KnowledgeResourcesandCompetitiveAdvantage DorisGomezelj Omerzel RuneEllemoseGulev Thepaperdiscussessomedefinitionsofknowledgeasapotentialsource of competitive advantage. It reviews the literature pertaining to the as- sessment of knowledge assets. According to the resource-based view, which links the competitive advantage of organizations with resources and capabilities that are firm-specific, and difficult to imitate or sub- stitute, a firm’s competitive advantage is built on a set of strategically relevant resources (Barney1991 ;Grant1991 ; Peteraf1993 ). When firms have access to similar resources, it is those companies that are able to maximize the utilization of those resources that attain a competitive advantage.Amongvariousstrategicresourcesandcapabilitiesthathelp determine the extent of competitive advantages, a pivotal role is often assigned to knowledge – as both a resource in itself and an integrating factor that makes other resources and capabilities effective– especially in complexanddynamic environments. Key Words: knowledge,competitiveness,firmperformance, knowledge-based theory jel Classification:l26 Introduction Managers share the opinion that the mere identification of competitive factors, opportunities and threats, as suggested by Porter (1980 ), is not enough for an efficient company strategy. It should also be determined whichcompetencesandsourcesareavailableintheorganizationinorder tomakeaccurateassessmentsofacompany’sstrategiccompetences(An- drews1971 ).Asdifferentcompaniesdevelopdifferentdistinctive compe- tences (Selznick1957 ), the most important question is: does the com- panyhaveappropriatecompetencesinordertoreachitstargets? Forun- derstandingthe importanceofknowledge forfirms,we should consider the contribution of the theory based on resources – the resource-based theory (rbt ); and the theory, based on knowledge – knowledge-based DrDoris GomezeljOmerzelisanAssociatedProfessorattheFaculty ofManagementKoper,University ofPrimorska, Slovenia. DrRune EllemoseGulevisaProfessorattheFacultyof Business andEconomics,University ofAppliedSciences, Kiel, Germany Managing GlobalTransitions9 (4 ):335 –354 336 Doris GomezeljOmerzelandRuneEllemoseGulev theory (kbt ). Penrose (1959 ) developed the concept of competitiveness based on competences; this concept was further developed by Werner- felt(1984 ),Rumelt(1984 )andBarney(1986 ).They proposethefirmasa collection of individual unique resources. This collection is increasingly knowledge-based. The resource-based view focuses on resources that are permanently tiedtoafirm(Wernerfelt1984 ).Thecombinationofresourcesovertime allows for the evolution of specific capabilities which optimally lead to competitiveadvantage(AmitandShoemaker1993 ).Themostcommonly used application of the resource-based view in literature is to use it for identifyingdifferenttypesofcompetences,wheredistinctivecompetence isdefined assomething a firmcando better thananyofitscompetitors. Specifically, the resource-based view identifies two types of distinctive competence: resources and capabilities (Collis and Montgomery1997 ). Resources may be either tangible or intangible. Tangible resources are physical assets that a firm owns, such as a unique product, plant and equipment.Intangibleresources,ontheotherhand,donotphysicallyex- ist, howeverthey providesignificantvalue,such asa brandnamerecog- nition, reputation, patents, and technological or marketing know-how (Collis and Montgomery1995 ). The contemporary accounting practice must introduce solutions in the sense of measuring the intangible as- sets as well. The traditional balance sheet of a company does not pro- videsufficientinformation,sinceitdoesnotcontainintangibleresources in the sense of the concept of a knowledge-based company (Ivankoviˇ c 2006 ). Capabilities are a company’s skills at coordinating its resources andputting them to productive use (Collis andMontgomery1995 ).Ca- pabilitiesincludevalues,people,andprocesses(CollisandMontgomery 1997 ). Theresource-basedperspectivetakesthefirm’sinternalapproach.The basic logic is that the firm’s unique capabilities in terms of knowhow and managerial ability are important sources that may create sustained competitive advantages. The distinctive knowledge and superior orga- nizational routines in one or more of the firm’s value chain functions may enable the firm to generate profit from a resource advantage (Ma- honeyandPandian1992 ;HittandIreland1985 ).Theresource-basedview stresses the internal capabilities of the firm, which determine the strate- gicdecisionsforcompetinginitsexternalenvironment.AsnotedbyPen- rose (1959 ), firms may achieve performance and profit not because they possess better resources, but because their distinctive knowledge allows ManagingGlobalTransitions KnowledgeResourcesandCompetitiveAdvantage 337 them to make better use oftheir resources. Inorderto turna distinctive competence into a sustainable competitive advantage, a firm not only needstopossessauniqueresource,butmustalsohavethecapabilitiesto exploit that resource. Therefore, the distinction between resources and capabilities is critical in order to to understand what generates a com- petitiveadvantage.Acompanymayhaveuniqueandvaluableresources, but unless it has the capability to use those resources effectively, it may notbeabletocreateorsustainacompetitiveadvantage Theuseoffirm’sknowledgealsohasasocialdimension.Infirmswith positive cultures, where the teamwork is effective and goal directed the utilization of knowledge seems to be more efficient. Many firms outdo their competitors not because their knowledge base is better or differ- ent, but because their management of knowledge is rather better. Firms should necessarily analyzetheir knowledge, so that methods can be im- plementedtofurtherdevelopandprotectit. The personal knowledge approach derives from the fundamental as- sumptions that knowledge is essentially personal in nature and that knowledge is therefore very difficult or even impractical to extract from themindsofindividuals.Oneimportantreasonwhy someknowledgeis found difficult to share between people and organizations is because it hasnotbeencodified.Knowledgethatcannotberepresentedbycodesis oftenclassifiedastacitknowledge,atermintroducedbyMichaelPolanyi (1958 ). Polanyi argues, that the reason why we are not able to express all that we know, is that our awareness encompasses a lot more than we are consciously awareof.This approach assumes that the knowledge within an organization essentially consists of tacit personal knowledge in the minds of individuals in the organization. Tacit knowledge is the knowledgethatemployeeshave,butishardtoarticulate(Polanyi1967 ). Working from the premise that knowledge is inherently personal in nature and will therefore largely remain tacit in the minds of individ- uals, this approach offers recommendations for strategies that focus on managingpeopleasindividualgeneratorsandcarriersofknowledge.To manage the personal knowledge of individuals, managers are typically urged to identify the kindsofknowledgepossessed by various people in an organization and then to arrange appropriate interactions between knowledgeableindividuals(Sanchez2005 ) Knowledge in firms represents the foundation on which a company’s competitivenessstrategyisconstructed.Similarly,knowledgeisthemost important resource for company profitability (Grant1991 ) and growth Volume 9 · Number 4 · Winter 2011 338 Doris GomezeljOmerzelandRuneEllemoseGulev in domestic and international markets (Ruzzier et al.2007 ).Companies shouldthereforeidentify,improve,developandemploytheirknowledge resources in order to strengthen or retain their competitive advantages and to improve their effectiveness (Peteraf1993 ; Prahalad and Hamel 1990 ; Teece, Pisano and Shuen1997 ,Ruzzier ,Anton ˇ ciˇ c and Koneˇ cnik 2006 ). This means that knowledge should be understood as the funda- mental resource of revenues (Grant1991 ; Spender andGrant1996 ). The organizational knowledge approach assumes that knowledge is some- thing that can be articulated and explained by individuals who have knowledge, even though some effort and assistance may sometimes be required to help individuals articulate what they know. As a result, the organizational knowledge approach fundamentally assumes that much, if not all, of the knowledge of individuals that is useful to an organiza- tion can be articulated and thereby made explicit and available to oth- ers. The organizational knowledge assets can be disseminated within an organization,usuallythrough documents,drawings,standardoperating procedures,manualsofbestpractice,andthelike(Sanchez2005 ). Companieshavealwaysbeenbasedonknowledge.Knowledgeiseven moreacrucialassetincurrenttimesofglobalcompetition;organizations are becoming more knowledge intensive and they are hiring ‘minds’ morethan‘hands’(Wong2005 ). Firmswithmoreknowledgewillbeabletonoticechangesonthemar- ketfaster.Furthermore,they arecapableofperceiving theprofitableop- portunities on the market faster than their competitors. Firms should constantlydeveloptheir competences,skills andtechniques andacquire specificknowledgeinordertosurviveandinnovatenewopportunitiesin their industries. Firms are becoming learningorganizations. They make considerable efforts to build a systematic strategy for acquiring, storing anddisseminatingknowledge. TheClassificationofKnowledge Within an organization we can find knowledge taking different forms. There are important differences between the explicit or implicit/silent knowledge forms of knowledge. Explicit knowledge can be coordi- nated, stored and exchanged (Popper1972 ). This is theoretical knowl- edge, which canbe foundin the formofdatabases,handbooks,instruc- tions, etc. On the other hand, implicit knowledge is personal knowl- edge of people, intuitive and difficult to transmit and to describe. It is acquired through experience. Nonaka (1991 ) mentions four forms of ManagingGlobalTransitions KnowledgeResourcesandCompetitiveAdvantage 339 flows, namely the flows between implicit and explicit knowledge, the flowsfromimplicittoimplicitknowledge,theflowsfromexplicittoim- plicitknowledgeand,lastbutnotleast,theflowsfromexplicittoexplicit knowledge. For the firm, managing knowledge requires a deep under- standingofitscharacteristics. While data, information and knowledge can all be viewed as assets ofan organisation, knowledgeprovides a higher levelof meaningabout data andinformation.It conveysmeaning, and hence tends to be much more valuable (Turban and Aronson2001 ). Knowledge is information that changes something or somebody, either by becoming grounds for actions,orbymakinganindividualoraninstitutioncapableofdifferent or more effective actions (Drucker1994 ). These definitions affirm that knowledge is more valuable to an organisation than in its lower forms suchasdataorinformation. Table1 showstheclassificationofknowledgebydifferentauthors. KnowledgeandCompetitiveAdvantage Nowadays firms must compete in a challenging context that is being transformed by globalization, technological development, increasingly rapid diffusion of new technology and the development and use of knowledge (Hitt, Keats, and DeMarie1998 ). Firms are required to do thingsdifferentlyinordertosurviveandprosper. Specifically,theymust look to new sources of competitive advantage and engage in new forms of competition. Besides knowledge being an important resource in it- self, the efficient allocation and use of other resources requires relevant knowledge.Not allformsandkindsofknowledgeareequallyimportant for acquiring competitiveness. Demarest (1997 ) described the nature of commercialknowledge,which goalofwhichisnottofindthetruth,but toensureperformance. Competitiveness is the ability to provide products and services, as ef- fectivelyas,ormoreeffectivelyandefficientlythantherelevantcompeti- tors.Measuresofcompetitivenessincludefirmprofitability,thefirm’sex- port quotient (exports or foreign sales divided by output), and regional or global market share. Performance in the international marketplace providesadirectmeasureofafirm’scompetitiveness.Competitivenessis alsotheabilitytomatchorevenbeattheworld’sbestfirmsincostand qualityofgoodsorservices.Measuringcompetitivenessisoftendifficult. Measures of competitiveness include firm profitability and measures of costandquality.Inindustriescharacterizedbyforeigndirectinvestment, Volume 9 · Number 4 · Winter 2011 340 Doris GomezeljOmerzelandRuneEllemoseGulev table1 Classificationofknowledge Nonaka and Takeuchi (1995 ) Knowledgeisadynamichumanprocess,itcanbeeitherexplicitor implicit,inbothcasesitrepresents intellectual capital.Authorsfocus onthetransformationoftacitknowledgeintoexplicit knowledgeand thenback. Kleinand Prusak(1994 ) KleinandPrusak(1994 )defineIntellectual capitalas‘packageduseful knowledge.’Itisakindofknowledgeconvertedintosomehigherform. Davenport andPrusak (1998 ) Knowledgeisa‘fluidmixofframedexperience, values,contextual informationandexpert insightsthatprovides aframeworkforeval- uatingandincorporatingnewexperiences andinformation.’Infirms knowledgecanbefoundnotonlyindocumentsbutalsoinfirmbusi- nessroutinesandprocesses.Knowledgeisinformationcombinedwith experience. Bertelsand Savageand Bertels(1999 ); Theauthorsstressthesignificanceoffirmknowledgeasitallowsthe firmtokeep up withmarket needs. As weare intheknowledge Era, workingwithrawmaterialsisnotenough,weshouldalsouseraw ideas.Thecompaniesthatinvestintheirownknowledgeandknowl- edge managementcapabilitiesarenotonlyimprovingtheircompeti- tivenessbutalsoincreasingtheircorporatevaluation. ˇ Cater(2000 ) Theauthordefinesthefollowingdimensionsofknowledge:know-what –itisaconceptualknowledgewhichisafundamentalknowledge, anecessaryone,butnotalwaysaconditionforsuccess;know-how –itcanbedefinedastheappliedknowledgewhichhelpstranslate awritten theoryintoanefficientimplementation;know-why–this kindofknowledgerepresents theemployee’sintuitionandhis/her abilitytoreact inunexpected situations;carewhy–thisisthefourth levelofknowledge;itiscomposedofperseverance, adaptabilityand motivation. Continuedonthenextpage the firm’s percentage of foreign sales and its share of regional or global marketscanprovidemeasuresoffirmcompetitiveness. For the nation, competitiveness means the ability of the nation’s citi- zens to achievea high and risingstandard ofliving. Accordingto Porter (1990 ), competitiveness should be measured by the level and growth of aggregateproductivitywhichdeterminesthelong-termlevelandgrowth ofanation’sstandardofliving.Also,Porter(1990 )suggeststhatnosingle country can be competitive in all industries, considering that resources (work and capital) are limited. A country should effectively allocate its resources tothe areaswith competitive advantages.In sodoing,a coun- try should create an environment in which companies would develop and grow in such a manner as to be able to successfully compete on ManagingGlobalTransitions KnowledgeResourcesandCompetitiveAdvantage 341 table1 Continuedfromthepreviouspage Lam(2000 ) Theauthordefinesfourcategoriesofknowledge,i.e. embedded, en- coded, embodied andembrainedknowledge.This typology integrates thecognitiveandthefirm’sdimensions.Wecandefineembrained knowledgeastheconceptualknowledgeoftheindividual.Itisbased onhis/herabilitytounderstandtheoreticalconcepts.Itcanbeformal, abstractortheoretical. Thesystematicknowledgeofscientists,which represents therationalunderstandingofthebasicprinciples andlaws ofnature,alsobelongstothiscategory.Wecandefineembodiedknowl- edgeasempiricalknowledge,asitiscreated throughpractical experi- ence.Itisindividualandsilentandproceeds fromexperience (‘doing’). Theembedded knowledgeisthecollectiveformoftacitknowledge.It canbe foundincompaniesintheformofsystemroutinesandgener- allyaccepted rules.Itisessentialinprocesseswhichrequire employee interactionwithoutwrittenrules.Wecanunderstandencodedknowl- edgeasinformation,alreadycodified andstored.Itincludeswritten procedures, instructionsandrules.Wecanfindencodedknowledgein books,papersorinelectronic forms. Laszloand Laszlo(2002 ) Knowledgeisrelevantforthe firm’sperformance.It isaproduct of humanexperience andreflection. Knowledgeisoneofthefirm’sre- sourcesthatcanbeindividualorcollective. Knowledgeinthefirmis alsothemainsourceofvaluecreation.Knowledgeispower;itisupto managerstodecide howtouse it. Brooking (1998 ) Theauthordefinesfourformsofintellectualcapital,ofwhichtwo ofthemcontainknowledgedimensions.Oneoftheseencompasses overallexpertise, creativity andabilitytosolveproblems.Thesecond oneincludesphilosophyofmanagementandorganizationculture. Continuedonthenextpage international markets. Porter (1990 ) authored the national competitive advantagetheory,accordingtowhichthecompetitiveadvantagesarein- fluenced by human resources, knowledge, natural resources, infrastruc- ture,andcapitalresources.Porter’s(1990 )‘diamondofnationalcompet- itiveness’ model postulates that success in international competition in agiven industry dependson therelative strengthof aneconomyin a set of business-related features or ‘drivers’ of competitiveness, namely ‘fac- torconditions;’‘demandconditions;’‘relatedandsupportingindustries,’ and‘firmstrategy,structure,andrivalry.’ In most nations, the standard of living is determined by the produc- tivity with which the nation’s resources are deployed, the output of the economy per unit of labour and/or capital employed. Competitiveness at the national level is measured by the level and growth of the nation’s Volume 9 · Number 4 · Winter 2011 342 Doris GomezeljOmerzelandRuneEllemoseGulev table1 Continuedfromthepreviouspage Nemec Rudež andMihaliˇ c (2007 ) Theauthorsdivide knowledgeintofourformsofintellectual capi- tal.Theyarehumancapital,structural capitalandtwocategoriesof relationshipcapital:end-customerrelationshipcapitalandnon-end- customerrelationshipcapital.Suchamodelenablesustostudy the importance ofend customersseparately, as well astheimportance of otherfirms’relationshipswithbusiness,government,localauthorities andotherassociations,themediaandthegeneralpublic. Rodriguez Perez and Ordonezde Pablos (2003 ) Companiesbenefit fromso-calledcoreknowledge,which ischarac- terized byhigh-valueandhigh-leveluniqueness.Companiesshould investespeciallyinthisformofknowledgewithaviewto increasing companyvaluepotential.Firmsneed alsospecific knowledge,asitisa potential source ofdifferentiation.Itisveryimportanttodevelopthis formofknowledge.Thecompulsoryknowledgecanalsobeimpor- tantforacompany;however,investmentsinthistypeofknowledge aredifferent frominvestmentsincoreknowledge. Forthecompany’s operatingactivities theancillaryknowledgeiscreated. Thisformof knowledgedoesnotconstituteacompetitive advantage. Stewart (2003 ) Knowledgemustcontinuouslycirculatewithintheorganization.As longasthereisastockofknowledge,there shouldbe aflowofknowl- edge aswell.Knowledgeisapublicgoodandcanbeusedbyseveral individualssimultaneously.Knowledge isindependent ofplace and canbeinseveralplacesatthesametime.Firmsshouldbeawarethat thecreationofknowledgecanbe ratherexpensive, whileitspropaga- tionandsharingisratherinexpensive. standard of living, the level and growth of aggregate productivity, and the ability of the nation’s firms to increase their penetration of world marketsthrough exportsorforeigndirect investment. To be competitive a firm should be able to learn quickly and apply the acquired knowledge faster than the competitors. A company should improve its existing skills as well as master new ones continually. A company’s infrastructure should be organized in such a manner that the adequate technological equipment, internet and intranet, knowl- edge banks, libraries, continuous training, and meetings stimulate ef- ficient team work,creativity, positive attitudes, and self-confidence;and favourableworkenvironmentsshould be organized withaviewto gain- ing or maintaining a competitive advantage (Rampersad2007 ). To un- derstand why certain competitive strategies are more effective than oth- ers, onemust considerthe distribution ofresources in competing firms. Competitive advantages that are sustained over time lead to higher per- formance (Peteraf1993 ). In the more traditional competitive landscape, ManagingGlobalTransitions KnowledgeResourcesandCompetitiveAdvantage 343 tangible resources, such as buildings, machinery, or access to capital werethemostimportantpotentialsourcesofcompetitiveadvantage.But firmsemploybothtangibleandintangibleresources,andasthenatureof workandcompetition changes,intangibleresourcesarebecomingmore important. Examples of intangible resources are reputation, brand eq- uity, and knowledge. Among a firm’s intangible resources, knowledge is the most important and critical for competitive advantage because it is themostdifficulttoimitate. A firm is represented by a series of different resources. Knowledge, as one of the resources, is an important element for company perfor- mance. Moreover, knowledge, as a part of human capital, is considered to be the most important factor for selecting and managing crucial re- sourcestoimplementthedesiredstrategytoachieveperformance(Baird and Mashoulam1988 ; Bergman Liechtenstein and Brush2001 ). Man- agersshould beawarethattheuniqueandrelevantknowledgeisusually linked to employees. This is why the firm is extremely vulnerable to the degree that these employees are inclined to move to another company. Employeesaretransferableassets,andtheorganizationshavetodotheir besttoretainthe employeeswithhigh knowledgecapabilities. knowledgecapital Knowledge capital can be acquired (through education, training, etc.) and preserved (through lifelong learning and continuing education). Unlike other forms of the firm’s assets, knowledge cannot be separated fromitsholderanditisentirelydependentonthatperson’scapabilityto apply her/his knowledge in an organization. Considering knowledge as the main resource for creating company value suggests that it has come to regard knowledge as capital. Knowledge capital is synonymous with intangiblecapital. Itsexistence is difficult to measure. Itcomes from in- vestments that firms make in their employees. These investments pro- duce knowledge whose benefits extend beyond the years in which the expendituresoccur.Theseinvestmentsareperhapsmostfrequentlyasso- ciatedwithexpenditures onresearch anddevelopment(r &d ).Thetype ofknowledgecapitalthatfirmsdevelopvariesconsiderablyacrossawide range of industries. Unfortunately there is nothing to guarantee that by spending money on research and development, firms will actually de- velopusefulknowledgecapital(BaldwinandGellatly2006 ). Throughouthistory,theformsandtheroleofcapitalhavebeenchang- ing. At the beginning capital had a monetary meaning, later, in the17 th Volume 9 · Number 4 · Winter 2011 344 Doris GomezeljOmerzelandRuneEllemoseGulev and18 th centuries, capital was closely related with national welfare and wealth.Attheendofthe18 thcentury,capitalacquiredthetypicalmean- ingofmoneyintendedforthepurchaseofgoods.Nowadaysthebusiness world hasstarted consideringnew formsof capital(Tymon andStumpf 2003 ,13 ). The capital structure of firms has received extensive theoretical and empirical attention, including the role of intangible assets on optimal leverage (Rajan and Zingales 1995 ). The Zucker, Darby, and Brewer (1998 )studyexploresthecharacteristicsandgrowthoffirms.Theirfind- ingsrevealaconnectionbetween the locationandgrowthofintellectual capital.Itisapparentfromthesestudiesthatknowledgecapitalcaninflu- ence both the location and capital structure of firms. Liu (2001 ) studied the interaction among firms’ knowledge capital, growth opportunities, earnings dynamics, and optimal leverage. Results suggest that invest- mentsinresearchanddevelopmentandknowledgecapitalarerelatedto leverage. If we regard the value of knowledge as a resource with certain eco- nomic effects, this suggests that we understand knowledge as capital. Since knowledge as capital produces economic effects for its holders, it can be assigned economic market value according to supply and de- mand.Inthisvalueprocess,knowledgeturnsintocapital.Whendefining knowledgeascapital,itisreasonabletoemphasizetheinvestmentaspect ofknowledge,sinceinvestmentsincreasetheexisting pool ofknowledge andcreate sources offutureincome(Kešeljevi´ c2004 ).Such investments result in the creation of new human capital which cannot be separated fromtheindividual. Humancapitalis a generaltermthat refers toallofthe resources that individuals directly contribute to an organization: physical, knowledge, social, and reputational. Human capital resources help individuals con- tribute to gaining and sustaining a competitive advantage. During the industrial age, human capital was valued because of physical resources such as strength, endurance, and dexterity – these were the aspects of human capital that were most likely to lead to competitive advantages. Butasnewmachineryandtechnology wereintroduced,these character- isticsbecamelessimportant.Inthecurrenteconomiclandscape,human capital is more likely to be valued for intellect, social skills, and reputa- tion(DeNisi, Hitt,andJackson2010 ). Theunderstandingoftheroleofemployeesisnotanewphenomenon. The role of individual entrepreneurial resources is ever changing; while ManagingGlobalTransitions KnowledgeResourcesandCompetitiveAdvantage 345 the importance of financial capital is on the decrease, human capital is gaining importance as a resource. Company employees as holders of knowledge, emotions, competencies, experiences and values are be- coming the most important competitive advantage and, consequently, the most important source of company performance (Tomažiˇ c2003 , 27 ). The human capital theory defines human capital at several levels. Fromtheindividualaspect,itemphasizestheimportanceofunderstand- ing knowledge acquisition as the investment in the individual. Invest- ments result in the creation of new capital. From the entrepreneurial aspect, it emphasizes the benefits and costs in the relationship between employerandemployee.Trainingissuccessful if a company’sadditional income exceeds the costs of substitute workers and training. From the national-economic aspect, a company as a whole benefits from edu- cation advantages (Kešeljevi´ c2004 ). The implementation of company tasks, processes and transactions requires combinations of different di- mensionsof employee competencies (Stewart2003 ).There exist general competences (more or less applicablein several branches, like typewrit- ing, answering the telephone, and similar), balanced competences (can be applied by other companies, and not only by a single company, like taxconsultants,lawyers,andsimilar) andspecial competencies(specific toanindividualcompanyanddeterminingitsstrategy,forwhichreason theyconstituteitscompetitiveadvantage). The entire human capital is owned by employees. Firms’ manage- ments aim at transferring human capital in the form of explicit knowl- edge and pass it into company ownership. The value created by an em- ployee in a company returns partly to the individual in the form of payment, while part of it remains in the firm in the form of return on capital. Human capital is part of the individual (Nonaka and Takeuchi 1995 ) and consists primarily of the knowledge acquired on the basis of education and experience. Formal education is only one part of form- ing human capital. In many ways it is more useful to think of human capital formation as an experience or training, acquired by the life-long learning process. In their study Anderson, Locker and Nugent (2002 ) stated that in addition to social capital, human capital is the most im- portant factor in entrepreneurship (2002 ). The impact of human cap- ital on company growth has been studied by many researchers (Watts, Cope, and Hulme1998 ; Johanisson1999 ; Cope and Watts2000 ;Edel- man, Brush, and Monolova2001 ;Honig2001 ; Piazza-Georgi2002 ;Ar- Volume 9 · Number 4 · Winter 2011 346 Doris GomezeljOmerzelandRuneEllemoseGulev gyris2002 ; Baron and Markman2003 ). In the literature, the most fre- quentmentionismadeofthe impact ofknowledgeonmarketvalue,on increasing profitability and, thereby, on performance and competitive- ness. knowledgeandfirmcompetitiveness Different researchers have shown that there is a significant relationship between organizationalresources, capabilitiesandperformance(Barney 1991 ;Fahy2000 ; Gimenez and Ventura2002 ; Wiklund and Shepherd 2003 ;BowenandOstroff2004 ;Morgan,Kaleka,andKatsikeas2004 ;Sir- mon,Hitt,andIreland2007 ).Empirical studies bySchroeder, Bates and Junttila (2002 ) and Ketokivi and Schroeder (2004 ) have found that a significant level of performance can be explained by organizational re- sources, capabilities and systems. Indeed, organizational resources, ca- pabilities and systems are regarded as good predicting variables for the varianceinfirmperformance.Competitiveadvantageplaysasignificant mediating role in the relationship between organizational resources, ca- pabilities, systems and performance (Prahalad and Hamel1990 ; Barney 1991 ;Mascarenhas,Baveja,andJamil1998 ;Fahy2000 ;Ma2000 ;Gimenez andVentura2002 ;Morgan,KalekaandKatsikeas2004 ;Sirmon,Hitt,and Ireland2007 ). Employees’ knowledge is related to firm performance (Bergman, Liechtenstein,andBrush2001 ;Smith,Collins,andClark2005 ;Subrama- nian and Youndt2005 ). There exists the positive impact of the experi- enceofemployeesonthefirm’sperformance,measuredbythereturnon investment and sales growth (Piercy, Kaleka, and Katsikeas (1998 )The linking between knowledge and competitive advantage has been con- firmed(Makovec,Brenˇ ciˇ c,andŽabkar2001 ),asalsobetweenknowledge andprofitability( ˇ CaterandAlfireviˇ c2003 ). Prusak (in Marti 2001 , 150 ) agrees with the economists who have found that knowledge, the manner of its application, and the ability to employnewknowledgeasquicklyaspossible are themost important factors that provide and sustain an organization’s competitive advan- tages. This is why the lack of knowledge constitutes the main obstacle to the achievement and creation of a company’s competitiveness. Com- petitiveness has become more and more a really ‘dangerous obsession’ (Krugman1994 )fortheentitiesoperatingintheglobaleconomicworld. Firm’s management has to look closer at the impact of different factors affecting the firm’s competitiveness. It has to evaluate them in order to ManagingGlobalTransitions KnowledgeResourcesandCompetitiveAdvantage 347 integratethepositiveeffectstheymaygenerate,andtoavoid/rejectthem iftheirimpactisnegative. Companies should be capable of adapting to competitive trends and taking defensive measures. The company itself is the basis of its com- petitive advantage (Porter1980 ). Firms aim at improving their position throughtheiractionsandusecompetitivefactorstotheirownbenefitby accuratelyanticipatingthem. Porterproposed amodel consistingoffive competitiveforces,namely:threatofentryofnewcompetitors,intensity ofmarketrivalry,availabilityandpressurefromsubstituteproducts,bar- gainingpowerofbuyers,andbargainingpowerofsuppliers.Theseforces are viewed as the determinants of the industry’s overallcompetitiveness andprofitability.Forcreatingcompetitiveadvantage,heproposed(first) lowercostsand(second)differentiationofproductsorservices. The lat- ter,however,isnotpossiblewithoutknowledgeasasourceofintellectual capital.Theveryrelevantandimportantaspectofthecompetitivenessof thefirmistheindustryinwhichthefirmcompetes.InPorter’swording, ‘theindustryisthe“arena”where competitiontakesplace.’ Nonaka and Takeuchi (1995 ,46 ) note that the competitive environ- ment has changed so much that Porter’s five-factor model for strategic decision-making has become obsolete. Companies are indeed forced to rapidlyadapttheirproductsorservices,marketsandsometimeseventhe entire activity. The consumer needs are changing constantly and trans- parencyamongmarketsandeventualcompetitors isdecreasing.Insuch an environment,company performance must rely on the use of its own capacities. Employees of certain companies are being considered a strategic re- sourcewhich canplayakeyrolein therealization ofcompanystrategies andgoals.Peopleandtheirabilitiesarethecreatorsofvalueandofinvisi- blestructures(Sveiby2001 ).Withinthecompanythismeansthetangible andintangibleassets, meanwhileoutside a companythe valueiscreated throughthesaleofproductsandservicesandthroughrelationsbetween buyersandsuppliersaswell. The internal company resources are of key importance in creating competitive advantages Fahy (2000 ). Fahy classifies the internal re- sources into tangible and intangible assets and, on the other hand, into competencies. For the analysisof relevanceof these categories, Fahy de- finesthe added valueas the extentto which an individualcategory con- tributes to the realization of a strategy and set goals, satisfies customers and,thereby,increasescompanyperformance.Theresourceswhichdefy Volume 9 · Number 4 · Winter 2011 348 Doris GomezeljOmerzelandRuneEllemoseGulev simpleimitationandwhosetransferabilityandsubstitutionareimpeded are important in creating competitiveness. The resources which create such anaddedvalue,thatforthemost partremainsin the ownershipof acompany,arethemostimportantincreatingcompetitiveness. Fahy (2000 ) includes among intangible assets: customer confidence, company reputation, intellectual property, databases, and networks of connections within and outside a company.He further adds that intan- gibleassetsandcompetenciesconstituterathercomplexcategoriesofas- sets, for which reason they are difficult to imitate andtransferfrom one company to another. Added value created by intangible assets is owned by a company with a mark-up on selling prices, while employee com- petencies andexperience shouldbeintegrated in acompany’soperation systemtothegreatestextentpossible.Anadequatemanagementstrategy, which can apply intangible assets and competencies on the market with aviewto creatingaddedvalueisrequired aswell. Conclusion It is possible for firms to successfully substitute firm resources in the short term, but it is unlikely to be the same for knowledge resources. This is the reason why knowledge meets the criteria for being a source of sustainablecompetitive advantage.Knowledge adds value to the firm anditcannotbeimitated. Certaincompetitivestrategies aremoreeffec- tivethanothers,itisimportanttodistributeresourceseffectively.Afirm may possess more or less different resources, but only those resources that are rare and difficult to imitate provide a sustainable competitive advantage(AmitandSchoemaker1993 ;Barney1991 ). Globalization,technical evolution,andderegulation arechanging the competitive structure of markets in such a way that the effectiveness of traditional sources of firms’ competitive advantage is often debilitated. Competitive advantagesbasedonphysical,financial,oreventechnolog- ical assets are less and less sustainable since these assets are more easily transmittable. This is the reason why firms need to concentrate on the developmentof difficult imitable capabilities. Such capabilities relate to employeesofthefirm.Theydevelopandapplytheirabilities,knowledge andskills,organized andcoordinatedin wayswhich canbealsodistinc- tive. Theaimofthisstudywastoreviewtheliteratureinthefieldofknowl- edge and to analyze some fundamentalchallenges regarding the knowl- edgeresourcesofafirmassourcesofcompetitiveadvantage.Knowledge ManagingGlobalTransitions KnowledgeResourcesandCompetitiveAdvantage 349 isasourceofsustainedcompetitiveadvantagebecauseitisvaluable,rare, inimitable and non-substitutable. It is the resource based theory of the firmthatsuggestsintegrating knowledgeintothefirm’sstrategy.There- source based theory provides a framework for viewing knowledge as a pool of capital. Examining organizational competitive advantage from theresource-based view ofthe firm is crucial,asit can beused asa con- ceptual framework for business organizations in particular to enhance theircompetitiveadvantagepositionandperformanceviatheidentifica- tionoforganizationalresources,capabilitiesandsystems.Sucharesearch can contribute to the knowledge by lending empirical support and fur- ther extending the resource-based view of competitive advantage by ex- aminingtherelativeimportanceoforganizationalinternalattributesto- wardsattainingcompetitiveadvantageandenhancingfirmperformance. 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