Competitive advantage is a theory that aims at addressing some of the criticisms that are associated with the comparative advantage. The theory can be dated way back in the 1990s as it was proposed by Michael Porter and it suggests that businesses and states should endeavor in policies that aim at the creation of high quality goods to sell at the market at a high value. He puts more emphasis on the productivity growth as the main focus for national strategies. The theory upholds the notion that cheap labor is obiquitous and that the existence of the natural resources is not good for the growth and sustainability of the economy.
(Dess et al 2005)For a firm to be able to posses the competitive advantage in the current strategic management situations, its business has to show that its profits exceed the average in a given industry or over its rivals. This firm puts up major goals in its business strategy to be able to achieve the competitive advantage over the rest of the firms in its line of operation. From this theory that was proposed by Michael Porter, he came up or in other words identified two basic types of competitive advantage.
The two are; Cost advantage Differentiation advantageFor a firm to show the existence of the competitive advantage, this firm has to be able to deliver the same benefits as those delivered by its competitor but offer it at a lower cost to be at a cost advantage. They can also do it by delivering benefits that exceed those of the products of its competitor and be able to take over the differentiation advantage.
In other terms, the competitive advantage will always enable a firm to have more and superior value for its esteemed customers or consumers and at the end of the day achieve superior profits to itself. (Dess et al 2005)According to this theory buy Porter, the cost and differentiation advantages are referred to as the positional advantages since they describe the position at which the firm is t in the industry as a leader in either of the two, differentiation or cost. From the above literature, there is one thing that seems to be very evident about competitive advantage.
That is, the competitive advantage will only exist when a given firm has a product or a service that is perceived by the customers of its target market as being greater, better or superior that that is provided by it’s competitor. Around the business world today, there has been a myth that has often confronted many entrepreneurs in the creation of competitive advantage. One of the myths is that there exist no good business opportunities, meaning that these opportunities are already gone.
The other myth is in relation to small firms, where they are believed to be no match for the big companies. (Dess et al 2005)I tend to find the two ideas erroneous despite the fact that the market players whether big of small do not welcome competitors. (Karl H. Vesper) The big companies for this reason fight to their best to maintain the propriety shield to put off the existing and prospective competitors. It is vividly evident that for an entrepreneur to create a new competitor and attack them, he needs an entry wedge or what would be a good strategic competitive advantage to enable him have the breakthrough in the commercial activity.
(Dess et al 2005)