COMPETITIVE ADVANTAGE

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??COMPETITIVE ADVANTAGE

?A competitive advantage is defined as a condition which enables a country or firm to operate in a more efficient or otherwise higher quality manner than its competitors ,and which results in benefits accruing to the organization. Competitive advantages usually originate in a core competency. A company’s core competency is the one thing that a company can do better than its competitors. A competitive advantage can entail a variety of a company characteristics; for example, customer focus, Production method, brand equity, product quality, research and development focus. To be effective a competitive advantage must be:

1.Difficult to mimic

2.Applicable to multiple situations

3. Unique

4.Sustainable

5. Superior to the competition.

At the heart of a competitive advantage is a firm’s positioning in the marketplace as defined by their marketing strategy. There are two types of Competitive advantages: lower cost and differentiation. Lower cost is the ability of a firm to design, produce and market?a comparable product more efficiently than its competitors. At prices at or near competitors, lower cost translates into superior returns. Differentiation is the ability to produce unique and superior value to the buyer in terms of product quality, special features, or after-sales service. Differentiation allows a firm to command a premium price, which leads to superior profitability provided costs are comparable to competitors.

In Ezenwa(2005),Porter(I985) opines that generic strategies would allow organizations achieve competitive advantages from three different bases:

Cost Leadership:

Cost Leadership focuses on manufacture of standardized products at low cost per unit and targeted at consumers and clients who are price sensitive.??

Differentiation: This is essentially producing differentiated products that are unique and aimed?at customers that are relatively price sensitive. This?will also enable an organization to achieve above average returns.

Focus: This?has to do with manufacturing products targeted at fulfilling the needs/wants of group of consumers. Alfred P. Sloan Foundation-Industry Studies(2008) further opines that competitive advantage of either lower cost or differentiation will translate into higher productivity than that of competitors. The low cost firm produces a given output using fewer inputs than competitors require. The differentiated firm achieves higher revenues per unit than competitors. Porter generic strategies also takes into account a firm’s competitive scope or the breadth of the firm’s target within its industry. A Firm must choose the range of the products it will produce, distribution channels it will employ, the types of buyers it will serve ,the geographic areas in which it will sell, and the array of related industries in which it will compete. The ultimate value a firm creates is measured by the amount buyers are willing to pay for its product or service. A firm is profitable if this value exceeds the collective cost of performing all the required activities. To gain competitive?advantage?over its rivals, a firm must either provide comparable buyer value but perform activities more efficiently than its competitors(low cost), provide activities in a unique way that creates greater buyer value and commands a premium price(Differentiation).One of the things that may drive low cost is the type of methods of production adopted.

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Innovation

Firms create competitive advantages by perceiving or discovering?new and better ways to compete in an industry and bringing them to the market which is ultimately an act of innovation. Innovation includes improvement in technology and better methods of doing things. Innovation can be manifested in product changes, process changes, new approaches to marketing, new forms of distribution and new conceptions of scope. Innovation is the result of organizational learning as well as from research and development. Innovations lead to shift in competitive advantage. The most typical causes of innovations that shift competitive advantage are:

1.???New technologies

2.???New or shifting buyer needs

3.???The emergence of new industry segment

4.???Shifting input costs or availability

5.???Changes in government regulation(Porter,1990).

??Porter’s Diamond of National Competitive Advantage

Porter(1998) posits that there are four main determinants of national competitive advantage. These four conditions are demand conditions, firm strategy, structure and rivalry and related and supporting industries. These four characteristics shape the environment in which firms compete in their global industries. He also noted the importance of government and chance on the success of a particular industry within a country. The four factors are discussed in details below;

·The determinant of Factor Conditions includes not only the labour supply and infrastructure of a country, but how effectively these factors are used within the industry. Porter stated that the factor conditions that are most vital to productivity growth are not inherited but are created within a nation.

·The determinant of Demand Conditions affects a country’s industry when domestic?demand is high and buyers encourage manufacturers to innovate?and improve their products. In other words, domestic demand sets the framework for the industry.

·The determinant of Related and Supporting Industries means?that when an industry is located in the same country as internationally competitive suppliers and related industries there is an advantage for that industry in that country.

·The determinant of Firm Strategy, Structure and Rivalry is the conditions in the nation governing how companies are created ,organized and managed and the nature of domestic rivalry. This means that the competitive advantage can come from within the company such as work ethics of the employees and by the way the industry/company is operated. Also, strong domestic rivalry forces companies to innovate?and continuously improve their products, which also makes?the industry more competitive internationally. With the rise of multinational corporations over the past few decades, Porter’s model has taken on a greater importance and applicability to business strategy formulation.