Analysis of Competitive Advantage of Beijing Daming Optical: Based on Resource-Based Theory

FAN Xin1, XU Yanmei1 1. School of Management, Graduate University of Chinese Academy of Sciences, P.R.China, 100190 AbstractSince 1980s, Resource-Based Theory (RBT) has become the most popular theory in the area of strategic management. Beijing Daming Optical is a famous time-honored enterprise. Daming is the leading brand of glasses chain stores in Beijing. With the rapid development of Chinese spectacles retail industry, the market competition is becoming increasingly fierce. Therefore it is very necessary for glasses retail firms to examine their own resources and obtain sustained competitive advantages. This article is in the frame of RBT, analyses the competition status of Chinese spectacles retail industry and the main resources of four glasses chain firms in Beijing, researches into competitive advantage of Beijing Daming Optical using the VRIN model and the value curve, and concludes the existing problems and corresponding recommendations. Key WordsRBT; Daming Optical; Competitive Advantage; Sustained Competitive Advantage

1 Introduction
How to obtain and maintain competitive advantage has been a major area of research in the field of strategic management. Most research on sources of sustained competitive advantage is from two perspectives: internal analysis of organizational strengths and weaknesses and external analysis of opportunities and threats. In the past twenty years, the study has tended to focus primarily on analyzing the internal environment of the firms. Since 1980s, Resource-Based Theory (RBT) has become the research hotspot, opening up new theoretical directions and guiding the business practices. Resource-Based View (RBV) originated very early. Edith Penrose is recognized as one of the earliest scholars contributing to the resources-based view in The Theory of the Growth of the Firm (1959). In 1984, Birger Wernerfelt's article entitled "A Resource-Based View of the Firm" was published in the Strategic Management Journal, indicating the official birth of RBT. Subsequently, Barney (1986; 1991), Dierickx and Cool (1989), Grant (1991), Peteraf (1993), Amit and Schoemaker (1993), and other scholars did further research on competitive advantage from the view of internal resources and capabilities, contributing to the development of Resource-Based Theory. In 1994, Wernerfelt's article "A Resource-Based View of the Firm" won Best Paper Awards of Strategic Management Journal. Resource-Based Theory has been growing in popularity in the strategy literature. Since the late 1990s, domestic academia has begun to pay more attention to the research of Resource-Based Theory.

2 Analytical Framework
Jay Barney is recognized as the father of the modern Resource-Based Theory. His article (1991) "Enterprise Resource and Sustainable Competitive Advantage" is seminal works in the RBV stream. His analytical framework has supplied the footing for many RBT studies, with subsequence work based on either his framework or an extension. His article examines the link between firm resources and sustained competitive advantage. He begins to define some key terms. Firm resources include all assets, capabilities, organizational processes, firm attributes, information, knowledge, etc. These resources can be classified into three categories: physical capital resources, human capital resources and organizational capital resources. He also provides the definitions of competitive advantage and sustainable competitive advantage (SCA). "A firm is said to have a competitive advantage when it is implementing a value creating strategy not simultaneously being implemented by any current or potential competitors". Sustainable competitive advantage not only needs to meet the above definition, but also ensures that "these other firms are unable to duplicate the benefits of this strategy". He emphasizes three points: (a) A firm's competition is

assumed to include not only its current competitors, but also potential competitors. (b) Sustained does not depend upon the period of calendar time during which a firm enjoys a competitive advantage, while it depends upon the possibility of competitive duplication. (c) A competitive advantage is sustained does not imply that it will "last forever". Unanticipated changes in the economic structure of an industry may make what was a source of sustained competitive advantage, no longer valuable for a firm. Barney pointed out that a firm resource must have four attributes (VRIN) to hold the potential of SCA: (a) valuable; (b) rare; (c) imperfectly Imitable; (d) non-Substitutable. The model framework is as shown in figure 1:
Firm Resource Heterogeneity Firm Resource Immobility Valuable Rare Imperfectly Imitable Non-Substitutable Sustained Competitive Advantage

Figure 1 The Link Between Firm Resources and Sustained Competitive Advantage

The model has two assumptions: (a) resources are distributed heterogeneously across firms; (b) these resources can not be transferred from firm to firm without cost. Given the assumptions, Barney makes two fundamental arguments. First, resources which are both valuable and rare can produce competitive advantages. Second, resources which have four attributes (VRIN) can generate sustained competitive advantages. The specific explanations for the four attributes (VRIN) are as shown in table1:
Table 1 Four Attributes of Firm Resources to Generate Sustained Competitive Advantage Valuable Rare Imperfectly Imitable Non-Substitutable Help firm to exploit opportunity or neutralize threats. Not possessed by large numbers of other firms. Firm resources can be imperfectly imitable for one or a combination of three reasons: (a) Unique historical conditions; (b) Causal ambiguity; (c) Social complexity. No strategically equivalent.

This article uses Barney's analytical framework to study the competitiveness of Beijing Daming Optical.

3 Competition Status of Glasses Retail Industry

It is more than 20 years since Chinese spectacles retail industry entered the period of rapid growth. Optical retail has become a sunrise industry in China. After going through apparatus competition, store decoration competition, price competition and some other kinds of competitions, many glasses retail firms began to think over their survival and development mode in the fierce competitive environment. Since 2002, Chinese spectacles retail industry has run to a new stage of market segmentation. The forecast of the future market structure is as shown in table 2:
Table 2 The Future Market Structure of Chinese Spectacles Retail Industry Enterprise Category glasses chain stores professional optometry organizations fashion shops VIP clubs glasses supermarkets small glasses stores Market Share 40%-50% 15%-20% 10% 5%-10% 15%-20% 10%-15% Marketing Channel around 40% 20%-25% 5%-10% 5% 10% 15% Development Trends keep steady rise continually little growth increase gradually go up then keep the balance reduce gradually

According to statistics, China has 300 million people needing spectacles. If people replace their glasses once every six years, they will need 50 million pairs of spectacles a year. In fact, urban residents replace their glasses once every three to four years, with those living in big cities replacing theirs once every two years. Therefore the annual demand for spectacles is around 60 million pairs, producing annual retail sales of RMB 20 billion, which does not include the sales volume of sunglasses and some other special-use glasses. The huge potential market has promoted the development of the domestic spectacles retail firms, and also attracts more and more international spectacles retail enterprises to enter into domestic market. The present competition pattern of domestic spectacles retail industry appears some characteristics as follows. [1] Domestic spectacles retail firms develop rapidly, and the number of the firms has reached 3 million. The growth rate of the domestic spectacles retail market is three times higher than that of developed countries. The market competition is becoming increasingly fierce. [2] Spectacles retail industry has been involved in the era of brand competition. As people's living standards and the purchasing ability continues to rise, consumers pay more attention to the quality of the product and service, focusing on the brand. In recent years, international brands have entered into domestic market, giving more brand choice and enhancing brand consciousness of the domestic consumers. At present, Formosa Baodao Optical is the only nationwide brand of domestic spectacles retail brands. Most domestic brands have obvious regional characteristics, such as Daming in Beijing, Red Star in Shanghai, Jingyi in Chengdu, etc. [3] Multinational corporations occupy domestic market rapidly through large-scale capital operation. Since Chinese retail trade opens to the outside world completely on December 11th, 2004, the overseas giants flood into Chinese spectacles retail market. Luxottica Group S.P.A., an Italian eyewear company, has acquired Beijing Xueliang Optical, Guangzhou Ming Long Optical, and Shanghai Modern Sight Optics for RMB 600 million, holding 290 stores in China. Netherlands-based HAL Holding N.V., the largest investor in Europe in optical products, has acquired a 78% share of Shanghai Red Star Optical for RMB 214 million. Virtually all leading international brands are now available in domestic market, such as DOWNHILL, GUCCI, VERSACE, CD, etc. [4] International brands, national brands and regional brands are competing like the three legs of a tripod. International brands tend to capture high-end market. The national brand has high brand popularity. Regional brands have higher brand loyalty. These three forces all actively expand their own market share. Chinese spectacles retail industry is facing market reshuffle. In conclusion, the domestic spectacles retail firms are in a keen competition environment. To find their own competitive advantages by examining their own resources is not only the internal needs, but also the external requirement of environment. Beijing Daming Optical is the leading brand of glasses chain stores in Beijing in Beijing. Three competitive forces (international brands, national brands and regional brands) aggregate in Beijing spectacles retail market. Therefore an analysis of competitive advantage of Beijing Daming Optical has representativeness and practical significance.

4 Analysis of Competitive Advantage of Beijing Daming Optical

4.1 Company Profile Beijing Daming Optical was founded in 1937, which is a famous time-honored enterprise. Many state leaders, envoys and socialites have been to "Daming" for spectacles. From the establishment to 1996, Beijing Daming Optical had always been the first optician in the domestic retail industry first. In 1997, Daming Optical combined with Beijing Jingyi Optical, Chenguang Optical and Mingming Optical, starting its chain expansion. At the end of 2000, Beijing Daming Optical completed the shareholding system reform, becoming a modern corporation system with multi-ownership. Nowadays "Daming" is the leading brand of glasses chain stores in Beijing, with 62 branches in 20 districts, holding Beijing market share of 25%. Its annual turnover is over RMB 100 million, with the profit and tax of several ten million yuan. 4.2 Firm Resources

[1] Organizational Resources: The organizational structure of Daming Optical is beeline-function system, which has played an important role in chain management. However, with the development of enterprise scale, some disadvantages of the beeline-function system, such as information blockade, rising management cost, the weakening of marketing function, have appeared. [2] Sore Resources: Daming Optical has 60 chain stores in Beijing, occupying a total area of over 8,000 square meters. The chain stores cover the main commercial districts and communities, forming a great location advantage. [3] Technical Resources: Daming Optical leads the import of many advanced apparatuses, collecting the most complete types of glasses, and sells progressive multi-focal lens firstly of domestic opticians. It has won many first places in the field of technical resources. [4] Human Resources: Daming Optical has 7 national first grade optometrists, 7 senior optometrists, 21 general optometrists, 24 senior optometry members and numerous secondary and primary optometry members. The average working time of the staff is over 10 years, and the staff has rich experience and high loyalty. [5] Financial Resources: There are few firms which have annual turnover of over RMB 100 million, and Daming Optical is one of them. It has kept stable growth of profit in recent years. [6] Channel Resources: Daming Optical has established good cooperative relationships with many famous glasses manufacturers, having some advantages in controlling supply chain cost. [7] Intangible Resources: Daming Optical has many famous trademarks, such as Jingyi, Chenguang and Mingming. "Daming" is a China Time-Honored Brand, having high brand popularity and reputation. The firm has won many titles and prizes in its long history. Daming Optical possesses abundant intangible resources. The VRIN resources model of Beijing Daming Optical is as shown in figure 2:
NonSubstitutable

Imperfectly Imitable Rare Valuable human resources business reputation

historical accumulation China Time-Honored Brand

technical resources organizational resources channel resources store resources financial resources Figure 2 VRIN Resources of Beijing Daming Optical

4.3 Resources Analysis of Main Competitors This part analyses the resources of three companies (Tongren Optician, Formosa Baodao Optical and LensCrafters). "TONGREN" is a regional brand, and "BAODAO" is a nationwide brand, while "LensCrafters" is an international brand. These three companies are the main competitors of Daming Optical as well as they have typical representativeness. [1] Tongren Optician: Tongren Optician is also a famous time-honored enterprise, founded in 1906. It relies on Tongren Hospital in the field of ophthalmic medical technology, having wide influence in domestic eyewear industry. It owns 15 chain stores in Beijing, and has some league members in other cities, such as Jilin, Changchun, Harbin, Wuhan, Qinhuangdao, etc. [2] Formosa Baodao Optical: Formosa Baodao Optical was founded on January 6th, 1981 in Taiwan. It began to invest in China Mainland in March 1997, then got into the stock market successfully in 1999. By 2007 Formosa Baodao Optical has more than 1000 chain stores, of which 609 branches in mainland. Presently "Baodao" is the only nationwide brand in China.

[3] LensCrafters: "LensCrafters" is a global brand belonging to Luxottica Group, which is the world's leading designer, manufacture and distributor of prescription frames and sunglasses. It is a global leader in eyewear, with nearly 5800 optical retail stores in North America, Asia-Pacific, China and Europe and a strong brand portfolio including 8 house brands and 17 licensed brands. Luxottica Group has acquired Xueliang Optical for RMB 169 million in 2005. Xueliang Optical once had 79 chain stores in Beijing, of which over 30 stores has renamed "LensCrafters". Resources analysis of these three companies is as shown in table 3:
Table 3 VRIN Resources of Main Competitors Firms Attributes Valuable TONGREN
chain mechanism

BAODAO
store resources financial resources

LENSCRAFTERS
store resources abundant capital advanced management mode of

Rare

human resources with flexible operation mechanism

medical background

chain expansion mechanism mature marketing system

MNC
global distribution network international marketing mode Global Leading Brands

Imperfectly Imitable technical resources

rapid reaction mechanism of

fashion trend Non-Substitutable

Time-Honored Brand Nationwide Brand

4.4 Analysis of Competitive Advantage This section analyzes the competitive advantage of Daming Optical by comparing the VRIN resources of four firms as shown in table 4:
Table 4 Comparison of VRIN Resources of Four Firms Firms DAMING TONGREN BAODAO LENSCRAFTERS V R I N High Medium Medium High Medium Medium High High High High Medium Medium High High High Medium

Attributes

Sustained Competitive Advantage

Competitive Advantage

It can be seen from table 4 that: (a) Daming Optical and Tongren Optician lack of valuable and rare resources, so both of them are limited in obtaining competitive advantages. However, they both have some unique strategic resources because of their long history, making the competitive advantages sustained. (b) Daming Optical is superior to Tongren Optician in organizational resources, store resources and some other valuable resources, so the competitive advantages of Daming Optical is more obvious. (c) Formosa Baodao Optical and LensCrafters have more valuable and rare resources in management, capital, marketing and so on, resulting in more competitive advantages. However, they have not completely familiar with the mainland market, and both lack of non-substitutable resources, therefore they are both weaker in sustained competitive advantage. (d) With the background of multinational corporation, LensCrafters is superior to Baodao Optical in capital strength, international operation, channel control, etc. The above analysis is based on the internal status of firm resources, however, some valuable resources won't perform well in some segmentation market. We can further analyze the competitive advantages from the perspective of external market using the value curve as shown in figure 3:

High DAMING TONGREN BAODAO LENSCRAFTERS

Low Price Service Attitude Fashion Quality VIP Service After-sales Service Variety Environment Technology Figure 3 Value Curve

According to figure 3, Tongren has competitive advantage in technology, and Baodao has competitive advantage in service, while LensCrafters has competitive advantages in environment and fashion. The competitive advantages of these three firms are basically in accordance with their market positioning. Daming has competitive advantages in technology and quality, but the competitive advantages are not obvious because of its ambiguous market positioning.

5 Conclusions
Domestic glasses retail industry is in the period of rapid growth. The market competition is increasingly fierce and the new trend is market segmentation. Therefore it is necessary for enterprises to examine their own resources and find the market positioning. To obtain sustained competitive advantage has become the key to survival and development of the enterprises. As a famous time-honored enterprise, Beijing Daming Optical has many superior resources, but it has many problems in gaining and sustaining competitive advantage: (a) The firm has many valuable resources, but most valuable resources lack scarcity. So the competitive advantage is not obvious. (b) Beijing Daming Optical doesnt pay enough attention to the brand equity management. As a result, the imperfectly imitable resources and non-substitutable resources can not perform very well. The firm still needs many endeavors to gain sustained competitive advantage. (c) Domestic glasses retail market is in the stage of segmentation. Beijing Daming Optical doesnt identify its target market, because it doesnt examine and evaluate existing resources and make the resources effective completely. The corresponding suggestions are as follows: (a) Build the Black Box of Brand using the technology advantages. The Black Box of Brand adds the mysticality and uniqueness to the technology, attracting more consumers. It will highlight the competitive advantage of Daming Optical. (b) Set up a specific department to manage brand equity. Integrate the brand resources and upgrade their market value, in order to obtain sustained competitive advantage. (c) Examine and evaluate the existing resources, identify segmentation variables, select the target market, make market positioning, and then gain and sustain competitive advantage in the target market.

References
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2007(4): 20-21(in Chinese).