Competitive Advantage In The Theory Of Strategic Management

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Strategic management literature developed this theory to explain how competitive advantage can be achieved and sustained in the long term by a firm. RBV is a popular theory used to examine the relationship between utilization of accounting services and SMEs. There are different authors who have contributed to the theory. In 1959, Penrose contributed by saying that a firm is considered as a collection of both human and physical resources in an organizational structure. The resources available are physical assets that are tangible and intellectual assets that are intangible. Intellectual assets consist of human resources such as individual skill, individual competencies and knowledge (Hafeez et al., 2007). She stated that growth of a firm both…show more content…
A firm might have many resources at its disposal but it is important to remember that the resources do not contribute to the competitive advantage of the firm equally. Thus a firm should consider the resources with the four characteristics above. Competitive advantage is achieved by a firm if the current strategy which creates value is not being implemented by present or future competitors. According to him, if all firms had equal resources profitability differences would not be observed among them because any firm in the same industry could implement any strategy. Therefore the competitive advantage to be gained will rely on reduction of cost of resources and utilized capabilities in implementing strategy selected. Resources of a firm such as assets, processes being used, organization characteristics, aptitudes information and knowledge it has are controlled by the company and its employees (Barney,…show more content…
According to him, every company expands as long as it is cheaper to perform activities within the company compared to outsourcing them. Williamson (1981), developed the theory and stated that a costs incurred by a firm internally during production is called production cost while if the activity is purchased, it is termed as transaction cost. Transaction cost occurs in transferring goods and services from one stage to another and new technology capabilities are required for production.

When a firms internal production costs are lower than the external transaction costs, growth is experienced since production becomes cheaper than if it would be outsourced. Opportunism, risk bounded rationality, environmental uncertainty and firm assets are factors that reflect transaction costs incurred due to exchange of resources with the external environment. While using this theory, Everaert et al. (2010) described decision to outsource accounting services to be influenced by frequency of activities, opportunism by external accountant, trust in professional accountant and asset specificity. When controlling these components becomes expensive for a firm, then external transaction costs tend to

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