STRATEGIC IMPLICATIONS

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DISCUSSION

4.1 STRATEGIC IMPLICATIONS

The purpose of this research is not only to find out which strategic management’s philosophy has an influence on firm behavior and performance, but also investigate how the underlying factors come into the picture. Although this research is exploratory in nature, it still offers valuable insights for future research in the fields of strategic

management and provides strategic improvements for trucking managers to incorporate.

Industry-based view scholars contend that conditions within an industry shape firm strategy and performance. Resource-based view scholars argue that firm strategy should focus on resource management that enables the firm to build sustained competitive advantages. Yet another view is that formal and informal institutions must also be taken into account considering difference of every society from around the world. Although managers may not have knowledge of these different disciplines of strategic

management, the findings of this research show that their strategic decisions are mostly dominated by industry and institution forces. In particular, while all trucking companies unanimously agreed that industry conditions drive firm performances, coercive and normative isomorphism are also found to play a huge role in Taiwan’s institutional framework. Yet when investigating the underpinning factors of these forces and how they interact with each other, the author has found that consistent with Peng’s view, each leg of the “strategy tripod” work congruently to shed light on firm survival and failure in Taiwan’s trucking industry. For instance, the existence of larger trucking companies is actually the result of resource-based strategies. On the other hand, it was also due to previous deregulation in the industry that firms began to pursue larger fleets in order to raise the height of entry barriers. We can therefore conclude from this finding that a seemingly one-dimensional phenomenon can happen for a variety of forces when viewed through different angles. This suggests that the industry-based view, resource-based

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view, and institution-based view are equally important in strategy analysis and successful strategies are usually three-dimensional.

In analyzing trucking managers’ strategic making process, the author has found that securing sources of freight is deemed the most important aspect of a CEO’s job.

From the CEOs’ point of view, sources of freights are potential clients in the industry, who are usually manufacturers of steel or steel processors. There are generally two ways to secure these clients, through interpersonal relationship and/or pricing. While the viability of network-based strategies depends on the formal and informal constraints of the particular institutional framework faced by the industry, the viability of pricing strategies depends on the supply and demand of industry factors, or so it seems.

Normally, trucking companies that do not wish to differentiate based on price will try to secure clients using a network-based strategy, which relies on the managers’

interpersonal relationships. This phenomenon can best be understood through the lenses of institution-based view. The findings reveal that trucking companies seek guidance from informal constraints such as norms and culture because formal constraints consisted of laws, regulations, and unions are unreflective of the industry’s challenges. For

example, all the CEOs pointed out that although the government provided a guideline on how to calculate freight rates in the industry, the method was never adopted because freight rates are determined through industry price competition and somewhat by

powerful buyers. If any trucking company were to charge according to the government’s guideline, it would not be able to secure any client since competitors will have lower rates. Consequently, no trucking companies were following these formal “rules of the game’ because they were counterintuitive. During situations like this where formal institutional structures are underdeveloped, interpersonal relationships, which are valued in the Taiwanese culture, act as informal substitutes for reducing uncertainty. Specifically, the majority of trucking managers still employ network-based strategies not only because they are just as long lasting and effective as other methods for securing clients, but they also present smaller risks under Taiwan’s current institutional framework. However, as formal institutional supports become stronger, the reliance on informal networks as a driver for firm strategies should turn less intense. Managers relying on social ties and association with their clients as a strategy to grow the firm should thus be wary of

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institutional transitions to avoid wasting their resources and effort in the wrong strategic direction.

From the resource-based perspective, an interpersonal relationship can actually be viewed as a resource position barrier in the sense that “someone already has the resource affects the cost and/or revenues of later acquirer adversely” (Wernerfelt 1984 p.173). As one CEO put it this way:

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 its acquiring costs. (Company B)(emphasis added).

This finding hints that the reason that it may be costly for new entrants or competitors to take away firms’ existing clients can be attributed to the social switching cost built up by the original firms. As social investments specific to each other are made to lengthen business partnership between trucking companies and their clients, interpersonal relationships are also inevitably strengthened. Considering this information, it can be understood as to why an interpersonal relationship is valuable. In contrast to the Business-to-Consumer (B2C) model, the exchange activities of trucking companies predominantly fall in the category of Business-to-Business (B2B) model, which generally has a smaller pool of prospects. Competitors without an established client base will not necessary have goods to carry if sources of freights in the industry are limited. Likewise, although it is not particularly difficult to enter the trucking industry, new entrants will also choose to not enter the industry unless they have reliable clients that can provide them with goods to carry. After all, when the task environment does not require their services, they run a great risk of having no sources of income. Meanwhile, incumbents in the industry who have already built an established client base using their interpersonal network will have goods to carry, hence revenue to support their daily operations.

Because an interpersonal network as a resource position barrier allows

incumbents to have stronger stability and translates into an entry barrier, it is extremely valuable. Although an interpersonal network is not rare in the manner that every trucking manager has his own interpersonal network, some interpersonal networks are indeed more valuable and rare than others due to the greater revenue brought by the clientele within. In this case, such interpersonal relationship may be considered as a competitive

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advantage. If managers take measures to strategically build up social switching cost to the point where it is exceedingly costly for others to imitate, then they should have a

sustained competitive advantage. While the findings show that interpersonal relationship is becoming increasingly substitutable to cost savings, firms that have trouble

differentiating their services or becoming cost leaders should still fare well securing clients through a network-based strategy.

In contrast, to secure clients through pricing below that of competitors, trucking companies must have some sort of operational efficiency; otherwise the company will not be sustainable in the long run. One way operational efficiency may be achieved is

through economies of scale. Even though the findings show that some CEOs do not think the benefits of economies of scale can be captured due to the difference inherent in their company size, firms with larger fleets actually have cost advantages.

It is established that capital requirements need not be high for individual owner-operators wishing to compete in the trucking industry for steel, but capacity ideally needs to be added on a large scale to be efficient. This suggests economies of scale are present.

Owners of a larger fleet are going to be able to fulfill a delivery of steel using a shorter amount of time and have drivers immediately go on other routes after their tasks are finished. In comparison, owners of a smaller fleet would need to make their drivers go on round trips for the same delivery, resulting in wasted gasoline and other inputs. Not only are owners of larger fleets able to produce more services and revenue by running more distance in the same period of time, but they are also able to have a greater cost saving from a reduction in variable cost.

Under the resource-based view, even though it is found that trucks and truck drivers are not difficult to acquire, sources of freights, or clients, are. Without a considerable client base, managers would hardly be willing to increase their company scale. Thus, large trucking companies are in fact quite rare in the industry, which implies economies of scale are indeed a competitive advantage. While large trucking companies cannot command better terms from gasoline suppliers as the findings demonstrated, economies of scale still help them enjoy cost advantages from operational efficiency and other input suppliers. Since scale economies help trucking companies neutralize the threat of entry in addition to the threat of rivalry, two of the most controlling forces of

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profitability in the trucking industry, they need to be given more attention in managers’

strategic making process in securing clients.

Another major finding of this research is that brand image is also a key determinant for buyers selecting trucking services. However, the value of brand identification is quite limited because services are highly identical, rendering rivalry among trucking companies to be intense. Brand identity in the trucking industry is often based on the charisma of its CEO rather than the trucking company’s capabilities or service qualities, which is also why a network-based strategy is widely employed. As long as the CEO can promise his clients that the company will safely deliver the freights in a timely fashion and his clients trust him, he should be able to have their businesses within reasonable rates. Nonetheless, as the heirs of the family take over the company, a common occurrence in every trucking company interviewed by the author, the brand identity of the firm will inevitably be changed. In order to stand out in the competition in the long run, trucking companies primarily hauling steel should find new ways to

differentiate themselves and build brand identities without relying too much on its CEO.

4.2 Research Limitations

! This research collected data from three in-depth interviews with trucking CEOs in Taiwan’s unique environment. The benefit of such approach was that it allowed the author to inspect the phenomenon in great details that was not otherwise possible when dealing with a larger number of research subjects. However, the interpretation of the phenomenon was inevitably skewed toward the author’s own perception. There were no doubts other ways of interpreting the data from researchers in various backgrounds that may render data collection to differ. Since these were the author’s first attempts in conducting interviews, there was a high possibility that bias subjected to the author’s knowledge of existing literature was present in information selection. Although the author attempts to offer recommendation in the fields of strategic management through the selected data, the process of the author’s analysis is purely inductive. In other words,

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causation of relationships cannot be verified by this research alone but must be validated with quantitative methods.

This research was also limited by its sampling method. Due to the difficulty in scheduling interviews, the sample size was inconveniently small. The three trucking companies that made up the sample were specifically selected in order to elaborate on the three disciplines of strategic management. Since the sample selection method was not randomized, a selection bias inherently existed in this research. The author can never be sure whether the conclusions drawn from these interviews can be applied to other cases because the author only dealt with three particular trucking companies. Therefore, the results of this research cannot be generalized beyond the participating companies because they may not be representative of the industry as a whole.

Even though the limitations mentioned above bounds this research’s applicability, results that emerged from this research can nevertheless not be ignored. As long as managers take the strategic implications with a grain of salt, they should find themselves on the path of success.

4.3 CONCLUSION

As important as the trucking industry primarily hauling steel is to Taiwan, there has been limited research conducted specifically in this field. While enduring the

challenges of economic downturns and pressure to reduce their costs, trucking companies have been left alone by the government to adjust their strategic plans according to their environments. Due to each manager’s unique perception of his environment and the different resources possessed by each company, certain disciplines of strategic

management dictate the majority of strategic making process in the trucking industry.

However, without understanding the underlying factors that shape firm performance and behavior in the industry, trucking managers may end up devising the wrong strategy for the company. While specific attention should be give to institutional transition, resource barrier acquisition, and service differentiation, if a CEO always carefully consider the industry-based view, the resource-based view, and the institution-based view, he will definitely ensure the best outcome for his company.

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