Q1) For this question, we will take a deep dive internal analysis of Baidu.
Firstly, let us take a look at tangible resources. Under this category, we have financial resources, organizational resources, physical resources and technological resources.
Financial resources [Tangible]
In 2007, Baidu earned about $86 million net income and $239 million in revenue (Ireland, Hoskisson, Hitt, p266). Majority of the revenue is contributed by an enlarged active online marketing customer base. We will elaborate details of the marketing activities under intangible resources. The accounts published show that Baidu is performing well financially.
Organizational resources [Tangible]
Baidu is incorporated in the Cayman Islands on January 18, 2000 by Robin Yanhong Li and Eric Yong Xu. Baidu provided its web services and online advertising services in China through contractual arrangements with its local subsidiary, Baidu Netcom. In August 2004, Baidu acquired domain name hao123.com. This is the Baidu’s largest traffic contributor and distributor of its P4P services and is based in Shanghai.
Physical resources [Tangible]
Baidu has a strong performance of $28.9 million in terms of return on assets (Ireland, Hoskisson, Hitt, p291). It was largely contributed by its strategic acquisition of businesses, assets and technologies that complemented its existing business. For instance, Baidu bought over the domain name of hao123.com.
Technological resources [Tangible]
Baidu focuses on searches in Chinese. This language requires two bytes to store each character as opposed to English. There is a key difference in terms of algorithms and behavior between single-byte and double-byte searches. Baidu also included a network of third-party web sites that incorporated their search box or toolbar. To improve its monetization algorithm in 2006, Baidu made used of relevant technology and implemented dynamic bidding and dynamic starting bid prices.
For intangible resources, following are the analysis:
Human resources [Intangible]
In terms of recruitment, Human Resources helped to recruit a direct sales force of more than 3,000 people across seven major cities in China (Ireland, Hoskisson, Hitt, p273). This is to assist small and medium enterprise (SME) customers who were not accustomed to conduct business online.
Innovative resources [Intangible]
Baidu entered into an untouched Chinese online search market and gained a first-mover advantage by introducing a search engine that provided information in local Chinese language. It gained popularity when they introduced multimedia content, for example, MP3 music and movies.
Branding and reputation with customers [Intangible]
Baidu dominated the China market with 60.4 percent market share in 2007 (Ireland, Hoskisson, Hitt, p265). When customers need to search for information online, the first website they thought of is Baidu. Its strong presence in China proves that it is well accepted by China customers.
Below table highlights the functional areas and capabilities:
With the capabilities identified, I have tabulated them in the following table to analyze the core competencies:
Based on the above analysis, I conclude that Baidu is attaining sustainable competitive advantage and is expected to achieve above-average returns. Below is the table for value chain analysis:
Being the market innovator leader, Baidu launched the first-ever chinese online search engine. Its ability to understand China’s needs, requirements and careful selection of technology to increase revenue played a pivotal role in capturing huge China market share. To further enhance its competitive advantage, Baidu may wish to outsource support functions such as Human Resources, Operations and General Administration in order to achieve operational excellence.
Q2) Based on the internal analysis, the core competencies identified are as follow:
Diversified products and services [Sales and...
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