Competitive Advantage as a Part of Strategic Management - Mr. Empanada Case - Research Paper Example

? when due Competitive Advantage Competitive advantage has become an interesting area of study in strategic management. Competitive advantage is based on the assumption that strategic resources are not homogenous across firms and that the heterogeneity is stable over a certain period. Competitive advantage is therefore correlated with the firm’s resources. It is important for a firm to understand the sources of its competitive advantage. Past studies suggest that competitive advantage is achieved when a firm implements strategies that focus on capitalizing the strengths while mitigating macro and micro threats (Hill, Charles & Gareth 374) . At the same time, the firm avoids its weaknesses by utilizing its opportunities. According to the National Restaurant Association Study, casual dining represents 31.59% of the total food service sales. To possess a significant proportion of that percentage, therefore requires unique strategies to be competitively advantageous. Figure 1. casual dining percentage of total foodservice sales For Mr. Empanada to exceed franchises and bring in new investors to exceed his business, I recommend that his company adopt a strategy that gives his firm a competitive advantage. A competitive advantage refers to the advantage a firm has over its rival firms. Competitive advantage allows the company to increase sales, profits and retain more customers than the competitors. Competitive advantage also allows the company to generate more value for its sustenance and for the shareholders. Competitive advantage is derived through the firm’s strengths that include the firms cost structure, products, distribution network and customers support. There are two main routes to options development for competitive advantage. Those that are market based and those that are resource e based. Within the market-based approach, three main routes include the generic strategies, market options and expansion methods. The three fundamental strategic options available to an organization are referred as the generic strategies and include; Cost leadership This strategy aims at placing the organization amongst the lowest cost producers in the market. Empanada, can achieve overall cost leadership through various means. To start with, his firm can take advantage of economies of scale through franchising. By doing that, the purchases for his restaurants can be affordable in low prices given by the distributors as compared to the competitors. Due to large volume of purchases, the firm ought to attract cash discounts. Secondly, this objective can be achieved through globalization of operations. Franchising can be done in international level to increase the market share in many countries. This is advantageous due to wide awareness created. Strategic alliances can also be fruitful in this endeavor. The firm can decide to relocate to low cost parts of the world where labor is cheap and sources of supplies are many and cheap. This strategy is beneficial in outperforming rivals and erecting barriers to entry. Differentiation This option aims at developing and targeting a product that is different in some significant way from its competitors in the market place. Uniqueness in products through emphasis upon one or more elements of marketing mix as perceived by the target market is important as it offers a scope for distancing the company from its competitors expecting competitive advantages. This objective can be achieved through creating of strong brand identities. The firm can enhance its uniqueness through product engineering and creative flare generated from strong research (Nilsson, Fredrik & Birger 412). The firm can also employ the corporate reputation for quality service through strong cooperation from all channels of distribution. Having long tradition in the field of food and beverage in the food industry can give the firm a competitive advantage. Focus Focus strategy is also known as the niche strategy and involves targeting a small market segment where it either can operate by using a low cost focus or differentiated focus approach. The firm can employ this strategy by specializing in its goods and services that it offers. The firm can achieve this by serving a narrow strategic target more effectively and efficiently than its competitors who compete for broad market segments (Witcher, Barry & Vinh 278) . Market options The firm should consider market options if there is the possibility of launching new products and moving into new markets but explores the possibility of withdrawing from and moving into new unrelated markets. Under this strategy, the firm may opt for withdrawal where if there is an over extension of product range and the only remedy is to withdraw some products. This formula works by weeding out the underperforming products to concentrate on the leading lines. Withdrawal can also be effective when there is need to sell subsidiaries that attract high prices. Under withdrawal, the firm can decide to demerge. This is a split of one company into two companies with attractive implication. If for example, the firm owning the restaurant operates another business like a gas station, the two can split to allow each on to focus on its activities without competing for scarce resources. Expansion method Acquisition In the expansion methods, the restaurant firms can acquire another company in the same line of operation. The merits include renowned brands, big market share, core competencies and special technologies. Through acquisition, the firm gains presence more rapidly. The benefits also include reducing the rival competition, economies of scale, maintenance of the company’s technical expertise and extension in new geographical area (Kim , Byeon & Haemoon 65-71). Merging The firm may also merge with another firm in the same industry if it does not have enough financial resources to acquire it. Merging is advantageous because it provides a pool of technical expertise. Joint venture For competitive advantage, the firm can also opt for joint ventures and alliances. In joint venture, two companies join to form a company whose shares are jointly owned by the two parent companies. The two share assets and skills of parent companies. An alliance is a weaker contractual agreement characterized by minority shareholding between two parent companies. The merits include, joint expertise, close customer contact and potential partners learn from each other. The two methods are cheaper as compared to acquisition. Resource based strategic options This strategy is useful when a firm identifies and develops key resources of organization that add value and competitive advantage. The main options induce value chain and cost reduction. This strategy is useful when each organization is unique in terms of its resources like innovation and reputation. Value chain In value chain, value can be added early in the value chain, upstream or later in the value chain- downstream. Upstream activities add more value by processing raw materials into standardized products while downstream concentrate on differentiated products targeted towards special market segments (Jocumsen, 273). Cost reduction In cost reduction, the firm focuses on cutting back its current operation in order to minimize costs. This is achievable through supplier relationships where the supplier is willing and able to maintain quality and reduce costs. Cost reduction is also enhanced though economies of scale. In this case, the unit costs fall as the firm grows. As the firm grows, there emerges the experience curve where reductions of costs occur. Cost reduction also happens when there is capacity utilization by the firm is done to full capacity. Conclusion If Empanada employs one of the above strategy, his firm can have competitive advantage over the competitors in market leadership, increased market share, high profits, popularity with customers , stronger brands and higher customer retention levels. Work Cited Hill, Charles W. L, and Gareth R. Jones. Strategic Management. Cengage Learning, 2012. Print. Jocumsen, Graham. “Marketing Strategies for Competitive Advantage.”European Journal of Marketing 36.1/2 (2002) : 273. Kim , Byeong Yong, and Haemoon Oh . "How Do Hotel Firms Obtain A Competitive Advantage?." International Journal of Contemporary Hospitality Management 16.1 (2004): 65-71. Print. Nilsson, Fredrik, and Birger Rapp. Understanding Competitive Advantage: The Importance of Strategic Congruence and Integrated Control. Berlin [u.a.: Springer, 2004. Print. Witcher, Barry J, and Vinh S. Chau. Strategic Management: Principles and Practice. S.l.: Cengage Learning, 2010. Print. Read More