Competitive Advantage An advantage that a firm has over its competitors, allowing it to generate greater sales or margins and/or

retain more customers than its competition. There can be many types of competitive advantages including the firm's cost structure, product offerings, distribution network and customer support. Competitive advantages give a company an edge over its rivals and an ability to generate greater value for the firm and its shareholders. The more sustainable the competitive advantage, the more difficult it is for competitors to neutralize the advantage. There are two main types of competitive advantages comparative advantage and differential advantage. Comparative advantage, or cost advantage, is a firm's ability to produce a good or service at a lower cost than its competitors, which gives the firm the ability sell its goods or services at a lower price than its competition or to generate a larger margin on sales. A differential advantage is created when a firm's products or services differ from its competitors and are seen as better than a competitor's products by customers. Core competency is something that a firm can do well and that meets the following three conditions !. "t provides consumer benefits #. "t is not easy for competitors to imitate $. "t can be leveraged widely to many products and markets. A core competency can take various forms, including technical/sub%ect matter know how, a reliable process, and/or close relationships with customers and suppliers &'ascarenhas et al. !(()*. "t may also include product development or culture, such as employee dedication. Core competency versus competitive advantage Core competencies are e+treme capabilities that serve as a source of competitive advantage for a firm over its rivals. Core competencies emerge over time through an organizational process of accumulating and learning how to deploy different resources and capabilities. ,+amples of capabilities include management &ability to envision the future of their industry, effective organizational structure*, marketing &effective promotion of brand-name products, effective customer service, innovative merchandising*, human resources &motivating, empowering and retaining employees*, manufacturing, distribution, management information systems and research . development. The criteria for determining whether a capability is a core competency is whether it is capable of producing sustainable competitive advantage. A capability can deliver competitive advantage without meeting all of the re/uired criteria, but this will only be for a limited time. 0anson uses an updated model with four criteria of sustainable competitive advantage !. Valuable the capability allows the firm to e+ploit opportunities or neutralize threats in its e+ternal environment #. Rare capabilities that few, if any, of its competitors possess $. Costly to imitate capabilities that other firms cannot easily develop. Take note however, this does not simply mean it is e+pensive to imitate, it means it is difficult to imitate &i.e. the capability developed through uni/ue historical conditions, the capability itself is ambiguous or the relationships that underpin the capability are comple+ to understand and imitate*.

1. Non-substitutable the capability does not have a strategic e/uivalent. 2ne e+ample is 3.4, the ob%ective of which is obtaining new technology. To obtain new technology you could develop it internally, or you could monitor the e+ternal environment for developments then ac/uire them &a strategy 5ucor has followed* - these are strategic e/uivalents. 6#7 Development of the concept The concept of core competencies was developed in the management field. C.8. 9rahalad and :ary 0amel introduced the concept in a !((; Harvard Business Review article. They wrote that a core competency is <an area of specialized e+pertise that is the result of harmonizing comple+ streams of technology and work activity.< As an e+ample they gave 0onda's e+pertise in engines. 0onda was able to e+ploit this core competency to develop a variety of /uality products from lawn mowers and snow blowers to trucks and automobiles. To take an e+ample from the automotive industry, it has been claimed that =olvo>s core competency is safety. This, however, is perhaps the end result of their competency in terms of customer benefit. Their core competency might be more about their ability to source and design high protection components or to research and respond to market demands concerning safety. ,ver since 9rahalad and 0amel introduced the term in the !((;s, many researchers have tried to highlight and further illuminate the meaning of core competency. According to 4. ?eonard-@arton &!((#*, <Capabilities are considered core if they differentiate a company strategically.< 2n the other hand, :alunic and 3odan &!(()* argue that <a core competency differentiates not only between firms but also inside a firm it differentiates amongst several competencies. "n other words, a core competency guides a firm recombining its competencies in response to demands from the environment.< E ample of Blac! " Dec!er @lack . 4ecker's core technological competency pertains to #;; to A;; B electric motors, and this motor is their core product. All of their end products are modifications of this basic technology, with the e+ception of their work benches, flash lights, battery charging systems, toaster ovens, and coffee percolators. They produce products for three markets !. the home workshop market "n the home workshop market, small electric motors are used to produce drills, circular saws, sanders, routers, rotary tools, polishers, and drivers #. the home cleaning and maintenance market "n the home cleaning and maintenance market, small electric motors are used to produce dust busters, etc. $. the kitchen appliance market "n the kitchen appliance market, small electric motors are used to produce can openers, food processors, blenders, bread makers, and fans.