A Basis for Competitive Advantage in Firms - Term Paper Example

Student number: Name: Date Submitted: Campus: Lecturer: Tutor: Tutorial Time: Topics chosen -North Australia Pastoral Company -The Coles and Woolworths and other players in Australian retail industry Word count-1650 words INTRODUCTION An external environmental analysis helps a firm to determine how to exploit its strengths to compete effectively in the market. A company has to define good opportunities to venture in and the capabilities of the competitors (Rice, 2010, 375-388). The SWOT analysis often starts by studying of the strengths such as reputable image, and weakness like poor distribution channel. The Five Forces helps in the definition of the structure of the industry and the competitive nature of an industry. The Porters’ Five Forces tool helps industries to identify whether products have potential profitability. New entrants exert pressure on general costs, prices and rate of investments. Also, diversification of firms from other markets may bring leverage issues that would shake the competition in the market (Mason, 2006, 37-58). The existence of a high threat of substitute may result in the depression of the profitability of an industry. Easy and flexible substitution weakens the power of an industry. In achieving a competitive advantage, a competitive market has to use switching costs, and the company has to create an incentive for customers to stay with the company for its survival. Foon (2009, 20-38) argues that the market may also implement issues such as fixed cost leverage, intangible assets and ownable network effect to be competitive. DISCUSSION External environmental analysis Every company carries an environmental analysis, commonly known as SWOT analysis, as a comprehensive look at the business's strengths and weaknesses (Ryall & Sorenson, 2007, 121). A company has to consider the analysis of external factors it faces in the market. An external environmental analysis helps a firm to determine various ways to exploit its strengths to compete effectively. Five Forces Analysis Five Force analyses is a study of competitive strategies that was developed by Michael E. Porter. This analysis assumes that competition goes beyond industrial rivalry to include other forces that drive competition such as; suppliers, customers; substitute products and potential entrants (Argote, 2000, 150-169). The threat of entry Companies who enter into a market bring new capacity and desire to achieve an optimum market share. Diversification of firms from other markets may bring leverage issues that would shake the competition in the market (Ryall and Sorenson, 2007, 121).The threat of new entry majorly depends on the present entry barriers and the reaction the entrants expect from occupants (Hersperger and Burgi, 2009, 640-648). The power of suppliers The power of vendors depends on the degree of influence a supplier hold in market prices, service or product quality, or the ability to shift costs to other industry participants. Dominant suppliers can squeeze profitability from an industry that is not able to factor in an increase in costs to its prices (Filsecker, et.al, 2014, 136-148). Powerful customers Customers are said to be powerful if they are capable of negotiating leverage about market participants. Buyers power if they can easily drive prices down (Indra, 2004, 127-134). Convincing customers can acquire more value by just forcing down prices and demanding better product or service quality. The threat of substitutes According to Porter (2010, 34) a product alternative performs a similar function as another industry's product in a different way. The products have almost the same utility to a consumer. A threat of substitute mostly results in the depression of the profit an industry can make. Rivalry among existing competitors The competitive rivalry may take different forms such as product introductions, price discounting, service improvements and advertising campaigns (Porter, 2010, 34). An intense rivalry would encourage businesses to engage in investment in innovation, and price wars that would increase costs and reduce profits. Sources of competitive advantage High Switching Costs Switching costs are those costs that a customer incurs when he changes from an existing supplier or product to another. A competitive market uses switching costs, and the company creates an incentive for customers to stay with the company for its survival (Dobbs, 2012, 22-33). Intangible Assets Intangible assets are such things as patents, brand, company reputation and copyright. Patents prevent persons from copying inventions from other people and claiming as their own (Kourteli, 2005, 32-54). ANALYSIS OF THE CASES External environmental analysis An external environmental analysis helps NAPCO to determine how to exploit its strengths and minimize its vulnerability to compete effectively. NAPCO Company has to define good opportunities to venture in and the capabilities of the competitors (Rice, 2010, 375-388). Most companies exited the industry after the cattle industry become stagnant with limited growth making NAPCO remain in the cattle industry solely. These companies faced a lot of industrial discouragements, leaving NAPCO as a sole cattle industry. NAPCO has acquired competitive advantage by having a unique access to areas with scarce demand such as Chinese Taipei and the Middle East which have an increasing demand for cattle produce. Five Forces Analysis The threat of entry-So far the NAPCO Company enjoys being an outstanding cattle company in the region. Though the company experiences a threat of entry into the industry by other firms, NAPCO still is one of the first growing cattle industries in the area. NAPCO experiences pressure from new entrants who might have a great influence on costs, prices and rate of investment (Barney, 1991, 43). German Aldi has become the threat to Coles and Woolworth supermarkets due to its low price products. The German Aldi supermarket is fast growing and may become one of the worldwide known supermarkets. The power of suppliers- NAPCO Company relies on the vast number of cattle that it rears. The NAPCO Company has a possession of large acres of land. Hence, the company does not entirely rely on suppliers unless there is a shortage (C. S et.al, 2011, 731-736). Various suppliers that Woolworth and Coles obtain their products from are powerful and therefore, have a significant influence on the prices of commodities. Powerful customers-NAPCO has customers in various areas such as in North America. Customers in fields such as Japan and America have a great influence on the prices of the cattle products. Customers that purchased commodities at the Coles and Woolworth supermarkets have power on the prices of goods. The threat of substitutes- Companies such as CRS, Angliss family and Hooker Corporation produce were the major threats of product substitution since these products offer an equal utility the customers. The threat of substitutes may be indirect or downstream (Wang & Chang, 2009, 43). A depression on the profitability of the industry that remained constant for some time. The two major supermarkets, Coles and Woolworths both experience threat of substitute from one another. German Aldi offers a threat in the product sold by Coles and Woolworth supermarkets. Rivalry among existing competitors- There was rivalry between NAPCO, CRS, Angliss family and Hooker Corporation since they all deal with the same product, beef products. The rivalry has driven the cattle industry on two bases; the intensity of competition and, the basis of race. There is an established rivalry between these supermarket evidenced by the stiff competition. Industrial Grocers of Australia is offering a threat to Coles and Woolworths. (Filsecker & Hickey, 139-142). SOURCES OF COMPETITIVE ADVANTAGE High Switching Costs Switching costs are those costs that a customer incurs when he changes from an existing supplier or product to another option. These costs, often called the negative utility, are in monetary form, but can be in the form of effort or time. A competitive market uses switching costs, and the company creates an incentive for customers to stay with the company for its survival (Foon, 2009, 20-38). A company may opt to create quality uncertainty as a measure of creating fear or doubt in the quality of a new product. Fixed Cost Leverage So long as sales costs are not increased (Banham, 2010, 19-26). The primary goal for fixed cost leverage is to obtain higher setup costs with limited overhead costs to achieve economies of scales. Both Woolworth and Coles supermarkets have achieved fixed cost leverage on the operation of the two supermarkets. Intangible Assets Copyrights prevent persons from copying inventions from other people. Companies with such intangible assets secure the operations of its business since it safeguards the company's image (Banham, 2010, 19-26). For instance, NAPCO has various intangible assets that have enabled the firm to be a continuous business despite the difficulty it experiences in the industry. Coles and Woolworths also have defined assets that safeguard them from unlawful activities that some companies or individuals may carry out in their names. Ownable Network Effect Network externality is the ability of the new customers to adapt to a business's product or service. Besides, an easy to use product attracts more customers. The case of Coles and Woolworths, both supermarkets are doing great because of the effect of their products on customers (Argote and Ingram, 2001, 150-169). CONCLUSION NAPCO has taken measures by having in place various entry barriers such as high cost of production that would bar any other firm that might want to join the industry. . The external environmental analysis equips the NAPCO Company with the competitive advantage since it was able to withstand the tantrums in the industry. The competitive rivalry may take different forms such as product introductions, price discounting, and service improvements (Porter, 2010, 34). NAPCO, therefore, have gained tremendous domestic market and expanded into the international market. Besides, The two major supermarkets, Coles and Woolworths both experience threat of substitute from one another. German Aldi also offers a threat in the product sold by Coles and Woolworth supermarkets. Copyright ensures a company security by preventing individuals from a particular work without owner permission (Banham, 2010, 19-26). A company has to define good opportunities to venture in and the capabilities of the competitors (Wang and Chang, 2009, 43). Therefore, that there is a depression of the profitability of the cattle industry that remained constant for quite some time. Moreover, high operating leverage enables a company to reap benefits in terms of profits from every sale made. Works cited Argote, L., & Ingram, P. (2000). Knowledge Transfer: A Basis for Competitive Advantage in Firms.Organizational Behavior and Human Decision Processes, 82(1), 150–169. doi:10.1006/obhd.2000.2893 Banham, H. C. (2010). External environmental analysis for small and medium enterprises (SMEs). Journal of Business Economics Research, 8(10), 19–26. Retrieved from http://ezproxy.library.capella.edu/login?url=http://search.ebscohost.com/login.aspx?direct=true&db=bth&AN=54374549&site=ehost-live&scope=site Barney, J. (1991). Firm Resources and Sustained Competitive Advantage. Journal of Management. doi:10.1177/014920639101700108 pp43 C. S., Andrei, P., & Gabriela, P. M. (2011). INTERNAL ENVIRONMENT ANALYSIS TECHNIQUES. Annals of the University of Oradea, Economic Science Series, 20(2), 731–736. Retrieved from http://search.ebscohost.com/login.aspx?direct=true&AuthType=ip,shib&db=bth&AN=71959507&site=eds-live&scope=site&custid=s1123095 Dobbs, M. E. (2012). Porter’s Five Forces in Practice: Templates for Firm and Case Analysis. Competition Forum, 10(1), 22–33. Retrieved from http://search.ebscohost.com.ezproxy.liv.ac.uk/login.aspx?direct=true&db=s3h&AN=82588564&site=eds-live&scope=site Filsecker, M., & Hickey, D. T. (2014). A multilevel analysis of the effects of external rewards on elementary students’ motivation, engagement and learning in an educational game. Computers & Education, 75, 136–148. doi:10.1016/j.compedu.2014.02.008\cite{Claudiu2011} Foon, L. S. (2009). Capabilities differentials as sources of sustainable competitive advantage. International Journal of Business and Society, 10(2), 20–38. Hersperger, A. M., & Bürgi, M. (2009). Going beyond landscape change description: Quantifying the importance of driving forces of landscape change in a Central Europe case study. Land Use Policy, 26(3), 640–648. doi:10.1016/j.landusepol.2008.08.015 Indra Gamayanto. (2004). PORTER S FIVE FORCES MODEL  SCOTT MORTON S FIVE FORCES MODEL BAKOS TREACY MODEL ANALYZES STRATEGIC INFORMATION SYSTEMS MANAGEMENT . Jurnal Informatika, 5, pp.127–134. Retrieved from http://puslit2.petra.ac.id/ejournal/index.php/inf/article/view/16111 Kourteli, L. (2005). Scanning the business external environment for information: Evidence from Greece. Information Research, 11(1) pp32-54 Mason, R. B. (2008). Management actions, attitudes to change and perceptions of the external environment: A complexity theory approach. Journal of General Management, 34(1), 37–53. Porter, M. (2007). Competitive Advantage of Nations. Bloomsbury Business Library - Management Library, 18. doi:10.1002/cir.3880010112 pp 34 Rice, J. F. (2010). Adaptation of Porter’s five forces model to risk management. Defense AR Journal, 17(3), 375–388. Retrieved from http://www.dau.mil/pubscats/Pages/ARJ55.aspx Ryall, M. D., & Sorenson, O. (2007). Brokers and Competitive Advantage. Management Science. doi:10.1287/mnsc.1060.0675.pp121 Wang, W., & Chang, P. P. (2009). Entrepreneurship and strategy in China: why “Porter’s five forces” may not be. Journal of Chinese Entrepre neurship. doi:10.1108/17561390910916886.pp43 Appendices Read More