MS – 203

MANAGEMENT OF INTERNATIONAL
BUSINESS

INTERNATIONAL COMPETITIVE
ADVANTAGE
 HIGHLIGHTS

 What is Competitive Advantage?

 Competitive Advantage model
 Sources of competitive advantage
 Porter’s 5 Forces model
 Porter’s Generic model
 Examples
 World Competitive Index (WCI)
 WHAT IS COMPETITIVE ADVANTAGE

 Competitive advantage is defined as the strategic advantage one business entity has over its rival entities within its

competitive industry.

 According to Pitts and Snow, a competitive advantage is any feature of a business firm that establishes it to earn a higher

return on investment despite counter pressure from competitors.

 Competitive advantage is what makes a customer choose your business over another one. By understanding, and

promoting such advantage, companies can win a greater amount of market share.

 To create a sustainable competitive advantage, a company tries to develop skills that

• Create value for customers

• Are rare

• Are difficult to imitate or substitute for

• Are organized in a way that the company can fully exploit

 COMPETITVE ADVANTAGE MODEL

How PEST factor affect competitive advantage

• Political factor: Government bringing new tax reforms that How a firm can achieve competitive
might change the whole revenue-generating system of a advantage?
company.
• Economic factor: A rise in the inflation rate affect the way of
companies price their product and services.
• Social factor: During the pandemic, their a surge in demand
for sanitizer and medicines.
• Technological factor: The introduction of AI, Machine
Through external By developing
learning reduces the cost of production giving the company a
great margin. changes it inside

VRIO 
It is a strategic planning tool designed to help organizations uncover and  Changes in PEST  VRIO
protect the resources and capabilities that give them a long-term
factors Resources
competitive advantage. 
• Valuable - a resource is deemed valuable if it allows the firm to exploit  Firms ‘ability to  Unique
opportunities. Competencies
respond fast to
• Rare - if resources are rare and hard to possess by competitors gave the
company a competitive advantage. changes.  Innovative
• Inimitable - products that are hard to imitate and have less Capabilities.
substitution
• Organization - possession or control of resources is necessary but not
sufficient to gain an advantage. Organizational capabilities to exploit
resources is also necessary.
 SOURCES OF COMEPETITIVE ADVANTAGE

Where do competitive advantages arise from?

What are the sources from which a firm derives and sustains Its edge over
competition, allowing It to sustainably generate revenues higher than Its peers?

 Bruce Greenwald is Robert Heilbronn Professor of Finance and Asset Management at

Columbia Business School. Judd Kahn is a principal of Hummingbird Management, also in

New York. They are the authors of Book-Competition Demystified.

 Bruce Greenwald and Judd Khan offer a simplified approach to industry analysis and

business strategy in Competition Demystified.

 Bruce Greenwald & Judd Kahn suggest that there are three genuine sources of competitive

advantage which result in barriers to entry: Supply side advantages, Demand side
advantages, and Economies of scale. Whilst it is easy to build standalone sources of
competitive advantages in each of these areas, truly durable competitive advantages arise
from the interaction of supply-and-demand advantages, and from their interplay
with economies of scale.
 1. DEMAND ADVANTAGE

Demand advantages describe the degree of customer captivity and/or access to

market demand. This could arise from habit formations, high switching costs, high
searching costs and strong network effects that discourage customers from seeking
alternative providers.

Commonly seen demand-side advantages for dominant companies are -

o Brand: A strong brand creates a distinct identity for the product, signals quality
& legitimacy and gives the manufacture leverage over the distribution network.

o Product differentiation: A product can be differentiated either due to its unique

characteristics or superior product quality relative to competitors – in
DEMAND ADVANTAGE products where quality/durability/comfort matters to customers.

o Switching costs: where uncertainty/cost of switching is higher than the

benefit of switching. 

o Influence via intermediaries: In such markets, companies which establish a

deep relationship with intermediaries (e.g. plumbers, carpenters, electricians)
by arranging trade meetings for new products/new features/application techniques.
 2. SUPPLY ADVANTAGE

Supply advantages allow companies to produce goods and services more

efficiently than their competitors. This could arise, for example, from proprietary
technologies, in-house know-how or unique locations that competitors cannot replicate.
It’s a more common advantage for businesses in industries with complex process,
learning and/or experience requirements.

o Distribution: Establishing a fragmented distribution network across the

country and managing the transport and delivery of a high number of SKUs whilst
providing supply chain efficiencies to the channel partners.

o Proprietary technologies / Patents / Trade Secrets: Proprietary technology /

Patents / Trade secrets are intangible sources of competitive advantage which
makes the product difficult to replicate for a competitor. 
SUPPLY ADVANTAGE
o Procurement: Procurement advantage can be around consistent availability of
raw material which is not available to competitors or sourcing raw materials at a
cost lower than competitors. 

o Regulatory hurdles: Regulatory hurdles such as licenses, restrictions, strict

quality standards, etc increase the cost of entry and either prevent the entry of new
firms or make it unattractive for new firms to enter the market. 
 3. ECONOMIES OF SCALE

Economies of scale refers to the decrease in cost per unit as the volume of units
sold increases. It is a type of efficiency that scales with organizational output. Large
incumbents may operate more efficiently than their smaller competitors, even if they
share similar supply and demand advantages.

Companies that rely on economies of scale must defend this advantage aggressively. 

 If the cost per unit of product sold decreases as the volume increases, a
company gets stronger as it gets larger. If such a firm passes on the scale benefits to
ECONOMICS OF SCALE the customers either through lower price hikes (or by avoiding prices hikes), it
becomes very difficult for other firms to compete with the market leader. 

Beyond these primary sources, Greenwald and Kahn point out that Government protection or Superior Access to information could
also be a competitive advantage for a business.
 PORTER’S 5 FORCES MODEL

 A framework for analyzing the nature of competition within an industry.

 Exhibits basic knowledge of business strategy and forces that influence the decision making.

 Tells in which industry should the organization compete to gain competitive advantage.

 How to deal with competition

 Industry analysis

 Measure and monitor strategy effectiveness

 Porter’s 5 forces determine a company’s competitive environment.

 THREATS OF
ENTRANTS

BARGAINING INDUSTRY BARGAINING

POWER OF POWER OF
SUPPLIERS RIVARLY BUYERS

THREATS OS
SUBSTITUTE

According to Porter ,businesses can use the model to identify how to

position itself to take advantage of opportunities and overcome threats.
 PORTER’S GENERIC MODEL

 Porter’s Generic Model tells the organization, which generic strategy to

use to gain competitive advantage?

 According to Porter, competitive advantage and thus higher profits

will result either from:

1. Differentiation of products (distinctive ,more product features)

and selling them at a premium price, OR

2. Cost Leadership (Producing products at a lower price than

competitors.)

In association with choosing differentiation or cost leadership,

the organization must decide between:

- Targeting the whole market with the chosen strategy

- Targeting a specific segment of the market.

 PORTER’S GENERIC
STRATEGIES
COST ADVANTAGE

COST DIFFERNTIATION COST FOCUS DIFFERNTIATION

LEADERSHIP FOCUS

• Target a broad • Offering products • Targets a niche • Focuses on a

market but or services as market & offers niche market
offers product or unique as possible products or services but offers a
service at a very to compared to the at lowest price. product or
low price. competitors. services that is
• Has to be very clear unique.
• Reduce a selling • Need to have a about cost sensitive
price to robust R&D for requirements of • Focus remains
maximize cost implementation. market. on features
leadership.
rather that cost.

Example – Amazon, Examples –Apple, Example –Clair &

Mc Donald's, Walmart Nike, Starbucks Example- Rolls Royce
Home Depot
 STUCK IN THE MIDDLE

• A company that tries to engage in each generic strategy but fails to achieve any of
them, is considered ‘stuck in the middle’.
• Such a company has no competitive advantage regardless of the industry it is in. As a
matter of fact, such a company will compete at a disadvantage because the ‘cost
leader’, the ‘differentiators’ and the ‘focusers’ in the industry will be better
positioned to compete.
• It may be the case, however, that a company that is stuck in the middle still earns
interesting profits simply because it is operating in a highly attractive industry
or because its competitors are stuck in the middle as well.
• If one of the two exceptions are not present it will be very hard for companies to
engage in both differentiation and cost leadership, Porter argues, because
differentiation is usually costly.
• Each generic strategy is a fundamentally different approach to creating and sustaining
superior performance and requires a different operating model.   
 EXAMPLES

1. TESLA'SCOMPETITIVE
Porter’s GenericADVANTAGE 2. APPLE'S
Model tells the organization, which generic strategy to COMPETITIVE ADVANTAGE
use to gain competitive advantage?

Tesla (TSLA) isan According to Porter,

interesting study competitive advantage and thusDifferentiation
in competitive higher profits advantage is hugely
will result essential
either from: to
advantage, as they are at once a luxury car and technology Apple's (AAPL) competitive advantage. They have a strong
company. In some sense,1.they currently have noofdirect brand and intuitive design that sets them apart from other
Differentiation products (distinctive ,more product features) and selling them at a premium
competitors. However, Tesla has positioned itself so well technology companies, giving them a large following of
that when direct competitors do arise, the company will brand loyalists. Apple has long made a distinct impression
price, OR on consumers and competitors alike with its innovative
easily be able to maintain its competitive advantage.
design choices. In fact, most of their competitors are now
Tesla invests the bulk of 2. Cost
their Leadership
resources (Producing
into research and products at a lower price products
releasing than competitors.)
that are virtually identical to Apple
development. They are constantly looking into the future designs.
of personal transportation.In association with choosing
They are continually trying todifferentiation or cost leadership ,the
find new solutions for the inevitable fall of oil as the Similar to Tesla, Apple has a high volume of capital to
world's primary source of energy, as organization
well as primingmust
theirdecide between: invest into research and developing new products. While
products for the rise of automation. Their high-eco- they do not release products at the same volume of some of
friendly brand also differentiates them from similar their competitors, the products they create are carefully
- Targeting the whole market with the chosendesignedstrategyto provide the best value and consumer
companies, and likely will for the foreseeable future.
experience. This effective use of the differentiation strategy
Tesla also currently leverages -aTargeting a specific
focused strategy by segment of the market. has allowed them to sell their products at a higher price
tailoring their offerings to the needs of a luxury market. point than their competitors without sacrificing market
However, this will not always be the case. share or gross margins.
 WORLD COMPETITIVENESS INDEX

What is World Competitiveness Index?

• WCY is maintained by the Institute for Management Development
Role of IMD
(IMD) and was first published in 1989.
It examines and assesses countries based on how effectively manage their
• It covers 63 different economies in detail.
competencies in order to create long-term value.

Elements:
Top countries :
It examines four components (334 competitiveness criteria) to
• Europe- In the international competitiveness rankings, Denmark (1st), Switzerland (2nd), Sweden
assess a country’s prosperity and competitiveness:
(4th), Netherlands (6th), Finland (8th), Norway (9th) and USA (10th).
performance of the economy
• Asia: Singapore (3rd), Hong Kong (5th), Taiwan (7th), China (17th) and Australia (19th) ,India(37).
• Efficiency in government
• Others: The United Arab Emirates has fell down to 12th position from 9th in 2021 and the United
• Efficiency in the workplace
States is in the same places as last year i.e. 10th.
• Infrastructure
• India ranking in WCI 2022 :Increase to 37 th in 2022 from 43rd Rank in 2021.

According to Porter ,businesses can use the model to identify how to

position itself to take advantage of opportunities and overcome threats.
 INDIA’S RANKING

Performance-based on four criteria: 

India’s government efficiency score improved by just 1 point. It is 45th from 46th a year
ago.
Economic performance 28th from 37th in 2021,
Corporate efficiency 23rd rank which was 32nd last year & infrastructure (49th).

• India’s Ranking In World Competitiveness Index 2022

• India has come up on 37th rank in 2022 from 43rd in 2021 in the World Competitive Index.
• In comparison to the other BRICS countries: India came in second (43rd) among the BRICS
countries, after China (17th), and was trailed by, Brazil (59th), and South Africa (60th).
• Russia and Ukraine were not assessed.

According to Porter ,businesses can use the model to identify how to

position itself to take advantage of opportunities and overcome threats.
THANK
YOU