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competitive advantage
See Also
sustainable competitive advantage comparative advantage pluralism market economy value
proposition distinctive competency economic rent economic value economic value
added wealth creation capability dynamic capability resource view of strategy positional view
of strategystrategic thinking firm theory of advantage thinking competitive advantage
factors advantage thinking strategic factor market enterprise
value capability ability resource VRIN Framework
Definition
Competitive advantage is what enables a business organization to thrive. It is the objective of
strategy. It is the combination of elements in the business model which enables a business to
better satisfy the needs in its environment, earning economic rents in the process.
Resource-based vs. positional view of advantage --
In the realm of strategy, there are roughly two views of the basic source of competitive
advantage, the resource-based view and the positional view. The first sees the capabilities of
the firm as its primary source of advantage while the latter contends that position within an
industry is the source of advantage. Michael Porter is associated with the positional view.
Gary Hamel and C. K. Prahalad are associated with the resource view. The resource based
view has tended to dominate strategy since the late 1980s with the attention placed on
capabilities, core competencies, distinctive competencies, dynamic capabilities, and
organization evolution. As dominant companies also shape industries, there is the possibility
that resources shape position as well. See positional view of strategy and resource view of
strategy.
Advantage and sustained advantage (Barney, 1991) --
A firm has a competitive advantage when it is implementing a value creating strategy not
simultaneously being implemented by any current or potential competitors. A firm has a
sustained advantage when it is implementing a value creating strategy not simultaneously
being implemented by any current or potential competitors and when these other firms are
unable to duplicate the benefits of this strategy. A firm enjoying a sustained competitive
advantage may experience these major shifts in the structure of competition, and may see its
competitive advantages nullified by such changes. However, a sustained competitive
advantage is not nullified through competing firms duplicating the benefits of that
competitive advantage.
To have the potential of sustained competitive advantage, a firm resource must have four
attributes --
it must be valuable, in the sense that it exploit opportunities and/or neutralizes threats in a
firm's environment
it must be rare among a firm's current and potential competition
it must be imperfectly imitable. This can be due to three reasons: 1) the ability of a firm to
obtain a resource is dependent upon unique historical conditions, 2) the link between the
resources possessed by a firme and a firm's sustained competitive advantage is causally
ambiguous, or 3) the resource generating a firm's advantage is socially complex, such as
cultural factors that enable a unique synergy amongst managers.
there cannot be strategically equivalent substitutes for this resource that are valuable but
neither rare but neither rare or imperfectly imitable.
These attributes of firm resources can be thought of as empirical indicators of how
heterogeneous and immobile a firm's resources are and thus how useful these resources are
for generating sustained competitive advantages. Note that physical resources are not on the
list. Physical technology, even complex physical technology, is generally imitable.
Finally, sustainable advantage most likely cannot arise from a formal planning process, but is
due to emergent strategy.
Demand-based perspective of competitive advantage --
Adner and Zemsky (2007) present an analysis of sustainable competitive advantage
emphasizing the demand-side factors. In particular, the effects of decreasing marginal utility
and consumer heterogeneity across market segments is shown to affect the sustainability of
competitive advantage through shifts in consumer willingness to pay.
Competitive advantage definition -- The authors define competitive advantage as superior
value creation -- with the firm's ability to sustain competitive advantage equivalent to its
ability to sustain added value.
The demand-side drivers are 1) marginal utility from performance improvements, 2)
consumer taste for quality, and 3) the extent of consumer heterogeneity. At the level of firm
resources, competitive advantage erodes not only because imitation undermines the
uniqueness of resources, but also because consumer valuation of firm differences declines
due to effects of decreasing marginal utility. At the level of firm positions, strategic
heterogeneity is shown to be rooted not only in differences between firms' internal resources
but also in the extent of consumer heterogeneity in the firms' demand environment.
The Principle of Competitive Advantage --
Success is based on inventing an offering that addresses a real scarcity in the world, charging
a price for it, and inventing a way of making it available that is cheap enough to leave a high
margin.
-- Kees van der Heijden, Back to basics: exploring the business idea, Strategy & Leadership,
29.3, 2001
Sources of Competitive Advantage --
Differentiation that commands an attractive price or a structurally lower cost to produce a
non-differentiated product.
-- Porter
Specialization and capabilities (Kay, 2004) --
Specialization -- Specialization, with its division of labor, produces economies of scale.
Specialization can overrun its usefulness, such as when seeking further scale becomes a
disadvantage, as was the case for Ford in the first half of the 20th century. As firms have
often reached and exceeded the limits of specialization in providing value, they have
shifted to capabilities.
Capabilities -- Capabilities, intrinsic capabilities, or distinctive capabilities include secrets
of value, established business networks, brands, general management skills, engineering
competency, innovation which is not easily copied or ongoing innovation which is not
easily caught up with. Unique capabilities provide an opportunity to provide unique value
and receive the gains from providing that value.
Indicator of Competitive Advantage --
A business organization with a competitive advantage is more profitable than its rivals while
this profitability exceeds its cost of capital. Profits in excess of the cost of capital are
called economic rent. Sustained economic rents are prima facie evidence of a competitive
advantage.
Elements of Competitive Advantage --
Uniqueness - finding unique opportunities and solutions is about imagination, insight,
foresight, and the courage to pursue it. Unique is new, different, but most important of all,
untested and unproven. By the time a unique solution is validated as profitable, it is no
longer unique for the next company. Also, if it is a unique business model or business
capability, it is likely unapproachable, in the short-term, by competitors.
Strategic Focus - Strategic focus comes about from marrying distinctive competency and
purpose to form a superior value proposition. Strategic focus is about developing a longer
view of competitive advantage with a combination of purpose, competency, and value
proposition. This creates an internal environment that has the confidence and implicit
support to continue to perfect and develop that focus through creating stronger
competencies and further perfecting the value proposition.
Strategic Intent/Vision/BHAGs - Strategic intent challenges and guides the organization
to achieve the unachievable by having a clear focus on outlandish objectives which
require the development of new capabilities to achieve.
Innovation - Innovation is inventiveness put into profitable practice. In an evolving
economy, the business organization must innovate at a rate that meets or exceeds its
environment in order to sustain a competitive advantage.
Continual Innovation - Making innovation as an ongoing process on all fronts.
Democratic Principles - Democratic principles are needed to fully engage the active
participation of diverse thinkers from across the organization. Broad and diverse
participation improves innovation.
Strategic Management as a self-improving learning process - Strategic management must
become, amongst other things, a learning and self-improvement process for the
organization.
Dynamic Capabilities - Sustainable competitive advantage is ultimately based on dynamic
capabilities, the capability to produce and utilize new capabilities on a continuous basis.
John Kay; competitive vs. comparative advantage --
Competitive advantage is an absolute advantage of a business organization to offer greater
value to its customers. Businesses should seek to find their competitive advantage, as
opposed to their comparative advantage. They should focus on what they can do better than
any other business. This may be something different than what they are best at doing. This
maximizes the value of a business's economic function.
Porter's framework for competitive advantage
Environmental determinants of advantage (Porter, 1991) --
Firms create and sustain competitive advantage because of the capacity to continuously
improve, innovate, and upgrade their competitive advantages over time. Upgrading is the
process of shifting advantages throughout the value chain to more sophisticated types, and
employing higher levels of skill and technology. Successful firms are those that improve and
innovate in ways that are valued not only at home but elsewhere. Competitive success is
enhanced by moving early in each product or process generation, provided that the movement
is along a path that reflects evolving technology and buyer need, and that early movers
subsequently upgrade their positions rather than rest upon them. In this view, firms have
considerable discretion in relaxing external and internal constraints.
Four broad attributes of the proximate environment of a firm have the greatest influence on
its ability to innovate and upgrade. These attributes shape the information firms have
available to perceive opportunities, the pool of inputs, skills and knowledge they can draw
upon, the goals that condition investment, and the pressures on the firm to act. The
environment is important in providing the initial insight that underpins competitive
advantage, the inputs needed to act on it, and to accumulate knowledge and skills over time,
and the forces needed to keep progressing.
Factor conditions -- general, specialized, generic, local, global, natural resources, labor
Firm strategy , structure, and rivalry -- intensity of competition, susceptibility to
substitutes, actual rivalry, potential rivalry
Demand conditions -- customer demands, sophistication, fickleness
Related and supporting industries -- suppliers, customers, synergy, dependency
Early (1960s) answers to the determinants of a firm's success (Porter, 1991) --
internally consistent set of goals and functional policies that collectively define the
business's position in the market
this internally consistent set of goals and policies aligns the firm's strengths and
weaknesses with the external (industry) opportunities and threats -- aligning the company
with its environment
a firm's strategy be centrally concerned with the creation and exploration of its so called
distinctive competencies -- unique strengths a firm possesses.
Solving the cross-sectional problem of strategy, getting to an operational understanding of
competitive advantage (Porter, 1991) --
The cross-sectional problem refers to having the understanding of what underpins a
competitively advantageous position in an industry.
Success requires the choices of --
a relatively attractive position given industry structure
the firm's circumstances
the positions of competitors, and
bringing all the firm's activities into consistency with the chosen position.
Competitive advantage grows out of discrete activities. A firm's strategy is manifested in the
way it configures and links the many activities in its value chain relative to its competitors.
Discrete activities are part of an interdependent system in which the cost and effectiveness of
one activity can be affected by the ways others are performed. These interdependencies are
called linkages. Knowing this still does not operationalize competitive advantage. For that,
the competitive advantage drivers of the activities must be identified.
Drivers of competitive advantage in an activity --
scale
cumulative learning in the activity
linkages between the activities and others
the ability to share the activity with other business units
the pattern of capital utilization in the activity over the relevant cycle
the activity's location
the timing of investment choices in the activity
the extent of vertical integration in performing the activity
institutional factors affecting how an activity is performed such as government regulations
the firm's policy choices about how to configure the activity independent of other drivers
Solving the longitudinal problem of strategy, getting to an operational understanding of
competitive advantage (Porter, 1991) --
The cross-sectional solution solves the problem of achieving a desirable, competitively
advantageous, position. That leaves the longitudinal problem of getting to advantage again
and again, even initially. There are two factors at work here -- initial conditions and
managerial choices. Since initial conditions have come about from past managerial choices,
ultimately the longitudinal problem is solved only by managerial choices. This requires
management that is competent to achieve a competitive advantage. Their strategic
thinking, strategic management framework, and strategic management process execution are
key factors of management's strategic management competency.
Rumelt's framework for competitive advantage
See firm theory of for Rumelt's explanation of competitive advantage in the context of his
strategic theory of the firm.
Competitive advantage factors --
For an in depth list of competitive advantage factors to stimulate activity design,
seecompetitive advantage factors.
Measuring Competitive Advantage --
See enterprise value and the Barney reference there
http://www.createadvantage.com/glossary/competitive-advantage
The Diamond model of Michael Porter for the Competitive Advantage of Nations offers a
model that can help understand the competitive position of a nation in global competition.
This model can also be used for other major geographic regions.
Traditionally, economic theory mentions the following factors for comparative advantage for
regions or countries:
A. Land
B. Location
C. Natural resources (minerals, energy)
D. Labor, and
E. Local population size.
Because these factor endowments can hardly be influenced, this fits in a rather passive
(inherited) view towards national economic opportunity.
Porter says sustained industrial growth has hardly ever been built on above mentioned basic
inherited factors. Abundance of such factors may actually undermine competitive advantage!
He introduced a concept of "clusters," or groups of interconnected firms, suppliers, related
industries, and institutions that arise in particular locations.
As a rule Competitive Advantage of nations has been the outcome of 4 interlinked advanced
factors and activities in and between companies in these clusters. These can be influenced in
a pro-active way by government.
These interlinked advanced factors for Competitive Advantage for countries or regions in
Porters Diamond framework are:
1. Firm Strategy, Structure and Rivalry (The world is dominated by dynamic conditions,
and it is direct competition that impels firms to work for increases in productivity and
innovation)
2. Demand Conditions (The more demanding the customers in an economy, the greater the
pressure facing firms to constantly improve their competitiveness via innovative products,
through high quality, etc)
3. Related Supporting Industries (Spatial proximity of upstream or downstream industries
facilitates the exchange of information and promotes a continuous exchange of ideas and
innovations)
4. Factor Conditions (Contrary to conventional wisdom, Porter argues that the "key" factors
of production (or specialized factors) are created, not inherited. Specialized factors of
production are skilled labor, capital and infrastructure. "Non-key" factors or general use
factors, such as unskilled labor and raw materials, can be obtained by any company and,
hence, do not generate sustained competitive advantage. However, specialized factors involve
heavy, sustained investment. They are more difficult to duplicate. This leads to a competitive
advantage, because if other firms cannot easily duplicate these factors, they are valuable).
The role of government in Porter's Diamond Model is "acting as a catalyst and challenger; it
is to encourage – or even push – companies to raise their aspirations and move to higher
levels of competitive performance. They must encourage companies to raise their
performance, stimulate early demand for advanced products, focus on specialized factor
creation and to stimulate local rivalry by limiting direct cooperation and enforcing anti-trust
regulations.
Porter introduced this model in his book: The Competitive Advantage of Nations, after
having done research in ten leading trading nations. The book was the first theory of
competitiveness based on the causes of the productivity with which companies compete
instead of traditional comparative advantages such as natural resources and pools of labor.
This book is considered required reading for government economic strategists and is also
highly recommended for corporate strategist taking an interest in the macro-economic
environment of corporations.
Overview of The Competitive Advantage of Nations (The Diamond Model)
- Porter is a famous Harvard business professor. He conducted a comprehensive study of 10
nations to learn what leads to success. Recently his company was commissioned to study
Canada in a report called "Canada at the Crossroads".
- Porter believes standard classical theories on comparative advantage are inadequate (or even
wrong).
- According to Porter, a nation attains a competitive advantage if its firms are competitive.
Firms become competitive through innovation. Innovation can include technical
improvements to the product or to the production process.
The Diamond – Four Determinants of National Competitive Advantage
Four attributes of a nation comprise Michael Porter's "Diamond" of national advantage. They
are:
1. Factor conditions (i.e. the nation's position in factors of production, such as skilled labour
and infrastructure),
2. Demand conditions (i.e. sophisticated customers in home market),
3. Related and supporting industries, and
4. Firm strategy, structure and rivalry (i.e. conditions for organization of companies, and the
nature of domestic rivalry).
Factor Conditions
Factor conditions refers to inputs used as factors of production – such as labour, land, natural
resources, capital and infrastructure. This sounds similar to standard economic theory, but
Porter argues that the "key" factors of production (or specialized factors) are created, not
inherited. Specialized factors of production are skilled labour, capital and infrastructure.
"Non-key" factors or general use factors, such as unskilled labour and raw materials, can be
obtained by any company and, hence, do not generate sustained competitive advantage.
However, specialized factors involve heavy, sustained investment. They are more difficult to
duplicate. This leads to a competitive advantage, because if other firms cannot easily
duplicate these factors, they are valuable.
Porter argues that a lack of resources often actually helps countries to become competitive
(call it selected factor disadvantage). Abundance generates waste and scarcity generates an
innovative mindsssssssssset. Such countries are forced to innovate to overcome their problem
of scarce resources. How true is this?
Switzerland was the first country to experience labour shortages. They abandoned labour-
intensive watches and concentrated on innovative/high-end watches.
Japan has high priced land and so its factory space is at a premium. This lead to just-in-time
inventory techniques (Japanese firms can�t have a lot of stock taking up space, so to cope
with the potential of not have goods around when they need it, they innovated traditional
inventory techniques).
Sweden has a short building season and high construction costs. These two things combined
created a need for pre-fabricated houses.
Demand Conditions
Michael Porter argues that a sophisticated domestic market is an important element to
producing competitiveness. Firms that face a sophisticated domestic market are likely to sell
superior products because the market demands high quality and a close proximity to such
consumers enables the firm to better understand the needs and desires of the customers (this
same argument can be used to explain the first stage of the IPLC theory when a product is
just initially being developed and after it has been perfected, it doesn't have to be so close to
the discriminating consumers).
If the nation's discriminating values spread to other countries, then the local firms will be
competitive in the global market.
One example is the French wine industry. The French are sophisticated wine consumers.
These consumers force and help French wineries to produce high quality wines. Can you
think of other examples? Or counter-examples?
Related and Supporting Industries
Porter also argues that a set of strong related and supporting industries is important to the
competitiveness of firms. This includes suppliers and related industries. This usually occurs
at a regional level as opposed to a national level. Examples include Silicon valley in the U.S.,
Detroit (for the auto industry) and Italy (leather-shoes-other leather goods industry).
The phenomenon of competitors (and upstream and/or downstream industries) locating in the
same area is known as clustering or agglomeration. What are the advantages and
disadvantages of locating within a cluster? Some advantages to locating close to your rivals
may be;
- potential technology knowledge spillovers,
- an association of a region on the part of consumers with a product and high quality and
therefore some market power, or
- an association of a region on the part of applicable labour force.
Some disadvantages to locating close to your rivals are:
- potential poaching of your employees by rival companies and
- obvious increase in competition possibly decreasing mark-ups.
Firm Strategy, Structure and Rivalry
Strategy
- Capital Markets
Domestic capital markets affect the strategy of firms. Some countries� capital markets
have a long-run outlook, while others have a short-run outlook. Industries vary in how long
the long-run is. Countries with a short-run outlook (like the U.S.) will tend to be more
competitive in industries where investment is short-term (like the computer industry).
Countries with a long run outlook (like Switzerland) will tend to be more competitive in
industries where investment is long term (like the pharmaceutical industry).
- Individuals Career Choices
Individuals base their career decisions on opportunities and prestige. A country will be
competitive in an industry whose key personnel hold positions that are considered
prestigious.
Does this appear to hold in the U.S. and Canada? What are the most prestigious occupations?
What about Asia? What about developing countries?
Structure
Porter argues that the best management styles vary among industries. Some countries may be
oriented toward a particular style of management. Those countries will tend to be more
competitive in industries for which that style of management is suited.
For example, Germany tends to have hierarchical management structures composed of
managers with strong technical backgrounds and Italy has smaller, family-run firms.
Rivalry
Porter argues that intense competition spurs innovation. Competition is particularly fierce in
Japan, where many companies compete vigorously in most industries.
International competition is not as intense and motivating. With international competition,
there are enough differences between companies and their environments to provide handy
excuses to managers who were outperformed by their competitors.
The Diamond as a System
- The points on the diamond constitute a system and are self-reinforcing.
- Domestic rivalry for final goods stimulates the emergence of an industry that provides
specialized intermediate goods. Keen domestic competition leads to more sophisticated
consumers who come to expect upgrading and innovation. The diamond promotes clustering.
- Porter provides a somewhat detailed example to illustrate the system. The example is the
ceramic tile industry in Italy.
- Porter emphasizes the role of chance in the model. Random events can either benefit or
harm a firm's competitive position. These can be anything like major technological
breakthroughs or inventions, acts of war and destruction, or dramatic shifts in exchange rates.
- One might wonder how agglomeration becomes self-reinforcing
- When there is a large industry presence in an area, it will increase the supply of specific
factors (ie: workers with industry-specific training) since they will tend to get higher returns
and less risk of losing employment.
- At the same time, upstream firms (ie: those who supply intermediate inputs) will invest in
the area. They will also wish to save on transport costs, tariffs, inter-firm communication
costs, inventories, etc.
- At the same time, downstream firms (ie: those use our industry's product as an input) will
also invest in the area. This causes additional savings of the type listed before.
- Finally, attracted by the good set of specific factors, upstream and downstream firms,
producers in related industries (ie: those who use similar inputs or whose goods are purchased
by the same set of customers) will also invest. This will trigger subsequent rounds of
investment.
Implications of The Competitive Advantage of Nations for Governments
The government plays an important role in Porter's diamond model. Like everybody else,
Porter argues that there are some things that governments do that they shouldn't, and other
things that they do not do but should. He says, "Governments proper role is as a catalyst and
challenger; it is to encourage – or even push – companies to raise their aspirations and move
to higher levels of competitive performance"
Governments can influence all four of Porter's determinants through a variety of actions such
as;
- Subsidies to firms, either directly (money) or indirectly (through infrastructure).
- Tax codes applicable to corporation, business or property ownership.
- Educational policies that affect the skill level of workers.
- They should focus on specialized factor creation. (How can they do this?)
- They should enforce tough standards. (This prescription may seem counterintuitive. What is
his rationale? Maybe to establish high technical and product standards including
environmental regulations.)
The problem, of course, is through these actions, it becomes clear which industries they are
choosing to help innovate. What methods do they use to choose? What happens if they pick
the wrong industries?
Criticisms about The Diamond Model
Although Porter theory is renowned, it has a number of critics. Porter developed this paper
based on case studies and these tend to only apply to developed economies.
Porter argues that only outward-FDI is valuable in creating competitive advantage, and
inbound-FDI does not increase domestic competition significantly because the domestic firms
lack the capability to defend their own markets and face a process of market-share erosion
and decline. However, there seems to be little empirical evidence to support that claim.
The Porter model does not adequately address the role of MNCs. There seems to be ample
evidence that the diamond is influenced by factors outside the home country.
References
http://www.valuebasedmanagement.net/methods_porter_diamond_model.html
http://pacific.commerce.ubc.ca/ruckman/competitiveadvofnations.htm
http://vectorstudy.com/management-theories/diamond-model
http://mro.massey.ac.nz/bitstream/handle/10179/1543/02_whole.pdf
[PDF]
Competitive Advantages and Strategic Information Systems
ccsenet.org/journal/index.php/ijbm/article/download/.../524
Diamond model
From Wikipedia, the free encyclopedia
The Porter diamond[1]
The diamond model is an economical model developed by Michael Porter in his book The
Competitive Advantage of Nations,[2]
where he published his theory of why particular
industries become competitive in particular locations.[3]
Afterwards, this model has been
expanded by other scholars.
Contents
[hide]
1 Porter analysis
2 Criticism
3 Double diamond model
4 See also
5 References
[edit]Porter analysis
The approach looks at clusters, a number of small industries, where the competitiveness of
one company is related to the performance of other companies and other factors tied together
in the value-added chain, in customer-client relation, or in a local or regional contexts.[2]
The
Porter analysis was made in two steps.[2]
First, clusters of successful industries have been
mapped in 10 important trading nations.[2]
In the second, the history of competition in
particular industries is examined to clarify the dynamic process by which competitive
advantage was created.[2]
The second step in Porter's analysis deals with the dynamic process
by which competitive advantage is created.[2]
The basic method in these studies is historical
analysis.[2]
The phenomena that are analysed are classified into six broad factors incorporated
into the Porter diamond, which has become a key tool for the analysis of competitiveness:
Factor conditions are human resources, physical resources, knowledge resources, capital
resources and infrastructure.[2]
Specialized resources are often specific for an industry and
important for its competitiveness.[2]
Specific resources can be created to compensate for
factor disadvantages.
Demand conditions in the home market can help companies create a competitive
advantage, when sophisticated home market buyers pressure firms to innovate faster and
to create more advanced products than those of competitors.[2]
Related and supporting industries can produce inputs which are important for
innovation and internationalization.[2]
These industries provide cost-effective inputs, but
they also participate in the upgrading process, thus stimulating other companies in the
chain to innovate.[2]
Firm strategy, structure and rivalry constitute the fourth determinant of
competitiveness.[2]
The way in which companies are created, set goals and are managed is
important for success.[2]
But the presence of intense rivalry in the home base is also
important; it creates pressure to innovate in order to upgrade competitiveness.[2]
Government can influence each of the above four determinants of
competitiveness.[2]
Clearly government can influence the supply conditions of key
production factors, demand conditions in the home market, and competition between
firms.[2]
Government interventions can occur at local, regional, national or supranational
level.[2]
Chance events are occurrences that are outside of control of a firm.[2]
They are important
because they create discontinuities in which some gain competitive positions and some
lose.[2]
The Porter thesis is that these factors interact with each other to create conditions where
innovation and improved competitiveness occurs.[3]
[edit]Criticism
In his famous book, The Competitive Advantage of Nations, Porter studied eight developed
countries and two newly industrialized countries (NICs). The latter two are Korea and
Singapore. Porter is quite optimistic about the future of the Korean economy. He argues that
Korea may well reach true advanced status in the next decade (p. 383). In contrast, Porter is
less optimistic about Singapore. In his view, Singapore will remain a factor-driven economy
(p. 566) which reflects an early stage of economic development. Since the publication of
Porter's work, however, Singapore has been more successful than Korea. This difference in
performance raises important questions regarding the validity of Porter's diamond model of a
nation's competitiveness.
Porter has used the diamond model when consulting with the governments of Canada[4]
and
New Zealand.[5]
While the variables of Porter's diamond model are useful terms of reference
when analysing a nation's competitiveness, a weakness of Porter's work is his exclusive focus
on the 'home base' concept. In the case of Canada, Porter did not adequately consider the
nature of multinational activities.[6]
In the case of New Zealand, the Porter model could not
explain the success of export-dependent and resource-based industries.[7]
Therefore,
applications of Porter's home-based diamond require careful consideration and appropriate
modification.
In Porter's single home-based diamond approach, a firm's capabilities to tap into the location
advantages of other nations are viewed as very limited. Rugman[8]
has demonstrated that a
much more relevant concept prevails in small, open economies, namely the 'double diamond'
model. For example, in the case of Canada, an integrated North American diamond
(including both Canada and the United States), not just a Canadian one, is more relevant. The
double diamond model, developed by Rugman and D'Cruz,[9]
suggests that managers build
upon both domestic and foreign diamonds to become globally competitive in terms of
survival, profitability, and growth. While the Rugman and D'Cruz North American diamond
framework fits well for Canada and New Zealand, it does not carry over to all other small
nations, including Korea and Singapore.
[edit]Double diamond model
Porter (p. 1)[2]
raises the basic question of international competitiveness: "Why do some
nations succeed and others fail in international competition?" As its title suggests, the book is
meant to be a contemporary equivalent of the wealth of nations, a new-forged version of
Adam Smith's opus.[10]
Porter argues that nations are most likely to succeed in industries or
industry segments where the national 'diamond' is the most favorable. The diamond has four
interrelated components: (1) factor conditions, (2) demand conditions, (3) related and
supporting industries, and (4) firm strategy, structure, and rivalry, and two exogenous
parameters (1) government and (2) chance, as shown above.
This model cleverly integrates the important variables determining a nation's competitiveness
into one model. Most other models designed for this purpose represent subsets of Porter's
comprehensive model. However, substantial ambiguity remains regarding the signs of
relationships and the predictive power of the 'model'.[11]
This is mainly because Porter fails to
incorporate the effects of multinational activities in his model. To solve this problem,
Dunning,[12]
for example, treats multinational activities as a third exogenous variable which
should be added to Porter's model. In today's global business, however, multinational
activities represent much more than just an exogenous variable. Therefore, Porter's original
diamond model has been extended to the generalizeddouble diamond model[13]
whereby
multinational activity is formally incorporated into the model.
Firms from small countries such as Korea and Singapore target resources and markets not just
in a domestic context, but also in a global context (Global targeting also becomes very
important to firms from large economic systems such as the United States). Therefore, a
nation's competitiveness depends partly upon the domestic diamond and partly upon the
'international' diamond relevant to its firms. The figure on the left side shows the generalized
double diamond where the outside one represents a global diamond and the inside one a
domestic diamond. The size of the global diamond is fixed within a foreseeable period, but
the size of the domestic diamond varies according to the country size and its competitiveness.
The diamond of dotted lines, between these two diamonds, is an international diamond which
represents the nation's competitiveness as determined by both domestic and international
parameters. The difference between the international diamond and the domestic diamond thus
represents international or multinational activities. The multinational activities include both
outbound and inbound foreign direct investment (FDI).
In the generalized double diamond model, national competitiveness is defined as the
capability of firms engaged in value added activities in a specific industry in a particular
country to sustain this value added over long periods of time in spite of international
competition. Theoretically, two methodological differences between Porter and this new
model are important. First, sustainable value added in a specific country may result from both
domestically owned and foreign owned firms. Porter, however, does not incorporate foreign
activities into his model as he makes a distinction between geographic scope of competition
and the geographic locus of competitive advantage.[14]
Second, sustainability may require a
geographic configuration spanning many countries, whereby firm specific and location
advantages present in several nations may complement each other. In contrast,
Porter [2][15]
argues that the most effective global strategy is to concentrate as many activities
as possible in one country and to serve the world from this home base. Porter's global firm is
just an exporter and his methodology does not take into account the organizational
complexities of true global operations by multinational firms.[16]
Porter's narrow view on multinational activities has led him to underestimate the potential of
Singapore's economy. Porter (p. 566)[2]
argues that Singapore is largely a production base for
foreign multinationals, attracted by Singapore's relatively low-cost, well-educated workforce
and efficient infrastructure including roads, ports, airports, and telecommunications.
According to Porter, the primary sources of competitive advantage of Singapore are basic
factors such as location and unskilled/semi-skilled labor which are not very important to
national competitive advantage. In fact, Singapore has been the most successful economy
among the NICs. Singapore's success is mainly due to inbound FDI by foreign multinational
enterprises in Singapore, as well as outbound FDI by Singapore firms in foreign countries.
The inbound FDI brings foreign capital and technology; whereas outbound FDI allows
Singapore to gain access to cheap labour and natural resources. It is the combination of
domestic and international diamond determinants that leads to a sustainable competitive
advantage in many Singaporean industries.
Multinational activities are also important in explaining Korea's competitiveness. The most
important comparative advantage of Korea is its human resources which have been
inexpensive and well-disciplined. However, Korea has recently experienced severe labor
problems. Its labour is no longer cheap and controllable. Major increases in the wages in
Korea were awarded to a newly militant labour force in 1987–90, which lifted average
earnings in manufacturing by 11.6 per cent in 1987, 19.6 per cent in 1988, 25 per cent in
1989 and 20.2 per cent in 1990.[17]
Korea's wage level is now comparable to that of the
United Kingdom, but the quality of its products has not kept pace. For the last several years,
Korea's wage increases have been significantly higher than those in other NICs and three or
four times as high as those in other developed countries.[18]
Faced with a deteriorating labor
advantage, Korean firms have two choices: (1) go abroad to find cheap labor; (2) enhance
their production capabilities by introducing advanced technology from developed countries.
In both cases, the implementation of these choices requires the development of multinational
activities.
To sum up, multinational activities are very important when analyzing the global
competitiveness of Korea and Singapore. In fact the most important difference between the
single diamond model[2]
and the generalized double diamond model[13]
is the successful
incorporation of multinational activities in the latter.
Positioning (marketing)
From Wikipedia, the free encyclopedia
In marketing, positioning is the process by which marketers try to create an image or identity
in the minds of their target market for its product, brand, or organization.
Re-positioning involves changing the identity of a product, relative to the identity of
competing products.
De-positioning involves attempting to change the identity of competing products, relative to
the identity of your own product.
The original work on positioning was consumer marketing oriented, and was not as much
focused on the question relative to competitive products as on cutting through the ambient
"noise" and establishing a moment of real contact with the intended recipient. In the classic
example of Avis claiming "No.2, We Try Harder," the point was to say something so
shocking (it was by the standards of the day) that it cleared space in your brain and made you
forget all about who was #1, rather than making some philosophical point about being
"hungry" for business.
The growth of high-tech marketing may have had much to do with the shift in definition
towards competitive positioning.
Contents
[hide]
1 Definitions
2 Brand positioning process
3 Product positioning process
4 Positioning concepts
5 Measuring the positioning
6 Repositioning a company
7 See also
8 References
9 External links
[edit]Definitions
Although there are different definitions of brand positioning, probably the most common is:
identifying a market niche for a brand, product or service utilizing traditional marketing
placement strategies (i.e. price, promotion, distribution, packaging, and competition).
Positioning is also defined as the way by which the marketers create an impression in the
customers mind.
Positioning is a concept in marketing which was first introduced by Jack Trout ( "Industrial
Marketing" Magazine- June/1969) and then popularized by Al Ries and Jack Trout in their
bestseller book "Positioning - The Battle for Your Mind." (McGraw-Hill 1981)
This differs slightly from the context in which the term was first published in 1969 by Jack
Trout in the paper "Positioning" is a game people play in today’s me-too market place" in the
publication Industrial Marketing, in which the case is made that the typical consumer is
overwhelmed with unwanted advertising, and has a natural tendency to discard all
information that does not immediately find a comfortable (and empty) slot in the consumers
mind. It was then expanded into their ground-breaking first book, "Positioning: The Battle for
Your Mind," in which they define Positioning as "an organized system for finding a window
in the mind. It is based on the concept that communication can only take place at the right
time and under the right circumstances (p. 19 of 2001 paperback edition).
What most will agree on is that Positioning is something (perception) that happens in the
minds of the target market. It is the aggregate perception the market has of a particular
company, product or service in relation to their perceptions of the competitors in the same
category. It will happen whether or not a company's management is proactive, reactive or
passive about the on-going process of evolving a position. But a company can positively
influence the perceptions through enlightened strategic actions.
A company, a product or a brand must have positioning concept in order to survive in the
competitive marketplace. Many individuals confuse a core idea concept with a positioning
concept. A Core Idea Concept simply describes the product or service. Its purpose is merely
to determine whether the idea has any interest to the end buyer. In contrast, a Positioning
Concept attempts to sell the benefits of the product or service to a potential buyer. The
positioning concepts focus on the rational or emotional benefits that buyer will receive or feel
by using the product/service. A successful positioning concept must be developed and
qualified before a "positioning statement" can be created. The positioning concept is shared
with the target audience for feedback and optimization; the Positioning Statement (as
defined below) is a business person's articulation of the target audience qualified idea that
would be used to develop a creative brief for an agency to develop advertising or a
communications strategy.
Positioning Statement As written in the book Crossing the Chasm (Copyright 1991, by
Geoffrey Moore, HarperCollins Publishers), the position statement is a phrase so formulated:
For (target customer) who (statement of the need or opportunity), the (product name) is a
(product category) that (statement of key benefit – that is, compelling reason to buy). Unlike
(primary competitive alternative), our product (statement of primary differentiation).
Differentiation in the context of business is what a company can hang its hat on that no other
business can. For example, for some companies this is being the least expensive. Other
companies credit themselves with being the first or the fastest. Whatever it is a business can
use to stand out from the rest is called differentiation. Differentiation in today’s over-crowded
marketplace is a business imperative, not only in terms of a company’s success, but also for
its continuing survival.
[edit]Brand positioning process
Effective Brand Positioning is contingent upon identifying and communicating a brand's
uniqueness, differentiation and verifiable value. It is important to note that "me too" brand
positioning contradicts the notion of differentiation and should be avoided at all costs. This
type of copycat brand positioning only works if the business offers its solutions at a
significant discount over the other competitor(s).
Generally, the brand positioning process involves:
1. Identifying the business's direct competition (could include players that offer your
product/service amongst a larger portfolio of solutions)
2. Understanding how each competitor is positioning their business today (e.g. claiming
to be the fastest, cheapest, largest, the #1 provider, etc.)
3. Documenting the provider's own positioning as it exists today (may not exist if startup
business)
4. Comparing the company's positioning to its competitors' to identify viable areas for
differentiation
5. Developing a distinctive, differentiating and value-based positioning concept
6. Creating a positioning statement with key messages and customer value propositions
to be used for communications development across the variety of target audience
touch points (advertising, media, PR, website, etc.)
[edit]Product positioning process
Generally, the product positioning process involves:
1. Defining the market in which the product or brand will compete (who the relevant
buyers are)
2. Identifying the attributes (also called dimensions) that define the product 'space'
3. Collecting information from a sample of customers about their perceptions of each
product on the relevant attributes
4. Determine each product's share of mind
5. Determine each product's current location in the product space
6. Determine the target market's preferred combination of attributes (referred to as
an ideal vector)
7. Examine the fit between the product and the market.
[edit]Positioning concepts
More generally, there are three types of positioning concepts:
1. Functional positions
Solve problems
Provide benefits to customers
Get favorable perception by investors (stock profile) and lenders
2. Symbolic positions
Self-image enhancement
Ego identification
Belongingness and social meaningfulness
Affective fulfillment
3. Experiential positions
Provide sensory stimulation
Provide cognitive stimulation
[edit]Measuring the positioning
Positioning is facilitated by a graphical technique called perceptual mapping,
various survey techniques, and statistical techniques like multi dimensional scaling, factor
analysis, conjoint analysis, and logit analysis.
[edit]Repositioning a company
In volatile markets, it can be necessary - even urgent - to reposition an entire company, rather
than just a product line or brand. When Goldman Sachs and Morgan Stanley suddenly shifted
from investment to commercial banks, for example, the expectations of investors, employees,
clients and regulators all needed to shift, and each company needed to influence how these
perceptions changed. Doing so involves repositioning the entire firm.
This is especially true of small and medium-sized firms, many of which often lack strong
brands for individual product lines. In a prolonged recession, business approaches that were
effective during healthy economies often become ineffective and it becomes necessary to
change a firm's positioning. Upscale restaurants, for example, which previously flourished on
expense account dinners and corporate events, may for the first time need to stress value as a
sale tool.
Repositioning a company involves more than a marketing challenge. It involves making hard
decisions about how a market is shifting and how a firm's competitors will react. Often these
decisions must be made without the benefit of sufficient information, simply because the
definition of "volatility" is that change becomes difficult or impossible to predict.
Positioning is however difficult to measure, in the sense that customer perception on a
product may not tested on quantitative measures