According to Caldeira and Ward (2001), Resource-based theory helps to “understand how organizations achieve sustainable competitive advantages”, and its main focus is mainly on the effectiveness of the organization in its pursuit of competitive edge in the market.
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A firm can be said to be a collection of physical, human and organizational resources; however, the firm will enjoy significant success relative to its rivals if it can manage to amass adequate intangible resources that gives it a unique identity that will be difficult to imitate.
As Conner (1991, cited in Gossy, 2008) argued, “the performance differentials between organizations depend on having a set of unique inputs and capabilities.” According to resource-based theory, competitive advantage does happen only when “there is a case of resource heterogeneity and resource immobility” (Barney and Clark, 2010).
The Meaning and Principles of Resource Based Theory
Silviano (2006) states that, according to resource-based view, a firm’s ability to nurture outstanding and unique capabilities boost its ability to adapt to the dynamic economic environment as well as to improve its survival prospects. Barney (1991, cited in Gossy, 2008, p. 27) argues that in order to provide competitive advantage, a resource must fulfill the following four criteria:
- Valuable: the resource must have strategic value to the firm (for instance, by exploiting opportunities or neutralizing threats).
- Scarce: the resource must be unique and costly for rival firms to acquire.
- Imperfect imitability: It should be impossible to perfectly imitate mainly because it is not easy to acquire; since the link between the capability and the achieved sustained competitive advantage is ambiguous; or because it is socially complex).
- Non-substitutability: competitors cannot substitute the resource by another alternative resource to achieve the same results.
As Grover et al (1998, cited in Gossy, 2008, p.84) explain, “the essence of a resource-based theory is that, given resource heterogeneity and resource immobility and satisfaction of the requirement of value, rareness, imperfect immitability, and non substitutability, firms’ resources can be a source of sustained competitive advantage.”
Understanding the development of such capabilities and competences involves viewing the assets and resources of the firm from a knowledge-based perspective (Grant, 2009, p. 3).
The theory prioritizes the need for leaders to value competence as an intangible business asset that can go a long way in enhancing productivity of the firm; indeed attributes such as experiences, organizational culture and competences play a significant role in ensuring that the firm’s performance is sustainable (Gossy, 2008).
Moreover, Conner (1991, cited in Gossy, 2008, p.140) suggests, “An in-house team is likely to produce technical knowledge, skill, or routine that fits better with the firm’s current activities.”
The battle between Mittal and Arcelor before merging and the victory of Mittal
According to Oglesby and Adams (2009), Mittal replaced Arcelor as the leading global steel company when it purchased ISG and later bought Ukrainian Kryvorizhstal thus raising its annual production capacity to more than 65 tons.
Conclusively, this also means that no other steel company in the world has had the mechanism to perfectly copy the firm’s industrial processes and marketing strategies. Therefore, Mittal can be termed as a firm whose resources are imperfectly imitable on those grounds.
Mittal initiated the move to swallow its biggest rival, Arcelor, just as it had previously acquired underperforming assets from Mexico, Kazakhstan and Algeria. Such moves made Mittal to earn applauses from governments as a necessary outsider who revived a decaying firm.
The ability of Mittal to do this vividly depicts it as a company loaded with valuable resources, hence able to both exploit available resources and neutralize threats. The ability of Mittal to effectively resist and successively withstand opposition from the Luxembourg government clearly categorizes it a company with highly organized resources that were rare compared to those of its competitors in the steel making industry.
According to Arcelor FCS Commercial Magazine (2005), Mittal reacted very promptly to signals from the market. This is in comparison to Arcelor, which is said to have been less reactive, enabling Mittal to come up with a sharp analysis that helped to develop and implement action plans immediately.
In addition, according to Global Steel Consultants (2006), Mittal’s strategy has always been to grow by acquisition, and for that reason, it has continued to grow even after merging with Arcelor.
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Mittal’s initial plan to merge with Arcelor attracted a six months battle from governments, the banking industry, analysts, and shareholders. This was marked with a lot of opposition that made Arselor’s management resolve to merge with Severstal, a Russian company. The management had further suggested an dividend increment to its shareholders incase they rejected Mittal’s move to merge with Arselor.
Finally, governments, shareholders, and analysts supported the merge between the two companies. From the unfolding of these events, it is evident that Arcelor needed a merge with another steel producing company though they could not find any other firm whose resources could merge or substitute those of Mittal. Not even Severstal could measure up to Mittal. This is simply because Mittal’s resources were non-substitutable.
As Robinson (2009) stated, prior to the merger, Mittal was still the world’s largest steel company. This outstanding stability and credibility of Mittal over Arcelor prior to the amalgamation has made the current ArcelorMittal firm to maintain its superior performance and competitive advantage over its rivals globally.
Mittal’s victory evidently sustained in the ArcelorMittal group
According to ArcelorMittal leads other big steel-producing firms in the world due to its superior quality products and industrial processes. According to 10 Reasons You Should Buy Arcelor Mittal Bars over Other Big Steel Producers (2009), the reasons for its superiority over other firms are four-fold: Chemical properties, physical properties, processes, and commercial terms.
Reasons behind the superiority of ArcelorMittal
There are various reasons that led to ArcelorMittal taking a superior position in the market. First, Sulfur, phosphorus, and nitrogen are all impurities of steel. ArcelorMittal produces steel bars with lower amounts of these components compared to those produced by other companies. Hence its steel bars are pure and of high quality.
Second, whereas most steel-producing companies produce short steel bars that make them weak, problematic, and non-uniform, ArcelorMittal produces steel bars that are uniform and strong. Third, the firm uses colossus sum of money in research every year to improve the quality of its products and retain its customers. ArcelorMittal always seeks to attract and nurture the best people.
All industrial plants are in the process of certification. Fourth, ArcelorMittal has the most competitive prices for its products compared to that of other big steel companies. Its rebars are also packed in 2MT ton bundles for ease of handling. The bars are also available in standard length of 12 meters.
ArcelorMittal has demonstrated the success a firm can have through mergers, more so due to the enormous resources that may be applied to ensure all faculties of the firm are strong.
In addition, adequate resources allow the firm to formulate strategies that cannot only allow it to establish its identity and competitive advantage, but also to maximize its profitability. Moreover, the resource based theory postulates that a firm will be competitive only if it utilizes its resources capabilities on sound strategies.
Arcelor FCS Commercial Magazine. 2005. Steel solutions for a better world. (Attached material).
Barney, J. B. and Clark, D. N., 2010. Resource-based theory: creating and sustaining competitive advantage. Journal of Marketing Management. London, Oxford University Press.
Caldeira, M. and Ward, J., 2001. Using resource-based theory to explain the successful adoption and use of information systems and technology in manufacturing small and medium term enterprises. Global co-operation in the new millennium. (Attached material).
Global steel consultants. 2006. Mittal and Arcelor: Do they fit? (Attached material).
Gossy, G., 2008. A stakeholder rationale for risk management: implications for corporate finance decisions. Gabler Verlag. Web.
Grant, R.M., 2009. The Resource-Based Theory of Competitive Advantage: Implications for strategy formulation. Berkeley, University of California.
Oglesby, R. A., and Adams, M.G., 2009. Business Research Yearbook. Global Business Perspectives, Volume Xvi, Number 2. International Academy of Business Studies. (Attached material).
Robinson, S., 2009. The mergers and acquisitions review. United Kingdom: Law Business Research Limited. (Attached Material).
Silviano, E. (2006). The resource-based theory of the firm and firm survival. Small business economics, 30:231–249. Springer: Spain. (Attached material).
10 Reasons You Should Buy Arcelor Mittal Bars over Other Big Steel Producers. 2009. 10 Reasons You Should Buy Arcelor Mittal Bars over Other Big Steel Producers. (Attached Material).