Comparing the relational RBV, and industry structure views

Although an individual firm’s ability to work effectively with other firms may be classified as a firm-specific capability (which may generate relational rents), there is value in distinguishing a relational view, which offers a distinct, but complementary, view on how firms generate rents. A relational view considers the dyad/ network as the unit of analysis and the rents that are generated to be associated with the dyad/network. Although complementary to the RBV, this view differs somewhat in terms of unit of analysis and sources of rent, as well as control and ownership of the rent-generating resources (see Table 1).

To illustrate, a Toyota supplier may generate rents by actively participating in the knowledge- sharing processes in Toyota’s supplier association. However, the supplier will be unable to generate the knowledge rents if the other members decide to exclude it from the network. Similarly, the 23,000 member banks of the VISA organization have achieved an advantage over American Express and Discover by pooling their enormous distribution power, which allows for use of the card at more locations than its competitors. Individual banks generate profits with VISA, owing to the jointly created brand name and distribution network. In both of these cases, the resources that create the relational rents are essentially beyond the control of the individual firm.

In summary, the RBV focuses on how individ- ual firms generate supernormal returns based upon resources, assets, and capabilities that are housed within the firm. However, according to a relational perspective, rents are jointly generated and owned by partnering firms.7 Thus, relational rents are a property of the dyad or network. A firm in isolation, irrespective of its capabilities or resources, cannot enjoy these rents. Thus, a relational capability is not a sufficient condition for realizing relational rents. As Zajac and Olsen argue, “[B]oth parties use the interorganizational strategy to establish an ongoing relationship that can create value that could otherwise not be created by either firm independently” (1993: 137).

A relational view may offer different normative implications for the strategies firms should use to achieve high profits. For  example,  according to the RBV, an individual firm should attempt to protect, rather than share, valuable proprietary know-how       to            prevent     knowledge spillovers, which could erode or eliminate its competitive advantage. However, an effective strategy from a relational view may be for firms to systematically share valuable know-how with alliance partners (and        willingly                      accept              some            spillover  to competitors) in return for access to the stock of valuable knowledge residing within its alliance partners. Of course, this strategy makes sense only when the expected value of the combined inflows of knowledge from partners exceeds the expected loss/erosion of advantages due to knowledge spillovers to competitors.

Similarly, the relational view and industry structure view may offer different prescriptions for firm-level strategies. For example, according to the industry structure view, firms should be eager to increase the number of their suppliers, thereby maximizing bargaining power and profits. Porter states, “In purchasing, then, the goal is to find mechanisms to offset or surmount these sources of suppliers’ power. … Purchases of an item can be spread among alternate suppliers in such a way as to improve the firm’s bargaining power” (1980: 123).

This strategy is in direct contrast to a relational perspective, which holds that firms can increase profits by increasing their dependence on a smaller number of suppliers, thereby increasing the incentives of suppliers to share knowledge and make performance-enhancing investments in relation-specific assets. State Ba- kos and Brynjolfsson:

By committing to a small number of suppliers, the buyer firm can guarantee them greater ex post bargaining power and therefore greater ex ante incentives to make noncontractible investments, such as investments in innovation, responsiveness, and information sharing; the buyer ends up being better off by keeping a smaller piece of a bigger pie (1993: 43).

Thus, a relational view may differ from existing views in the normative prescriptions offered to practicing managers. The fact that there are clear contradictions between these views suggests that existing theories of advantage are not adequate to explain interorganizational competitive advantage.

Source: Dyer Jeffrey H., Singh Harbir (1998), “The Relational View: Cooperative Strategy and Sources of Interorganizational Competitive Advantage”, The Academy of Management Review, Vol. 23, No. 4 (Oct.,1998), pp. 660-679.

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