The Main Sources of International Competitive Advantage - Essay Example

? What are the main sources of international competitive advantage? Think about a successful product in your country, what are the sources of competitive advantage that explain its success? Contents 2 Introduction 3 Discussion 4 Conclusion 9 References 11 Introduction A business is said to have a competitive advantage over its competitors when the sustained profits for the business or a particular product is above the average profit of the industry. According to Michael Porter, there are two types of competitive advantage: Cost Leadership: When a business is able to provide the same benefits at lower cost than the competitors, the business is said to have a cost advantage over its competitors. Differentiation Advantage: When a business is able to deliver higher benefits than its competitors at the same cost, it is said to have differentiation advantage over its competitors. Focus Strategy: When a business implements any of the cost leadership or differentiation strategy but in a specific customer target group like in a specific geographical area, the niche segment or a specialized line of products. Competitive advantage is achieved by making optimal use of the resources and the capabilities of then business to create a structure with lower cost or a differentiated product. Achieving a sustainable competitive advantage makes a firm capable of creating more value for its customers and deriving super profits from the business. The main sources of competitive advantage are the asset resources, capabilities and the key success factors. In this report we consider the Porsche cars to study the process of competitive advantage achieved by this line of products. Discussion Porsche is a highly profitable company which manufactures luxurious premium cars. The brand offer elegance and comfort in their products and is segmented as a premium product. Porsche cars have gained enormous competitive advantage by implementing a focus differentiation strategy. Porsche cars are aimed at a specified niche group of customers who are ready to buy unique differentiated cars at a premium price. Porsche aims to satisfy the segment of niche customers better than the competitors in the luxury sports car industry. The Porsche cars are specifically designed for a premium market where the buyers have unique needs and distinctive preferences than the other buyers. To ensure serving these customers effectively and ensure brand loyalty, Porsche has developed unique aligned capabilities. The mission statement of Porsche is perfectly aligned with their strategic planning thus creating an authentic and unique product. The brand has achieved ultimate competitive advantage by strategically combining quality and uniqueness in its products. The lean production system adopted in the manufacturing of the cars is a key factor in gaining competitive advantage for the product. The resources maintained by the company is carefully chosen and highly maintained. The human resources and the physical resources of the brand add to the value chain. Porsche recruits highly qualified people as their staff and extensively train them to make them competent enough. The employees are imparted with necessary skills through training centres all over the world and in Germany especially. The company supports and motivates their staff by maintaining a financial incentive structure where a percentage of the yearly turnover is given as incentives to the employees of Porsche according to the company results. The physical resources of the company are of high quality and the manufacturing process involves using materials of high quality and the use of advanced technology (Porter, 2008, p. 68). The Research and Development team of Porsche in Germany tries to innovate and create superior quality and unique products so as to achieve sustainable competitive advantage. The configuration of the manufacturing plants is concentrated and every department of production is maintained in the closest possible place. Only few parts are imported from other countries or taken from other locations. Porsche has outsourced a part of its production in Finland which procures some spare parts. Porsche has a network of efficient suppliers who provide the best products for the production process. The production process uses costly materials and newest technology to offer the best of products. The intangible resources of the brand are equally carefully chosen and maintained. Porsche makes extensive use of their Research and Development team and seeks to produce superior quality cars which are equipped with the latest technologies for the design and the engine. Implementing the best technologies for the cars are crucial as the performance of the cars are the most important drivers for their business (Davis, 2008, p. 376).The lean production system of Porsche adopted from the Japanese production model ensures lowest possible wastage and overproduction. The manufacturing system also ensures the production of high quality and high performance cars. For keeping an updated customer, competitor and supplier database, Porsche uses the SAP CRM software known as Trillium Software. The implementation of this software in the business model of Porsche helps it to communicate efficiently with its customers and suppliers. The premium price of the Porsche cars is accepted by the customers as Porsche guarantees high performance by offering the latest technology in their cars range. The reputation of the brand is strongly established with it receiving many prestigious awards like the prize of the most prestigious automobile brand by the Luxury Institute. The design and engineering of the Porsche cars is a critical factor for ensuring competitive advantage. Porsche has shared its Research and Development team with other companies and has constructed an attractive brand based on this business model (Henderson, 2009, p.245). The high quality of the Porsche cars is another factor for maintaining enough edge over the competitors. Porsche focuses on expansion through exporting rather than through acquisitions and licensing. Porsche remains the most successful manufacturer of international sports cars because of its technological advancement and recruitment of highly knowledgeable staff. The main competitors of the Porsche car in the sports car industry are Lamborghini, Maserati, Ferrari, Aston Martin, Bugatti and Lotus. Porsche cars have adopted the Focused Differentiation model for competitive advantage. They have targeted the premium niche customers as the target group and placed their product as an authentic luxurious sports car. The brand exhibits engineering excellence coupled with high prestige brand image. Evaluating the resources and capabilities of Porsche, it can be identified that the main sustainable competitive advantage is achieved by the implementation of lean production practices that enhance the costs saving ways of the brand. In the face of Global financial crisis, cost cutting is a major factor in deciding competitive advantage. The brand offers cars that are perceived as unique by the customers and above the other brands in the industry (Barney, 1997, p.64). A comprehensive SWOT analysis of Porsche is done to identify the strengths and potential of the brand and is given below: Strengths: Strong brand image, high quality products, high profit margins, optimal value chain, reputation of the business, personalization services, manufacturing excellence, efficient Research and Development department, lean manufacturing processes, leader in sports car market and strong procurement processes. Weaknesses: lack of diversification, restricted to the luxury segment and dependence on external suppliers. Opportunities: There is a high scope of expanding the product line, increasing the sales in emerging markets, high Gross Domestic product growth rates, expanding in new segments through the involvement in Volkswagen, technological synergy of Volkswagen, increase in disposable incomes and expenditure trends. Threats: Foreign trade regulations, accelerating increase in fuel prices, strong competition in the industry, Green issues in the environment. Porsche has remained a profit reaping car manufacturing company for more than 80 years. This is because the company had maintained excellent management, continuous innovation, unique design and strong brand reputation. The competitive advantage of Porsche is gained from a wide brand visibility, historical achievements, and customers’ brand loyalty as well as by their effective strategies to outperform the competitive companies in various dynamics. The Michael Porter’s five forces analysis of the Porsche car is given below: Bargaining power of Buyer: The bargaining power of buyers increase with the development of the leasing policy. The car being flexible is a predominant choice for the buyers. Bargaining power of suppliers: The potential of the suppliers for Porsches is high. Porsche maintains more than 9 suppliers who are required to be efficiently innovative to be the best Threat of New Entrants: The threat of new entrants for Porsche is low as the brand image and the product line has already been strongly established. It is difficult for the new entrants to make enough economies of scale to give competition to an established brand like Porsche. Threat of Substitutes: Porsche faces a very low threat of substitute. Being a car only makes it a flexible and heavily needed mode of transportation. Other modes of conveyance do not offer the convenience and value that is derived from a car as a mode of transportation. Apart from that, Porsche is considered as a niche and unique car in the sports car segment. Competitive Rivalry: Porsche has established substantial brand loyalty on the part of the customers though the brand faces a high degree of competition from other players like Lamborghini, Maserati, Ferrari, Aston Martin, Bugatti and Lotus. The market is a highly mature market with a high amount of competitive rivalry. In the high level, opportunities remain consistent with Porsche. The Ansoff matrix analysis for Porsche is presented as follows: Market penetration has been done in the Middle East, New Zealand, Germany and North America. Merger between Porsche and Volkswagen has enable create new market development in Asia Pacific, Russia, China and India. Product development is being done through launching SUV and other new products. Diversification is done through new designs and vertical movement (Nilsson, 2005, p.21). Porsche works in a multi directional way whereas the competitors of the brand are generally single dimension oriented. Porsche makes it a point to emphasize on giving equal weightage to the factors of luxury and sports car. The brand aims for creating a unique combination of luxury and sports like they have done in the Porsche Cayman. The brand has adopted the path of sport and luxury factors in an attempt to create perfection in their products. But the other players in this industry like BMW and Mercedes have still not been able to perfectly blend the two factors of luxury and sport attributes. Unlike its competitor products, the Porsche cars not only look like a unique sports car but also have a high performance and technology of design as well as aerodynamics. Porsche has placed its products in the high end premium luxury sports cars delivering high quality and having a high price range (Oxford Journals. 2010, p.16). The price range of Porsche is $4800-$136000 which aims at the elite class of people. The brand has an ideal of “not afraid to tread its own path” which they have lived up to by manufacturing cars that are not only unique but also flexible enough to suit the customer. The cars designed by Porsche create a high value for the customers and substitutes matching these products cannot be easily found. The brand charges a premium price due to the high technology and quality of the cars. All, these factors have enabled to build brand loyalty from the customers. The niche market is targeted with delivering an innovated product with premium features and quality (Weihrich, 1999, p. 54). Conclusion Porsche cars though facing high competitive rivalry has been enormously successful in achieving competitive advantage through differentiation. The capable management of the company from the beginning has been a critical factor in establishing the reputation of the brand and achieving sustainable competitive advantage. The Porsche cars are successful in deriving immense customer satisfaction by projecting the Porsche lifestyle through the products designed by them. In future, the brand can continue maintaining its competitive advantages by protecting and enhancing the brand image, adopting some of the strengths of Volkswagen from the alliances, by continuously innovating and designing better products and developing the diversification strategies of the business to gain new customers and expand into new untapped markets. The economic factors affecting the maintenance of competitive advantage by Porsche is the strategic alliance with Volkswagen resulting in technology and innovation sharing for development of the SUV. Porsche can also focus on emphasizing the fuel efficiency of the cars and target their marketing toward a younger consumer group also. To maintain sustainable competitive advantage, Porsche has to attract more customers by launching products designed to fulfil their expectations, increase and strengthen their market share as well as withstand the pressure from the rival players in the market. References Barney, J. 1997. Gaining and Sustaining Competitive Advantage. [Print]. New Jersey. Addison-Wesley Publishing Company. Davis, A. 2008. Critical Competitive Strategy Issues. [Pdf]. Available at: http://isites.harvard.edu/fs/docs/icb.topic1285657.files/Critical%20Competitive%20Strategies%20Every%20Entrepreneur%20Should%20Consider.pdf. [Accessed on 19 November, 2013]. Henderson, R. 2009. What’s Driving Porsche? [Pdf]. Available at: https://mitsloan.mit.edu/LearningEdge/CaseDocs/08-075-What's%20Driving%20Porsche.Henderson.pdf. [Accessed on 19 November, 2013]. Nilsson, F. 2005. Understanding Competitive Advantage: The Importance of Strategic Congruence and Integrated Control. [Print]. New York. Springer. Oxford Journals. 2010. Global restructuring and the auto industry.[Online]. Available at: http://cjres.oxfordjournals.org/content/3/3/311.full. [Accessed on 19 November, 2013]. Porter, M. 2008. Competitive Advantage: Creating and Sustaining Superior Performance. [Print]. New York. Simon and Schuster. Weihrich, H. 1999. Analyzing the competitive advantages and disadvantages of Germany-An alternative to Porter’s model. [Pdf]. Available at: http://www.usfca.edu/fac-staff/weihrichh/docs/germany.pdf. [Accessed on 19 November, 2013]. Read More