Examining Theories on Creating Competitive Advantages

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This article addresses the issues of the development of the concept of competitive advantages. It is based on theories of different writers, their explanation and a literature review of these theories. Competitive advantages arises from different firms attributes and characteristics that allow one firm to create better customer value than do others. Competitive advantage includes ownership of assets and their positions. To achieve and sustain competitive advantage, a firm or industry need to create creativity. Strategic management theories give the concept of competitive advantage and explain the performance and ability of the firm and describe how we can run the firm in the right direction.

Introduction to the concept of competitive advantage:-

The concept of competitive advantage are quiet same in different industries or firms and writers are explain in different ways but they rotate on same point for example superior performance of the firm in a decent manner. There are various theoretical framework are used to explain competitive advantage.

There are basically five forces to develop basic foundations include competitors, threat of new entrants substitute products, bargaining power of suppliers and bargaining power of buyers. Companies are fighting with each other and some of them are defend itself against these competitive forces (Porter 1998).

The resources and capabilities of a firm are the central consideration in formulating its strategy. The resource based theory approach to strategy formulated understands the relationship between resources, capabilities, competitive advantage and profitability. According to writer there are four factors which are useful for the firm to increase their depth i.e. strategy, competitive advantage, capabilities and resources (Robert M. Grant 2001).

According to Michael, he relates the competitive advantage with a theory of comparative advantage. According to his theory he say that the comparative advantage theory suffer from the same weakness as a neoclassical theory of the firm. So according to writer the idea of competitive advantage gives explanatory power of strategy and organization. The success of firm in the market depends upon the organisation work of firm, sector and their interrelationship. They sought where a competitive advantage could be established by devolving organizational superiority (Michael H Best 1990).

There can be a heterogeneity or firm level differences among firms that allow some of them to sustain competitive advantage. The main concept of theory are based on four points i.e. valuable, rare imperfectly unite able, without strategically equivalent substitutes (Barney 1991).

The ability of the firm is stay ahead of competition with the help of their superior performance and leaderships. So competitive advantage is directly proportional to competition either it is in different departments or in different firm throughout the world. Manager could understand the current position of the firm. In short porter argues that strategy is a race to get an ideal position in the market and differentiate itself for targeting customer (porter 1998).

Scholars in the strategy field are concerned fundamentally with explaining differential firm performance. As strategy scholars have searched for sources of competitive advantage. Two prominent views have emerged regarding the source of supernormal returns. Primarily a function of a firm membership in an industry with favourable structural characteristics and secondly is that differential firm performance is fundamentally due to firm heterogeneity rather than industry structure (Rumlet, Schendal & Teece 1991).

Competition in any industry does not stem only for competitors and it also influenced by the underlying structure of the industry. Additionally author stresses competitive advantage, which is created and hence can be controlled by individual firms and not comparative advantage (access to factors of production like cheap or natural resources), which is mainly inherited (porter 1985).

The purpose of the industrial organization was the internal competition of the industry. This aim was inverted to produce models aim at helping firms realize supernormal returns by surreptitious way of competition (Barney 1986).

The development and implementation of new ideas by people who overtime engage in transactions with other within an institutional context (Vande Ven 1986).

The generation, acceptance and implementations of new ideas, processes, products and services to create a market and competition against the competitors(Kanter 1983).


There are thousands of papers and journals are available to describe the term competitive advantage in different ways. In this assignment I try to give review of some theories in a different way.

According to (Thomas c Powell, 2001), strategic management has not tell us the significant debate on the competitive advantage. According to writer there are two proportions are important to increase the performance of the firm. First one is the dependent variable (superior performance) of the firm and secondly independent variables include competitive advantage. He separates these two proportions and gives the relationship between them. On the other hand if we examine this theory with other theories like Porters theory. His attention toward the firm and how much firm create competition in the market and how much effort put by firm to stay ahead against the competitors. But according to (Baysesian) sustainable competitive advantage is not necessary or important for the superior performance of the firm. But on the other hand (Barney) can relate sustainable competitive advantage with the performance of the firm.

There is substantial agreement with in the literature on the price, cost and differentiation definition of competitive advantage. But according to (Richard Reed and Robert j.Deffilipi) competitive advantage does not play a vital role for making the firms strategy. He creates a link between competitive advantage and competence. He says competitive advantage can be derived from numerous sources and advantage can come from competence and this competence can control by firm and can be manipulated with in the strategy to generate advantage for performance. On the other hand (Porter 1998) says superior performance of the firm is due to the competitive advantage. He relates competitive advantage directly with the competition, so the ability of the firm to stay ahead of competition with help of their superior performance. But the major development comes when (Hofer and schendel, 1978) described competitive advantage “the unique position of an organization developed against the competitors through its patterns of resources deployments”. He suggesting that competitive advantage ensues from competencies. They also say that competitive advantage as something can be used with the firm strategy. As such competencies and competitive advantage are independent variables while a firm performance is the dependant variables.

Mahoney suggests in his article about the special issue in his article. He says firm physical resources and its capabilities interact to create competitive advantage. He seeks to reconcile the resources and capabilities based theories of competitive advantage through the theory of invisible assets. This theory was proposed by (Itami and Roehi, 1987) holds that experience and constitute the principle source of sustainable competitive advantage.

If we talk about the competitive advantage then we cannot neglect the overall term of the country. Some governments can support their industrial sector because industrial sector is directly proportional to the economy of the country especially we can see in china and in of United States of America. So according to (M Porter), specific elements condition the international success of an enterprise in a certain segments. He figures out that the enterprises of an inferior cost or differentiated product to assert them worldwide. According to them through the globalization of the economic game enterprise to improve their competitive advantage. The same thing can explain by other writers. To create a competitive advantage, the enterprise is required to progress to innovate and to discover the best competitive opportunities and exploit them. So create an opportunity against the competitors.(D.Passemard and Brian h.kleiner).

According to many writers and their theories, why a country is more competitive theN others. The national competitiveness comes from macro-economic phenomena directed by change rate, interest rate, deficit of the national budget. On the other hand some of them (D.Passemard and Brian h.kleiner) says some companies or industrial sector are try to compete with cheap work force of with cheap raw material. The big example of this point is China. In china the work force is very cheap and there is no tax on any import and export. Chines government are support their industrial sector and they capture a more than 20% market of the whole world.

According to the writer, the creation and capture of private and social value by firm that adopt corporate social responsibility strategies. So to achieve a competitive advantage is a responsibility of a manager to accomplish their objective. He relates this theory with the economics such as hedonic pricing, contingent valuation and the new literature on the economics of industrial organization. The same kind of things was discuss by (D.Passemard) in his journal and also by porter in his book.