Given the importance of SMEs, much of the literature has focused on their larger counterparts when studying competitive advantages and scalable core competencies. The limited literature that does exist on SMEs tend to focus on a particular firm (e.g. a case study). Despite the clear importance, few have investigated the impact of niche strategies for SMEs competing in a global context. Through combining the theoretical background on SMEs with the propositions around SMEs, this paper attempts to address this gap in the literature and advance extant knowledge.
The aim of this paper is to explore, analyze, and provide greater insight on how SMEs can create organizational competencies to define their niche strategy. Concepts affecting non-scalable core competencies and string of opportunities in SMEs are discussed and relevant propositions are made. Moreover, implications are explored, and future research directions are also identified. In particular, the outcomes of studying defendable competitive strategies have important implications for both theory and practice. Areas of theory impacted include small business success, organizational competencies, competitive advantage, as well as niche strategies. Practical implications include helping SMEs identify the best method to compete against larger firms by building a defendable competitive advantage. With this conceptual framework, the hope is for SMEs to successfully position and compete in a global market.
Porter 1985 Competitive Advantage Pdf Downloadl
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Competitive advantage is the capability of a firm to perform some aspect of its work better than the competition. Competitive advantages for an organization are associated with sustained profits and above-average performance that exceed the average for the industry (Porter, 1985). According to the literature, certain generic strategies allow firms to gain a competitive advantage in the market based on three different options: cost leadership, differentiation, and focus (Porter, 1985, 1990a, 1990b).
The first factor is the creation of non-scalable core competencies. SMEs that are successful with niche strategies develop a competitive advantage that is sustainable when it cannot be copied by large firms. For a sustainable competitive advantage to exist, the differentiation valued by the focused consumer segment cannot be easily replicated by other firms (Porter, 1985) let alone by large firms who possess more resources than the SMEs. The key to sustainability is to have a core competency that incorporates both differentiation (that large firms cannot replicate) and non-scalability (the characteristic most likely to prevent replication since there are no advantages to scale). Below, both differentiation and non-scalability are discussed.
In order for competitive advantages to be successful, sustainability is necessary (Porter, 1980, 1985). For SMEs following a focus strategy, the key to sustainability is making sure that larger firms cannot simply enter the focused segment with superior resource levels. Non-scalable core competencies are the key to sustainability for an SME niche strategy. Thus, it is imperative for SMEs to have a competency that enables the niche differentiation (but not better at execution just because a larger company can do more of it). Accordingly, the paper proposes:
Scale also plays a role in how SMEs can actually grow utilizing focus segment strategies. Any given focus segment, or niche, is inherently limited in its growth potential since there are a finite number of consumers with those distinctive needs (Porter, 1980). As a result, SMEs that successfully developed a competitive advantage in a focused segment have a couple of options for growth. First, they can take their niche advantage and try to generalize it to the broader market in a differentiation strategy (Porter, 1980, 1985). This is the common route for SMEs who are aspiring to become larger companies. SMEs take their original competitive advantage for the focused segment and determine which features of their differentiation will appeal to the broader market. They then take their products or service offerings and modify them to appeal to the broader market. It is worth mentioning that this option may not have been available to them at first given the capital constraints of an unproven business model or being a small company (Porter, 1980). For example, eBay started as a limited auction site for collectables and was popular among that focused consumer segment. Yet the management at eBay recognized that the same core competency (consisting of a distinctive technology with a built-in market of buyers and sellers) could be easily applied to the broader market with some modifications (Black, 2005; Wheelen et al., 2018). However, having a broad differentiation strategy requires scale in order to replicate the competitive advantage across many more consumer segments (Porter, 1980, 1985). Thus, SMEs who follow this growth strategy are more likely to have scalable core competencies that cannot be defended successfully by staying as a focused segment strategy. SMEs will have to widen their competitive advantage in order to preserve it. Therefore, the paper suggests:
According to the first proposition, SMEs will earn greater success by following focused segment strategies when their competitive advantage is established from a non-scalable core competency. With a scalable core competency, larger firms will be able to develop a stronger competitive advantage than smaller firms and invade their niche. The key to why non-scalable competencies enable SME focused segment strategies lies in the underlying economics of such core competencies.
Overall, technology-based competitive advantage tends to be the most scalable since the same technology can be utilized for numerous purposes and by multiple users. While technology is generally a very scalable advantage, it is also one that can be easily imitated by competitors (unless the technology is protected by a trademark, patent or the like). However, technology-based competitive advantage can be wrapped within process-based competency (firms that actually adopt unique processes to fully leverage their technology) (Mascarenhas et al., 1998).
Scalable core competencies lead to broad differentiation strategies out of necessity. As described in Proposition 1, scalable core competencies are not defendable against larger firms. The SME with a scalable core competency is often forced to take their focus strategy to the broader market or eventually face a better-resourced, larger competitor invading their focused segment. SMEs might consciously utilize the original niche as a testing ground for the broader differentiation strategy, or may simply find that their original focused segment is not defendable (but a broader demand for their product or service exist). Technology-based competitive advantages (like Amazon) tend to move from niche strategies to broad differentiation very rapidly (Isckia, 2009; Taneja, 2018).
Through greater understanding, SMEs can improve their effectiveness in recognizing and appreciating the different ways that allows them to compete and succeed against their large rivals. By building a defendable competitive advantage before larger competitors can develop a compelling proposition, SMEs are able to build a defendable competitive advantage. Therefore, the propositions posed in this paper can raise awareness for firms when choosing their niche strategy, depending on what they hope to achieve, to promote the optimal journey of success for the business venture.
Value Creation creates added value which leads to competitive advantage by research and development. Conducting a value chain analysis and implementing improvements and reduce costs can lead to added value also creates a higher profitability for an organization.
This part is of importance for an organization when it concerns increasing competitive advantage from the value chain. For example, a development within a CRM solution can have a link with increasing production and sales volumes through certain investments.
Above information are strategies of Dell. It can be seen that Dell company is facing pressure and dilemma to achieve success. Based on this research problem, this paper is provided to make sustainable competitive advantage analysis based on the following model and provide recommendations for Dell company:
In order to look within the firm for distinctive attributes like internal perspective and then find ways to leverage them to best advantage, we look at resource-based view. By using resource-based view, we can find that competitive advantage may be built on the internal capabilities of a firm, rather than its position regarding an industry environment. Following we will analyze 3 competencies we have mentioned above using resource-based approach which has three tests: value, rareness and imitability.
Managing the threats and potential risk as soon as possible to avoid potential losses occur in the future. That is, Dell should keep an eye on the business strategy of its competitors to make sure that its own strategy is one step ahead of them, maintaining the competitive advantage to generate continuous success within the industry.
Basis for ComparisonSupply ChainValue ChainMeaningThe integration of all the activities involved in the procurement, conversion and logistics of the product is known as Supply Chain.Value Chain is defined as the series of activities, that adds value to the product.Originated fromOperation ManagementBusiness ManagementConceptConveyanceValue AdditionSequenceProduct Request - Supply Chain - CustomerCustomer Request - Value Chain - ProductObjectiveCustomer SatisfactionGaining competitive advantage
Supply Chain is described as a tool of business transformation, which minimizes costs and maximizes customer satisfaction by providing the right product at the right time at the right place and the right price. Conversely, Value Chain is a way of getting a competitive advantage, through which a company can beat its competitors along with fulfilling customer requirements. 2ff7e9595c
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