JAPAN MNE Insights
Volume 4, Issue 1
October 2017

Japan Academy of Multinational Enterprises
TABLE OF CONTENTS

1. Special Essay:
Royalty Free Intellectual
Property and Interindustrialization of MNEs
2. Special Essay:
The Ultimate Source ofCompetitive Advantagesof the Firm

www.mne-jp.org

Special Essay:
Royalty Free Intellectual Property andInter-industrialization of MNEs
Yasuro Uchida, Ph.D
Professor of Business Administration,
University of Toyama, Toyama, Japan

1. Introduction
Alliances created between companies operating in different
industries have been starting to appear. One of the causes of suchalliances is the IoT, the “Internet of Things”.
Since various things around us are connected to the Internet via
the IoT, things which people previously managed separately can now be
managed in one system. In other words, the premise of the IoT is
cooperation beyond the boundaries of discrete industries. As a result of
this, as technology which utilizes IoT develops and increases in
popularity, the demand by the users for technology that can make usesof various industries will also increase accordingly. One of the mostimportant things for creating such an alliance is a technology standard.
Indeed, the IT Strategic Headquarters of Japan Cabinet Secretariat has
decided to promote the IoT policy, emphasizing that the key for IoT
policy success is such a technology standard.
My interest in this matter is how the technology standards moveand develop under these situations. The purpose of this essay is toconsider the strategy of technology standards of MNEs in society in the
future.
2. Research Target
In the recent IoT business situations, a classification such the one
shown in figure 1 is possible. In this figure, the regional domain where astandardized technology is utilized is shown on the horizontal axis. It
shows that the standardized technology is used in either a specificcountry or in an international business environment. For example,
when the technology utilized in "B" is also utilized in "D", "international
standardization of technology" will be pushed forward and thatstrategy is also necessary.

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Figure 1: Classification of Business Area

" Since the technology
utilized in the IoT
business is developed
under such a situation,
the technology shouldbe able to be cope withboth international
business and inter‐industrial business
when MNEs want to set
the standard."

On the other hand, the business area where a standardized
technology is utilized is shown on the vertical axis. It shows that thestandardized technology is used in either a specific industry or in aninter‐industrial business environment. When the technology utilized in"B" is also utilized in another industry, it is necessary to make an “inter‐industrial standardization of technology”.
This essay focuses on “C”, which has the characteristics of bothinternational business and inter‐industrial business. There is also a
premise which suggests the need for two types of cross border from the
beginning of its technological development. Since the technology
utilized in the IoT business is developed under such a situation, thetechnology should be able to be cope with both international businessand inter‐industrial business when MNEs want to set the standard.
However, the research of the technology development strategy in such a
premise is difficult to find in already completed research.
Previous research papers concerned with the technology standards
show economic effects such as network externalities, a bandwagon
effect, the lock‐in effect and the switching cost.
As for the de facto standard in a specific technology, there aremany studies of the competitive advantages that paid close attention to
the differentiation created by entry barriers and cost reduction possible
due to economies of scale. These are based on the studies of "B" and "D"on the above figure. Though there are the studies on strategic behaviorof the MNEs based on a specific piece of technology or theappropriability of the intellectual property (IP), the premise of thesestudies is the transfer process from “B” to “D”. In addition, there is a
study of consensus standards which has an important meaning when
the inter‐industrial alliances are formed in specific countries. But thisstudy is based on either “A” or “B”.

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3. Synchronization between Internationalization and Inter‐industrialization of IP
Of course, we can see technology which has been utilized both inforeign countries or other industries. The technology which istransferred from industry standard (B) to international standard (D),and to inter‐industry standard (C) is already verified. However theprevious research with regard to technology standard has overlooked
the synchronization of internationalization and inter‐industrialization.
There is a need to know that such synchronization is not the sameas the technology strategy examined in the existing MNEs’ competitive
strategy theory. IP was the source of earnings as a proprietary license in
the process of the international standardization of technology. License
fees, which increase with the spread of the technology, had a substantial
impact. Besides, in order to pursue the further spread of the technology,
expanding the usability of such technology was also very significant.
Figure 1 suggests that the pattern which was aimed at “C” after “D” wasintentional. We can understand the standard strategy concerned with
CDs or DVDs in such a context.
However, facing both the inter‐industrialization as well asinternationalization is the premise at the beginning of the development
process of technology. Therefore, technology with specific usages is notinter‐industrialized. In the IoT business, it is important for various
kinds of users which belong to different industries to use thetechnology. But it is extremely difficult to develop the technology whichcorresponds to various uses in only a specific MNE. So, it is generalized
today that the standardization of IoT technology is formed inconsortium, to be constructed within a company across either a borderof countries and/or industries.
In order to spread standardized technology, influential companies
which have many customers need to join the standardization process as
members of such a consortium. That is to say, the consortium which isable to make a licensee company the leading member is necessary when
MNEs want to develop the standardization in the “C”. What many
consortiums propel is the royalty free (RF) nature of the coretechnology at that time.
4. Royalty Free Status of Intellectual Property
Recently, intellectual property rights (IPR) policy has comes to beopened through consortiums. It is established in this way to avoid
conflicts over rights or license fees. The license was charged inconsortium in general. In those cases, it was named RAND (reasonable
and non‐discrimination), or FRAND (fare, reasonable and non‐discrimination). But many consortiums adopt a RF stance in regards to
IoT business. (See table 1)
This table shows that the majority of consortiums choose RF. Thereis an increase in this tendency in particular after 2008, and about 70%
of consortiums adopt RF. What is the incentive of companies topromote RF? The answer can be found in the possibility of creating a" In order to spreadstandardized technology,
influential companies
which have manycustomers need to join thestandardization process as
members of such a
consortium. "3

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Table 1 IPR policy survey in IoT consortia

Consortium
1 TMForum
2 OMG
3 ITS America
4 OASIS
5 BBF

Full Name
TMForum
Object Management GroupThe Intelligent Transportation Society of America

FoundationNo. of Members
1988
850
1989
264
1991
370
Organization for the Advancement of Structured Information Standa
1993
279
1994
153
Broadband Forum
International Multimedia Telecommunication
6 IMTC199430
Consortium
7 LONMARK1994
118
LonMark International
8 W3C
1994
398
World Wide Web Consortium
9 FSAN
1995
73
Full Service Access Network
10 TOG
1996
521
The Open Group
11 ECHONET
1997
266
ECHONET Consortium
12 OIF
1998
99
Optical Internetworking Forum
13 Bluetooth.SIG
Bluetooth.SIG
1998
8000
14 GCF
1999
284
Global Certification Forum
15 FCIA
1999
24
Fibre Channel Industry Association
16 ITS Forum1999
94
ITS Info‐communications Forum
17 OSGi
1999
144
OSGi Alliance
18 HPA
2000
39
HomePlug Alliance
19 SIP Forum
2000
29
SIP Forum
20 MEF
2001
206
Metro Ethernet Forum
21 IIC(ITS)2002
86
Internet ITS Consortium
22 OMA
2002
70
Open Mobile Alliance
23 ZigBee
2002408
ZigBee Alliance
24 DLNA
2003
175
Digital Living Network Alliance
25 EPC Global
2003
1500
EPC Global （GS1）
26 MoCA
2004
45
Multimedia over Coax Alliance
27 NFC Forum
Near Field Communication Forum2004
167
28 Ethernet Alliance
2005
87
Ethernet Alliance
29 Continua Health Allianc Continua Health Alliance2006
closed30 NGMN
2006
96
NGMN Alliance
31 OGF
2006
19
Open Grid Forum
32 Hadoop
2008
57
Apache Hadoop Project
33 HbbTV
2008
82
HbbTV Association
34 HomeGrid Forum
2008
58
HomeGrid Forum
35 IPTVFJ
2008
109
IPTV Forum Japan
36 Kantara
2009
45
Kantara Initiative
37 SGIP
2009
144
Smart Grid Interoperability Panel
38 JSCA2010
272
Japan Smart Community Alliance
39 OpenADR
2010
127
OpenADR Alliance
40 JSSEC
2011
145
Japan Samrtphone Security Association
41 OCP
2011
97
Open Compute Project
42 ONF
2011
141
Open Networking Foundation
43 OPEN Alliance SIG
2011311
OPEN Alliance special Interest Group
44 Wi‐SUN
2012
91
Wi‐SUN Alliance
45 FIDO2012
262
Fast Identity Online alliance46 OCC
2013
18
Open Cloud Connect
47 AllSeen
2013
169
AllSeen Alliance
48 OpenDaylight
2013
50
OpenDaylight Project
49 IIC2014
238
Industrial Internet Consortium
50 THREAD
2014
216
THREAD GROUP
51 OPNFV2014
58
Open Platform for NFV
52 AOM
2015
16
Alliaance for Open Media
53 UHD2015
42
UHD Alliance
54 OpenFog
2015
32
Open Fog Consortium
55 MulteFire
2015
17
MulteFire Alliance
56 LoRa2015
246
LoRa Alliance
57 WIoTF
2015
6
Wireless IoT Forum
58 Hyperledger
201681
Hyperledger Project59 OCF
2016
179
Open Conncectivity Founcation
60 TIP
201640
Telecom Infra Project
61 DMTF
dissolution
162
Distributed Management Task Force

Notes: "◎" demonstrates a clear choice of either RF or RAND, and "○"means choice of both.
Source: Forum report of Telecommunication Technology Committee

RF
◎
◎

RAND
close
close
◎

◎
◎
○
○
○
◎

◎
◎
◎
◎
◎
○
◎
○
◎
◎
◎
◎
◎
◎

◎
◎
◎
◎
◎
◎
◎
◎
◎
◎
◎
◎
◎
◎
○
◎ 31
○ 6

◎
close

○
○
○

close
close
close
close

close

close

◎
◎
○

close

close
close

close

◎
○

◎

◎

close

close
close
close

○
◎ 7
○ 6

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huge market by making an IoT standard. One particularly appropriate
example case in this regard is Qualcomm.
5. The Case of Qualcomm
Qualcomm was established in San Diego, California in 1985. The
development of the technology for the mobile phone communication
systems was entrusted by the FCC (Federal Communications Commission),and Qualcomm suggested a CDMA system in the late 1980s. Though thisconception eventually failed, Qualcomm continued developing the CDMA forcell‐phone systems on the ground.
In the communication standard called “the 3rd generation” (3G), boththe W‐CDMA system and CDMA2000 system would have coexisted, but thestandards of the W‐CDMA was almost unified at one time. Qualcomm
maintained an essential patent for two kinds of standards at that time.
However, they insisted on the coexistence of each of the two standards
since it was CDMA2000 to be compatible with the standard "cdmaOne" ofthe 2G, which Qualcomm led. Since the standard of "cdmaOne" wascompatible with CDMA2000, Qualcomm announced that they would neverlicense the essential patents of the W‐CDMA if two standards had notcoexisted.
The main product of Qualcomm is “snapdragon", and it is bundled withalmost all of the recently developed cell‐phones. The royalty from the cell‐
phone manufacturers is a great source of profit for Qualcomm. In January
2017, Apple brought a suit against Qualcomm claiming that their royalty
fees were too expensive, which went on to become international news andspark a global debate.
In this way, Qualcomm had continued their business model ofmaximizing profit based on their IP. However the performance ofQualcomm has been decreasing in recent years. In regards to their growthrate, the situation worsens after 2011. (See figure 2)
Figure 2: Performance of Qualcomm

Source：Qualcomm annual report5Vol.4 Issue 1" It is constructed inconnection with various
countries and companies
from different industries.
This means that it is a
consortium which
promotes bothinternational standards
and inter‐industrial
standards at the sametime."

JAPAN MNE Insights
Despite this, they have started another business model in the IoT
business field. In the new business model, they are making a coretechnology RF. It is a piece of software called "AllJoyn", created anddeveloped in‐house. AllJoyn is a framework that was developed to makethe environment of IoT more convenient. The latest version of AllJoyn wasdeveloped in December 2016.
The connected devices which are accessible to the network will
increase in future, so people will be able to benefit from home appliances
through the IoT situation they have in place at home. Conversely, however,
the widespread increase of IoT devices creates not only benefits but also
may become a source of confusion. In a given home, if the rice cooker,
refrigerator, air‐conditioner, air cleaner, and hot water supply device allchange to their IoT device equivalents, each device may need to be used bydifferent means of communication, OS and application software. It may
become necessary for users to choose the relevant application on theirsmartphone, the PC software or the operation panel fitted to the wall andso on for every new device they install in their home. It is difficult for users
themselves to develop connection settings for each IoT device.
For this reason, Qualcomm has developed an IoT framework named
AllJoyn to connect each IoT device together. In AllJoyn, the function thatusers are able to apply in various IoT devices is prepared in a library. Since
users can get AllJoyn at no charge, connecting various IoT devices together
has also become much easier.
As aforementioned, the core technology of AllJoyn was developed by
Qualcomm. Qualcomm developed the standardization in a consortium
called Allseen Alliance, distributing this technology for free. Over 150
MNEs, such as Canon, Electrolux, Haier, LG Electronics, Microsoft,
Panasonic and Sony participate in this consortium. It is constructed inconnection with various countries and companies from different
industries. This means that it is a consortium which promotes bothinternational standards and inter‐industrial standards at the same time.
AllJoyn has three characteristics. The first is that it is able to connect
without a cloud in the proximity communication; the second is that each
IoT device is connected mutually and each displays its own functions; thethird is that all things are connected regardless of which company they
were created by. Since general IoT devices depend on a specific cloud or
OS, AllJoyn’s method of connecting various devices is certainly innovative.
In addition, AllJoyn is comprised of three layers. The basic layer finds
the IoT device, realizes that it has a function which can be utilized by
AllJoyn and is connected. It can also provide functions such as access
control or coding as an API. The second layer is the basic library as
mentioned above. The top layer is called the application layer, which
defines the user interface.
Various pieces of installation apparatus are utilized in consumer houses
throughout the world. At present, it is not easy to connect them. Not only
can AllJoyn connect apparatus easily, but also provide various additional
services.
Products such as TV and an air cleaner made specifically for AllJoyn, andwireless speakers made by Panasonic have already come up abroad. All

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editions of Windows 10 supported AllJoyn, too. The possibility of
spread widely adoption in future is unmistakable.
Qualcomm has also developed "DragonBoard 410c" as a tool todevelop IoT devices use AllJoyn. This is a board equipped with 410
Qualcomm Snapdragon processors. The users can easily makeenvironments for AllJoyn by using DragonBoard 410c. In addition,
Qualcomm begins to bundle SnapDragon, which has been included ina smartphone until now, with various devices for AllJoyn.
SnapDragon is a device which carries a fee. Therefore the sales of
SnapDragon directly affect the profits of Qualcomm. In other words,
as Qualcomm makes AllJoyn RF, software for use in the IoT
environment will become more common, and the international
standard and inter‐industrial standard in the consortium “Allseen
Alliance”‐made business model should lead to increased profits for
Qualcomm itself.
6. Conclusion
The case of Qualcomm shows us that “RF of IP” has an importantmeaning at its center. At the same time, one of the most important
things is that cooperative MNEs which are gathered from different
countries or industries develop the standardization of free IP inconsortiums.
This phenomenon has not been mentioned in the conventional
international business study thus far. The IP free model brings newopportunities for business in the IoT world. From these, the biggest
challenge for MNEs is to understand how to manage “inter‐industrialization of international business” in the society of the
future.

" The IP free model
brings newopportunities forbusiness in the IoT
world. From these, thebiggest challenge for
MNEs is to understandhow to manage “inter‐industrialization ofinternational business”
in the society of the
future."References
Besen, S. M. & Farrell, J. 1994. Choosing How to Compete: Strategies
and Tactics in Standardization, Journal of Economic Perspectives,
8(2): 117‐131.
Cargill, C. F. 1989. Information Technology Standardization: Theory,
Process and Organizations, Digital Press Newton, MA, USA
Chesbrough, H. 2006. Open Business Models, Harvard Business
School Publishing Corp.
Farrell, J., & Saloner, G. 1986. Standardization, Compatibility, andInnovation, RAND Journal of Economics, 16(1): 70‐83.
Jakobs, K. (Ed) 2000. Information Technology Standards andStandardization: A Global Perspective, Idea Group Publishing.
Jakobs, K. (Ed) 2005. Advanced Topics in Information Technology
Standards and Standardization Research, Vol.1, Idea Group
Publishing.

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Kajiura, M. 2010. The Strategic Consortia Movement in Standardization,
International Journal of Manufacturing and Management, 21(3‐4):324‐339.
Krechmer, K. 2006. Open Standards Requirements, In Kai Jakobs (Ed.), Advanced
Topics in Information Technology Standards and Standardization Research:
27‐48.
Uchida, Y. 2011. The Relationship between Ex‐ante Standard and Competitive
Strategy: A Case of GS1 EPCglobal, International Journal of Automated
Identification Technology, 3(2): 89‐99.
Uchida, Y. 2012. “A Study on User‐Driven Standard and Royalty Free in theStandardization Processes”, Journal of International Business, Japan
Academy of International Business Studies, 4(2): 93‐114. (in Japanese)
Uchida, Y. 2013. “The Process of International Standardization and Royalty Free,
International Journal of Business Research”, Academy of International
Business and Economics, Vol.13 No.1: 153‐160.

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Special Essay:
The Ultimate Source of Competitive
Advantages of the Firm
Akio Tokuda, Ph.D.
Professor of Strategic Management
Department of Business Administration
Ritsumeikan University, Osaka, Japan

1. Introduction
Digital innovation and economic globalization requires firms to beflexible, highly innovative, and responsive to customers quickly on a global
scale. Because few possess resources and capabilities to be all these things,
and a system of products and services are connecting to be “a part of systemof systems”, firms are increasingly looking for allies to formulate thecompetitive business‐ecosystem over their rivals.
In response to the real world, studies of strategic alliances, business‐ecosystem, platform business and open innovation have been one of the
major areas of strategic management research (e.g., Badaracco, 1991;
Contractor & Lorange, 2002; Eisenmann et al, 2011; Gawer & Cusmano,
2002; Doz & Hamel, 1998; Chesbrough, 2006). In this essay, I would like totake up the source of competitive advantages for discussion and try toapproach the strategic nature of alliances.
There are as many definitions of strategic alliances as there arescholars on this theme. This variety of definitions seems to be caused bydifferent research methods, where each scholar conducts an inductive
analysis, elaborately scrutinizing the empirical studies on alliances, pullingout specific features from them, and then synthesize these features into
their consistent conceptual framework (e.g., Child & Faulkner, 1998; Doz &Hamel, 1998; Reuer, 2004). By contrast, this essay tries to give a definitionof strategic alliances formulated in a different way. The strategic alliances
can literally be seen a form of ‘alliance’ with a content that is ‘strategic’.
Thus, for gaining the better understandings of the strategic nature of these
alliances, it is indispensable to grasp the substance of the strategic
management theory, and then locate alliances within its framework. By thismethod alone we are able to theoretically clarify ‘strategic alliances’ as atechnical term in a strategic management field.
For this purpose, we critically deal with a resource‐based view for
discussion as one of the major schools of strategic management. We attempt
to distill the ultimate sources of competitive advantages of the firm by
amending RBV from an entrepreneurial viewpoint, and then give adefinition of strategic alliances.

" The strategic alliances
can literally be seen aform of ‘alliance’ with acontent that is‘strategic’."

2. Internal Resources & Capabilities of a Firm
Since the mid 1980s, the RBV has emerged as one of the substantial
schools of strategic management (Barney, 1986a, 1986b; Rumelt, 1984;9

Vol.4 Issue 1

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Wernerfelt, 1984). The increased attention to firms’ resources by
researchers has seemed to be beneficial to understand the potential
contributions of resources to competitive advantage. The RBV suggeststhat the resources possessed by a firm are the primary determinants of
its performance, and these may contribute to a sustainable competitive
advantage of the firm (e.g., Hoffer & Schendel, 1978; Wenerfelt, 1984).
According to Barney (1991) the concept of resources includes all assets,
capabilities, organizational processes, firm attributes, information,knowledge, etc. controlled by a firm that enable the firm to conceive ofand implement strategies that improve its efficiency and effectiveness(Daft, 1983).
Amit & Schoemaker (1993) define resources as stocks of available
factors that are owned or controlled by the firm, which are converted
into final products or services. Capabilities, in contrast, refer to a firm’s
capacity to deploy resources, usually in combination, usingorganizational processes, to produce a desired effect. Hence, thepresence of capability enables resources to be utilized, and the potential
for the creation of output arises. While resources are the source of afirm’s capabilities, capabilities are the main source of its competitive
advantage (Grant, 1991).
The result of this is that the concept of ‘capability’ is the capacity ofa firm to convert resources they possess into the ‘service’. The
relationship can be formulated as
S = f (C, R)
for some general function f (.) so that C and R are the parameters of
S, where C is capacity of capability, R is resources, and S is service.
3. To See the RBV from another Angle
When we made a brief survey of the conceptual framework of the
RBV (Barney,1986a, 1991, 2001), it may be paraphrased as follows:
Under the two assumptions, i.e. (1) firms within an industry may beheterogeneous with respect to the strategic resource they control, and(2) these resources may not be perfectly mobile across firms, and thus
heterogeneity can be long lasting, RBV asserts that the resource musthave four attributes:(a) it must be valuable,(b) it must be rare,(c) it must be imperfectly imitable (or costly to imitate), and(d) non‐substitutable (costly to substitute).
The conditions (a) and (b) produce the competitive advantage and (c)and (d) relate to its sustainability.
No matter what attributes the RBV researchers point out
regarding resources, most of all advantages which originated fromresources ought to be compensated for their owner. And the source ofcompetitive advantage of the firm remains only by their monopoly rent.
It follows from what has been said, that the RBV does not fulfill the10Vol.4 Issue 1

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conditions for acquiring a competitive advantage. Only firms that alreadypossess a competitive advantage are qualified to adopt the RBV. Thus, how
can we recognize the academic value in the RBV in terms of explaining thesource of the competitive advantage of a firm? By examining Barney’s(1986a, 2001) research, we find that he might recognize the existence ofthe source of competitive advantage besides resources per se. The‘strategic factor market imperfection’ is the key concept for finding theacademic value in it.
The economic performance of the firms depends not only on the
returns from their strategies but also on the cost of buying the resourcesfrom these markets to implement those strategies. Barney(1986a) shows
there is an implied possibility that the competitive advantage may comefrom the imperfections in strategic factor markets. Different firms in thesemarkets will have different expectations about the future value of astrategy that creates this imperfection, and the owners of the firm also
have different expectations about the future return of their resources.
Therefore, different expectations toward the resources produce thepossibility of a competitive advantage for a firm.

" Firms that intend toobtain a competitive
advantage must be
consistently better
informed concerning thefuture value of theseresources than otherfirms."

Figure.1 Entrepreneurial Arbitration

Other firms(entrepreneurs)

overestimate

accurate

underestimate

Firm (entrepreneur) A
overestimate
Accurate
Equilibrium
Others buy the(excessresource
competition)→ disadvantage
A buy theEquilibrium
resource(competitive)→ disadvantage
A buy theA buy theresource
resource→ disadvantage→ gain CA

underestimate
Others buy the
resource→ disadvantage
Others buy the
resource→ gain CA
Equilibrium(no competition)

If a firm (Firm A or entrepreneur) overestimates a strategy’s return
potential from the resource that is acquired in the market, the firm A willprobably sustain an economic loss in the long run. As a result, the firm A
gains the competitive disadvantage vis‐à‐vis the competitor of the firm(other firms or entrepreneur) gain the competitive advantage. In the samecontext, if a firm A underestimates a strategy’s return potential from theresource that is acquired in the market, the competitor of the firm gains
the competitive advantage, if they estimate the value of the resources
higher than the firm and acquire them at the price less than the actual
value of it (see Figure.1). We name the source of competitive advantage as‘entrepreneurial arbitration’.
This kind of competitive advantage, named ‘economic rents’ by
Barney, reflect the creative and entrepreneurial ability of firms to discover
how to generate value with their resources in ways that other firms andoutside owners cannot anticipate (Barney, 1986a, 2001). Firms that intend
to obtain a competitive advantage must be consistently better informed
concerning the future value of these resources than other firms. His
expression ‘managerial foresight’ or the ‘accurate expectations of return11Vol.4 Issue 1

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potential of the strategy’ is the entrepreneurial function (adjusting thevalue differentiation in the factor market). Therefore, we share a part ofthe idea with Barneys’ work in terms that the firm could gain thecompetitive advantage by exploiting the disequilibrium in the factor
markets.

" The firm is not only theunit to cooperate andcoordinate resources, butalso the one to specialize
decision‐making byentrepreneur."

4. Entrepreneur as a Resource
In case firms obtain a competitive advantage, resource
heterogeneity does not necessarily require by itself. The heterogeneous
perceptions are more important than the heterogeneous resources perse (Lewin, 2005; Lewin & Phelan, 2002).
As an aside, even if it is logical to represent the function ofentrepreneurship in the RBV, how can we recognize the relationshipbetween the RBV and entrepreneurship? For recognizing thisrelationship, Casson (2004) helpfully points out that resource‐based
theory highlights the importance of human resources, as reflected incompetencies and capabilities, to the performance of the firm. The
theory of entrepreneurship simply asserts that the abilities of theentrepreneur are the principal human resource possessed by the firm.
Other resources, such as the capabilities of scientists and managers,derive from those of the entrepreneur, since it is the entrepreneur who
has selected the people with these capabilities to work for the firm.
The firm is not only the unit to cooperate and coordinate
resources, but also the one to specialize decision‐making byentrepreneur. Not all decisions are strategic and some decisions arematter of a routine, but routine procedures must be designed, and this isoften a strategic decision. Under some circumstances, the direction of
resources and capabilities are not chosen without the abilities of anentrepreneur. Those are empowered by the entrepreneur’s abilities. The
abilities of the entrepreneur here is a super‐ordinate concept tocapability. Hence, the presence of the ability enables capability to be
performed along the entrepreneur’s vision or strategy, capability enables
resources to begin to be utilized, and the potential for the creation ofservice arises. The main source of the competitive advantage is theabilities of the entrepreneur. We can formulate the relationship as
S = f (E, C, R)
for some general function f (.) so that E, C, and R are the parameters of
S, where E is the quality of entrepreneur’s decision making, C is
capacity of capability, R is resources, and S is service.
Let us assume that the S express the ‘vector’ of service under thecondition that R and C are expressing just some ‘scale’ of resources andcapabilities, the abilities of entrepreneur (i.e., E) is a vector of the same
dimension of S (i.e., both vector could be the same because entrepreneur
should know about the market opportunity, thus the service vector, andknows the possible services that his firm could produce with theirresources and capability), we could formulate the relationship as follow:

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S = E' f(R, C),
where the apostrophe (') represents the transpose operation on
the E vector, and this time the function f(.) generates the possible
services that the firm could produce.
Then the ‘possible’ S that the firm probably provide is expressed
matrix, given the R and C, and entrepreneur chooses the ‘focus’, or‘direction’ of the actual services provided (e.g., E=(0,1,0,0) would be avery strong suggestion from the entrepreneur for the firm to focus onservice 2, and not on services 1, 3 or 4 at all. Perhaps we should restrict
the vector E to have |E|=1; length 1) this is because E affects the types ofservice that the firm provides (i.e. the direction of the vector S). The
resources and capability of the firm control the level of services.
Considering the case of 2 resources and 2 capabilities, producing 3 S {(p)(q) and (r)}, the matrix may be the following diagonal one:
Sp
0
0

0
Sq
0

0
0
Sr

Sp is the maximum amount of services (p), that the firm canprovide, Sq is that of (q), and Sr is that of (r). When entrepreneur choosesa ‘focus’, for example he may choose (2/3, 2/3, 1/3), this will result innext combination of services:S = (2/3 Sp 2/3 Sq 1/3 Sr ). It would be expected that Sp, Sq and Sr all
depend on the two resources and two capabilities in different ways.
Assume here Sp and Sq use resource 1 and capability 1, and Sr uses
resource 2 and capability 2. This time the diagonal matrix won’t beappropriate since entrepreneur have to divide the first resource between
Sp and in Sq. Therefore, perhaps this matrix would be more appropriate
for this example:
Sp
‐tpq
0

‐tpq
Sq
0

0
0
Sr

where tpq express the ‘trade‐off’ between services (p) and (q), perhaps
because they cannot produce maximal amounts of Sp and Sq at the sametime. We would imagine the relationship as
tpq = 1/2 kSp + 1/2 mSq /2 (k+m=1)
for some fractions k, m between 0 and 1. Each k and m depends on the
resources and capabilities.

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Let’s assume that k=m=1/2, now if the entrepreneur chooses E= (2/3,
2/3, 1/3), he will now get
S = ( 2/3 Sp ‐ 2/3 tpq ) + (‐2/3 tpq 2/3 Sq ) + 1/3 Sr= (1/3 Sp 1/3 Sq 1/3 Sr).
Assume that k=1 m=0, he will get (0, 2/3, 1/3).
Assume that k=1/4 m=3/4, he will get (1/2, 1/6, 1/3).
It means the entrepreneur have to develop or buy resources that
could compensate for the shortness of Sp, Sq . We suppose that k and m
related to the idea that the resources aren't limitless; e.g., if you run afactory, and want to produce two completely different products, perhaps
it takes time to switch the production between the two products,
therefore you could either make 1000 of product (A), or 1000 of product(B), but only 400 of each if you should change half‐way through, because
it takes time and resources to change the production line.

" This suggests thatthe function does notconfine a firm to haveentrepreneur, butsome group in a firm
can fulfill its function
as an entrepreneur."

5. Sources of Competitive Advantage
While both invoking and amending the RBV from theentrepreneurial point of view, if we consider the creation of competitive
advantages, then the objective of strategic management is defined asfollow: Strategy is the function of a firm to obtain an entrepreneurial
rent by exploiting the factor markets disequilibrium (i.e., to maximize
the difference between the ex ante values of inputs and the ex post valuesof outputs in a dynamic world) through firm‐specific capabilities andresources which are directed by the abilities of an entrepreneur(originating from the heterogeneous perception of the entrepreneur).
Someone may claim that the introduction and immediate selectionof the entrepreneur as an explanatory mechanism besides resources andcapabilities does not come as a natural step. It seems that such analternative explanation as ‘group decision‐making culture’ is notdiscussed here. As we examine some of eminent Japanese firm’s
decision‐making process, which is characterized by a kind of group‐decision making, it seems to me that the claim is well justifiable. In fact,
for example, there is collective selection mechanism in Toyota: newroutine (e.g., multi‐task job assignment along the process flow, task
assignment for volume changes and productivity improvement, on‐the‐spot inspection by direct workers, assembly line stop cord and so on)
could not be adopted without the consent from the shop floor
supervisors to the factory managers, and they even have a right, to someextent, to do screening them. This suggests that the function does notconfine a firm to have entrepreneur, but some group in a firm can fulfill
its function as an entrepreneur. Therefore, I treat the entrepreneur as anentity, which takes a function of entrepreneur, whichever it is an sole
entrepreneur or not.

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6. Strategic Nature of Alliances
At last we are ready to consider how to locate alliances within therevised framework. In the discussion up to this point, it has become
clear that the one of the most important sources of competitive
advantages is to exploit factor markets disequilibrium, which arebrought about by unique entrepreneurial perception. To treat theadvantages as such, we must keep in mind that the category of resourcesthat the entrepreneur must take into consideration may not be limited
only to the resources a firm possesses. The resources outside the firm
also fall under this category.
As the evidence from the real world suggests, for instance, mostinnovation is carried out not only by new combinations of resources
inside the firm, but also combinations ranging from inside to outside thefirm with alliances. In this connection, we must also revise our view ofcapabilities, not to confine their function to cooperate and coordinates
resources inside a firm, but to extend its application to those of outside
the firm for accelerate the open innovation through alliances. In the RBV
the emphasis is on how to sustain rare resources over the long term, andthese resources and capabilities are accumulated inside the firm, it isunable to explain the process whereby firms combine resources outside
the firm. The RBV regards a firm as if it is an autonomous entity, and thecompetitive advantages of the firm are generated by the combination of
the heterogeneous resources inside the firm, thus there is no room forany advantages stemming from the alliances.
Of course, we understand that some scholar says it is amisunderstanding to think that the RBV does not acknowledge the valueof (relations with) outsiders to the firm. A careful re‐reading of Barney(1991) will reveal he also implied social relations and social capital, likealliances, in his definition of resources. However, what we really wanted
to say is the RBV is relatively make little of the role of the network(embedded) around the firm as the source of competitive advantage.
Alliances of the firm would be open up alternative ways for abetter usage of resources. Alliances could bring the opportunities for thefirm to modify the value of underestimated and/or overestimatedresources they possessed, because the real value of any resources would
be realized only after the combination of them with other resources,
which are not confined inside the firm. The uniqueness, theheterogeneity of any resources, and the sources of competitive
advantages come from the different combination of them, and the
combination would be organized by the different perception of theentrepreneur. With these points in mind we can state that alliances are
strategic when they are directed by the entrepreneur to adjust
differentiation of resources’ value through a unique combination of
resources which distributed among the ‘hierarchies’.

" We can state thatalliances are strategic
when they are
directed by theentrepreneur toadjust differentiationof resources’ value
through a unique
combination of
resources which
distributed among the‘hierarchies’."15Vol.4 Issue 1

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References
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Management Journal, 14(1): 33‐46.
Badaracco, J. L. Jr. 1991. The Knowledge Link: How firms compete through strategic alliances.
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Japan Academy of Multinational Enterprises
2017-2019 Executive Board
President
Kazuhiro Asakawa (Keio University)
Vice President
Masahiro Ida (Hannan University)
Tetsuya Usui (Nihon University)
General Affairs
Yoshihiro Oishi (Meiji University)
Takeshi Fujisawa (Kwansei Gakuin University)
Hiroshi Hoshino (Kyusyu University)
Takeshi Ohtowa (Kanto Gakuin University)
General Planning and Publications Commitee
Yasuro Uchida (Toyama University)
Tomokazu Seki (Rikkyo University)
Syohei Tabata (Kindai University)
Akio Tokuda (Ritumeikan University)
Best Book and Paper Award Commitee
Masayuki Furusawa (Kindai University)
Shigeto Morokami (Meiji University )Takeshi Ohtowa (Kanto Gakuin University)
Syohei Tabata (Kindai University)
International Relations
Chie Iguchi (Keio University)
Masashi Arai (Asia University)
Tamiko Kasahara (University of Shizuoka)
Takahide Yamaguchi (University of Hyogo)
Program Commitee
Naotoshi Umeno (University of Hyogo)
Hiroshi Hoshino (Kyusyu University)
Motoyuki Kanetsuna (Nanzan University)
Yukiko Shinomiya (Kindai University)

MNE Academy Journal, Editorial Team
Editor-in-Cheif
Akio Tokuda (Ritumeikan University)
Editors
Yasuro Uchida (Toyama University)
Tomokazu Seki (Rikkyo University)
Takahide Yamaguchi (University of Hyogo)
Public Relations
Tamiko Kasahara (University of Shizuoka)
Masashi Arai (Asia University)
Takeshi Fujisawa (Kwansei Gakuin University)
Motoyuki Kanetsuna (Nanzan University)
Eastern Chapter
Tomokazu Seki (Rikkyo University)
Chie Iguchi (Keio University)
Shigeto Morokami (Meiji University )Yasuro Uchida (Toyama University)
Western Chapter
Hajime Baba (Kansai University)
Yukiko Shinomiya (Kindai University)
Akio Tokuda (Ritumeikan University),
Takahide Yamaguchi (University of Hyogo)
Executive Secretariat and Directors
Head Office: Yoshinori Yasuda (Soka University)
Eastern Chapter: Masashi Arai (Asia University)
Western Chapter: Hajime Baba (Kansai University)
AuditorTakuya Fukazawa (Tokyo Fuji University)
Shingo Nishii (University of Hyogo)17Vol.4 Issue 1

JAPAN MNE Insights

Japan MNE Insights will be published twice a year on the AMNE official website(www.mne-jp.org). Please feel free to contact with the editorial team if you have any question
or request.

Japan MNE Insights Editorial Team
Editor-in-Cheif

Chie Iguchi, Keio University

EditorMasashi Arai, Asia University
Tamiko Kasahara, University of Shizuoka
Hironori Uchibori, Hakuoh University
Tetsuya Usui, Nihon University

Japan MNE Insights Editorial Team is currently located at
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University of Shizuoka, School of Management and Information
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Contact e-mail address: kasahara@u-shizuoka-ken.ac.jp
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