Proceedings of Annual Paris Business and Social Science Research Conference
7 - 8 August 2014, Hotel Crowne Plaza Republique, Paris, France, ISBN: 978-1-922069-57-3
The Relational View and Prestige: Beauty and Newspapers
H. Marc Porter*
The Relational View has been seen as an important theoretical
contribution that argues that a firm’s critical resources may fall or span
outside of the firm’s boundaries (Dyer & Singh 1998) and it is now
seen as an extension of the Resource Based View (Lavie 2006). We
have conducted two qualitative studies on IJVs, one a newspaper and
the other a cosmetics firm, and found a resource that is rare in the
management literature but is seen as critical in practice. We have
used a multiple case study and have identified ‘prestige’ as an
informal resource that has had an influence on the operations and
strategy. Surprisingly, prestige was uncovered as a rationale for both
IJVs and acted as a motivator in the informal operations, that is to say
the relational aspect of the operations. The choice of the two different
industries was to test if the 4 sources of relational rents identified by
Dyer & Singh (1998) were found in what was referred to by one
respondent as ‘glamour industries’. Following Yin’s 2003 multiple
case study approach to penetrate more deeply into the small sample
set, in order to glean explanatory evidence, our initial findings show
that prestige was found in both industries. In proposing prestige as a
possible determinant of relational rent we have found that it can be
incorporated into the Relational View without destabilizing the Dyer &
Singh/Lavie model. It is further proposed that other ‘informal
resources’ may be uncovered with additional research. Therefore an
additional category for ‘informal resources’ will be proposed.
Field of Research: Management
1. Introduction:
This empirical investigation draws from two qualitative data sets on International Joint
Venture case studies in order to investigate the concept of prestige as a resource
through the lens of Relation View as outlined by Dyer and Singh (1998) and Lavie
(2006). From the data set collected in the two case studies investigating Relational
View, Prestige was a notion that was not originally the object of investigation but
came to be identified as a relational aspect of management. That is to say that all
respondents in both cases reported that prestige was a notion that kept the IJV
together and their motivation to continue working for the IJV. The first case is of a
cosmetics IJV based in France with a French MNE described by respondents as the
world‟s largest “beauty company” as a 50% equity holder and a Swiss MNE
described by respondents as “the world‟s leading nutrition, health and wellness
company” as the other 50% equity holder. Both firms are internationally recognized
and have strong brands. The IJV‟s creation rationale was to help enter the
“Nutritional Concentrates” market. This is a new market that “comprises of nutrition
to enhance beauty” according to one respondent. This is an IJV that manufactures
(the responsibility of the Swiss partner) and markets (the responsibility of the French
partner) pills that enhance the skin and hair‟s ability to improve at a cellular level.
The IJV was launched a little over 10 years ago so is in a mature stage of the product
_________________________________________
Kedge Business School, Marseille, France, Email: marc@portergroupe.com
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Proceedings of Annual Paris Business and Social Science Research Conference
7 - 8 August 2014, Hotel Crowne Plaza Republique, Paris, France, ISBN: 978-1-922069-57-3
life cycle. The second case is of an English language international newspaper based
in Paris, France with two American partners as equal equity share owners. This IJV
was created in 1991 and terminated in 2003. The owners are both large well known
brands in the United States. Both IJVs struggled monetarily and added little back to
their parent firms and both survived for at least ten years. The justification of keeping
the IJV alive was finally decided in the newspaper‟s case. One parent acquired, by
force according to several respondents of the other partner, the newspaper and
eventually rebranded it. The cosmetics IJV is still operating but with some doubt as
to its future. The data suggests that at this point in the cosmetics IJV the managers
are reacting much the same as the managers did in the newspaper IJV at its 10 year
mark. That is a questioning of the rationale of its existence. It was from this starting
point, the 10 year mark that the investigation was interested.
2. Literature Review
The basis of the literature review was Dyer & Singh‟s 1998 article that launched the
Relational View. This founding article was based on the supply chain of firms but
holds that there is relational resources that fall outside the firms boundaries that
should be accounted for in management theory and this view is commonly known in
the literature as the Relational View (Lavie 2006). This focus on the dyad allows
firms to extend strategy to better account for forces such as globalization. Lavie
(2006) has also presented a strong argument that this Relational View is an
extension of the Resource Based Theory (Barney 2001) and has implications beyond
the supply chain and into the general field of strategic management. The Resource
Based Theory is a lens for viewing competitive advantage, primarily using the firm as
the unit of analysis rather than industry as Porter (1985) has advocated. It sees the
firm as primarily a bundle of valuable tangible or intangible resources at the firm‟s
disposal (Wernerfelt 1984, Rumelt 1984, Penrose 1959). The inclusion of “intangible
resources” and “at a firm‟s disposal” allows for a discussion of both Joint Ventures, as
sources of competitive advantage although they fall outside the boundary of the firm,
and of intangibles in when using the Relational View. However, it is argued in this
paper that the Relational View, as a relatively new theoretical lens, is more heavily
reliant on the tangibles than the intangibles although acknowledging intangibles do
exists.
As will be shown below one type of intangible could be „Prestige‟. Prestige is not
defined in the management literature but is defined in sociology. Prestige is an honor
or deference attached to a social status and distributed unequally as a dimension of
social stratification (Weber 1994). Prestige is a well studied phenomenon in
Marketing (Monga & Gurhan-Canli 2012) and Human Resources (Cohen 2011,
Spitze & Lee 2012, Pheifer & Schneck 2012) but almost nonexistent in the
management literature. In Marketing and Human Resources prestige is usually
viewed from the individual perspective or a group perspective. In marketing the
group is often a market under investigation. In Human Resources it is often viewed
at the individual level. For example, Noah Goldstein of UCLA and Nicholas Hays of
NYU conducted an experiment on prestige of others influencing individual behavior.
The experiment comprised of men who were expected to be paired up in a betting
activity. The men who expected to be teamed up with a high-powered executive
(prestigious) felt more powerful themselves as an extension of the prestigious
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Proceedings of Annual Paris Business and Social Science Research Conference
7 - 8 August 2014, Hotel Crowne Plaza Republique, Paris, France, ISBN: 978-1-922069-57-3
executive. This group also risked 40% more than those who expected to be teamed
up with a janitor: a janitor being seen as less prestigious. This finding suggests that
„the idea of an association with a prestigious person is all it takes for men to feel that
some prestige has rubbed off on them (HBR 2013). Here we can see that power and
prestige are interrelated at the individual level but neither are accounted for at the
dyadic level to date.
Networking Theory has also addressed the concept of
„prestige‟ but also normally at the individual level (Stuart 1998).
3. Methodology
The majority of studies on the Relational View have been quantitative studies (Dyer &
Singh 1998, Lavie 2006). We chose a qualitative study in order to look deeper into
the dyads that produce competitive advantage for their parent firms. It is important to
remember that the qualitative approach is not used to generalize to populations but
rather to generalize to theory (Yin 1993). It is not statistical generalization. The
multiple case study approach (Yin 2003) was used in this study on two International
Joint Ventures. The two case studies were done over a 2 year period.
Data
collection was used to test the IJVs relational competitive advantage to the Relational
View assuming a foundation in the Resource Based Theory (Barney 1991). The Yin
(2003) approach was chosen as this study intended to build on existing theory by first
testing a previous theory. Therefore the Eisenhardt (1989) approach of exploring
was rejected in favor of an explanatory approach.
The three principles of data collection were used (Yin 2003): Multiple Sources of
Evidence (triangulation), a case study database (organizing and documenting the
data collected), and maintain a chain of evidence (tracing the evidentiary process
backward). Four types of case study evidence were used: Interviews (informal and
semi-formal), physical artifacts, direct observations, and archival records).
This paper is the result of two independent studies.
The first case study was The International Herald Tribune. The IHT is unique in that
the parents are both American companies and the host country is France. This
newspaper had a global market of American expatriates and travelers constituting a
market and management challenges that are less tied to a geographical area than to
all geographical areas; that is to say a mobile market that was created before the
Internet. The company was formed as a joint venture under French law in 1967 after
a third parent also American collapsed financially. The New York Herald closed in
1967 and left the two remaining partners, The New York Times and The Washington
Post became the sole partners. This 50/50 equity partnership continued to operate
until 2003. This case provides an opportunity to see an IJV through its entire life
cycle. We were able to do interviews with the management and staff that retired and
also that continued to work for the International New York Times, the successor
newspaper. We collected multiple interviews from 10 respondents in this case study.
We also collected physical evidence from the archives and used secondary sources
from published materials and from the Internet.
The second case is INNEOV, a 50/50 equity joint venture between L‟Oréal and
Nestlé Corporations. INNEOV is based in Asnieres sur Seine, France. L‟Oréal is
based in Clichy, France and Nestlé is based in Vevey, Switzerland. This case
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Proceedings of Annual Paris Business and Social Science Research Conference
7 - 8 August 2014, Hotel Crowne Plaza Republique, Paris, France, ISBN: 978-1-922069-57-3
provided an opportunity to look at a strategy for competitive advantage that uses
relational resources to compete in a much crowed cosmetics market. We conducted
interviews with the management and staff that are presently working for the IJV. We
collected multiple interviews from 10 respondents in this case study. We also
collected physical evidence from the archives and used secondary sources from
published materials and from the Internet.
As can be see the data bases collected used the same methodology. A pilot test
was done first in order to test the Dyer & Singh (1998) model on a sample set of 6
respondents from each case. An equal mix of 3 respondents from each of the parent
companies was used in order to balance the two parent firms‟ views. These were
done with semi-structured interviews using the model as guidance. Then the data
was coded for analysis. The coding also followed the model. After the pilot tests
were done the results showed that the model was generalizable to both cases. That
is that the initial data collected showed a strong relationship with the model. With this
stage completed, a full interview was arranged in person for each of the initial 6
respondents of each firm in order to explore deeper the four determinates of
competitive advantage according to the model. This data was then coded. The
results are discussed below.
4. Discussion
The Relational View holds that a firm‟s critical resources may span firm boundaries
and may be embedded in inter-firm resources and routines. That a valid unit of
analysis in identifying critical resources falls outside of the firm, the joint venture in
this study and part of the supply chain in Dyer & Singh‟s 1998 study. And that the
relationship between firms holds four potential sources of inter-organizational
competitive advantage.
These four sources of inter-organizational competitive
advantage, also known as relational rent, are:
1. Investments in relation-specific assets or sources of relational rent;
2. Substantial knowledge exchange, including the exchange of knowledge that
results in joint learning;
3. The combining of complementary, but scarce, resources or capabilities
(typically through multiple functional interfaces) which results in the joint
creation of unique new product (in the case of the cosmetics IJV and services
in the case of the newspaper IJV);
4. Lower transaction costs than competitor alliances or effective governance.
Relation-specific assets are those assets that are unique to the dyad and create a
competitive advantage. Williamson (1985) has identified three types of specificity
used in the model: site specificity, physical asset specificity and human asset
specificity.
Knowledge-sharing routines are “a regular pattern of inter-firm
interactions that permits the transfer, recombination or creation of specialized
knowledge” (Grant 1996). Complementary resources are those resources that
require use in conjunction with the complementary resources of another firm (Hamel
1991, Teece 1987). And effective governance is seen as “formal self-enforcing
safeguards that are economic hostages created intentionally to control opportunism
by aligning the economic incentives of the transactors (Williamson 1983).
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Proceedings of Annual Paris Business and Social Science Research Conference
7 - 8 August 2014, Hotel Crowne Plaza Republique, Paris, France, ISBN: 978-1-922069-57-3
These four sources of inter-organizational competitive advantage are the foundation
of the Relational View. The four sources are applied to our two cases below:
INNEOV
IHT
Relation-Specific Assets
Developing a unique
Developed a unique
brand, new product
newspaper brand,
development for
distribution channels and
“nutritional concentrates”
methods of printing
1. Separate physical
internationally
location
1. Separate physical
2. Separate research
location
laboratory, brand
2. Separate brand,
and other assets
and printing assets
3. Separate
3. Separate
Management and
Management and
employee
employee
structures
structures
Knowledge-Sharing
Exchanging knowledge of Exchanged knowledge of
Routines
beauty
different demographics,
marketing/nutritional
sales force training
marketing, distribution
systems in pharmacies,
Complementary
Combining of
Combined management,
Resources and
management and staff
the editor would rotate
Capabilities
(the CEO worked for both between each firm, the
firms at one point in her
articles published on the
career), marketing,
front page would be
manufacturing, and
balanced to represent
distribution abilities
each firm
Effective Governance
Effective governance
Effective governance
through the equal
through equal weighting of
weighting of the Board of
the Board of Directors,
Directors, less costs for
less costs for world class
marketing, manufacturing
journalists as the two firms
and distribution than start- shared and even jockeyed
ups
for the most exposure on
Page 1, „ a gentlemanly
way of running a business‟
From the data we see that the Relational View does hold for both case studies. This
could be seen to validate the Relational View in both these cases.
However, the data revealed other sources of relational competitive advantage that
did not fit so well into the model, especially those of the intangible nature. What was
surprising in both cases was the constant use of the word „prestige‟ as a source of
competitive advantage. This was surprising as it was not a source that was found in
the literature review before the research was carried out. That 100% of the
respondents from both cases used this word was significant. Therefore we
attempted to use the model to account for this finding. However, as you can see
from the discussion above, „prestige‟ does not fit easily into any one of these
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Proceedings of Annual Paris Business and Social Science Research Conference
7 - 8 August 2014, Hotel Crowne Plaza Republique, Paris, France, ISBN: 978-1-922069-57-3
categories. Although it could be argued that it could fit into the Relation-Specific
Assets category thorough Williamson‟s (1985) human asset specificity, it seems to us
that this is a very weak argument, as Williamson was addressing transaction-specific
know-how.
„Prestige‟ just does not fit into Knowledge-Sharing Routines,
Complementary Resources and Capabilities or Effective Governance. This is
problematic as the data indicates that „prestige‟ is a source of inter-organizational
competitive advantage. With the L‟Oréal-Nestlé JV, INNEVO has a competitive
advantage in the market over other “nutritional concentrates” who do not have
important or „prestigious‟ brands. The International Herald Tribune had also counted
on the „prestige‟ of The New York Times and The Washington Post to combat other
local publications in the American expatriate newspaper market. The respondents in
these two cases were providing evidence that explains a source of competitive
advantage that is not accounted for in the model.
With 100% of respondents reporting „prestige‟ as an attribute in both cases it should
be considered for in the model. Most of the respondents used „prestige‟ in describing
why the JV continued although financial profitability was quite low. The idea that
competitive advantage should drive rents was somewhat absent in both cases as
financial returns were below the expectations when the JVs were created. However,
the JVs were considered important to the parent companies because the parent
companies received „prestige‟ from the JV operations. In the case of The IHT, it was
the fact that The New York Times and The Washington Post could both point to an
overseas operations, especially one based in Paris, as evidence of their global
leadership that other newspapers found hard to match. After the dissolution of the
JV, The New York Times continued its operations while incorporating it into the
parent company. The termination of this JV was caused by a fight for control of a
less than profitable firm. The explanation for this economically irrational behavior
was the prestige of a Paris publication and not just a bureau. All major U.S.
newspapers have bureaux in Paris but the IHT was more than a bureau it was an
operation (IJV at the time). The prestige factor helped The NYT to buy out The
Washington Post and continue a less than profitable subsidiary.
In the case of INNEOV, a cosmetics IJV, that specializes in „nutritional concentrates‟.
These are beauty products taken internally rather than applied externally to the skin.
This IJV has also been less than profitable. L‟Oréal respondents see a value in
continuing its operations with Nestlé due to a certain prestige of being related to
Nestlé. Nestlé respondents reported the same view. The IJV has a life-cycle of 10
years to date. The competitive value in the market is also seen to be based on
prestige as marketing staff report that the two brands present more prestige than
either L‟Oréal or Nestlé create on their own. L‟Oréal is known for its marketing and
distribution platforms and Nestlé for its scientific research on edible products.
With „prestige‟ being reported as such an important driver of competitive advantage in
the market place and also among employees it should be considered in any model
that attempts to identify competitive advantage in dyads such as the Relation View.
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Proceedings of Annual Paris Business and Social Science Research Conference
7 - 8 August 2014, Hotel Crowne Plaza Republique, Paris, France, ISBN: 978-1-922069-57-3
5. Conclusions
The recognition of the lack of focus on the intangible resources in the Relational View
is acknowledged in the literature (Lavie 2006). There is some attempt to address
intangibles in the sub-processes of the four determinants of the Relational View. This
could include „prestige‟.
Other hidden determinants could be found in more cultural aspects of the IJV.
Whether these are found in all or many IJVs could be the subject of further research.
With the lack of „prestige‟ and other „hidden‟ determinants of inter-organizational
competitive advantage (those determinants that may occur but were not uncovered in
this study), the determinants of relational rents is incomplete. The practical
implications of the original model are strong but managers often have difficulty
understanding a model that has elements missing that are clear to the manager.
“Academic work isn‟t helpful because they are too focused on irrelevant things”.
“Researchers don‟t really understand what is going on. They just see things in black
and white”. These quotes from both cases illustrate the need to also deeply
understand the phenomena as a manager sees them.
Therefore the following modification to the model is proposed:
Relation-Specific Assets
Knowledge-Sharing Routines
Complementary Resources and Capabilities
Effective Governance
Intangible Determinants of Relational Rents
This addition of Intangible Determinants could account for „prestige‟ as well as culture
and other intangibles not currently accounted for. At this stage in the theoretical
evolution of Relational View this new determinate could as a miscellaneous category
until more precise understanding of intangibles is understood. This study is limited to
the two cases presented here, but has implications for the generalization of the
theory.
This could also close the gap between theory and practice as managers know there
are determinates missing from the model. As discussed above the four sources of
relation rents proposed by Dyer & Singh (1998) ignore some important determinants
that managers in their day-to-day work will easily recognize. By incorporating an
additional source that allows for informal or „hidden‟ determinants hopefully managers
will more easily understand the model and to also be able to use it. The recognition
of the lack of focus on the intangible resources could lead to a strengthening of the
theory. It could also have managerial implications in helping managers to recognize
their role in the firm and better ways of finding and exploiting competitive advantage.
It is also hoped that a more appropriate definition of prestige could be developed for
the strategic management discipline.
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Proceedings of Annual Paris Business and Social Science Research Conference
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