Competitive Advantage and Scarce Resources - Case Study Example

THE ONLY SOURCE OF COMPETITIVE ADVANTAGE FOR A BUSINESS IS ITS SCARCE RESOURCES al Affiliation Firms achieve competitive advantage when they take advantage of the scarce resources. The resources must be valuable, rare, inimitable and non-substitutable (Stambaugh, Zhang and DeGroot, 2013).Rare resources are valuable in creating a competitive strategy if other competing firms have not implemented them. A firm’s resource base should be backed by core competencies that keep away rivals and help to overcome barriers. Firms take advantage of tangible resources such as buildings, intangible resources that include patents, intellectual properties, and employees (Day, 2013). Companies utilize their pool of unique or scarce resources when there is a looming crisis that could faze them out of business or lower the chances of generating projected profit margins. This paper will use two case studies of Apple Inc and Amazon to demonstrate how companies use their resources and core competencies to achieve competitive advantage during a time of crisis. The discussion will also entail analysis of the methods used to mitigate the problems using SWOT, PESTEL, and Porter’s Five Competitive Forces. Case One: Apple Inc Apple had a problem maintaining its position in the market after the death of Steve Jobs. Tim Cook took over, but he had a huge task ahead given that Apple was going through an extraordinary crisis (Ekener-Petersen, and Finnveden, 2012). Apple had amassed massive profit margins through the unique computer, MP3 players, phones, and tablets, but the digital industry began to welcome new players. Apple’s management faced the challenge and the journey to the next level was not guaranteed. Apple was facing a number of problems at the beginning of 2012 including the following; i. The sales for non-PC products such as iPods has skyrocketed for four years in a row ii. Apple has enjoyed decades of leadership in the production of operating system, iOS for PC computers. However, the introduction of Windows 8 threatened the market leadership for user interface platforms. iii. Worldwide sales for PC products fell to 5% by 2012 and eventually the overall market share dropped. iv. iPhone was not dominating the smartphone industry as before due to the growing competition from Google and Samsung. There were endless patent infringement cases with Samsung. v. Apple had introduced iPad as its newest creation to compete in the tablet market. However, Amazon and Samsung began to launch similar products in the market, and they spoil Apple’s share and profit margins (Heracleous, 2013). Steve Jobs’ dream was to create a company with industrial design, simplicity, and product elegance. The company targeted emerging markets such as China to expand its PC and non-PC market. The push international expansion forward required a quick analysis of the market to take control of both hardware and software in the market (Stambaugh, Zhang, and DeGroot, 2013) The management knew that unique strength would come from unique or scarce resources. Strategic Positioning PESTEL analysis came in handy for the company to fight competition such as Amazon, Google Samsung and retain overall market share. PESTEL analysis is a valuable strategic method that for identifying the position, growth, and size with respect to the external environment (Hitt, Ireland and Hoskisson, 2011).The analysis helped to understand the potential, operation direction, and situation of Apple PCs. Political factors Apple could not control political factors such as terrorism wars, geopolitical uncertainties, and authority on work and health conditions for its workers and products. Apple speculated the large operating costs even with a large pool of skilled workers and high sales prospects and introduced the outsourcing strategy. Outsourcing in Ireland, China, Korea, Cork, and The Czech Republic was a profound strategic positioning (Heracleous, 2013). Economic Factors The world economic conditions determine the purchasing power of consumers. With unemployment and recession hitting many countries in 2009, the sale of Apple PCs and software products went down (Chong, Wong, and Wang, 2014). Apple’s PCs and software were also been subjected to inflation due to increased oil prices. The management of the company relied on stabilizing foreign currencies to boost its revenue base. Social Factors The purchasing power of consumers has risen in virtually all global markets, and their preferences for iPhones, iPod, and iPad have been consistent (Fine, 2009).The music industry and social media platforms have been influential for PC, software and iTV product line revenues. Technology Factors PCs, software, and smartphones are leveraged on Apple’s intellectual property. The creation of high technology innovative products extends to non-PC creations (Heracleous, 2013). Not only does Apple invested in research and development but also in skills of employees with unique knowledge and skills. The company was ready to conquer the PC and non-PC market but no without analyzing the most imminent and existing competition. Both Steve Jobs and Tim Cook evaluated both external and internal environment. Michael’s Five Competitive Forces tool was an ideal tool for analyzing its environment and single out competitive firms in the hardware and software industry. Understanding industry competition can help firms build strategies around the unique resources and core competencies (Hooley, Piercy, and Nicoulaud, 2008) Firms consider methods to compete in the hypercompetitive market conditions through assessment of competitor strongholds and weaknesses (Porter, 2014). Intensity of rivalry Apple decided to provide technical support, high customer loyalty, and high-quality products. Apple PC and Non-PC products do not go on sale because home, government, and corporations pre-order Apple products (Shim and Lee, 2012). The sale of 40 million notebooks in 2009 showed a company that can withstand the intensity of the rivalry such as Android. Bargaining power of Suppliers Large PC, software and smartphones customer base reduced the bargaining power of suppliers through registration of new suppliers on its website (Brynjolfsson, Rahman and Hu, 2013).The company kept track of the suppliers by monitoring and comparing their pricing structures and reduced the bargaining power of suppliers. Buyer’s bargaining power Apple utilized products pricing according to different customer segments in the market (Ekener-Petersen and Finnveden, 2012). Meeting the expectations of customers across all income level enabled Apple to win customers who would consider offerings from Samsung, Google, HTC, and LG. With a 75% profit in the electronic industry, Apple gained a strong brand loyalty to contain the threat of buyers. Threat of Substitution The array of digital hub products depended on Apple’s strong brand image. iPads, iPhones, iCloud, and iTunes gave the company a strong image and innovation that wins value and customer loyalty (Chong, Wong, and Wang, 2014). Threat of New Entry Apple relied on its ecosystem to sell its products, but that did not prevent patent infringement from Samsung among other firms that have transferred its knowledge. However, the legal frameworks protected Apple from loss of intellectual property used to closed-system Apple products (Bosch and Man, 2013). Case Two: Amazon Jeff Bezos evolution came as a result of undying commitment and ability to change Amazon from an online bookstore to a fully-fledged marketplace for third-party sellers, suppliers and online buyers (Klaus, 2013). However, Jeff needed to invest in Amazon’s core competencies and unique strength to confront challenges in the online bookstore business. Amazon faced crises in the market and the problems included: i. Changing consumer’s mindset about the idea of an online marketplace was important. Many critics thought Amazon.com was destined to remain an online bookstore with million book titles. ii. There was an opportunity in the e-retail business, but the company did not have a strong financial foothold to gain the minimum market share. The e-retailing business had competitive firms such as Wal-Mart, Target, and Buy.com. iii. Becoming a multinational electronic commerce company required a committed working force. Jeff had done little to improve leadership and organization culture though he was cognizant of prevailing strong corporate cultures in the industry (Peppers, and Rogers, 2013) iv. Shares and stock prices fell in 2001, and the problem was compounded later in 2009 when the economic downturn hit the global market. Amazon required consistent profits to retain its market share and take control of financial future. v. A laidback supply chain management approach was crucial considering that Wal-Mart and Buy.com were using sophisticated systems to management supply chains. Warehousing, transportation, shipping and demand forecasting called for quality supply chain management (Ritala, Golnam, and Wegmann, 2014). A strategic positioning for Amazon was important because the company needed to have footing even after a successful eight-year period. The strategic capability enables a firm to respond to the external environment (Johnson, Scholes, and Whittington, 2011). The unique resources and competencies in a firm define the strategic capability. The influence of the stakeholders and expectations of the rival firms must be taken into consideration (Hooley, Piercy, and Nicoulaud, 2008). PESTEL analysis came in handy to help Amazon understand its external and internal environment. Political Factors International policies were an impediment to the growth of Amazon. Expansion to foreign countries frustrated its online purchases due to strict entry policies. According to Ritala, Golnam and Wegmann (2014) Amazon had benefited from the affordable internet for target consumers because they can shop faster on the site. Economic Factors Amazon’s e-books and e-commerce platforms were subject to currency fluctuations and recessions. Additionally, the sales of multimedia on the web were a disadvantage to Amazon due restricted customer reach and low economic recovery (Shim, and Lee, 2012). Social Factors Ethical and religious factors restricted the penetration of Amazon e-books and e-retailing to overseas regions (Hitt, Ireland and Hoskisson, 2011). However, the growth of the internet and the advent of social media generated prospective e-commerce customers with a platform to evaluate Amazon’s offerings market. Technological Factors Amazon invested in innovative methods to stay ahead of rival online retailers. The company also realized that millions of people have internet access through mobile devices and tablets with 3G and 4G capabilities. Consumers could compare prices with other e-retailers while shopping online (Hitt, Ireland and Hoskisson, 2011). Environment Factors Amazon expanded its e-retailing platform reach to cloud storage and computing options. The options can reduce the need for hardware and physical storage devices (Chong, Wong and Wang, 2014). A greener solution would work better for Amazon to reduce pollution and harness consumers who are ardent supporters of green technologies (Gawer and Cusumano, 2008). Legal Factors Amazon is subject to international laws because they sell to overseas companies. The nature of the products shipped is sold under the guidance of different international laws. Platforms such as Hollywood have increased war against the sale of digital copies that make it easy to duplicate multi-media content (Ritala, Golnam and Wegmann, 2014). Amazon’s Key Strategies Johnson, Scholes, and Whittington (2011) indicate that firms should try to make sense of the environment or the market where they sell their products. Making sense would entail overcoming complexity and diversity. Customers expect that the companies will adopt or align their strategies due to the changes that happened in the external environment (Mullins, 2013). Gaining competitive advantage entails firms knowing the strengths and weaknesses. An organization has a great for the unique resources in its product line. Resources and competency adequacy and suitability give firms a chance platform for survival (Johnson, Scholes, and Whittington, 2011). A blend of tangible and intangible assets is vital. Additionally, core competencies define the activities and processes needed to meet customer’s minimum requirements, and they allow firms to survive in the market. Amazon move to unveil landmark strategies came with scanning competition in the market. A summary of possible threats is analyzed through Porter’s Five Competitive Forces; Intensity of Rivalry Bargaining Power of Suppliers Buyer’s bargaining power Threat of Substitution Threat of New Entry Kindle-3 e-book readers, iPad and digital content from Apple Suppliers who cannot wait for 35 days period to sell new products Low pricing strategy to win new and existing customers The advent of e-Bay and Apple’s i-store Evolution of Facebook, YouTube, Plentyfish.com, buy.com Porter’s Five Competitive forces helped Amazon management to understand its market and competition. The company utilized 4 key success strategies to conquer the e-business: i. Amazon gained competitive advantage by becoming the first company to sell books on the internet ii. The company customized e-commerce experience for customers by including user-contributed reviews and recommendations iii. A mastery of distribution channels for safe and quick delivery through UPS and FedEx iv. Strategic alliances and partnerships to bring new customers to the site were effective. Additionally, Amazon utilized employee stock and benefits to create a committed and cultured workforce (Peppers, and Rogers, 2013). While both Apple and Amazon unveiled success strategies based on the resource base and product differentiation, a quick summary of strengths and weaknesses is vital by way of SWOT analysis. SWOT analysis helps firms understand the core market merits and possible areas where competitors can invade (Fine, 2009). SWOT Amazon Apple Strengths Sound e-book and online commerce brand recognition Incentives and strong employee culture E-retail and e-commerce diversification Dozens of distribution centers around the globe Strong financial performance of 43.9% Strong Brand reputation Weaknesses Low price strategy attracts better deals from other firms High priced commodities Patent infringement Opportunities Strategic alliances with Circuit City, Office Depot and WHSmith International market through broadband and internet connections Launch of iTV Growth of smartphone and tablet market Damages from Patent infringements Threats E-commerce vendors such as Google, eBay, Apple, Kindle Price pressures from Google and Samsung The growth of Android OS market Figure 1: Adapted from Smith (2010) Conclusion Firms leverage market share through resources and competencies that competitors cannot bring in the market. Amazon success is attributed to the evolution of e-commerce and e-book market. 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