This paper aims to study about competitive advantage. For this purpose, our group members were compulsory to read journals and article that related with competitive advantage. In this paper, we put the main dimension of competitive advantage, strategies of competitive advantage, and how to sustain competitive advantage.
We have many ways to compete. Competition can occur in a many ways. However, most firms are more likely to focus their strategy in getting a competitive advantage. Competitive advantage refers to the advantage of existing skills in a firm compared to its competitors by empowering their business position within the business environment (Wikipedia). According Ehmke (2008), when we have something better than competitors such as by offering lower prices or provides the added benefit to a product or service it will be also known as the competitive advantages. If the firm has a competitive advantage, they will be able to make more sales and retain more customers than their competitors. They not only can compete through price difference but you can also compete in terms of loyalty, image, service, innovation, quality, technology and more (Burrus, 2003). Another definition of competitive advantage is a firm consistently earning a higher rate of return than its competitors (Grant, 1991; Schoemaker, 1990). Meanwhile, according to Duncan et al (1998), the ability to gain and sustain competitive advantage depends on the company location and their target market. Although different scholar refers to other different expertise, most of them will definitely refer to Porter's definition regarding competitive advantage which is an organization can achieve the competitive advantage if they able to take the risk in the uncertain industry, cater the needs of customers and respond to the new market entries (Byeong Yong Kim and Haemoon Oh, 2004; Liqin Ren et al, 2010). Therefore, it is important to develop a competitive strategy that covers a broad spectrum of techniques to get the advantages.
In strategic management, one of the major objectives that an organization seeks is competitive advantage. Competitive advantage in simple words is where the firm having the speciality in terms of products or services that they produced compares with others competitors (David, 2013). Thus, if the firm have the ability to against the competitors and caters the needs of the customers, they are said having the competitive advantage. A competitive advantage exists when a firm has a product or service that is perceived by its target market customers as better than that of its competitors. There are two major types that comparative advantage and differential advantage. Comparative advantage, or cost advantage, is a firm's abilityÂ to produceÂ a good or service at a lower cost than its competitors, whichÂ gives the firmÂ the abilityÂ sell its goods or services at aÂ lower price than its competition or toÂ generate a larger margin on sales.Â A differential advantage is created when a firm's products or services differ from its competitors andÂ are seen as better than a competitor's productsÂ by customers. Firms create competitive advantage by executing or discovering new and better ways to compete in an industry, which is eventually an act of innovation. The possible causes of innovation are new technologies, new or shifting buyer needs, emergence of a new industry segment, shifting input costs or availability, and changes in government regulations. Apart from that we have discover that there are some of the determinant in national advantage that are;
1. Factor Conditions; where the nation's position in factors of production e.g. skilled labour or infrastructure
2. Demand Conditions; that is the nature of home demand for the industry's product or service
3. Related and supporting industries; the presence or absence in the nation of supplier industries and related industries that are internationally competitive
4. Firm strategy, structure, and rivalry; the conditions in the nation governing how companies are created, organized, and managed, and the nature of domestic rivalry.
Michael Porter, in his book Competitive Advantage, identifies five factors that determine the nature and degree of competition in an industry that are; bargaining power of buyers, threat of substitutes, bargaining power of suppliers, rivalry among existing competitors and threat of new competitors. To a large degree, these five market forces collectively determine the ability of a firm, whether large or small, to be successful. Porter also has identified several fatal flaws that plague entrepreneurs' strategic thinking regarding their competitive situation. Three of these flaws are;
Possessing no true competitive advantage. Imitation of rivals is both hard and risky and reflects a lack of any competitive advantage.
2) Pursuing a competitive advantage that is not sustainable. The entrepreneur must make sure that the competitive advantage cannot be quickly imitated.
3) Misreading industry attractiveness. The most attractive industry may not be the fastest-growing or the most glamorous.
In the Fred R. David book Strategic Management, state that the process of competitive advantage(CA) is to improve on their weakesses, turning them into strength and ultimately developing distinctive competencies that can provide the firm with competitive advantage over rival firms. The process of competitive advantage are;
weaknesses strengths distinctive competenciesCA
Dimension of Competitive Advantage
A study that being made by Krajweski & Ritzman found that if a firm focusing on the right dimension of the competitive advantage such as cost, quality, time, flexibility, innovation, and responsiveness, the firm will be able achieve competitive advantage (Mohammad Safari et al, 2011).
Cost or benefits and risks related with the marketing decision about the products or services (David, 2013). The firms must make comparison among the competitors in terms of the cost of producing the products, fixed cost, employment rate cost and the productivity (Mohammad Safari et al, 2011). However differ from the two scholars, for Duncan et al (1998), they proposed that even the firms having cost advantages but still the resources and capabilities of it should not be taken as the absolute determinants of competitive advantage.
Nowadays firms are more into the quality improvement in terms of the products, process and services in order to achieve world-class performance level (Beal & Lockamy III, 1999). Some of the way that can be use is by adding some unique characteristics to the products to gain competitive advantage and thus benefits the consumers (Mohammad Safari et al, 2011).
Definition of time might be differing from one firm to another. From the research done by Mohammad Safari et al (2011), they found out that reducing delivering time between the times the customers made the orders until the time products or services arrived can help the firm gaining competitive advantage.
For Patricia Ordonez de Pablos & Miltiadis D. Lytras (2008), they define flexibility in terms of the firm flexibility is the results from the employee flexible behaviour. They introduced the theory of it after doing some research on some strategic Human Resource Management (HRM) components which are the practices, employee skills and employee behaviour. Meanwhile, flexibility from the view of Mohammad Safari et al (2011) is the processes of changing the products to the new one or from one customer to another at the least cost or impact.
Strategies for Competitive Advantage
In this era if firm want to do something more than others, they should plan and select an appropriate strategy. Thus, the firm must choose the best strategy to be considered and strong competitive advantages are really needed. They also need to have a proper way to evaluate every corner of competitive advantage. When a firm has a competitive advantage, indirectly they will have loyal customers. If they want to success in business development, they also need to be updated from time to time in order to meet the demands of their customers.
Factors of the Succession of a Business
There are several factors that can influence the succeeding of a business. All of the successful is depending on the successful of their upper management. Therefore, the top management experience and competence in managing the business are most important to ensure the successful. Second are an energetic, perseverance and ingenuity upper management also important to ensure business success. They will not easily give up if the face of failure. Next is their ability to create an aggressive and strategic marketing of calculating limited marketing resources.
Besides that, the skills to sell the product at the highest possible price at market also are one of the factors. Then is the business also must give lower product price with high quality. Therefore, the customer will feel attracted to buy without any doubt. The ability to continue making improvements to the old and new product lines as well as retaining when sold to current clients. They also need to maintain good relationship with supplier resources to ensure they always have the necessary resources to lower costs even if profit is the main goal. As a top management, they need to be open-minded and mature in managing employees, suppliers and partners. They must choose the strategic locations and promotion should be done especially to new products to establish a connection between the product and the customer. Lastly is by forming a stable business source in any economic situation
The Potential Strategies for Differentiation
In order to make sure that the product been chosen by customers, they need to include the differentiation things from others. There are several aspects that can be count in order to make differentiation. First is from product features and benefits. To make product different from the competition, we must ensure the product looks unique. For example, in terms of style, handling, feel, quality materials, comfort, production methods, certifications and so on. Second is location. The choice of location is also important. Strategic sales locations should facilitate the process of dealing directly to the public. Next is a staff. Staff also plays an important role in differentiating a firm with the firm. Every staff should have high communication skills to ensure that every customer is satisfied. Price and quality also be one of the aspects. They must ensure that they will buy a low cost resource such as shipping costs, cheap labor, and cheap raw materials and sold at a higher price. Quality is the most important underlying factor in achieving competitive advantage. Quality that is offered has to be consistent so that customers always satisfied and be loyal to use the firm products and services. Lastly are value-added products or services. An aspect of added value is one way to distinguish a product with a competitor's product. An example might be when a customer purchases a product it will be included with the installation or free delivery.
Sustain Competitive Advantage (SCA)
According to David (2013), a firm cannot just focusing on gaining and achieving competitive advantage but also sustaining it by gradually adapt to changes that happen externally and internally as well as choose well planned strategies that brings benefits to the firm. Different from it, another scholar propose that if the organizational resources are inimitable, valuable, rare and have no substitute it can lead to sustain the competitive advantage (Patricia Ordonez de Pablos & Miltiadis D. Lytras, 2008). Another definition of sustain competitive advantage can be defined as implicitly or explicitly, that afirm earning above average accounting or above normal economic performance for a sufficiently long period of time enjoying the sustained competitive advantage (Porter,1985; Wiggins and Ruefli, 2002; Barney and Hesterly, 2006:22). The resource-based view theory (RBV) plays an important role on human resources in a sustainable competitive advantage. This theory can be used by each firm to discuss the criteria needed to achieve a sustainable competitive advantage without being copied and replaced.
Four Attributes of Resources in Sustained Competitive Advantage
A firm can enjoy a competitive advantage by ensuring resources firm with four important characteristics. First is the resource must be valuable. The second attribute is that the resources must be rare between present and potential rivalry firms. In addition, it must also be imperfect imitable. Imperfect imitable is occurs when a firm depending on unique circumstances of history to get resources. It also occurs when there is an ambiguous or resources to generate firm advantage are complex. And the last characteristic is that there cannot be strategically equal substitutes for resources.
Resource-Based View (RBV) of Sustained Competitive Advantage
Theoretically resource based view (RBV) clearly states that every firm is different in their sources. Firms will be able to maintain a competitive advantage when they mobilize resources that they have. RBV resources firm is knowledge, capabilities, assets, processes and firm characteristics that enable the organization to carry out each strategy effectively and efficiently.
There are two basics RBV of competitive advantage is the resource and the positional view. Based on positional view, that gives meaning the firm able to gain a position in the industry. Michael Porter is one of the obvious linked with this view. While the resource-based view of strategy are more likely to capture the attention placed on the powerful, dynamic capabilities, own competencies, and organizations evolution and core competencies. Gary Hamel and CK Prahalad were among individuals that are associated with resource-based view. (Korn n.d)
To maintain a lasting competitive advantage is very difficult. Therefore this RBV theory has been succeeded in proving that the quantitative approach allows researchers to make decisions and understand some of the difficult and complex understanding.
Gain the Competitive Advantages through Strategic Management Development (SMD)
Resulting from changes in the global market, it indirectly forced many firms to reinvent their competitive strategy. Thus, each the firm must have a leader who can manage everything well and can customize each firm condition in any kind of the current market. This is to identify the potential new markets and more profitable in order to be used for all growth opportunities. Even so, there are several arguments stated that downsizing and restructuring can reduce overhead and also maintain the profit. In order to gain a competitive advantage, firm must draft a competitive strategy as the ways to accomplish their particular goals.
Besides that, to accomplish competitive advantage in Strategic Management Development (SMD), a firm must make sure that newly developed products or services. Therefore, SMD must play its part in the process and function. Competent and knowledgeable managers also should be identified in the firm. They need to move to carry out multiple tasks and also need to consistently monitor each SMD plans to ensure maximum performance and efficiency management.
Therefore, there are some advantages of adopting SMD as a part of competitive strategy. First, SMD will raise awareness of the importance personnel trained, skilled and competent in the firm. Second, SMD become as a first step to change the management of the firm from the traditional style to more modern. This is to ensure that firms do not left and move in line with economic development as well as current market. Third, SMD encourages all employees communicate openly and to give their views. It also cans coordinate the cooperation between the various units in the firm. Fourth is SMD are important to be used in developing the competitive strategy formulation process. Lastly, SMD encourage the participation of all employees in the firm in the early planning stages of a product or service. They can submit their opinions regardless of the position.
Other than advantages, there are also lot of barriers that must be faced in developing and implementing SMD. Even so, when you want to achieve success in this competitive advantage, responsible individuals should take risks to face these obstacles. If successfully implemented the SMD, it means that the individual is an amazing and fit to be in the leading position that will determine the strategy to be implemented
Competitive Advantage Evaluation Process
When a business is just starting out, it may be worthwhile to perform a comprehensive evaluation of the business' goals and how it might fit into the market.
The basis for a competitive advantage often lies in the resources and abilities that are already available, even though the resources may not initially be recognized. Begin by taking a critical look at the existing resources and product/service offerings. What does the venture have that could be used as an advantage? Reading through the potential options for competitive advantage above, which of these resources are already available and which does the venture need to obtain in order to focus one or more of the strategies?
Has a clear idea of what the venture seeks to accomplish been established? Businesses with specific and achievable goals tend to have better and more consistent growth. Challenging, but realistic goals should be written out to help clarify what the business will do for itself and its customers in the future. These goals will become benchmarks for success and will help maintain focus among all involved parties.
Determining the products and services customers want and cannot get from the competition is a first step toward defining the business' potential customers. Once the needs and wants of the potential customers have been established, the characteristics of those customers can be examined in an effort to identify commonalities. For instance, the development of salad mixes came from the realization that for convenience, some consumers needed a pre-washed and mixed salad alternative, rather than bunches of greens that needed to rinsed and spin-dried. When developing a hypothesis about what potential customers will buy, speaking to potential customers will provide an understanding of their needs. This may help the venture to learn about what features customers need and what they will pay for, and provides an opportunity to ask them for additional suggestions. Additionally, there are many research sources available through publicly available sources (see the "Resources" section of this fact sheet), and venture-specific research can be organized through surveys, focus groups, questionnaires, and observation (for examples, please see fact sheet WEMC FS#7-08, "Conducting Market Research Using Primary Data" in this publication). Such research can help the venture to be sure that there is a large enough market for the product/service.
With an understanding of what customers want and an idea of how this can be provided, it is important to take a look at other ventures that might be targeting the same market. First, look at the direct competition. For example, a venture selling fresh produce in a farmers' market would have direct competition from other vendors at the market, while the indirect competitor would be grocery stores in the same area. Once the competition has been identified, compare the strengths and weaknesses of the competition to the strengths and weaknesses of the venture. This will provide more insight as to where the venture's competitive advantage lies.