Technology Affects Competitive Advantage Commerce Essay

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To achieve competitive success, firms ... must possess a competitive advantage in the form of either lower costs or differentiated products ... To sustain advantage, firms must achieve more sophisticated competitive advantage ... through providing higher quality products and services or producing more efficiently. This translates directly into productivity growth. (Porter, 1990 Pg 10). Technology "is the application of scientific knowledge for practical purposes, especially in industry: advances in computer technology" (Oxford Dictionaries. April 2010) and is a key driver for productivity growth as this allows you to either innovate new products or create them at a lower cost more efficiently both can give advantages of either capturing a market before anyone else does with a new products giving you chance for higher brand reputation or a strategy of low cost by enticing your market in with lower costs than your rivals competitive advantage is essential for businesses to succeed in the economy and technology can be the key to unlocking that success.

Neoclassical economists view technology as the key driver for growth and that "The crucial chance in production techniques was in developing production processes that utilized the division of labour and specialization" (Wetherly and Otter, 2008 Pg 66) This means that with the use of Division of Labour, Specialisation pioneered by Adam Smith integrated with the use of technology can bring about growth, which then gives opportunity to gain competitive advantage. They also have a free market view that the government should have little intervention as they were believed to have little influence over growth. This can be backed up by the Solow Growth Model. Solow's growth model explains how a focus on savings and investments and technological change can drive economic growth up and that there is relatively little influence that the government had on steering economic growth it was down to the key factors. So through the use of technology to gain growth businesses do have the potential to gain competitive advantage.

"Technology affects competitive advantage if it has a significant role in determining relative cost position or differentiation"(Porter,1985,Pg 169) As Porter has identified one way that firms can create competitive advantage is by the use of a low cost strategy because this means if you are able to produce more efficiently than others you can charge lower prices than competitors while making same profit per unit attracting more customers to your business and drawing customers away from competitors giving you more competitive advantage. The internet can be a great use of technology for just this. This is the case with Amazon as they are purely internet based they have low overheads due to having to retail stores and only depots this means they can charge lower prices while gaining same profit giving them the competitive advantage of cheaper products. Also through technological advancement bringing about new transportation methods such as shipping containers which enabled firms that once were not able to reach customers abroad were now able to with low costs, "The container is at the core of a highly automated system for moving goods anywhere, ... with a minimum of cost and complication on the way ... This new economic geography allowed firms whose ambitions had been purely domestic to become international companies" (Levison M,2006,Pg 2-3). He explains how the use of this new system enabled businesses to meet new markets throughout the world and that "Shipping costs no longer offered shelter to high cost producers whose great advantage was physical proximity"(Pg3) meaning businesses now who had the lower prices were able to sell their products abroad and gain the competitive advantage of having lower prices.

Another way businesses can gain competitive advantage through technology is through the use of the value chain as Porter says "Technology is embodied in every value activity in a firm, and technological change can affect competition through its impact on virtually any activity"(1985,Pg 166). The value chain is the list of activities that the business must carry out to get from the start to the finished product; and technology is essential throughout every activity, this could help you to gain competitive advantage as it can highlight key areas in your business such as inbound and outbound logistics that need emphasis for your advantage, for example supermarkets now have barcode scanning and stock systems in place in order to make organising the food coming in more efficient this gives advantage as you will have steady income of stock and not have shortages of food, for outbound logistics they now have delivery services through the use of freezer trucks allowing frozen food to be delivered without implications and also the self service checkouts in the store to make the purchasing of the goods quicker these all are ways in which supermarkets have changed their activities with the advancement of technology to try and gain more competitive advantage. The value chain gives great direction into how to differentiate businesses to others to give competitive advantage and technology plays a big role in doing so as technological advancements allow new innovative processes to be made which then allows the businesses to operate at a more efficient level this will help the businesses to gain advantage as "A firm that can discover better technology for performing an activity than its competitors thus gains competitive advantage" (1985, Pg170) so with the use of the value chain giving direction and what needs to be improved combined with technological advancement allowing businesses to create new innovative processes to further their competitive advantage these two give great potential to gain competitive advantage, especially if the business is able to patent this new technology as it will help to sustain your competitive advantage for some time or are able to license your technology for profits which could be used to further your development for better technology.