What is the difference between an institutional based view of global business and a resource based one?

Nawatat Suwansinpan

Nawatat Suwansinpan

Team Lead, Key Account Management at Shopee

Published Jan 25, 2017

This will first define the terms of industry-based view, resource-based view, and institution-based view.  Following this, it will demonstrate the linkage between those views.  Finally, it will examine how the combination of those views can shape strategy and improve a firm’s performance.

Those three views have different terms to focus on.  Firstly, the industry-based view is responsible for examining the environment in the industry.  It will focus on the external circumstances in the market, and will see the possibility of gaining a competitive advantage.  Secondly, the resource-based view will look at the internal resources. This will focus on how to use internal resources to gain competitive advantages in the market.  Its resources should be valuable, rare, imperfectly-imitable, and non-substitutable.  The last view is institution-based view which will focus on the cultural differences and possibility in the broad view. It is beneficial to supplement the industry-based view and resource-based view.

It could be seen that all those three views focus on different aspects.  As a consequence, those three views could work together to formulate a strategy for an organisation.  For external environment, industry-based view will be the best approach in order to examine the level of competition and the possibility of gaining profit in the market.  It also can determine the position of the firm in the market whether the firm will gain a competitive advantage by being a lowest-cost leader or a differentiator.  And it also can choose to focus on broad market or narrow market (niche market).  In addition to the external environment, resource-based view will be used to develop the competitive advantage internally.  In order to strengthen the firm over its competitors, it should focus on the effective use of its resources.  This approach will determine and develop firm’s resources and capabilities in order to compete with its competitors.  The resources should be met the requirement in VRIN model, consisting of value, rarity, inimitability and non-substitutability.  On top of those two approaches, institution-based view will control the broad institutional picture, including societal aspects.  For example, cultural difference issues will be managed by this approach.

As a result, those approaches will work together to shape a strong strategy to the firm since they develop its best productivity in each aspect.  The combination of those approaches could cover all aspects in conducting business. Therefore, the firm could implement the strategy to the business.