Dr. Alfredo Anthony
Introduction
Christensen, Johnson, and Rigby (2002) suggest that a preponderance of managers comprehend the importance of developing new markets required to maintain sustained growth and remain ahead of their competition. However, few abide by that premise during times of prosperity. While core business units are flourishing and profit margins are increasing robustly, initiating new ventures appear to be unnecessary. Subsequently, when confronted with losses, firms are more apt to assume business risks in order to meet or surpass expectations to bring value to investors. One of the methods to accomplish this is by businesses gaining a competitive advantage over their rivals (Morrow, Simon, Hitt, and Holcomb, 2007).
Morrow, et. al. (2007), write that managers discover the motivation to make bold changes to their competitive advantage strategies when their firms are faced with below-market performance. At this juncture in a firm’s economic landscape, Hunt (2009) espouses that managers must attain a profound appreciation of the concept of competitive advantage and pursue the means to sustain it. Hunt (2009) further clarifies that every enterprise needs to attain two kinds of advantages: resources and marketplace position. A competitive advantage in marketplace positions results in a firm engendering extraordinary financial outcomes; whereas, preeminence in resources is the virtue by which marketplace positioning is attained.
The American automobile industry provides a viable example of why competitive advantage is necessary throughout a company’s existence. The Great Recession of 2008 – 2009 severely impacted the automobile industry on a global scale; however, the American market experienced the greatest shock. During this recession, the United States automobile industry experienced the greatest production and sales loss in motor vehicles since World War II. This essay contrasts how two, Ford Motor Company and General Motors, of the Detroit Big Three, have achieved and sustained competitive advantage in their industry.
Evaluation of Approaches to Achieving Sustaining Competitive Advantage
According to Thompson, Peteraf, Gamble, and Strickland III (2013), competitive advantage occurs when one company exceeds another in the ability to attract buyers by giving them what they consider to be enhanced value when compared to what is being offered by competitors. Enhanced value can represent a decent product at a reduced price, an expensive product that merits the higher price, or a best-value that embodies an appealing blend of both approaches. The principal objective is to create an advantage that relies upon developing resources and capabilities which cannot be equaled by others in the industry.
Competitive advantage is sustained when rivals cannot duplicate or exceed the value created. For example, in the home improvement, sector Home Depot has earned a strong market advantage by offering a low-cost strategy, thereby, making it difficult for their competitors to underprice them. Consequently, Home Depot has had a sustained competitive advantage over Lowe’s since the beginning of this rivalry (Shaefer, 2014). Barney (1991) noted a sustained competitive advantage does not imply that it is perpetual; unforeseen fluctuations in the operating environment of a business or industry may render obsolete what was at one time a leading-edge.
In addition to a low-cost strategy, there are other methods that firms can pursue to achieve sustained competitive advantage. Hunt (2009) argues that a business obtains its competitive advantage based upon the resources it possesses since that is where costs and value exist. This method is generally referred to as the resource-based value (RBV). Therefore, managers must emphasize establishing strategies to identify, purchase, develop, create and maintain the necessary resources to reach a position of competitive advantage. To preserve a sustained competitive advantage, Barney (1991) theorizes that a firm’s resources should be: valuable, referring to the ability to seize opportunities, or repudiate rivals in the firm’s operating space; rare in the firm’s industry; imperfectly imitable, in the sense that duplication is difficult or costly to a competitor; and non-substitutable, by nullifying a competitor’s development of a valuable resource that can be rendered strategically equivalent.
Within the RBV perspective, the research conducted by Morrow, Sirmon, Hitt, and Holcomb (2007) indicated that firms desiring to maintain sustained competitive advantage should consider introducing new products, establishing mergers, and acquisitions, and developing strategic associations. New product offerings can occur by recombining present resources into updated capabilities, which should enhance the value for the investors and customers. This also results in decreasing the cost normally associated with new product introduction.
External mergers and acquisitions are viable options to increase a firm’s resource capabilities, thereby sustaining its competitive advantage. This method creates value by accumulating the firm’s economy of scale or scope and by augmenting its negotiating power with purchasers and suppliers (Holcomb, 2007).
The final means for achieving sustained competitive advantage is through developing strategic associations. The end state of this method is to obtain additional resource capabilities from partners that can assist in engendering efficient production, which may also result in reduced operating costs. For the alliance to be successful, the combination of both allies must deliver value and be inimitable (Holcomb, 2007).
Alternative Approaches to Achieving Competitive Advantage
Resource advantage theorists ascertain that the resources in a vast majority of businesses within the same industry are considerably heterogeneous and comparatively immobile. Consequently, some companies will inherently possess a competitive advantage, while others will inherently lack a competitive disadvantage (Hunt, 2009). Amid that heterogeneity, and the inability to achieve the sustained competitive advantage aforementioned, Barney (1991) offers other methods to attain it. The first method is to be a first-mover in the industry. The first-mover advantage (FMA) entails being the first to market a product or service that was not a part of a specific industry, which can result in a company gaining a sustained competitive advantage. FMA requires a firm to have insight into opportunities that allows it to implement strategies that are currently absent from rivals or potential entrants. However, Cha and Yu (2015) observed that first-mover advantage in the pharmaceutical industry, on average, only lasted for 10 years after marketing, and on several occasions, the advantage disappeared, specifically when the lead time was two years or less, or if the first mover was a small company.
Barney (1991) also suggests that implementing and enforcing a strong entry barrier or mobility can offer a sustained competitive advantage to firms in any given industry. The entry barriers and mobility are only conceivable when the resources of the current businesses or potential rivals are heterogeneous and are not readily mobile. One such manner to accomplish this is for a firm to be a dominator of its business ecosystem (Iansiti and Levien, 2004).
Isansiti and Levien (2004) point out that a physical dominator of a business ecosystem seeks to control the vertical or horizontal integration of a network. Once the firm becomes the dominator, exclusively responsible for capturing and creating the value, the possibility of a healthy business ecosystem is virtually eradicated. An example of a dominator was when IBM managed the entire computing value chain, controlling the majority of products and services required by their customers. However, this can have an adverse effect on that dominator by destabilizing an ecosystem that should exist to develop value amongst other businesses in the ecosystem.
Two Companies: One Goal
The “Great Recession” of 2008 – 2009 resulted in the automobile industry experiencing the most severe decline in production and sales since World War II. An outcome of this decline involved two of the three U.S. automakers, General Motors, and Chrysler, reaching out to the federal government for financial assistance to prevent further collapse of the industry. Although Ford did not seek the specific government assistance requested by the other two, the CEO supported the two auto makers’ request for the government bailout (Klier and Rubenstein, 2012).
GM has employed two of the strategies mentioned above to sustain a competitive advantage in the automobile industry. Per Holcomb (2007), GM has been exceptionally successful in establishing an effective global strategic partnership. GM’s achievement of a sustained competitive advantage occurred by having a leading position in the two largest automobile markets on a global scale: the U.S. and China. These alliances have crowned GM as the largest foreign vehicle manufacturer by sales. The company’s business is diverse across its product lines and geography, making it one of the strongest product offerings in the world. Via its partnerships and joint ventures, GM sells its products under the Chevrolet, Cadillac, Baojoun, Buick, GMC, Holden, Isuzu, Jienfang, Opel, Vauxhall, and Wuling marques (MarketLine, 2014).
Furthermore, GM produced a sustained competitive advantage by having robust product design and development proficiency. Between 2012 and 2014, the company has invested over $14B in its research and design efforts, resulting in generating new products and services, as well as enhancing current products and services. These efforts have proven to be successful by increasing vehicle emissions control, reduced fuel consumption, and improved driver safety. GM’s focus is to continue the development of its alternative propulsion strategy by investing heavily in a wide array of technology. This is a key strategy advanced by Morrow, et. al. (2007), in which the authors express that businesses develop new products, as well as recombine existing resources to generate growth from within the organization (MarketLine, 2014).
Ford Motors, the second-largest manufacture in the U. S., has one of the most extensive product lineups in the automobile industry. The Ford Focus has one of the largest selling volumes internationally, and the EcoSport is a leading seller in South America. Additionally, Ford’s F-series trucks have garnered the award for being the number selling truck in the U. S. for over 37 years, and it is also a leading manufacturer of motor home chassis in the U. S. (MarketLine, 2014).
Ford’s sustained competitive advantage rests in its ability to offer superior value in its truck and commercial subcategories that include mining, construction, oil and energy, and commercial trucks for small businesses. Moreover, Ford’s product offerings in the 19 markets in Europe were able to garner a second-place standing. The key to Ford’s sustainment success was the ability to leverage its new technologies across its business sectors, thereby, facilitating increased comprehensive growth, and realizing increased efficiencies and scale savings. Ford is also recognized for placing intense focus on environmental and economically sustainable technology, such as the use of environmentally friendly material and recycling plastics for underbody parts (MarketLine, 2014). These examples of sustained competitive advantage are indicative of the strategies involving new product offerings conveyed by Morrow, et. al. (2004), and Thompson, el. al. (2013).
Although the approaches that both companies have used to develop sustained competitive advantage have generated successful results as reflected in their strong market positions, the longevity could be short-lived due to the fierce competition existent within the automotive industry. In order to ensure that GM and Ford’s competitive advantage are sustained, both companies’ resources remain imperfectly imitable to their rivals by ensuring there is ambiguity in understanding the linkage of their resources, thereby, complicating the possibility of imitation. Barney (1991) suggested that although firms may have similar technologies, only one may possess the social complexities to completely exploit that technology.
Conclusion
This essay addressed the approaches companies can employ to sustain a competitive advantage in the market space. To retain a sustained competitive advantage Barney (1991) suggests that the resources must be valuable, rare, imperfectly imitable, and non-substitutable. General Motors and Ford Motor have experienced increased market share due to the sustained competitive advantage they achieved. However, their sustained advantage can be eradicated by rivals discovering and duplicating the social complexity structure of both organizations.
References
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