CHAPTER 3 METHODLOGY
3.3 FINDINGS
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buyers and suppliers because one gave him security through steady revenue streams while the other gave him benefit through cumulative cost advantage.
3.2.3 Company C
Company C was also founded by the family of the current CEO in the Xiaogang District of Kaohsiung city in 1970 and has remained privately held since. After several times of relocation, the company’s main office is now located in the Daliao District of Kaohsiung city and a branch is established in the Longjing District of Taichung city.
Firm operation includes transporting, warehousing, shipment loading and unloading, truck dealing, and forklift rental. The company currently owns a total of 92 trucks and 7 warehouses, and employs a total of 87 drivers and 32 administrative employees. The company transports an annual volume of about 2.5 to 3 million tons.
The CEO of company C is more risk-taking compared to the previous two company CEOs. He was not afraid of making big investments as long as he knew they would pay off in the future. While the challenges of economic downturn and a mature industry affect others just as much as they do to his company, he believes positioning his company better in relation to the industry will help him achieve long-term success. An effort to make his company the market leader in the industry was executed through the acquisition of other trucking companies, increase of fleet size and warehouses, and establishment of spokes. As a result of these resource accumulation, however, the company’s debt was also higher, placing the company in a more vulnerable position.
3.3 FINDINGS
The importance of strategic management has come into light as organizations feel the pressure of globalization and change in consumer demand, just as trucking companies primarily hauling steel in Taiwan have. Based on the analysis of interview data from CEOs of three trucking companies and the comparison of emerging concepts to existing strategic management literature, the author has found that data can be grouped into exactly three main categories: the industry-based view, the resource-based view, and the
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institution-based view. The industry-based view is consisted of threat of new entrants, rivalry, and buyers from Porter’s five forces model and the dimension of munificence and dynamism from Dess and Beard’s analysis of task environments. The resource-based view is consisted of value, rarity, and imitability from Barney’ VRIN framework. The institution-based view is consisted of coercive and normative isomorphism from DiMaggio and Powell’s institutional isomorphic forces. These properties are found through the grouping of 18 factors commonly mentioned by the interviewees. The 18 factors are sources of freights, economies of scale, experience curve, social switching-cost, brand identification, industry growth, service differentiation, relative number of buyers, gasoline price, truck drivers, resource/capability, supply of resources, social complexity, law, regulation, union, culture, norms. Of all 18 factors, 10 are industry-specific factors, 3 are firm-industry-specific factors, 5 are institution-industry-specific factors, and some spanning across all three disciplines. Figure 3-1. summarizes the findings by identifying properties within different disciplines of strategic management and factors contributing to these properties, in hopes of providing a framework that readers may find useful. Table 3-2. demonstrates the results of open coding analysis on interview transcripts.
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Dess and Beard 1984 Munificence
Figure 3-1: Evolution of Coding Process Sources of Freights Relative Number of Buyers
Gasoline Price
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Original Text Translation
Sources of Freights
“Simply put, the main issue is the sources of freights. If you can secure sources of freights, you won’t have any problem and your trucks will be constantly running. What are your goods? When you buy 10 trucks, will your goods be able to keep them running?” – Company A
“Assuming one won’t have a stable client upon first entering the industry and the amount of clients has not grown, one would need to take existing firms’ clients, which may increase his acquisition costs.” – Company B
“One can enter (the industry) anytime, as long as one thinks there are sources of freights and he is able to get them.” – Company C
Economies of Scale
“
ok
“Will this (cost advantage) occur as the scale of a company increase? Yes, of course, as long as management is capable, cost will be reduced.
However, when your scale becomes too large, and
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” – A
“
” – B
“
” – C
your management cannot keep up, you won’t necessarily save any effort nor will you gain any cost advantage. In the end, it all comes down to cost management.” – Company A
“I do not think cost advantage will be affected by the company’s employees, because our costs are mainly derived from wage and gasoline price, and gasoline price matters the most.” – Company B
“We seldom feel pressure from our suppliers because we have a lot of them. Moreover, they all wish for our business due to our volume. When your volume is huge, it is advantageous.” – Company C
Experience Curve
“
” – A
“The cost advantages faced by a new firm and an veteran firm both depend on management. Which one is more superior at cost management? Usually the experienced one is, but not necessarily. Due to human nature or traditional ways of thinking, experienced firm sometimes will be more resistant
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“
” – B
to change.” – Company A
“A driver who has been with the company for a while will be used to its operation. His experience will not only help the company save various unnecessary expenses, but also lower the chance of his truck from breaking down.” – Company B
Social Switching Cost
“
” – B
“
” – C
“It is nearly impossible for our competitors to get our contracts because we have served and
cooperated with our initial clients for a long time.”
– Company B
“It would be unlikely for others to come in and take away our shipments from say, Uni-President for illustration, since we have already built up our chemistry. They would also feel anxious about being unable to switch back to us after they switch to others.” – Company C
Brand Image
“ “Why does brand image matter a lot in our line of
work? Clients have certain level of conditions that
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they expect and a vast amount of companies qualify for those conditions, thus, brand image becomes a key point of separation.” – Company A
“What brand image brings to our clients is a guarantee of (service quality). – Company B
“Everyone knows a company that has been in the industry as long as ours is reliable. If the client asks us to transport a huge shipment, it should be a piece of cake.” – Company C
“What is the source of our industry growth? In Taiwan the source comes from the supply of goods.
What happened to Taiwan’s supply of goods?
Gone. The growth of Taiwan’s for-hire trucking industry has nothing to do with the industry itself;
rather, it depends on whether steel mills or manufacturing factories are being built. The
question of growth depends on our clients, which is the manufacturing sector.” – Company A
“I don’t think (the industry) is growing. On
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average, although it is not growing, it is also not declining. It seems to maintain at a certain level.” – Company B
“(The trend over the past few years) has been adequate and stable. Now that a lot of large steel mills have been built, the sources of freights have become more abundant.” – Company C
Service fulfill (buyers’) conditions. He (competitor) will also be able to fulfill the same conditions.
Therefore, your advantage will have to come from your interpersonal relationships, service quality, and service attitude” – Company A
“I think (our services) are all about the same. When our customers purchase steel, as long as they have already made the payments, you are required to deliver the freight in their hands on time whether it is urgent or not.” – Company B
“Under normal condition, it is very competitive,
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you cannot command a higher price even if your service is very good.” – Company C
Relative number of
“In the early days, the amount of trucks in
Taiwan’s for-hire trucking industry is insufficient.
The demand was greater than the supply, which made the rate super high. However, the situation has changed. Now that the supply is greater than the demand, what is the consequence? All the competition.” – Company A
“10 years ago, when the trucking companies have more bargaining power, we could raise the freight rates on CSC and demand it to change its
unreasonable rules. Now that the number of
trucking companies has increased significantly, it is harder for us to cooperate, thus we lose our
bargaining power.” – Company C
Gasoline Price
“
” – B
“For example, when the gasoline price is rising, he will pretend nothing happens. However, when the gasoline price is falling, he will immediately ask you to drop your rates accordingly.” – Company B
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“ ( )
” – C
“Judging from recent experience, the price of gasoline has a significant effect on (our rates) because it is quite volatile and depends on the global economy – Company C
Truck Drivers
“
” – A
“
” – B
“You cannot just hire anyone with a lot of management experience as your manager. You need to hire a person with excellent communication skills because you need to understand your driver’s personal matters and his family matters. These matters aren’t something that can be easily managed by someone with high education.” – Company A
“Since the driver becomes ‘the boss’ of the truck when he takes the truck out of the company, driver management is especially important to the
operation of the company in my opinion. The driver’s capabilities more of less have an impact on the company’s performance.” – Company B
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“
” – C
“No matter how efficient the truck is, it will not reach its full potential under the control of a bad driver. Since drivers will ultimately be in charge of the trucks, drivers with developed skills are
especially valuable.” – Company C
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Resources/Capabilities
“
” – A
“
” – B
“
“The main consideration for a logistics company’s establishment is its sources of shipments. What can be a better method to acquire your sources of shipment other than your interpersonal networks?
No matter how capable a manager is, a company without any sources of shipments cannot transport anything.” – Company A
“I think the most important (resources) are trucks, followed by our employees. Without any truck, your employees have nothing to transport the shipment with. In addition, trucks constitute a large portion of the company’s assets.” – Company B
“If the demand (for clients’ products) are below
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.” – C
expectations, sometimes they will require the use warehouse to store extra inventories. One of our strong points is that we have a lot of warehouses to accommodate for our clients’ emergency.” – Company C
Supply of Resource
“
” – A
“
” – B
“
“It is easy to qualify as a truck driver. Do you have a professional license? Yes. Then do you have the necessary documents and training to transport CSC’s shipments? Yes. 10 out of 10 people will satisfy these 3 requirements because drivers are all the same. Generally, the acquiring cost for drivers is not an issue for us.” – Company A
“It is not difficult to acquire trucks. The legal channels for acquiring trucks are the same for every company. As long as you have the financial resources, you can acquire trucks.” – Company B
“Employees are particularly valuable because training a good employee is no easy task. In comparison, you have a lot of truck suppliers to
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” – C choose from.” – Company C
Social Complexity
“ ” – A
“
” – B
“Interpersonal relationships make a difference when all the companies have the same
qualifications” – Company A
“Assuming one won’t have a stable client upon first entering the industry and the amount of clients has not grown, one would need to steal existing firms’ clients, which may increase its acquiring costs.” – Company B
Law
“
” – A
“
“When a company reaches a certain scale, its tax level will increase, which is why a company may have a lot of subsidiaries. The reason you may see four different names for the same company has everything to do with tax policy. It is a matter of year-end tax refund.” – Company A
“Commercial vehicles are different from normal vehicles. You can leave normal vehicles in your garage without any consequence, but if your commercial vehicles are not in operation, your tax
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” – C
will be substantial. There are no weekend breaks for taxation. You are required to pay tax
semiannually.” – Company C
Regulation
“
60
…
” – A
“
” – B
“
“The regulations in Taiwan are relatively underdeveloped. Take traffic regulations for example, they were legislated in the 1970s, with a few slight changes later on. Back then, Taiwan’s economy depended on the agriculture industry, so the regulations revolved around agricultural products… Taiwan has gone through industrialization now” – Company A
“Regulations in foreign countries are more favorable to their trucking industries. Although exactly the same, the trucks in foreign countries are permitted to carry more weights under their
regulations. In contrast, we have to make up for those weights with more trips, consequently increasing our costs.” – Company B
“Regulations don’t really change. Assuming there
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100 101 102 103
100 100
” – B
were originally one hundred regulations, these one hundred would generally stay intact. Although additional adjustments may be made in regulation No.101, 102, and 103, they usually do not have too much impact our businesses.” – Company B
Union
“
” – A
“
“The transportation conditions in Japan and Europeans countries are healthy because their unions are national. Although unions also exist in Taiwan, they cannot achieve the same results due to the complexity of Taiwan’s institutional framework. Ultimately, these complications have to do with issues such as politics, economics and personal gain. For instance, unions in Taiwan are divided in many branches for no obvious reasons.”
– Company A
“The union seems to only exist in name. Although the union will listen to your complain about the impracticalities of regulations and voice your
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” – C concern to the government, its influence has always been limited in my opinion.” – Company C
Culture
“
” – A
“ ( )
” – B
“
” – C
“In Taiwan’s society nowadays, interpersonal relationships or friendships are not as handy as they used to be, because everyone is concerned about costs.” – Company A
“Even if you don’t drop your rates, they (your clients) will still continue doing businesses with you as long as you handle it professionally.” – Company B
“Based on our friendships or through some other forms of recommendations, I (your clients) will let you transport my shipments” – Company C
Norms
“ “The trucking industry in Japan is regulated.
Assuming only 10,000 trucks are allowed to run, an additional new truck can only run if an existing one breaks down and gets taken out. These kinds of
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“
” – B
“
” – C
regulations exist in Japan. In the northern and central regions of Taiwan, a similar norm exists. It is an informal rule that restricts you from buying more trucks anytime you want, though it is subtle.
In comparison, the regulations in Japan and
Europeans are very clear, insomuch as determining the rates you can charge.” – Company A
“A trucking company has a certain level of cost, and this cost approximately determines our rate.
We generally determine the rates and our clients who have cooperated with us for a long time will usually stand by us. However, this rate must be within a reasonable range, acceptable to the clients.
It is unlikely that we become unprofitable due to price competition.” – Company B
“All the large-scale trucking companies have an agreement: nobody would initiate a price war. It is a norm that has been commonly followed.” – Company C
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3.3.1 Industry-Based View
Consistent with Porter’s prediction, threats in the five forces model are not equally constraining. In Taiwan’ trucking industry primarily hauling steel, the force of buyers, rivalry, and new entrants are more dominant while the force of substitutes and suppliers are weak. The most controlling force is the force of buyers as it poses the greatest amount of threat to the industry. The view is reflected by these CEOs’
comments:
The manager of a steel mill matters a lot. It makes a difference whether he is affable or not. For example, when the gasoline price is rising, he will pretend nothing happens. However, when the gasoline price is falling, he will
immediately ask you to drop your rates accordingly. Although you won’t necessarily have to drop your rates by a lot, a slight drop is a sign of good faith (Company B).
…a trucking company that does not follow CSC’s guidelines can face punishment so severe that causes it to cease its operation, equivalent to the
death sentence in our society (Company C).
These two comments show the amount of pressure buyers put on firms in the industry. If trucking companies wish to continue businesses with their clients, they must adhere to their demands. If they do not, they stand the chance of losing sources of income. Due to the control buyers exert on trucking companies, they can easily play industry participants off against one another, consequently hurting the profitability of trucking companies.
The threat of buyers is determined by three sources: social switching cost, service differentiation, and relative number of buyers. As a component of customer switching cost, social switching cost is usually built up through long-term cooperation in the trucking industry. From the buyers’ perspective, time and energy spent on networking and employing the service of trucking companies are already a considerable sunk cost.
Furthermore, if the buyers need to switch back to the original trucking company after an unsuccessful new arrangement, they may face substantial expense on amending a previous relationship. Although not as controlling as physical switching cost, social switching cost still affect buyers’ decision significantly when they choose their suppliers
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(trucking companies). On the other hand, there is no special ancillary equipment needed for carrying steel, so service differentiation is minimal between trucking companies.
Since it makes no difference which trucking company hauls the steel, it gives buyers more clout to bargain for freight rates. Lastly, the number of steel manufacturers is also relatively less compared to the number of trucking companies and quite a few of them purchase in large volumes. This makes competition between trucking companies more intense because all incumbents would want capture to the lucrative opportunities these buyers present. As a result, buyers stand in a better position to negotiate for more profitable conditions at the expense of trucking companies’ profitability. To sum up, the combination of low service differentiation amongst trucking companies and relatively few buyers in the industry give buyers more power than social switching cost reduces it, which is why the threat of buyers is high.
Followed by the threat of buyers is the threat of rivalry. The threat of rivalry depends on the intensity and basis of rivalry. The intensity of rivalry in the trucking industry is high due to slow industry growth. Slow industry growth limits the amount of potential profit that growing trucking companies may reap, thereby forcing them to take more drastic steps to gain market share. In addition, rivalry gravitates toward price rather than other dimensions. This can be easily seen in the form of price discounting. As one
Followed by the threat of buyers is the threat of rivalry. The threat of rivalry depends on the intensity and basis of rivalry. The intensity of rivalry in the trucking industry is high due to slow industry growth. Slow industry growth limits the amount of potential profit that growing trucking companies may reap, thereby forcing them to take more drastic steps to gain market share. In addition, rivalry gravitates toward price rather than other dimensions. This can be easily seen in the form of price discounting. As one