Sustainable Competitive Advantage

Introduction
Competitive advantage is at the heart of firm’s performance in competitive markets. After
several decades of vigorous expansive and prosperity, however, many firms lost sight of
competitive advantage in their scramble for growth and pursuit of diversification. Today
the importance of competitive advantage could hardly be greater. Firms throughout the
world face slower growth as well as domestic and global competitors. Competitive
advantage is about how a firm actually puts the generic strategies into practice and it
grows fundamentally out of the value a firm is able to create for its buyers. It may take
the form of prices lower than competitors’ for equivalent benefits or the provision of
unique benefits that more than offset a premium price.

The Structural Analysis of Industries – Competitive Strategy

A competitive strategy should be based on a deep analysis of the structure of the industry
and its evolution. The first fundamental determinant of a firm’s profitability is industry
attractiveness. Competitive strategy must grow out of sophisticated understanding of the
rules of competition that determine an industry’s attractiveness. The ultimate aim of
competitive strategy is to change the concept in the firm’s favor.
In every industry, whether it is taken nationally or worldwide, the concept of competitive
are embodies through five competitive forces: the threat of new entrants, the threat of
substitution, the suppliers’ power of bargaining, the customers’ power of bargaining, and
the rivalry inside between the firms of the same sector. (see Figure 1)

Figure1: Five competitive forces

that determine industry profitability.
The advantage of these five
competitive forces determines
the ability of firms in an industry to earn profits. The five forces determine industry
profitability because they influence the prices, costs and required investment of firms in
an industry. Buyer power influences the prices that firms can charge, the power of buyers
demand costly service, the bargaining power of suppliers determines the costs of raw
materials and other inputs, the intensity of rivalry influences prices as well as the costs of
competing in areas such as product development, the threat of entry places a limit on
prices, and shapes the investment required to deter entrants.

The appropriate unit of analysis in setting competitive strategy is industry which is a

group of enterprise in direct competition. Strategically, an industry may be distinguished
from another by the fact it proposes products that have similar sources of competitive
advantage. In other words, the industry is the location where the firms win or lose a
competitive advantage. The enterprise, with its competitive advantage, must define and
elaborate a profitable approach of its industry. There is no universal strategy: to be
successful, a strategy must be specific to the enterprise and the industry under
consideration. The strategy must be based on the enterprise’s scope of competence and
real means. On every competitive strategy, there are two components to distinguish. First,
the structure of the industry in which evolves the enterprise: From one industry to
another, the profitability may change a lot. Second, the positioning of the enterprise
within the industry, some positions will be more advantageous than another whatever the
profitability level.

Generic Competitive Strategies

The fundamental basis of above-average performance in the long run is sustainable
competitive advantage, without a sustainable competitive advantage, above-average
performance is usually a sign of harvesting. Though a firm can have a number of
strengths and weaknesses counterparts it competitors, there are two basic types of
competitive advantage a firm can possess: low cost or differentiation. The significance of
any strength or weakness a firm possesses is ultimately a function of its impact on
relative cost or differentiation. Cost advantage and differentiation in turn stem from
industry structure.
The two basic types of competitive advantage combines with the scope of activities for
which a firm seeks to achieve them lead to three generic strategies for achieving above-
average performance in an industry: cost leadership, differentiation, and focus. (see
Figure 2)

Figure 2: Three generic strategies.

Challenge of sustainability competitive advantage

Managers face uncertainty in terms of the emergence of new proprietary technologies,
rapidly changing economic and political trends, transformations in societal values and
shifts in customers’ demands. Environmental uncertainty increases the complexity and
the range of issues to examine when studying the internal environment. Biases about how
to cope with uncertainty affect decisions about the resources and capabilities that will
become the foundation of the firm’s competitive advantage.

Criteria of sustainable competitive advantage

Capabilities that valuable, rare, costly to imitate and non-substitutable are strategic
capabilities. Strategic capabilities are also known as core competencies and hence serve
as a source of competitive advantage for the firm over its rivals. Capabilities failing to
satisfy the four criteria are not core competencies. Thus, as shown in figure 3, every core
competence is a capability, but not every capability is a core competence. Operationally,
for a capability to be a core competence, it must be valuable and non-substitutable, from
a customer’s point of view, and unique and inimitable, from a competitor’s point of view.
Figure 3: Four criteria for determining strategic capabilities.

Valuable capabilities Help a firm to neutralize threats or exploit opportunities

Rare capabilities Are not possessed by many others
Costly-to-imitate capabilities Historical: A unique and valuable organizational culture
or brand name
Ambiguous cause: The causes and uses of a core
competence are unclear
Social complexity: Interpersonal relationships, trust and
friendship among managers, suppliers and customers
Non-substitutable capabilities No strategic equivalent

A sustained competitive advantage is achieved only when competitors have tried, without
success, to duplicate the benefits of the firm’s strategy or when competitors lack the
confidence to attempt imitation. For some period of time, the firm may earn a competitive
advantage through the use of capabilities that are, for example, valuable and rare, but are
imitable. In such instance, the length of time a firm can expect to retain is competitive
advantage is a function of how quickly competitors can successfully imitate a good,
service or process. It is only through the combination of conditions represented by all
four criteria that a firm’s capabilities have the potential to create a sustainable
competitive advantage.

Global industries conception in long term

A global industry is one in which the strategic positions of competitors in major
geographic or national markets are fundamentally affected by their overall global
positions. To analyze competition in a global industry, it is necessary to examine industry
economics and competitors in the various geographic or national markets jointly rather
than individually.
Benefits and limitations
Numerous managers have had difficulty in getting along with sustainable development
requirements (Hall and Vredenburg, 2003). Besides, by providing exclusive rights to the
interests of the community and different stakeholders, the short term benefits to the direct
shareholders of the organization seems to be negatively affected, and as a result,
sustainable development might be considered as a threat to organizational profit.
However, it is to be noted that failing to care about the community and organizational
sustainable development roles will create a negative image of the organizational brand,
and negatively affect the organization in the long-term (Cruz et al., 2006). Moreover,
apart from the necessity to follow the rules and regulations regarding society and the
limitations it might create for organizations, there are demonstrable positive benefits to
organizations adopting sustainable development principles. Sustainable development
should not be considered as a limitation or obstacle, but rather as a social responsibility
which brings about different opportunities and benefits to the organizations.

The adoption of sustainable development principles can result in benefits to the

organization. There have been increasing examples that companies that take a more
sustainable approach enjoy positive benefits, including (Sigma Guidelines, 2003):
 improved operational efficiency;
 preservation of license to operate;
 enhanced brand value and reputation;
 promoting and increasing innovation;
 customer attraction and retention;
 improved access to capital;
 enhanced human and intellectual capital;
 building and sustaining shareholder value;
  improved management of risk;
 generating increased revenues;
 attracting and retaining talented staff;
 Identification of new opportunities.
These benefits gained from incorporating organizational sustainable development
principles will create a competitive advantage for the organization and enhances its
position in the society as well as positive perception of customers and society. Therefore,
promoting sustainable development within the organization benefits the enterprise in the
long-run.

Discussion and conclusion

Competitive advantage describes the way a firm can choose implement a generic strategy
to achieve and sustain competitive advantage. It addresses the interplay between the types
of competitive advantage which is cost, differentiation and the scope of a firm’s
activities. Finally, to create a competitive advantage, the industry is required to progress,
to innovate, and to discover the best competitive opportunities and exploit them. The firm
should not stop improving the quality of its products and its methods. Its main role is to
take risks and to invest. A country succeeds in a sector when the national frame creates a
favorable environment to this continuous effort, and when the capacity is given to the
enterprise to be strategically aggressive and to react quickly. The preservation of a
competitive advantage, in the long run, requires this advantage to be continuously
improved thanks to a policy of sustained investments. To keep this advantage, the firm
has to adopt a continuous evolution, which is not comfortable from an organizational
point of view.