Your first task is to develop an in-depth understanding of the importance of competitive advantage in determining the long-term success of an organisation. This understanding will help you considerably with assessment two – conducting a situation analysis.
To survive and outperform competition within a marketplace, organisations must acquire a sound knowledge of how competitive advantage can be created and sustained. What is competitive advantage? Discuss the concept of competitive advantage. Include an examination of the sources of competitive advantage and key theories of competitive advantage.
Chapters 1-8 of your textbook will be particularly useful in completing this assessment, as will many of the readings listed for Module One. Apart from this, you are required to conduct a comprehensive search of key academic journals. The following list provides you with a starting point for your readings:
Bharadwaj, S. G., Varadarajan, P. R., & Fahy, J. (1993). Sustainable Competitive Advantage in Service Industries: A Conceptual Model and Research Propositions. Journal of Marketing, Vol.57. (Oct). 83-99.
Chandler, L. L., (2010). Pfizer and the Greenstone brand: A sustainable competitive advantage?. Journal of Medical Marketing. Vol. 10, 2, 155-164.
Day, G. S., & Wensley, R. (1988). Assessing Advantage: A Framework for Diagnosing Competitive Superiority. Journal of Marketing. Vol. 52. April, 1-20.
Hunt, S. D., & Arnett, D. B. (2004). Market Segmentation Strategy, Competitive Advantage, and Public Policy: Grounding Segmentation Strategy in Resource-Advantage Theory. Australasian Marketing Journal. 12 (1), 7-25.
Juttner, U. & Wehrli, H. P. (1994). Competitive Advantage: Merging Marketing and the Competence–based Perspective. Journal of Business & Industrial Marketing. Vol. 9, No, 4, pp 42-53,
Morgan, N. A., Vorhies, D. W., & Mason, C. H. (2009). Research Notes and Commentaries: Market Orientation, Marketing Capabilities, and Firm Performance. Strategic Management Journal. 30. 909-920.
The specific objectives of this essay are to develop your ability to critically analyse relevant information on the assigned topic and to process and present analysis and conclusions in a logical, well-structured argument. You should develop your own view on competitive advantage, based on a synthesis of other authors’ views. Through this process you should enhance their understanding of the concept and consider the role it plays in the operation of contemporary organisations.
Those of you that have not prepared an academic report/essay before may find the following useful:
You are required to use HEADINGS and Subheadings to break the essay into at least four main parts:
1.INTRODUCTION: Description of the topic: definition of the study area, statement of objectives, demarcations to the study, etc. The introduction should introduce a strong central theme or focus which runs through the essay.
2.LITERATURE REVIEW: Review the material to show that you have researched the topic and identified key issues, read, absorbed and understood the relevant information, identified the strengths and weaknesses of the existing material and presented ideas and results in a manner which provides an answer to the topic question. You should aim for both synthesis (what sorts of things do authors tend to agree on?) and criticism (what sorts of things do authors disagree on and what conclusions can you draw from this?). Use subheadings to break up this part of the essay into different topic areas. However, make sure the different parts of your essay are logically linked as you explore the theme outlined in your introduction.
You are expected to refer to academic marketing journals.
3.CONCLUSIONS: Summarise issues and arguments, develop logical conclusions from this, and suggest implications for marketing management and any ideas for further research. Tell the reader what your point of view is, given the critical reading you have done.
4.REFERENCES: You must use the APA format for all references cited in the text. Please refer to Manalo et al (2001) for further details
To survive and outperform competition within a marketplace, organizations must acquire a sound knowledge of how competitive advantage can be created and sustained. What is competitive advantage? Discuss the concept of competitive advantage. Include an examination of the sources of competitive advantage and key theories of competitive advantage.
As American management professor Teece (2009) mentioned that in the social sciences the most ambitious mystery project is to crack the competitive advantage of companies and countries. Competitive advantages as the foundation of enterprises development and survival in the competitive environment, it is the hottest topic in the area of management. Therefore, in order to survive and outperform the competition within a marketplace, it is vital for organizations to acquire a comprehensive knowledge and understanding of how competitive advantages can be created and developed. The main purpose of this essay is to focus on examining “competitive advantages”. This essay will include the following parts: in the first place, this essay will present literature review of the different competitive advantages definition in order to discuss the concept of competitive advantage from different perspectives. In addition, it will demonstrate the source of competitive advantages and key theories of competitive advantage.
THE DEFINITION OF COMPRTITIVE ADVANTAGES
Competitive advantage was introduced in 1985 as the essential companion to competitive strategy (Porter, 1998). While competitive strategy concentrates on the industry, competitive advantages focus on the company. Competitive advantage refers to “in a competitive market conditions, enterprises develop its own resources and ability to obtain external resources to create value for customers, and on the basis of integrating the comprehensive capabilities, enterprises can realize their own value” (Tiits, 2003, p56). According to Garelli (2006), competitive advantage can help business perform more effectively than other companies in the market, it lead business access to profitable and the overall quality of their own development.
The development of sustainable competitive advantage can be divided into three levels, in other words, competitive advantage can be created from the following three aspects: product, system and corporate values.
※The first level is the product layer, including corporate production and quality control, business services, cost control, marketing, research and development capabilities.
※The second level is the system layer including elements of the operation and management in the internal and external environment such as human resources, relationships and enterprise operational mechanism.
※The third level is the core layer, including the corporate philosophy and corporate values.
The development of sustainable competitive advantage should focus on those areas. In addition, all of those will greatly contribute to the achievement of excellent vision and long-term global development goals.
Clear understanding the meaning of competitive advantage is the prerequisite of enhancing business competitive advantage. Competitive advantages are mainly based on enterprise management, business administration, marketing, economics, and international trade theory. This theory is produced from the combination of theory and practice. In terms of the concept of competitive advantages, there are many scholars holding several different viewpoints:
According to Maneschi (1998), traditional and classical economics believed that international competitive advantage of companies depend on factors of production – labor, capital and natural endowments in the country or region. This view has a long history from the Adam • Smith’s “theory of comparative advantage” to David • Ricardo’s “comparative trade theory”. The evidence for this view was come from those Japanese successful enterprises, which has significant achievement after the World War II. The fundamental reason why those enterprises have sustainable competitive advantage is that those businesses own abundant and excellent labor resources and low labor cost. Therefore, those businesses can maintain the competitive advantages.
Another definition was come from those economic and historical experts. This view emphasizes that the organizational structure plays an important role in the formation of competitive advantages (Boyer, 2004). In other words, robust system and organizational structure can greatly promote the development of the economic development and organizational profitability. Therefore, if enterprises aim to enhance the competitive advantages in the market, the primary factor is to accordingly create a modern market-oriented organizational system to economic and industrial development.
In addition, as Kotelnikov (2009) pointed out that the improvement and development of enterprises’ sustainable competitive advantages is the natural result of rapid economic development and high industry competition. Since competitive advantages can greatly help the company survives in the market. The company who has strong competitive advantages can capture more marketing share.
While compared with the natural resources, human capital will greatly contribute to the determination of sustainable competitive advantages development (Zula & Chermack, 2007). They believe that competitive advantage comes from the efficiency and technological innovation; therefore, technological training and education become the key factors for competitive development.
From business management point of view, in addition to relying on the degree of industrial infrastructure perfection to enhance the competitive advantage, it is important to improve their technological level and management level, so that enterprises can have stronger production and marketing abilities over other competitors. Fiol (2001) covered an identity-based view of sustainable competitive advantage in the article. Sustainable competitive advantage development is highly depending on the organizational structure, strategic management, market-oriented marketing management, physical and value management, and human capital management.
Form the review of all the above views, although they had different understanding of competitive advantage definition, extension, formation conditions and determinants, they hold the same understanding of the nature of competitive advantage. To sum up, competitive advantage is a comprehensive concept, including both interrelated and complementary aspects: in the first place, the formation of internal efficiency and competitiveness, the second is formed by the external competitive environment.
From the above literature review, we are agreeing with the view from business management and innovation. Both of them believe that the main resources of competitive advantages are comes from internal efficiency and technical innovation, or from the innovation of each enterprise’s value chain. Therefore, competitive advantage is the essence of the corporate design, production and sales capability. In other words, competitive advantages can be defined in all aspects of their products; therefore, the market becomes more and more competitive. External environment is an important factor to influence the development of competitive advantages. Such as industrial structure and policies will have great impact on the competitive advantages however, if all the business is involved in a relatively stable external environment, the competitive advantage is mainly determined by the level of their own business management.
3.THE SOURCE OF COMPETITIVE ADVANTAGES
Understanding of competitive advantage is very important for enterprises. In order to analyze the competitive advantage, many scholars interpreted the source of competitive advantage from different perspectives. They conducted in-depth study of sustainable competitive advantage for businesses and formed a variety of theoretical system.
Competitive Potential Theory
In the early 80s, Porter competitive strategy theory became the mainstream of strategic management theory. According to Porter (1998), the primary and fundamental deciding factor of the business profitability is attractiveness. The core of the Porter competitive strategy model involves the five competitive forces: business competitors, buyers, suppliers, substitutes, potential competitors. Those five elements formed the industrial structure. As the theory mentioned that companies strategic planning is highly related to the external environment such as marketing, therefore, the most critical environmental factor for the enterprise is the industry situation.
Industry structure can greatly affects competition rules, the model of five competitive forces model will have different impact on the industry development (Jain, 2004). Since different industries will have different profit levels in different developing stages, industry structure will greatly affect the development of the company’s strategy. Therefore, the basic units of corporate strategy analysis are the industry, enterprises and products. The key point is that through the analysis of five competitive forces, companies can clearly understand its strengths and weakness in the industry. Sometimes, through the implementation of the five competitive forces will have great impact on the whole industry development and even change some of the competition rules. Therefore, industry attractiveness and market potential will become a source of competitive advantage for business.
In order to overcome the shortage of Porter theory, in the mid-80s, (Penros, 1959) put forward “corporate inner growth theory”, on the basis of this theory, they also proposed different corporate strategy theory. The main representatives are: Karl-Heinz Walter (Rumelt, 1984), Walnut Buffett (Wermerfelt, 1984) and other scholars (Murmann, 2003, p34). The theory was stress on analyzing how internal environment can help companies to develop competitive advantages. The company, which owns the administrative structure, was profitable, because they have firm-specific scarce resources, it can significantly lower production cost and produce very high quality products, which can be called cost-effective products. Therefore, such resources attached to the enterprise internal organization can result intangible value for the company. Sometime, those products are very difficult to imitate, it develops to be the unique proprietary for business. Therefore, competitive advantages do not just exist in the external market like Porter referred; it also can be exist within the enterprise such as imitation and efficient proprietary resources.
On the basis of those unique resources, it should depend on the inner motivation to fully use the resources and maintain their competitive advantage. Based on this theory, when the company are intend to implement an entry strategy, the first task for the company is to determine its unique proprietary resources; then, it should make sure that what kind of market can make these resources to achieve optimum effectiveness; Finally, after making sure the implementation of the method, the company can enter into the field. Therefore, this theory can greatly direct new business using competitive advantages to enter in to the new market.
Power Capability theory
To compensate the shortcomings of the Resource-Based Theory, Pilates and other scholars have proposed the dynamic capabilities theory. The theory thought that the corporate resources can be divided into four levels (Coates, 2000). In the first level, it includes production factors and public knowledge (such as product standards). These resources are the fundamental of business development. Secondly, the enterprise’s proprietary assets such as trade secrets, production tips and special production process can promote the development of sustainable competitive advantage. Business can integrate the intangible knowledge into business, which can make product become very difficult to copy and imitate. The third level is the ability of enterprises, which refers to the integration of production elements and proprietary assets of the organization to form business practice and management activity. The fourth level involves the ability to adapt to the drastic change of the current external environment. The ability to follow continuous innovation capability of enterprises has become the most dynamic key capacity. Power capacity emphasizes on the adaption of the changing external environment. Companies must continue to make, integrate, and then confirm the internal and external technology, resources and functional abilities. Dynamic capabilities can enable enterprises continue to gain new competitive advantage in a given potential path and market conditions.
THE BASIS OF COMPETITIVE ADVANTAGES
Narayanan (2001) pointed out that the characteristic of competitive domains is the need and availability of collateral assets for an innovation to yield a firm competitive advantage. Technical innovation is the basis of competitive advantage. This is caused by its important position in the production and business activities. Firstly, technological innovation has created many new tools and processes of production, it constitutes the basic factor of productivity. Secondly, technological innovation leads to changes in industrial structure. Engaged in high-tech industries such as electronics, computer industry, communications industry has significant market competitive advantage in technical innovation. On the other hand, the application of new technology also makes the traditional industrial sectors to be updated and modified. Labor, capital-intensive industries have been gradually replaced by knowledge and technology-intensive industries. Thirdly, technological innovation also caused changes in production and labor. Machine production has replaced the manual.
To sum up, competitive market allows companies desperately seeking competitive advantage. No competitive advantage in the business, enterprise will be difficult to survive in the market. Today, how companies achieve competitive advantage has become the business and academic focus. 21st century economy is a knowledge economy, it can be regarded “brand decisive economic”. Technological innovation and brand represent the company’s competitiveness. Competitive advantage plays an important role in the process of business development; it can determine the success and failure of the enterprise. Therefore, how to seize or develop a competitive advantage becomes a challenging issue in the success or failure of each business.
Boyer,R (2004), The future of economic growth: as new becomes old, Edward Elgar Publishing.
Coates, D (2000), Models of capitalism: growth and stagnation in the modern era, Wiley-Blackwell.
Fiol, C (2001), Revisiting an identity-based view of sustainable competitive advantage, Journal of Management, December 2001; vol. 27, 6: pp. 691-699. Retrieved from http://hrd.sagepub.com/
Garelli, S (2006), Top class competitors: how nations, firms, and individuals succeed in the new world of competitiveness, John Wiley and Sons.
Teece,D (2009), Dynamic capabilities and strategic management: organizing for innovation and growth, Oxford University Press.
Jain, S (2004), Marketing planning and strategy, Thomson.
Tiits,M (2003), Competitiveness and future outlooks of the Estonian economy: R&D and innovation policy review, PRAXIS,p56.
Murmann,J (2003), Knowledge and competitive advantage: the coevolution of firms, technology, and national institutions, Cambridge University Press, p34.
Maneschi,A (1998), Comparative advantage in international trade: a historical perspective, Edward Elgar Publishing.
Nilsson, F (2005), Understanding competitive advantage: the importance of strategic congruence and integrated control, Springer.
Porter, M (1998), Competitive advantage: creating and sustaining superior performance: with a new introduction, Simon and Schuster
Porter,M (1998), Competitive advantage: creating and sustaining superior performance : with a new introduction, Simon and Schuster.
Narayanan, V (2001), Managing technology and innovation for competitive advantage, Prentice Hall
Kotelnikov, V (2011, March 15), Sustainable competitive advantages (SAC): how to survive against your competition over a long period of time. Retrieved from http://www.1000ventures.com/business_guide/crosscuttings/sca_main.html
Zula, K & Chermack, T (2007), Integrative Literature Review: Human Capital Planning: A Review of Literature and Implications for Human Resource Development, Human Resource Development Review, September 2007; vol. 6, 3: pp. 245-262. Retrieved from http://hrd.sagepub.com/