Friday, May 6, 2011

Competitive Advantage and Comparative Advantage in term of Corporate Performance

Abstraction
 

It talks about basic concepts of strategic management company that is competitive advantage in improving corporate performance by resource-based view perspective. Results of a study of one of the main factors in competitive advantage which revealed that the role of innovation, especially in conditions of market competition that increasingly tight in the era of the 20th century this.
 

Along with these discussions, is described in a simple easy to understand, regarding the development of the concept of resource-based view in strategic management as well as the birth of a new perspective of comparative advantage in the management firm corporate strategy.

INTRODUCTION
 

In the context of discussion of the strategies necessary to first note again, that the company's strategy was always there are three elements, namely: where the company is currently located, where the company aims, and how the company achieve that goal.
The first element, which the company is currently located, will talk among others about the market and competitive position, capabilities and power resources, as well as the company's performance today. While the second element of corporate goals, and lastly, how do companies achieve this goal by developing and executing strategy.
 

In general, the company's strategy consists of components of offense and defense. Attack means trying to compete with competitors that already exist in the market, while the second element means to withstand the pressure of competitors and all the things that threaten the sustainability of the company has had in the market.
 

COMPETITIVE ADVANTAGE
 

In 2004, Arthur Thompson et al. in a book entitled Strategy: Core Concept, Analytical Tools, Readings, said that in terms of achieving corporate objectives, quality diketegorikan strategies can be powerful or superior strategy, and strategy of the weak or does not have an advantage over competitors strategy. The quality of this strategy covers two areas of application of the external area, which is related to the market, and the internal areas concerning the creation of competitive advantage (competitive advantage).

Basic Concept of Competitive Advantage
 

With this competitive advantage, companies will eventually be able to win the competition in the market and took advantage with a maximum. While no competitive advantage, companies will be easily defeated by competitors and even deterioration of financial conditions will occur at the company itself.
 

In practice the business world, competitive advantage are constantly being created and developed by each company in the competitive marketplace. But on the other hand when a company managed to create a competitive advantage, often occur practices impersonation / imitation by its competitors, and vice versa.
 

A simple example is in the banking industry. Where in the current era of competition every bank in this industry is certainly using information technology to support its business. For example, during the internet banking has not been commonly used in banking services, Bank A, build competitive advantage by using Internet banking features to improve services to its retail customers. The goal is by the number of retail clients interested in this service may cause an increase in funding retail portfolio in the composition of the Third Party Funds (DPK). But it does not last long, this can be emulated by other competitor banks in this industry in droves to implement internet banking.
 

From the example above, there is the essence of the creation and development of competitive advantage is an activity that must be done in a sustainable and trending to the competitive advantage that is not easily imitated, so that companies always have more value in the eyes of consumers compared with the pesainya, ie sustainable competitive advantage.
 

Back to the competitive situation faced by Bank A on top, one competitive advantage that can currently be categorized as a difficult imitated is the competitive advantage in terms of service. These services include hospitality, the attitude of frontline staff are nice and polite, transaction convenience, and the factors other service quality.
 

By having a competitive advantage that is difficult to imitate by competitors, the company's performance can be better motivated. Consumers will choose the product or service that is cheaper, high quality, and best suited to their needs and desires, where it is formed from a competitive advantage, and ultimately will improve the performance of companies that have them.

Intensity of Competition in Innovation and Competitive Advantage
 

In a market with increasing competition and dynamic, innovation is vital to be possessed by every company. Porter (1990) states that at the end of the 20th century, is the phase where the industry will be oriented to innovation (innovation-oriented), and in this phase enterprise competing in the market will quickly raced in innovation (He, 2008).
 

He et al. (2008) make the comment that a concept of the importance of innovation in affecting the competitive position and performance of a company, to include also components of the intensity of competition in it. To test this concept, an empirical study conducted on 238 optoelectronic firms in Wuhan East Lake High-Tech Development Zone, China.

The study found that innovation has a positive relationship with firm performance. This is supported by many other studies. One result of this study is that innovation in technology and products, also to do with resource-based view in creating a valuable resource, rare, and difficult to imitate by competitors, to drive corporate performance (H1). Likewise, the market position of excellence, innovation has a positive relationship, where innovation, among others, to create new value for consumers and cost / price is more efficient (H2). The next relationship is that the primacy of the market position also has a positive relationship with firm performance. Excellence, which among other positions due to the added value perceived by consumers will give a positive influence on satisfaction and their loyalty to the products offered by the company, which in turn will encourage the return on investment (return on investment) firms (H3).


Porter (1980) states that the intensity of competition (competitive intensity) is the level of competition faced by firms in the market. This can be reflected as price competition, advertising, the number of rival products, and supplementary services provided by competitors (He et al., 2008). The higher the intensity of competition, the higher the need for innovation. To illustrate the relationship between these components, can be formulated that the higher the intensity of competition, the more closely the correlation between innovation with firm performance (H4), and the higher the intensity of competition, the more closely is also a correlation between innovation with excellence in the competitive position of companies in the market ( H5).


DEVELOPMENT OF RESOURCE-BASED VIEW


In its development, in a simple, theory-based resource based on the six things: resources, strategic factor markets, strategy, superior performance, economic rents, and competitive advantages (Barney et al. 2001).


Resource (resource) shall include tangible and intangible assets used by the company in running the strategy that has been structured to achieve its objectives. Companies develop or obtain these resources from the strategic factor markets (Barney, 1986a), where this market can be perfectly competitive or not. This resource is only valuable when to use it is said, companies benefit compared with not using it. In other words, just have not enough resources to make the company stronger in excellence and have superior performance than its competitors. Hill & Jones (1992) states that it is precisely that determines success is the capability (capability) of the company in using its resources.


Barney added that like other theories on strategy, resource-based theory using several assumptions, including an entity is a company that aims to maximize profit. But there are two assumptions underlying the distinction between resource-based theory of strategy theory, namely, the assumption of resource heterogeneity and resource immobility.


The assumption of resource heterogeneity means that companies who compete to have a set of resources different from each other. Heterogeneity of the concept has two attributes namely scarcity where demand for resources is greater than availability, as well as non-substitutabilility where there is no substitute for resources that can make a company can run the strategy with the best resources initially (Barney 1991a). While the assumption of resource immobility means that the difference in ownership of these resources can take place continuously, whereas this is partly because the factors that the availability of resources is inelastic to total demand for these resources.


Andy Lockett et al. (2009) reviewed the developments and implications of the RBV theory that has been run over time, highlighting the five things, namely the theory, methodology and practice of constraint in the RBV, the empirical evidence, insights in the practice of RBV, RBV and development which will describe where and where RBV development should be directed.


In line with the theory previously put forward Barney (1991) on sustainable competitive advantage, in his review, Lockett et al. explained that the sustainable competitive advantage comes from resources, where resources must be Valuable, rare, inimitable, and non-substitutable (VRIN). Followed also by Lockett et al. about the role of managers in RBV theory, where managers through the decisions made, can affect conditions of competition that occurred in the market. The role of managers in the RBV has also affected the three other important elements in the RBV, resource functionality, resource recombination, and resource creation.


Resource indicate that the most important functionality for the company of a resource that is not the kind of resources, but it is functionality. Second, resource recombination shows that very rarely a resource becomes valuable when isolated from other resources. In other words, the optimal benefit may be obtained from virtually only one type of resource only. In the end, this opinion suggests that the combination of various resources to produce benefit or value to the company. Third, resource creation indicates that the company will not be able to have a sustainable competitive advantage if it is only wearing a same resources continuously, thus should be the creation of new resources to execute its strategy.


Heterogeneity and A NEW PERSPECTIVE


Heterogeneity of resources (resource heterogeneity) is one of the assumptions (Barney 2001) in describing the theory of resource-based, where the resource heterogeneity meant that competing companies have different resources to each other. In the concept of heterogeneity there are two attributes of scarcity and non-substitutabilility as described in the previous section. The key idea of ​​heterogeneity in the context of the RBV is the 'ability' among the companies that make imitations besaing to each other each other in terms of creation of competitive advantage.


One of the latest developments in the context of strategic management that happened this year is the birth of a new perspective in viewing the concept heterogeniteity. This is a Firm Perspective Comparative Advantage (CFA) suggested by Anoop Madhok, Sali Li, and Richard L. Priem (2010).


In the general theory is described that comparative advantage is it about the advantages of a country in the efficiency of production of a commodity compared to other countries so as to create a pattern of trade between countries (international trade). While describing the benefits of corporate competitive advantage from competing vendors. From the above there are different levels of the context of the discussion, one of whom spoke at the state, while others spoke at the enterprise level. However, opinions about the separation is nowadays is a bias, where the concept of comparative advantage can also be applied to the enterprise level.


Comparative Perspective Firm Advantage


Williams (1994) argues that the RBV view the company as a collection of resources and capabilities are managed with the aim to get 'Rent' (Madhok et al. 2010). In simple terms, the rent can be defined as the profit from the calculation of opportunity cost. In other words advantage of the opportunity cost calculation is also called the opportunity cost of rent.


Madhok et. al. (2010) categorized the opportunity cost of rent into two types, namely use-based opportunity cost of rent and user-based opportunity cost of rent. The first category to compare the use of a particular resource by the 'one' company to use a 'different'. While the second category to compare the use of a particular resource by 'more than one' company to use the 'same'.


Firm understanding of comparative advantage perspective this can be done with these concepts in mind, a plus with the help of comparison from the perspective that has been there before, namely conventional view and the resource-based view.


In brief, the earliest perspective, conventional view, this type of opportunity cost of rent that is used is use-based. This is reflected that in this perspective, as seen is how the 'one' company thinking about efficiency on the internal side only to compare the efficiency of two different products. While in the RBV perspective, the scenario turned into two (or more) of the company that produces a similar product. So who is more efficient than anyone? And how 'ability' of each in doing imitations of each other on the heterogeneity that happen? Type of opportunity cost of rent that is used is a user-based because that is calculated is the ratio between 'users' resources.


In the new perspective, namely firm comparative advantage, there has been developments in scenario thinking and concepts are used. Among others is the scenario that there are two (or more) companies involved and not just produce a similar product, but more than one type of product. So the concept of heterogeneity, there is shift from 'ability' (ability) to 'willingness' (Willingness) to do imitations of each other. Type of opportunity cost of rent that is used is both a good use-based or user-based.


Isolating Mechanism in Competitive heterogeneity


The interesting thing from a new perspective is the emergence of thought that tries to define the limits of the shift that occurs is of ability to be Willingness, and the linkages between this with the concept of isolating mechanisms or the protection of resources from the threat imitated by competitors.


Ability-based isolating mechanism (AIM), highlights the problem of inter-firm differences caused by the heterogeneity that occurs because the problem of 'ability' company in doing imitations of other companies. Protection against imitation, among others, may be copyright protection or the high cost of developing a resource.


While on the Willingness-based isolating mechanism (WIM), the difference between firms due to the heterogeneity that occurs because the problem of 'willingness' company in imitation, where in fact the company is 'able' to do imitations of the company if it wanted to.


A description of the WIM is the latest case happened on Ebay. When Ebay entered the Korean market, where there are two business segments namely business-to-consumer (B-to-C) and consumer-to-consumer (C-to-C). Ebay actually has a good advantage in the segment of B-to-C or C-to-C compared to its competitors in the Korean market. However, due to Ebay felt that the CFA and its strategy to achieve 'rent' would be better obtained from C-to-C only, then Ebay leaving the segment of B-to-C. On the basis of this condition, Ebay competitors choose to play in the segment of B-to-C. Actions taken by management Ebay is an example of Willingness-based isolating mechanism.


CONCLUSION


Competitive advantage can be encouraged to improve company performance. One of the main factors in the formation of competitive advantage, especially in the era of the 20th century this is the innovation that impact the company's performance is influenced by the level of intensity of competition in the market.


RBV as a theory of the other strategic management is a concept that continue to experience growth over time. One of the developments in management theory perspective this strategy is the birth of a new firm that is comparative advantage, CFA, which was considered to accommodate the implementation of management strategies in a more holistic enterprise in achieving its objectives.



REFERENCES


Barney et al. (2001). The Resource-based View: Origins and Implication. 
He et al. (2008). The Impact of Innovation and Competitive Intensity on Positional Advantage and Firm Performance. The Journal of the American Academy of Business, Cambridge. 
Lockett et al. (2009). The Development of Resource-based View of the Firm: A Critical Appraisal. Blackwell Publishing Ltd.
Madhok et al. (2010). The Resource-based View Revisited: Comparative Advantage Firm, Willingness-based Isolating Mechanism, and Competitive Heterogenity. EURAM MacMillan Publishers Ltd.. 
Thompson et al. (2004). Strategy: Core Concept, Analytical Tools, Readings. McGraw-Hill Companies.

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