Porter Michael E. stated that "National prosperity is created, not inherited. It does not grow out of a country's natural endowments...as classical economics insists" (1990 par. 1). In simple terms, Porter emphasizes that a country's competitive abilities relies on its industrial innovation and upgrade capabilities; thus, firms obtain advantage against competitive organizations or global competitors due to pressure and challenge (Porter, 1990). Ideally, stress and problems result into the benefit of acquiring domestic competitors, aggressive local supply chain, and domestic consumer demand (Zenger, 2016). Next, a nation will be stated to have a competitive advantage in its goods and services only if the product and service receive a lower opportunity cost than that of a competitive nation (Jaffe & Nebenzahl, 2006). All in all, competitive advantage is an approach that strategically highlights the strengths of a firm's entity over that of its rival product and services within a competitive scope (Porter, 1990). Furthermore, the method of establishing competitive advantage aids in strengthening and positioning an organization/business at higher market share within a business setup.
MNE's Exploit their Competitive Advantage
According to Zenger (2016), competitive advantage theory enhances that it is better for decisions to be made regarding competitive advantages levels; thus, these levels include national, corporate, domestic and individual scopes. Moreover, to ensure that an organization establishes a competitive advantage, entities such as benefits, target market, and competition need to be considered.
In many occasions, there have been questions regarding the ideal benefits of an organization's product. Such benefits can be established by offering the consumers typical products at the actual value/price. To determine acute benefits, the firms need to create awareness of the pros of the products and services; precisely those features that will benefit the clients. Additionally, implementing innovative business techniques as a means of understanding the market niche, competitor strategies, and seek out new business opportunities. A good example is the ideal functioning between the manually printed newspapers and the internet.
Example: The invention of technology, especially the internet has brought about various competitive disadvantages to the newspaper industry. Indeed, the newspaper industry has struggled, but they have deduced ways of adapting and preserving the norms of conducting businesses. Moreover, the main issues that affect the newspaper industry due to the rise of technology (internet) are advertising revenues (Amadeo, 2018).
According to research conducted by the Congressional Research Service, 80 percent of the newspaper revenue comes from advertising. Unfortunately, the advertising sector has shifted their focus towards a cheaper and dynamic online advertising platform; therefore, the printing sector loses out from such markets and financial benefits (Amadeo, 2018). Moreover, the printed classified ad section faces stiff competition from online advertising companies that rely on extensive and robust social networking and assist-initiated listings. Such a platform has resulted into the weakening economy of the newspaper industry and has led to the drop of 44 percent between 2005 and 2009 (Amadeo, 2018).
Target market emphasizes identifying the ideal consumers, their needs, and their purchasing behavior. Additionally, it highlights the creation of product and service demand to establish economic growth. Identifying ideal customers refers to selecting the population that best suits a product or service.
Example: A good example is the consumer shift in the newspaper industry. First, with the establishment of the newspaper industry, most of the clients were financially stable individuals regardless of age and gender (Amadeo, 2018). The newspaper industry flourished for a while, and after the introduction of the internet which was cheaper, more affordable, and more accessible to the working class the sector lost their target market (Amadeo, 2018). Next, the newspaper industry researched and made inquiries on the market niche and later decided to establish their products for the elderly since the target was comfortable with the system (Amadeo, 2018).
Identifying ideal competitors is one of the essential benefits of competitive advantage. To recognize typical competitors firms need to understand the products and services produced by rival companies. Moreover, competition also requires a company to ensure the actions of consumers especially in meeting their needs and demands.
Example: The Caterpillar case is one example that clearly defines the ideal importance of competition. First, the Caterpillar Organization, also globally known for its large-scale construction and engineering business equipment achieved its large market share by diversifying its operation (Hout, Porter, & Rudden, 1982). Caterpillar Company faced competition from Japanese Competitor. Some of the reasons for the stiff completion were the construction equipment specifications varied worldwide, high transport cost of the machines, financial constraints in purchasing spare parts and transporting the devices (Hout, Porter, & Rudden, 1982). To occupy and access the enormous market share, the Caterpillar Company established an independent and more profitable dealership to service the fleets of machinery left behind by the Navy Seabees after the Second World War (Hout, Porter, & Rudden, 1982).
The idea was to establish a stable revenue flow from spare parts; thus, making the company grows and develop into a self-sustaining, better financed, and profitable business than the Japanese Competitors. Such an action brought about the use of a global supply chain and distribution system for the Cat Two machinery (Hout, Porter, & Rudden, 1982). Furthermore, Caterpillar converted its network into a stream of sales in various nations. The change made sure that the company experienced cost advantages that were promoted by the design and implementation of product brands that used similar components and invested in a few large-scale manufacturing establishments worldwide (Hout, Porter, & Rudden, 1982). Moreover, the company later centralized most of production assembling establishments its largest and most significant major markets, for example, Europe, Japan, Australia, and Brazil among others.
Limitations of Competitive Advantage
Competitive limitations/disadvantages are the unfavorable terms that establish a firm's underperformance within a competitive market scope. Most of the restrictions include properties related to knowledge, scale, ratio, environmental setup, supply chain and distribution, quality, and political, social, and economic interference (Gupta, 2014). Ideally, understanding the limitations of competitive advantage relies on identifying the critical components of the comparative advantage approach. First, the current global market structure lacks the identity that enhances a nation to specialize in its products because of the various reasons for governmental interference (Gupta, 2014).
Majorly, governments affect comparative advantage for both political and economic rights such as the establishment of fair and long-long term employment opportunities, protection of the agricultural identity, and the countries self-sufficient in the protection sector by using tariffs, non-tariff restrictions, and quotas. Lastly, the shifts of comparative advantages after some time limits competitive advantage method. Evolution broadens the scope development and growth within a nation, and by realizing their potential latent chances are created.
Amadeo, K. (2018, October 29). What Is Competitive Advantage? Three Strategies That Work. Retrieved from https://www.thebalance.com/what-is-competitive-advantage-3-strategies-that-work-3305828
Gupta, C. (2014). International Business. S. Chand Publishing.
Hout, T., Porter, M., & Rudden, E. (1982, September). How Global Companies Win Out. Retrieved from https://hbr.org/1982/09/how-global-companies-win-out
Jaffe, E., & Nebenzahl, I. (2006). National image & competitive advantage: The theory and practice of place branding. Copenhagen Business School Press.
Porter, M. (1990, March-April). The Competitive Advantage of Nations. Retrieved from https://hbr.org/1990/03/the-competitive-advantage-of-nations
Zenger, T. (2016). Beyond competitive advantage: How to solve the puzzle of sustaining growth while creating value. Harvard Business Review Press.
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