Competitive Advantage of companies

Résumé du document

Warren Buffett was once asked what is the most important thing he looks for when evaluating a company. Without hesitation, he replied, "Sustainable competitive advantage."

When a firm generates profits that exceed the average for its industry, the firm is said to possess a competitive advantage. That competitive advantage allows the maintenance and improvement of the enterprise's competitive position in the market. It is an advantage that enables business to survive against its competitors over a long period of time. A company's prosperity is driven by how powerful and enduring its competitive advantages are.

Every business can own one or several competitive advantages - the difficulty is figuring out what they are – and to keep them. Market leading companies have figured out the importance of owning their competitive advantage in order to get fast to market and sustain expansion, as well as short decision making process.

This competitive advantage can be gained, according to Michael Porter, by offering customers greater added value, either by means of lower prices [cost advantage] or by delivering more benefits than the competitive products. The analysis of the chain value is part of his theory, through which he identifies the means to get this required sustainable advantage in today world business environment.

Consequently, we will see in details what is a competitive advantage, how to get one, and the benefits of having onebarriers that can prevent some companies to failure in this international competition.

Besides, we will go through the sources for companies to get a sustainable competitive advantage and how some of them did to succeed. How did Dell, Amazon or even the Club Mediterranee to get and to keep their leading position on the market?

Finally, we will try to know whether there is any absolute competitive advantage for all the companies.

Extraits

[...] Occasionally, a low- cost leader will also discount its product to maximize sales, particularly if it has a significant cost advantage over the competition and, in doing so, it can further increase its market share. Another way to get a cost advantage is the reconfiguration of the chain value, that is to say structural changes (such as a new production process, new distribution channel, or different sales' approach. The main risk of this strategy, and to launch a War Price, is that competitors may also be able to lower their costs as well, thus eliminating the competitive advantage. [...]

[...] Knowledge is therefore the ultimate competitive advantage only if it is used in an action-oriented perspective. Hence, in this perspective, knowledge lies in action i.e. in effective utilization of data and information resources. Sources: Porter, Michael E. Competitive Advantage Creating and Sustaining Superior Performance Cateora P. ; Paliwoda S. [...]

[...] On the one hand, these very specialized companies are often rewarded by a high degree of customer loyalty, which may prevent others firms to tackle the market. The firms pursuing a differentiation focused strategy may be able to charge more for products as close substitutes do not exists. On the other hand, firms pursuing a cost advantage strategy are on a narrow market and have consequently lower volumes and bargaining power. The risk of broad-market competitors willing to penetrate the market and to compete directly is quite important. [...]

[...] Actually, Amazon gets cost advantages thanks its management of inventory, discount systems, supply chain and distribution support. Amazon's management of logistics permits cost savings, speed, safety, reliability. It also pioneered the concept of the associate or affiliate programs, for which it obtained a patent, to gain more traffic in its website Safety, convenience, customization, speed, choices and low-prices are constantly re-evaluated and improved since they are major goals and competitive advantages of Amazon. In addition, Amazon.com surpassed competitors in building and enhancing customer traffic, creating communities and retaining customer loyalty. [...]

[...] However, it is extremely difficult for a company to be able to sustain its competitive advantage over competitors over time. Indeed, gaps are rarely enduring for many reasons: high profits are almost certain to attract competitors and may prevent the company to innovate, and new technologies, ways of doing business, etc. Resources and Capabilities: the basis of the Comparative Advantage Resources The resources are the inputs into a firm's production process, such as capital, equipment, patents, the proprietary know-how, installed customer base, reputation of the firm, talented managers and the skills of individual employees. [...]