Competitive Strategic Advantage

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competitive strategic advantage

Transcript of Competitive Strategic Advantage

MBA - III Semester (2009-10)

ASSIGNMENT ON

COMPETITIVE/STRATEGIC ADVANTAGE PROFILE OF FIRM SUBJECT: - CORPORATE LEGAL FRAMEWORKSUBMITTED TO MR. C. KUJUR (LECTURER) SUBMITTED BY ABHAY SINGH SHUBHANGI SHYINDILYA SURENDRA KUMAR SAHU PRATIMA BANJARE SATYUSHA KANTA LAL

GURU GHASIDAS UNIVERSITY BILASPUR C.G

INDEX

INTRODUCTION CONCEPT OF COMPETITIVE ADVANTAGE DYNAMICS OF NATIONAL COMPETITIVE ADVANTAGE TYPES OF COMPETITIVE ADVANTAGE APPROACHES FOR COMPETITIVE ADVANTAGE GENERIC COMPETITIVE STRATEGY STRATEGIC INTENT BENCHMARKING SYNERGISTIC APPROACH CRITICAL SUCCESS FACTORS APPROACH COMPETITIVE ADVANTAGE PROFILE COMPETITIVE ADVANTAGE PROFILE OF MARUTI UDYOG CONCLUSION

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INTRODUCTIONA competitive advantage is an advantage over competitors gained by offering consumers greater value, either by means of lower prices or by providing greater benefits and service that justifies higher prices. Competitive advantage is, in very basic words, how a firm manages to keep making money and sustain its position against its competitors. According to Michael Porter in his theory of generic strategies, the three methods for creating a sustainable competitive advantage are through: 1. Cost leadership - Cost advantage occurs when a firm delivers the same services as its competitors but at a lower cost; 2. Differentiation - Differentiation advantage occurs when a firm delivers greater services for the same price of its competitors. They are collectively known as positional advantages because they denote the firm's position in its industry as a leader in either superior services or cost; 3. Focus (economics) - A focused approach requires the firm to concentrate on a narrow, exclusive competitive segment (market niche), hoping to achieve a local rather than industry wide competitive advantage. There are cost focus seekers, who aim to obtain a local cost advantage over competition and differentiation focuser, who are looking for a local difference. Many forms of competitive advantage cannot be sustained indefinitely because the promise of economic rents invites competitors to duplicate the competitive advantage held by any one firm. A firm possesses a sustainable competitive advantage when its value-creating processes and position have not been able to be duplicated or imitated by other firms. Sustainable competitive advantage results, according to the resource-based view theory in the creation of above-normal (or supernormal) rents in the long run. Analysis of competitive advantage is the subject of numerous theories of strategy, including the five forces model pioneered by Michael Porter of the Harvard Business School. According to the Competitive Advantage model of Porter, a competitive strategy takes offensive or defensive action to create a defendable position in an industry, in order to cope successfully with competitive forces and generate a superior Return on Investment. According to Michael Porter, the basis of aboveaverage performance within an industry is sustainable competitive advantage.

CONCEPT OF COMPETITIVE ADVANTAGECompetitive advantage, also known as strategic advantage, is essentially a position of superiority on the part of an organisation in relation to its competitors. This superiority exists because the organisation has developed some competencies which meet the environmental requirements in a better way as compared to its competitors. A more formal definition of competitive advantage is as follows: "Competitive advantage exists when there is a match between the distinctive competencies of a firm and the factors critical for success within its industry that permits the firm to outperform competitors." It concludes, then, that competitive advantage is externally focused while organisational competence is internally focused. Therefore, an organisation's competence does not automatically lead to competitive advantage. This phenomenon can be explained by two situations: 1. The core competence of the organisation may not be of any importance to the industry in which the organisation is operating. There are numerous examples of this phenomenon; organisations diversifying into non-core competence areas, failing therein and divesting such business. For example, L&T having core competence in engineering and cement, diversified in shipping (non-core competence area) sustained losses and divested it. Metal Box, having core competence in packaging materials, diversified into bearing and had to divest it, and so on. 2. Even if core competence has relevance in the industry segment, other competitors may have the same strength and the particular organization may not have any competitive advantage. What becomes, then, important for the organization is to have relatively greater strength in that important factor than its competitor, For example, two competitors may enjoy low manufacturing costs; but one with the lower manufacturing costs has a competitive advantage. In the present-day globalised economy, an organizations competitive advantage should not be looked at merely in the context 'of internal competition but at the global level - because if an organisation has competitive advantage against domestic competitors, it cannot be put in safe territory as it has to generate that advantage against global players in the industry concerned. However, at the global level, the competitive advantage of an organisation is largely determined by the national competitive advantage. Therefore, before focusing on individual organisations' competitive advantage, let us have a brief look at the dynamics of national competitive advantage.

DYNAMICS OF NATIONAL COMPETITIVE ADVANTAGELike each organization, each country is known in terms of its competitive advantage, for example, USA for computers, credit cards, and movies: .Japan for consumer electronics and automobiles; Germany for printing presses, chemicals, and luxury cars; Switzerland for pharmaceutical s and confectionaries; and India for software professionals. The question is ; what factors have contributed to generate advantage to these countries in specific areas? The answer of this question is important for the purpose of generating competitive advantage at the global level. Porter has categorized various national attributes in four groups that contribute to, or detract from, the creation of competitive advantage for the firms of that nation. These attributes form what is known as the national diamond. Factor Conditions The first basic attribute of national competitive advantage is in the form of various factors that provide base for undertaking various business activities. These resources can be grouped into five broad categories: human resources, knowledge resources, physical resources, capital resources, and infrastructure: Of special importance are resources that are created within a country, as distinguished from those that are inherited. If the resources are created, that shows the - creative power of the country. Competitive advantage accrues to country's industry if the mix of the factors available to the industry is such that it facilitates pursuit of .a. generic, strategy: low-cost production or the production of highly differentiated product or service. Demand Conditions The nature of demand conditions for an organisation's or industry's products and services in the country is important because it determines the rate bf and nature of improvement and innovation by the organisations. These factors either train organisations for world-class competition, or fail to adequately prepare them to compete in the global market place. Three characteristics of home demand are particularly important to competitive advantage: the composition of home demand, the size and pattern of growth of home demand, and the means by which a nation's home demand pulls the nation's products and services into foreign markets. The interplay of these demand conditions determines the competitive advantage. Of special importance are those demand conditions that lead to initial and continuing incentives to invest and innovate, and to continuing competition in increasingly sophisticated markets. Related and Supporting Industries Apart from the main industry in which context, competitive advantage is talked about, the conditions of related and supporting industries also determine industry's competitive advantage. However, in the long run, the relationship between main industry and related and supporting industries becomes reciprocal. For example, if the main industry is developed, the related industries will also develop with a time lag. In the same way, the related industries will provide support to the further development of the main industry. For example, when computer industry developed in the USA, it led to the development of computer software industry. However, development of software industry provided further impetus to computer industry in the form of increased sales of computers associated with software due to synergistic advantage, a phenomenon which will be discussed later in this chapter.

Firm Strategy, Structure and Rivalry Differences in strategy, structure, and rivalry create advantages or disadvantages to firms competing in different types of industries in a nation. The aggregate of these determines national competitive advantage. The way different firms shape their strategies ranging from a broad outlook and long-term profitability to narrow range and short-term profitabilitydetermines how the nation will be competitive. For example, US companies rank return on investment, share price increase, and market share in that order. As against this, Japanese companies rank market share, return on investment, and new product introduction in that order. This is the reason that Japanese companies have significant global market share as compared to their US counterparts. Further, Japanese companies i