research and analysis of competition between global retailers, understanding of their

corporate domain, market activity management, market portfolio management. In the world

of growing retailers there is a growing need for analysis of corporate performance in

strategic competence perspective, as “both corporate orientation and market-based

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activity define the ability of the firm to operate and respond within the competitive market

environment” (Alexander & Doherty, 2010, p. 935). Alexander and Doherty (2010) calls for

analysis of processes that describe functionality within the corporate domain, as they are

the key to understanding of the corporate strategy. In 2010-2011, when the title of that

thesis was defined, there were no satisfying publications answering the questions: how it did

happen that only few hypermarket multinationals are still on the top of the global list. Why

their competitive advantage is sustainable? How do the top retail TNCs cope and impact the

external market and non-market environment (like the institutions, the NGOs or the

societies)? At the end of 2016, when this chapter was written, the author could note an

increase in number of articles about global retailing, however their strategic analysis still

revolves around internationalisation, diversification, logistics and marketing. The research

describing activities on the border of retail organization, the sphere where the

organizational structure meets external environment is still missing.

The literature review concerning resources, competences and capabilities (including

Dynamic Capabilities View) of the organization in turbulent environment published during

last two decades was a real challenge. Specially the Dynamic Capability Approach has

become a time and energy consuming travel which didn’t help the author in attempts to

understanding the issues, concerning capabilities and competences in the global

hypermarkets’ perspective. As Czakon stated (2010, p. 10) “maybe because of relative

maturity […] of the management science it can be noted substantial dispersion,

fragmentation and paradigmatic incompatibility of previous cognitive efforts in strategic

management”. As far as the Positioning View in the clear and easy way describes its core

issues and interconnectedness between various components of the approach, in the RBV we

can already notice the labyrinth of terminology of “resources”, “competences”, “abilities”,

and at the further level of dynamic capabilities we faces tautology and practical uselessness

(Czakon, 2010; Arend & Bromiley, 2009; Williamson, 1999; Zahra et al. 2006; Thomas &

Pollock, 1999; Wang & Ahmed 2007; Bareto 2010) and lack of symmetry (Czakon, 2010).

Kraatz and Zając (2001) define the DC’s concept vague and elusive, Levinthal and Ocasio

(2007) as theoretical dead end. The problems within terminology in the area of resources

and lack of discipline cause criticism (Arend & Bromiley, 2009) and call for systematization

and specific in definitions (Wang & Ahmed, 2007).

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1.2. THE RESEARCH PRINCIPLES

During the review of strategic management publications the author has not discovered the

satisfying definition of the organizational competences and their emergence process. “The

way the competences are created and change is neither clear nor recognized” (Bratnicki,

2000, p. 124). This way, the explanation of the competitive advantage process in the strategy

of global retailers has become challenging. Hence, motivated by Bratnicki (2000) and Czakon

(2008), and by adopting the Grounded Theory method for analysis, the author developed the

Grounded Theory: the Concept of Competence Emergence (CEC).

The CEC (C) emerged as a result of the author’s reasoning reflected in the logic inference

process (where hypothesis B is the abductive explanation of A under two conditions: A is

derived from B, and A is derived from B and C) defined in the following major steps:

I. The introductory observation of the grocery retailing observation;

II. Creation of the general thesis (A):

The hypermarket TNCs take over the external environment

to achieve superior competitive global advantage;

III. Creation of the major hypothesis (B):

The top hypermarket TNCs possess unique competences,

which enable these organizations to achieve

permanent global strategic competitive advantage.

IV. Defining the aims of research:

a)

The identification of the hypermarket TNC’s strategic sources of sustainable advantage

and their process of emergence and utilisation;

b)

The explanation of the relations between the organizational potential and

competitive strategic advantage.

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V. Selecting the supportive research questions:

- What is the difference between the organizational capability, the skilfulness and the

competence?

- What are the competences of the global retailers? How do they appear?

- Do the organizational competences have a direct impact on the external to organization

environment?

- When do the competences have strategic impact?

- What is the process of building the organizational advantage?

-What are the dynamics of the organization?

- What role the employees play in the competence emergence process?

- What is learning and knowledge in the organizational dynamism from the perspective of

the competence emergence process?

All these steps, however based on the analysis of whole retail sector, focused on selected

two top hypermarket TNCs and allowed for investigation of the dynamics of these

organizations, which lead them to the top global competitive advantage.

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1.3. THE RESEARCH DESIGN

1.3.1. CRITICAL ASSUMPTIONS AND DEFINITIONS OF THE RESEARCH PROCESS

For the purpose of that thesis the following critical assumptions have been made:

I. A global world is a framework for organization. The hypermarket TNC is embedded in that

framework, within interfirm and extrafirm networks.

II. The variety of methods of data collection was applied to the whole framework which

includes:1

a) hypermarket TNC as an active structure influencing the global market through its

activities,

b) the external to hypermarket TNC environment that is impacted by the organizational

activities (with strong focus on hypermarket TNC’s inter and extra-networks and nonmarket

environment).

III. The people with their knowledge, culture, believes, creating social networks stand

behind the organizational activity.

IV. The research design is treated as flow that “involves a spatially dispersed field through

which the ethnographer moves”, it runs through series of juxtapositions (Falzon, 2009, p.

2).

V. Definitions:

a) HYPERMARKET TNC = SUPERMARKET TNC = MULTINATIONAL = RETAILER = ORGANIZATION

- Transnational Corporation (TNC) is treated as a Multinational or Multinational

Corporation, with deep embeddedness in the activities across the globe. The definition of

1 “Previously, the ‘world system’ was seen as a framework within which the local was contextualized or compared; it now (in multi-site ethnography) becomes integral to and embedded in multi-sited objects of study. The essence of multi-sited research is to follow people, connections, associations, and relationships across space (because they are substantially continuous but spatially non-contiguous)” (Falzon, 2009, p. 1)

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Retail TNC is adopted from Treadgold’s (1998) first publication describing appearance of

global retailers. For the purpose of this dissertation, the terms Multinationals and

Transnationals may be used interchangeably, however it should be noted, that Transnational

Company perspective signifies the aspect of embeddedness of an organization within the

environment.

The TNC organization is defined as a business phenomenon, delineated by the borders

“integrating mechanisms of the organization and the external environment” (Cyfert, 2012,

p. 21; Pattberg & Widerberg, 2015, p. 688).

- The term Hypermarket has been chosen based on TESCO and Walmart dominant store

format, that was hypermarket (Deloitte 2014-2016). Because the top global retailers use

different format stores (depending on their present strategy) and the proportion between

types of formats is variable, the terms Hypermarket TNC and Supermarket TNC is treated

equally and interchangeably.

b) GLOBAL ENVIRONMENT

- For the purpose of this thesis the Global Environment is defined after Pattberg and

Widerberg (2015) as multidimensional environment reflected in multilevel activities and

embeddedness of TNCs (their inter- and extra-firm networking (Coe & Wrigley, 2007).

Pattberg and Widerberg (2015, p. 688) describing the global governance as “not limited to

‘governance that is global’” only as “the coordination of activities that span the globe, at

least in its aspiration, but includes governance at all levels of the political system”.

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1.3.2. QUALITATIVE METHODS AND FORMULATION OF THE PROBLEMS

The biggest challenge of this research was the analysis of the large spectrum of two

perspectives: the organizational and the world perspective. The actions, the processes, the

people, the organizations, the networks, the institutions… Looking for the TNCs’

embeddedness, hidden knowledge and processes, searching for special, but repeatable

entities... In that approach the qualitative method of research had become a must. Klein

and Myers (1999, in: Rowlands, B. H., 2005, p. 81) reminds that characteristic feature for

the qualitative research is, that “knowledge is gained or at least filtered through social

constructions such as language, consciousness, and shared meanings”. “The qualitative

methods allow for exploring new phenomenon, creating new categories and approaches

(Konecki, 2000, p. 13)” and we “do not have to render the result to larger population”

(Stańczyk-Hugiet, 2011, p. 20). The qualitative methods may be associated with the

phenomenologist or humanistic paradigm (Hirschman, 1986). They strengths lie in the

potential to examine the change and the processes over time, understanding the people’s

meaning, adjusting to emerging new issues and the ideas, and development of the theory

and the hypothesis. The weaknesses come with time and resources consuming, risk driven

by subjectivity of analysis and interpretation of data, challenge of the controlling pace,

progress and end-point and the risks of low credibility by policy makers (Easterby-Smith et

al., 1991). From ontological perspective, the qualitative research supplies reality, that is

ordered and observable, constructed by socials, that tends to the truth. The relations may

be generalizable, full of complexity in causality and results. It tends to explanation and

prediction. The epistemological perspective of qualitative research is based on building

models leading to explanation of phenomena, with regard to fundamental structures and

mechanisms.

The qualitative methods (ethnography for collecting data and Grounded Theory for building

the Competence Emergence Concept) have emerged naturally as a result of author’s

fascination of the transnational players (with focus on grocery retailers) and their impact on

the global environment and consumers’ lives. Implemented unscheduled combination of

abductive reasoning and theoretical agnosticism on the beginning of research provided

author of that thesis a comfort of observation “outside the box” (kind of scientific “tabula

rasa” state of mind).

Adopted abductive reasoning (characteristic for Grounded Theory) is a great tool for

searching of hidden data, for patterns during observation and afterword for developing

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explanations creating theories, approaches, views, conceptualisations, while theoretical

agnosticism (Charmaz in: Gibbs, 2015) on the begging of the research allows for freedom in

altering the study direction after the research process had commenced (Bernard, 2006). If

we look from Stańczyk-Hugiet’s (2011) perspective that the research problem is our

statement about our lack of knowledge closed in grammatical frame of question, we can

also say that these questions in that research play two rules: they bring the awareness of

the problem leading to defining the problem and they allow for problem solving.

If we specify the scientific problem as a “difficulty, that cannot be obeyed with utility of

existed knowledge” (Apanowicz, 2000, p. 68), the importance of the research questions

(Andrews, 2003) leading first to the scientific problem establishment, and then by creating

proper research questions- to the solution of the problem, becomes critical and creative.

Ajdukiewicz (1938) distinguishes between conclusion research questions requiring only

confirmation or denial with answer “yes” or “now” and complementing questions demanding

larger answer, opening the discussion and supplying more data. The questions in abductive

reasoning allow for spiral investigation, for testing and verifying the findings to draw the

conception.

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1.3.3. JUSTIFICATION OF THE QUALITATIVE METHOD

“Methodologically, international retail research has become increasingly engaged with

qualitative methods in recent years” (Alexander & Doherty, 2010, p. 930). There is a

significant growth of applications of more in-depth qualitative methods such as ethnography,

(Quinn, 1998, 1999) or in-depth interviews (Moore, 1997; Palmer & Quinn, 2005: Evans et al.

2008a), etc. “The use of observation, questionnaires and databases provided a sound basis

for the research area from which in-depth qualitative accounts of actual company activity

could lead to more robust theory building” (Alexander & Doherty, 2010, p. 930 - 932).

Kociatkiewicz and Kostera (2013) signify, that management as a science was built on the

fundaments of other sciences: engineering (Taylor, 1911), sociology (Weber, 1978),

psychology (Parker Follet, 1918/2013) and cultural anthropology (Mayo, 1949). Hence, the

qualitative research methods involved into creation and improvement of organizational

processes are the contributions of management science to the “parental” scientific fields.

The authors (Kociatkiewicz & Kostera, 2013) remind, that the methodology of the research

should always come from the researched issue, reflecting in the best possible way the

studied phenomenon. Hence, the appropriateness of qualitative research in the management

science- the management involves people with their context (decisions, emotions, culture,

history etc.).

The analysis of the corporate strategy, requires scanning of the large picture, including

organizational and environmental areas (Coe & Wrigley, 2007; Draca, 2014, Hill, 2007).

Exploring strategic competences demands the investigating of the enormous amount of

information, concerning organization and its external market- and nonmarket environment

(Baron, 2005). This research examines the strategies of the top hypermarket/supermarket

multinational actors, for years playing successful game at the global arena. That created the

major challenge to meet: the scope and the type of the data it investigated (hidden data):

a) The huge range of the data comes from investigation of the tremendous scope of the

sample and its complexity: the transnational actors, their internal hidden processes and

activities in the various external networks. The scope and the complicated architecture of

the actors affects the enormous size of the external environment adhering to the

organizational structure.

b) The second major challenge of that research was searching and observing the hidden and

protected knowledge, finding the patterns of organizational footprints and taking synergic

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advantage of these patterns in creating scientific approach concerning strategic

competences of hypermarket’s TNCs. Looking for the strategic capabilities and the

competences, which are the most valuable and protected data, does not require only the

large multilevel scanning of different sources of data in quite long term. It also requires the

researcher presence and potential for mentioned earlier looking from the “outside of the

box”. In that situation the researcher becomes “a lens of scanning process”. As Hassard et

al. (2007, p. 325) states:

“We argue that epistemic developments in the field of comparative international

management have been methodologically limited, with both the mainstream international

management discipline and the heterodox ‘varieties of capitalism’ approach remaining

heavily reliant on functionalist explanations of firm and market behaviour. We suggest that

the field of international and comparative management would benefit from the deployment

of more sensitive research techniques, notably ones derived from anthropology and

ethnography”

The authors (Hassard et al. 2007, p. 325) signify the role of researcher’s sensitivity in the

interpretations of the activities of various actors and the their “associated life-world

communities”. The growing globally trend towards removing the regulatory burden on

businesses (Meardi, 2002)2, the development of transition societies requires deeper

interpretive approach concerning the issues of behaviour and the actions (Hassard et al.,

2007, p. 330).

Building on the factors above, the ethnography method for gathering data has been applied

for the purpose of that research. As Hassard et al. stated (2007, p. 325): “Organizational

research, that examines the development of multinational corporations through the ‘close-

up’ lens of ethnography is required more than ever”.

The subjects of the quality research are mainly the processes and casual relations located

in time- historical context (Langley, 1999; Czakon, 2009, p. 1). The interchangeable

adaptation of different qualitative techniques, the collection and knowledge interpretation,

or analysis of the case studies, do not undermine the value of qualitative research (Czakon,

2009). The qualitative investigation depends on the activity of researcher. These are

2 E.g. NAFTA, CETA, TTIP

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interpretative, material techniques that change invisible into visible (Denzin & Lincoln 2009,

t.1.s. 23, in: Flick, p. 22).

The current dissertation is trying to investigate the creation processes, which allow their

creators to achieve and sustain the competitive global advantage. The power of the

transcorporations lies in their potential to developing, using and keeping their strategic

competences and capabilities in secret as much as possible. One research technique would

not be enough to cope with that challenge. Also hope that direct interviewing with managers

of these corporations will answer the research questions concerning the most valuable

organizational knowledge would indicate naivety from the scientific point of view. Hence,

the core and foundation of author data collection is reading and watching the documents

from all possible sources.

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1.3.4. ETHNOGRAPHY AS A METHOD OF GATHERING DATA FOR GROUNDED

THEORY

“The hidden knowledge is hard to control and explore. It would be unwise to ask about it in

questionnaire, and just to observe from the outside, it is hard to regulate its functioning using the

regulations or to catch using the informatics tools.”

(Krzyworzeka, A, Krzyworzeka, A. (2012)

The best method for collecting data for grounded theory is ethnography (Charmaz, 2006,

2014, 2015), hence, for the purpose of that thesis ethnography with its techniques was

adopted. Gathering data through the different techniques like field observation and

description, interviewing, analysing the documents allows for preparing the great number of

records for abductive analysis.

Interorganizational networks like hypermarket TNCs and nongovernmental and governmental

institutions are ruled “via specific structures, formal […] or informal (e.g. via trust)

developed collectively and over time, sometimes even including a dedicated network

administration” (Provan & Kenis, 2008, in: Berthod et al. 2016, p. 5). The large scope of the

exploration required the synergic results of ethnographic different perspectives: e.g.

organizational perspective through organizational ethnography perspective, global

perspective- through global ethnography, and relations and networks perspectives- through

multi-site ethnography and network ethnography (Rouleau, Rond, Musca, 2014). The

observation of the issues across so many perspectives increases the number of occasions to

capture the right enactment.

The new perspectives of ethnography are the answer to increasing turbulence of the global

environment and the changes in technology (Rouleau, Rond & Musca, 2014, p. 4). The

ethnographers running investigations beyond the scope of standard organizations had to face

the challenges and it resulted in the appearance of the new terms characterising the

specificity of the area of the research e.g. “mutli-site” ethnography (Marcus, 1998),

network ethnography (Howard, 2002), self-ethnography (Devault, 2006), visual ethnography

(Pink, 2007), virtual ethnography (Purli, 2007). These new, perspectives of ethnographical

investigations allow for larger, more suitable and concrete proceeding within the intricate,

unclear, equivocal and volatile context, providing a meaningful collection of data and

influencing the appearance of new research technics and tools for collecting data (Rouleau

et al. 2014, p. 4). Rouleau et al. point out (2014), that the organizational ethnography

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becomes an investigation beyond the fieldwork, text-work, headwork and teamwork in

reflection to organizational changes and organizational structures’ growth on the

transnational scale:

“The proliferation of tools, techniques and vantage points reflects a realization that

organizational life today is more likely to be subject to uncertainty and change than in

previous decades. Competition, in most fields, has intensified. […] Traditional boundaries

between the physical and intellectual, the public and private, workplace and home have

eroded, as have those of loyalty and affiliation, of experience and of authority. All this, of

course, raises questions for research design: How can organizational life be effectively

observed when it gets dispersed in time and space, and if it arises unexpectedly? How is it

possible to reconcile the need to “be there”, for a period long enough to assess the practices

[…]? How can multiple levels of mediated artefacts be used to explore the multiple ways of

organizing in a contemporary economy?” (Rouleau et al. 2014, p. 5).

Ethnography, as method allowing for understanding, explaining and researching the

contemporary „global situation” considering the situations and interactions in concrete

settings, can supply knowledge that the global becomes not a unitary “phenomena but a

diversity of project” (Kentor, p. 18). It can be stated, that it is “flow focused” on all the

levels of organizational activities. The organizational ethnography can provide its potential

in writing and theorizing within the organizational strategy and its studies (Van Maanen,

2011). Jarzabkowski et al. (2014, p. 275) states that “ethnography in strategy research has

gained importance as a method alongside the growth in strategy process (Chia and Holt,

2006, Langley et al. 2013) and strategy–as-practice approaches (Langley and Abdallah, 2011,

Rasche and Chia, 2009; Rouleau, 2005)”. As Berthod et al. (2016, p. 15) signify, the

organizational ethnography (based on interviews, audio-visual recording and documents) -

already valuable in management and organization studies method (Neyland, 2008; Watson,

2011) and suppling the variety of configurations (Rouleau, De Rond & Musca, 2014), is

claimed to be suitable for exploring the bounding between organizations (Yanow, 2009).

However, in fact: it is rarely applied for studying large contexts (Zilber, 2014, p. 96). The

analysis of the TNCs and their networks requires a deep observation of the social networks

and their importance for the global supply chains (specially within nonmarket strategies area

and their institutional embeddedness). Thus relational matrices interactions within

communities, often technology-mediated interactions (Howard, 2002) and

intraorganizational sharing knowledge (Currie & White, 2012) have to be considered in the

ethnography perspective (Berthod, Grothe-Hammer & Sydow, 2016). Because the networks

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structures are rarely visible via artefacts and rules, especially in the extensive, informal

networks driven by their participants (Provan & Kenis, 2008, in: Berthod et. al. 2016), in

that perspective often only ethnography can provide proper social network analysis allowing

for access to insights about power, positions, or multiplexity of ties, un-acknowledging

practices and “tacit knowledge about the enactment, reproduction and transformation of

network structures” (Berthod et. al. 2016, p. 10). Without ethnography the analysis and

gaining knowledge of relational context in which organizations can become “mission

impossible”.

Meritt (2011) describing ethnography as the methodologic practice of positioning a

researcher within a group of people to study and analyse a social phenomenon, signifies that

in the transnational perspective ethnography had to meet the challenge of the globalizing

nature, the geo-spatial boundaries unclearness, that may be not clearly linked directly to

social relationships. The researcher nowadays has to face number of the challenges related

to the place of research. For solving that problem Meritt (2011) proposes Gille and Ó Rian

(2002) approach concerning unit of analysis based on engaging the researcher in “place-

making”. In that view the researcher “should create and imagine, practical sense of place

“that still locates itself firmly in places but which conceives of those places as themselves

globalized with multiple external connections, porous and contested boundaries, and social

relations that are constructed across multiple special scales” (Merit, p. 3). That designated

by ethnographer place becomes the location of the investigations. That place-making for the

purpose of that research covers processes – the social actors’ activities on the intra-, inter-

and extra- network levels. The human forces, the organizational forces, the global forces,

all these issues have to be investigated in aim to discover how the TNCs competences appear,

how they are build, how they cross the boundaries of organization impacting strategy and

external environment.

“The goal […] is for the ethnographer to choose a global cluster (force, connection, or

imagination) and explore how particular outcomes become threaded through the “place of

study” (Merrit, 2011, p. 3).

Building on the similar approach as Merit (2011), Hence, Kjeldgaard, Csaba and Ger (2006)

propose multi-sited ethnography as adjustment to ethnography in response to the

globalisation challenges, that allows for investigations of global and globalizing market

conditions and relations. When traditional ethnographic activities in anthropology limit

however deep and largely portrayed investigation to single locality, the multi-sited

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ethnography has to “abandon the privilege of the locality, embrace mobility and ‘go with

the flow’ (Burawoy, 2000 & Hannerz, 2003, in: Kjeldgaard, 2006).

“Globalisation challenges the units of analysis of traditional cross-cultural research as well

as the objects and premises of traditional ethnography. Multi-sited ethnographic inquiry

can bring out the multifaceted character of globalisation through the analysis of different

experiences of its impact on communities, but also by studying the specific networks, flows

and connections that constitute the social-cultural and economic infrastructure of

globalization” (Kjeldgaard et al., 2006, p. 521).

Following Kentor (2009) we can say that the literature investigating the global activities in

ethnographic perspective treat globalization as a phenomena in the real world as much as it

is a project, analysing the global processes mixing descriptive and prescriptive elements

(Holtzman, 2004). The distinction between global and local can be misleading.

“Multi-site research is designed around chains, paths, threads, conjunctions, or

juxtapositions of locations in which the ethnographer establishes some form of literal,

physical presence, with an explicit, posited logic of association or connection among sites

that in fact defines the argument of the ethnography” (Marcus, 1995, p. 102).

Thus, the multi-site ethnography “concentrates on connections between sites, yet it does

so whit an eye to how these connections” (Kentor, 2009, p.9). “The site is thus not

necessarily a concrete space but rather a series of sites connected by a common thread,

sites are put together by the ethnographer’s argument” (Kentor, 2009, p. 8). “In multi-site

ethnography […] the fieldwork must inform theory and not the other way around” (Kentor,

2009, p. 8). The challenge with that strategy appears at the level of guidance concerning

the decision taken by researcher and thus leading to the problem of research boundaries:

how many people, stories, metaphors, debates through multiple spaces within the

organization and leads to follow, how much context to seek. When could we say stop to

information collection? (Candea, 2007, p. 173).

For the purpose of this PhD dissertation, the following techniques of observation (direct and

indirect) were adopted after Berthod et al. (2016, p. 18), to gather necessary data through

the network ethnography lens (what is presented in Table 3.1).

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THE TECHNIQUES OF OBSERVATION ADOPTED TO COLLECT THE DATA

1

Following the boundary objects (the artefacts, the sites or the activities among the

participants), when “following” does not only mean multi-site ethnography adopting seven

suggestions of Marcus (1995): following the people, the metaphor, the plot of allegory, the life

biography, the conflict, the strategically situated single-site ethnography.

Following the boundary objects requires the flexibility of researcher in data collection, the

capacity to move between the sites when it is needed (Hannerz, 2003) or just following the

experience (Nicolini, 2009). In that perspective the critical is following the people as the

“network-enacting objects”, binding the organizations and networks (at intraorganizational and

Interorganizational level), and providing the information how the individual and organizational

activities influence the structure of the network (Berthod et. al., 2016, p. 19).

2

Capturing network enactments (following planned and unplanned activities, involving

spontaneous observations of network-related work and searching for patterns).

This stage was assumed as direct-activity just in place, however, in this research it is searching

for the activities in the secondary data (mainly statements of the people engaged in the issue)

3

Being everywhere: multiplying investigating

In the perspective of the research, driven by the author of that thesis individually, the utility of

the secondary data like interviews and documentary movies was inevitable. It allowed for

intensification of observations by combining materials prepared by the other researchers

(Gatson & Zweerink, 2004). That technique also provides author with the comfort of

investigating positive and negative, from moral perspective, aspects of the networks’ activities

(e.g. observing conflict without being involved, investigating the issues accused of illegality)

(Berthod et. al. 2016)

Table 3.1. The techniques of observations adopted to collect the data (own elaboration)

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1.3.5. DATA SOURCES

Creating new knowledge requires the right identification of the problem, its recognition.

The analysis of the existing publications with the proper assessment of the value of literature

is a must. Publications provide the picture of the researched issue allowing for formulating

successful research questions, output hypothesis, and afterword they let for interpretation

of achieved empirical results (Czakon, 2011). The growing access to the international

publications does not only provide needed materials from all over the world, but it also

demands from the user the wise criticism in achieving methodological rigor. Abductive,

similarly to inductive research method of analysis prefers the intentional sampling or case

ascertainment. It helps reflecting the research problem or falsifying the existing theory

(Czakon, 2011, p. 3). The processes of selection and application of competitive strategic

fundaments by organizations are hidden and protected from the intruders. Hence, this

research takes a wide, cross-sectional perspective in order to make a statement about the

deeply hidden and protected knowledge. It relies upon the collecting and analysing the large

quantities of data and filtering it.

The studies conducted for the purpose of that thesis were based generally on the documents

analysing. Łuczewski and Bednarz – Łuczewska (2012, p. 163) state that “document is that,

what stay after reality”. The researcher has to use documents because he cannot appear in

every place and time and with the people he would like to be (Łuczewski & Bednarz-

Łuczewska, 2012). Analysing documents we can travel in time and in space without great

budgets and founded scholarships. The additional reasons, why the following thesis is based

on the analysis of documents (formal and informal (Sułek, 1986, Hammersley & Atkinson

2000, Łuczewski & Bednarz-Łuczewska, 2012) are the research boundaries, that cover the

long time and huge territorial scope:

1) The research analyses the issues between 1924 and 2017, with strongest focus on the

period of the hypermarkets strategic growth between 1995 and 2016.

2) The research investigates processes of creating competence and building advantage of

organization, the appearance, development and utility of the organizational phenomena.

These processes are time dependent factors, hence they require amount of time for analysis

and testing.

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3) The research also includes the investigation of the issues ethically and legally discussable

providing information not controlled by the organization (mostly because a lot of data is

hidden behind the main stream sources). According to author, naivety would be expecting

to collect the most precious knowledge about sources of organizational success from the top

managers of the retail TNCs.

4) The research compares the issues, and tests the patterns from different places of the

globe.

5) The research analyses the patterns appearing in activities of different phenomena in

different countries.

The variety of the documents has been used from practical point of view. The formal

documents the most often possess hard, abstractive and behavioural indicators, but can lose

the issues hard to categorisation and classification, for e.g. culture. The unformal documents

can cope with that challenge and supply very often private data (e.g. bibliographical notes)

which can provide more light for understanding official data. From author point of view,

only the boundle of these documents is the best choice providing the different empirical

perspectives and hence it supplies the platform for selecting the right pattern. The resources

of data of that research can be divided into three major groups (Saunders, Thornhill & Lewis,

2007): primary, secondary and tertiary literature sources.

Primary literature sources (grey literature) included documents like reports of the

institutions and organizations (e.g. White Papers, planning documentations, letters,

committee reports) and reports from conferences and symposia. In the following research

they covered: a/ reports of committees like Competition Comission (EU and International),

EU Commission, United Nations, BRC, OECD, Congress of the USA, b/ reports from the

consulting, training and market research companies like: Mintel, Planet Retail, GDI, Deloitte-

Tohmatsu, The Intelligence Economic Unit, Profitbase, c/ working papers from the research

institutions (e.g. ESRC Research Project), universities, d/reports from the institutions and

organisations specialising in retailing research, e.g. Planet Retail, Responsible Purchasing

Organisation, Fair Trade Organisation, Agribusiness Accountability Organisation, The

Chartered Institute of Purchasing and Supply, e/ reports from NGO institutions and media,

e.g. The Centre for Responsible Politics, Corporate Watch Organisation, Watchdog, European

Industrial Relations observatory, The UK Department for Business, Enterprise & Regulatory

Reform, Earth System Governance.

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The secondary literature sources (Saunders, Thornhill & Lewis, 2007, p. 69) “such as books

and journals are the subsequent publication of primary literature”. As these publications

are addressed to the larger group of readers, in comparison to the primary literature sources,

the secondary data may be easier to access. The examples of the secondary data used in the

dissertation can be defined into following groups: a/ professional journals and magazines

providing research about retailers: Journal of Economic Geography (retailing

internationalisation), Journal of Retailing, International Journal of Retail & Distribution

Management, The Journal of Business and retail Management Research, etc., b/

documentary TV programs concerning topic of retailing (e.g. Dispatches), c/ business and

retailing newspapers and magazines (paper cover and online), e.g. The Grocer, Retail Week,

Retail Gazette, News UK Retail, Retail Times, Harvard Business Review, Financial Times, The

Economist, d/ Daily Newspapers: The Time, The Independent, etc., e/ books – with strong

focus on collection of multidisciplinary articles published as book “The Globalization of

Retailing Vol. I-II” (edited by Coe & Wrigley, 2009).

The dictionaries, encyclopaedias and bibliographies, that are designed to help to locate

primary and secondary literature or to introduce a topic, are defined as tertiary literature

sources (search tools) (Saunders et al., 2007). The utility of dictionaries was critical from

the perspective of that thesis. The language and etymological dictionaries provided origin

and linguistic definition of key terms like “competences”, “capabilities”, “abilities”,

“resources” which were fundamental for appearance of concept of competence emergence

process.

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1.3.6. ADOPTION OF GROUNDED THEORY (GT)

1.3.6.1. SHORT REFLECTION ON GROUNDED THEORY

ABDUCTION IN GROUNDED THEORY

The abduction was a term derived by Charles Sanders Peirce (1903) as the “context of

justification”—the stage of scientific inquiry, in which we are concerned with the assessment

of theories —for Peirce abduction had its proper place in the context of discovery, the stage

of inquiry in which we try to generate theories which may then later be assessed. As he says,

“[a]bduction is the process of forming explanatory hypotheses. It is the only logical

operation which introduces any new idea” (CP 5.172); elsewhere he says that abduction

encompasses “all the operations by which theories and conceptions are engendered” (CP

5.590). Deduction and induction, then, come into play at the later stage of theory

assessment: deduction helps to derive testable consequences from the explanatory

hypotheses that abduction has helped us to conceive, and induction finally helps us to reach

a verdict on the hypotheses, where the nature of the verdict is dependent on the number

of testable consequences that have been verified” (Douven, 2011).

Schurz following Peirce (2008, p. 201) defines the abduction “as special patterns of

inference to the best explanation whose structure determines a particularly promising

abductive conjecture (conclusion) and thus serves as an abductive search strategy.” Into the

process of abduction both, a discovery and the preliminary evaluation of explanatory

hypothesis are included (Magnani, 2001; Schurz, 2008). Abduction (as induction) is

ampliative and uncertain process, what means, that “even if the truth of the premises is

taken for granted, the conclusion may be false, and therefore subject to further testing”

(Shurz, 2008). However, both the abduction and the induction target the extending of

knowledge, the abduction serves the goal of “inferring something about the unobserved

causes or explanatory reasons of the observed events- which is of central importance for

manipulating the course of events, that is, adapting the course of events to our wishes”

(cf. also Peirce, 1903, CP 5.189, Aliseda, 2006, p. 35 in: Schurz, 2008, p. 202), Schurz (2008)

points out that the difference between two phenomena lies in the new concept introduction-

the induction cannot introduce the new concept, when the abduction can. Magnani (2001)

and Schurz (2008) differentiate between two types of abduction. Creative abduction

introduces new concepts, and the selective abduction chooses the best solution from a given

multitude of possible explanation. The research leading to the appearance of that

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dissertation was based on the creative abduction process. As the major function of abduction

is searching the strategies setting the order between the inquiries (choosing the best

explanatory path) (Hintikka, 1998), the hypothesis in deduction requires the earlier

observation, as “prima facie (are) not even probable” and they require further tests (Pierce,

1903, in: Schurtz, 2008, p. 204).

Abduction, applied in the Grounded Theory (GT) as “a form of a logical inference”

(Czarniawska, 2014, p. 24, Reichertz, 2007), enables to navigate in the labyrinth of

complexity (Dunne & Dougherty, 2016). The abduction consists two intertwined stages:

1. First observation > interpretation (logical inference) > explanation (hypothesis)

2. Explanation (hypothesis) > testing (trying out) hypothesis on second observation

The stages are repeated until the most convincing and satisfying theory is created (Charmaz,

2009, p. 239). “Abduction proceeds from a known quantity (=result) to two unknowns (=rule

and case)” and hence it is a “cerebral process, an intellectual act, a mental leap, that brings

together things which one had never associated with one another: A cognitive logic of

discovery” (Reichertz, p. 219 - 220). It has to be reminded, that “authors of grounded theory

methodology treat theory building as a process, hence it is not verification of earlier

developed hypothesis through later collected data” (Konecki, p. 27). The collection of

knowledge, creation of hypothesis and verification are the parts of generation of theory.

“Abduction […] consists of assembling or discovering, on the basis of an interpretation of

collected combinations of features for which there is no appropriate explanation or rule in

the store of knowledge that already exist. This causes surprise. Real surprise causes a

genuine shock (and not only in Peirce’s opinion) and the search for the (new) explanation.

Since no suitable ‘type’ can be found, a new one must be invented or discovered by means

of a mental process” (Reichertz, 2007, p. 219).

The abductive efforts lead to exploring the order fitting surprising facts, solves the practical

problems arising (Reichertz, 2007), however it is worth to reminds, that naivety would be

expecting that all Grounded Theory processes should appear nonlinear (Charmaz, 2006). The

constant justification is founded on the selective attentions (targeting new order) and brings

order and means of linguistic representation. However complicated description, the

abduction is a process used by most of humans, where the need for solution appears

(Reichertz, 2007). Abductive discovered orders are usable co-constructions (Charmaz, 2014).

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FROM OPEN CODING TO GROUNDED THEORY (Charmaz, 2006)

Grounded Theory is “a general methodology, a way of thinking about conceptualising data”

(Strauss & Corbin, 1994, p. 275) p. 393. The constant comparison is a main concept provided

by Glaser and Strauss (1967), which applies to collection of material from the field, the

classification of material and interpretation of material – all conduced simultaneously

(Czarniawska, 2014, p. 98). The Grounded Theory the researcher adopts mainly the methods

characteristic for the field research (with focus on observation). Through humanistic

approach he interprets the reality focusing attention on the human driven processes. The

reality in the Grounded Theory is treated processual, utilising symbolic interactionism

influencing the methodology of GT (Konecki, 2000). Basic social process (Glaser, 1978) in

the empirical frame is a core category, that can provide new processual categories,

hypothesis and properties (Konecki, 2000). Hence, the major elements of the Grounded

Theory are theoretical “sampling”, “coding”, “theorising”, “saturation” and “constant

comparison” (Ćwiklicki, 2010; Charmaz, 2006). The memorising knowledge, defined by

Charmaz (2006, 2015) as “memoing”, allows for analysis of the categories and the codes on

the beginning of the research (Charmaz, 2006; Ćwiklicki, 2010). The spiral comparison and

analysis of collected knowledge continues to the moment of theoretical saturation.

Ćwiklicki (2010, p. 249) signifies the clue of the Grounded Theory methodology:

THE HYPOTHESIS IN GROUNDED THEORY

IS DIFFERENT THAN HYPOTHESIS IN THE TRADITIONAL APPROACH

In the traditional approach the clue is measuring of the strength of the association between

the variables, that can be conceptualised. In the grounded theory hypothesis the clue is not

measuring of the strength, but the grounded empirical indication on relations existing

between the concepts (Ćwiklicki, 2010, p. 249; Konecki, 2000) (Exhibit 3.1.) When the

categories are enough developed and bounded in order, they create the theoretical

frame explaining the issue, they create the concept- the Grounded Theory (Ćwiklicki,

2010; Konecki, 2000).

3 “Strauss doesn’t mean the logical conclusion “induction” at all but rather all the actions and attitudes which lead to a hypothesis [..], induction refers to the actions that lead to discovery of a hypothesis (Peirce)- that is, having a hunch or an idea, then converting it into a hypothesis and assessing whether it might provisionally work as at least a partial condition for a type of event, act, relationship, strategy, etc. (Strauss, 1987, p. 11f) (Reichertz, 2007, p 224)

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Exhibit 3.1. The core of grounded theory hypothesis: relation between categories (own elaboration)

As the Grounded Theory is treated as a process do not leading to verification of earlier

created hypothesis, the data collection, hypothesis creation and verification may not be

separated in time (as in traditional research)- they become the procedures. Hence, in that

perspective the verification process is not separated from the process (at the end of the

research), but it is part of process. The Grounded Theory should provide the framework for

prediction, the explanation and understanding the social behaviours within their

environment and be understandable not only by scientists, but also by laymen. Hence, one

of the critical theory testing is the recognising of the authors within the boundary of theory

(Straus et. al. 1985, s. X in: Konecki, 2000, p. 28). To meet the requirements the Grounded

Theory (hypothesis, category and properties descriptions, theoretical propositions) it should:

a) fit and work within the described boundaries,

b) be relevant in perspective of researched people,

c) be able to modify and apply within the other research area (Konecki, 2007, p. 28)

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1.3.6.2. MOTIVATION FOR APPLYING GROUNDED THEORY IN THE THESIS

“The grounded theorist initially approaches an inquiry with a fairly open mind as to the

kind of general theoretical account likely to emerge from the particular investigation.

Preconceptions cannot, of course, be wholly abandoned, and we do not suggest that they

should be. We do, however, encourage the investigator to commence by concentrating on a

detailed inscription of the features of the data collected before attempting to produce

more general theoretical statements (Martin & Turner, 1986, p. 142- 143).

The description of the research process, all the steps taken by the author of that thesis

appeared as the one of the biggest challenge concerning writing that dissertation. How to

describe years of “continuous design” (Czarniawska, 2014, p. 25)? How to present the never

ending reading and thinking, the cartoons of printed documents, media news and

publications, the catalogues of reports - all that every day and night fieldwork in the

Grounded Theory coding, analysing and theorising (Czarniawska 2014; Konecki, 2014;

Ćwiklicki, 2010; Strauss & Glaser 1967; Locke, 2003; Charmaz 2006, 2014)? How to present

the stages and the spiral nets of author’s movements, to present all the steps taken mostly

intuitively by author, in the unknown on the beginning of the research frame of Grounded

Theory? The authors of Grounded Theory signify, that on the beginning of developing the

Grounded Theory the clear mind would be an advantage, mind of researcher untouched by

the knowledge of researched discipline (“theoretical agnosticism” (Charmaz, 2014). Hence,

how to describe the methodological chapter of PhD thesis if the half of the research was just

continuous, spiral processes (Mills, Bonner, Francis, 2006) trying to answer the irritating

questions arising in parallel observation and new findings? What if the abduction, as a

scientific description of author’s earlier activities, appeared as a term at the end of the

research, when the need for formal description of methodological chapter has become a

must?

On the beginning of the research process author didn’t create strict framework. There were

two major criteria for using research methods: the utility and the appropriateness. To choose

the right method to achieve one goal, to find the right answer... The challenge with

describing methodology adopted in that thesis was a result of author’s assumptions: to find

the answer for the question, to confirm the assumptions through investigation- sniffing for

patterns and at the end digging out the treasure. “According to Price, the presence of

genuine doubt or uncertainty or fear or great pressure to act is a favourable ‘weather

situation’ for abductive lighting to strike” (Reichertz, 2007 p. 221). That research on the

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beginning wasn’t planned action leading to PhD or theoretical concept concerning

competence emergence process. It appeared as a result of author’s cultural shock in the

new- not continental European country and the experience of new shopping culture, with its

characteristic business environment involving actors, processes and rules etc.

On the beginning the research was mainly social relations investigation (the Introductory

Observation) (Schurz, 2008), that unexpectedly for author leaded to the major thesis, and

through hypothesis testing has driven to the explanations (Grounded Theory) and become

formally reflected in the following PhD dissertation.

1.3.6.3. STAGES OF APPLICATION OF GROUNDED THEORY

Author’s travel through the ocean of retail TNCs, global environment of transnational

organizations and strategic management theory can be divided into different stages,

according to the variety of adopted criterion. If we take a spatial look at the research we

could say that its first part was taken in England (Southampton and Cambridge) and second

part in Poland (in Wrocław). If we use criterion of goals of research: the first stage could be

described as leading to understanding shocking for the author new culture and its grocery

business reality with its market and nonmarket actors and their relations and strategies, and

the second stage as more disciplined research for PhD purpose – the scientific answer for the

buzzing questions and confirmation or rejection the assumptions or hypothesis. The last

criterion in scientific perspective of the Grounded Theory could be two stages: the first one-

the understanding empirically collected knowledge and the second one- building new

knowledge on “abduction-ed” empirical and theoretical fundaments. This chapter presents

a summary of steps taken by the author from the begging of the research (emotional findings

as results to the cultural shock) to unexpected empirical validation of the grounded theory

at the end of the research.

At the end of that research author can state, that the investigation - the inference logic,

however on the beginning unplanned, where a “textbook example” of adopting abductive

process into Grounded Theory strategy. The process was just the natural human way to find

the satisfying answer and its structure is presented below.

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I. EMPIRICAL PHASE

INTRODUCTION

On the beginning of the research travel, author’s mind was like a tabula rasa of strategic

management, what Glaser and Strauss (1967) treated as a useful start for creating new

concepts or theories through Grounded Theory building. Hence, the beginning of that

research travel was not affected by the scientific theory of strategic management discussing

issues of global retailing. The necessary in abduction surprising emotions appeared as a result

of author’s cultural shock, concerning new grocery environment- the retailing in England

(not- continental country).

The constant curiosity was the motor for investigation helping to search for answers for

appearing findings. The polarisation of the topic, from the great admiration of the actors’

fantastic strategy and from business point of view - to the real concerns about their negative

footprints on the free global competition, was leading author of that thesis to the strategic

management clue. The implementation of the knowledge from strategic management

appeared in the middle of the analysis of the Grounded Theory.

“[…] in the interest of staying close to the social situation we are studying and allowing

examination of the data to fully inform our conceptualizations, researchers are urged to

temporarily suspend from our thinking all preconceived notions, expectations, and any

previous theorizing related to the substantive area” (Locke, 2003, p. 46).

1) Direct and indirect (documents) introductory observation & unstructured interviews

The Findings:

Tesco was the most important retailer in the UK (No 1).

Tesco was lobbying on Downing Street 10 and had successful achievements.

Tesco was present in the UK politics, its managers are present in the White Hall,

Tesco had a great range of products in good prices.

Tesco must have had fantastic PR and marketing (story of “Every little helps”

campaign and emotional involvement of consumers).

Tesco had to know its customers.

The management of Tesco was lobbying successfully.

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Tesco was also meeting extremely criticism from the groups of customers (e.g.

local community in Stockport).

Tesco was like a church, present in every space of its customers’ lives and

activities (from the birth to death4).

The Outcome:

THE INTRODUCTIORY THESIS: TESCO PLC TAKES OVER THE CONTROL OF THE EXTERNAL

ENVIRONMENT

The Stage Description:

England – “a nation of shopkeepers” (Adam Smith, The Wealth of Nations, 1776)

The first steps, however leading to the appearance of general thesis and hypothesis were

taken in the UK. It was observing the hypermarkets and their customers and the products

packaging. Plastic bags, plastic packaging, one piece of meat in 3 plastic bags… and the

British and English flags everywhere. Even logo of Tesco’s top supermarket brand was in the

colours of the British Flag5. The similar issues in English TV: supermarkets- the CEO of a top

national retailer together with the prime minister in the supermarket PR campaign… For

author, looking at the presence of the top politics with the top businessmen (from retailing)

in the main stream media, it was like a visit on Mars. The cultural shock and the number of

questions have motivated author to look for the answers for the questions: how did that

happen that on meat packaging or even directly on the chicken egg shells the national flag

was printed? What is English hypermarket? Searching for the answer for these type of the

questions author was facing a new grocery environment. Fan of healthy food, small local

shops and local markets with local food, was discovering the new environment. During the

observations, more and more questions have been appearing, and finally they found their

peak in unstructured interviews. Author was asking English customers (mostly English

colleagues from business environment in printing – packaging company and from the

university) about their opinions about the retailers with focus on Tesco PLC. Choosing Tesco

was intentional step, because Tesco was also present in Poland. Recording and noting helped

4 Providing funeral service with cooperation of funeral companies 5 Indeed, the analysis of documents confirmed authors remarks, that logo of Tesco in the colours of Union Jack was part of planned retailer strategy: red colour signifies prosperity, joy and happiness, blue symbolizes: excellence, reliability and trustworthiness, the white colour depicts nobility, elegance and purity at: http://famouslogos.net/tesco-logo/

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to keep the data during the conversations and the interviews (Table 3.2). The supplied

knowledge shed light at the issues like English retail culture and their supermarket’s power.

The most fascinating at that stage was not a great power of retailer over the market, but

the power of retailer over the customers’ minds and hearts. One thought was constantly

coming from the conversations: Tesco was not only a grocery shop, it was like a second home

for its customers, like a church. It looked like the customers “believed in Tesco instead of

believing in God”. And with cross-border perspective of analysis it looked like a religion

provided by Tesco dispersed internationally…

No INTERVIEW DETAILS INTERVIEW CONTENTS

12

Place: Royston

Name: Ann Sex: Female Age: 50-60

Ethnic background: English- White Employment: Accountant

- What do you think about Tesco? - Tesco is fantastic. It is my favourite shop. - Why do you think like that? - Well, they are our, - English company, they supply everything I need in great price and quality…. And they knew about my holiday!!! They remember about it! - Pardon? - I have got from them the voucher and birthday gift: a pack of my favourite mineral water! How did they know which was my favourite…!? - Is Tesco a big company? - Yes, they are quite big. I’m not sure that bigger than Marks and Spencer, but they are active internationally… O! and they don’t pay too much tax in the UK

25

Place: Cambridge

Name: David Sex: Male Age: 23

Ethnic background: English – White Employment:

undergraduate university student

- What do you think about Tesco? - Tesco is great, I really love that shop. Boy, you can buy whatever you want in good price and very good quality. - Is Tesco a big company? - They are quite big, they are in Poland, aren’t they? - Yes, we have Tesco in Poland. Do you shop somewhere else, like Sainsbury or Asda? - No, Asda is rubbish, Sainsbury is good, but Tesco.. it is really something, good price… And they have all these offers and they write to you quite often and send you vouchers and birthday wishes. Love them. Soon will apply to them for work. They like students… And these bastards know everything about you. So it is good to work for them. To learn.

28

Place: Cambridge Name: Jane Sex: Female

Age: 26 Ethnic background: British: Caribbean

Black, Employment: postgraduate

- What do you think about Tesco? - I LOOOVE Tesco. - Why? - They are English, they have great products and great value in good prices. My mom buys two in one, and collect vouchers. We love vouchers… And I love all these promotions, discounts, you know. And all these products. They are all English. And very good quality. And they help children and schools, and make a lot of charity things. And they are good employer.

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business student (part-time working in travel business)

- Is Tesco a big company? - I have no idea. I think so. They are big, but I am not sure how big. Wait, they have shops in Poland! We have apples from Poland in Tesco!

33 Place: Southampton

Name: Chris Sex: Male Age: 43

Ethnic background: English – White Employment:

customer service executive (motor

company)

- What do you think about Tesco? - Tesco is… fine. - Is Tesco a big company? - They are very big. They are international company. And they are opening shops in the US. - Do you shop at Tesco? - I shopped at Tesco 10 years ago, I had no money and they were cheap. O God, it was long time ago. I do not do it anymore. - Why? - You know, they collect data and destroy communities. - What do you mean? - They pay the locals… the local institutions, they get the best locations and don’t care about environment, neighbourhood, they work at night, the big tracks come at midnight… they do not care about people! They are English company, but they don’t pay taxes! You know, they send money to tax heavens. They say they help the people and that they are English, but it is a shit. They don’t keep money in the UK. Now I shop at Sainsbury. Sainsbury is more expensive, but it is ok. And better quality stuff. - Why do English people like Tesco? - It is a part of our country, our culture. We like promotion… Marketing, advertising… You know, long time ago it was “Every little helps” campaign. Oh, God, everyone wanted to help and was shopping at Tesco and collecting vouchers. And Tesco promised to help schools buying computers and balls or something like that. - Let me check, I don’t understand… So, Tesco had a campaign “Every little helps” and that campaign was based on supporting kids ad schools…? The customers were shopping at Tesco and Tesco was supplying things for children? - Yea, something like that. The people were shopping and receiving vouchers and they were delivering these vouchers to schools. And schools were delivering vouchers back to Tesco. And after all Tesco was providing stuff for children. - So it was great idea! - Yea, it was very smart, but exchange rates for vouchers to these supplied things were crazy. Something like 250 000 pounds spent by customers in the shop for one computer for school… The people had to spend 250 000 pounds in Tesco so Tesco could supply one computer worth how much? 250 - 300 pounds? - What? Are you joking? - Good deal, don’t you think? They ARE smart. You know, it was on TV. You can watch it, I remember the program. Something like Tesco consuming England... Yea, it was something like that. You should find it on internet… Check Channel 4. Wait, let me think…. I remember! Dispatches! It was Tesco, supermarket that’s eating Britain. That’s it. They are smart. And they are massive.

Table 3.2. Selected interviews were taken between September 2007 and January 2008.

(For protecting the interviewees the names have been changed)

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2) In-depth analysis of the documents

“Tesco is like communist stake- you are born, you live and you die in Tesco”6

(Laurance, 2007)

The Findings:

Tesco possess 5 Strategic Forces, that provide retailer the permanent strategic

competitive advantage:

- Extremely Successful Lobbying,

- Genius of Leadership (Terry Leahy CEO and his team),

- Unique on the global scale Clubcard, helping for collecting not only data about

every shopping decision of millions of customers using loyal card, but also a lot

of private and intimate data about shoppers,

- Doing homework (thanks to cooperation with dunnhumby), by analysing the

market, analysing the millions of customers decisions and preparing strategies

according to the possessed knowledge),

- Perfect dialog with customers by approaching very close and emotional

relationship with customers (relation one to one).

The Outcome:

INTRODUCTIORY HYPOTHESIS No 1: TESCO PLC (Globally No 3) UTILISES ITS FIVE

UNIQUE COMPETENCES TO ACHIEVE THE STRATEGIC COMPETITIVE ADVANTAGE.

The Stage Description:

The second stage was critical for the whole research and the concept of the process of the

competence emergence. Watching the mentioned in Interview 33, Channel 4 documentary

programme: Dispatches: Supermarket, that’s eating Britain (2007) has become the fuel

and core fundament for the next few years of the investigation and analysis. The great

number of collected in the programme knowledge (first collected by Watchdog and then

adapted in the TV programme) was “new” for the author. Analysing the information, coding

6 The comment was given by Kevin Hogg, Stockport Metropolitan Borough Councillor for Channel 4 TV for the documentary programme Tesco: the supermarket that’s eating Britain (Laurance, 2007).

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it into categories, mapping relations- comparing the data from the programme with data

coming from other sources, have become the priority. Scanning formal and non-formal

documents with searching for knowledge, had become the exciting daily bread for the

author. The scope of the research on the beginning was enormous and the investigation was

driven from every possible perspective: local, national, global, through different lenses like

news (Internet, printed magazines, newspapers, TV news), governmental reports,

documents prepared by retailers (from interview with CEO to annual report through

supermarkets’ emails surveying the customers possessing Tesco Clubcard), documents

prepared by governmental institutions or NGO critical reports or statements (e.g. Tescopoly,

Corporate Watch), accusations on Internet forums for retail employees or activities of

nongovernmental institutions tied with supermarkets.

The new categories were appearing day after day e.g. supermarket chain, global company,

international retailer, Terry Leahy (CEO of Tesco), Tony Blair, Labour Party, revolving door,

global market, competition commission, Walmart, Sainsbury, Shrimps, Slavery in Thailand,

supermarkets’ abuse, Marks and Spencer, Prime Minister Council, competences, Clubcard,

dunnhumby, collecting private data, stealing private data, local communities conflicts,

employment, cartels, Watch Dog investigation, Neal Lawson, Every little helps… The most

exciting at that stage was discovering all “hot news” and looking for connections and

relations between the categories. Tony Blair and “Every little helps”? Competition

commission and cartels? Tesco Clubcard and Labour party? Walmart and Clintons? However

the research was based on analysing the documents, it was like roller-coaster ride – full of

emotions and surprises with a pinch of thrill.

At that stage author started very disciplined memoing (Charmaz, 2006): The most interesting

notes were kept and filed, documents were copied and saved for future utility and it was

the Ground Zero moment when in-depth scientific analysis has begun.

3) The literature review of multinational retailing:

The Findings:

Walmart Stores Inc. possesses the forces similar to Tesco,

Walmart was also very active in lobbying and present in politics of the U.S.A.,

Other hypermarket were using similar strategies to Walmart and Tesco, but they

haven’t achieved global sustainable success as Tesco or Walmart.

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The Outcome:

THE INTRODUCTIORY HYPOTHESIS No. 2: WALMART STORES INC. (Globally No 1) UTILISES

SIMILLAR TO TESCO UNIQUE COMPETENCES TO ACHIEVE THE STRATEGIC COMPETITIVE

ADVANTAGE.

The Stage Description:

The selection of Tesco’s 5 Forces has brought questions about global retailers and their

environments, role in the market, international strategies and the fundaments of success

(Tesco’s 5 Forces?). Despite the lack of literature describing competitive strategies of global

retailers, the literature review about internationalisation of global retailing and marketing

of global retailing supplied a lot of scientific data about the world of retailing and helped to

bring on board more scientific categories and specified boundaries of that research.

Walmart has appeared at that stage as a constant “testing object”- the great material to

comparisons, confirming or not the findings discovered in Tesco’s performance. With support

and constant comparison of the already collected data and reports about retailing mainly

from respected market research organizations like Mintel, Planet Retail or Deloitte

Tohmatsu, the mentioned articles were helping for coding and decoding the data, and then

by constant mapping and comparisons it allowed for building the scientific frame for the

topic of research.

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Table 3.3. The categories & Grounded Theory development: from the footprints to the core

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The analysis of the information and building knowledge were typical for Grounded Theory,

however pulling author into different perspectives, still keeping linear structure (Charmaz,

2006). The Table 3.3 presents the process of narrowing the categories into the concept.

That stage was a travel through the patterns of inferences (Exhibit 3.2), for example:

a/ Organizational actors in the strategic processes perspective (e.g. the change within the

organization as a result of human activity),

b/ Impact on organizational strategy by external environment (e.g. the change in the

organization activity as a result of new legislation),

c/ Impact on external environment by the retail organization (e.g. through revolving door),

d/ Impact on the consumers by the retail organization (e.g. scanning private data and

influencing the consumer choice),

e/ The growing number of the consumers and communities’ initiatives against retailers (e.g.

Tescopoly.org).

Exhibit 3.2. Searching for similar patterns (grey square) within the different networks, constant

comparisons of the different spaces & looking for pattern overlapping (e.g. pattern:

new retail shop in the area, changes in planning permissions, variety of levels of

analysis: hypermarket, TNC, local community activations, Citi Planning Authority etc.)

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The comparison of the patterns was verifying earlier findings, selecting new patterns (e.g.

M&S history of success) and providing new outcomes and… new questions.

At that stage the collected data started to be filed and memorised (“Charmaz’s ‘memoing’)

according the following criteria:

1. Tesco PLC.

2. Walmart Stores Inc.

3. Other retail TNCs

4. Global retailing:

- reports (private and governmental)

- interesting retail articles

- scientific articles

5. Globalisation (institutions, legislations, articles)

6. “Hot topics” (gossips in media, accusations of illegal operations, lawsuits, interesting

data concerning the retailers’ top managers- mainly private networking etc.)

7. Strategic management publications necessary for research.

Analysis of collected knowledge was based on multi-level comparisons of the investigated

issue. It was spiral abduction process based on inference of discovered patterns and included

number of helpful sub-hypothesis, that were the operational tools of that research. Hence,

they are not discussed in the results and the CEC chapter.

THE EXAMPLE OF THE ABDUCTION REASONING PROCESS:

Observation - Scanning Tesco’s behaviours through:

a/ Documental programmes

b/ Tesco’s advertising

c/ Tesco’s financial results

d/ Blog of CEO of Tesco

Result of Observation – The First Group of Sub-Hypothesis:

a/ Tesco’s lobbying competences are unique and distinctive

b/ Supermarkets’ lobbying has to be the critical competence from strategic point of view

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Sub-Hypothesis Testing - Looking for the Patterns & Reassuming Findings:

a/ Close relations between retailer and government - relation between Terry Leahy, Tesco CEO & Tony

Blair, British Prime Minister, who proposed Terry Leahy to be knighted by the Quinn in 2002 (Laurance,

2007),

b/ Impressive financial growth of Tesco during the period of close relation between Labour Party and

Tesco

c/ Walmart lobbying in the US was more successful than other retailers (e.g. Walmart effect,

connection between working for US Senate Hilary Clinton and Walmart owners)

d/ During its golden age the boss of Marks and Spencer, Lord Markus Sieff had very close relation with

Tory Prime Minister- Margaret Thatcher (e.g. Margaret Thatcher was describing Lord Sieff “her dear

Markus”7)

e/ Different retailers have been trying to lobby for years, but they have not been so successful as TNCs

on the top of the global list (e.g. Tesco or Walmart). The corporate retailer data is hard to collect and

very rarely can be find in the annual financial review (like in Tesco’s reports including import of

employee from public institution8)

The Second Group of Sub-Hypothesis- The Results of Testing of First Group of Hypothesis:

a/ Only one Tesco’s competence was unique (dunnhumby) (not all of them, as was assumed in the First

Group of Hypothesis)

b/ Tesco’s lobbying competence was distinctive from most of retailers in the UK

c/ Tesco’s lobbying competence was not unique on the global scale (Walmart!)

Sub-Hypothesis Testing - Looking for the Patterns & Reassuming Findings

a/ Appearance of scientific publications concerning lobbying of retail MNS

7 How close was relationship between Margaret Thatcher (Prime Minister) and Lord Markus Sieff (Marks &

Spencer), shows the correspondence from the Prime Minister:

“My dear Marcus, May I thank you and all your staff for a wonderful visit to the Marble Arch store last week. What a marvellous lot of people they are - together with your supplies you give a uniquely successful service to your millions of satisfied customers. You do indeed fly the flag for Britain./ I was thrilled to see so many shoppers - but alas I couldn't get near some of the counters although I had brought a shopping list with me! I shall have to come early one morning before the shop opens. /Thank you for the lovely flowers and gifts; they have given us great pleasure. /Congratulations and many thanks to you all./Yours sincerely,/Margaret Thatcher (22.April.1983)”, Source: http://www.margaretthatcher.org/document/136294

8 Tesco Plc reports in its Annual Financial Reviews the names of revolving door actors

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b/ Increase of legislation and jurisdiction over the retail TNCs on the global scale regulating the

behaviours of global retailers in cases of lobbying (corruption, revolving door) etc.

c/ Growing number of scandals, executions and penalties concerning the global retailers activities

The Third Group of Sub-Hypothesis: The Results of Testing Group of Hypothesis No 2:

a/ The politics become assets for the retailers (e.g. EU & US Senate documentation)

b/ Only high income organizations lobby successfully (e.g. Draca, 2014)

c/ The retail oligopolies cooperate in lobbying etc.…

These processes are continued till the moment of saturation.

The group of major questions have appeared at that stage of research:

- How does it come that only few of these retail players selling “bread, soap and mobile phones”

become global retailers and stay on the top of the list for years? What strategies they apply and

competences to do achieve that market position?

- Why Tesco’s lobbying was more successful than its competitors?

- What are the competences in the strategic management science? How they can be defined?

4) The Literature Review in Strategic Management:

Focus on strategic management of organization, organizational competences and

capabilities, achieving strategic advantage.

Results:

Absence of clear and consistent theory explaining the process of achieving the

strategic competitive advantage (incl.: the connection between the

organizational potential with the organizational competitive advantage?);

Absence of satisfying sources of permanent competitive advantage, especially

with focus on the global retailing;

Vocabulary mix of organizational capabilities, competences, capacity etc. do not

helping in scientific description of the strategies of top hypermarket chains;

Outcome: Author’s great intellectual depression (the intellectual wall).

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The Stage Description:

Understanding that top global retailers were trying to use similar competences in building

their market advantage (in more or less successful way) motivated the author of that thesis

to ask the questions in language of strategic management:

1. What are the competences of organization in strategic management theory?

2. What is the role of the competences in the strategy of organization?

3. How do the competences influence competition and hence provide advantage?

Despite the author’s effort, investigating for the answer for these questions through analysis

of scientific articles of strategic management didn’t succeed. During the scientific

publications review author faced the critical problem: There was no clear, unified and

consistent explanation what the competences of organization were. The terms as

competences, capabilities, dynamic capabilities were used interchangeably across the

publications leading to many accusations of scientific vocabulary stew, tautology in that area

of strategic management etc. (Arend & Bromiley, 2009; Czakon, 2010 etc.). In result it

impeded the scientific dialog about similar organizational issues.

4) The Summary of the Empirical Stage:

THE GENERAL THESIS:

THE HYPERMARKET TNCs TAKE OVER

THE EXTERNAL ENVIRONMENT TO ACHIEVE COMPETITIVE SUPERIOR COMPETITIVE

ADVNATAGE ON A GLOBAL SCALE

THE MAJOR HYPOTHESIS:

THE TOP HYPERMARKET TNCs POSSESS THE UNIQUE COMPETENCES, WHICH ENABLE

THESE ORGANIZATIONS TO ACHIEVE PERMANENT GLOBAL STRATEGIC COMPETITIVE

ADVANTAGE

The Stage Description:

The appearance of the general thesis and major hypothesis appeared as synthesis of the

introductory thesis and two introductory hypothesis;

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II. CONCEPTUAL PHASE

6) Defining and delineating the major terms like capability, competence, capacity,

skillfulness, ability:

The Techniques: searching for explanation in psychology and linguistics,

The Findings:

There is the absence of consistent, coherent and satisfying definitions of the

investigated terms in psychology (number of different schools and approaches);

The recruiters (Human Resources divisions of organizations) differentiate

between the employee’s soft capabilities (candidate’s personality) and hard

competences (confirmed in candidate’s diplomas and achieved job positions);

The linguistic dictionaries, in the analysis of the origins of the terms, differentiate

between a capability, competence, capacity, ability and skill;

The Outcome:

Adopting into interfering process the major linguistic definitions of the key terms of

research: a competence, competition, capability, ability, capacity etc.;

The Stage Description:

Understanding, by author of that thesis, that the critical for finding the explanation becomes

the creation of the definitions, that will reflect the investigated phenomena, has become

the starting point for the conceptual phase of that research. As the capabilities and

competences are characteristic features for human- the first author’s step was to use the

perspective from psychology. However, the number of psychological schools treating the

human personality differently (McLeod, 2014) ended the investigation trial unsuccessful.

However, despite the literature failure, the interesting issue was mentioned by author’s

friend – a recruiting managers in MNE: the recruiting officers take into account two aspects

of potential employee: his capabilities (personal potential e.g. potential to learn) and

competences (professionalism confirmed already by the candidate employment history,

educations etc.). That aspect motivated the author to make an attempt to transfer that

perspective to the organizational area of that research. The verification of the assumptions

above in the etymological view has confirmed the approach adopted from Human Resources

practices: the capability and competence were different entities and were defined

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differently. For the purpose of that thesis author collected the definitions of terms utilised

in strategic management interchangeably with the term competences (Table 3.4).

Table 3.4. Definitions of the terms (Oxford English Dictionary).

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7) Selecting the three core categories and their relations

(in perspective of Tesco and Walmart’s strategy)

The dominating categories: Global Retailers, Hypermarket Chains, Capabilities,

Competences, Strategy of Organization, Competitive Strategic Advantage, Networking,

Globalizing;

The Outcome:

DELINEATING THE FOUR RELATED CORE CATEGORIES OF THE RESEARCH:

THE ORGANIZATION (RETAIL TNC)

THE ORGANIZATIONAL STRATEGY

THE GLOBAL ADVANTAGE

THE SUPERIOR STRATEGIC COMPETENCE

Exhibit 3.3. The related major categories of Grounded Theory investigation.

8) Defining the major principles of the research

The Stage Description:

a) Creation of the aims of objectives for the research process:

- The identification of the hypermarket TNC’s strategic sources of sustainable advantage

and their process of emergence and utility,

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- The explanation of the relations between the organizational potential and competitive

strategic advantage;

b) Creation of the supportive research questions:

- What is the difference between the organizational capability, the skilfulness and the

competence?

- What are the competences of the global retailers? How do they appear?

- Do the organizational competences have a direct impact on the external to organization

environment?

- When do the competences have strategic impact?

- What is the process of building the organizational advantage?

-What are the dynamics of the organization?

- What role the employees play in the competence emergence process?

- What is learning and knowledge in the organizational dynamism in the perspective of the

competence emergence process?

9) Defining and delineating the organizational phenomena like a capability and a

competence in the strategic management perspective

Stage Description:

The process was possible thanks to adopting the linguistic definitions into results coming

from the patterns’ inferences within the researched area; That stage opened the conceptual

part of author’s travel. Despite the never ending memorises it was time of constant checking

and comparisons with cross referencing with strategic management literature (Jones &

Alony, 2011, p. 102). The process of the theoretical sampling involved in spiral comparative

method is a general strategy of grounded theory (Glaser & Strauss, 1967). That procedure

allows for selecting additional cases for studies in order to gather new insights or enlarge

and refine concepts that were already gained (Kolb, 2012).

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Understanding the terminology and adopting it into already known empirical processes

discovered in the research of global retailers (with special focus on Tesco as a leading

pattern) leaded author to drawing the Concept of Competence Emergence. It allowed for

answering what the competences of hypermarket TNCs are, how they appear and lead to

sustainable competitive advantage on the global scale. The creation of the concept of

competence emergence process based on semantic and ontological rules, as a fundament to

rational explanation of terms “competences”, “capabilities”, “dynamic capabilities” so far

used in strategic management interchangeably, was unexpected value added to that

research. On the beginning of that research PhD stage author planned to achieve only one

goal: to understand how few retailers, like Tesco, achieve global power, sustainable for

years- a competitive advantage on the global scale. The problem of competences and really

strategic sustainable advantage of retail TNCs like Tesco appeared in the period of literature

review and author’s trials of explaining the empirical issue within the formal strategic

management boundaries (the steps of grounded theory).

10) The creation of the second – transnational stage of the CEC

Stage Description:

That stage was a come back to the supermarkets’ field (the observation of documents) in

order test the competence emergence concept in transnational perspective. It was the

process of applying empirical variables (abilities, capacities and competences) into the

competence emergence equation. The stage was critical for providing the right answer for

the question: what strategy and competences provide supermarkets the permanent

advantage on global scale leading to organizational life stage defined as: “too big to fail”.

In more descriptive way it can be stated, that that stage focused on searching for what was

critical and the most important from the perspective of the sources of TNCs competitiveness,

what was hidden behind their product strategies, diversifications, CRM, trying to understand

what is the core goal of TNCs strategy and its steps…

However the Grounded Theory is not expected to be validated (Elliot & Lazenbatt, 2004),

because of the checking and comparing processes during the reasoning, at the end of that

PhD travel author has got an unexpected gift concerning the major actor of that scientific

show- Tesco Plc. It was report of British governmental institution: Grocery Code Adjudicator,

published on 26 of January 2016. The report titled “Investigation against Tesco plc”

confirmed author’s TNCs competence emergence concept and strategy and hence, it

unexpectedly validated it.

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11) Describing the process of organizational competence emergence on the

organizational level, testing it and adjusting, and answering the supportive questions of

the research:

The Stage Description:

The constant testing of author’s concept consisted number of repeated movements:

theorising - comparing with reality – accepting; theorising – comparing - not accepting -

improving concept; empirical analysis – comparison; theorising- concept improvement etc.

That spiral technique leaded to saturation of data and creation satisfying answers. Extending

the formula of competence emergence in constant comparison with empirical data and

collected empirically based knowledge through describing in details every stage of process,

defining the role of the people in the process (human factor), discussing the issues like

knowledge and learning within the process, analysing the differences between various level

competences and type of outcome they provide, providing explanation how organizational

resources and competences lead to competitive advantage- the theoretically-empirical

roller-coaster would be the right metaphor for that phase of author’s activity.

12) Discovering the critical mistake in the CEC

The Stage Description:

The review of the conception during the process of description in the results chapter of that

dissertation allowed author for discovering its missing element: lack of explanation of the

stage between organizational capability activation and organizational competence

appearance.

13) Rebuilding the competence emergence process description and adjusting it to the

new conception. The adjusted conception testing;

The Outcome and the Stage Description:

Discovering the presence of organizational skillfulness in the competence emergence process

and its important role in that process.

14) Creation of the critical terms for organizational strategy definitions:

In the perspective of the CEC, drawing the definitions of the phenomena like:

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- organizational advantage, organizational strategic advantage and organizational

competitive strategic advantage,

- the competition,

- the organizational strategy.

15) The final description of the CEC as PhD dissertation chapter

The Stage Description:

The final description of the results chapter was not only the checking stage of the CEC, but

also its final validation through the selection of the examples presenting the Concept in

strategies of Tesco and Walmart.

1.3.6.4. THE LIMITATIONS WITHIN THE GROUNDED THEORY PROCESS

IN THE PERSPECTIVE OF PRESENTED THESIS

The Examples of Risks in Grounded Theory Building

Because of its empirical embeddedness, the Grounded Theory meets a pinch of criticism and

faces few risks. Some anthropologists state that it is too ordinary method- it is just a sense

of typical fieldwork. However, as Czarniawska states (2014, p. 26):

“this is exactly the reason it has become so popular: because it summarizes the

commonsense of fieldworking. Burawoy (1991) put it more delicately, pointing out that

Glaser and Strauss merely summarized recommendations formulated earlier by Robert Park,

Ernst W. Burgess, Florian Znaniecki and Everett Hughes- the Chicago School of Sociology

(with a pinch of Columbia University brought in by Barney Glaser, a student of Paul

Lazarsfed; Charmaz, 2006)”.

Some other authors describing the Grounded Theory pay attention to the risks associated

with the process. Elliot and Lazenbatt (2005) indicate the problems appearing in the

adapting the Grounded Theory in research methodology for example the credibility of

grounded theory studies (Wilson & Hutchinson, 1996; Benoliel, 1996; Becker, 1993, in: Elliot

& Lazenbatt, 2005) which appears with proper utility of research methods (e.g. the

applications of the right findings to the right situation). On the other hand Eisenhardt (1989)

selects two weaknesses of the GT. One of them is a risk of losing the clue within theorising,

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“the sense of proportion, as they confront vivid, voluminous data”. This way the theorists

create the large theory coming from too intensive and extensive use of empirical evidence

Eisenhardt (1989, p. 547). The second risk provided by Eisenhardt (1989, p. 457) can appear

in form of too narrow and idiosyncratic theory, “describing a very idiosyncratic phenomenon

or that the theorist is unable to raise the level of generality of the theory”, […]. Case study

theory building is a bottom up approach that the specifics of data produce the

generalizations of theory”.

The Enormous Scope of Research and One Company as a Core of Research

The biggest risk of that dissertation research was coming with the overwhelming scope of

the investigation process. Despite the fact, that study from the beginning was focused on

strategic competences of multinational retailers (with major focus on Tesco, and later on

Walmart), the retailers’ strategy analysis required the investigation of TNCs total

environment (in all possible networks: looking for footprints of their activities). The sample

of the study was centred on Tesco PLC and Walmart as general lens, the critical filters for

building the Competence Emergence Concept through Grounded Theory. The other global

retailers like Kroger, Marks and Spencer (however not included into the described research

sample) were playing important and supporting role for testing major hypothesis.

Secondary Data as Major Source of Information

Tesco strategy as starting perspective and testing perspective provided consistent

information for fundaments for the Grounded Theory building. It was like a painting canvas

for Walmart strategy. These TNCs within their networks have appeared as huge phenomena

for analysis, because of growing number of documents presenting the hypermarkets’

activities in polarised perspectives: from neutral, through positive reactions to strong

criticism. The variety of documents and their motivation behind the authors of investigated

documents allowed for researching the hidden data, observing what is hiding behind the

official image of the retailers. It allowed for searching and filtering information and then,

enabled for confirming it as valuable material from thesis point of view. The great success

of Tesco and Walmart in parallel increasing wave of critics has focused attention of the press

and nongovernmental organisations which started to provide a lot accessible publications

and reports. It also motivated the British governmental institutions to answer for the

publicity calls and to start closer observation and control of the retail industry thanks to

appearing new form of legislations and new controlling institutions (e.g. Competition

Commissions, Retail Ombudsman or Groceries Code Adjudicator). Also the growing global

awareness of importance of data about retailing industry, and hence the growth of the

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private consulting companies and the number of scientific authors, has materialised in the

increasing number of reports and articles about global retailing. However analysing all these

documents is time consuming for the investigator, it is less costly and less time consuming

than travelling between different market- and nonmarket- organizations and institutions

trying to force them to discuss about their precious hidden capital- knowledge how to create

global advantage.

The secondary data analysis technique made that research possible for one investigator-

author of that thesis. Luckily for the author most of the global retailers are English language

companies (the US players dominate the list of 250 biggest retailers on the globe). This

provided the access to information which is published mostly in English, and hence was

accessible for author of that thesis. The number of international documentations and

comprising English language companies, which dominate on the global market guaranteed

author comfort of distance multi-issues observation, for analysing a variety of problems of

number of retail TNCs without a need for leaving the desk and computer. That way it allowed

for co-constructing (Charmaz, 2006), characteristic for the Grounded Theory development

of the variety of comparisons and testing. However, it cannot be stated that presented thesis

is built only on two organizations- the Concept of Competence Emergence was built around

two organizations, that were Tesco PLC and Walmart Stores Inc. and their retailing industry.

What was also crucial, the mostly secondary data analysing process protected author of that

thesis from emotional involvement often appearing as results of personal interviews with the

employees or direct observation of the investigated organization. Hence, despite author’s

cultural shock and feelings polarisation, that provided fuel for PhD research, the major

conception building was free from emotional relations with the investigated actors. That

lack of personal involvement in investigated organizational life, also protected author from

potential halo effect, so dangerous in the inference and hypothesis development process,

especially when pejorative issues concerning retailers’ strategies are analysed and

discussed. Being grateful for interview could distort the appearing hypothesis, and when

discussable from ethical point of views issues are investigated it would be naivety to expect

to receive the truth answer from the interviewee9.

9 Author touches the problem of critical for Grounded Theory process issue like difference between information prepared by Tesco in its Financial Annual Report (describing very good relations between retailer and its suppliers) and Investigation into Tesco plc by Groceries Code Adjudicator (describing abuse of Tesco in relation to suppliers).

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The Summary

That comfort of not being close to the actors, quite long-term of research, analysing

different sources of documents from all around the world (e.g. interviews from variety of

documentary programs and industrial and press interviews) allowed author for filtering the

different types of knowledge in investigations for patterns and at the end for theoretical

concept of competence emergence. The long-term research also enabled for observing how

implemented strategy succeeded in the following years (for example Tesco entering and

withdrawing from American market), what from analysing strategy point of view was critical.

The growing number of documents admiring the incredible success of the researched

companies was supplying never ending material for the research- from the years, for

example analysis of Tesco from the time when company started its race to the top in 90s of

XX century to the dramatic situation of retailer starting in 2014 and still being unresolved in

201610.

Tesco PLC in that study was the starting point, the point of reference for the organizational

processes searching. It was the major pattern to compare with the other patterns. For the

purpose of that thesis author was trying to dig the competences from their natural

environment. Not to use one of the versions of the competences described in publications

about international retailing like e.g. right product, place, or promotion, successful

internationalisation, diversification….

The research of that thesis was like a fascinating walk in the theatre in the same time playing

number of shows e.g. Tesco-show, Walmart-show, Kruger-show, Thailand against Tesco-

Show, The U.S. election show… etc. The walk observing not only performance on the stage,

but also what entertainments appear at the backstage. However, despite the great

investigation adventure, huge number of data, and two major research samples: Tesco and

Walmart Stores, the author of that thesis for comparison of the art was always returning to

the stage with Tesco.

10 In December of 2016 the global market is still expecting the verdict of British Crone Serious Office of Fraud whether Tesco’s creative accounting should be treated as a criminal case, and then as issue that for certain time was improving financial results of retailer in its financial reports and hence the levels of Tesco’s share prices (Serious Office Fraud, British Crone, at https://www.sfo.gov.uk/cases/tesco-plc/ accessed on 28.07.2016)

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2. THE RESEARCH SAMPLE DESCRIPTION

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2.1. THE INTRODUCTION

Both companies- Tesco and Walmart are no longer only retailing corporations. Exceeding

their scope on transnational scale, they have also exceeded the boundaries of supply chains

environment. During last two decades Tesco and Walmart have started to influence the lives

of millions of people around the globe, their thinking, believes, values, activities, habits,

health… These companies have not only created incredibly successful business model, but

they have started to influence what is going on the Globe in all directions- from economy to

nature, ending in hearts and minds of millions of consumers11 (Matthews, 2012). However,

what was crucial for that research, both Tesco and Walmart wake up variety of emotions of

their observers from enchantment to terrifying. As Gereffi and Christian (2009, p. 573)

stated: “Wal-Mart has been both praised and pilloried as a template for twenty-first century

capitalism”.

“The adjectives used to describe Wal-Mart command a range of superlatives: retail

juggernaut, the template for a global economic order, most influential company in the

world, cultural gate-keeper, and insidious beast. Often there is little agreement among

those who talk, write, and research the company. Whether they fall in the pro, anti, or

middle of the road categories in the broad Wal-Mart debate, most interpretations regarding

the retailer’s impact center around five sociologically relevant themes: […] business model,

its economic impact, its labour relations, its community mobilization, and its ties to the

global economy. […] The divergent perspectives regarding (retailer) […] are rooted in

disciplinary orientations, the types of questions asked, and basic assumptions that divide,

the social scientists, humanists, and nonacademics who are writing about […]” (Gereffi &

Christian, 2009, p. 574).

The polarisation of opinions and the phenomena connected to the top global hypermarkets,

and scope of the debate on the global scale concerning their activities, reflect their

incalculable impact on external environment and societies across the Globe (Table 3.5).

11 TIME in 2012 honoured Walmart’s 50th anniversary by creating the list of ten changes of the world under Walmart’s impact: Bargaining prices in retail (EDLP), an immense selection of products in one store, creating “landscaping retailing” in suburban locations, acceptance of workforce abuse and declining the labour movement, revolution in relations with suppliers through management of their supply chains, introduction of the cult of Walmart to retailing through copying of its values, introducing data-driven management in retailing, launching and promoting the culture of overconsumption, sustainability becomes fundament for CSR, utilising interconnectivity power (Matthews, 2012)

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Analysing performance and of both top chains of stores we can discover plenty of similarities

from grocery products, diversification channels, internationalisation, through mission

statements and companies visions, to the both owners’

Table 3.5. The examples of polarisation in two top retail TNCs: Tesco & Walmart

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job experience gained during their work for army. Both companies are for over decade top

global retailers and number one in a country of origin, they both are grocery sellers achieving

a great profitability of operations and successfully using big data. Tesco and Walmart are

customer driven and help them to “save money” (Walmart) and “spend less” (Tesco) to

provide “great shopping experience”.

That polarisation was a fuel for that research and leaded author of that dissertation to major

question about source of global power of grocery TNCs. How it happened that, Stockport

Councillor Kevin Hogg one day said for Channel 4:

“TESCO IS LIKE A COMMUNIST STATE. YOU ARE BORN, YOU LIVE AND YOU DIE IN TESCO”.

(Laurance, 2007)

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2.2. WALMART

THE MAJOR DATA

The Company Wal-Mart Stores, Inc.

Type of the Company Public (Listed on New York Stock Exchange from 1972)

Control Ownership Walton Family (over half of company’s stock)12

CEO (2016) C. Douglas McMillon

Sector Retailing

Industry General Merchandiser

Trading Name Walmart

HQ Location Bentonville, Arkansas, USA

No of Employees 2 300 000

Foundation 1962, by Sam Walton

Incorporation 31st of October, 1969

Global Position # 1 Global Retailer (Deloitte, 2008-2016),

# 1 World’s largest company by revenue in 2016 (Fortune Global 500)

# 15 World Changing Company13 (Fortune)

# 42 World’s Most Admired Company (Fortune)

22 years on Global 500 List (Fortune)

The Company Divisions Walmart U.S., Walmart International, Sam’s Club, Global e-Commerce

Mission Statement To help people to save money so they can live better

Vision “If we work together, we’ll lower the cost of living for everyone… we’ll give

the world an opportunity to see what it’s like to save and have a better life”

General Advertising Slogan Save Money. Live better.

Table 3.6. Key information about Walmart (source: Fortune.com, Walmart.com)14

12 According to Forbs over 50% of the stake of Walmart is own by the richest family in America in 2016: “seven heirs of founders Sam Walton (d. 1993) and his brother James “Bud” (d. 1995)” at: http://www.forbes.com/profile/walton-1/, on 25.12.2016 13 Explanation of nomination (by Fortune): „No issue is more central to this year’s contentious U.S. presidential election than the anxiety of the average American worker about stagnating wages. But while Hillary Clinton and Donald Trump attempt to woo voters with their plans, Walmart is taking action. On Feb. 20, the world’s largest retailer gave more than 1.1 million hourly “associates” a raise as part of its $2.7 billion campaign, unveiled in 2015, to invest in its workforce. That same month, it launched “Pathways,” a program that will enrol 500,000 employees in its first year in a curriculum designed to teach job skills that could help them climb the income ladder. The investment appears to be paying off: Walmart says it has seen 90 weeks of increased customer satisfaction scores.” (http://beta.fortune.com/change-the-world/walmart-15) 14 http://beta.fortune.com/change-the-world/walmart-15;

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WALMART HISTORY15 (source: www.walmart.com

THE BEGINNING (1962-1979)

Walmart first store was opened by Sam Walton in 1962 in Rogers, Arkansas and from the

beginning was growing rapidly. In 1967 Walton family owned company already reaching $12.7

million in sales and in 1969 their firm become incorporated as Wal-Mart Stores, Inc. Decade

of seventies was a period for country large expansion and in 1970 the retailer become a

publicly traded company ($16.50 per share) and in 1972 it appeared at NY Stock Exchange.

The rapid grow demanded for professionally controlled logistics, hence the company started

its first distribution centre in 1971 in Bentonville, Arkansas. In parallel it launched its first

Home Office unit. The time of listing on WMT was strengthen by Walmart record sales of $78

million. The first store outside the U.S.- the Walmart cheer appeared in Korea in 1975. The

official Walmart charitable activity started to run on 1979 as form of Walmart Foundation.

1980s: AMBITIOUS GROWTH

The eighties were times of developing Sam’s Clubs, that served small businesses and

individuals. 1988 was the year of introducing first Walmart Supercenter (Washington, Mo.),

that was a combination of supermarket and general merchandise. It was also the time of

establishing of the Walton Family Foundation. Walmart possessing 276 stores and hiring

21,000 reached the annual sales of $1 billion. In 1983 was the time of beginning of growing

importance of technology in retailers activities, reflected in Walmart operations in

computerization of point-of-sale systems providing fast and accurate checkout. The next

step (1987) was installation of the largest private satellite communication system in the U.S,

that become a great platform through company operations allowing for immediate transfer

of information (voice, data and video). 1984 was another year of retailer success, as the

company achieved a pre-tax profit of 8% for the last fiscal year.

1990s: LEADING IN AMERICA

Re-defining one-stop and convenience shopping and introducing the everyday low prices

strategy on the international scale number-one retailer in the US Walmart become by 1990.

Joint venture with Mexican retailer- Cifra allowed Walmart for introducing Sam’s Club in

Mexico City. The Medal of Freedom for Sam Walton for Walmart mission of allowing the

consumers saving money on shopping strengthen the company’s EDLP strategy. After death

15 http://corporate.walmart.com/our-story/our-history

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of Sam Walton in 1992, Rob Walton become chairman of the board. Walmart employed

371,000 associates in its 1,928 units.

Walmart continued internationalisation strategy by entering international markets. In 1994

in Canada the retailer purchased 122 stores from Woolco, in 1996 it entered first store in

China and in 1998 in the UK Walmart purchased ASDA. The sales hit its first $100 billion in

1997. The year 1998 was the time of appearance of The Neighbourhood Market format in

Arkansas.

2000s: CONSTANT GROWTH

The establishment of Walmart.com allowed to add another sales channel in 2000. Walmart

employed over 1.1 million associates in 3,989 stores and club worldwide. In 2002 the

company appeared first time on the list of the Fortune 500 of America’s largest companies.

Investing in Seiyou in 2002 it entered Japanese market. The year of 2005 brought on

international board questions about the biggest corporations responsibility and power

(management, resources and logistics) exceeding the state power to solve the national

disasters, when Walmart took a leading role in hurricanes Katrina and Rita disaster relief,

contributing $18 million and 2,450 truckloads of supplies to victims of cataclysms. The

company strategy included issues like commitment to environmental sustainability, zero

waste approach, renewable energy and sales of products that sustain people and the

environment. The $4 generic-drug prescription program Walmart introduced in 2006.

The next global step was taken in 2009, when Walmart entered Chile with the acquisition of

majority of D&S S.A. In 2010 through joint venture it appeared at Indian market as Bharti

Walmart, in 2013 purchasing Bharti Walmart Private Limited (including the Best Price Modern

Wholesale cash and carry business in India). In 2011 acquiring of MassMart entered South

Africa surpassing 10,000 retail units. The 2009 was also the year when its annual sales

exceeded $400 billion. The year of 2012 was a great Walmart celebration of 50 years of

“helping people save money so they can live better” and in 2015 Walmart announced “a $

2.7 billion investment over two years in its U.S. workforce, including raising its minimum

wage to $ 9 an hour, implementing new training programs, and giving associates more control

over their schedules.” Taking over the 100% stake in Yihaodian (Chineese e-commerce

business part of Walmart) summarised the successful 2015 year.

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WALMART 2016:

“What started small, with a single discount store and the simple idea of selling more for

less, has grown over the last 50 years into the largest retailer in the world. Today, nearly

260 million customers visit our more than 11,500 stores under 63 banners in 28 countries

and e-commerce sites in 11 countries each week. With fiscal year 2016 revenue of $482.1

billion, Walmart employs 2.3 million associates worldwide – 1.5 million in the U.S. alone.

It’s all part of our unwavering commitment to creating opportunities and bringing value to

customers and communities around the world.” (http://corporate.walmart.com/our-story)

How gigantic are Walmart’s financial indicators we can see in the Table 3.7).

WALMART STORES Inc. FINANCIALS

Table 3.7. Walmart’s financials between 2009 – 2017 (Morningstarr, 2017)

TRANSNATIONAL WALMART

As it is stated in Walmart’s different reports the retailer “helps people around the world

save money and live better- anytime and anywhere” (Walmart A.R., 2016, p. 5). How huge

are Walmart operations we can only imagine: every week Walmart serves nearly 260 million

customers visiting its 11,500 stores under 63 banners in 28 countries and e-commerce

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websites in 11 countries. In Walmart official statements the number one global retail TNC

signifies that its strategy is based on price competition, assortment quality and great

experience delivery (e.g. bringing shopping bags to the customers car !). Walmart pricing

strategy is based on EDLP (Every Day Low Prices) and it is price leadership that creates

constant flow of the consumers to Walmart’s stores around the globe. Every Day Low Cost

strategy (EDLC) allowing for squeezing to minimum the retailer operational costs allow for

costs savings that can be passed along to Walmart Customers.

THE WALMAR SEGMENTS

Walmart’s, retail TNC active on 27 international market for the purpose of its performance

analysis divided its operations into three divisions, that defined as Walmart’s segments:

Walmart U.S., Walmart International and Sam’s Club.

“The Company defines its segments as those operations whose results the chief operating

decision maker ("CODM") regularly reviews to analyse performance and allocate resources.

The Company sells similar individual products and services in each of its segments. It is

impractical to segregate and identify revenues for each of these individual products and

services” (Walmart, Form 10-K, 2016, p. 6).

As it is presented in the annual report (Form 10-K) of Wal-Mart Stores delivered on 30th of

April 2016 to the United States Securities and Exchange Commission Inc. pursuant to section

13 or 15 (d) of the Securities Exchange Act of 1943. The retailer performance can be divided

into three major divisions: Walmart U.S., Walmart International and Sam’s Club. The data

from the report also provide a lot of knowledge about Walmart’s activities, its overview,

size, power and performance on the global scale:

1). WALMART U.S. SEGMENT (Form 10-K, 2016, p. 6-9):

2016 NET SALES

Value: $298,378 million,

Percent of Total Sale: 62,3%

Growth: 3,65

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A BRAND

The Walmart U.S. segment operates under two brands: the “Walmart” or “Wal-Mart” as well

as Walmart.com. That segment is a mass merchandiser of consumer products. Its net sales

is constantly growing and in 2014 it reached $279.4 billion, in 2015- $288.0 billion and in

2016- $298.4 billion16.

THE STORES FORMAT

The Walmart U.S. segments operates 3 formats of retail stores (Supercenters, Discount

stores, Neighbourhood Markets ) in the US in all 50 states, Washington D.C. and Puerto Rico.

The Supercenters are present in 49 states, Washington D.C. and Puerto Rico, discount stories

in 41 states and Puerto Rico, and Neighbourhood Markets. The Walmart U.S. also tests other

formats in 31 states and Puerto Rico. In 2016 the Walmart U.S. total area of the shop floor

was 689 647 square feet (Table 3.8).

Table 3.8. Walmart U.S. stores formats and their area (Walmart, Form K-10, 2016, p. 6)

Despite brick and mortar stores Walmart U.S. also sell its assortment of merchandise (incl.

products not found in the physical stores) and services through Walmart e-commerce

websites and mobile commerce applications (85 million visits a month) and offers access to

approx. 8 million SKUs.

MERCHANDISE

Walmart its merchandise divides into six strategic merchandise units:

- Grocery (56% of sales): meat, produce, natural & organics, deli & bakery, dairy, frozen

foods, alcoholic and nonalcoholic beverages, floral and dry grocery, as well as consumables

16 The amounts are given for fiscal years ending on 31 of January.

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such as health and beauty aids, baby products, household chemicals, paper goods and pet

supplies,

- Health and wellness (11% of sales): pharmacy, optical services, clinical services, over-the-

counter drugs and other medical products,

- Entertainment (9% of sales): electronics, toys, cameras and supplies, photo processing

services, cellular phones, cellular service plan contracts and prepaid service, movies, music,

video games and books,

- Hardlines (9% of sales): stationery, automotive, hardware and paint, sporting goods, fabrics

and crafts and seasonal merchandise,

- Apparel (8% of sales): apparel for women, girls, men, boys and infants, as well as shoes,

jewellery and accessories,

- Home (7% of sales): home furnishings, housewares and small appliances, bedding, home

decor, outdoor living and horticulture,

- Fuel and financial services and related products, including money orders, prepaid cards,

wire transfers, money transfers, check cashing and bill payment (less than 1% of annual net

sales) (Form 10-K, 2016).

WALMART PRIVATE-LABEL BRANDS

E.g. "Equate," "Everstart," "Faded Glory," "George," "Great Value," "Holiday Time,"

"Hometrends," "Mainstays," "Marketside," "No Boundaries," "Ol' Roy," "Ozark Trail," "Parent's

Choice," "Prima Della," "Pure Balance," "Sam's Choice," "Special Kitty," "Spring Valley" and

"White Stag." The Company also markets lines of merchandise under licensed brands, some

of which include: "Better Homes & Gardens," "Danskin Now," "Farberware," "General

Electric," "OP," "Rival," "Russell," "Starter," and "Straight Talk." (Form K-10).

COMPETITION STRATEGIES

Fighting the Competitors: The Walmart U.S. segment competes with variety of local chains

of supermarkets, discounters, groceries, department stores, e-commerce and catalogue

businesses.

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Fighting for Customers:

Implementing the consumer-centric strategy Walmart employs as following:

- Every Day Low Prices,

- Every Day Low Cost (savings in Walmart operations influence savings of customers),

- Rollbacks (as EDLC),

- Savings Catcher, Save Even More and Ad Match (strategies to meet or be below a

competitor’s advertised price),

- Walmart Pickup (online orders picked up from stores in 3h),

- Online Grocery (online ordered and home delivered),

- Money Back Guarantee (a 100 % money-back guarantee if the customers are not satisfied

from quality and freshness of the food products).

MERCHANDASING DISTRIBUTION

In 2016 the Walmart U.S. uses 137 located strategically through the U.S. distribution

facilities. About 79% of the purchases were shipped through them (number of distribution

facilities possessed in the U.S. by Walmart: 102).

2). WALMART INTERNATIONAL SEGMENT (Walmart, Form K-10, 2016, p. 9 – 12)

2016 NET SALES

Value: $123,408 million,

Percent of Total Sale: 25,8%

Decline: 9,4%

A BRAND

Walmart International Segments in 2016 consists store operations in 27 countries outside the

U.S. (Table 3.9). That segment’s net sales was declining during 2014-2016 and was: 2014-

$136,6 billion, 2015- $136,2 billion, and in 2016-123,4 billion.

Types of ownership of foreign divisions (brick and mortar & financial services e.g. credits for

customers):

- wholly-owned subsidiaries: Argentina, Brazil, Canada, Chile, China, India, Japan, UK,

- majority-owned subsidiaries: Africa: Botswana, Ghana, Kenya, Lesotho, Malawi,

Mozambique, Namibia, Nigeria, South Africa, Swaziland,

Tanzania, Uganda, Zambia; Central America: Costa Rica,

El Salvador, Guatemala, Honduras, Nicaragua, Mexico,

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- joint-ventures and other controlled subsidiaries: China.

Table 3.9. Walmart foreign operations- number and types of selling units

(Walmart, F 2016, p. 11)

STORES FORMAT

Three major categories: retail, wholesale, other (incl. supercenters, supermarkets,

hypermarkets, warehouse clubs, including Sam's Clubs, cash & carry, home improvement,

specialty electronics, apparel stores, drug stores and convenience stores, as well as digital

retail).

The size of store ranges from 4,000 square feet to 185,000 square feet. The wholesale stores

differentiate from 35,000 square feet to 70,000 square feet and other units like drugstores

and convenience stores operations (Brazil, Chile Japan, Mexico, the UK) range in size up to

2,400 square feet.

The Walmart International segment also works through e-commerce websites and utilise

capabilities like “Click & Collect” (the UK) and grocery home delivery (Mexico).

MERCHANDISE

Similar to that of our operations in the U.S.

Private brands distributed globally: "Equate," "George," "Great Value," "Holiday Time,"

"Hometrends," "Mainstays," "Ol' Roy" and "Parent's Choice," our international markets have

developed market specific brands including "Aurrera," "Cambridge," "Chosen by You," "Extra

Special" and "Smart Price

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COMPETITION

Competition with local retailers, and finance institutions.

Fundaments for competition:

- ability to develop, open and operate units ant the right locations,

- ability to deliver a customer-centric experience that seamlessly integrates digital and

physical shopping determines, to a large extent, our competitive position,

- EDLP approach,

- competitive effectiveness in food departments operations.

DISTRIBUTION

Walmart International utilize 176 distribution centres from Argentina, Brazil, Canada,

Central America, Chile, China, Japan, Mexico, South Africa and the UK (45 owned by

Walmart).

3). SAM’S CLUB SEGMENT (Walmart, Form K-10, 2016, p. 12 – 13)

2016 NET SALES

Value: $56,828 million,

Percent of Total Sale: 11,9%

Decline: 2,1%

A BRAND

The Sam’s Club segment operates membership-only warehouse clubs, as well as

samsclub.com, in the U.S. Its net sales in 2016 was $56,8 billion. There are four types of

memberships: Business Plus, Savings Plus, Business and Savings.

FORMAT

Sam’s Club unites sizes between 71,000 and 168,000 square feet with an average of approx..

143,000 square feet.

Through samsclub.com and online services Samsclub.com experience on average 16 million

unique visits a month and can offer approx. 51 000 SKUs.

MERCHANDISE

Selling merchandise includes hardgoods, softgoods, and selected private –label brands such

as “Member’s Mark” in following categories below:

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- Grocery and consumables (59% of sales): dairy, meat, bakery, deli, produce, dry, chilled

or frozen packaged foods, alcoholic and nonalcoholic beverages, floral, snack foods, candy,

other grocery items, health and beauty aids, paper goods, laundry and home care, baby

care, pet supplies and other consumable items,

- Fuel and other categories (20% of sales): gasoline stations, tobacco, tools and power

equipment, and tire and battery centers,

- Home and apparel (9% of sales): home improvement, outdoor living, grills, gardening,

furniture, apparel, jewellery, housewares, toys, seasonal items, mattresses and small

appliances,

- Technology, office and entertainment (7% of sales): electronics, wireless, software, video

games, movies, books, music, office supplies, office furniture, photo processing and third-

party gift cards,

- Health and wellness (5%): pharmacy, optical and hearing services and over-the-counter

drugs.

COMPETITION

Sam’s Club competes with other warehouse clubs (e.g. Costco Wholesale and BJ’s Wholesale

Club) as well as retailers, wholesalers and distributions, petrol stations, internet retailers

and catalogue retailers. Sam’s Club provide its members unique prices and savings, quality

products etc.

DISTRIBUTION

In 2016 about 69% of non-fuel products were shipped to Sam’s Club through 24 dedicated

distribution centres and the centres that specialise in distribution of certain items. The

distribution operations in are based on cross-docking systems to keep inventory of products

on minimal level.

WALMART STRATEGY IN A NUTSHELL

“Wal-Mart changes the world like that every day, and has been for forty years. A wasteful

routine, often long entrenched, is detected and eliminated, establishing a new standard of

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efficiency, lowering costs for everyone, especially ordinary customers. And in the wake of

the change comes a ripple of unintended consequences, or if not quite unintended, at least

unacknowledged. That is the Wal-Mart effect- the ways both small and profound that Wal-

Mart has changed business, work, the shape and wellbeing of communities, and everyday

life in the United States and around the world. (Fishman, 2006, p. 3)”

Analysing Walmart strategy we can find out, that there are so many sources of history of

Walmart strategy in XX century, that defining which of them was really critical factor for

the company in creating global advantage becomes very challenging. Analysing the

Walmart’s strategy from different perspectives through business lens leads to discovering

the retailer’s proficiency at every possible level of its performance. From operations to

strategic, from human resources to supply chain, from locations to store formats… The

publications describing Walmart presents itself as a company, that fixated on its operations

efficiency, costs efficiency, logistics efficiency, employment efficiency etc. Everything done

in the possibly best way. Walmart cuts its costs everywhere it can, so its customers can save

more (Walmart, 10-K, 2016). “Squeezing Perfectionist” could be description of Walmart

business model. Walmart founder- genial Sam Walton from “savings” and “perfectionism”

made the company mission. He was the one “who inspires his employees and has moulded a

culture of service excellence” thanks to “the motivational power of allowing employees to

own part of the business as “associates””, and hard - working staff earning low level

salaries, however supplied unique approach to provide customers unique experience (e.g.

“the greeters” who welcome the customers”) (Stalk, Evans & Shulman 2005).

However, there is one crucial thing in Walmart “squeezing””: that efficiency maximisation

does not impact negatively the retailers investment into technologies, locations, variety of

thousands of products being sold around the globe: “our strategy was to put good-sized

stores into little one-horse towns that everyone else was ignoring” (Margetta, 2002).

Walmart constantly invests its money into new operations in the new locations around the

globe sustaining its position as no 1 global retailer. Brea-Solis, Casadesus-Masanell and

Grfell-Tatje (2015) have analysed Walmart performance between 1972 and 2008. Years of

Walmart strategy and selected the factors that have had positive impact on Walmart strategy

through analysis of impact of different levers of Walmart’s performance like customer

service, cost consciousness, product selection, expansion policies, human resource

practices, investment in technology, pressure on vendors, pricing, on price and sales

quantity, which both lead to change in profits (Exhibit 3.4).

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Exhibit 3.4. Walmart’s discount retailer business model

(Brea-Solis, Casadesus-Masanell and Grfell-Tatje, 2015, p. 36)

Following the publication of Brea-Solis, Casadesus-Masanell and Grifell-Tatje (2015), the

analysis below is described into 4 periods of Walmart in analogy to three periods of different

Walmart leadership: Sam Walton (1972-1988), David Glass (1988 – 2000) and Lee Scott (2000-

2008) and what happens after 2008. The following chapter is based on publication of Brea-

Solis, Casadesus-Masanell and Grifell-Tatje (2015), because of its inevitable value of adopted

perspective discussing Walmart’s strategic factors, that allowed retailer to become no 1 in

the U.S. and around the globe. That perspective is precious from the purpose of that paper,

as it provides great knowledgeable background for future analysis of strategic competences

and advantage of that dissertation.

STRATEGIES IMPLEMENTED BY WALMART IN FOLLOWING PERIODS AND THEIR OUTCOMES

(Brea-Solis, Casadesus-Masanell & Grifell-Tatje, 2015):

Strategies implemented by Sam Walton (1972-1988):

Sam Walton has defined- Walmart – as discount retailing, utilising “everyday discount

prices” model (later defined EDLP) (Walmart, Annual Report, 1977, p.5), focusing on offering

lowest possible prices than on promotions. Through creation of “vendor partnership”

(Walmart, Annual Report, 1988, p. 10) Walmart was strengthening its relations with suppliers

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what allowed for exchange of knowledge including sales and stocking data and hence leaded

to transaction costs cutting and growing efficiency. Choosing the right locations for its

distributions facilities the retailer increased the flexibility and stock replenishment problem

and was leading to decreasing the costs of purchasing thanks to discounts on big volumes

and amounts buying. Combining EDLP with new effectiveness of logistics allowed Walmart

to become the major distribution channel in the U.S. Adopting of Ronald Mayer’s (CEO)

technological ideas like satellite system to enhance communication or uniform product codes

(UPC) at point of sale (POS) tracing the items within the system in time, allowed to reduce

the costs helped to enhance communication between headquarters, stores and vendors.

Despite the great utility of technology Walton knew how important were the right people:

“If you want the people in the stores to take care of the customers, you have to make sure

you’re taking care of the people in the stores” (Walton, 1992, p. 80).

Walmart implemented a variety of incentives to attract talents working for competitors, for

example participation in profits (later in a stock ownership) (Walton, 1992, p. 132).

The location of the stores was critical factor from strategic point of view. The method of

locating stores near distribution centre was adopted to create efficient network and to

reduce the logistic costs to minimum (economy of density). The constant extension of the

product categories (including introducing of private brands) allowing for one time –one store

shopping for whole families from food to pharmacies, shoes, and automotive centres. The

great impact on sales had development of Sam’s Club servicing customers buying wholesale

amounts. Sales success was also strengthening by set up in 1985 program “Buy American’.

Cost cutting has become Walmart motto and included reduction of superfluous expenses

(e.g. by sharing hotel rooms by managers or walking instead of taking taxi. The “Aggressive

Hospitality” program implemented in 1984 was a result of creation the friendly shopping for

“customers as family or special guests.

The benefits like long working hours, free parking space, no-hassle refund and exchange

policies, fast checkout, comfortable shopping space, and cleanliness and close cooperation

with the communities through sponsorship had impact on growing amounts of customers.

Strategies implemented by David Glass (1988 – 2000)

David Glass was successor of Walton and described by Brea-Solis, Casadesus-Masanell and

Grifell-Tatje (2015) as “the operational wizard who expanded his vision to transform the

company into the world’s largest discount retailer”. Investment into technologies linking

stores with vendors haven’t only improved the relation and communication, but also allowed

for increasing pressures on suppliers, that from year to year was becoming more and more

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dependent on huge buyer (Bradley & Ghemawat, 2002)17. In 1992 Stalk, Evans and Shulman

in their book “Competing on Capabilities: The New Rules of Corporate Strategy” describe

how critical for Walmart success has become its talent to exploitation of its potential. The

managers of Walmart have been understanding, that potential is valuable when it is properly

adopted and exploited in maximally possible way. Hence they created three critical

capabilities: a capability to plan, organize and control strategic processes like logistic

processes (e.g. cross-docking, transportation) (Exhibit 3.5), a capability to communicate

thanks to developing great technological platform to immediate contact between the

employees, and a capability to successfully manage retailer’s human resources.

Exhibit 3.5. Cross-docking as an example of strategic source of competitive advantage

(source: Stalk, Evans, Jr. & Shulman, 1992)

How efficient Walmart has been utilising it capabilities in comparison to its competitors from

the retail industry, and how strong the capabilities influence the company’s performance

and results we could see at Exhibit 3.6 presented by The Boston Consulting Group (Stalk,

Evans & Shulman, 1992).

17 The authors provide the example of P&G’s share in Walmart’s purchasing: 1993: 10% of Procter & Gamble’s sales represented less than 2,4% of Walmart purchases (Bradley, S, Ghemawat, P. (2002) Wal-Mart stores, inc, Harvard Business School, Case 794 – 024, in: Brea-Solis, Casadesus-Masanell & Grifell-Tatje, 2015)

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Exhibit 3.6. Walmart capabilities boosting company performance against the retail industry

(Source: Stalk, Evans & Shulman, 1992)

The growing purchasing power of Walmart on vendors has leaded outsourcing of the

productions in low-wages countries (Bonacich & Wilson, 2006 in: Brea-Solis, Casadesus-

Masanell and Grifell-Tatje, 2015).

During the Glass period Walmart has expanded the variety of its private brands, that were

offered in the opening price points. The period of Glass was constant grow and development.

Walmart has begun to become the largest private employer in the U.S. (Annual Report,

Walmart, 1997, p. 11). From private brands at the most competitive prices to new

supercenters development. And it was reflected in achieved strategic advantage:

“Paul Harvey: Although Wal-Mart, the company, performed superbly, Wal-Mart stock, did even better

and was up 106% for the calendar year. In fact, I believe it was the No. 1 stock on the Dow. Will this

type of appreciation continue?

Glass: Last year in this annual report I made the comment that, although it would be nice, I would not

expect the stock price to appreciate at that 73 percent rate again. Well, I was wrong! Our associates

and customers saw to that. However, I would again repeat that the stock appreciation that we have

enjoyed over the last two years is unusual, even considering the tremendous results and effort on the

part of all of our associates and partners. Unfortunately, we don’t directly control the stock market!

Our commitment is to delivering sales and profits for our shareholders, and allowing the market to take

care of itself. Over time, our earnings growth will control our share price.”

(Annual Report, Walmart, 1999, p. 6)

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The analysis of Walmart strategy success factors made by Brea-Solis, Casadesus-Masanell and

Grifell-Tatje analysis (2015) shows that “change in profit during Glasses’ period was mainly

due to the activity effect. “ The analysis reveals that the secret to lass’s success was his

emphasis on all levers related to the activity effect while keeping Walmart operationally

efficient. […] David Glass pulled some business model levers differently to Sam Walton.

These differences mainly affected the quantity effect. Walton’s years were characterized

by the importance of investing in technology and improving efficiency, while in Glass’s years,

Walmart focused more on business choices that expanded the business, such as building new

stores, increasing product variety and improving customer service which are mainly reflected

in the activity effect.”( Brea-Solis, Casadesus-Masanell & Grifell-Tatje, 2015, p. 25)

Strategies implemented by Lee Scott (2000-2008)

Scott’s period has appeared as very challenging as the company had to face growing criticism

from the society. The negative public perception of exploiting the human resources, the

opposing to unionization (2005: meat cutters in Jacksonville and Quebec) pushed company

to improve health benefits to associates and implementation of new job and salary structures

for non-managerial workers (Brea-Solis, Casadesus-Masanell & Grifell-Tatje, 2015) and

intensification of philanthropic activities. Walmart’s participation in helping victims of

Hurricane Katrina has allowed many Americans how huge and powerful it is:

“At 8 a.m. on Wednesday, as New Orleans filled with water, Wal-Mart chief executive H.

Lee Scott Jr. called an emergency meeting of his top lieutenants and warned them he did

not want a "measured response" to the hurricane.

"I want us to respond in a way appropriate to our size and the impact we can have," he said,

according to an executive who attended the meeting. At the time, Wal-Mart had pledged

$2 million to the relief efforts. "Should it be $10 million?" Scott asked.

Over the next few days, Wal-Mart's response to Katrina -- an unrivalled $20 million in cash

donations, 1,500 truckloads of free merchandise, food for 100,000 meals and the promise

of a job for every one of its displaced workers -- has turned the chain into an unexpected

lifeline for much of the Southeast and earned it near-universal praise at a time when the

company is struggling to burnish its image.

While state and federal officials have come under harsh criticism for their handling of the

storm's aftermath, Wal-Mart is being held up as a model for logistical efficiency and nimble

disaster planning, which have allowed it to quickly deliver staples such as water, fuel and

toilet paper to thousands of evacuees.

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In Brookhaven, Miss., for example, where Wal-Mart operates a vast distribution center, the

company had 45 trucks full of goods loaded and ready for delivery before Katrina made

landfall. To keep operating near capacity, Wal-Mart secured a special line at a nearby gas

station to ensure that its employees could make it to work.” (Barbaro, Gillis, 2005).

Despite the constant rise in the number of stores in the U.S. the main source of growth under

Scott management was coming from the international activities. Scott also has kept Glass’s

strategy to transform discount stores into supercenters. That was the period, when growing

competition has forced Sam’s Club to defence its segment and increase its focus on

customers and enlarging the variety of assortments by luxury products (Annual Report,

Walmart, 2006, p. 15). The constant technology development has allowed retailer for taking

over the control of sourcing activities from third parties, what resulted in price margin

increase and further reduction of purchasing prices. The sales of inconsistent with the rest

of business division McLane in 2002 for $14,9 billion substantially increased company’s

finances. However the analysis of Brea-Solis, Casadesus-Masanell and Grfell-Tatje (2015)

shows, that growth in profit appeared because of changes in activity levels. Scot’s period

can be described as moderation in growth rates. The retailer “profit increased not only

because of changes in activity levels, but also because of improvements in productivity due

to technical change” (Brea-Solis, Casadesus-Masanell & Grfell-Tatje, 2015, p. 26).

The analysis of Brea-Solis, Casadesus-Masanell AND Grfell-Tatje (2015) also proves, that

despite significant differences between three stages of Walmart’s management (Walton,

Glass & Scott) the business model of Walmart didn’t change during researched period. The

company was building its power and creating advantage through cost leadership (Walton),

large-scale of deployment the original business concept (Glass) and through wise

management of the “downside of success”.

Summarising the performance of Walmart during presented years we can say, that the

“squeezing perfectionist” strategy was very consistent and disciplined and that is why it has

become implemented by the retailers around the world. Looking at the scope of the

operations and surroundings we can understand the “Wal-Mart effect” in the global scale.

Despite its all steps of successful performance, like described by Fortune Walmart’s

innovation, people management, use of corporate assets, social responsibility, quality of

management, financial soundness, long-term investment value, quality of products/services

and global competitiveness, that leaded a retailer to the top of the Worlds Most Admired

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Companies (Fortune.com), on the beginning of XXI Walmart faces growing problem with its

consistency of its CSR strategy (Gereffi & Christian, 2009).

WALMART’S CSR AND DISCUSSABLE STRATEGIES AFTER 2008

Resent years were time of keeping business model consistent, however, the growing number

of issues described as unethical, have appeared in parallel to its constant growth and

development. Walmart has become criticized for going too far in exploiting its capabilities

and growth strategy18. The biggest concerns against Walmart appears in the area of human

and labour rights in the US and abroad e.g. the low wages (Bianco & Zeller, 2007, Covert,

2014; Tabuchi, 2015), anti-union violations (Pier, 2007), poor and dangerous working

conditions (EEOC, 2014; Morran, 2016), discriminations (EEOC, 2015) including law quality

health insurance and tax avoidance. The importance and impact of Walmart negatively

judged behaviours become reflected in growing number of research and publications

(Hennig, 2017; Chan, 2016):

“Walmart employees are among the lowest paid workers in China and also globally and are

therefore some the most vulnerable. If their recent struggles represent an important step

forward for the Chinese labour movement, they still need strong international support to

avoid losing what they have achieved thus far. It is therefore important that global trade

unions, international NGOs, and other relevant actors mobilise their networks to put

pressure on Walmart headquarters in the United States and China, and ask for the support

of the ACFTU leadership to make sure that the rights of this active cohort of Chinese

workers are not infringed upon once again”. (Chan, 2016, p. 15)

The strong criticism applies to the outsourcing of production from the US to Asia, thanks to

very low production cost. The issues with exploiting child labour for production of goods for

retailer meet international protests (Global Rights, 2006, 2013). Despite the criticism the

mentioned capabilities allow Walmart for growing efficiency and cost saving.

“Wal-Mart's seemingly simple and virtuous business model is fraught with complications and

perverse consequences. To cite a particularly noteworthy one, this staunchly anti-union

18 “It is estimated that about 5,000 lawsuits are filed against Walmart each year: “No other retailer seems to get under people’s skin like Wal-Mart. Sears Holdings , J.C. Penney , Target and May Department Stores aren’t subject to the same social criticism.” (Van Riper, 2005), Van Riper, T. (2005) Wal-Mart Stands Up to Wave of Lawsuits, Forbes, on 03.01.2017 at: http://www.forbes.com/2005/11/09/wal-mart-lawsuits-cx_tvr_1109walmart.html

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company, America's largest private employer, is widely blamed for the sorry state of retail

wages in America. On average, Wal-Mart sales clerks -- "associates" in company parlance --

pulled in $8.23 an hour, or $13,861 a year, in 2001, according to documents filed in a lawsuit

pending against the company. At the time, the federal poverty line for a family of three

was $14,630” (Bianco & Zellner, 2003).

The other criticism of capabilities abuse includes negative impact of Walmart monopolistic

practices from negative impacts on local communities through destruction of local

competition (thanks to corruption e.g. Mexico, predatory pricing, bargaining purchasing

power, etc. Despite these all presence and real accusations leading to cost cutting and

increase of profit, the strongest criticism appeared in the last decade with exploitation of a

variety of legal loopholes and tax avoidances concerning the corporation or its owners, e.g.

estate tax avoidance by Walmart shareholders (according to court records and the U.S.

Internal Revenue Service) (Mider, 2013).

The latest report of the association Americans for Tax Fairness (2015) has revealed, that

“Walmart has placed at least $76 billion worth of assets in 78 subsidiaries located in 15 tax

heavens”. The report has been released at Congress and the Obama Administration in order

to reform the tax legislations. Thanks to hybrid financial instruments19 “Walmart is able to

“disappear” 1,5 billion in income annually for tax purposes in Luxembourg by using an exotic

financial instrument known to tax planners as a “hybrid loan”. The arrangement is highly

beneficial to Walmart because it helps the company to concentrate foreign profits in

Luxembourg without facing significant tax bills there. The OECD, whose 34 members include

United States, recently characterized hybrid financial instruments such as those used by

Walmart as abusive and called on member states to prohibit their use.” (Americans For Tax

Fairness, 2015, p.19).

19 “A hybrid financial instrument is an instrument that is classified as debt in the country in which the issuer was formed and as equity in the United States. […] Tax savings is often a primary motivation (to adopt it).” American for p. 21)

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2.3. TESCO PLC.

THE MAJOR DATA

The Company Tesco Plc.

Market Cap (billion) $21.9

Type of the Company Public

Major Ownership

(% of shares)

Norges Bank (5.96), BlackRock, Inc. (5.01), Schroders plc (4.99), GIC

Private Limited (3.08)

CEO (2016) Dave Lewis

Sector Retailing

Industry General Merchandiser

Trading Name Tesco

HQ Location Welwyn Garden City, UK

No of Employees (May

2016)

510 444

Foundation 1919 by John Edward Cohen (Sir Jack Cohen)

Incorporation 1947

Global Position (in 2014) 5

Financial Information

(Figures for fiscal year

ending on 27 of Feb, 2016)

Revenues (last fiscal year, in: £M): 54 433

Profits (£M): 944

Assets ($Billion): 43,688

Total Stockholder Equity ($Billion): 8,616

Profits as % of Stockholder Equity (%): 18.2

EPS % Change (10 year annual rate): 5.5

General Advertising Slogan Every Little Helps

Motto To help people spend less

Dominant operational

format FY 2014

Hypermarket / Supercenter / Superstore

Table 3.10. The key facts about Tesco (tesco.com)

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TESCO HISTORY (data pulled from:www.tescoplc.com)

1919 - 1930: THE BEGINNING

John Edward Cohen starts selling surplus groceries from a stall in the East End of London.

Leaving Royal Flying Corp he invests money into grocery business. 1924 was year of creation

of Tesco brand, first for tea, 1929 for the first store Burnt Oak in London. Store was selling

first Tesco brand: tea.

1930-1960: THE EXPANSION

Cohen purchases first land in Edmonton (London) and build first modern food warehouse.

Opening headquarters and further expansion of London suburbs was characteristic for that

period. In 1947 Tesco Stores appear on the stock exchange and one year later the first

supermarket is born.

1960-1990 DIVERSIFICATION AND GROWTH

An acquisition of 212 branches of Irwin stores in the north of England (1968), and Victor

Value chain (1968) and enlarging the assortments by household goods and clothing reflected

the constant growth of Tesco. 1963 was the year of introducing its first vouchers- the Green

Shield Stamps, that were collected by the customers at the checkouts and exchanged for

the products from Tesco catalogue. The first superstore appeared in Crawley, West Sussex

(40,000sq). The opening of Tesco petrol stations took place in 1970 and three years later

new head office in Cheshunt: New Tesco House has been opened. The first computerised

check outs were introduced in 1982 and prices cutting promotions has begun (“Checkout 82”

launched by Sir Ian MacLaurin on 1500food items). The advertising campaign of Duddley

Moore introduced Tesco own label of range of products: Healthy Eating.

1990 – 2010 SUPERSPEED GROWTH AND MULTICHANNEL DIVERSIFICATION

Nineties were beginning of Tesco global success: opening Tesco Metro format, launching

Tesco Value at very competitive prices and The famous and very introducing extremely

successful advertising campaign “Every little helps” allowed Tesco to attract 1,3 million new

customers between 1993 – 1995. The Computers for School promotion allowed Tesco not only

to bring awareness to the consumers about their potential to help the others, but also

allowed for boosting Tesco sales. The continuation of grow was reflected in opening another

new formats Tesco Express.

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The beginning of international expansion started in 1995 by entering the Hungarian market

through acquisition of S-Market’s retail chains (26 stores). A fantastic, very successful

advertising with “Dotty Every Little Helps” campaign has begun in 1995 and successfully

improved Tesco’s image as retailer of excellent quality products and services. The new Tesco

Clubcard in starting 1995 year attracted 5 million customers. It allowed to take over the

Sainsbury’s in market share. The great performance and demand for Tesco’s products

influenced the beginning of 24 hour trading. The constant growth on the UK market allowed

for opening another new format Tesco Extra.

The Czech Republic and Slovak market were entered through the acquisition of K-Mart stores

in 1996 and Tesco Personal Finance with new saving accounts (300 000 applications)

appeared as another great success. Terry Leahy’s successes as Marketing Director has

become fundaments of his nomination to position of Tesco CEO.

The acquisition of 31 Savia Chain Stores allowed for entering the Polish market 1997 and in

the same year Tesco acquired Associated British Foods and its subsidiaries in Ireland. New

Tesco Lotus brand started in 1998 in Thailand. Business in South Korea started in 1999 in

partnership with Samsung.

Tesco Finest appeared on Tesco shelves in 1998 and with success targeted more affluent

customers. Diversification into mobile phones started in 1999 providing Tesco the position

of the largest retailer of pre-paid mobile phones in the UK. Constant growth was reflected

in expanding online in 2000, and since then Tesco.com has grown to serve over 500,000

customers each week.

Malaysia market was opened in 2002 through 47 stores in partnership with Sime Darby (owner

of 30% of stake in the business) and in the same year Tesco bought the UK’s second largest

convenience store chain- One Stop. Entering Turkish market was another step of going

abroad and it was taken in 2003 through acquisition of five Kipa stores (on June 2016 sold to

Migros). In the same year Tesco has entered Japan (sold in 2011).

China’s Tesco’s network started its activity in 2004 through 100 stores along the Eastern

Seaboard. In the same year new campaign “Every Little Helps” was launched. Two new sales

channels have appeared in 2006: a catalogue Tesco Direct provided an extensive range of

products (e.g. electrical appliances, home furnishings, toys, and much more) and first Tesco

dotcom-only store appeared in Croydon to service London customers.

The strengthening situation in Poland allowed for further expansion and in 2006 Tesco

acquired the retailer Leaderprice (220 stores).

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The decision taken in year 2007 was critical for Tesco and has impacted negatively its next

10 years strategy: in 2007 Tesco entered the U.S. opening its own stores “Fresh & Easy” in

southern California, Arizona and Nevada, which at the end in 2013 has appeared as

humiliating and costing Tesco £2bn business experiment.

Purchasing Dobbies garden chain in Scotland in 2007 and entering India in 2008 by franchise

agreement with the Tata Group operating Star Bazaar hypermarkets were reflection of Tesco

permanent growth on international scale.

Purchasing from Royal Bank of Scotland its 50% stake of Tesco Personal Finance allowed

Tesco to set its own Tesco Bank in 2009. To follow its philosophy of zero-carbon emissions

Tesco opens its first zero-carbon supermarkets as part of Tesco commitment to become a

zero-carbon business by 2050 (Ramsey, Cambridgeshire, UK, Bangh Phra, Tailand).

2010 – 2016 FACING STRATEGIC CHALLENGES

In 2011 Tesco CEO Terry Leahy is stepping out and Philip Clarke takes position of CEO of

Tesco Group in march 2011 (Clarke was with Tesco since 1974). In 2012 year Tesco was

awarded Green Retailer of the year at the Annual Grocer Gold Awards (praised for its

commitment to carbon reduction across all its markets). However, in reaction to growing

crisis on U.S. market Tesco starts cashing some of its business starting from Japan in 2011.

In 2015 Tesco sales its Dunnhumby USA business to The Kroger Company.

Despite the problems with American division Tesco works to sustains its international growth.

2012 becomes a year of entering Saudi Arabia market after nearly decade of trials (through

Tesco fashion business: F&F franchise stores) and in 2014 Tesco starts joint venture with

Trent Limited, part of the Tata Group in the Southern and Western regions of India (12

stores: “Star Bazaar” and “Star Daily”).

Introduced banking business becomes very profitable for Tesco Group and allowed for further

diversification into mortgage services20.

In 2013 Fresh & Easy 200 stores with 5000 employees are sold to YFE Holdings, Inc. with

extra pay loan of £80 million to the buyer.

20 “Tesco Clubcard holders can gain extra rewards when they take out a mortgage with the offer of Clubcard points following each repayment they make” (https://www.tescoplc.com/about-us/history/ accessed on 12.03.2017)

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“The deal will cost Tesco £150m in total, including the loan, payoffs for about 400

permanent staff and the closure of about 50 stores not included in the deal – taking the

total cost of the humiliating episode to nearly £2bn. The future for a further 600 staff is

unclear, with some expats likely to return to Tesco in the UK while others are part-time

staff and will be let go.” (Butler, 2013)

In 2014 Tesco reveals its overstatement of first-half results by £250 million (finally corrected

to £263million) as its financial executives “pulled forward payments from suppliers to paint

a more flattering picture of the (its) finances […] as it struggled to meet profit targets

(Butler, 2014). The scandal leads to Tesco fall 11,5% to 11-year low, and has wiped £2bn of

Tesco’s value. In October of Dave Lewis 2014 is appointed to the hottest seat in global retail:

CEO of TESCO to fulfil one mission: to save Tesco.

Tesco formats:

Table 3.11. Tesco Stores Ltd. Formats (Tesco PLC, 2015)

TESCO PRODUCTS AND SERVICES:

Grocery:

Tesco clothing brand- F&F, Fresh Food, Bakery, Food Cupboard, Frozen food, Drinks, Baby,

Health & Beauty, Pets, Household, DIY, Home & Entertainment (incl. Home electrical,

furniture, technology & gaming, garden, sports & leisure), Inspiration & Events (tesco.com,

2017) etc.,

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A development of Tesco brands variety is an example of its successful approach to the

customers. In march 2017 Tesco is proud of the following private brands: Tesco Organic,

Tesco Finest, Tesco Free From (gluten, milk, wheat, eggs), Tesco Healthy Leaving, Tesco

Everyday Value, Tesco Own Brand, Tesco Milk, Tesco Goodness (Realfood.tesco.com, 2017).

Services:

Tesco Bank serves 7 million customer accounts across its product range. Since 2008 Tesco

Bank is wholly owned by Tesco Pl. Tesco Bank sales the products like: credit cards, loans,

mortgages, savings accounts, insurances (home, life, car, travel). Tesco banking is connected

to Tesco Clubcard system:

“Our Clubcard Credit Card rewards customers with Clubcard points on all their spending,

while customers receive Clubcard points as a “thank you” on mortgage repayments. In 2014,

we launched a current account offering customers everything they would expect from

Tesco.” (Tesco, 2017)

In march 2017 Tesco Bank sales was 2% of Group sales (exc. Vat & Fuel) and provided 17% of

Group operating profit (Tesco.com)21

TESCO PETROL STATIONS

Tesco petrol stations have been operated by Esso and in 2013 in the UK there were 200 joint

Tesco Express/Esso sites ( In the financial year 2015/206 fuel business has added to Tesco’s

revenue £6,081million. Tesco despite selling RON, Tesco diversify its fuel products also into

biofuels (incl. petro-bioethanol and diesel-biodiesel blends). Tesco Clubcard loyalty scheme

in 2013 has become connected to 800 Esso sites (Wood, 2013).

TESCO MOBILE

Tesco Mobile Limited is a mobile virtual network operator holding its operations in the UK,

Ireland, Slovakia, Hungary and Czech Republic. Tesco operates it by O2 network in the UK,

Ireland, Slovakia and Czech Republic, by Vodafone in Hungary and Three Ireland in Ireland.

In 2014 Tesco Mobile extended the Pay As You Go service through supplying 4G services for

its Pay Monthly and Sim Only customers at no extra cost. (Collins, 2014, Tesco Mobile, 2014)

21 Tesco Plc. on 02.02.2017 at: https://www.tescoplc.com/about-us/key-facts/

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DUNNHUMBY

dunnhumby is wholly owned by Tesco the data mining company, that work with retailers and

brands on a global scale analysing data of nearly 1billion customers across 75 countries.

Employing mover 2000 people in 30 international offices (in Europe, Asia, both Americas)

the company does not only help Tesco to take strategic decisions based on consumer’s

analysis, but also works with multinational retailers like Procter & Gamble, Coca-Cola,

PepsiCo and Monoprix providing knowledge about international consumers and behaviours.

The dunnhumby Group includes social marketing experts from two dependent companies:

BzzAgent and Sociomantic (Tescoplc.com, 2017).

FINANCIAL RESULTS OF TESCO PLC

Table 3.12. Financial results of Tesco Plc between 2008 and 2016

(Source: Morning Starr, 201722)

22 Morningstarr (2017), Tesco ADR TSCDY, Morningstarr Inc. accessed on.12.04.2017 at: http://financials.morningstar.com/ratios/r.html?t=TSCDY

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TESCO SEGMENTS

Tesco UK

Tesco is no 1 grocery merchandiser in the UK, leading the UK grocery market for over 26

years (USDA)23 and in this way it places itself on the top of the global list of retailers. Despite

the recent problems (£2bn failure in the US and worth £263m creative accounting) Tesco

still dominates the UK market (no 1) and lead the global retailer list (in 2014- no 5) (Deloitte,

2016). It’s latest “£3.7 billion acquisition of wholesaler Booker has just triggered a round

of mega-takeovers and mergers in the food and grocery sector” in the UK. (Ho, 2017) and

sustained the direction of Tesco constant multichannel growth. In March 2017 Tesco’s UK

sales (incl. ROI) was 77% of Group sales (exc. VAT & fuel), and delivered 54% of Group

operating profit (before exc. items)24. The UK (incl. ROI) in the financial period 2015/2016

was £505m. The UK operations are the largest within the Tesco Group and include 3500

stores and 310,000 employees (Tesco.com, 2017).

Tesco International

Tesco international in financial year 2015/2016 has added to its revenue £277 million, is was

21% of Group sales (exc. VAT and fuel) and delivered 29% of its group profit (Tesco, Annual

Report, 2016). After withdrawing from France, Taiwan and the US, in 2017 Tesco is present

in 10 countries: the UK, Ireland, Czech Republic, Slovakia, Poland, Hungary, India, Malaysia,

Thailand, China and South Korea. Except the U.S. all these countries were entered through

joint-ventures with local operators.

TESCO STRATEGY: FEW DOWN AND MANY UPS

Looking at Tesco performance from its strategy point of view we can differentiate three

major periods: before Terry Leahy, with Terry Leahy and after Terry Leahy.

From 1924- COHEN: POTENTIAL TO GROWTH

Describing Cohen’s entrepreneurial success we can select meaningful for Tesco strategy

stages (positive and negative from competitive advantage point of view), that allowed him

to introduce few successful steps that leaded to Tesco growth. One of them was introducing

23 FAS USDA GOV, accessed on 02.02.2017 at:

https://gain.fas.usda.gov/recent%20gain%20publications/uk%20supermarket%20chain%20profiles%202013_london_united%20kingdom_12-17-2013.pdf

24 Tesco Plc, accessed on 02.02.2017 at https://www.tescoplc.com/about-us/key-facts

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self-service system in 1947 adopted from the U.S. supermarkets. It allowed for faster service

and decreasing the labour costs. Second strategic step that had influenced Tesco’s supply

chain, taken by Cohen, was successful lobbying to abolish Retail Price Maintenance Act. In

this way Cohen invalidated the manufacturers and suppliers right to set up the prices against

the big retailers. The third step taken by Cohen was implementation of formula “Pile it high,

sell it cheap” also imported from the U.S. Despite the expectations, especially after

implementation of the first supermarkets’ vouchers: Green Shield Trading Stamps” it didn’t

bring expected returns. Despite opening petrol stations together with Esso, which has

become profitable business for years, introducing own-labels product lines, computerising

and centralising the distributions and moving stores outside the big cities, Tesco was facing

the growing market saturation, strong competitors like Sainsbury, growing unemployment in

the UK and the growing challenges with getting planning permissions for large stores.

From 1992- LEAHY: ADDICTIVE TO SUCCESS

In 1992 Tesco was facing difficult market conditions. Locating Terry Leahy first as marketing

director, and later as managing director and CEO has become the core stone for Tesco

growth. Leahy started rebranding Tesco and during following years has created very strong

international retail brand: Tesco. Leahy started from introducing two new formats: Tesco

Metro and Tesco Express (with petrol station). Locating the stores on the busy streets in

urban areas, emphasizing fresh and prepared food had become one of Tesco’s steps to

success. However, the most meaningful and resulting global competitiveness has become

cooperation with data mining company – dunnhumby, which Leahy started in 1994. The

collecting the data about consumers and changing it into valuable knowledge allowed for

changing consumers locus from outside to inside the organizational operations. Consumer

has become a part of hypermarket, a filter that allowed for creating or adjusting existing

strategy to create competitive advantage. Tesco grow strategy based on multichannel

diversification was based on filtration of well-known - new or existing consumers. Every

decision about diversification, whether it was a new product or a service, a new market

share or a new geographical area, a new format or a sales channel- all have become based

on knowledge about consumers (Gorgól & Stańczyk-Hugiet, 2010)

Leahy with his team and dunnhumby has started “customercentric strategy” in retailing

(Muller-Lankenau, Klein & Wahmeyer, 2004, p.12). How critical and valuable has become

dunnhumby for Tesco from competition point of view- was reflected in the future steps taken

by Tesco: slow taking over dunnhumby. In 2014 dunnhumby is defined as Tesco’s family silver

and valuated between £2-3billion (Richards, 2014). dunnhumby analysing 700 million

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household decisions provide not only huge, but also an intimate knowledge about

international consumers to retailers and their suppliers.

Table 3.13. Statistics of dunnhumby (dunnhumby, 2009, 2014)

Leahy’s Clubcard connected many retailing and not retailing25 customer’s activities and

started to provide very valuable data (more about Tesco Clubcard will be in the Results

Chapter). Leahy’s focus on high quality of Tesco products and services customer orientated

created a great advantage for Tesco and was present at every stage of Tesco’s diversification

strategy. The maximum efficiency of operations allowed Tesco to become one of the most

profitable hypermarket activities in the globe. Tesco’s international operations (mainly

successful were based on careful entering of new markets based on cooperation with local

operator (through joint-venture).

25 Not retailing activities were covering consumers entertainment with Tesco’s products or services e.g. doing psychological tests proposed by Tesco to its customers or cooking with Tesco’s culinary recipes

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Table 3.14. Tesco’s international grocery operations in 2011 (Tesco Annual Report, 2011)

Online shopping, Tesco brand labels development and growth- all of these steps allowed

Tesco to achieve the top position on the list of the global retailers (Deloitte, 2009-2014).

Under Leahy, Tesco’s sales have been growing constantly (only between 1997 and 2011 Tesco

sales has grown nearly 1997 group sales incl. VAT was £14,984bn and in 2011- £67,6bn)

(Tesco Annual Reports from: 1998 and 2011).

“When Leahy took charge of Tesco in February 1997, the company had just 190 stores

outside the UK and operated in six countries. It had dipped its toe in the water by opening

in Hungary in 1995, with Poland, the Czech Republic and Slovakia following suit in 1996 and

Ireland just as he took over in 1997.

Leahy, in his previous role as marketing director, had been instrumental in the decision to

open in these countries. But at the time he took over, it was still early days. Few could

have foreseen that by the time he handed over the reins, the 190 stores outside the UK in

1997 could have become 2,329 at the end of February 2011” (Danaher & Creevy, 2011)

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Exhibit 3.7. Tesco brands in 2011- year of Leahy leaving Tesco (Tesco Annual Report, 2011, p. 38).

Summarising Leahy’s leadership, we can say, that he was great leader using hard data. His

introduction of Tesco Steering Wheel into Tesco strategy (excellence in 5 strategic areas:

customer, community, operations, people and finance) with customer primacy allowed

Tesco to maximise the results of every level and stage of its performance. All the operational

and strategic steps were supported by very successful advertising campaign “Every little

helps”.

From 2011- AFTER LEAHY: A CONTINUOUS ADJUSTMENT

TESCO DECLINE

“Risk is an accepted part of doing business. The real challenge for any business is to identify

the principal risks it faces and to develop and monitor appropriate controls”

(Tesco Annual Report, 2011, p. 51)

The two huge disasters Tesco had to meet after Leahy’s leaving his job in 2011: £2bn failure

in the U.S. and worth £236m creative accounting uncovered the other side of the Tesco’s

coin and leaded to constant decrease of price of Tesco’s shares (in March 2017 the share

price reached its level from 2000)26.

26 Both issues: creating accounting and U.S. division failure are described in more detailed in the next chapter

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Despite the investigations leaded by three British institutions: the Groceries Code

Adjudicator (GTA), the Financial Conduct Authority (FCA) and Serious Fraud Office (SFO) and

verdict of the GCA that has “found Tesco’s breach of paragraph 5 of the Code to be a serious

breach to the varying and widespread nature of the delay in payments” (GCA, p. 7), and

investors’ legal suits and claims for compensation for the loss of share values, the situation

with Tesco does not look so tragic as some media reports. The customers still appreciate

Tesco’s U.K. services and products, and Tesco as nearly national business, that in 2011 has

become the biggest private employer in the U.K. (Wallop, 2011) can count, that British

institution will not become the nail in the coffin. However, “in April 2015 Tesco has crashed

to the biggest loss ever recorded on the UK High street, slumping £6.4bn into the red as a

result of huge writedowns on the value of its property portfolio and stock.” (Butler &

Farrell, 2015). On the beginning of 2017 it is hard to predict how situation of Tesco develops

in the future because its “kitchen sinking” does not look like the end of its problems. In

October 2016 “Tesco said that since February its pension deficit had ballooned from £3.2bn

to £5.9n hole due to the collapse in bond yields after Britain voted to leave the European

Union” (Wood & Monaghan, 2016).

RECOVERY

Despite the strategic problems the latest CEO of Tesco Dave Lewis does not give up and step

by step works on Tesco recovery what starts to be reflected in the slowly growing financial

results. Costs cutting and savings of £500m by axing “thousands of head office and store

management roles” and improving operations efficiency in the areas as opening hours, re-

stocking shelves during the day hours, and increasing the staff serving customers by 12000

have become part of Lewis strategy (Wood & Monaghan, 2016). Sales of Harris + Hoole,

Dobbies Garden Centres, Giraffe and Euphorium was taken in order to support the focus on

the core UK business. The promotions and prices clearness and stability are expected to take

its soon reward in returning customers’ trust. The remodelling of relationships with suppliers

(after accounting scandal) has become critical issue in rebuilding trust and transparency.

The latest information about acquisition of wholesaler Booker wroth £3.9bn has shaken the

hypermarket industry in the U.K., however it confirms taken steps about focus on core

business and may increase Tesco’s U.K. market share (and sales) (Dean, Bradshaw &

Yeomans, 2017). Through taking over the supplier job Tesco may axe small local competitors

in the UK and rapidly strengthen Tesco’s position on local market.

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TESCO’S CSR AND DISCUSSABLE STRATEGIES AFTER 2008

During years of its performance Tesco has meet number of critics, that has negatively

influenced its image. From indirect supporting of slavery system in Asia, low wages in the

U.K. or price-fixing (in 2007), through overcoming the local planning permissions (e.g. case

in Stockport) and disregarding local communities to the most meaningful: tax avoidance and

supplier’s abusing (case described in the next chapter).

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CHAPTER SUMMARY

The presented chapter describes the issues involved with methodology of that research:

describes author motivation, presents the principles of the research: the research thesis,

major hypothesis and the research details including two aims of objectives and supportive

research questions. That part of research also describes the qualitative research methods:

ethnography for collecting data and the Grounded Theory with abductive reasoning for

building the Competence Emergence Concept explain the phenomena, drawing the detailed

stages of the research. It also presents the risks, challenges and the limitations of the

research. The last part presents the investigated sample: Walmart Stores Inc. and Tesco Plc

with a short overview of their strategies.

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C h a p t e r IV

T H E R E S U L T S:

T H E C O M P E T E N C E E M E R G E N C E C O N C E P T

I N T R A N S N A T I O N A L R E T A I L I N G

Chapter Description

The following chapter presents the results of the research: author’s Competence Emergence

Concept (CEC) and its application in hypermarket TNC’s strategy. The first part of the

chapter, describes the clue of the organizational competence emergences process at the

organizational level: a capability activation into skilfulness and organizational competence.

It presents the process of synthesis of capability components and their induction, the

appearance of capability outcome, its valuation process and importance of human factor

and knowledge utility. That part explains the process of building competitive advantage and

relationship between organizational potential and strategic competitive advantage (or

disadvantage), answering the questions about competition and strategy of organizations

form the CEC perspectives. The second part expands the organizational CEC into corporate

strategic level, providing information about the source of sustainable, global advantage of

hypermarket TNCs and their Total Strategy. To illustrate the following stages of CEC, from

the perspective of global retailing, the author provides the examples from Walmart Stores,

Inc. and Tesco Plc. performance.

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1. THE COMPETENCE EMERGENCE CONCEPT:

ORGANIZATIONAL LEVEL

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THE PREFACE

Let’s imagine Scouts who would like to earn Building a Tent Budge. At the beginning the

kids have potential to build a tent and earn a Scout’s Skill Budge (they have a wish,

readiness, knowledge about tents construction, desire to do something important and

significant and they want to earn a great Scout’s Skills Budge). So the kids land in the middle

of the forest and build the tents. Ipso facto they confirm, that they do it effectively in

harsh outdoor environment. Children by building the tents prove they can. A dry place with

tight roof to spend a night and a Skills Budge are the visible confirmations of their success.

Despite their inevitable success the tents look different. Which one is number one? Who

was the best architecture and the best builder?

What happens if we try to reflect it in organizational strategy?

Let’s look at the Competence Emergence Concept…

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1.1. THE COMPETENCE EMERGENCE CONCEPT (CEC)

– ORGANIZATIONAL LEVEL:

1.1.1. CEC, STAGE I:

FROM SYNTHESIS OF CAPABILITY TO ORGANIZATIONAL SKILFULNESS

1.1.1.1. THE SYNTHESIS OF CAPABILITY

The English language dictionaries distinguish between ability, capacity, capability,

skilfulness and competence:

Ability comes from French ‘habilite’ (empowers) and can be defined as talent,

suitableness, fitness, aptitude, possession of the means or skill to do something. The

ability is human characteristic feature (Oxford Dictionaries, 2016)1.

Capability is a power or ability to do something2, able to take in (coming from Latin:

‘cap-ěre’ – to take), a quality of being capable; receive, contain, or hold. As a feature it is

not reduced to humans, it may be organizational (Oxford Dictionaries, 2016)3

Skilfulness (= an organizational skill) is “the quality of being skilful; dexterity” (Murray,

et. al., 1978, p. 140), it is “having or exercising knowledge”. The skilful is defined as:

“having practical ability or skill; having a good knowledge of” (Brown, p. 2882).

Competence coming from compete (Latin ‘competere’): to strive together (Collins English

Dictionary, 2014); Competence can be defined into:

1) the ability to do something successfully or efficiently, as sufficiency of qualification,

capacity to deal adequately with a subject, adequacy of a work,

2) as rivalry in dignity or relative position, vying (Oxford Dictionaries, 20164) .

1 Oxford Dictionaries (2016) English Language Dictionary, Oxford University Press, Oxford, on 05.10.2016 at: https://en.oxforddictionaries.com/definition/ability 2 Capability ≠ ability; capability = ability to do something 3 Oxford Dictionaries (2016) English Language Dictionary, Oxford University Press, Oxford, on 05.10.2016 at: https://en.oxforddictionaries.com/definition/capability 4 Oxford Dictionaries (2016) English Language Dictionary, Oxford University Press, accessed on 05.10.2016 at: https://en.oxforddictionaries.com/definition/competence

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Capacity can be defined as: the ability to receive, hold, or absorb, (from Latin: capacity,

capāx- spacious (Collins English Dictionary, 20145); able to take in, that can contain

(Murray, et al. 1978). The term capacity carries stronger accent on physical aspect of

possessing- its volume (receive or contain, holding power, content, containing space, area

or volume).

Translating these definitions into strategic management language we could say, that:

THE ORGANIZATIONAL CAPABILITY IS:

- A POTENTIAL CARRIED BY THE ORGANIZATION

e.g. the capability (potential) to control the supply chain

- AN ORGANIZATIONAL QUALITY OF BEING CAPABLE TO DO SOMETHING

e.g. to be capable (to have potential) to control the supply chain

There are two major features of organizational capability: its probability of activation (may

be activated) and temporality (activity just-in-time)6. However, to create the potential for

development, the organization requires necessary assets. As Czakon stated (2009, p. 288):

“Possessing the resources is not the sufficient condition to create the value for the

stakeholders. It is the necessity of the skilful use which leads to the competence”.

Hence, based on the analysis of retailers’ performance and adopting the linguistic method

we can divide the term capability into two morphemes: cap- and -ability7. This way we can

observe the process of capability synthesis:

C A P A C I T Y & A B I L I T Y => C A P-A B I L I T Y

In the process of capability synthesis we can select two components: organizational capacity

and organizational ability. In that perspective the physical volume carrier - a capacity is a

5 Collins English Dictionary (2017) accessed on 02.04.2017 at: http://www.thefreedictionary.com/capacity 6 Potential- “Having or showing the Capacity to develop into something in the future; Latent qualities or abilities that may be developed and lead to future success or usefulness, the possibility of something happening or of someone doing something in the future” (Oxford English Dictionary Online, accessed on 05.11.2016, at: https:/en.oxforddictionaries.com/definition/potential) 7 Separating the term capability into two morphemes is the assumption adopted by the author of that thesis

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tangible component of capability, a physical potential to adoption and utilising by the

organization. It includes the factors like knowledge, a financial capital, a personnel, a

factory, the material resources, the patents, a technology (including processes), a brand,

the products and services etc. Ability - a second component of the capability - intangible

and unmeasurable - is only human, personal, individualistic factor, for the purpose of

that dissertation defined as Human Factor.8 It is one of the determinants of

capability/competence uniqueness9. It describes the human specific factors like aptitudes,

learning, creativity, imagination, empathy, intuitiveness, feeling, emotionality, intuition

etc. (Exhibit 4.1).

Exhibit 4.1. The Competence Emergence Concept: The capability synthesis process (own

elaboration)

1.1.1.2. THE INDUCTION OF ORGANIZATIONAL CAPABILITY

Two processes: the capability synthesis and the induction are the parts of one of the

organizational actions: the organizational capability activation. These processes lead to the

appearance of the capability outcome: the organizational skilfulness (or unskilfulness). The

8 More information about human component of capability would be described in the next chapter 9 American Psychological Association states that “personality refers to individual differences in characteristic patterns of thinking, feeling and behaving” (at: http://www.apa.org/topics/personality/ on 03.005.2016)

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appearance of skilfulness- allowing to do something well, utilising learning and practice

(ed. Lesley, 1993, p. 2882), enables organization for developing its proficiency, the

expertness in chosen area of organizational performance. Activating the capability leads to

the internal organizational change reflected in the appearance of a capability outcome. That

outcome can be judged as organizational skilfulness or unskilfulness (Exhibit 4.2) and allow

the organization to utilise collected knowledge and practice. The organizational capability

alone cannot provide the value, just because the potential exists. To create a valuable

outcome for the organization it must be inducted in the process. Hence, we can state that,

the capability alone is not dynamic – dynamic is a process of organizational potential

activation.

Exhibit 4.2. The Capability Activation Process: The Processual Dynamics (own elaboration)

THE EXAMPLE:

Looking at the example from hypermarket perspective we can say, that to create an organizational skill

for introducing hypermarket private brand, the following organizational components of capability are

needed:

- An organizational capacity- e.g. a retailer’s board decision about starting hypermarket brand selling,

enough capital to invest in private brand, knowledge about the market and competitive to launching

brand products, knowledge about customers’ needs and shopping habits, the experienced employees

to run the operation, etc.

- An organizational ability (Human Factor)- e.g. a fast learning Project Manager with good imagination,

business instinct, creativity, empathy, passion for work and creation, etc. The synthesis of these

components leads to appearance of organizational capability, that induced may provide a positive

outcome: a skill to start hypermarket own brand.

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The transition of the organizational potential (a capability) into the organizational outcome

(a skilfulness) is the first stage of the Competence Emergence Concept (CEC). At that stage

it is an organization, that decides whether the capability activation outcome becomes an

organizational skilfulness or unskilfulness (Exhibit 4.3).

Exhibit 4.3. The CEC, Stage I:

From capability synthesis to organizational skilfulness/unskilfulness (own elaboration)

The capabilities, that were activated, could metaphorically be defined as the dynamic

capabilities. Dynamism of the organization is capability activation dependent and it is

reflected in the organizational changes (processes and their outcomes). Referring to a trendy

Dynamic Capabilities View, we can say that:

A DYNAMISM OF THE ORGANIZATION IS RELEASED

IN THE ACTIVATION PROCESSES OF ITS CAPABIITIES: A SYNTHESIS AND AN INDUCTION

Summarising the above:

1/ The appearance of the organizational skill is a result of the three following organizational

processes: the synthesis of capability, the induction of the capability and the judgement of

the capability outcome,

2/ The organizational skilfulness is activated and positively judged organizational capability.

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1.1.2. CEC, STAGE II:

FROM ORGANIZATIONAL SKILFULNESS TO COMPETITIVE ADVANTAGE

1.1.2.1. THE PROCESS DESCRIPTION

Mixing the capability with the skilfulness or the competence is like putting an equal sign

between a probability and an occurrence, and it is a source of confusion in the strategic

management literature discussing sources of competitive advantage (Priem & Butler, 2001

in: Dougherty, Barnard & Dune, 2004; p. 3, Drejer, 2002). The proposed by the author of

that dissertation the Competence Emergence Concept meets that challenge: in the CEC

perspective it separates all three phenomena and the organizational skilfulness becomes a

link between the organizational potential (capability) and the organizational

competitiveness (competence) in the process of building organizational advantage (Exhibit

4.4).

Exhibit 4.4. The CEC, Stage II: From the skilfulness induction to the organizational advantage

(own elaboration)

The organizational skilfulness induction, in order to achieving the expected return, becomes

a starting point of that stage of the Competence Emergence Concept (Exhibit 4.4). In the

process of creating the organizational advantage, the organization, through its skilfulness

activity, impacts the external environment. That should lead to the environmental feedback:

a change within the external environment. Using the other worlds: the external environment

judges the organizational performance and responds to it (or not). If the environment

responds to the organizational impulse, and its answer is enough strong to stimulate the

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changes within the organization- it becomes reflected in the positive or negative changes of

the organizational performance indicators (organizational feedback). The external

environment makes two types of judging of the organizational skilfulness activity: a

qualitative assessment, when it decides, whether there is a market demand on the

skilfulness or not, and a quantitative assessment, treating about the scope (amount) of

demand on the skilfulness.

It is important to signify, that the organizational feedback assessment cannot be limited only

to the skilfulness performance indicators (e.g. sales level or profit coming from that

activated skilfulness). The organizational feedback has to include the variety of

organizational performance indicators, because a positive return of one activated skilfulness

may negatively influences the return of other organizational skilfulness’s and in total sum-

to deliver negative return to the organization. That is why the decision, whether the

activated organizational skilfulness can be upgraded to the level of the organizational

competence or incompetence, is not taken only by the external environment. Two conditions

have to be fulfilled to upgrade the organizational skilfulness to the higher level of

organizational performance- a competence:

1) The skilfulness activity has to force a meaningful change within the external environment

reflected in the appearance of the meaningful, from the organizational point of view, market

demand on skilfulness (qualitative and quantitative assessment).

2) The environmental adjustment has to create the feedback to the competence holder,

changing positively the organizational performance.

The activated skilfulness, that does not lead to the changes of the performance indicators,

cannot be upgraded to the upper level- as organizational competence (or incompetence). It

stays itself- the operational skill (at the operational level of its holder).

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1.1.2.2. VALUATION OF ORGANIZATIONAL CAPABILITY, SKILFULNESS AND COMPETENCE

In the process of competence emergence in the CEC perspective we can draw two major

stages: from capability to skilfulness and from skilfulness to competence. These stages

constitute three organizational phenomena: the capability, the skilfulness and the

competence. Despite the different publications discussing the value of the organizational

competences and the capabilities provoking the temptation to equalization of the terms,

that approach cannot be adapted in the CEC. The Competence Emergence Concept

differentiates between value of the organizational capability, the skilfulness and the

competence.

ORGANIZATIONAL CAPABILITY VALUATION

The valuation of the organizational capability as an organizational potential is taken by its

organizational holder and may become a great challenge for manager (the process is based

on the estimations). The expected value of the activated capability may differ from the

value of emerged competence. The capability located at the operational level of the

organizational performance10 may be activated into the strategic competence (leading to

strategic advantage), and the activation of the strategically located capability does not

guarantee the appearance of the strategic competence (Exhibit 4.5). We can define two

major sources of the potential inconsistencies, between the expected value level and

achieved value level of the organizational potential. First one is an independent reaction of

the external environment to the activated skilfulness and the power of the environmental

feedback influencing the scope of organizational change (an impact on organizational

performance). This is one of the major reasons why the organizational success forecasting is

so challenging. The second source of the potential inconsistencies is the organizational

ability to correctly predict a value of the synthesized capability, its induction process and

the environmental judgement. It is the clue of Human Factor performance, its critical and

not substituted role in the competence emergence process. That is why, if we compare the

capabilities and the competences from their value point of view and their environmental

impact, we can say, that value and impact of capabilities we can only estimate and predict,

when value and environmental impact of competence is tangible and measurable through its

outcome.

10 The term “operational activity” is used metaphorically and describe the potential that should lead to change on operational level of organization

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Exhibit 4.5. The inconsistencies between expected capability value and its final outcome

(competence/incompetence) (own elaboration)

THE EXAMPLE:

The famous example in retailing describing inconsistency between expected value (value of capability)

and achieved value (value of competence) is a story of dunnhumby – the data mining company, that

from 1995 in twenty years has become Tesco’s “family silver”, valuated in 2014 between £2bn to £3bn

(Richards, 2014). In 2014 it was a global Tesco owned business analysing shopping transactions from

700 million households representing $500 billion in retail sales (dunnhumby, 2014) (Table 4.5).

“When dunnhumby began working with U.K. retail giant Tesco on what would become the successful

Clubcard program, it was just a scheme of one Tesco executive to move beyond typical loyalty programs

and tap into what the customer was actually buying – and would want to buy. Loyalty expert dunnhumby

helped Tesco transform a wash of data into insight into the customer” (Humby, 2004).

In 1995 nobody was expecting that activation of capability “to find the stories that occur in the very

detailed transactional data and understanding how customer behaviour drives […] retail decision model”

(Humby, 2004) will end up as one of the strategic competences leading local hypermarket chain to

competitive advantage on the global scale.

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ORGANIZATIONAL SKILFULNESS VALUATION

As it was mentioned before, the valuation of the organizational capability outcome (a

skilfulness) depends on the two phenomena assessments. The qualitative and quantitative

assessment of external environment decides about presence and size of the demand on the

skilfulness. The organizational assessment is based on the comparison of its skilfulness return

and its impact on the organizational performance in the total perspective (not limited to the

skilfulness performance indicators). Hence, we can select the following situations:

a/ Positive Organizational Assessment & Positive Environmental Assessment

Skilfulness Outcome: Organizational Competence

THE EXAMPLE:

Tesco’s shoppers increased their sales (positive skilfulness outcome) after positive reaction to

launched promotion ‘Every little helps’ (induced skilfulness) (Sharpe & Bamford, 2000)

b/ Negative Organizational Assessment & Positive Environmental Assessment (drop in KPIs)

Skilfulness Outcome: Organizational Incompetence

THE EXAMPLE:

A retailer launches new washing powder perfectly cleaning and softening the clothes, that

becomes loved by the customers (skilfulness assessed externally as positive). However,

introducing that product decreases the total sales value of other washing products by 30%,

because the consumers stop buying other products with higher margin: washing powders and

fabric softeners in liquids (outcome of skilfulness assessed internally as negative- as

incompetence11).

c/ Positive Organizational Assessment & Negative Environmental Assessment

Skilfulness Outcome: Organizational Incompetence

THE EXAMPLE:

Introducing the self-checkouts systems in the stores reduces the costs of operations by jobs

reduction (skilfulness assessed internally as positive). However, the negative customers’

reaction- “taking jobs away” approach, physically tiring for mothers with small kids or older

11The competence emergence depends on positive assessment by organization (the sum of external outcome and internal outcome has to have positive influence on organizational performance to allow for skilfulness promotion to competence)

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consumers, braking the emotional relationship connecting the consumers with working staff

(negative assessment of skilfulness) leaded some retailers to like Ikea or Albertsons to remove

the check-out system, as they found it as their incompetence12 (Thibodeau, 2013)

d) Negative Organizational Assessment and Negative Environmental Assessment

Skilfulness Outcome: Organizational Incompetence

THE EXAMPLE:

Entering the US market by Tesco appeared as total failure from both points of view:

a) the organizational – problems with achieving break-even point,

b) the external environment – the customers not moving to Tesco stores from their

favourite stores (the emergence of strategic incompetence) (Felsted, 2013).

The best (for organization) situation appears when the both judges- the organization and

external environment, define the organizational skilfulness outcome as positive. The

problem may appear, when one side finds the outcome as negative. In that situation the

organization has to summary the potential loss and advantage, estimating the competence

short-term and long-term impact on its performance, and takes a decision about skilfulness

promotion.

12 The sum of assessment appeared as negative for the retailers

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ORGANIZATIONAL COMPETENCE VALUATION

THE ORGANIZATIONAL COMPETENCE IS AN ORGANIZATIONAL SKILFULNESS,

THAT HAS PROVIDED A POSITIVE RETURN TO ITS HOLDER,

REFLECTED IN THE POSITIVE CHANGE IN THE ORGANIZATIONAL PERFORMANCE

(INFLUENCING POSITIVELY ORGANIZATIONAL KPIs)

Hence, analysing the organizational skilfulness outcome we investigate its two features- its

value and power:

The skilfulness outcome value, its upgrade to competence or incompetence, depends on

the quality of its impact on its holder’s performance: whether it is positive or negative

impact.

The skilfulness outcome power: operational, strategic and competitive strategic

competence, depends on the quantity of its impact on the organizational performance of

its holder and its competitors. Using the other words: the skilfulness outcome may influence

the operational or strategic changes within its holder and its competitors. The change limited

to the skilfulness holder leads to defining the competence (incompetence) as operational or

strategic. However, when the change becomes reflected in the strategic performance

indicators of the skilfulness holder and its competitors, we can talk about emergence of

competitive strategic competence.

THE EXAMPLE:

Let’s look at the new product launched successfully by hypermarket’s chain: own new label: “Honey” a

moisturising vanilla lipstick targeted to the mothers and daughters. The hypermarket hasn’t been selling

the beauty products yet (despite the detergents). The strawberry lipstick introduction is a testing step of

its new skilfulness.

The new product appears on the hypermarket shelves and becomes positively valuated by the

customers. Value of the lipstick’s sales is measurable, we can see and assess the positive outcome of

induced skilfulness and upgrade it to the organizational competence. The performance of the

organizational competence starts to be reflected not only in the number of organizational changes

(operations’ adjustments, new suppliers), but also in hypermarket KPIs (sales growth, profit boosting),

what leads to strategic changes, enlarging store’s assortment by beauty products and development of

totally new cosmetic line. The diversification into beauty products and positive return in total KPI’s of

hypermarket allow the competence to achieve strategic impact and to become strategic competence.

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The boosting sales of “Honey Line”, incoming flow of new customers increases the hypermarket market

share, what becomes reflected in the negative changes of hypermarket’s competitors performances

(drop in competitors’ KPIs). In that perspective- of achieving negative impact on competitors’ strategic

advantage, the successful strategic competence becomes the hypermarket competitive strategic

competence.

However, the opposite situation may also appear: when the organizational competence becomes

incompetence:

After successful introduction of lipstick and “Honey Line” and diversifying into cosmetics, the scandal

hits the newspapers headlines: few “Honey Line” ingredients are toxic and my cause the skin diseases

and allergic reactions. It may destroy positive image of the retailer and lead to drop not only cosmetics’

sale, but also in total sales of retailer. The scope of disaster reflected in environmental assessment

change leads to transition of organizational strategic competence into strategic incompetence. If it

influence positively the strategic KPI’s of other hypermarket (reflected in their market growth) we can

talk about emergence of competitive strategic incompetence.

As we can see in both situations from the example above, a change introduced by the

organizational skilfulness may become an advantage or a disadvantage for its organizational

holder and may vary. The example provided below touches the problem of skilfulness

outcome instability. The competence may turn into incompetence and the incompetence

may become the organizational competence. Let’s look at Walmart bribing competence:

THE EXAMPLE:

The interesting example is a scandal with Walmart bribing the Mexican Government officials “over the

course of 10 years to fast-track store openings” (Schoenberg & Robinson, 2016). Initially positive

outcome (easy and fast new market entrance) of activated skilfulness (a competence to entering the

market through corruption of officials) has changed into its negative outcome: an international scandal

and Walmart facing “a class-action lawsuit accusing the retailer of defrauding shareholders by

concealing suspected bribery to help it expand faster in Mexico” (Schoenberg & Robinson, 2016).

From the observer perspective the situation is an example of transition of organizational competence

(successful secret bribing) into incompetence (unsuccessful bribing involving the huge cost of

disclosure). However, it is Walmart’s secret whether the cost of corruption disclosure has been taken

into account in planning the foreign investment, and in the final result the corrupting skilfulness after

scandal disclosure was still valuated as Walmart’s competence (despite the harm of hypermarket image

and the penalties as extra costs).

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Summarising the above, we can distinguish three types of organizational competences in

accordance to its power (Exhibit 4.6):

> the operational competence – providing positive change on its organizational holder

operational activities,

> the strategic competence – providing positive change on its organizational holder strategic

activities,

> the competitive strategic competence – providing positive change on its organizational

holder competitive strategic activities and negative change on the strategic activities of the

competitors of the competence holder.

Exhibit 4.6. The types of organizational competences (own elaboration)

Following the statement above, as we can see at the next example- we cannot put the equal

sigh between the strategic competence and the competitive strategic competence.

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THE EXAMPLE:

Tesco Plc (a retailer) is going to diversify its activity into wholesaling, by buying the Booker- the cash

and carry business supplying goods to the small retailers (Vandevelve, 2017). It is a part of recovery

plan after last few years of retailer’s strategic disasters, and Tesco CEO, “Mr Lewis argues that higher

sales are the key to higher profits, and that Booker — which will add about 10 per cent to Tesco’s

revenue line — is an attractive way to deliver it” (Vandevelde, 2017).

From the Competence Emergence Concept perspective we can say, that diversification into wholesaling

may have a strategic impact on Tesco, which will be reflected in changes of strategic Tesco’s KPIs: the

sales volume increases, the potential geographical diversification (successful move to Indian market

thanks to Bookers’ joint venture with the Future Consumer (FCL) - part of The Future Group- the biggest

India wholesaler (Malviya, 2016). The strategic growth of Tesco’s KPIs as the result of The emerging of

the new Tesco’s competence to run the wholesaling business may end up as strategic competence.

However, to become competitive competence the strategic changes have to impact Tesco’s

competitors. For example: by reducing the number of small retailers in the UK by supplying them goods

in higher prices and this way dramatically improving Tesco’s market share.

1.1.2.3. COMPETENCES. INTERCONNECTEDNESS AND TRANSFERABILITY

THE COMPETENCES INTERCONNECTEDNESS

The organizational competences are organizationally interconnected (horizontally and

vertically). Looking from a vertical perspective we can state, that to achieve a goal, the

higher level competences require the presence of the lower level competences. Without

higher level competences the lower level competences would not exist.

THE EXAMPLE

As we can see on example of Tesco and dunnhumby, a strategic competence of increasing a control

over the customer’s choice13 would not be possible without the lower level technological competences

like consumer data collecting and analysing, and vice-versa: the technological competence wouldn’t be

able to supply its value without top management competence of launching the loyalty cards system to

its customers (Humby, 2004).

13 “Tesco being the only people who’ve successfully kept a standalone loyalty card working in their business. And I think it’s because they’ve used the data well, and it makes economic sense for them” (Humby, 2004 at: http://customerthink.com/clive_humby_tesco_shines_at_loyalty/)

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Despite their mutual dependence, the competences are hierarchical (operational, strategic

and competitive strategic). Similar situation appears within the horizontal perspective: the

competences at the same level complement each other.

THE COMPETENCE TRANSFERABILITY

If we look at the organizational competence as function of variables, there are the five

factors that have influence on the instability of skilfulness outcome (competence or

incompetence): two organizational capability components: the capacity and the ability, and

three context factors: the external environment, the organizational environment and time

(Exhibit 4.7).

Organizational Competence = ƒ {Capability Factors, Context Factors}

Exhibit 4.7. Variables of organizational competences: a capability and context factors

(own elaboration)

Analysing the competence factors it is worth to signify, that as organizational as external

environment’s demand for the organizational competence has a critical impact on the

competence value and power assessment. Without the demand placed in the specific context

(internal or external environment) the competence will never supply expected value. Hence

we can state, that value of the competences is environmental context dependent, and it

is one of the major reasons, that the competence may not be copied easily. One competence

may have value for one company, but for the other company that transferred competence

would not bring expected value.

The competences’ transferability depends on

the uniqueness of binding of the competence variables.

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1.1.2.4. THE COMPETITIVE ADVANTAGE IN THE CEC PERSPECTIVE

AND DEFINITION OF STRATEGY

Both words- an advantage and to advance come from Latin abante: before and Old French:

avant: before, away (American Heritage Dictionary, 2016).

To advance, advancing is to accelerate the growth or progress of, to bring or move

forward, to raise a higher rank (Meriam-Webster, 2017).

The advantage (a none) is a condition giving a greater chance of success, superior or

more favourable position or power, benefit or profit.

In the CEC perspective the organizational advantage is a positive (successful) outcome of

the organizational competence activity. Using the other words we can state, that:

THE ORGANIZATIONAL ADVANTAGE

IS

THE OUTCOME OF ORGANIZATIONAL COMPETENCE,

THAT ALLOW THE ORGANIZATION FOR IMPROVEMENT OF ITS PERFORMANCE RESULTS

That outcome of competence may appear at the different levels of the organizational

performance, from operational through strategic to competitive strategic activities. As it

was mentioned in chapter about competence valuation, the crucial from organizational

competitiveness point of view is, that the organizational competence impact may not be

limited only to possessing its organization, but it can be found in the performance of the

competitors of the competence holder. As it is presented on Exhibit 4.8, when we analyse

the power of competence impact on the organizational performance, we can define two

levels of organizational change: operational and strategic, that are reflected in changes of

the organizational performance indicators. However, if we look at the locus of organizational

change- the competence may create changes in two objects: possessing it organization (the

competence holder14 and its competitors.

14 For the purpose of that dissertation the organization possessing the competence is defined as the competence holder or just holder

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Exhibit 4.8. Types of organizational advantage and their sources (own elaboration)

In the result we can differentiate between three types of competences: the operational

competence, the strategic competence, the competitive strategic competence, and their

outcomes - the organizational advantages. To its organizational holder the operational

competence provides the operational advantage and the strategic competence – the

strategic advantage.

Exhibit 4.9. The appearance of competitive strategic advantage (own elaboration)

The competitive strategic advantage of organization appears only, when the competitive

strategic competence provides strategic advantage to its holder (Exhibit 4.9) and strategic

disadvantage to the holder’s competitors (negatively impacting the strategic key

performance indicators of the organizational competitors). Using different perspective we

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can say that, the change in the one organization strategic performance indicators influences

the change in the second organization performance indicators and the emergent strategic

advantage of the first organization becomes its strategic competitive advantage (Exhibit

4.10).

Exhibit 4.10 The levels of organizational advantage and the locus of emerging changes in

organization (own elaboration)

Following that path we can say, that the emergence of competitive strategic advantage of

the one organization is dependent on the emergence of competitive strategic disadvantage

of its holder’s competitors’ strategic performance indicators. Hence, when one organization

within the industry achieves strategic competitive advantage, the other organization/s must

lose that advantage.

Summarising the above we state that:

1.

THE INTERORGANIZATIONAL COMPETITION

IS A FLOW OF COMPETITIVE STRATEGIC ADVANTAGE BETWEEN THE COMPETITORS

2.

THE COMPETITORS ARE THE ORGANIZATIONS,

THAT HAVING SIMILAR STRATEGIC GOALS,

THROUGH THEIR COMPETITIVE STRATEGIC COMPETENCES’ ACTIVITIES,

MAY NEGATIVELY INFLUENCE ONE ANOTHER ON THEIR STRATEGIC PERFORMANCE15,16

15 One competitor changing its strategic KPI’s influences changes of strategic KPIs of its competitors 16 The competition may allow some players for a coopetition- a cooperation between few competing organizations in order to gain strategic competitive advantage. That mutual “anticipation” (Nash, 1953) enables few players to achieve common competitive advantage against the other competitors (Neumann & Morgenstern, 1944; Nash, 1950, 1953; Dagnino & Paula, 2002; Dagnino, Le Roy, Yami & Czakon, 2008; Czakon, 2009, 2012; Stańczyk-Hugiet, 2011; Zakrzewska-Bielawska, 2013; Niemczyk & Stańczyk- Hugiet, 2014), to realise their strategy despite the “side-payments within a commodity” (Nash, 1953, p. 129). One of the examples of utilising the

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3.

THE ORGANIZATION ACHIEVES THE STRATEGIC COMPETITIVE ADVANTAGE,

WHEN ITS PERFORMANCE INFLUENCES NEGATIVELY

STRATEGIC ADVANTAGE OF THE COMPETITORS OF ORGANIZATION

Hence:

THE STRATEGIC COMPETITIVE ADVANTAGES OF COMPETITORS

ARE MUTUALY DEPENDENT

What is a strategy in the perspective of Competence Emergence Concept? If we adopt the

definition, that from Greek ‘stratēgia‘ means ‘generalship’17 and according to Oxford

Dictionaries a ‘generalship‘ is a ‘skill or practice of exercising military command’18,

hence we can say, that, a strategy is a kind of organizational competence (a positively

judged organizational skilfulness), that activated leads to emergence of organizational

strategic advantage.

However, we have to remember that ‘strategic competence’ is a category of competence,

its description, a judging scheme during the testing process of the organizational

competences. It is a strategic competence format (“competence to strategizing”), that

defines the conditions (quality and quantity) the organizational competences have to meet,

to become the organizational strategic competences. Reassuming we can state, that:

ORGANIZATIONAL STRATEGY

IS THE ORGANIZATIONAL PERFORMANCE19

LEADING TO ACHIEVING STRATEGIC ADVANTAGE

Hence, using other words we can state, that these performances (activated competences),

which create a change at the strategic organizational level can be defined as strategic. In

that perspective what is not strategic is operational. The operational are organizational

skilfulness and other competences.

coopetition within the hypermarket industry is creation of retail organizations, for e.g. British Retail Consortium (Havinga, 2015) or cartels (Wallop, 2007)

17 Oxford Dictionaries (2017) accessed 17.04.2017, at: https://en.oxforddictionaries.com/definition/strategy 18 Oxford Dictionaries (2017) accessed 17.04.2017, at: https://en.oxforddictionaries.com/definition/generalship 19 Organizational Performance is defined as the organizational behaviour measured in the organizational KPIs

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1.2. KNOWLDEGE INCREMENTALISM

IN THE COMPETENCE EMERGENCE CONCEPT

1.2.1. KNOWLEDGE, INFORMATION & DATA

According to Oxford Dictionaries (2016) the term knowledge comes from the verb ‘to know’

which means ‘to be aware of through observation, inquiry, or information’. Hence,

‘knowledge’ by Oxford Dictionaries (2016) is described as “facts, information, and skills

acquired through experience or education, the theoretical or practical understanding

of a subject, awareness or familiarity”20. Cambridge Dictionaries Online defines

knowledge as “understanding of information about a subject that you get by experience

or study, either known by one person or by people generally, the state of knowing about

or being familiar with something”21. It is significant to distinguish between knowledge,

information and data. They should not be used interchangeably (Dretske, 1981, in:

Lichtarski, 2009, p. 85). Information derives from the word ‘to inform’ which means ‘give

(someone) facts or information, tell” (Oxford Dictionaries, 201722). Hence, information

are the ‘facts provided or learned about something or someone, what is conveyed or

represented by a particular arrangement or sequence of things” (Oxford Dictionaries,

2017). Finally, ’data’ are “facts and statistics collected together for reference or

analysis” (data is tangible material collection) (Oxford Dictionaries, 2017).

The Search SQL Server defines information as “stimuli that has meaning in some context for

its receiver”23. When information is entered into a storage it becomes a data. Input data we

can storage as information and transfer it externally as data, or we can process into

knowledge. However, the processing information from data into knowledge requires two

necessary environmental conditions: awareness of information and meaning for potential

analysis and synergy (Exhibit 4.11).

20 Oxford Dictionaries, Language matters: at: http://www.oxforddictionaries.com/definition/english/knowledge on 09.04.2016 21 Cambridge Dictionaries Online, at: http://dictionary.cambridge.org/dictionary/english/knowledge, on: 09.04.2016 22 Oxford Dictionaries, Language matters: at: https://en.oxforddictionaries.com/definition/inform, on: 09.04.2017 23 SearchSQLServer.com, information, at: http://searchsqlserver.techtarget.co m/definition/information on 12.03.2016

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Following the definitions above we could state that:

INFORMATION TO BECOME KNOWLEDGE REQUIRES HUMAN TRANSITION:

THE HUMAN AWARENESS AND UNDERSTANDING

Only under these conditions information becomes knowledge and can be assessed as value.

Both, knowledge and information can be transported by two groups of organizational

carriers: animated- human: personnel, and inanimate (e.g. data systems, correspondence,

reports and analysis). However, despite the impressive technology development and the

constant technological trials, learning and knowledge creation is still only human feature

and it requires the human capabilities to appear (Stańczyk-Hugiet, 2007). Thus, the manager

in the organization must know how to manage the creating knowledge activities and to

understand of what exactly constitutes a core capability/competence (Leonard-Barton,

1995, in: Drejer, 2002, p. 79).

Exhibit 4.11. The conditions of knowledge appearance (own elaboration)

Data has to carry value to become knowledge for organization. “Knowledge to be useful has

to be well managed within an organization” (Lichtarski, 2009, p. 83-84).

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1.2.2. THE ORGANIZATIONAL LEARNING AND THE CEC

Learning is defined as the acquisition of knowledge or the skills through study, experience,

or being taught (Oxford Dictionaries, 2016)24. Learning is reflected in the change which may

appear at the theoretical or the empirical level of its application. It is a continuous process

comprising of the following stages (Exhibit 4.12):

1/ First stage - Information receiving from the environment:

The sources of information may lie in the organization or the external environment, as

knowledge can flow within the organization or between the organization and the external

environment. At that stage the information-knowledge flow may occur between the

animated (humans) and inanimate (the technology) knowledge carriers25.

2/ Second stage - Selection of valuable knowledge from received information and

assessment of knowledge potential (human specific):

The second stage is characteristic only for human and requires knowledge awareness and

knowledge value rating (assessment of knowledge potential) for the organization utility.

That is why that stage requires the individual human experience of knowledge. At this stage

it is personnel, who decides about direct utility of knowledge (empirical or theoretical

application), or transferring knowledge to data storage for using in the later (e.g. in reports,

mail, data systems etc.).

3/ Third stage - Empirical application of knowledge (human specific):

The utility (adoption) of selected valuable knowledge in empirical application (introduction

of knowledge-based activity) is the third stage of learning process. Because of its character

– adoption of knowledge is also human specific stage. It results in the appearance of new

information including knowledge.

4/ Fourth stage – Appearance of a new information including knowledge:

Appearance of the information including knowledge is simultaneously the last stage of the

learning cycle and the first stage of a new process of learning. Using the other words: the

end is a new beginning. It is a continuum process.

24 Oxford Dictionaries, Language matters, www.oxforddictionaries.com/definiton/english/learn 25 The flows can appear in different directions between information - knowledge carriers: animated- animated, animated-inanimate, inanimate-animated, inanimate-inanimate

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Exhibit 4.12. Learning process: from valuable information to valuable information (own elaboration)

Thus, learning process is carried out in the never ending cycles during a lifetime of

organization and can lead to the change and innovation. Knowledge is present at every level

and the stage of organizational activity. It is value of knowledge, hidden in the information

and its application, that determines the success of the learning process. It is worth to

remind, that both are still the human dependent factors (despite a rapid technology

development).

The acquisition and recombination of dispersed knowledge is primary among such

innovations of MNEs (Dunning & Lundan, 2008, p. 6). The competences have to be developed

all the time for providing a gateway to the new opportunities, that the organization must

exploit in order to sustain its dynamics, to survive. The knowledge and the competencies,

that the firm is based on, must also evaluate (Leonard-Barton, 1995 in: Drejer, 2002, p. 79).

The organization capability activation process always requires knowledge (processed by

employees valuable data ready to reprocessing) (Exhibit 4.13). It is knowledge, hidden in

the capabilities, proved in the skilfulness, the operational competences, the strategic

competences, that is involved in the organizational processes (Eisenhardt & Martin, 2000;

Zollo & Winter, 2002; Teece, 2007; Bowman & Ambrosini, 2003 in: Bowman & Ambrosini,

2009).

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Exhibit 4.13. The Competence Learning Cycle: Knowledge output as knowledge input

(own elaboration)

From the CEC perspective we could state, that knowledge is another crucial factor of the

capability activating process and a real value of knowledge appears with its utility. The

knowledge-output, appearing as a result of the process of the competence emergence,

becomes a valuable input to the next competence emergence process (Exhibit 4.14).

Exhibit 4.14. Example of knowledge incrementalism in competence emergence processes

(own elaboration)

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Knowledge is immanent part of the competence appearance, hence the organizational

learning process is carried out in the cycles. Following that path, we can state that,

knowledge is critical in providing returnable rent by the competences.

THE COMPETENCE GUARANTEES THE RETURNABLE RENT FOR THE ORGANIZATION

UNDER ONE CONDITION:

IT HAS TO SUPPLY THE VALUE OF CREATED KNOWLEDGE FOR

SUCCESSFUL APPLICATION IN THE PROCESS OF EMERGING OF THE NEW COMPETENCE

As the competence emergence process and learning process are the cyclical dynamic

phenomenon, the end of one cycle leads to beginning of new cycle (Exhibit 4.15). Hence, in

in the perspective of change driven by the competence activation we can follow Stańczyk-

Hugiet (2007), Mintzberg, Ahlstrand & Lampel (1998, in: Stańczyk- Hugiet, p. 27) and state:

that learning supplies the best platform for dealing with the change and uncertainty.

Exhibit 4.15. The organizational cyclical phenomenon: the emergence processes and learning

processes of different competences of organization (the outcome of one cycle

(e.g. A) becomes the starting asset for new cycle (e.g. B), (own elaboration)

The capability activation process provides learning value for the organisation: through

engaging knowledge, stored as the organizational capacity (tangible part of capability) and

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through creating new valuable knowledge, as a capability outcome. Knowledge gained in one

capability activation becomes a component (capacity) for the new capability synthesis – it

raises incrementally (Exhibit 4.15). Breaking that rule of incrementalism, or incompetence

in knowledge transition (by employees) lead to inhibition of the processual dynamisms within

the organization or to organizational chaos, both resulting disadvantage.

“Alavi and Leidner (2001 in: Yip at al. 2013, p. 2) claimed that knowledge creation as a

continual interplay between the tacit and explicit dimensions of knowledge and growing

spiral flow of knowledge moves through individual, group and organizational levels”. “One

of the strategic capabilities of the firm is its ability to integrate knowledge (Grant, 1996)

and to transform dispersed, tacit, and explicit competencies into a wide body of

organizational knowledge (Nonaka, 1994) (Lorenzoni & Lipparini, 1999, p. 5).

In the competence emergence process important is not only a final result (e.g. competitive

product), but also knowledge- a created added value for the organisation. New knowledge

appears at all the stages of the competence emergence process: from synthesis of capability

to competence or incompetence appearance. However, the appearance of an organizational

competence is not a condition to the organizational knowledge appearance. The negatively

evaluated capability outcome (incompetence), despite its failure, may become the source

of the advantage in the future: in the next Competence Emergence Cycle. That is why, the

organizational potential for learning (knowledge creation and employment) increases the

probability of appearance of the successful strategy. The biggest failure in the organizational

management appears, when the organization does not learn on its mistakes. The success of

organization lies not only on learning from success, but also learning from failures.

However, how it was mentioned by Stańczyk-Hugiet (2007) we have to remember, that

knowledge is a human dependent asset (in reality it is not organization, that is learning-

these are its employees). That is why the success of knowledge utility lies in its proper

adoption- a selection of the specific, worth interest information, the analysis and creation

of data, which may supply advantage for the organization. It sounds like an easy formula for

success (routines!), but the secret is hidden in the intangible aspects of the capability

synthesis process- the “magic” utility of Human Factor. A personal talent of employee- his

aptitude decides of special selection of THAT exact knowledge and its utility in the RIGHT

context (Allaire & Firsirotu, 2000, in: Stańczyk-Hugiet, 2007) and the time of application.

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One of the biggest challenges of managing the strategic process is to juggle the knowledge

in invisible and unpredictable for competitors way, and in the right, specific context to

achieve the synergic strategic result of the capability synthesizing and inducing (the

capability activation). A successful capability activation process requires the intuition, the

instinct, the sensitivity, open approach, prediction and courage – activity outside the box,

that is still characteristic only for human beings (employees) (Takeuchi, 2014; Prahalad &

Hamel, 1990, in: Stańczyk-Hugiet 2007 p. 30). Winter (2002, p. 5) states, that it is a “staff

that is the locus of its ability to bring together real estate, design skills, construction,

equipment and furnishings, advertising campaigns, new employees, etc. and create a new

outlet”. It allows for value creation not only for the customers but also for the organization.

Hence, it may lead to sustainable superior advantage strategy. Path dependence is important

and precious only if it is transferable into knowledge- the valuable output, however only

employees possess potential to derive conclusions and utilise them in management.

The four examples below present how learning (or its lack) was important in performance of

two top global hypermarkets: Tesco and Walmart. The examples: Learning from the Store

Floor, Tesco Internationalisation, Tesco Clubcard and Walmart Stores and Hurricane Katrina

present how supermarket retailers utilise learning processes and knowledge in their

operations and strategy.

THE EXAMPLE:

LEARNING FROM THE STORE FLOOR

- CEO COLLECTING & TRANSFERING INFORMANTION INTO ORGANIZATIONAL KNOWLEDGE

The managerial approach reflecting the staff awareness and their practical understanding of the

importance of knowledge hidden at all levels of organizational performance is “Management by

Walking”, that has been adopted by the most successful leaders of the best-run companies (Peters &

Waterman, 1982; Tucker & Singer, 2013). “Management by Walking” is not only about controlling basic

operations of the company. It is about understanding by managers, how organizational strategy depends

on their knowledge about potential embedded in every level of organization. How crucial and priceless

was perspective from the shop floor was understood by both retail icons: Terry Leahy (Tesco) and Sam

Walton (Walmart). Both gentlemen were fans of “Management by Walking”. Sir Leahy was well known

from his unique approach to collecting and understanding knowledge from different sources: from British

Parliament and White Hall, data-mining company dunnhumby to supermarket floor level:

“every Friday (Leahy) […] walks the floor on one of his stores, and he is also a regular visitor to those

owned by the competition […] He takes pride in knowing what different jobs entail and what consumers

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buy, and he is forever keen to hear what people want. […] He shuns networking in favour of talking to

staff and customers on the shop floor” (Madslien, 2005). “Understanding (Tesco) customers even better

is critical to our future success and there is no better opportunity for office colleagues than by supporting

our stores in the run up to Christmas” (Butler & Wood, 2014).

The influence of learning on the strategic advantage, its hidden embeddedness at all levels of

organizational performance, was also critical case for Sam Walton, genius entrepreneur from Walmart.

As he wrote in a book describing his leadership:

“I’ve been asked if I was a hands-on manager or an arm’s-length type. I think really I’m more of a manger

by walking and flying around, and in the process I stick my fingers into everything I can to see how it’s

coming along. I’ve let our executives make their decisions- and their mistakes – but I’ve critiqued and

advised them. My appreciation for numbers has kept me close to our operational statements, and to all

the other information we have pouring in from so many different places. In that sense, I think my style

as an executive has been pretty much dictated by my talents. I’ve played to my strengths and relied on

others to make up for my weaknesses.” (Walton, 1992, p. 147).

THE EXAMPLE:

TESCO INTERNATIONALISATION

One of the examples of learning and what happens when we forget to adopt possessed knowledge, is

the way Tesco internationalizes. Despite few failures like in France or Taiwan or the U.S., for years

Tesco was successfully blending with new markets (Griffith, 2002). The new market characteristics were

low local competition and not too high dynamics of other international retailers. The very careful entering

of new market (excl. the U.S,) was based on existing local chain activity (acquisitions, partnerships or

joint-ventures26). That was “seed acquisition” leading to incremental growth:

“[…] Tesco entered the central and eastern Europe by acquiring a relatively small chain of convenience

stores in Hungary, a supermarket business in Poland and a department store chain in the Czech

Republic and Slovakia. It was certainly unusual for such a large public company to become involved in

these operations, and even competitors at the time questioned the logic of their approach. However, the

use of “seed acquisitions” with a view to develop knowledge of the market before expanding organically

through store-by store development allowed Tesco to minimise their own human and financial capital in

the face of potential economic and political uncertainty. Some of that small stores would later be closed

down and replaced by large hypermarkets nearby”.

26 E.g. Acquisitions: Ireland, France, Hungary, Czech Republic, Thailand, Taiwan, Poland, Japan; Partnerships: China; Joint-Venture: Malaysia,

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“[…](Tesco’s executives): The reality is that you are not going to learn everything until you either open

a store of purchase a chain in the new market. (Palmer, 2005, p. 31).

Control of existing chain provided Tesco already collected knowledge about market, customers, staff,

working conditions, suppliers, products etc. The later development of new formats was based on test of

“two pilot stores” and then finally speed their performance. The harmonisation with local market was

becoming a priority. A strategy: “Think Globally, Act Locally” has become profitable. When we analyse

the list of Tesco’s successful utility of knowledge in internationalisation process, surprising becomes the

list of mistakes that “allowed” retailer to fail in the U.S. market. Despite the new continent, Tesco entered

highly competitive and concentrated oligopolistic market and despite acquiring the existing hypermarket

chain or driving joint-venture, the retailer opened totally new brand of supermarkets Fresh & Easy. New

retail concept, missing the customer’s expectations and needs, proposing new packaging and new

products and missing local brands… And British expats as managers have competed the failure.

Tesco’s presence in the U.S. looks like worth £2bn experiment full of mistakes: from the packaging foil

covering the fresh fruits to lack of proper parking space and wrong locations. The question appears:

Have dunnhumby people ever visited the U.S. before Tesco’s entrance? Why the knowledge collected

before in other countries has been ignored? Where was local impact on strategy? Why all these

important aspects have been different from the already possessed results of Tesco learning path?

THE EXAMPLE:

TESCO CLUBCARD

The second very interesting example is how Tesco collect data through Tesco Clubcard and analyse it

and convert (thanks to people from dunnhumby) into valuable knowledge and profits. This is how it

explains Clive Humby, the founder of dunnhumby:

“There have been three players who have tried to use loyalty cards, Tesco, Sainsubry’s and Safeway.

[…] Tesco being the only people who’ve successfully kept a standalone loyalty card working into their

business. And I think it’s because they’ve used the data well, and it makes economic sense for them.

[…]

What happened was that they were used to looking at a top-line numbers- “what are my sales this week?

What are my sales last week?”- etc., and that’s their way they measure things. If you look at that level,

you cant’s see the impact. Tesco brought us in to analyse the data, and we sat down in their boardroom-

we obviously had done quite a bit of work before this- and we told a story, as we thought they would

want to hear it. “Did you know that 5 percent of your customers’ accounts for 40 percent of this?- which

they didn’t know- and we then looked at some of the long-term issues. “Did you know that when you do

this promotion, one customer in five comes into that department and starts buying and that’s new money

into your business?”.[…]

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If you could understand that, and understand that intimately, that is how you are going to make your real

gains. […] We presented that, and there was a long silence- and it really was long, and we were a very

small company then (dunnhumby), and, you know, we thought, “Oh dear, we’ve blown it,” – and then all

of a sudden, there was a comment, “These people know more about the business in the few movements

they’ve been working with the data than we know in 20 years of being retailers.” And it was it.

“[…] the insight was what really drove Tesco executives from the very beginning: -“We want to know our

customers so we can act on that.” (Humby, 2004)

THE EXAMPLE:

WALMART STORES & HURRICANE KATRINA

The retailers utilise their knowledge in adoption of resources and competences in business and non-

business situations. Interesting example how the organization can adopt its knowledge in non-business

situation was reaction of American retailers Walmart and Home Depot to hurricane Katrina in 2005.

Walmart performance before, during and after hurricane, that resulted fast and well organized help to

the victims of natural disaster, has become very appreciated by the Americans, and started discussion

about corporate responsibility and efficiency, especially in perspective of Federal Emergency

Management Agency failure.

All operations taken before, during and after hurricane were based on possessed organizational

knowledge, that was created and developed during Walmart’s earlier business operations (e.g.

operational routines).

Wal-Mart “constant exposure to this sort of highly competitive environment has led […] to develop a set

of organizational practices that are honed to be efficient. Perhaps more important, these routines are so

tightly matched to the company’s resources and behaviours that they are easily deployed in novel

situations” (Horwitz, 2009, p.524).

The smooth and efficient activating of possessed organizational competences involving the employment

of the right resources by the Walmart’s was reflected in all operational stages taken in relation to the

natural disaster: the preparation to disaster, facing hurricane and adopting to the new situation after

Katrina. For protecting its business and facing the strategic risks Walmart has created the Emergency

Command Centre. That Centre is coordinated by the director of business continuity and supported by

6-10 employees, that responds to the variety of routine incidents in stores across the country. In the

case of very high risk and large –scale problem like hurricane, according to Walmart’s emergency

protocol, the team becomes supported by the group of senior representatives from each of the

company’s functional areas (max to sixty employees) (Horwitz, 2009). It allows for fast exchange of

knowledge between the experts from different Walmart’s divisions, allowing for smooth and rapid

answering the risk and for preparation of the rescue plan as fast as possible. (Horwitz, 2009). The team

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of experts responsible for different functional areas may exchange not only the division’s capabilities but

also resources in order to coping with the organizational risk.

“By Wednesday, August 24, five days before Katrina’s eventual landfall on the Gulf Coast, the command

centre had gone into planning mode, and two days later, when Katrina struck Florida, the complement

of personnel in the command centre exceeded fifty persons”(Zimmerman & Bauerlein, 2005 in: Horwitz,

2009 p. 514 - 515).

Using hurricane-tracking software Walmart was able to observe the weather situation and thanks to

signed contracts with private forecasters, the retailer was gaining latest information on the storms. This

data was passed uniformly across the company (routines, procedures, knowledge flow). Satellite

communication technology across the stores allowed for adjusting the operations (for e.g. the logistics:

by moving the emergency products like ice, water, medicines, generators between different centres and

stores). All of it would not be possible, without competent utility of hundreds of Walmart’s delivery trucks

and logistics centres, that were geographically decentralised, and hence they were providing access to

the different locations. All in the reality of hurricane, flood, and death of nearly 2000 people.

“Phillip Capitano, mayor of the New Orleans suburb of Kenner, reported that “the only lifeline in Kenner

was the Wal-Mart stores. We didn’t have looting on a mass scale because Wal-Mart showed up with

food and water so our people could survive” (Horwitz, 2009, p. 514).

The natural utility of organizational skilfulness and competences (operational procedures, organizational

routines), the adoption of accessible organizational resources and their competent utility- it was all

possible thanks to Walmart staff organizational daily trainings, work under high competitive pressure in

turbulent hypermarket chain environment. It allowed the Walmart employees to take successful actions

not only to protect Walmart business, but also to help the victims, when the U.S. Governmental

institutions were trying to control its panicking and planning how to organize the disorder.

Exhibit 4.16. A Tent - Walmart’s new store format after hurricane Katrina in 2005 (Walmart, 2005)

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If we look at that case from organizational strategy point of view, all Walmart rescue activities, its

knowledge and the resources coordination, its operational effectiveness and lack of panicking and

chaos, wouldn’t be possible without earlier lessons taken under competitive pressure. The public-sector

organizations failed, because they do not have the incentive of profits and losses to ensure that they

carry out their mission properly (Horwitz, 2009). Cash flow and financial results may appear as the best

motivators for learning. However, choosing the right people to work with may become critical:

“Assistant manager Jessica Lewis, who was unable to reach her superiors to get permission, decided

to run a bulldozer through the ruins of her store to scoop up basics that were not water damaged, which

she then plowed into a pile in the parking lot and gave away to residents. Lewis also broke into the

store’s locked pharmacy to supply critical drugs to a local hospital. Wal-Mart’s Jason Jackson praised

both of her actions: “What Jessica did is a good example of autonomy” (Rosegrant 2007a, 9–10). Given

the breadth of Wal-Mart’s reach and the variety of local conditions and cultures in which it operates, it

makes sense to allow local managers significant discretion in their day-to-day operations. That sense of

empowerment is especially useful when unusual local conditions, such as a natural disaster, require

agility and improvisation. Wal-Mart’s life-saving response during Katrina demonstrates the wisdom of

that strategy and contrasts with the more rigid and hierarchical structure typical of government agencies,

such as FEMA” (Horwitz, 516).

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1.3. HUMAN FACTOR IN COMPETENCE EMERGENCE CONCEPT

The enchantment on the technology and know- how, focus on the elasticity (Krupski, 2005;

Stabryła, 2005; Adamik, 2008) and knowledge (Stańczyk-Hugiet, 2007; Czakon, 2009,

Stonehouse et al.; Hamill, Campbell & Purdie, 2001; Flaszewska & Zakrzewska-Bielawska,

2013) and the dynamic aspects of behaviour of organization (Teece, Pisano & Shuen, 1997;

Eisenhardt & Martin, 2000) impersonates the organization, its performance, and do not focus

too much on the critical aspect of manager’s intangible character (Human Factor/abilities)

in building the strategic advantage. The temptation, to creating the self-managed

organization, growth of the global business nets and the multinational organizations, leads

to decreasing the human unique and unpredictable aspect of the strategic management in

turbulent environment (Teece, 2013; Takeuchi, 2014). Valuating the importance and the

role of managers in creating a company value is still a challenge, despite their indisputable

role in the management of organization. Many authors try to answer the questions

concerning the strategy construct and its creators and the entrepreneurial trends of the

strategy appearance (Barabasz & Bełz, 2010; Bełz, Teece, 2013; Lundy & Cowling, 2001, p.

27; Organa, 2015, p. 111) and the intangible aspects of skills (Aaker, 1989) or the intangible

assets (Wernerfelt, 1984; Takeuchi, 2013). The resent trends of the strategic management

science focus on the firm’s dynamics, learning, capabilities etc. and reduce the importance

of managers’ talents and aptitudes. Possibly the reason lies in entrepreneurship Yeti

character (Larcher, 2011, in: Organa, 2014, p. 112): “everybody talks about Yeti, but nobody

has seen it”. In the recent management approaches, in both views: a product-market and a

competence approach - it is the organization (not employee) that is learning, adapting and

processing (Prahalad & Hamel, 1990; Teece, Pisano & Shuen, 1997; Eisenhardt & Martin,

2000, etc.). However, it is worth to add, that the latest publications concerning dynamic

capabilities start to signify the importance of the managers’ activities (earlier mentioned by

Penrose) and discuss deeper the microfoundations of organizations (Piórkowska, 2014;

Teece, 2013; Helfat, 2008).

“[…] manager’s perceptions, as suggested by Adner and Helfat (2003), are critical

determinants of the decisions to develop and deploy different forms of dynamic capability.

It also means, following from Helfat et al., 2007, p. 20), we recognise that managers “have

particular importance for dynamic capabilities” and that to fully understand dynamic

capabilities we need to consider what they perceive and act upon in terms of their

environment and resources. […] it also means that we are essentially taking a micro

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perspective of organizations; we acknowledge that it is individuals and what they do that

matters (Felin and Foss, 2005; Orlikowski, 2002”) (Ambrosini, Bowman & Collier, 2009, p.5).

The Competence Emergence Concept signifies and explains importance of intangible human

features like instinct or talent- both critical ingredients of organizational capability and

hence: critical factors for the competence emergence (e.g. instinct and charm of CEO used

in unformal business relations) and the organizational strategic advantage. In highly

turbulent environment, the manager’s personality becomes a core ingredient of competence

structure, its value and the distinctiveness. The personality by dictionaries is defined as a

combination of characteristics or qualities that form an individual’s distinctive character

(Oxford Dictionaries, 201627), the set of emotional qualities, ways of behaving making a

person different from other people. Personality is immanent condition of personal

existence. (Merriam-Webster Dictionary28). Assuming that ability consists manager’s

personality (intangible Human Factor), we can state that it is the ability (part of capability)

that may be a very strong source of unpredictability, distinctiveness and uniqueness to

organisational capability and hence the organizational skilfulness and the competence.

If we look at Human Factor from the CEC perspective we can say, that that component of

the capability is crucial at every stage of the competence emergence process: through its

management, control, judgement and evaluation of outcomes of capability, skilfulness and

competence. Priceless is the human ability to collect and analyse the knowledgeable data

using “outside the box” view and the human potential to derive conclusions and utilise them

in unpredictable way. Analysing Human Factor’s importance and activity in competence

emergence process, we can select following critical activities in different parts of process:

I. The Synthesis of Capability: Deciding: what to synthesize (estimating potential value of

future capability), how to synthesize and when to synthesize;

II. The Induction of Capability: Deciding when to induce the capability; Managing and

controlling the induction process;

27 Oxford Dictionaries (2016) Oxford English Dictionary, Oxford University Press, Oxford, accessed on 20.08.2016 at: https://en.oxforddictionaries.com/definition/personality 28 Merriam-Webster Incorporated (2015) at http://www.merriam-webster.com/dictionary/personality on 02.05.2016

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III. The Skilfulness Testing: Managing and controlling testing process; Being part of process;

IV. Emergence of Competence: Judging the emergent competence (through collection and

analysis of knowledge from the internal and external environments);

IV: The Competence Impact: Evaluating the competence/incompetence and its impact on

environments, thanks to knowledge transition.

Also the challenge with competence transfer depends on the Human Factor of capability

(Dunning & Lundan, 2008, p. 3). The embedded individual talent, hidden personal aptitudes

are inevitable in protecting competence from taking over by competitors. How crucial is

Human Factor in strategy uniqueness we can see in the examples below:

THE EXAMPLE:

A very interesting situation has appeared in 1997 when Terry Leahy was rebranding Tesco and Tony

Blair was rebranding the Labour Party and they both were working with the same PR and lobbying

specialist: Neil Lawson. It was a time when Tesco’s low prices were keeping inflations down and the

supermarket’s growth was keeping the employment. These two issues were very important in Browns

strategy (Lawson, 2007). Thanks to Lawson, Tesco developed relationship with government importing

to its structures the people from the White Hall like Lucy Neville-Rolfe or David North. Tesco (Leahy)

has known, that “by recruiting formal civil servants and advisers it would have access to key figures in

new labour and white hall (Lawson, 2007). How crucial for success is top manager’s personality we can

see analysing the example of Terry Leahy from Tesco, who taking over the position of Marketing Director

has set off by Tesco train to the global winning direction. When “Terry Leahy was put on the main board

of Tesco, his department, the marketing department rely become a centre, a heartbeat of Tesco

business” (Hyman in: Lawson, 2007, Dispatches). Despite his image as ordinary man (Blackhurst,

2014), Leahy seemed to be in every vain of Tesco. At managerial board and as shop assistant, as

colleague of Prime Minister and of every loyal customer of Tesco. Leahy’s decisions about introducing

cooperation Tesco - dunnhumby (unknown data-mining company), launching ‘Every little helps’

promotion and Tesco Clubcard, his deep cooperation with British Government (with focus on Labourer

Party and prime minister Tony Blair (from 1995) have become core stones in Tesco strategy, that have

changed the cheap products stores into global successful business (Lawson, 2007).

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2. THE STRATEGIC LEVEL OF TNCs

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2.1. THE COMPETENCE EMERGENCE PROCESS

IN THE PERSPECTIVE OF THE TNC

2.1.1. THE STRATEGIC CAPABILITY GAP

& CREATION OF THE TOTAL ENVIRONMENT

If we assume, that the capabilities may determine the range of the strategic meaning

options, that an organization can utilize to create new resources (Penrose, 1959), the

problem appears when the capability is internally missing. Dunning (2006) described it as a

need for complementary assets for creation and effective utility of the firm’s core

competencies. How do the firms fill the capability gap, especially if the capability can

become strategic for the firm’s management model (Penrose 1959, Leonard 1959, in: Capron

& Mitchell, 2004)? If the gap is narrow the company can decide to create internally the

potential from the already possessed assets. If the gap is too large, searching outside the

company becomes a must (Capron & Mitchell, 2004). From the CEC perspective we can state,

that to fill in the capability gap the organization searches for valuable externally located

potential, that has already been tested (somebody’s competence) or not tested yet

(somebody’s capability).29 Both, a capability and a competence, become the new potential

to use by the organization and that is why from the TNCs’ CEC perspective, they both are

defined as the external capabilities to the organization, that acquires them. The takeover

of the capability located externally to the organization may be hazardous, because of the

accelerated growth of the environmental turbulence. It may bring the risk to the

organization meeting international strategy (Teece, 1994, 1997, 2013; Helfat & Peteraf,

2003; Helfat et al., 2007).

Despite the takeover challenge, there are the players, that have learnt to cope with the

external risks, and by their everyday activities they decrease the level of uncertainty on the

multinational scale. Adopting their capabilities, using the skilfulness and competences, the

transnational organizations have started to expand their scope from the global power to the

total power (power strengthening in all possible directions through: intra-, inter- and extra-

corporate networks) (Exhibit 4.17). Their successful multidimensional growth has come from

their imperfection- a lack of the strategic capability.

29 An import of the external capability brings higher risk of failure, than import of an external competence

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Exhibit 4.17. Total Strategy: The TNC growing in all possible directions (own elaboration)

To fill the missing gap the top retailers uses two strategies:

1). The retailers build a strategic capability:

THE EXAMPLE:

CREATING EN EXTERNAL DEPENDENT ORGANIZATION TOGETHER WITH OTHER RETAILERS

The special approach the corporations have taken to create the capability, that they cannot takeover,

because that capability does not exist in the external environment. The interesting example is developing

of private retailing associations. These retailers’ representatives took over the rules of creation the

legislation regulating retail business around the world (from suppliers’ productions through

transportation, logistics, food safety, working safety conditions, lobbying etc.). The regulations

sometimes are much more detailed than local markets national regulations or they appear as response

to the gaps in legislations. The examples of these types of associations are: British Retail Consortium

(BRC), IFS Management GmbH, Safe Quality Food or Foodplus GmbH, introducing new standards

regulations concerning all supply chain activities. For example BRC Global Standards, till 2017 certified

by 25000 suppliers in over 130 countries (BRC Global Standards, 2017), is a part of Global Food Safety

Initiative (GFSI)- benchmarked food safety scheme, and has been accepted by eight major international

retailers: Carrefour, Tesco, Walmart, Metro, ICA, Ahold, Migros and Delhaize (CERT ID, 2016). BRC

Global Standards introduce and harmonize the regulations concerning Food Safety (1998 & 2000),

Packaging and Packaging Materials (2001), Consumer Products (2003), Storage and Distribution

(2006), Agents and Brokers (2014) and Retailers (2016). Despite the harmonisation and standardisation

advantages coming from the emergence of meta-regulators, Verbruggen and Havinga (2014, p. 25) also

signify the risks coming with the rise of transnational private meta-regulations:

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“ We also note that drawbacks of the development of transnational meta-regulators such as GFSI and

EASA exist. Both GFSI and EASA have reinforced the concentrated powers of large corporate retailers

and manufacturers at the end of the food supply-chain and of advertising industry respectively. A

powerful transnational private meta-regulator may also easily relegate national governmental agencies

to second-class regulators in the food safety domain. Only a concentrated strategy of different

international and national governmental players seems able to counterbalance the power of the private

meta-regulator. What also appears key is that approaches that do not meet the meta-standards are

driven out of the market or are otherwise forced to leave the scene. While the GFSI and EASA have

successfully increased convergence and standardization, they have concomitantly excluding other

practices. Efsis and HACCP dropped out of GFSI and the British model of advertising self-regulation

stood model for the EASA, thus rejecting the German and French models. Finally, of course, all parties

that are not capable or willing to adapt to the set standard are excluded from a large part of the market.

This is particularly clear in the case of GFSI, which has been criticized for in effect excluding small

farmers, artisan food producers and developing countries.”

2). The retailers take control over the capability located in the external environment:

Looking from the distance, we often could say that the global retailers just absorb the

missing capability from the external environment buying know-how or technology, or through

the mergers or acquisitions. However, in the strategic case of retailers it is a bit more

sophisticated, and it is not typical “organizational shopping” but it’s closer to the external

environment takeover and the global governance. When we look at the process of utilising

the external capability by the TNC, we can find out, that the boundaries of the organization

are blurring, and a gap between formal organization and the missing external capability

dramatically shrinks and slowly disappears. The TNC continually absorbs the external

environment into its internal organizational space (Exhibit 4.18). The synthesis of both

domains: organizational and external environment leads to emergence of the Total

Environment.

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Exhibit 4.18. The Emergence of TNC’s Strategic Competence (own elaboration)

Following the processes of external capability takeover by retail TNC we can say, that:

A TOTAL ENVIRONMENT OF TNC

IS A SYNTHESIS OF TWO DOMAINS:

CURRENT INTERNAL AREA OF ORGANIZATION

& CONTROLLED SPACE OF EXTERNAL ENVIRONMENT

It is worth to remember, that the absorbing of the external space does not require

formalization and it may occur informally30. The organization does not have to be the formal

owner of the capability to utilise it. From the strategic point of view the clue is, that the

30 Informal way of utilising the external capability (hiding sources of advantage) increases the chance for success of its activation as a future competence implemented into strategy of organization

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organization may pull the advantage from the external capability. In that perspective the

area of all the activities of the TNC we can define as Total Environment (5.19), and

possessing its TNC as Total Organization.

Exhibit 4.19. The Total Environment of TNC as a result of takeover of part of external

environment (own elaboration)

Penrose in 2008 (p. 1118) stated that: “The firm’s boundaries can be defined in relation to

the ‘reach’ of its managerial and administrative activities; in consequence it becomes a

unit of ‘planning’ itself involved with other ‘planning’ units in a sea of ostensibly unplanned

activity which represents the market within which it grows.”

The appearance of the Total Environment may bring the following results:

1. The external turbulence becomes internal turbulence, and thus it can be controlled

by the organization.

2. Organization does not only control internally the turbulence, but it can also create

the turbulence for the purpose of its own strategy.

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2.1.2. THE PERMANENT31 COMPETITIVE ADVANTAGE IN THE TOTAL STRATEGY

& THE SUPERIOR COMPETITIVE STRATEGIC COMPETENCE OF TNC

However, the utilising of the external capability does not look like a new issue in the

strategic management (e.g. joint ventures, acquisitions, purchasing technology or qualified

staff), the TNCs of XXI century have learnt to acquire the external capability not only to

compete on the market, but to bypass the competition. How do they do that?

Analysing the organizational performance we can select three critical areas of external

environment (domains), that influence the organizational performance:

1) THE INDUSTRY DOMAIN

(the suppliers and competitors influencing the supply chain and the market)

2) THE CONSUMERS AND SOCIETY DOMAIN

(present and potential clients influencing the demand for the products/services)

3) THE LEGISLATIVE FRAMEWORK DOMAIN

(the institutions and regulators influencing compliance of

the organizational performance with legal standards)

These three domains create the environmental turbulences, the organization has to meet

and overcome. Taking over the control and the management of these external domains has

appeared as the most successful way to cope with their turbulences. That is why, the retail

TNCs adopt the external capabilities located in these domains (e.g. from institutions,

consumers, suppliers etc.). These capabilities are being synthesized in the TNCs’

competences emergence processes and activated into three competitive strategic

competences:

COMPETENCE TO MANAGE AND CONTROL THE INDUSTRY

COMPETENCE TO MANAGE AND CONTROL A DEMAND

COMPETENCE TO LEGISLATE, ADJUDICATE AND EXECUTION

31 The Total Strategy characteristic for TNCs allows for exceeding the scope of sustainable competitive advantage to the permanent (durable) competitive advantage (what enables for the appearance of the “too big to fail” corporations)

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Despite their domain affiliation, these competences interact and overlap, mutually

complementing and reinforcing each other (e.g. a competence to legislate allow to manage

and control the industry) and they synthesize into the Superior Competence to Manage and

Control the Total Environment (Table 4.1).

Table 4.1. The clue of successful Total Strategy of top retail TNCs

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The Superior Competence to Manage and Control the Total Environment provides a lot

of advantages that are critical for the strategy of the organization, for example:

1. The power to creating, controlling and managing the turbulences within the Total

Environment,

2. The power to develop strategy compatible with conditions of Total Environment

and strategic goals of organization,

3. The power to evaluate its own strategy,

4. The power to evaluate the strategy of other organizations (including

competitors)32.

Looking through the perspective “from the top” we can say, that the TNCs of the XXI century

are not anymore the firms or companies. They are powerful business phenomenon sustaining

their global competitive advantage for years and leading to keep it permanently in the total

perspective (in all domains they perform). As we can see in the Table 4.1 taking over the

external environmental capabilities is a step in the creation of the TNCs of XXI- the Total

Organizations. Their superior competitive strategic competence is not anymore the

competence to create distinctive technological product in competitive price or more

efficient supply chain. Their Total Strategy is based on the successful management and the

control of the all activities of Total Environment, that should be controlled and managed to

sustain TNC’s performance and to realise the goals of hypermarket strategy.

Using the Competence Emergence Concept perspective we can say, that:

The Total Organization like the retail TNC of XXI century

takes over the judgemental competence of external environment.

It allows for the judgement of the organizational skilfulness outcome

and the evaluation of appeared competence.

Using other words: utilising their superior competence the hypermarket TNCs gain the power

to decide about success of their strategy and the strategy of its competitors. Mastering the

32 For ex. Retailer possessing power to legislate, through creation of the new regulations may block the activities of its competitors

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superior competence leads to sustaining and constant strengthening of their position as the

top retail TNCs. The scope and the power of the superior competence influences the

probability of the emergence of the organizational success (manifested by the global scope

of achieved competitive strategic advantage). Taking over the critical stage of the strategic

competence emergence process allows TNCs for decreasing the risk of their strategy failure

and increases the probability of the competitive advantage occurrence. The risk of the

negative judgement of the strategic skilfulness outcome drops proportionally to the control

growth over the external environment (Exhibit 4.20).

Exhibit 4.20. The relation between the capability skilfulness judgement and control of external

environment (own elaboration).

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2.1.3. TOTAL STRATEGY IN PERSPECTIVES OF WALMART AND TESCO

2.1.3.1. THE ORGANIZATIONAL RISKS AS THE TOTAL ENVIRONMENTAL TURBULENCES

How the Total Strategy of top retail TNCs looks in the reality? How do Tesco and Walmart

create the strategic competences to manage and control their domains?

To understand that, we should become aware of the scope of the activities, that the global

chains have to control and protect. Every day, the retailers face different internal and

external risks, that can negatively impact their total performance. These turbulences may

negatively influence every organizational activity and at the end may cause the negative

domino effect for TNC. Every year for different institutions these organizations have to

present lists of potential risks they have to face and the steps taken in order to neutralise

these risks.

For example Walmart in his annual Form 10-K to the United States Securities and Exchange

Commission presents the risk factors covering about 7 pages of report, pointing the

challenges like: higher levels of unemployment, decreases in consumer disposable income,

unavailability of consumer credit, higher consumer debt levels, changes in consumer

spending and shopping patterns, fluctuations in currency exchange rates and currency

devaluations, higher interest rates, tax changes, other regulatory changes, overall economic

slowdown, decreases in consumer disposable income, unavailability of consumer credit,

higher fuel and other energy cost, higher costs of labour, insurance and healthcare, changes

in healthcare laws, the imposition of measures that create barriers to or increase the costs

associated with international trade, reputational risks (the wages, cyber threats). The

examples of Tesco risks and methods of reducing them are presented in Table 4.2.

That huge scope of potential turbulences motivates retail corporations to developing and

strengthening their competence to manage and control the external environment. As Tesco

writes in its statements:

“Risk is an accepted part of doing business. The real challenge for any business is to identify

the principal risks it faces and to develop and monitor appropriate controls.” (Tesco, Annual

Report, 2011, p. 51).

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Table 4.2. The examples of Tesco’s risks and key controls and mitigating factors

(Tesco, Annual Report 2011, p. 51-55)

In CEC perspective the reducing the risks and uncertainties is the major goal of creating the

superior competitive strategic competence to manage and control the external environment

created by hypermarket TNCs. The samples below present the examples how Tesco and

Walmart use their competences to control and manage the three domains of their activities:

the Institutions & Regulators Domain, the Consumer & Society Domain and the Industry

Domain.

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2.1.3.2. THE EXAMPLES OF THE MANIFESTATIONS OF THE SUPERIOR COMPETENCE

AND TOTAL STRATEGY IN ORGANIZATIONAL PERFORMANCE

OF TESCO AND WALMART

THE DOMAIN OF INSTITUTIONS & REGULATORS AND MANIFESTATIONS OF

THE COMPETENCE TO LEGISLATE, ADJUDICATE AND EXECUTION

Exhibit 4.21. The manifestation of strategic competence to legislate and adjudicate and execution

(own elaboration)

As it was mentioned in the Chapter 3 the “growing power of retailers and the shift from

public to private food governance allow the corporate retailers to become powerful food

regulators (Havinga, 2015)”. The retail TNCs create missing capability by themselves or they

take over the external capability. The examples below provide the variety of samples

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describing the processes of taking over the external capabilities in order to create the

strategic competence to legislate, adjudicate and execution (the scheme presented in

Exhibit 4.18). Walmart is a great example to present, how the top retailers create their

advantage and manage and control the legislation domain. Thanks to American regulations

(Lobbying Disclosure Act of 1196, Legislative Transparency and Accountability Act of 2006,

Honest Leadership and Open Government Act of 2007), Walmart lobbying analysis is possible,

because of access to official trusted data from the US Senate Office of Public Records. Forced

by the state transparency in lobbying activities driven by American corporations in the U.S.A

Walmart provides information necessary to estimate and understand legislation power of

retail TNCs.

THE EXAMPLE:

WALMART LOBBYING

How crucial is that activity is reflected in their total lobbying expenditures. According to data provided to

the US Senate Office of Public Records only in 2016 Walmart has spent $6,800 000 (The Center for

Responsive Politics, 2017) (Exhibit 4.22, Table 4.3). Walton Family Foundation, Inc., and Walmart

Foundation each have given between $1million and $5million to the Clinton Foundation (Wolfgang,

2016).

Exhibit 4.22. Value (US$) of Wal-Mart Stores annual lobbying from 1998 to 2016

(Source: The Center for Responsible Politics)

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Table 4.3. Itemized Lobbying Expenses for Wal-Mart Stores, 2016

(Source: The Center for Responsible Politics)

The example how Walmart successfully manage and control two strategic competences domains

(demand domain and industry domain), through its third competence controlling and managing

legislative domain, is reflected in Walmart’s lobbying concerning introduction of new legislation named

finally as “Marketplace Fairness Act”:

Lobbyist: STEVE WOMACK

Contribution from Walmart33 to Womack’ institutions (2011-2012):

$107,100

The subject of lobbying:

MARKETPLACE FAIRNESS ACT 2012-2013

The clue or regulation: the legislation enables state governments to collect sales taxes and use taxes

from remote retailers (online ant other out-of-state retailers) with no physical presence in their state

33 Contributions were coming from different Walmart’s sources: Walmart PAC, Walmart employees, Walton Family

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Advantages for Walmart:

increasing demand for Walmart products and decrease the profits of its competitors:

the new taxation will force Walmart’s competitors to increase in their products prices and this way will

reduce the price gap between products from brick and mortar and web-sales operations (the bill hits

Amazon, the biggest Walmart competitor in the U.S.),

decreasing competition within the industry through:

a/ reduction of transaction of Internet Stores (business may become not profitable anymore)

b/ increasing the costs of activities of competitors not paying tax yet, thanks to added new costs (added

new tax), an extra accounting work and costs and potential penalties (running business under “over

10,000 taxing jurisdictions and (..) would be subject (…) to audits from 46 states, 6 territories, and over

500 Native American tribal nations” (Kevin Hickey, cofounder of the eMainStreet Alliance, CEO of Online

Stores, Inc.) (Hickey, 2013).

As it was mentioned before lobbying for Walmart is its typical strategy taken not only in the U.S., but

also internationally e.g. Mexico or India. How challenging becomes sometimes tracing of these kind of

activities, can be find in case of Walmart lobbying in India. The retail sector in India was protected

despite the liberalisation of Indian economy after 1990s and opening the market to FDI. Finally in

September 2012 Indian parliament allowed foreign multi-brand retailer to enter Indian market (Wessing,

2015). And in December 2012 Walmart in its discloser admitted the lobbying investment in India worth

$25 million to enter the market:

“In 2012 as part of a routine disclosure under U.S. law, Wal-Mart revealed it had spent $25 million since

2008 on lobbying to "enhance market access for investment in India." This disclosure, which came

weeks after the Indian government made a controversial decision to permit FDI in the country's multi-

brand retail sector, created uproar in India. Lobbying by multinationals drew strong emotions in India,

evoking images of the millions spent by Enron in the 1990s to "educate Indians" - a suspected

euphemism for bribery. Opposition political parties accused Wal-Mart of bribing the Indian government,

which, on the eve of a general election, appointed a judicial commission to investigate Wal-Mart. Already

under pressure from allegations of bribery in Mexico, Wal-Mart risked becoming embroiled in another

embarrassing scandal (Karthik & Murhuram, 2013).

However, the report from May 2013 to Commerce and Industry Minister of investigation driven by justice

Mukul Mudgal stated that:

“The committee in its report stated that it was not possible for it to conclude, in the absence of any

material evidence available on record up till then, that Walmart indulged in any lobbying/bribery to Indian

officials,” (The Hindu, 2015).

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The list of legislations lobbied by Walmart in the U.S. during 2015 and 2016 is presented in the Table

4.4.

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Table 4.4. The list of Bills lobbied officially by Walmart (2015-2016)

(Data from: The Center for Responsible Politics)

The amount of invested money and scope of activities (amount of lobbying bills) presents how large and

important state legislative activities are influenced by Walmart, and how many different aspects of its

performance they directly or indirectly regulate or may regulate.

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THE EXAMPLE:

TESCO, REVOLVING DOOR & HUMAN FACTOR

Revolving Door- a movement of personnel between roles as legislators and/or regulators and the

industries is another example of taking over the control on the external capability. In perspective of

Competence Emergence Concept, revolving door process shows how crucial component may be

Human Factor in creating strategic advantage of organization. The people, their official or hidden

relations, emotions, instincts, interests, needs, their ability to learn, talent to build long time relationships,

etc., they all may become the fundament for organizational success or failure and are not irreplaceable

by data systems or technology (yet). Tesco has mastered its competence to employ former government

officials, which was signified in Tesco’s annual reports. The great sense of potential coming from

revolving door have Teary Leachy (ex CEO of Tesco). His decisions concerning inviting the politics on

board of Tesco were fruitful and resulted in bringing long term value for the retailer. Leahy, from

Competence Emergence Concept perspective, was present directly or indirectly in all successful

decisions of Tesco. As priceless Human Factor for Tesco, he possessed a lot of talents from learning to

instinct to choosing in the right time the right capability components to create organizational capability

to achieve strategic success. Using common worlds: he was learning fast and wanted to learn. Leahy

was aware how important for the organization was influencing the external environment in order to

reduce the external risks and create sustainable competitive advantage for Tesco. Basically we could

say, that he was the top-representative of revolving door in Tesco structure. Starting cooperation with

Tony Blair, during Blair’s first race to British Parliament, Leahy becomes formally bounded with British

politics, especially with Tony Blair and Labours Party. According to Neal Lawson, lobbyist and writer,

who has been working with both of the leaders in nineties (from 1997), Blair and Leahy’s successful

careers were tightly related (Laurance, 2007). Lawson highlights, that Blair’s cooperation with Tesco

was a result of growing unemployment in the manufacturing sector in the UK. Blair saw Tesco as a new

choice for employment: “They (labours) knew the manufacturing is dying […] service sector was

replacing new economy”. Tesco’s “low prices helped to keep inflation down and as Britain’s largest

employer it created jobs” (Laurance, 2007). Attendance of Blair in Tesco’s promotion “Every Little Helps”

enabled Blair to approach closer to his voters and ennoblement Terry Leahy (“a boy from Liverpool”),

his staff and customers. Cooperation between Blair and Leahy added value to both customer based

institutions: British Parliament and Tesco Plc. Blair appearance at schools with Leahy during that

campaign drew the media attention and allowed Tesco’s employees and customers, especially those

taking active part in campaign “Every Little Helps”, to feel as part of the country and its governors. For

many customers that was subconscious ennoblement and was fuel for Tesco impressive growth. It was

Tony Blair’s government that in 2002 knighted Leahy for his services to food retailing and invite him to

advice the British Government as a member of Prime Minister Business Council. Leahy had great

sensitivity to choose the right people in right time and to build long term relationships with them. Close

cooperation with British Prime Minister allowed Leahy to fish in the White Hall. Hence, to reorganization

of Tesco publicity, media and lobbying operations he invited Philip Gould, who was Tony Blair’s most

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trusted political advisers (Carell, 2001; Corporate Watch, 2005). Doctor David North was the second

personality hunted by Terry Leahy. Dr North was Senior Policy Advisor on Environment and Rural Affairs

and Private Secretary on Home Affairs (1999-2002) on 10 Downing Street and in Tesco he took position

of Community and Government Director (2002-2011) and UK Corporate Affairs Director (2011-2012).

Despite their future impact on Tesco strategy, their employment has been negatively judged by media

and consumers:

“Tesco recruits two Blair aides.

Controversy over Tony Blair's close ties to business deepened yesterday after it emerged that two key

Downing Street advisers are employed by Tesco.

Tesco, Britain's most powerful supermarket, has paid Philip Gould, one of Mr Blair's trusted political

advisers, to help reorganise its publicity, media and lobbying operation.

Two weeks ago, the supermarket hired David North – the Prime Minister's private secretary and a

specialist in rural affairs – to take up a new position as director of government affairs, a post that was

introduced as a direct result of Mr Gould's advice.

The appointment of Mr North is a major coup for Tesco. He was Mr Blair's key adviser on the

environment, farming and GM foods after serving as a senior civil servant at the Ministry of Agriculture,

Fisheries and Food, now part of the Department of the Environment, Food and Rural Affairs (Defra).

Mr North, who starts work at Tesco in late February, represented Mr Blair on the Rural Recovery Task

Force set up to rebuild British farming after the foot and mouth crisis. He also helped to run the Cabinet

Office's unit to support biotechnology at the height of the GM foods controversy in 1999.

The disclosures have led to a fresh row over cronyism and the "revolving door" phenomenon […]

Peter Ainsworth, the Tory spokesman on environment, food and rural affairs, said that Tesco risked

being "contaminated by cronyism".

He added: "This reinforces the sense that there is a charmed circle around the Prime Minister which

major corporations feel they need to get inside" (Carrell, 2001).

When we analyse the last twenty years of Tesco strategy we can say, that the most significant and

successful person lobbying for Tesco was Lucy Neville Rolfe, Tesco’s Corporate & Legal Affairs Director

(1997-2013), on Tesco’s board from 2006. “Combined her political and media savvy to become one of

the most trusted executives when she served under Sir Terry Leahy at Tesco.”(Waples, 2013). She

came to Tesco from position of former senior Civil Servant having served in the Ministry for Agriculture,

Fisheries and Food (1973-1992) and the Prime Minister’s Policy Unit at Number 10 (1992-1994).

Baroness Neville Rolfe is British Conservative Politician. After leaving Tesco she returned to White Hall

and took positions of Commercial Secretary to the Treasury and Minister of State for Energy and

Intellectual Property. During all her Tesco career her husband Sir Richard Packer was Permanent

Secretary at the Ministry of Agriculture, Fisheries and Food from 1993 to 2000. In Tesco Neville Rolfe

was responsible for issues like “government, EU and competition issues, investor relations,

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communications, community affairs and corporate affairs policy for the international business in 10

countries (Corporate Watch, 2005), climate issues (carbon emissions, Tesco’s foot print). As she

described herself: “I have a passion for simplicity and understanding the impact of what government is

doing on consumers and business; how legislation can affect people. I have a huge interest in business

issues and am keen to bring that to the table […] (Neville- Rolfe, 2008-2009)

The article from PR WEEK presents a sample of lobbying by Lucy Neville Wolfe as Tesco representative:

BAA and Tesco chiefs attack plans for transparent lobbying

Some of the UK’s top in-house lobbyists have objected to the idea that their meetings with

government officials should be recorded and transcripts made available to the public.

MPs on the public administration select committee are considering calling for such a system in a bid to

make the lobbying process more transparent. Last week, the committee questioned BAA corporate and

public affairs director Tom Kelly, Tesco executive director, corporate and legal affairs, Lucy Neville-Rolfe

and AstraZeneca chairman Chris Brinsmead as part of its ongoing lobbying inquiry.

Committee chair Tony Wright said: 'If we had a record of who meets who and what they talk about ...

that would be pretty straightforward.'

But Kelly, Neville-Rolfe and Brinsmead all voiced objections […]

Neville-Rolfe said she would be concerned about 'commercial confidentiality' and the accuracy of any

records kept. […]

The three witnesses were also asked why they employed lobbyists. Brinsmead said it was 'an issue of

capacity' whereas Neville-Rolfe said it was for the 'specific local knowledge' that external lobbyists had

to offer.” (Singleton, 2008)

The presented examples are only the examples, the manifestations of TNCs legal

activities. Using the different perspectives author of that thesis wanted to show how

the top retailers take over the rule of state, its competence to legislate, adjudicate

and execute. All in order to realise their strategy to control the turbulences and to

create the turbulences - to exceed the level of sustainable advantage and to achieve

the permanent competitive global advantage.

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THE DOMAIN OF CONSUMERS AND SOCIETY & THE MANIFESTATIONS OF

THE STRATEGIC COMPETENCE TO MANAGE AND CONTROL THE DEMAND

Exhibit 4.23. The example of strategic competence to manage and control the demand

(own elaboration)

“It is difficult to predict consistently and successfully the products and services our

customers will demand. The success of our business depends in part on how accurately we

predict consumer demand, availability of merchandise, the related impact on the demand

for existing products and the competitive environment, whether for customers purchasing

products at our stores and clubs, through our digital retail businesses or through the

combination of both retail offerings. A critical piece of identifying consumer preferences

involves price transparency, assortment of products, customer experience and

convenience.” (Walmart, 2015, Form K-10, p. 20)

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The second major space of retail TNCs activity is Consumers and Society Domain. The

example will present Tesco’s activities in its Domain of Consumers & Society.

THE EXAMPLE:

DUNNHUMBY- A STARR OF TESCO STRATEGY

However, history with dunnhumby has already been presented, the next part will focus on consumers

and demand they influence, and a role of Tesco in controlling and managing that domain. As it was

mentioned before, Tesco started cooperation with dunnhumby to understand the connections between

their customers shopping behaviours and sales levels, and to utilise possessed knowledge about

customers to create the customers lifetime loyalty. As Humby (2004) stated:

“I think our job is to basically help our clients see their customers through their behaviours. And I thing

one of the bits of magic we bring is we convert their behaviours into attitudes through clever

mathematical techniques that say, well, if you do this, this and this, then it probably means you’re on the

Atkins’ Diet, for example”.

[..] to me, is about doing things for individual groups of customers that grows their lifetime loyalty. So

recognizing that individual customers have specific needs, and that doing something for them and their

peers is good for them, and it’s not the same thing as doing something for someone else.“

Through cooperation with dunnhumby and Clubcard, Tesco has understood, a lot of years before its

competitors, who are Tesco’s customers. Clive Humby, the founder of dunnhumby explains how the

cooperation with his company influence the retailers competitive advantage. There are the few steps

leading from collecting data to company advantage:

1/

Collecting customer data enables to understand the customers insight

2/

Customers segmentation (life stage, values and loyalty, lifestyles);

3/

Customer management through two strategies: communication strategy (retention, growth, win-

back/prospecting) and business strategy (price, promotions, ranging, availability).

4/

The customer management leads to long term customer loyalty (increased customer lifetime value).

5/

Sales growth (achieved advantage) (Humby, 2009).

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Analysing that process from Tesco’s point: the February 1995: Introducing Clubcard scheme in

Tesco:

For every £1 spent customer earns 1 point (=£0.01). Four times a year customers receive

statement with their vouchers. Achieved result: Soon 80% of transactions have been made with

a Clubcard.

Clubcard allows for generation of huge amount of data, that were divided into four groups: Clubcard

registration data, Clubcard transnational data (100%), Reference data, Other sources. Customers’

registration allowed for data collection about Clubcard owner: his name, surname, address, telephone

and email, dietary requirements, family composition (Humby, 2006). According to Laurance (2007)

Tesco was also collecting very personal information including customer’s employment details, financial

situation, race or ethnic origin, political options, religious or other beliefs, Trade Unions membership,

physical health, mental health or condition, Offences (including alleged offences), Criminal background

and outcomes. Clubcard transnational data was providing information about EPOS feed-item level sales

details for all transactions, coupon and voucher redemption, store, date, time. The fourth group of

information: shopping reference data was suppling information about stores details, product details,

store turnover, coupon reference data, promotions data. The last group of data included customer

complaints, customer market research, contact history, information from Clubs.

It was dunnhumby, that allowed Tesco to understand the connections between customers’ attitudes,

drivers of customers’ behaviours influencing behaviours, shopping transactions and company profits.

The Clubcard data analysis provides information about customers, explain what is important from

customers shopping habits perspective e.g. the key attributes of products that are being selected,

chosen channels for shopping, time and motivation for shopping actions, approach to promotions and

Clubcard’s offers. Knowing the customers allow for their segmentations (information about customer’s

life stage, lifestyles, profitability, primary channel. dunnhumby analysis of Tesco’s customers has divided

them according new in retailing criteria- the analytics have discovered that crucial for customers

shopping habits is the customers’ lifestyle. That division has become possible through “looking at what

people buy, […] This gives […] an indication of what motivates customers when they shop” (dunnhumby,

2006). Tesco’s has known a lot about its Clubcard’s “friends”: who are they, what they like to read, how

they eat, how much they drink, how often they have headache, what medicines they, how often they get

sick, how much hygiene is important for them, do they care about children’s diet or about pet…

“Tesco know 12m people in the UK as well as I know Miss Jones.

They know what she wants and they know how valuable she is.”(dunnhumby, 2006)

Starting cooperation with dunnhumby was a tremendous decision taken by Tesco’s board. It was

conformation, that Tesco in nineties were hungry for knowledge and was learning fast. Collected

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knowledge about consumers allowed for their management. Two strategies have been adopted:

communication strategy and business strategy. In 2006, 12 million Tesco customers have been mailed

every quarter, delivering in excess of £45m ‘Reward’ to customers. Seven million variations of product

coupon offers have been prepared (targeted through lifestyles and shopping habits and behaviour.

Tesco was reaching its customers at home through Tesco Magazine, Tesco Direct Catalogue, Food

Club, Wine Club, Healthy Living Club, Clubcard Statement, online sales and Collaborative mailings.

Tesco customers can spend time and check himself for example solving personality tests (“how often

do you drink?”) after logging on Tesco website (Laurance, 2007). In store Tesco was managing

customers behaviours through Clubcard bonuses, in-store sampling, floor graphics, milk media, trolleys

and baskets. Even outside the store car park sampling and petrol nozzles “were advising” the customers.

dunnhumby and Tesco from retail made media (Humby, 2009)

“Winning with Tesco means winning with the customer. Tesco put their customers, your customers at

the heart of their business. Understanding who they are, how they behave and what they want, drives

the decision making process. Having co-developed Clubcard and worked on the world leading loyalty

and insight programme for more than ten years, dunnhumby is uniquely qualified to show you how to

maximise your opportunities with the third largest retailer in the world. If you can understand customers

and talk their language with Tesco, you will get products, prices and offers spot-on for customers

(dunnhumby, 2007)”

This knowledge, according Hugh Brikitt, Chief Executive of the Marketing Society enables close dialog

relationship between retailer and a customer: “It almost has one-to one relationship with its (Tesco)

customers. […] The advantage Tesco has had is it can understand who’s taking what off its shelves

[…]” and that allows for “more or less nailed promotions and marketing” (The Grocer, 2007, p. 36). How

addictive for some customers proved to be Tesco Clubcard and its scoring point system, we could read

in the Guardian newspaper:

“A police officer who discovered a loophole in Tesco’s Clubcard scheme, which enabled him to accrue

75,000 points in just two months and convert them to air miles, became so obsessed with collecting

points that would arrive at his local store “morning, noon and night”. Shaun Pennicot, a 42-year-old

married father of two, was convicted of the fraud and may lose his job with Hertfordshire constabulary

(The Guardian, 2007).

It allowed for achieving significant impact on Tesco revenue four times per year and become very helpful

tool for Tesco’s suppliers to helps offset costs (Humby, 2006). That allow Tesco for development of new

ranges of Tesco brand: Tesco Finest: “Today Tesco Finest is a £1bn+ brand, with over 700 SKUs. We

have met the needs of a segment of customers who did not shop key categories in our stores but went

to upmarket competition, like Waitrose & Marks and Spencer. Growth is 450% in 5 years. (Humby,

2006). Creating customers’ loyalty was reflected in impressive growth sales and changing shoppers

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habits. The number of loyal shoppers has tripled in 10 years, loyal customer average weekly spending

has almost doubled. All of it achieved by improving the shopping experience for high potential shoppers.

Thanks to sharing data with its suppliers Tesco started to manage and control its supply chain, however

it allowed for adoption created by dunnhumby “win win win” approach (Tesco-customer-supplier, they

all wins).

Table 4.5. Statistics of dunnhumby (dunnhumby, 2009, 2014)

How huge potential was hidden in the data analysis we can observe after 20 years (Table 4.5). Learning

about the demand on the global scale, and influencing behaviours of hundreds of millions households

allowed Tesco in impressively short time growth from local supermarkets’ chain top global retail chain.

In 2014 Tesco owning dunnhumby was analysing shopping transactions of 700 million households,

representing $500billion in retail sales, sharing data with its other corporations like Unilever or L’Oréal

(Table 4.5). Value of dunnhumby in 2014 was estimated at the level of £2bn - £3bn (Richards, 2014).

Creating knowledge from sensitive and intimate data about millions of customers around the globe may

become a great tool to manage and control customers demand and shape their behaviours. However it

also becomes a powerful mechanism to influence other that shopping behaviours of consumers, for

example political choices or appearance of legislation influencing the democratic system or state

independence… It is dunnhumby (2006), that states in its presentation:

“The impact of customer insight upon retail decision support is 5-10 times more significant to the

Tesco than 1-1 communication.”

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THE INDUSTRY DOMAIN (SUPPLIERS & COMPETITORS) AND THE MANIFESTATIONS

OF STRATEGIC COMPETENCE TO MANAGE AND CONTROL THE INDUSTRY

Exhibit 4.24. The example of strategic competence to manage and control the industry

(own elaboration)

Growing monopolisation of the retail market (the global scale issue) and increasing

empowerment of the top retail TNCs lead to the progressive consolidation of the local

markets (Chapter 3). The impact of the top retailers on the small local retailers is inevitably

destructive for them (European Comission, 2004). The accusation of cartels between top

retailers brings the questions about the reality of competition between the top players. In

the CEC perspective cartel can appear as interesting example of how the retailers utilise

their external (other retailers’) competence to abuse the suppliers and force them to selling

their goods below the manufacturing price (e.g. Tesco as a member of milk cartel) (Wallop,

2007) and to influence negatively the retailers outside the cartel. Their outcome, a

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competence to control suppliers may positively influence the retailer’s financial results

(through decreasing the price of supplied products or supplying contract conditions). In this

way cartel strengthens already growing power over supply chains, what allows retail TNCs

like Tesco or Walmart to improve their operations and the market competitiveness. The

slavery of the employees on the global scale34 or bankruptcy of the suppliers on the local

markets in XXI century are more often the results of unethical behaviours of top global

retailers (or their refrain from action to eradicate working conditions abuses), than just free

market competition (Laurance, 2007).

THE EXAMPLE:

TESCO CREATIVE ACCOUNTING

Despite the ensuring, that suppliers are like family, and Tesco practices “win win win approach”35, the

latest scandal with British No 1 retailer accused of breaking the Groceries Supply Code of Practice,

shook not only public opinion, but also shed light on the practices adopted in the retail sector concerning

relation retail chain and its supplier.

Tesco adopting from its suppliers the external capability to finance the operations, through delaying

payments to suppliers, improved its cash flow and the financial results by booking income by 250 million

pound of first-half profit. “A sum later revised up to £326m- because of the way Tesco booked income

from its suppliers” (BBC, 2016). The Groceries Code Adjudicator investigation into Tesco Plc. has “found

Tesco’s breach of paragraph 5 of the Code to be a serious breach to the varying and widespread nature

of the delay in payments” (GCA, p. 7). The examples of Tesco behaviours presented in the Groceries

Code Adjudicator report are presented below:

“(a) A multi-million pound sum owed to a supplier as a result of price changes being incorrectly applied

over a log period. This was paid back by Tesco more than two years after the incorrect charging had

begun;

(b) A multi-million pound sum owed to a supplier as a result of issues including being invoiced by Tesco

for products it did not supply at all. This amount was paid back to the supplier around two years after

the error;

34 from American retail employees dependent on state financial help (source) to human trafficking on Thailand shrimps farms supplying the top retailers 35 relations allowing customers, suppliers and Tesco for achieving advantage from mutual relationships and trust

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(c) £200,000 owed to a supplier due to an agreed discount mechanism being recorded incorrectly. This

amount was not repaid by Tesco for nearly 11 months;

(d) Over £250,000 owed to a supplier due to pricing errors which took place over a five month period.

This was paid to the supplier by Tesco nine months after the errors where corrected” (Groceries Cod

Adjudicator, 2016, p. 23

Utilising its bargaining power Tesco was adopting unethical practices, which ended in the official

investigations driven by three British institutions: the Groceries Code Adjudicator (GTA), the Financial

Conduct Authority (FCA) and Serious Fraud Office (SFO). The GCA (2016, pp. 4-7) in its report has

pointed the list of Tesco abuse against its suppliers:

allowing for data input errors into its systems, what “resulted in suppliers being overcharge or

underpaid by Tesco. Tesco failed to rectify data input errors within a reasonable time and also

failed to pay money owed to suppliers as a result of these errors within a reasonable time. […]

the frequency and scale of the issues resulted in business practices which were unfair” (GCA,

p. 4);

Duplicating invoices, that were sent to suppliers, usually relating to promotional activities. Tesco

sometimes was deducting sum of both invoices from the total sum it was paying to suppliers.

There were situations, when Tesco failed to correct the errors and didn’t pay the money back to

supplier;

Focusing on meeting financial targets thanks to: a/ pushing the suppliers to defer of payments

to temporarily increase Tesco’s margin, b/not paying invoices in time;

Making unilateral deductions in relation to historic claims. “Tesco used third party auditors to

review its accounts for historic invoicing errors or omissions that would provide evidence that

suppliers had previously underpaid Tesco. These were then claimed even when suppliers

believed that they have made payments to “close” previous financial periods. […] unilateral

deductions from suppliers were made based on historic claims and these resulted in delay in

payments to suppliers. Unilateral deductions for historic claims are unreasonable (GCA, p. 5)”;

Making unilateral deductions for short deliveries and service level charges. “Tesco standard

terms and conditions impose charges on suppliers where they fail to deliver products in

accordance with orders placed by Tesco. Most of suppliers also have service level targets which

are based upon the supplier’s performance over a set period of time and which they will be fined

for failing to meet. […]Tesco (was) seeking to enforce these terms where the supplier disputed

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the charges and some evidence of Tesco unilaterally deducting such charges from the supplier

(GCA, p. 5)”;

Making unilateral deductions for other items or unknown items. There was limited data, that

“Tesco charged promotional fixed costs (known as gate fees) for activities which were not

carried out, following which repayment of money to suppliers was sometimes significantly

delayed.”;

In January 2017 Tesco is still waiting for judgements from SFO and FCA.

Example with Tesco taking control over capital of its suppliers is also example how easy the strategic

competence may become strategic failure leading to organizational disaster (Exhibit 4.25). All thanks to

one whistle-blower from… Tesco? (Thomas, 2014).

Exhibit 4.25. When binding external capability ends as a total disaster…

Tesco share price after scandal with suppliers in 2014 (Telegraph, 2016)

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CHAPTER SUMMARY

In that chapter, author presents the Competence Emergence Concept: a grounded theory -

drawing the process of organizational competence emergence and explaining its role in

creating organizational advantage. The perspective of top hypermarket TNC enlarges the

concept from organizational perspective to the total perspective (Total Environment). Three

general stages of the CEC explain the organizational process of achieving the permanent

strategic advantage by the hypermarket TNC: 1) building on organizational capability and

gaining organizational skilfulness, 2) achieving the competence based advantage and 3)

achieving the permanent competitive strategic advantage.

Fist part of the chapter presents the Competence Emergence Concept, in the frame of the

two stages: from the capability synthesis to the organizational skilfulness, and from the

organizational skilfulness to the competitive advantage and discusses the differences

between so far interchangeably used terms of the ability, the capability, the skilfulness and

the competence. The critical analysis of the three general CEC core stones: capability

activation (leading to skilfulness appearance), the skilfulness testing and the competence

emergence (leading to the different level of the organizational advantage), provide

knowledge about the processual relation between the organizational potential, the

organizational advantage and the competitive strategic advantage. That part also presents

the crucial role of the Human Factor and importance of organizational learning in the CEC

perspective.

The second part of that chapter presents the superior strategic competence emergence

process in the perspective of the hypermarket TNC’s Total Strategy. In the lens of the three

domains of organizational performance, the author explains the building process of the three

competences. Appearing as the results of adopting external capabilities in the process of

organizational capability synthesis, all three skilfulness: to legislate, adjudicate and

execution, to manage and control a market demand, and to manage and control the industry,

lead to creation of the superior competence providing the permanent competitive

advantage.

The examples from Tesco Plc and Walmart Stores Inc. complement the approach and are

presented at the end of the chapter.

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T H E S U M M A R Y A N D C O N C L U S I O N

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The end of the XX century Dunning (2006) defined the „advent of alliance capitalism”

describing the relations and collectivism between the firms- the sources of international

competitiveness. The critical aspect of successful competition was understanding, that firms

have insufficient resources and capabilities, and in order to build and sustain advantage they

are forced to draw on the resources and capabilities of other firms. After nearly 20 years

from the first edition of Dunning’s publication, it can be stated that the TNCs successfully

adapted the rule of utilising the external capability at a global scale, which we can see in

depicted examples of hypermarket TNCs – Wal-Mart Stores Inc. and Tesco Plc.

This dissertation explores and explains the process of building organizational strategic

competitive advantage with an example of the top hypermarket TNCs. The methodology of

the research is based on two qualitative methods: the ethnography for collecting data

(Charmaz, 2006, 2014) and the grounded theory for “conceptualising data” (Strauss &

Corbin, 1994, p. 275). The adoption of the abduction, its logical inference (Czarniawska

2014, p. 24; Reichertz, 2007; Schurz, 2008) has allowed the author to handle the complexity

(Dunne & Dougherty, 2016) of organizational processes and changes in the global external

environment related to them. The large scope of this research (two global multinational

enterprises and their surroundings) provided a collection of knowledge and allowed to

empirically induce the Grounded Theory hypothesis, leading to the appearance of the

Competence Emergence Concept. The grounded theory hypothesis, unlike the traditional

approach, does not measure the strength of the association between the conceptualised

variables, but focuses on the relations between the investigated concepts (Ćwiklicki, 2010;

Konecki, 2000). This dissertation explores the relations between the four major categories:

the global hypermarket organization, its strategy, strategic competences and the

competitive strategic advantage. The huge size of the investigated sample was causing the

risk of blurring the research process, hence it required author’s discipline and constant focus

on the general lens: the internal organizational processes that lead finally to creation of the

TNC’s permanent competitive strategic advantage on a global scale.1 The added challenge

was the separation of the internal processes induced into one general process of the

1 The appearance of an organization that is „too big to fail’

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competence emergence. These processes occur simultaneously and they overlap with each

other (e.g. capability induction and assessment of capability outcome), hence their

delineation was the critical action in the spiral testing of appearing Grounded Theory.

The author thoroughly studied and tested the Grounded Theory hypothesis (Charmaz, 2014;

Konecki, 2000; Ćwiklicki, 2010) and eventually was able to derive the Competence

Emergence Concept, which meets the following major objectives of the author’s research:

1) Explaining the relations between the organizational potential and competitive strategic

advantage;

2) Identifying the hypermarket TNCs strategic sources of advantage and their process of

emergence and utility.

The results describing the Competence Emergence Concept were presented in two parts.

The first part analyses the competence emergence process from the organizational

perspective, explaining the following stages of building organizational competitive

advantage from the organizational potential. Identifying strategic phenomena like

organizational capability, skilfulness and competence, defining them according to English

language dictionaries, adopting into strategic analysis of hypermarket organization in the

abduction process of the Grounded Theory, enabled the author to separate these terms and

delineate the performance of their phenomena. As it was explored in this dissertation:

organizational capability, organizational skilfulness and organizational competence are

components of one organizational process- the process of building organizational advantage

(or disadvantage). Hence, according to the perspective of strategic management they should

not be treated equally. The organizational capability (potential), after synthesis and

induction and positive assessment by its holder, is activated into the organizational

skilfulness. This stage is also the skilfulness testing and it allows for verifying the reaction

of the external environment to its activity and enables the creation of environmental

feedback to the organization (the organizational judgement). The environmental feedback

induces changes within the organization, reflected in the positive (or negative) adjustments

of the organizational performance indicators. The positive change reflects the emergence

of organizational advantage and allows for positive assessment of the quality of tested

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skilfulness and defining it as organizational competence2. The quantity of impact of

competence, stimulating changes of organizational performance indicators in variety of

organizational locations (operational, strategic, competitive strategic3), define the power of

emerged competence (operational, strategic, competitive strategic) and the type of

advantage it provides to holding that competence organization (operational, strategic,

competitive strategic). That part of the research leaded to the following findings:

I. The organizational capability is a potential carried by the organization, an organizational

quality of being capable to do something. The capability activation process releases the

dynamism of the organization and may successfully result as organizational skilfulness.

II. The organizational competence is an organizational skilfulness, which has provided a

positive return to its holder (the organization), reflected in a positive change in

organizational performance.

III. The organizational advantage is the outcome of organizational competence, that allows

the organization for its performance results improvement.

IV. The inter-organizational competition is a flow of the competitive strategic advantage

between the competitors. And the competitors are the organizations, that have similar

strategic goals, and which may negatively influence each other’s strategic performance with

their competitive strategic competences’ activities.

V. The organization achieves the strategic competitive advantage, when its performance

negatively influences the strategic advantage of its competitors, hence the strategic

competitive advantages of competitors are mutually dependent.

The second part, describing the Competence Emergence Concept, presents the adoption of

the concept into the perspective of building competitive strategic advantage by the

transnational corporations. The process of the organizational competitive strategic

advantage appearance is determined by the following emergences of its three assessment

stages:

2 A similar process occurs with the appearance of incompetence, however it is not discussed to interfere the analysis above: a negative assessment of tested skilfulness leads to an downgrade to organizational incompetence 3 E.g.: The competitive strategic change describes changes emerged at the strategic levels of the organization and its competitors

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- assessment of the capability activation outcome by the organization (as

skilfulness/unskilfulness),

- assessment of skilfulness testing by the external environment and the organization (as the

quality of skilfulness: competence or incompetence),

- assessment of competence power (as the competence impact quantity: operational,

strategic, competitive strategic).

The research showed, that the global top hypermarket TNCs like Walmart and Tesco have

learnt to take over the control of the assessment process as part of their Total Strategy, so

far led by the external environment. This has become possible as boundaries between the

organization and the external environment were blurred. The synthesis process of the

external capability into the process of emergence of TNC’s competitive strategic

competence and development of Superior Competence to Manage and Control the External

Environment allows for the creation of the Total Environment of an organization. Becoming

the Total Environment provides the TNC two unique and priceless strategic benefits:

1- It allows the TNC to judge the value of its own skilfulness outcomes, which provides the

organization the power to give a positive rating;

2- It allows the TNC to judge the value of its competitors’ skilfulness activities, which

provides the organization the power to give a negative rating.

In this way, the hypermarket TNC cannot only create, but also sustain its strategic

competitive advantage. The power to sustain its strategic competitive advantage leads the

TNC to develop its permanent strategic advantage.

As we can see in the dissertation, the Competence Emergence Concept (CEC), proposed by

the author, does not only solve the problems with ambiguous vocabulary in some strategic

management publications. It also explains the process of appearance of the organizational

advantage, discussing the accompanying issues like human importance or organizational

learning, while building on examples of global retailers. The CEC becomes a theoretical

platform that explains the connections between the organizational potential and turbulences

of the external global environment. The CEC allows for tracing connections between

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different components of the processes, explaining their importance, interconnectedness and

relations between one another.

Looking at the CEC from the perspectives of different strategic management approaches

presented in Chapter 2, it can be stated, that the CEC is an attempt taken by the author, to

solve the Gordian knot of strategic management, by explaining the process of creating

strategic advantage by the organization and by defining the timeless sources of strategic

competitive advantage. The CEC presents how the TNC adopts internal and external

potential and its position within the industry in its process of building competitive strategic

advantage. Hence, we could say, that the CEC in some way is a synthesis of the Resource-

Based View, Core Competences Approach, Learning Approach, Relational View and

Positioning View.

This thesis involved two hypermarket TNCs, which provided the knowledge necessary to

create the Competence Emergence Concept. The biggest limitation of this research was a

lack of access to strategy managers of the investigated corporations. Hence, testing the

findings together with the top managers of hypermarket TNCs would benefit the research.

It would also enable the author to test the concept in corporate practice and allow her to

check the value of the concept for business practitioners. Furthermore, it would be

interesting to prepare the simulations concerning the different stages of the CEC, for

example the strength of shares of components of capabilities involved in the process of

emergence of Superior Competence to Manage and Control the Domain of activity of an

organization, or the importance of the assessment decisions in the total strategic decisions

of a TNC. However, from the author’s point of view, it would be most exciting to analyse

the following aspects, using the CEC:

the Total Organization- an example of the inter-organizational network or a new form

of organizational phenomena?

the organizational dynamic homeostasis- the mutual dependence between the

competitive strategic competences of the competitors (e.g. the flow of advantage

between them, the investigation of the strategies targeting the competitive strategic

competences of the counter players in order to neutralize them),

the flow and flexibility of organizational borders at the different stages of the

competence emergence process,

the mutual relations between the competitors with special focus on coopetition

within the networks.

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The TNCs do not leave much space for competition, by introducing a Total Strategy to

maintain permanent competitive strategic advantage, thanks to the creation of a Superior

Competence to Manage and Control the Total Environment. This is reflected in the

increasing consolidation of the individual industrial sectors, the growing asymmetry between

multinationals and governmental bodies (Dunning, 2006). This way the Competence

Emergence Concept, explaining the steps of creation of the Total Strategy, proves and

explains the connection between the general thesis, stating, that:

The hypermarket TNCs take over the external environment

to achieve superior competitive advantage on a global scale.

and the research major hypothesis:

The top hypermarket TNCs possess unique competences, which enable these

organizations to achieve permanent global strategic competitive advantage.

Returning to Cunningham and Harney’s perspectives (2012), presented on the beginning of

this thesis, it can be said, that hypermarket TNCs led by the wise generals, successfully

create new Carolingian Empire of the XXI century. And these are the corporate generals,

that in their hands, carry power and responsibility for the future of global competition.

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LIST OF TABLES

NO DESCRIPTION PAGE NO 1.1 Two concepts of the corporation 28

1.2 Competence-based contributions to a Theory of the Firm 37

1.3 Examples of definitions of dynamic capability 41

1.4 The inconsistencies of DCV 45

1.5 Competence approaches in terms of related perspectives, basic assumptions, focus and dimensions of CM transition

48

1.6 Examples of literature concerning competence-based strategy 50

1.7 Examples of tacit knowledge definitions reflecting confusions within the knowledge management approach

54

1.8 Generations of knowledge management 55

1.9 The differences between market and nonmarket environments 61

1.10 Theoretical perspective of resource dependent theory (RDT) and RBV in relation to the Integrative Model

64

1.11 Institutional perspectives on nonmarket research 68

1.12 Strategy perspectives on nonmarket research 73

1.13 Summary of publications concerning resources and capabilities in perspective of CPA 76

1.14 Categories of political management strategies 78

1.15 Different types of relational strategies 82

2.1 Top 10 Retailers in 2014 87

2.2 Product Sector Profits in 2013 88

2.3 The examples of illegal agreements in the EU. Based on the Article 81 of the EC Treaty 96

2.4 The examples of Tesco Plc store formats available in the UK in 2009 120

2.5 The 250 top global retailers’ product sector profiles in 2013 121

2.6 The internationalisation of retailing- top grocery retailers running operations in more than 10 countries

123

2.7 Strategies to circumvent the spirit of the law which are adopted by corporations as a response to blocked goal attainment

133

2.8 Characteristics of examples of food safety standards recognized by the Global Food Safety Initiative

143

2.9 The types of lobbying in retailing 144

3.1 The techniques of observations adopted to collect the data 165

3.2 Selected interviews were taken between September 2007 and January 2008 178

3.3 The categories development: from the footprints to the organizational core 182

3.4 Definitions of the terms 189

3.5 The examples of polarisation in the two top retail TNCs: Tesco & Walmart 200

3.6 Key information about Walmart 202

3.7 Walmart’s financials between 2009 - 2017 205

3.8 Walmart U.S. stores formats and their area 207

3.9 Walmart foreign operations – number and types of selling units 210

3.10 The key facts about Tesco 222

3.11 Tesco stores Ltd. Formats 226

3.12 Financial results of Tesco Plc between 2008 and 2016 228

3.13 Statistics of dunnhumby 231

3.14 Tesco’s international grocery operations in 2011 232

4.1 The clue of successful Total Strategy of top retail TNCs 283

4.2 The examples of Tesco’s risks and key controls and mitigating factors 287

4.3 Itemized lobbying expenses for Wal-Mart Stores 290

4.4 The lists of Bills lobbied officially by Walmart (2015-2016) 293

4.5 Statistics of dunnhumby 301

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LIST OF EXHIBITS

NO DESCRIPTION PAGE NO

1.1 Types of knowledge strategy and their impacts on general strategy types, dynamics, risks and competitiveness

57

1.2 The business environment 60

1.3 An Integrative Model of the Nonmarket Strategy - Performance Relationship 63

2.1 The supermarket oligopolies: example of the UK, French and the US markets 90

2.2 Private label’s value share by country 91

2.3 Shopping experience in the close future 94

2.4 Banana Split – the drastic difference between cost of production and earnings of retailer

98

2.5 Evolution of supply chain in the grocery business 103

2.6 Retail TNCs relationships 107

2.7 Retail TNC strategy diamond 111

2.8 Critical moments in international retailer life cycle 113

2.9 Growth of purchasing network control 116

2.10 McGoldrick’s Retail Growth Vectors 118

2.11 The diversification process after dunnhumby: customer as a part of the company 125

2.12 Annual lobbying on the US retail sales: 2001 – 2015 135

2.13 The US retail market – Mergers and acquisitions deals 140

2.14 Retail “shopping” Retail- the size of the acquired retailers increase 141

3.1 The core of grounded theory hypothesis: relation between categories 172

3.2 Searching for similar patterns within different networks and constant comparisons of different spaces and looking for pattern interference

183

3.3 The three major categories of Grounded Theory investigation 190

3.4 Walmart’s discount retailer business model 214

3.5 Cross-docking as an example of strategic source of competitive advantage 216

3.6 Walmart capabilities boosting company performance against the retail industry 217

3.7 Tesco brands in 2011 – year of Leahy (CEO) leaving Tesco 233

4.1 The Competence Emergence Concept: The capability synthesis process 242

4.2 The Capability Activation Process: The Processual Dynamics 243

4.3 The CEC, Stage I: From capability synthesis to organizational skilfulness/unskilfulness 244

4.4 The CEC, Stage II: From the skilfulness induction to the organizational advantage 245

4.5 The inconsistencies between expected capability value and its final outcome (competence/incompetence)

248

4.6 The types of organizational competences 253

4.7 Variables of organizational competences: a capability and contest factors 255

4.8 Types of organizational advantage and their sources 257

4.9 The appearance of competitive strategic advantage 257

4.10 The levels of organizational advantage and the locus of emerging changes in organization

258

4.11 The conditions of knowledge appearance 261

4.12 Learning process: from valuable information to valuable information 263

4.13 The Competence Learning Cycle: Knowledge output as knowledge input 264

4.14 Example of knowledge incrementalism in competence emergence process 264

4.15 The organizational cyclical phenomenon: the emergence process and learning process of different competences of organization

265

4.16 A Tent- Walmart’s new store format after hurricane Katrina in 2005 271

4.17 Total Strategy: The TNCs growing in all possible directions 278

4.18 The Emergence of TNC’s Strategic Competence 280

4.19 The Total Environment of TNC as a result of takeover of part of external environment 281

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4.20 The relation between the capability skilfulness judgement and control of external environment

285

4.21 The manifestation of strategic competence to legislate and adjudicate and execution 288

4.22 Value (US$) of Wal-Mart Stores annual lobbying from 1998 – 2016 289

4.23 The example of strategic competence to manage and control the demand 297

4.24 The example of strategic competence to manage and control the industry 302

4.25 When binding external capability ends as a total disaster… Tesco’s share price after scandals with suppliers in 2014

305

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