Drawing on the Resource Based View Literature, Evaluate Whether and How C-Trip Generates Sustainable Competitive Advantage

Q. Drawing on the Resource Based View literature, evaluate whether and how C-TRIP generates sustainable competitive advantage.

According to Barney (1991) the Resource Based View (RBV) is considered to affiliate to the notion that a firm achieves success from using its ‘unique bundles of resources’ to exploit the markets opportunities. The foundation for competitive advantage lies upon the inelasticity of the supply of resources; thus it is important for resources to be heterogeneous, meaning that they should be unique to the firm. The resources should also be immobile, so competitors can’t imitate them easily. Ctrip have demonstrated this theory as they relied on numerous resources to exploit the market, yet when they found that these channels that they utilised to acquire customers were easy for competitors to imitate, they updated their resources by developing new unique technology systems that customers were unable to keep up with (page 3).

 McGee et al (2005) states that there are two types of resources; tangible and intangible resources, and Ctrip possesses both types of these resources. A few of their tangible resources include IT software, call centers and other buildings, and blah. A number of Ctrip’s intangible resources consist of the relationships with their customers and suppliers, the knowledge of their customer base that they’ve acquired over time, and employee training. It is considered that intangible resources are more critical to gaining competitive advantage, as these are more likely to be immobile, whereas tangible resources are more easily accessible to buy or even build. Therefore, for a firm to achieve a competitive advantage, the bundles of resources must work together complementing and reinforcing each other, to form competencies.

However, in order for these competencies to become core competencies and provide a sustainable competitive advantage, they must pass the four elements of the “V.R.I.O” tests (Barney 1995). Therefore, it is crucial to test each competence separately to try and maximize competitive advantage over competitors. The first element is to test a competence to see if it is valuable to the firm whether it’s contributing to current revenue through income or reducing current costs. It is then necessary to check whether the competency is rare, as ideally it is only the firm that acquires the competency. You should then test the competencies imitability, and Barney provides three reasons why something is difficult to copy, for example historic circumstances as those resources are a product of the company’s past, and they acquired the knowledge before any other firm did, so it’s difficult to copy. Secondly there’s causal ambiguity, as other firms may not know which parts are of importance and how the resources work together in succession. Lastly, it is difficult to imitate the same set of social relationships between staff from one firm to the next. The final element is whether the organization captures the value generated from the competency. It is crucial to do the VRIO test on each competency to test if each competency provides a competitive advantage for the organization, or whether it is just incurring costs having it, as there is strategic implications and if so it is not valuable to the firm to keep it.

The table below summarises a list of Ctrip’s competencies, and it states whether each of them have passed the four elements of the VRIO test, and whether this has allowed them to generate a SCA.

From the table, it is evident that Ctrip has been able to generate a SCA. One of their key competencies is the development of IT systems. The establishment of the IT systems placed them ahead of their competitors, and a multitude of resources make up this competence to allow them to deliver to customers. Whilst you can see from the table that their IT system is a core competence providing the company with a SCA, I will now explain how this was achieved through outlining each of the elements of Barney’s “V.R.I.O” framework. Through the introduction of the IT systems, they managed to accelerate the training of the new call center staff, so they “can act as experts within three months” (page 11) which adds value by cutting down the amount of time of the training process, hence reducing the costs of training, and they can contribute to sales more rapidly. This competency is also considered to be rare as with most travel agencies it takes around one to two years to train a new member of staff (page 11) therefore they are far ahead of their competitors. Moreover, it would have been very difficult for competitors to imitate the competency as the IT systems were developed internally, and there were various intangible resources that competitors wouldn’t have been able to imitate, such as information about the product and customer that enabled them to develop such a service. Therefore, competitors wouldn’t have known which resources would work together to achieve success. (barney) Ultimately, it can be considered that Ctrip captures the value generated from the competency, as …