The Resource-Advantage Theory of Competition: Implications for Australian Agribusiness

This paper summarises an emerging new theory of competition, contrasts the new theory with the 1980’s view, and outlines the main implications for managers and public policy makers. This new perspective on competition is termed the Resource-Advantage (R-A) Theory. The R-A Theory is grounded in empirical research which shows that variation between firms account for 45- 58% of firm profitability compared with industry effects of around 8-10%. This means that the key strategic task of managers is to create and nurture the resources and core competencies of the firm, rather than simply to decide which industries to compete in. The conventional wisdom in the 80’s was that strategy was essentially about the fit between the firm and its environment. The R-A view, on the other hand, maintains that strategy is about creating core competencies and other strategic resources so that the firm can positively influence its environment. The successful firm is pro-active, not just reactive. The new theory also points out that industry level analysis - as exemplified by Michael Porter’s 5-Forces model - is not an appropriate tool for analysing individual firms. In this paper, we show that the 80’s perspective on using industry as the key influencer of firm profitability, and the inappropriate use of industry analysis at the firm level leads to a dialogue breakdown between managers and public policy makers concerned with competition, productivity and economic growth. We also show that superior performance is a reward for meeting customer needs and may be complementary to public policy. Successful firms need not be apologetic. The paper concludes with the main implications for managers and public policy makers.