Competitive Advantage in a Globalizing Sector - Term Paper Example

 «Competitive Advantage in a Globalizing Sector» Ladies and Gentlemen, It gives me great pleasure to take it as an opportunity to present before you one of the burning issues that is being faced by business organizations around the world. Driven by the impact of globalization and the challenges posed by it, firms are striving towards attaining sustainable competitive advantage. As an associate of one of the prestigious consultancies, I would like to shed light upon attainment of sustainable competitive advantage in the present context of globalization. Globalization is a process in which various regional economies, cultures and societies integrate together via a network of global communication, trade and transport. Globalization implies free flow of money and goods across geographical boundaries. The introduction of globalization has in fact changed the thinking of organizations from a non-resource based view that entirely based its success on the external environmental factors to a resource based view which lays equal stress on the internal factors as a means of attaining sustainable development. Innovation is another aspect that leads to sustainable development. The case of the Dutch Flower industry clearly shows how innovation could be used to attain sustainable competitive advantage. In order to counter the environmental problems that arose due to its soil based plantations, the firm has come up with the idea of growing plants in an artificial media. This not only enhanced the social image of the firm but also gave a huge impetus to its business interests. The use of the natural environment as tool to achieve competitive advantage has been very illustrated California based firms which have used natural energy sources like wind energy to attain sustainable competitive advantage. Globalization has put the customer in a win-win situation where he/she has innumerable options to compare. The importance of the customer could be judged from the fact that most of the organizations are trying to include customer feedbacks and suggestions in their business plans. The concept of globalization has also brought in competition, which has derived benefits for customers. The urge to compete among firms has put the customer in the driver’s seat, where he/she gets the best value for every amount spent on goods or services. Another issue that has emerged is that of local sentiments and culture. Corporations across the world who aim to increase their footprint must also realize that different nations have different cultures which affect the consumer buying behavior. The concept of ‘think global and act local’ is one strategy that could create sustainable competitive advantage for firms operating in a different cultural set up. In this concept firms try to expand their reach across geographical boundaries having varied social and cultural values, but in the process they take care of the local sentiments. The case of McDonald’s in India is a shining example of this strategy. McDonald’s is a leading fast food chain which successfully operates in many countries across the globe. Most of its products are beef based which are highly popular in the Western nations. McDonald’s expanded into India with its existing range of products. In India beef is one product that tends to hurt the religious sentiments of the people. McDonald’s ignore this fact and the results were disastrous. McDonald’s then realized its mistake and removed beef and its products from the menu list. The consideration of local sentiments led to huge footfalls in its stores and now India remains one of its top overseas market destinations. This case shows that globalization has only erased physical boundaries but cultural differences still exist to a large extent. As we know that surviving competition is the key to attain sustainable competitive advantage. The markets in globalised world resemble a red ocean where business firms resemble sharks which try to compete among themselves for food or market share. Business firms analogous to sharks try to capture as much market share for themselves. This leads to a competition between them where they fight amongst each other. This is analogous to hungry sharks fighting amongst each other for their share of food. The fight leads to a bloodbath which makes the color of the ocean red (Blue Ocean Strategy) (Kim & Mauborgne, 2004). The same is the case with firms trying to capture their competitors’ share of market. In order to create sustainable competitive advantage firms must make strategies in accordance with the market conditions. Their focus must not only remain to target new customers but to retain the existing customers as well. This is because in a globalised economy the cost of attracting a new customer is much higher than retaining an existing one. Firms must try to exploit the existing demand of the market. Firms must make a clear distinction with regards to their target audience. They must understand that they cannot serve very class of customer. Firms must make a clear distinction with regards to the segment they would like to cater, namely, premium segment or the value for money segment. This assumes importance since customer satisfaction is the key to survival in this globalised world. A firm needs to understand that in order to create sustainable competitive advantage it must provide the best quality of service to its customer. This is not possible if it does not have a well defined market audience and a clear cut strategy to provide value its customers. Firms must realize their strengths and weaknesses. They should try to eliminate their weaknesses to ward off the threats and use their areas of strength to capitalize on the opportunities provided to them. Creation of sustainable competitive advantage requires firms to focus on two key issues namely the strategic scope and strategic strength. Strategic scope refers to the business dimension from the demand side which takes into account the composition and market size of the target market. On the contrary strategic strength attempts to look at the market form its supply perspective. Strategic strength reflects the core competency of a firm. Firms must try to combine product differentiation with market segmentation. In other words firms should capitalize on their strategic strength to attain a strategic scope. Michael Porter had refereed three stated three generic strategies to counter the threat of competition. These three strategies are differentiation, focus or cost leadership. Firms must adopt any one of the strategies to attain sustainable competitive advantage. In recent times there has been a great debate with regards to cost strategies. Firms have many times claimed that a low cost strategy rarely provides a competitive edge. On the contrary a low cost with less service implies a wrong positioning of as firm. Firms should adopt a strategy that tends t provide the best service with the lowest possible cost. This can be incurred by improving its operational efficiency. Firms must design processes that lead to minimal defects. They should adopt techniques like six sigma and total quality management to improve their operational efficiency and at the same time reducing the overall cost of production. This way firms can provide value to the customers as well as to their stakeholders. This assumes importance considering the fact that the basic aim of any organization is to provide the maximum benefit to its shareholders. This apart providing error free quality service or product offering to a customer would lead to customer retention which would create a sustainable competitive advantage for an organization. This would create a favorable positioning of the company in the minds of the customer. Cost cutting is another area which could provide sustainable competitive advantage for a firm. Firms must also keep in mind that the quality of product or service offering is not hampered while undertaking cost cutting measures. Firms must try to attain economies of scale. This would not only lead to cost reduction but would also create a competitive barrier for new entrants. Firms must also focus on their positioning aspect if they want to create a sustainable competitive advantage for themselves in this globalised world. A confused positioning leads to loss of customer faith which in turn can have drastic consequences. Firms need to create a favorable positioning if they want to create sustainable competitive advantage. The creation of a favorable positioning requires efficient service to the customers. This also goes about in a long way in creating brand value for an organization. A good brand value also creates sustainable competitive advantage for a firm. The brand value should be such that customers are able to recognize the brand with the product. This would lead to customer retention which is important for attaining sustainable competitive advantage. Supply chain management is another aspect which could be used to attain sustainable competitive advantage for firms. An efficient supply chain implies that there is no delay in the delivery of final goods and services to the customer. Firms like Wal-Mart have attained sustainable competitive advantage by incorporating an efficient supply chain management system. Firms can also try to go in for vertical or horizontal integration to grow up in the value chain. This would not only create a competitive advantage but would also lead to cost reductions in the form of wiping out the intermediary costs. Finally firms must also take into account the feedbacks provided by the customers. It is a well known fact that a customer whose grievance has been solved has become a loyal customer. Against the backdrop of the current business scenario, it has been observed that globalization is the most prominent driving force behind corporate operations. Almost all organizations are trying hard to make their presence felt on a global scale and hence the number of multinational enterprises (MNEs) has been steadily increasing. In the cauldron of multifaceted business affairs, competition among different players belonging to each of the sectors has skyrocketed. It is worth mentioning that the success as well as failure of organizations center on competition, which determines whether organizations may appropriately involve in activities that may add to their performance. Organizations are necessitated to formulate competitive strategy, which is “a search for a favorable position in an industry, the fundamental arena in which competition occurs” (Porter, 1998). Various scholars have defined competitive advantage from their own perspectives. While Grant (1998) has opined that competitive advantage is likely to lead organizations towards higher profitability, Porter (1985) believes that it resists corrosion by means of industry evolution or competitive behavior (Poser, 2003). In the light of these statements, it can be understood quite easily that organizations must recognize the internal resources that provide them with the invaluable competitive advantage and add fillip to their operations to such an extent that they can actually outperform their rivals. It is not necessary that every firm should have identical competitive advantage. It is most likely that an information technology (IT) firm would count on its research and development (R&D) and a vertically integrated retail store would augment its value proposition through competitive pricing. It is worthwhile to note that in the most recent context organizations are trying to achieve a sustainable competitive advantage in the form of green operations whereby they are striving to reduce their carbon footprint and contribute towards the betterment of the global environment. Quite obviously, the primary resources that firms employ in order to achieve these goals include technology, competent human resource, politico-legal networks and financial strength. Moreover, these activities reflect the corporate social responsibilities (CSR) of the organizations and in turn enhance their corporate images as well as goodwill. Hence, contemporary business organizations need to look deeper into this domain and channelize their resources strategically so that they may sustain the environment and at the same time achieve sustainable development as successful business entities. The Bhopal gas tragedy was the result of incomplete planning by the firm Chemco. The firm showed complete disregard for the safety measures of the society and had to close sown its business unit in India. This shows how disregard to the social aspect can harm a firm business interests. This also shows the lack of organizational planning in the organization. Another firm Aracruz, a Brazilian firm used the concept of CSR to attain sustainable competitive advantage. The firm is known to have spent huge amounts towards eradication poverty in one of Brazil’s most impoverished district. The firm started its Eucalyptus plantations in those areas and spent huge amount of money to improve the standards of living of the people based in that area. They spent millions in building hospitals, roads etc. This improved the standards of living of the people to such an extent that the firm did not have to pay anything else for improving the social infrastructure. They in turn got cheap labor which gave them a sustainable competitive advantage. Sustainable development, as defined by the World Commission on Environment and Development (1987), is the “development that meets the needs of the present generation without compromising the ability of future generations to meet their own needs” (Welford, 1996); therefore it is implied that at any point of time, human (as well as corporate) activities must not cause any permanent damage by way of consuming environmental resources. Furthermore, organizations are necessitated to recognize the interdependence that exists between environmental quality and economic growth in order to appreciate the notion of sustainable development. In a dramatic as well as drastic turn of events, the firms that rely heavily on non-renewable natural resources such as coal, petroleum have been facing a serious setback as the general population is gaining awareness about environmental sustainability. It has been observed that the economic development of China is profoundly dependent on coal, and hence the managements of various Chinese coalmines are keen on expanding their operations so that incomes may be enhanced. However, the current scenario demands that China must produce as well as consume steadily decreasing quantities of coal as a response to the growing concern for environmental betterment; in addition, these initiatives are deemed necessary to guarantee sustainable development for China as well as other nations. Under such circumstances, it is very likely that organizations will face a lot of pressure from different quarters both at the domestic as well as international levels, and this is where the politico-legal networks of organizations come into play. Amidst such a state of affairs that often transcends into the global arena thereby drawing international attention, organizations need to judiciously diversify their core businesses in order to maintain profitability. The cigarette companies in many countries face a similar predicament as tobacco products are being looked down upon by governments and other environmental as well as medical agencies. In this context, it may be mentioned that a good example has been set by the Indian Tobacco Company (ITC). Over the last decade, the company has diversified into a multitude of other businesses such as textiles, hospitality, fast moving consumer goods (FMCG), paperboards & packaging, agri-business and IT, thereby. Although the company continues to manufacture cigarettes, it is no more their core business. Furthermore, it is a noteworthy fact that despite such large-scale diversification, the company has achieved a growth of 38 per cent in the operating profits earned from its non-cigarette businesses (ITC Limited, 2010). The company has secured a firm position in the good books of its shareholders by contributing towards the preservation of the national heritage and a wide spectrum of CSR activities, thereby proving that organizations can successfully attain sustainable development if they have the necessary internal resources as well as the competitive advantage(s). During the course of this discourse, it has been shown that the current business environment is far too demanding by being extremely competitive thereby necessitating organizations to enhance their competitive advantages on a frequent basis. It goes without saying that in order to survive the breakneck competition, organizations need to outperform their rivals and this task is made extremely difficult due to the advent of technology and globalization. Change and adaptability are two such terms which are indispensable for any organization willing to prove their might in the global arena. Numerous studies have shown that firms which remain inflexible are bound to lose their sustainability. Finally, it may be said that organizations need to recognize the global dynamics in order to develop competitive strategies that would ensure sustainable development. References 1. ITC Limited. 2010. HIGHLIGHTS – FINANCIAL RESULTS FOR THE QUARTER ENDED 30 JUNE, 2010. Available at: http://www.itcportal.com/ [Accessed on August 18, 2010]. 2. Kim, W. C. & Mauborgne, R. 2004. BLUE OCEAN STRATEGY. [Pdf]. Available at http://www.laegaard.org/file/13/pdf [Accessed on August, 18, 2010]. 3. Porter, E. M. 1998. COMPETITIVE ADVANTAGE: CREATING AND SUSTAINING SUPERIOR PERFORMANCE. Simon and Schuster. 4. Poser, B. T. 2003. THE IMPACT OF CORPORATE VENTURE CAPITAL: POTENTIALS OF COMPETITIVE ADVANTAGES FOR THE INVESTING COMPANY. DUV. 5. Welford, R. 1996. CORPORATE ENVIRONMENTAL MANAGEMENT: SYSTEMS AND STRATEGIES. London: Earthscan Publications Limited. Bibliography 1. Hart, S. L. No Date. 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