Chapter 15 Strategic Elements of Competitive Advantage

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Chapter 15Strategic Elements of Competitive
Advantage

• Heather Blalock
• Jennifer Hauge
• Kendol Hoagland
• Tiago Ruffoni

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INDUSTRY ANALYSIS WHAT DRIVES COMPETITION

• Threat of New Entrants
• New Approaches to satisfy customer Needs
• Prices are affected
• Profits are reduced

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8 BARRIERS WITH NEW PRODUCT ENTRY

• Economies of Scale- Products cost go down while
  production increases
• Product Differentiation- Uniqueness of product
• Capital Requirements- RD, advertisement, field
  sales and service, customer credit, working
  capital
• Switching Costs- Caused by changing suppliers and
  products

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8 BARRIERS WITH NEW PRODUCT ENTRY

• Distribution Channels- Cost of entry can be
  costly if channels are full or not available
• Government Policy- Major entry barriers, due to
  government restrictions based on Control
• Cost Advantages Independent of Scale Economies-
  Access to raw materials, low cost labor, desired
  locations
• Competitor Response- Competitors belief of a
  difficult entry into a market

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THREAT OF SUBSTITUTE PRODUCTS

• Limits prices that market leaders charge
• High prices can turn customers to your competition

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BP of Buyers

• Buyers mean Manufactures
• Goal is to pay lowest price to obtain product and
  services that are required
• Buyers drive down profits in supply industry by
  leveraging vendors
• Buy large quantities which causes dependence
• Buyer power ( Walmart changing lyrics in music)

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BP OF BUYERS

• Suppliers leverage allows them to change cost
  which effect customers profits
• Develop own brand name and product
• Leverage is gained by largeness and Suppliers are
  scarce

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RIVALRY AMONG COMPETITORS

• Firms actions in an industry to improve positions
  and have advantage over one another
• Price competition, Advertising battles, Product
  positioning, set themselves apart from
  competitors
• Less profit to establish themselves

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COMPETITIVE ADVANTAGE

• Competitive advantage is a position a firm
  occupies against its competitors
• There are two ways to achieve competitive
  advantage
• Offer the same product at lower cost than
  competitors (Low-cost strategy)
• Offer better products or greater service than
  competitors (Differentiation strategy)
• Customer perception decides the quality of a
  firms strategy

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PORTERS GENERIC STRATEGIES
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FLAGSHIP MODEL

• Long-term competitiveness in global industries
  is less a matter of rivalry between firms and
  more a question of competition between business
  system (Alan Rugman and Joseph DCruz)

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THE FLAGSHIP MODEL
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CREATING COMPETITIVE ADVANTAGE VIA STRATEGIC
INTEND

• Few competitive advantages are long lasting.
  Keeping score of existing advantages is not the
  same as building new advantages. The essence of
  strategy lies in creating tomorrows competitive
  advantages faster than competitors mimic the ones
  you possess today. An organizations capacity to
  improve existing skills and learn news ones is
  the most defensible competitive advantage of all
  (Gary Hamel)

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4 SUCCESSFUL APPROACH USED BY JAPANESE COMPETITOR

• Layer of Advantages A firms products have a few
  advantages to its competitors
• Loose Bricks A firm takes advantage by marketing
  its products on areas that were overlooked by
  competitors
• Changing Rules A firm decides to adopt its own
  marketing strategies instead of imitating the
  market leader
• Collaborating A firm uses the know-how developed
  by other companies

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Global Competition

• Occurs when a firm takes a global view of
  competition and sets about maximizing profits
  worldwide, rather than on country-by-country
  basis
• Brand-name muscle and quality packaging can
  overwhelm local competition in global markets
• Detergents Colgate, Unilever, Proctor Gamble
• Automobiles

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ADVANTAGES AND DISADVANTAGES OF GLOBAL COMPETITION

• Effects have been highly beneficial to consumers
• Expands range of products, can lower prices,
  increase likelihood consumers get what they want
• Can potentially take away jobs and profits from
  domestic suppliers

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National Advantage
Firm Strategy, Structure, and Rivalry
Demand Conditions
Factor Conditions
Related and Supporting Industries
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Factor Conditions

• A countrys endowment with resources may be
  created or inherited
• Basic factors can be replicated and are not
  sustainable sources of national advantage
• Specialized factors are more advanced and provide
  more sustainable source for advantage
• Porters 5 categories of factor conditions
• Human
• Physical
• Knowledge
• Capital
• Infrastructure

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Demand Conditions

• Factors that either train firms for world-class
  competition or that fail to adequately prepare
  them to compete in global marketplace
• Characteristics
• Composition of Home Demand how firms perceive,
  interpret, and respond to buyer needs
• Size and Pattern of Growth of Home Demand only
  important if composition of home demand
  anticipates foreign demand
• Rapid Home Market Growth incentive to invest in
  and adopt new technologies faster
• Means by Which a Nations Products and Services
  are Pushed/Pulled into Foreign Countries

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RELATED AND SUPPORTING INDUSTRIES

• Country has an advantage when it is home to
  globally competitive companies in business
  sectors that are related and supporting
  industries
• Globally competitive supplier industries provide
  inputs to downstream industries, which are likely
  to be globally competitive in terms of price and
  quality
• Results in competitive advantage
• Advantage is the result of the contact and
  coordination with the suppliers coordinating and
  sharing value chain activities

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FIRM STRATEGY, STRUCTURE, AND RIVALRY

• Domestic rivalry in a single national market is a
  powerful influence on competitive advantage
• Rivalry between Dell, HP, Gateway, Compaq, Apple,
  etc. forces them to develop new products, improve
  existing ones, lower costs/prices, develop new
  technologies, and improve quality and service
• Domestic rivals must fight for market share, RD
  breakthroughs, employee talent, prestige in home
  market
• Rivalry with foreign firms may lack this
  intensity
• Absence of domestic rivalry can lead to
  complacency and cause them to be noncompetitive
  in world markets the intensity and quality of
  competitors make the difference

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Other External Variables

• Chance
• Shape competitive environment
• Go beyond control of firms, industries,
  governments
• Alters conditions in the diamond
• Create major discontinuities in technologies that
  allow nations/firms to leapfrog over old
  competitors and become competitors or leaders in
  the industry
• Examples war, major technological
  breakthroughs, etc.
• Government
• Influences determinants by buying
  products/services, making policies, and
  regulating commerce
• Can improve or lessen competitive advantage, but
  cant create it

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CURRENT ISSUES IN CA

• Hypercompetition- in a dynamic competitive
  environment, no action or advantage can be
  sustained in the long run.
• Microsoft Gillette
• DAveni Model-competition in four areas
• Cost/quality timing
• Know-how
• Entry barriers
• Deep pockets

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INNOVATION

• The best defense is a good offense.
• Innovation begins with abandonment of the old and
  obsolete.
• DAventi urges that the flexible, unpredictable
  player may have an advantage over the inflexible,
  committed opponent.
• Porters take
• Core competencies
• Hypercompetition