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
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- 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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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 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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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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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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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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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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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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(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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