Competitive Advantage
1.Definition
A competitive advantage exists when the firm is able to deliver the same benefits as competitors but at a lower cost (cost advantage), or deliver benefits that exceed tho of competing products (differentiation advantage).
1.1 How to gain competitive advantage
The only way to gain lasting competitive advantage is to leverage you capabilities around the world so that the company as a whole is greater than the sum of its parts.
1.2Some strategies to create competitive advantage
Porter (1985) has argued that a firm's strengths ultimately fall into one of two headings: cost advantage and differentiation. By applying the strengths in either a broad or narrow scope, three generic strategies result: cost leadership, differentiation, and focus. The stra
tegies are applied at the business unit level. They are called generic strategies becau they are not firm or industry dependent.
1. (Cost leadership) here the company works hard to achieve the lowest costs of production and distribution so that it can price lower that its competitors and win a large market share. 2. (Differentiation) here the company concentrates on creating a highly differentiated product line and marketing programme so that it comes across as the class leader in the industry. Most customers would prefer to own this brand if its price not too high. 3. (Focus) Here the company focue its effort on rving a few market gments well rather than going after the whole market. Companies just focus on one strategy may perform very well, however, middle-of-the-roaders try to be good on all strategic counts, but end up being not very good at anything.
Broad market strategies: Cost leadership-low price; Product differentiation-premium price
Narrow market strategies: Cost focus-low price; Focud differentiation-premium price
Example: Toyota and Honda. Expending from their domestic market they produced low-cost products with little differentiation. As volume grew and market coverage widened in their various Asian and American markets they improved quality and brand image and widened their ranges. While Toyota has remained in the mass market, it appears that Honda has moved to a focus strategy with high differentiation in many of is markets.
2. Value Chain analysis
The value chain is a tool to disaggregate a business into strategically relevant activities which create value. This enables identifications of the source of competitive advantage on both costs and differentiation. A business gains competitive advantage by performing the activities more cheaply or better than its competitors. Examination of the value chain allows understanding of the behavior of costs within a business and existing and potential sources of differentiation. Often the keys to competitive advantage are the link or relationship between activities in the value chain. For instance, vertical linkages between buyers, suppliers and ensuring channel activities can lower costs or enhance dif
ferentiation. The value system: Supplier value chains-Company value chains-Channel value chains-buyer value chains. Linear relationship.
3. COMPETITIVE INNOVATION
An organization' capacity to improve existing skills and learn new ones is the most defensible competitive advantage of all. To win competitive challenges while reducing competitive risk, organizations must focus on competitive innovation.
The four approaches to competitive innovation are:
· Building layers of advantage — the more advantages a company has, the less risk they face; an example is to pursue both low cost and differentiation. Company can move along the value chain to strengthen competitive advantage.
· Searching for loo bricks — look for tactical surpris; look for new and possible unconventional ways to enter a market and challenge a competitor
·
Changing the terms of engagement — refu to accept the leader’s definition of the industry and gments; take advantage of the fact that successful companies are often slow to change
· Compete through collaboration — u the know-how developed by other companies. For example, licensing agreements, joint ventures, or partnerships
4. Global competition and National Competitive Advantage
Global competition occurs when a firm takes a global view competition and ts about maximizing profits worldwide
The effect is beneficial to consumers becau prices generally fall as a result of global competition
While creating value for consumers, it can destroy the potential for jobs and profits.
5. Current issues in Competitive Advantage
In today’s business environment, market stability is undermined by
-short product life cycles
-short product design cycles
-New technologies
-Globalization
Result is an escalation and acceleration of competitive forces.
Hypercompetition is a term ud to describe a dynamic competitive world in which no action or advantage can be sustained for long.
