SQUARE Pharmaceuticals Limited is the largest pharmaceutical company in Bangladesh and it has been continuously in the 1st position among all national and multinational companies since 1985. It was established in 1958 and converted into a public limited company in 1991. Square Pharmaceuticals Limited has extended her range of services towards the highway of global market. It pioneered exports of medicines from Bangladesh in 1987 and has been exporting antibiotics and other pharmaceutical products. This extension in business and services has manifested the credibility of Square Pharmaceuticals Limited. It strives, above all, for top quality health care products at the least cost reaching the lowest rungs of the economic class of people in the country and value their social obligations. The company’s annual turnover exceeds $300 million, far higher than the competition’s. The sales turnover of SPL was more than Taka 7.5 Billion (US$ 107.91 million) with about 16.92% market share (April 2006- March 2007) having a growth rate of about 23.17% (company annual report 2007). It is exporting its pharmaceuticals and other products to around 30 countries of the world including Sri Lanka, Myanmar, Nepal, Kenya, Libya, Sri Lanka, Vietnam, Afghanistan, Iraq, Ukraine and Yemen.
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Square has some competitive advantages that make it no.1 Thus from its inception in 1958, it has today burgeoned into one of the top line conglomerates in Bangladesh. The pharmaceuticals market is oligopoly in nature despite the presence of 250 companies. The top 15 players, including Square, control around 73% of the market share. So in this competitive market, Square Pharmaceuticals Ltd., the flagship company, is holding the strong leadership position in the pharmaceutical industry of Bangladesh and is now on its way to becoming a high performance global player. Their corporate focus is to add value on the quality of product, process and services leading to achieve competitive advantages.
Competitive advantages in such firms depend a lot on how vale is created. Value creation is a central concept in the management and organization literature for both micro level (individual, group) and macro level (organization theory, strategic management) research. Yet there is little consensus on what value creation is or on how it can be achieved. Many prominent authors have written articles how company develops their value creation architecture to gain competitive advantage.
Literature on value creation
All economic activity whether in the public or private sector, ultimately revolves round the process of creating value. For organization to be self- sustaining it must create more value, as measured by its users, than the cost of resources it uses up. We define “value” as the benefits a (potential) user will gain from a product or service, measured.
Bowman and Ambrosini (2000) in defining use value as the subjective valuation of consumption benefits by a consumer. Exchange value is the amount the consumer actually pays, representing revenue to a value system. These definitions are consistent with those offered in the value-price-cost (VPC) framework recently adopted from Tirole (1988) by Hoopes, Madsen, and Walker (2003). In their framework, V is what we label use value, P is exchange value, and C is the production cost of the seller. V – P is consumer surplus, and P – C is seller profit. They defined value capture as the appropriation and retention by the firm of payments made by consumers in expectation of future value from consumption. Value is captured when a firm (1) receives consumer payments by thwarting competitors’ attempts to appropriate those payments (e.g., through imitation) and (2) simultaneously retains those payments by denying claims on them from upstream or downstream members of the same value system (e.g., through channel power). Thus, value capture involves the allocation of exchange value.
Strategic management deals with the question of how firms create value in terms of achieving and sustaining competitive advantage. The market-based, resource-based, dynamic capabilities and relational views identify different sources of competitive advantages. From the market-based perspective, competitive advantages are the result of strategic positioning in imperfect markets.
The resource-based view identifies firm-specific resources as the main source of sustainable competitive advantage. From the dynamic capabilities perspective, temporary competitive advantages result from risk-taking and entrepreneurial insights in an uncertain or complex environment. After a while, the insights diffuse and become best practice. The relational view attributes competitive advantages to relationship-specific assets, knowledge-sharing routines, complementary resources and capabilities, as well as effective governance mechanisms. It is suggested that these advantages are jointly generated in an exchange relationship and cannot be generated by one firm in isolation.
Therefore, what is needed is an adequate conceptualization of competitive advantage that can actually be used in different industry contexts to map the underlying value creation architecture and relate it to economic performance.11 Certain patterns of labour division that emerged among co-specialized actors in a sector are called industry architectures. Our aim is to develop a conceptualization of such architectures in relation to competitive advantage that can be used to identify and evaluate different value creation architectures in the same industry. The term “value creation architecture” describes the structure and relationships of all the value-adding activities that are carried out by various actors and companies to bring a particular product or service to market.
Scholars having a resources-based view often firm see the firm as the primary unit of analysis to create value-generating activities. They argue that the firm exists because it can more efficiently coordinate the collective learning process and build competitive advantage that resides in the organizational routine and capability than the market can (Foss, 1996c: 18). The notion of the firm as a bundle of resources provides an alternative explanation to the concepts of transition cost (TC) that sees the firm as a bundle of transactions or contracts (Barney, 1986; Dierickx and Cool, 1989). However, they both overlook an important fact – that resources exchange is often linked to the social context in which the firm is embedded.
From this perspective, the analysis of architectural advantages is central. These competitive advantages result from the interplay between internal competition and the cooperation of different actors that form architecture of value creation and the competition between different architectures in the market. The architectures chosen in a certain market context can vary considerably in terms of core characteristics: the number of participating firms, the extent of integration, and the settings for the relationship levers (e.g., contract conditions or level of cooperation).
With regard to intra-architectural competition and cooperation, the analysis focuses on the question of which actors appropriate the highest share of value and on the impact of this value appropriation on the motivation and ability of all actors to continue to contribute to this architecture. The position of each firm within the intra-architectural competition depends on its resources, its capabilities, and its relationship with other actors within the architecture. Accordingly, there are three sources of competitive advantage:
(1) Cost efficiencies that make more efficient use of the firm’s assets and supplier inputs or that lower supplier cost;
(2) Product differentiation to raise customer benefits; and
(3) Transaction innovations that lower the costs of transactions or that create new combinations of customers and suppliers.
Recent work has examined competitive advantage via dynamic capabilities (Eisenhardt & Martin, 2000) and firm-specific knowledge (Kogut & Zander, 1996). Yet only sparse attention has been paid to the demand side and, particularly, to the consumer’s role, even in the most recent and ambitious attempts to integrate the field (e.g., Farjoun, 2002; Hunt & Lambe, 2000). Remarkably, some strategy scholars argue that an understanding of consumer utility “is largely superfluous to the overall goal of the strategy field” (Makadok & Coff, 2002: 12), which, they say, is “to explain firm profitability-and firm profitability is determined by the value captured by the firm” (Makadok & Coff, 2002: 10).
The investigation of value creation in buyer-supplier relationships in business markets is still very much in its infancy (Flint, Woodruff, & Gardial, 2002; Ulaga, 2003) with the majority of studies having explored relationships involving physical goods, where both parties have an understanding (often quite sophisticated) of the product in question (e.g. Harmsen & Jensen, 2004; Moller & Torronen, 2003; Ulaga, 2003)
In the light of the above, this study is to examine the value creation architecture to achieve competitive advantage using Square Pharmaceutical Company as the main case study.
AIM AND OBJECTIVES OF THE STUDY:
Aim: The aim of the study is find out how Square manage to create value to achieve competitive advantage.
Objectives: The objective of the study is to examine the Value creation architecture in gaining competitive advantage using Square Pharmaceutical Company as case study.
However, the specific objectives shall include:
To evaluate the consumer perspective in value creation to achieve competitive advantage.
To examine value creation and value capture in a multi level perspective.
To establish theoretical linkage between value creation and competitive advantage.
To examine the process of value creation and its measurement
To investigate value creation in buyer-supplier relationships in business markets.
To offer policy recommendation on how the organization can obtain competitive advantage through value creation.
1.3 RESEARCH QUESTIONS
From the afore-mentioned objective of the study, this study shall provide answer to the following tentative questions.
How can organization achieve competitive advantage through value creation?
What are the measurement and process of value creation?
Is there any theoretical linkage between value creation and competitive advantage?
What is the relationship of value creation and value capture in multi level perspective?
What are the buyer-supplier relationships in business market?
1.4 RESEARCH HYPOTHESIS
The following tentative hypothesis will be tested in this study
H0: Value creation architecture do not brings about competitive advantage
H1: Value creation architecture brings about competitive advantage.
The research methodology used must be able to give reasonable answers to the research question and fulfil the objectives of research. In this research work, researcher will follow both types of research methodologies-quantitative and qualitative approaches. In quantitative research, the information obtained from the participants is expressed in numerical form. In quantitative approach, researcher tends to collect numerical contents from the Square Company and on the other hand, qualitative part researcher will collect subjective data. In qualitative research, on the other hand, the information obtained from participants is not expressed in numerical form. The emphasis is on the stated experiences of the participants and on the stated meanings they attach to themselves, to other people, and to their environment. Those carrying out qualitative research sometimes make use of direct quotations from their participants, arguing that such quotations are often very revealing. Qualitative data will be collected by interviews,
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This study involves largely the use of primary data for the purpose of empirical analysis. The primary data will be obtained with the use of structured questionnaire and selected interviews. The questionnaires were structured in such a way as to provide pertinent information on the value created architecture and competitive advantage. That is how Square Pharmaceutical Company. Interviews will equally be conducted with some key person namely; selected staff of square Pharmaceutical Company, particularly those at the top management level. This will enable us to obtain a balanced picture of how value is created to gain competitive advantage over other competitors. Also, secondary data will be obtained from the annual report of the company and the performance will be compare with similar company.
POPULATION AND SAMPLING PROCEDURES
Indeed, the sum total of companies in the pharmaceutical industry constitutes the population of the study. However, as it will be cumbersome and rather unrealistic to consider all companies, a case study was considered. This case study chosen by this research work as earlier stated is square Pharmaceutical Company. Candidly; the choice of this company is deliberate. It is one of the largest companies in the pharmaceutical company where adequate data can be easily gathered for the success of the study.
Therefore, questionnaire will be distributed to key persons among the staff to collect pertinent data relating to value creation and planning and organizational performance. Thus, an equal sample size will be drawn from among the staff of the organization. A total sample of 50 staff will be selected among the staff of the organization. The random sampling technique is intended to be employed in the distribution of the questionnaires. This implies that every staff of square Pharmaceutical Company stands a chance of being selected until the required sample size (50) is obtained.
METHOD OF DATA ANALYSIS
This aspect shows the technique adopted in analyzing the collected data. In this study, both the descriptive and quantitative techniques will be employed. The descriptive statistics involved the analysis of data in frequencies, tables, percentages, chart etc. while the quantitative technique to be used is the Pearson Correlation method of data analysis as it is more realistic and clear to express the collected data. All these analysis shall be done manually with the aid of statistical tools for social sciences. All these analysis shall be done manually with the aid of statistical tools for social sciences.
The proposed research has some limitation and threats that may affect its credibility and reliability as follows;
As the research work will be focused on only Square pharmaceutical company, results obtained may not be true for other organizations in this industry.
There are resource and time limitations for this study as to generate more precise results it needs huge resources and time. Hence time and resource constraints may affect the research standards.
The accuracy and quality of results may be affected as participants may not feel confident and disclosing wrong information. Or participants may feel uncomfortable with the research subject and may feel that it will affect their interests. This research might come up with different threats of reliability i.e. subject or participant error, observer error, subject or participant bias etc.
There will be limited observation of the HR practices and actual procedures within the company. For sound results there will be need of observations because attitudes cannot be measured or seen but we can feel and infer them.
The business data will be collected from various resources including publications and online material. In this case the validity and reliability of some of information cannot be guaranteed.
There are always some ethical issues associated with the implementation and execution of a good research work. The writer will give due importance to this aspect of research and will comply with code of ethics to deliver a quality research work. Some possible ethical issues that may rise during this research project are as follows:
The interviewees and other participants will be briefed about the purpose of the research, data protection and confidentiality issues to gain their confidence in advance. Subject awareness will boost them to deliver more accurate view about the issue and thus research objectives can be obtained more precisely.
The participants’ involvement will be of voluntary nature and they will have rights to withdraw partially or completely from process at any stage.
Avoidance of harm to participants during data collection including pain, stress, embarrassment and discomfort will be catered.
Details of participants will be kept confidential unless their consent is obtained to disclose it. Information gathered during interviews, for example employees’ job satisfaction level, relationship with employer or any personal views about their job or about company etc. will be kept confidential and will not be disclosed in any case safeguarding interests of every entity involved in it.
Integrity of data and intellectual property rights will be of high priority along with data protection and accuracy. I will comply in honest and ethical manner throughout research and avoid any misrepresentation or plagiarism. All publications or research material used will be quoted and referred systematically.
The writer will make sure that research work is neutral, free form any bias and undue influence. Research results will be used ethically for benefit of company with complete confidentiality and informed consent of respective authorities.
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