Source of competitive advanatge

WHAT ARE THE SOURCES OF COMPETITIVE ADVANTAGE FOR AN ENTERPRISE? WHAT DIFFICULTIES ARE THERE IN MAINTAINING THIS ADVANTAGE?

First of all we have to understand what is a competitive advantage? And this concept refers to "a set of factors or capabilities that allows firms to consistently outperform their rivals" (ROBERTS, 2002).

Now that we know what a competitive advantage is the next question is how can we produce a competitive advantage?, Chandler & Hank suggest us we use capabilities based on the resources, in order to gain and keep competitive advantages (Chandler & Hanks, 1994). Now, the sort of resources referred here are the equipment, the skills of the managerial and worker force, the brand names and the reputation. (Barney, 1991).

In a study made in the pharmaceutical industry it was found the primary sources of competitive advantage were: their level of customer service, the ability to effectively handle customer complaints, and the quality of their products. (McGEE, LOVE, RUBACH, 2002).

Porter shows another point of view regarding the sources of competitive advantage, he tells us that the definitive value that a company creates can be measured by the price which the buyers are willing to pay for the product or service. Also he puts a lot of emphasis in the value chain as the item that increase the value for the customer. Now, there are 2 types of activities: the one that refer to the production, commercialization, deliver and service post-sale, within an ordinary level (the primary activities) and those provided by HR, IT and inputs used on the production, or general functions of infrastructure for supporting the other activities. (PORTER, 1990)

Lets go deeper into the concept of the value chain. First we have to understand that the strategy tells the way a company is going to perform certain activities and thus how is going to be organized this value chain.

Now that we know the importance of the relationship between the value chain and the strategy of a company lets see what are the components of this value chain. (SHARMA, 2002)

So far we have seen that various authors refers to the value chain when talking about competitive advantage, but lets see how Porter defines it: " It is an independent system or an activity network, connected by links, which are produced when the way of doing an activity affects the cost or the efficacy of the other activities". (PORTER, 1990)

Porter also tells us that paying special attention to the previously mentioned links might be one source to competitive advantages, but this require a largely complex coordination. By these we can see that the value chain reflects the history, strategy and success in implementation of a company.

Maybe one question arises when going deep into the paper of the value chain in the competitive advantage making process and it is what is the importance of the product?. Well again Porter tells us that the product of a company eventually gets to be part of "the value chain of the customer", then the ultimate base to determinate the differentiation is the part which the products of a company play in the customer's value chain, which determine the customer's needs. (PORTER, 1990)

Another point left to cover ambit conformed by the activities of the company that would lead us to create a competitive advantage. This advantage is created when new and better ways to compete in a sector are perceived and they are translated to the market environment (this is known as the process of innovation). The innovation can manifest in: changes in the products, changes in the processes, new MKT focuses, new distribution forms and new ambit concepts. (GHEMAWAT, 2001)

The most usual causes of innovation which derive in competitive advantage are:

• New technologies: The technologic change can create new possibilities for the design of a product, the way of commercialization, produce it or deliver it and the subsequent auxiliary provided services. New sectors are born when this technological change makes a new product feasible. (PORTER, 1990)
• New or changing customer's needs: The customers contract new needs or their priorities change significantly. The old established competitors can cease to perceive these new needs or be unable to response to them because that would require a whole new value chain. (PORTER, 1990)
• The appearance of a new sectorial segment: A new and different segment in one sector appears, or somebody thinks of the idea of regroup the existent segments in a new way. It includes new segments of clients, new forms to produce specific elements in the line of product or new ways to reach a certain group of clients. (PORTER, 1990)
• Change in the costs or the disposability of inputs: This is a reflex of new conditions in the provider sectors or because of the possibility of utilize a different sort of input (PORTER, 1990).
• Change in the governmental dispositions: The adjustments in the nature of the governmental dispositions in aspects concerning to issues like product norms, environmental controls, entrance restrictions and commercial barriers, are other habitual stimulants for innovations that turn into competitive advantages. (PORTER, 1990).

As result we can see all these triggers lead to competitive advantage to those companies which can promptly understand their meaning and take the proper aggressive measures to exploit them. Furthermore they get the advantage to be the first ones in harvest scale economies, reduce cost by the accumulated knowledge, settle their brand names and their relationships with their clients without direct competition, choose at will their distribution ways, the best places for the facilities or the best sources of raw materials or other inputs. The innovation might be copied, but the other competitive advantages usually prevail. (PORTER, 1990)

As a result we can see that all structural change creates opportunities for the early maneuvers. Those that take the first step in something will not be successful unless they correctly foresee the changes which the environment will produce. (PORTER, 1990)

The final point that is left to cover is the one regarding on how to maintain the advantage. Well Porter suggests that it depends on three conditions. The first one is the specific source of the advantage. There is a hierarchy of competitive advantage's sources in terms of sustainability. The low order advantages (low labor cost or cheap raw materials) they are easy to imitate. The high order advantages (technology of process, product differentiation, brand name recognition) these one are more lasting. These advantages require techniques and capabilities more advanced, like specialized personnel and high level of information. Also they depend on the historic sustained and accumulated investments in facilities, materials, learning, D&R or MKT. (PORTER, 1990).

The second determinant of the sustainability is the number of different sources of advantage which the company have to choose from. (PORTER, 1990)

The third reason is based on the continuous improvement and perfecting. The company shall be a mobile target and create new advantages at least as fast as its competitors' speed to imitate the old advantages. (PORTER, 1990)

Keeping the advantage require that the sources are broaden and their sources enhanced, lifting them in the hierarchical scale to more sustainable types. Also it requires changes, it requires that the company exploits the tendencies of the sector instead of ignoring them; it requires that the company invest in order to block the routes which represent a path for attack. The company might have top destroy old advantages in order to create new ones of high order level. (PORTER, 1990; OAKLAND, 2001)