Competitive advantages of the company. Competitive advantages of the company

Firms compete in the international market, not countries. It is necessary to understand how a firm creates and maintains competitive advantage in order to understand the country's role in this process. At the present stage, the competitive capabilities of firms are not limited by the boundaries of their home country. The role of global strategies in creating competitive advantage should be given special attention, as these strategies completely change the role of the home country.

Let's start with the basic principles of competitive strategy. In competition in the domestic and international markets, many principles coincide. We then look at ways to enhance competitive advantage through global competition.

Competitive strategy

To understand the nature of competition, the basic unit is the industry (whether processing or from the service sector), that is, a group of competitors that produce goods or services and directly compete with each other. A strategically significant industry includes products with similar sources of competitive advantage. Examples of this are facsimile, polyethylene, heavy haul trucks and plastic injection molding equipment. In addition, there may be related industries whose products have the same buyers, production technology or distribution channels, but they impose their own requirements for competitive advantage. In practice, the boundaries between industries are always very vague.

In many discussions about trade and competition, too general definitions of industries are used, such as "banking", "chemicals" or "engineering". This is a very broad approach, as both the nature of competition and the sources of competitive advantage vary considerably within each such group. For example, mechanical engineering is not a single industry, but dozens of industries with different strategies, such as the production of equipment for the weaving industry, for the manufacture of rubber products or for printing, and each has its own special requirements for achieving a competitive advantage.

By developing a competitive strategy, firms seek to find and implement a way to compete profitably and in the long term in their industry. There is no universal competitive strategy; only a strategy that is consistent with the conditions of a particular industry, the skills and capital that a particular firm has, can bring success.

The choice of a competitive strategy is determined by two main points. The first is the structure of the industry in which the firm operates. The essence of competition in different industries varies greatly, and the likelihood of long-term profits in different industries is not the same. For example, the average profitability in the pharmaceutical and cosmetics industries is very high, but not in steel and many types of clothing. The second main point is the position that the firm occupies within the industry. Some positions are more profitable than others, regardless of the average profitability of the industry as such.

Each of these moments in itself is not enough for choosing a strategy. Thus, a firm in a very profitable industry may not make much profit if it chooses the wrong position in the industry. Both the structure of the industry and the position in it can change. An industry can become more (or less) “attractive” over time as the country's conditions for creating that industry or other elements of the industry's structure change. Position in the industry - a reflection of the endless war of competitors.

The firm can influence both the structure of the industry and the position in its “table of ranks”. Firms that are doing well not only respond to changes in the "environment", but also try to change it to their own advantage. A significant change in the competitive position entails changes in the structure of the industry or the emergence of new foundations for competitive advantage. Thus, Japanese firms that produce televisions have become world leaders due to the trend towards compact, portable televisions and the replacement of the lamp element base with a semiconductor one. Firms in one country take over the lead from firms in another country if they are better able to respond to such changes.

Structural analysis of industries

Competitive strategy must be based on a comprehensive understanding of the structure of the industry and the process of its change. In any sector of the economy - it does not matter whether it operates only in the domestic market or in the external one too - the essence of competition is expressed by five forces: 1) the threat of the emergence of new competitors; 2) the threat of the appearance of goods or services - substitutes; 3) the ability of suppliers of components, etc. to bargain; 4) the ability of buyers to bargain; 5) rivalry between existing competitors (see Figure 1).

Picture 1. The Five Forces That Determine Industry Competition

The significance of each of the five forces varies from industry to industry and ultimately determines the profitability of industries. In industries where these forces operate favorably (say, soft drinks, industrial computers, software, pharmaceuticals, or cosmetics), multiple competitors can earn high returns on capital invested. In industries where one or more forces are unfavorable (such as rubber, aluminum, many metal products, semiconductors, and personal computers), very few firms manage to maintain high profits for a long time.

The five forces of competition determine the profitability of an industry because they influence the prices firms can charge, the costs they must incur, and the amount of capital investment required to compete in the industry. The threat of new competitors reduces the overall profitability potential of the industry because they bring new manufacturing capacity into the industry and seek market share, thereby reducing positional profits. Powerful buyers or suppliers, by bargaining, benefit and reduce the firm's profits. Fierce competition in the industry reduces profitability, because in order to remain competitive, you have to pay (expenses for advertising, marketing, research and development (R&D), or profit "leaks" to the buyer due to lower prices.

The availability of substitute products limits the price that firms competing in the industry can charge; higher prices will encourage buyers to look for a substitute and reduce industry output.

The significance of each of the five forces of competition is determined by the structure of the industry, that is, its main economic and technical characteristics. For example, buyer impact is a reflection of questions such as: how many buyers does the firm have; what part of the sales volume is accounted for by one buyer; Is the price of the product a significant part of the buyer's total cost (making the product "price sensitive")? The threat of new competitors depends on how difficult it is for a new competitor to “infiltrate” an industry (determined by indicators such as brand loyalty, the size of the economy, and the need to connect to a network of intermediaries).

Each branch of the economy is unique and has its own structure. For example, it is difficult for a new competitor to infiltrate the pharmaceutical industry, since it requires huge R&D expenditures and a large-scale economy when selling products to doctors. It takes a long time to develop a substitute for an effective drug, and buyers at any time are not afraid of high prices. The influence of suppliers is not significant. Finally, rivalry between competitors has been, and remains, moderate and focused not on price-cutting, which drives down industry-wide profits, but on other variables, such as R&D, that boost industry-wide output. The presence of patents also discourages those who intend to compete by copying someone else's product. The structure of the pharmaceutical industry provides some of the highest returns on capital investment in major industries.

The structure of the industry is relatively stable but can still change over time. For example, the consolidation of distribution channels that is taking place in several European countries increases buyer power. Through their strategy, firms can also change all five forces in one direction or another. For example, the introduction of computer information systems in airlines makes it difficult for new competitors to enter, because such a system costs hundreds of millions of dollars.

Industry structure is important to international competition for a number of reasons. First, given the different structure in different industries, different requirements must be met in order to compete successfully. Competing in an industry as fragmented as apparel requires very different resources and skills than aircraft manufacturing. The conditions in the country for competition are more favorable in some industries than in others.

Secondly, often the sectors that are important for a high standard of living are those that have an attractive structure. Industries with an attractive structure and with affordable conditions for new competitors (in terms of technology, specialized skills, access to distribution channels, brand reputation, etc.) are often associated with high labor productivity and provide a large return on invested capital. The standard of living depends to a large extent on the ability of a country's firms to successfully enter industries with a profitable structure. Reliable indicators of the "attractiveness" of an industry are not scale, growth rate, or newness of technology (traits often emphasized by businessmen or government planners), but the structure of the industry. By targeting structurally disadvantaged industries, developing countries often misuse resources they don't have much of.

Finally, another reason for the importance of industry structure in international competition is that changing structure creates real opportunities for a country to enter new industries. Thus, Japanese firms producing copiers began to successfully compete with the American leaders in this field (specifically, Xerox and IBM) due to the fact that they turned to a market sector left almost without attention (small-sized copiers), applied a new approach to the buyer (selling through dealers instead of direct sale), changed production (mass production instead of small-scale production) and pricing approach (selling instead of renting, which is expensive for the customer). This new strategy has eased entry into the industry and eroded the edge of the former leader. How domestic conditions point the way or force firms to recognize and respond to changes in structure is critical to understanding "patterns of success" in international competition.

Position in the industry

Firms must not only respond to changes in the structure of the industry and try to change it in their favor, but also choose a position within the industry. This concept includes the approach of the firm as a whole to competition. For example, in the production of chocolate, American firms (Hershey, M & M "s / Mars, etc.) compete due to the fact that they produce and sell in huge quantities a relatively small set of chocolate varieties. In contrast, Swiss firms (Lindt, Sprungli, Tobler / Jacobs and etc.) sell mostly refined and expensive products through narrower and more specialized distribution channels They produce hundreds of items, use the highest quality components and have a longer manufacturing process As this example shows, position in an industry is the firm's overall approach to competition , and not just its products or who it is designed for.

Position in the industry is determined by competitive advantage. Ultimately, firms outperform their rivals if they have a strong competitive advantage. Competitive advantage is divided into two main types: lower costs and product differentiation. Low costs reflect a firm's ability to develop, produce, and sell a comparable product at a lower cost than its competitors. Selling goods at the same (or approximately the same) price as competitors, the company in this case receives a large profit. Thus, Korean firms producing steel and semiconductor devices won over foreign competitors in this way. They produce comparable goods at very low cost, using a low-paid but highly productive labor force and modern technology and equipment bought from abroad or manufactured under license.

Differentiation is the ability to provide the customer with a unique and greater value in the form of a new product quality, special consumer properties or after-sales service. For example, German machine tool firms compete using a differentiation strategy based on high product performance, reliability and fast maintenance. Differentiation allows the firm to dictate high prices, which, at equal costs with competitors, again gives a large profit.

Competitive advantage of any type gives higher productivity than competitors. A firm with a low cost of production produces a given value at a lower cost than competitors; a firm with a differentiated product has a higher profit per unit of output than its competitors. Thus, competitive advantage is directly related to the formation of national income.

Difficult, but still possible to gain a competitive advantage based on both lower costs and differentiation6. It is difficult to do this because the provision of very high consumer properties, quality or excellent service inevitably leads to a rise in the cost of goods; it will cost more than if you just strive to be at the level of competitors. Of course, firms can improve technology or production methods in ways that both reduce costs and increase differentiation, but ultimately competitors will do the same and force the decision on what type of competitive advantage to focus on.

However, any effective strategy must pay attention to both types of competitive advantage, albeit strictly adhering to one of them. A firm that focuses on low costs must still provide acceptable quality and service. In the same way, the product of a firm that produces differentiated products should not be so expensive as the products of competitors that it would be to the detriment of the firm.

Another important variable that determines position in an industry is the scope of competition, or the breadth of purpose a firm has within its industry. The firm must decide for itself how many varieties of products it will produce, what distribution channels it will use, what customer base it will serve, in what parts of the world it will sell its products, and in what related industries it will compete.

One of the reasons for the importance of the sphere of competition is that industries are segmented. Almost every industry has well-defined product varieties, multiple distribution and distribution channels, and multiple types of buyers. Segmentation is important because there are different demands in different market sectors: an ordinary men's shirt sold without any advertising, and a shirt created by a well-known fashion designer, are designed for buyers with very different needs and criteria. In both cases, we have shirts, but each has its own type of buyer. Different market sectors require different strategies and different abilities; accordingly, the sources of competitive advantage in different market sectors are also very different, although these sectors are “served” by the same industry. And the situation when firms in one country are successful in one sector of the market (for example, Taiwanese firms in the production of cheap leather shoes), and firms in another country in the same industry in another sector (Italian firms in the production of model leather shoes) is not rarity.

The scope of competition is also important because firms can sometimes gain a competitive advantage by setting large goals by competing globally, or by leveraging industry links by competing in related industries. For example, Sony is greatly benefiting from the fact that a wide variety of radio-electronic products are produced around the world with its brand, using its technology and distributed through its channels. Relationships between well-defined industries arise from the commonality of important activities or skills among firms that compete in those industries. The sources of competitive advantage worldwide will be discussed below.

Firms in the same industry may choose different areas of competition. Moreover, it is typical that firms from different countries in the same industry choose different areas of competition. Basically, the choice is: compete on a "broad front" or aim at any one sector of the market. Thus, in the production of packaging equipment, German firms offer equipment lines for a wide range of purposes, while Italian firms strive to focus on highly specialized equipment used only in certain market sectors. In the automotive industry, leading American and Japanese firms produce a whole range of cars of various classes, while BMW and Daimler-Benz (Germany) primarily produce powerful, high-speed and expensive high-class cars and sports cars, while Korean companies Hyundai and Daewoo have concentrated on machines of small and ultra-small class.

The type of competitive advantage and the area in which it is achieved can be combined into the concept of typical strategies, that is, completely different approaches to what high performance in an industry is. Each of these archetypal strategies depicted in Figure 2 represents a fundamentally different concept of how to compete and succeed in competition. For example, in shipbuilding, Japanese firms have adopted a strategy of differentiation and offer a wide range of high quality vessels at high prices. Korean shipbuilding firms have chosen a cost leadership strategy and also offer a variety of types of ships, but not the highest, but just good quality; however, the cost of Korean ships is less than Japanese ones. The strategy of successful Scandinavian shipyards is focused differentiation: they build mainly specialized types of ships, such as icebreakers or cruise ships. They are made using specialized technology and are sold at a very high price to justify the cost of labor, which is highly valued in the Scandinavian countries. Finally, Chinese shipbuilders, who have recently become actively competitive in the world market (strategy - focusing on the level of costs), offer relatively simple and standard ships at even lower costs and at even lower prices than Korean ones.

Figure 2. Model Strategies

Using the example of typical strategies, it becomes clear that no strategy is suitable for absolutely all industries. On the contrary, in many industries, several strategies are perfectly combined. Moreover, the structure of the industry limits the choice of possible strategy options, but you will not find an industry in which only one strategy can bring success. In addition, variants of typical strategies with different ways of differentiation or focusing are possible.

The concept of model strategies is based on the idea that each of them is based on competitive advantage and that in order to achieve it, the firm must choose its strategy. The firm must decide what type of competitive advantage it wants to gain and in what area it is possible.

The biggest strategic mistake is the desire to "chase all the hares", that is, to use all competitive strategies at the same time. This is a sure way to strategic mediocrity and poor performance, because a firm that tries to use all strategies at the same time will not be able to properly use any of them due to their "built-in" contradictions. An example of this is the same shipbuilding: Spanish and British shipbuilding companies are in decline, because the costs of their products are higher than those of the Koreans, they have no basis for differentiation compared to the Japanese (that is, they do not produce anything that the Japanese would not produce ), but they could not find any market segments where they could gain a competitive advantage (like Finland in the icebreaker market). Thus, they do not have a competitive advantage, and they are mainly supported by government orders.

Sources of Competitive Advantage

Competitive advantage is achieved based on how the firm organizes and performs certain activities. The activities of any firm are divided into different types. For example, salespeople make phone calls, service technicians make repairs at the customer's request, scientists in a laboratory develop new products or processes, and financiers raise capital.

Through these activities, firms create value for their customers. The ultimate value created by a firm is determined by how much customers are willing to pay for the goods or services offered by the firm. If this amount exceeds the total costs of all necessary activities, the firm is profitable. To gain a competitive advantage, a firm must either provide customers with about the same value as its competitors, but produce a product at a lower cost (lower cost strategy), or act in such a way as to give customers a product with more value, for which you can get a higher price ( differentiation strategy).

Competitive activities in any given industry can be categorized as shown in Figure 3. They are grouped in what is known as a value chain. All activities in the value chain contribute to use value. They can be roughly divided into two categories: primary activities (permanent production, marketing, delivery and service of goods) and secondary activities (providing production components, such as: technology, human resources, etc., or providing infrastructure functions to support other activities ), i.e. supporting activity. Each activity requires purchased "components", human resources, a combination of certain technologies, and is based on the infrastructure of the company, such as management and financial activities.

The competitive strategy chosen by the firm determines the way in which the firm performs individual activities and the entire value chain. In different industries, specific activities have different importance for achieving competitive advantage. Thus, in the production of printing presses, the development of technology, build quality and after-sales service are indispensable for success; in the production of detergents, advertising plays a major role, since the manufacturing process is simple here, and there is no question of after-sales service.

Firms gain competitive advantage by developing new ways of doing things, introducing new technologies or inputs. For example, the Japanese firm Makita has emerged as a leader in power tool manufacturing by using new, cheaper materials and selling standard tool models from a single factory in the world. Swiss chocolate companies have achieved worldwide recognition as the first to introduce a number of new recipes (including creamy chocolate) and apply new technologies (for example, continuous mixing of the chocolate mass), which significantly improved the quality of the finished product.

Figure 3 Value chain

But a firm is not only the sum of all its activities. A firm's value chain is a system of interdependent activities with links between them. These links occur when the method of one activity affects the cost or efficiency of others. Relationships often lead to the fact that the additional costs of “fitting” individual activities to each other pay off in the future. For example, more expensive designs and components or more stringent quality control can reduce after-sales service costs. Firms must incur such costs in accordance with their strategy in the name of competitive advantage.

The presence of links also requires the coordination of different types of activities. In order not to disrupt the delivery time, for example, it is necessary that production, ensuring the supply of raw materials and components, ancillary activities (for example, commissioning) are well coordinated. A clear coordination ensures the timely delivery of goods to the customer without the need to have expensive means of delivery (that is, a large fleet of vehicles when you can do with a small one, etc.). Aligning related activities reduces transaction costs, provides clearer information (which makes management easier), and allows costly transactions in one activity to be replaced by cheaper transactions in another. It is also a powerful way to reduce the overall time required to complete different activities, which is increasingly important for competitive advantage. For example, such coordination significantly reduces the time for developing and launching new products, as well as taking orders and delivering goods.

Careful relationship management can be a critical source of competitive advantage. Many of these connections are subtle and may not be noticed by competing firms. Benefiting from these ties requires both complex organizational procedures and the adoption of compromise decisions in the name of future benefits, including in cases where organizational lines do not cross (such cases are rare). Japanese firms have been particularly good at link management. With their filing, the practice of mutual “overlapping” the stages of new product development in order to simplify their release and reduce development time, as well as enhanced quality control “on stream” to reduce after-sales service costs, became popular.

To achieve competitive advantage, you should approach the value chain as a system, not as a set of components. Changing the value chain by rearranging, regrouping, or even eliminating certain activities from it often leads to a significant improvement in competitive position. An example of this is the production of household appliances. Italian firms in this area completely changed the manufacturing process and used a completely new distribution channel, thanks to which they became world export leaders in the 1960s and 1970s. Japanese firms for the production of photographic equipment have become world leaders by putting single-lens reflex cameras on stream, introducing automated mass production and for the first time in the world setting up mass sales of such cameras.

The value chain of an individual firm applied to competition in a given industry is part of a larger system of activities that can be called a value system (see Figure 4). It includes suppliers of raw materials, components, equipment and services. On the way to the final consumer, the company's product often passes through the value chain of distribution channels. Ultimately, the product becomes an aggregate element in the value chain of the customer who uses it to carry out their business.

Figure 4 Value system

Competitive advantage is increasingly determined by how well a firm can organize this entire system. The above links not only connect different types of activities of the company, but also determine the mutual dependence of the company, subcontractors and distribution channels. A firm can gain a competitive advantage by better organizing these connections. Regular and timely deliveries (a practice first introduced in Japan and called "kenban" there) can reduce a firm's operating costs and allow it to reduce inventory levels. However, the potential for savings through linkages is by no means limited to securing deliveries and taking orders; it also includes R&D, after-sales service and many other activities. The firm itself, its subcontractors, and the distribution network can benefit if they can recognize and exploit such links. The ability of firms in a given country to use links with suppliers and buyers in their country explains in no small measure the competitive position of the country in the corresponding industry.

The value chain provides a better understanding of the sources of cost gains. The cost benefit is determined by the amount of costs in all necessary activities (compared to competitors) and can occur at any stage of it. Many managers look at costs too narrowly, focusing on the production process. However, firms that lead by reducing costs also win by developing new, cheaper products, using less expensive marketing, reducing service costs, that is, extracting cost benefits from all links in the value chain. In addition, in order to obtain a cost benefit, careful “adjustment” is most often required not only for relationships with suppliers and the distribution network, but also within the company.

The value chain also helps to understand the scope for differentiation. A firm creates special value for the buyer (and this is the meaning of differentiation) if it gives the buyer such savings or such use properties that he cannot get by buying a competitor's product. In essence, differentiation is the result of how a product, ancillary services, or other activities of the firm affect the activities of the buyer. A firm and its customers have many points of contact, each of which can be a source of differentiation. The most obvious of them shows how the product affects the activity of the buyer in which this product is used (say, a computer used to take orders, or a laundry detergent). Creating additional value at this level can be called first-order differentiation. But almost all products have a much more complex effect on buyers. Thus, a structural element included in a product purchased by the customer must be credited and - in the event of a failure in the entire product - repaired as part of the product sold to the end customer. At each stage of this indirect influence of the product on the activity of the buyer, new opportunities for differentiation open up. In addition, almost all activities of the company in one way or another affect the buyer. For example, the developers of an affiliate company can help build a component product into the final product. Such high-order relationships between the firm and customers are another potential source of differentiation.

Different industries have different bases for differentiation, and this is of great importance for the competitive advantage of countries. There are several distinct types of firm-client relationships, and firms in different countries use different approaches to improve them. Swedish, German and Swiss firms often succeed in industries that require close cooperation with customers and high demands on after-sales service. In contrast, Japanese and American firms thrive where the product is more standardized.

The concept of the value chain allows for a better understanding of not only the types of competitive advantage, but also the role of competition in achieving it. The scope of competition is important because it determines the direction of the firm, the way in which those activities are carried out, and the configuration of the value chain. Thus, by choosing a narrow target market segment, a firm can fine-tune its activities to the requirements of this segment and thereby potentially gain cost benefits or differentiation compared to competitors operating in a broader market. At the same time, aiming at a broad market can provide a competitive advantage if the firm is able to operate in different segments of the industry or even in several interconnected industries. Thus, German chemical companies (BASF, Bayer, Hoechst, etc.) compete in the production of a wide variety of chemical products, but certain product groups are produced at the same plants and have common distribution channels. Similarly, Japanese consumer electronics firms such as Sony, Matsushita, and Toshiba benefit from their sister industries (TVs, audio equipment, and VCRs). They use the same brand names, worldwide distribution channels, common technology and joint purchasing for these products.

An important reason for competitive advantage is that the firm chooses a field of competition that is different from that chosen by competitors (other market segment, region of the world), or by combining products of related industries. For example, Swiss hearing aid firms have focused on high power hearing aids for people with severe hearing impairments, outperforming broader American and Danish competitors. Another common technique for increasing competitive advantage is to be among the first firms to move to global competition while other domestic firms are still limited to the domestic market. The home country plays an important role in how these competitive differences manifest themselves.

Firms achieve competitive advantage by finding new ways to compete in their industry and entering the market with them, which can be summed up in one word - "innovation". Innovation in a broad sense includes both the improvement of technology and the improvement of the ways and methods of doing business. Specifically, the update can be expressed in a change in the product or production process, new approaches to marketing, new ways of distributing the product and new concepts of the competition sphere. Innovative firms not only seize the opportunity for change, but also make it happen faster. Strictly speaking, most of the changes are evolutionary, not radical; often the accumulation of small changes yields more than a major technological breakthrough. Moreover, the truth is often confirmed that “the new is the well-forgotten old”: many new ideas are not really so new, they just have not been developed properly. Innovation is equally the result of improved organizational structure and R&D. It always involves an investment in skills and knowledge, and most often in fixed assets and additional marketing efforts.

Innovation leads to a change in competitive leadership if other competitors either have not yet recognized the new way of doing business, or are unable or unwilling to change their approach. There are many reasons for this: complacency and complacency, inertia of thinking (a wary attitude towards the new), funds invested in specialized funds and equipment (this “ties hands”), and, finally, there may be “mixed” motives. It was precisely such “mixed” motives that Swiss watch companies had, for example, when the American company Timex threw cheap watches onto the market that could not be repaired, and the Swiss were all afraid to undermine the image of their watches as an equivalent of quality and reliability. In addition, their factories turned out to be completely unsuitable for the mass production of cheap products. However, without a new approach to competition, the challenger rarely succeeds (unless he changes the very nature of competition). Established leaders will most often retaliate immediately and "avenge themselves."

In the international market, innovations that provide a competitive advantage anticipate new needs both at home and abroad. Thus, with the growing global concern for product safety, the Swedish firms Volvo, Atlas Copco, AGA and others have succeeded because they foresaw this development in advance. However, innovations undertaken in response to a situation specific to the domestic market can have the opposite effect of what is desired - to push back the country's success in the international market!

Opportunities for new ways to compete usually stem from some kind of “gap” or change in industry structure. And it so happened that the opportunities that appeared with such changes remained unnoticed for a long time.

Here are the most typical reasons for innovations that give a competitive advantage:

1. New technologies. Changing technology can create new opportunities for product development, new ways to market, manufacture or deliver, and improve related services. It is this that most often precedes strategically important innovations. New industries emerge when a change in technology makes a new product possible. Thus, German firms became the first in the X-ray equipment market, because X-rays were discovered in Germany. Leadership shifts are most likely to occur in industries where abrupt change in technology obsoletes the knowledge and funds of former leaders in the industry. For example, in the same X-ray and other types of medical equipment for this purpose (tomographs, etc.), Japanese firms overtook German and American competitors due to the emergence of new electronic-based technologies that made it possible to replace traditional X-rays.

Firms rooted in old technology find it difficult to understand the meaning of a new emerging technology, and even more difficult to respond to it. So, the leading American firms that produced radio tubes - RCA, General Electric, GTE-Sylvania - were involved in the production of semiconductor devices, and all to no avail! The same firms that started manufacturing semiconductor devices from scratch (for example, Texas Instruments) turned out to be more committed to the new technology, more adapted to it in terms of personnel and management, and had the right approach to how to develop this technology.

1. New or changed customer requests. Often, a competitive advantage arises or changes hands when buyers have completely new demands or their views on “what is good and what is bad” change dramatically. Those firms that are already entrenched in the market may not notice this or may not be able to respond properly, because in order to respond to these requests, a new value chain is required to be created. For example, American fast food companies have gained an advantage in many countries because customers wanted cheap and always available food, and restaurants have been slow to respond to this demand, because the fast food chain operates in a completely different way from a traditional restaurant.
2. Emergence of a new industry segment. Another opportunity for competitive advantage arises when an entirely new industry segment is formed or existing segments are regrouped. Here there is an opportunity not only to reach a new group of buyers, but also to find a new, more efficient way to produce certain types of products or new approaches to a certain group of buyers. A striking example of this is the production of forklift trucks. Japanese firms have discovered an overlooked segment - small multi-purpose forklift trucks - and have taken it. At the same time, they achieved the unification of models and highly automated production. This example shows how taking on a new segment can dramatically change the value chain, which can be quite a challenge for competitors who are already established in the market.
3. Change in the cost or availability of production components. Competitive advantage often changes hands due to changes in the absolute or relative cost of components such as labor, raw materials, energy, transportation, communications, media, or equipment. This indicates a change in the conditions of suppliers or the possibility of using new or other components in their qualities. The firm gains competitive advantage by adapting to new conditions, while competitors are bound hand and foot by capital investments and tactics adapted to old conditions.

A classic example is the change in the ratio of labor costs between countries. Thus, Korea, and now other countries in Asia, have become strong competitors in relatively uncomplicated international construction projects when wages have risen sharply in more developed countries. Recently, the sharp fall in the prices of transport and communications opens up opportunities to organize the management of firms in a new way and thus gain a competitive advantage, for example, the ability to rely on specialized subcontractors or expand production around the world.

1. Change in government regulation. Changes in government policy in areas such as standards, environmental protection, new industry requirements, and trade restrictions are another common incentive for innovation to bring competitive advantage. Existing market leaders have adapted to certain "rules of the game" from the government, and when these rules suddenly change, they may not be able to respond to these changes. American exchanges benefited from the deregulation of securities markets in other countries because the United States was the first to introduce this practice, and by the time it spread around the world, American firms had already adjusted to it.

It is important to respond quickly to changing industry structure

The above can give firms a competitive advantage if firms understand their importance in time and take a decisive offensive. In so many industries, these early movers have held the lead for decades. Thus, German and Swiss dye companies - Bayer, Hoechst, BASF, Sandoz, Ciba and Geigy (later merged into Ciba-Geigy) - took the lead even before the First World War and have not lost ground until now. Procter & Gamble, Unilever and Colgate have been world leaders in detergents since the 1930s.

Early Birds benefit by being the first to benefit from economies of scale, driving down costs through intensive staff training, building brand image and customer relationships at a time when competition is not yet fierce, being able to choose distribution channels or getting the best plant locations and best profitable sources of raw materials and other factors of production. Responding quickly to a new situation can provide a firm with a different kind of advantage that may be easier to retain. The innovation itself can be copied by competitors, but the benefits derived from it often remain with the innovator.

Early birders benefit most in industries where economies of scale are important and where customers have a strong hold on their subcontractors. Under such conditions, it is very difficult for a well-established competitor to challenge. How long an early bird can hold an advantage depends on how soon changes in the industry structure occur to negate that advantage. For example, in the consumer packaged goods industry, customer loyalty to any given brand of product is very strong and there is little change in the situation. Firms such as Ivory Soap, M&M's / Mars, Lindt, Nestle and Persil have maintained their positions for more than one generation.

Every major change in the structure of an industry creates the opportunity for new early risers. Thus, in the watch industry, the emergence in the 1950s and 1960s of new distribution channels, mass marketing and mass production allowed the American firms Timex and Bulova to bypass their Swiss competitors in terms of sales. Later, the transition from mechanical to electronic watches created a “breakthrough” that allowed the Japanese firms Seiko, Citizen, and then Casio to take the lead. That is, the “early birds” who win in one generation of a technology or product may well be the losers in a generational change, since their capital investments and skills are of a specialized nature.

But this example of the watch industry also reveals another important principle: early birds will only succeed if they can correctly predict changes in technology. American firms (for example, Pulsar, Fairchild and Texas Instruments) were among the first to start producing electronic watches, based on their position in the production of semiconductors. But they relied on watches with LED indication (LDI), and LEDs were inferior to both liquid crystal indicators (LCD) in cheaper models of watches, and traditional hand indication combined with a quartz movement in more expensive and prestigious models. The company Seiko decided not to produce watches with LED, but from the very beginning it focused on watches with LCD and quartz clocks. The introduction of LCDs and quartz movements has given Japan the lead in mass watch sales and Seiko the world leader in the industry.

Spot what's new and implement it

Information plays a big role in the renewal process: information that competitors are not looking for; information not available to them; information available to everyone, but processed in a new way. Sometimes it is obtained by investing in market research or R&D. And yet surprisingly often the innovators are firms that simply look in the right places without complicating their lives with unnecessary reasoning.

Often innovation comes from outsiders in the industry. The innovator may be a new firm whose founder entered the industry in an unusual way or was simply not appreciated by the old firm with traditional thinking. Or the role of innovator may be managers and directors who have not worked in the industry before and are therefore more able to see the opportunity for innovation and more actively implement these innovations. In addition, innovation can occur when a firm expands its scope and introduces new resources, skills, or perspectives into another industry. Another country with different conditions or methods of competition can serve as a source of innovations.

"Outside" people or firms are often more likely to see new opportunities or have different skills and resources than long-standing competitors - just the right ones to compete in new ways. Leaders of innovative firms are often outsiders also in a hidden, social sense (not in the sense that they are the dregs of society), they just do not belong to the industrial elite, they are not even recognized as full-fledged competitors, and therefore they will not stop before to break established norms or even use not too fair methods of competition.

With rare exceptions, innovation comes at the cost of enormous effort. Success in applying new or improved methods of competition is achieved by the firm that stubbornly bends its line, in spite of all difficulties. This is where the lone wolf or small group strategy comes into play. As a result, innovations are often the result of necessity, and even the threat of collapse: the fear of failure is much more stimulating than the hope of victory.

For the above reasons, innovations often do not come from recognized leaders or even from large companies. The economies of scale in R&D that play into the hands of large firms are not so important, since many innovations do not require complex technology, and large companies, for various reasons, are often unable to see a change in the situation and quickly respond to it. In our study, along with large firms, smaller ones were also analyzed. In cases where large firms have been innovators, they have often acted as newcomers to one industry while having a strong foothold in another.

Why are some firms able to recognize new ways of competing while others are not? Why do some firms guess these ways before others? Why do some companies better guess the direction in which the technology will develop? Why is there such a huge effort to find new ways? These intriguing questions will be central to later chapters. The answers must be sought in terms such as the choice of direction for the firm's main efforts, the availability of the necessary resources and skills, and what forces influenced change. In all this, the national environment plays an important role. In addition, the degree to which domestic conditions favor the emergence of the aforementioned domestic outsiders and thereby prevent foreign firms from taking over the leadership of the country in existing or new industries largely determines national prosperity.

Hold the advantage

How long a competitive advantage can be maintained depends on three factors. The first factor is determined by the source of the advantage. There is a whole hierarchy of sources of competitive advantage in terms of retention. Benefits of low rank, such as cheap labor or raw materials, can be easily obtained by competitors. They can copy these advantages by finding another source of cheap labor or raw materials, or they can cancel them out by manufacturing their products or drawing resources from the same place as the leader. For example, in the production of consumer electronics, Japan's labor cost advantage has long since passed to Korea and Hong Kong. In turn, their firms are already threatened by the even greater cheapness of labor in Malaysia and Thailand. Therefore, Japanese electronic firms are moving production abroad. Also at the bottom of the hierarchy is the advantage based solely on the scale factor from the use of technologies, equipment or methods taken from competitors (or available to them). Such economies of scale disappear when new technology or methods make old ones obsolete (similarly, when a new type of product is introduced).

Higher-order benefits (proprietary technology, differentiation based on unique products or services, a firm's reputation based on enhanced marketing efforts, or close customer relationships strengthened by the cost of changing suppliers to the customer) can be held for longer. They have certain features.

First, in order to achieve such advantages, great skills and abilities are required - specialized and more trained personnel, appropriate technical equipment and, in many cases, close relationships with key customers.

Secondly, higher-order benefits are usually possible with long-term and intensive investments in production facilities, in specialized, often risky training of personnel, in R&D or in marketing. The performance of certain activities (advertising, sales, R&D) creates tangible and intangible values ​​- the company's reputation, good relations with customers and a base of special knowledge. Often the first to react to a changed situation is the firm that has been investing in these activities longer than competitors. Competitors will have to invest as much, if not more, to get the same benefits, or invent ways to achieve them without such large expenses. Finally, the longest lasting benefits are the combination of large capital investments with better performance, which makes the benefits dynamic. Constant investment in new technology, marketing, the development of a branded service network around the world or the rapid development of new products makes it even more difficult for competitors. Higher-order benefits not only last longer, but are also associated with higher levels of productivity.

Benefits based on cost alone tend to be less durable than those based on differentiation. One reason for this is that any new source of cost reduction, no matter how simple, can immediately take away the firm's cost advantage. Thus, if labor is cheap, it is possible to outperform a firm with much higher labor productivity, while in the case of differentiation, in order to outperform a competitor, it is usually necessary to offer the same set of products, if not more. In addition, cost-only advantages are more vulnerable because the introduction of new products or other forms of differentiation can destroy the advantage gained by producing old products.

The second determinant of retention of competitive advantage is the number of clear sources of competitive advantage available to firms. If a firm relies on only one advantage (say, a less expensive design or access to cheaper raw materials), competitors will try to deprive it of this advantage or find a way to get around it by capitalizing on something else. Firms that have been in the lead for many years strive to secure as many advantages as possible for themselves at all links in the value chain. For example, Japanese small-sized copiers have modern design features that improve ease of use, they are cheap to manufacture due to a high degree of flexible automation, and they are sold through a wide network of agents (dealers) - this provides a larger clientele than traditional direct sales. In addition, they have high reliability, which reduces the cost of after-sales service. The fact that the company has a large number of advantages over competitors significantly complicates the task of the latter.

The third and most important reason for maintaining a competitive advantage is the constant modernization of production and other activities. If the leader, having achieved an advantage, rests on its laurels, almost any advantage will eventually be copied by competitors. If you want to maintain an advantage, you cannot stand still: a firm must create new advantages at least as fast as competitors can copy existing ones.

The main task is to constantly improve the firm's performance in order to increase existing advantages, for example, to operate production facilities more efficiently or provide more flexible customer service. Then it will be even more difficult for competitors to get around it, because for this they will need to urgently improve their own performance, which they may simply not have the strength to do.

Nevertheless, in the long run, in order to maintain a competitive advantage, it is necessary to expand the set of its sources and improve them, move on to higher-order advantages that last longer. This is exactly what Japanese automobile firms did: initially they entered foreign markets with low-cost small-class cars of sufficiently high quality, achieving success through cheap labor. But even then, while still having this advantage, Japanese automakers began to improve their strategy. They began investing heavily in building large, modern facilities and benefiting from economies of scale, then began to innovate technology by being the first to introduce just-in-time and a number of other methods to improve quality and efficiency. This gave a higher quality than that of foreign competitors, and, as a result, reliability and customer satisfaction with the goods. Recently, Japanese automotive firms have become leaders in technology and are introducing new brands with enhanced consumer properties.

Change is needed to maintain the advantage; Firms must take advantage of industry trends without ignoring them. Firms must also invest to protect areas that are vulnerable to competition. Thus, if biotechnology threatens to change the direction of research in the pharmaceutical industry, a pharmaceutical company seeking to maintain a competitive advantage must immediately create a biotechnology base that surpasses that of its competitors. Hoping that a competitor's new technology will fail, ignoring a new market segment or distribution channel are clear signs that competitive advantage is slipping away. And such a reaction, alas, occurs all the time!

In order to maintain positions, firms sometimes have to give up existing advantages in order to achieve new ones. For example, Korean shipbuilders only emerged as world leaders when they dramatically increased shipyard capacity, dramatically increased efficiency through new technologies while reducing labor requirements, and mastered the production of more complex ship types. All these measures reduced the importance of labor costs, although Korea still had an advantage in this respect at the time. The seeming paradox of giving up former advantages is often daunting. However, if the firm does not take this step, no matter how difficult and counterintuitive it may seem, competitors will do it for it and eventually win. How the “environment” in the country encourages firms to take such steps will be discussed later.

The reason that few firms manage to maintain leadership is that it is extremely difficult and unpleasant for any successful organization to change strategy. Success breeds complacency; a successful strategy becomes routine; stop searching and analyzing information that could change it. The old strategy takes on an aura of holiness and infallibility and is deeply rooted in the firm's mindset. Any proposal to make a change is regarded almost as a betrayal of the interests of the company. Successful firms often seek predictability and stability; they are fully occupied with maintaining the achieved positions, and making changes is constrained by the fact that the company has something to lose. It is only when there is nothing left of the old advantages that they think about replacing old advantages or adding new ones. And the old strategy is already ossified, and when there are changes in the structure of the industry, leadership changes. Innovators and new leaders are small firms whose hands are not bound by history and previous investments.

In addition, a change in strategy is also blocked by the fact that the old strategy of the firm is embodied in the skills, organizational structures, specialized equipment and reputation of the firm, and with the new strategy they may not work. This is not surprising, because it is precisely on such specialization that gaining an advantage is based. Rebuilding the value chain is a difficult and costly process. In large companies, in addition, the sheer size of the firm makes it difficult to change strategy. The process of changing strategy often requires financial sacrifices and troublesome, often painful changes in the organizational structure of the firm. For firms unencumbered by the old strategy and previous capital investment, adopting a new strategy is likely to cost less (in purely financial terms, not to mention less organizational problems). This is one of the reasons why the outsiders mentioned above act as innovators.

Further, tactics aimed at maintaining a competitive advantage for firms that have gained a foothold in the industry are in many ways something unnatural. Most often, companies overcome the inertia of thinking and obstacles to the development of advantages under the pressure of competitors, the influence of buyers, or purely technical difficulties. Few firms make major improvements or change strategy voluntarily; most do it out of necessity, and it happens mainly under pressure from the outside (that is, the external environment), and not from the inside.

The management of companies that hold a competitive advantage is always in a somewhat unsettling state. It acutely senses a threat to its firm's leadership position from outside and takes retaliatory action. The influence of the national environment on the actions of firm management is an important issue, which will be discussed in detail in subsequent chapters.

Competing in the global market

The above basic principles of competitive strategy exist regardless of whether the company operates in the domestic or international market. But when analyzing the role of the country in the formation of a competitive advantage, those industries where competition is of an international nature are of primary interest. It is necessary to understand how firms achieve competitive advantage through the strategy of operating in the international market and how this enhances the advantages gained in the domestic market.

Forms of international competition in different industries vary significantly. At one end of the spectrum of forms of competition is a form that can be called "multi-national" (multidomestic). Competition in each country or a small group of countries, in fact, proceeds independently; the industry under consideration exists in many countries (for example, there are savings banks in Korea, Italy and the United States), but each of them competes in its own way. The reputation, customer base, and capital of a bank in one country have little or no effect on the success of its operations in other countries. MNCs may also be among the competitors, but their competitive advantages in most cases are limited to the borders of the country in which these companies operate. Thus, the international industry is, as it were, a set of industries (each within its own country). Hence the term "multinational" competition. Industries where competition traditionally takes this form include many types of trade, food production, wholesale trade, life insurance, savings banks, simple hardware and caustic chemicals.

At the opposite end of the spectrum are global industries, in which a firm's competitive position in one country significantly affects its position in other countries. Here, competition is on a truly global basis, with competing firms relying on the advantages that flow from their worldwide operations. Firms combine the advantages achieved in their home country with those they have gained through their presence in other countries, such as economies of scale, the ability to serve clients in many countries, or a reputation that can be established in another country. Global competition exists in industries such as civil aircraft, televisions, semiconductors, copiers, automobiles, and watches. The globalization of industries especially intensified after the Second World War.

In the extreme expression of the "multi-national" industry, achieving national advantage or competitiveness in the international market is not even a question. Almost every country has such industries. Most (if not all) of the firms competing in these industries are local, because when each country has its own rules of competition, it is very difficult for foreign firms to gain a competitive advantage. International trade in such industries is modest, if not non-existent. If the firm is owned by a foreign company (which is rare), there is very little control from the foreign owner from its headquarters. The provision of jobs in the foreign affiliate, the status of "local corporate citizen" and the location of the necessary research (at home or abroad) are not his concern: the national affiliate controls all or almost all of the activities necessary to ensure competitive status. In industries such as trading or metal fabrication, there is usually no heated debate about trade problems.

On the contrary, global industries are the arena of struggle of firms from different countries, where competition is conducted in ways that significantly affect the economic prosperity of countries. The ability of a country's firms to gain a competitive advantage in global industries holds great promise for both trade and foreign investment.

In global industries, firms willy-nilly have to compete internationally to gain or not lose competitive advantage in critical industry segments. True, there may well be purely national segments in such industries, because of the unique needs in such segments, only firms of this country can flourish. But focusing primarily on the domestic market, operating in a global industry, is a dangerous business, no matter in which country the company is based.

Achieving competitive advantage through a global strategy

Global can be called a strategy in which the company sells its products in many countries, while applying a single approach. The mere fact of transnationality does not automatically mean the presence of a global strategy; if MNCs have branches operating independently and each in its own country, this is not yet a global strategy. Thus, many European MNCs, such as Brown Boveri (now Asea-Brown Boveri) and Phillips, and some American ones, such as General Motors and ITT, have always competed in this way, and yet this weakened their competitive advantage, giving competitors the opportunity to get ahead of them.

With a global strategy, the firm sells its product in all countries (or, in any case, in most countries) that are an important market for its products. This creates economies of scale that reduce the burden of R&D costs and enable the use of advanced manufacturing technology. The main issue becomes the placement of different links in the value chain and ensuring that it works so that the company's product can be sold around the world.

In global strategy, there are two distinct methods by which a firm can achieve a competitive advantage or compensate for various disadvantages due to country conditions. The first is the most advantageous location of various activities in different countries in order to best serve the global market. The second is the ability of a global firm to coordinate the activities of affiliates scattered around the world. The placement of links in the value chain that are directly related to the customer (marketing, distribution and after-sales service) is usually tied to the location of the customer. Thus, in order to sell a product in Japan, a firm usually needs to have sales agents or distributors there and provide after-sales service locally. In addition, the location of other activities may be tied to the location of the buyer due to high transportation costs or the need for close interaction with the buyer. So, in many industries, production, delivery and marketing should be carried out as close as possible to the buyer. Most often, such a physical binding of activities to the client is required in all countries where the company operates.

On the contrary, activities such as production and supply of raw materials, etc., as well as ancillary activities (development or acquisition of technology, etc.) can be located regardless of the location of the client - such activities can be performed anywhere. As part of a global strategy, the firm locates these activities to benefit from lower costs or differentiation on a global scale. It can, for example, build one large factory for the global market, benefiting from economies of scale. As such, very few activities need only be performed in the firm's home country.

Decisions inherent only in the global strategy can be divided into two essential areas:

1. Configuration. In which and in how many countries does each value chain activity take place? For example, do Sony and Matsushita manufacture VCRs at the same large plant in Japan, or are they building additional plants in the US and UK?
2. Coordination. How are dispersed activities (that is, activities carried out in different countries) coordinated? For example, do different countries use the same brand and marketing tactics, or does each branch use its own brand and tactics adapted to local conditions?

In multinational competition, MNCs have autonomous branches in each country and manage them in much the same way that a bank manages securities. With global competition, firms try to gain a much greater competitive advantage from their presence in different countries, placing their activities with a global focus and clearly coordinating it.

Global strategy activity configuration

When planning its activities around the world within this industry, the firm is faced with the need to choose in two directions. First, should the activity be concentrated in one or two countries, or should it be dispersed over many countries? Second: in which countries to place this or that activity?

Activity concentration. In some industries, a competitive advantage is gained by concentrating activities in any one country and exporting finished products or parts abroad. This takes place in the following cases: when there is a large scale effect in the performance of a particular activity; when there is a sharp drop in production costs as the development of a new product, due to which it is profitable to produce products at one plant; when it is advantageous to place related activities in the same place, thus facilitating their harmonization. An export-focused or export-based global strategy is typical of industries such as aircraft, heavy engineering, structural materials, or agricultural products. As a rule, the activity of the company is concentrated in the home country.

A focused global strategy is especially characteristic of some countries. It is common in Korea and Italy. Today, in these countries, most of the goods are developed and produced within the country, and only marketing accounts for foreign countries. In Japan, this strategy is followed by most of the industries in which the country is successful internationally, although Japanese firms are now rapidly dispersing activities such as raw material procurement or assembly operations for various reasons. The type of international competitive strategy promoted and developed in a country determines the nature of the industries in which that country successfully competes in the international market.

The dispersion of activities. In other industries, they gain a competitive advantage or neutralize disadvantages from conditions in the home country by dispersing activities. Dispersal requires foreign direct investment. It is preferred in industries where high transportation, communication or storage costs make concentration unprofitable, or it is risky for various reasons (political motives, unfavorable exchange rates, or danger of supply interruption).

Dispersal is also preferred where local needs for different products vary greatly. The resulting need to carefully tailor products to local markets reduces the economies of scale or falling costs with adoption that come with using a single large plant or laboratory to develop new products. Another important reason for dispersal is the desire to improve marketing in a foreign country; in this way, the firm emphasizes its commitment to the interests of customers and / or provides a faster and more flexible response to changing local conditions. In addition, the dispersal of activities in many countries also gives the company valuable experience and professionalism obtained through the analysis of information from different parts of the world (although the company must be able to coordinate the activities of its branches).

In some industries, the state can very effectively induce the firm to choose a strategy of dispersal through tariffs, non-tariff barriers, purchases on a national basis. Very often, the government wants the firm to locate the entire value chain in its country (they say, this will give the country an additional benefit). Finally, the dispersal of some activities sometimes allows you to gain at the expense of the concentration of others. Thus, by carrying out final assembly in one's own country, one can "appease" one's government and obtain freer imports of components from large-scale centralized component factories located abroad.

Ultimately, the choice between concentration and dispersion depends on the type of activity performed. In truck manufacturing, leaders such as Daimler-Benz, Volvo and Saab-Scania do most of their R&D in-house and assembly is done in other countries. The best options for concentration-diffusion in different industries are different, they can be different even in different segments of the same industry.

Here is an illustration of the above reasoning. Swedish firms in a number of mining-related industries are pursuing a strong dispersal strategy as customers in the industry value close collaboration with equipment suppliers providing service and technical assistance. In addition, the mining industry is almost everywhere state-owned or heavily influenced by the public sector. Therefore, for political reasons, the firm needs to have branches abroad, since the governments of other countries prefer to have an equipment supplier in the country, rather than import equipment. Swedish firms such as SKF (ball bearings) or Electrolux (household appliances) tend to adopt a highly dispersed strategy with large foreign direct investment and essentially autonomous subsidiaries; this is the result of differences in product needs between countries, the need for close interaction with customers in marketing and service, and pressure from the governments of the countries where the firm operates. Swiss firms also tend to disperse their activities in many industries, including trade, pharmaceuticals, food and dyes.

A global strategy of dispersal with large foreign investment also applies to industries such as consumer packaged goods, medical care, telecommunications, and many services.

Location of activities. In addition to choosing the locations where a particular activity will be carried out, it is also necessary to select a country (or countries) for this. Usually, all activities are first concentrated in the home country. However, with a global strategy, a firm can perform assembly operations, manufacture components and parts, or even conduct R & D in any country of its choice - where it is most profitable.

The benefits of accommodation often manifest themselves in well-defined activities. One of the great advantages that a global firm has is the ability to distribute different types of activities between countries, depending on where it is preferable to produce one or another type of activity. Thus, it is possible, for example, to produce computer components in Taiwan, write programs in India, and do the main R&D in Silicon Valley in California.

The classic reason for locating a particular activity in a particular country is the lower cost of production factors. Thus, assembly operations are carried out in Taiwan or Singapore in order to benefit from the use of a well-trained, motivated, but cheap labor force. Capital is accumulated wherever possible, on the most favorable terms. For example, the Japanese company NEC financed convertible debt not in Japan, where this practice is not common, but in Europe in order to expand the production capacity for the production of semiconductor devices. It should be noted that global competition causes an increasing dispersal of activities based precisely on such considerations. Many American firms are transferring production to the Far East (for example, almost all disk drives of American firms are produced there), and Japanese manufacturers of sewing machines, sports goods, radio components and some other goods are actively investing in Korea, Hong Kong, Taiwan, and now in Thailand, placing production there.

Recently, there has been a trend to move activities abroad, not only to take advantage of production costs there, but also to conduct R&D, gain access to specialized skills available in these countries, or develop relationships with key customers.

For example, German firms producing equipment for the manufacture of plastics, and Swiss firms producing surveying equipment, located design offices in the United States to develop electronic control units. SKF (Sweden), the world leader in the production of ball bearings, now has a production and design base in Germany in close proximity to many German factories - leaders in various branches of engineering and from the automotive industry, which consumes ball bearings on a large scale.

Firms locate their activities abroad and in case this is a necessary condition for their business operations in the respective countries. In some industries, assembly, marketing, or service activities by a firm in a given country are essential to the sale of its products and services to customers in that country. A good example is the production of industrial air conditioners with high technology: industry leaders (American firms such as Carrier and Trane) are active in many countries to best adapt products to local conditions and meet high maintenance requirements.

Government directives also affect the location of activities. Thus, many Japanese investments in the US and Europe (in industries such as the production of automobiles and spare parts for them, consumer electronics, etc.) are caused by current or possible restrictions on imports to Japan. Likewise, many Swedish, Swiss, and American firms moved their operations abroad before World War II because then trade restrictions were more important and transportation costs were higher (which is why their activities are often more dispersed than Japanese or German firms in that period). the same industry). Once a dispersed firm, it is difficult to bring it under a single control, as branch managers in different countries try to maintain the power and autonomy of their branches. The resulting inability of the firm to shift to the more focused and coherent strategies needed to gain competitive advantage is one reason why competitive advantage is lost in some industries.

However, this is not all the reasoning about the best placement of a particular type of activity. In the end, choosing the best location for the activities that define a firm's home country (primarily strategizing, R&D, and the most complex manufacturing processes) is one of the main issues addressed in this book. Suffice it to say that the motives for choosing countries to carry out this or that activity are by no means limited to the classical explanations given here.

Global coordination

Another important means of achieving competitive advantage through a global strategy is the coordination of firm activities in different countries. Coordination (coordination) of activities includes the exchange of information, distribution of responsibility and coordination of the firm's efforts. It may provide some benefits; one of them is the accumulation of knowledge and experience gained in different places. If the firm learns how to better organize production in Germany, the transfer of this experience may be useful in the plants of this firm in the US and Japan. Conditions in different countries are always different, and this provides a basis for comparison and the possibility of assessing the knowledge gained in different countries.

Data from different countries provide information not only about a product or its production technology, but also about customer requests and marketing methods. By coordinating the marketing activities of all its divisions, a firm with a truly global strategy can get early warning of expected changes in industry structure, see dotted industry trends before they become obvious to everyone. Coordination of activities during its dispersal can give economies of scale by dividing the task into separate tasks for branches that determine their specialization. For example, the SKF company (Sweden) produces different sets of ball bearings at each of its foreign plants and, by organizing mutual deliveries between countries, ensures the availability of the entire range of products in each of them.

The dispersal of activities, if agreed upon, may allow the firm to respond quickly to changes in exchange rates or factor costs. Thus, a gradual increase in production in a country with a favorable exchange rate can reduce overall costs; this tactic was used in the late 1980s by Japanese firms in a number of industries because the Japanese yen was then high.

In addition, coordination can enhance the product differentiation of a firm whose customers are mobile or multinational buyers. Consistency in the location of the production of a particular product and in the approach to doing business on a worldwide scale strengthens the reputation of the brand. The ability to serve multinational or mobile customers where they want is often of great importance. Coordinating the activities of subsidiaries in different countries can make it easier for a firm to influence the governments of these countries if the firm has the ability to expand or curtail activities in one country at the expense of others.

Finally, the coordination of activities in different countries allows you to respond flexibly to the actions of competitors. A global firm can choose where and how to fight a competitor. It can, for example, give him the showdown where he has the most production or cash flow, and thereby reduce the rival's resources needed to compete in other countries. IBM and Caterpillar used exactly this defensive tactic in Japan. A firm focusing only on the domestic market does not have such flexibility.

Dramatically different customer needs and local conditions from country to country make it difficult to harmonize activities across countries, making experience gained in one country not applicable in others. Under such conditions, the industry becomes multinational.

However, while there are significant benefits to coordinating, achieving it in a global strategy is organizationally challenging due to its scale, language barriers, cultural differences and the need to share open and reliable information at a high level. Another serious difficulty is the coordination of the interests of the managers of the firm's branches with the interests of the firm as a whole. Let's say the German branch of a firm doesn't want to inform the US branch of its latest technology advances for fear that the US branch will, well, overtake it in the annual recap. In other words, branches of a firm in different countries often see each other not as allies, but as competitors. These annoying organizational problems make full coordination in global firms the exception rather than the rule.

Advantages due to placement and due to the structure of the company

The competitive advantage of a global firm can be usefully divided into two types: based on the location of activities (in which country it is located) and independent of location (based on the system of activities of the firm around the world). Advantages based on the location of activities in a particular country come either from the home country of the firm or from other countries in which the firm operates. The global firm seeks to use the advantages gained in the home country to enter foreign markets, and may also use the advantages gained from performing certain activities abroad to enhance the advantages or offset the disadvantages in the home country.

The advantages based on the structure of the firm stem from the overall volume of the firm's trade, the speed of product development at all of the firm's plants around the world, and the firm's ability to coordinate activities "at home" and abroad. Economies of scale in production or R&D are not in themselves tied to a country - a large factory or research center can be located anywhere.

To start global competition, it is necessary for some firms to achieve an advantage in their countries that allows them to enter foreign markets. Competitive advantage achieved exclusively in the home country of the firm is enough to start global competition. However, over time, successful global firms begin to combine the advantages achieved "at home" with the advantages of locating certain activities in other countries and from the system of the firm's activities around the world. These additional advantages, combined with the “home” achieved, make the latter more resilient, and at the same time compensate for the disadvantageous moments of the situation in the home country. Thus, the advantages of different sources are mutually enhanced. The overall economies of scale from global locations have enabled, for example, the German firms Zeiss (optics) and Schott (glass) to allocate more funds to R&D and better take advantage of technology and demand in their home country.

Practice shows that firms that do not use and develop the advantages of the home country through a global strategy are vulnerable to competitors. It is the combination of benefits from the conditions in the home country, from the location of certain activities abroad and from the system of global activity of the firm, and not each separately, that creates international success.

Now that the globalization of competition has become common knowledge, the focus has been on the benefits of firm structure and of locating activities in other countries. In fact, the benefits of home country conditions are usually more important than others (a topic we will return to in later chapters).

Choosing a global strategy

There is no single type of global strategy. There are many ways to compete, and each requires a choice of where to host activities and how to coordinate them. Each industry has its own optimal combination. Most global strategies are an inseparable combination of trade and foreign direct investment. Finished products are exported from countries that import components, and vice versa. Foreign investment reflects the placement of manufacturing and marketing activities. Trade and foreign investment complement each other rather than replace each other.

The degree of globalization often differs across industry segments, and the optimal global strategy varies accordingly. For example, in the production of lubricating oils, there are two distinct strategies. In the production of automotive motor oils, competition is multinational in nature, that is, in each country it is carried out separately. The nature of traffic, climatic conditions and local legislation are different everywhere. During production, different brands of base oils and additives are mixed. The economies of scale here are small, and transport costs are high. Distribution and distribution channels, which are very important for competitive success, vary greatly from country to country. In most countries, domestic firms (eg Quaker State and Pennzoil in the US) or MNCs with stand-alone subsidiaries (eg Castrol in the UK) lead the way. In the production of oils for marine engines, everything is different: here - a global strategy; ships move freely from country to country, and it is necessary that every port they enter have the right brand of oil available. Therefore, the reputation of the brand has become global, and successfully operating companies producing oils for marine engines (Shell, Exxon, British Petroleum, etc.) are global companies.

Another example is the hotel industry: competition in many segments is multinational, as most links in the value chain are tied to the location of the client, and the difference in needs and conditions between countries reduces the benefits of coordination of activities. However, if we consider hotels of the highest class or designed primarily for businessmen, then here the competition is more global. Global competitors such as Hilton, Marriott or Sheraton have properties scattered around the world but use the same brand, the same look, the same standard of service and the same room booking system from anywhere in the world, which gives them the advantage of serving businessmen, constantly traveling all over the world.

When the production process is broken down into stages, there are also often different degrees and patterns of globalization. Thus, in the production of aluminum, the initial stages (enrichment and smelting of metal) are global industries. The further stage (the production of semi-finished products, such as castings or stampings from aluminum) is already a number of industries with multinational competition. Demand for different products varies from country to country, transportation costs are high, customer service requirements on site are also high. The economies of scale in the entire value chain are quite modest. In general, the production of raw materials and components is usually more global than the production of finished products.

Differences in the types of globalization of different segments of the industry, stages of the production process and groups of countries create the possibility of drawing up focused global strategies aimed at a specific segment of the industry on a worldwide scale. Thus, Daimler-Benz and BMW, having chosen such a strategy, focused on high-end and business-class vehicles with high technical performance, while Japanese firms Toyota, Isuzu, Hino, and others focused on light trucks.

A firm pursuing a focused global strategy focuses on some segment of the industry that is undeservedly forgotten by firms with a broad specialization. Global competition can give rise to entirely new segments of an industry because a firm operating in any sector of its industry around the world can gain economies of scale on this basis. The reasons for this strategy may vary. For example, it is unprofitable to work in this segment of the industry in only one country because of the high costs. In some industries, this is the only true strategy, since the benefits of globalization are achievable only in one segment (for example, expensive hotels for businessmen).

A global focus could be the first step towards a broader global strategy. A firm enters global competition in a given segment when it has unique advantages in its home country. For example, in industries such as automobiles, forklifts, and televisions, Japanese firms initially gained footholds by focusing on a neglected market segment—the most compact product in each of these industries. They then expanded their product range and became world leaders in their respective industries.

Relatively small firms, not just large ones, can also compete globally. Small and medium-sized firms account for a significant share of international trade, especially in countries such as Germany, Italy and Switzerland. They often focus on narrow industry segments or operate in relatively small-scale industries. A focused global strategy is also characteristic of MNCs from smaller countries such as Finland or Switzerland, and of small and medium-sized firms from all countries. For example, the Montblanc company (Germany) pursues such a policy in the production of expensive writing instruments, and most Italian companies that produce shoes, clothing and furniture also compete worldwide in a narrow segment of their industries.

Small and medium-sized firms tend to build their strategy mainly on exports - foreign direct investment is modest. Nevertheless, the number of MNCs of the middle hand is growing. For example, in Denmark, Switzerland and Germany, there are many relatively modest-sized MNCs that focus on certain segments of their industries. With limited resources, small firms have difficulty entering foreign markets, identifying needs in those markets, and providing after-sales service. In different industries, these problems are solved in different ways. One way is to sell goods through sales agents or their importers (typical for Italian firms), the other is to act through distributors or trading firms (typical for Japanese and Korean firms). Another way is to use industry associations to create a common sales infrastructure, organize trade shows and fairs, and engage in market research. Thus, without cooperatives, the success of the agricultural industries in Denmark would not have been possible. Recently, small firms have been making alliances with foreign firms in order to be able to compete globally.

Industry globalization process

The globalization of industries occurs because a change in technology, customer demand, government policy, or infrastructure within a country enables firms in one country to “break away” from competitors in other countries or increases the value of the benefits that flow from a global strategy. For example, in the automotive industry, globalization began when Japanese firms achieved a significant competitive advantage through quality and productivity, the need for cars in different countries became more similar (in no small part due to higher fuel prices in the United States), and international transportation costs fell ( and these are just some of the reasons).

The strategic innovation itself often opens up opportunities for the globalization of an industry. International leadership in an industry is often the result of a firm discovering a way to make a global strategy viable. For example, it may find a way to cost-effectively adapt a product designed and manufactured in one place to the conditions of different countries (say, modifying a standard product to a different voltage in the local power grid). So, in the production of intercom systems, computer and other systems used in telecommunications, Northern Telecom, NEC and Ericsson won thanks to the design of the manufactured equipment, which allows the use of modular software and requires only minor alterations to be combined with the local telephone network. In addition, the firm may develop a new product that is widely popular, or a marketing method that makes this product popular. Finally, innovative solutions can be found to remove obstacles to a global strategy. For example, American firms were not only the first to produce plastic disposable syringes, which immediately gained wide popularity, but also reduced transportation costs compared to glass syringes and gained economies of scale by manufacturing products at one world-scale factory.

Emerging leaders in global industries always start with some advantage achieved "at home", whether it's a more advanced design, better workmanship, a new marketing method, or a gain in factor cost. But as a rule, in order to maintain the advantage, the firm must go further: the advantage achieved “at home” must become a tool for entering the foreign market. And once established there, successful firms build on the initial advantages with new ones, based on economies of scale or brand reputations gained from operations around the world. Over time, the competitive advantage is strengthened (or the disadvantages are offset) by locating certain activities abroad.

Although the advantages achieved in the home country are difficult to sustain, a global strategy can complement and enhance them. A good example is consumer electronics. Matsushita, Sanyo, Sharp and other Japanese firms initially focused on low cost with simple portable televisions. By entering the foreign market, they have gained economies of scale and further reduced costs by reducing the cost of developing new models. Through trading all over the world, they were then able to invest heavily in marketing, new equipment and R&D, in technology ownership. Japanese firms have long since moved away from a cost-focused strategy and are now producing a wide range of increasingly differentiated televisions, VCRs, and the like, using the highest quality materials and technology. And today their Korean competitors - Samsung, Gold Star, etc. - have adopted the strategy of focusing on costs and are releasing simpler, standard models using cheap labor.

Factor cost is a low order advantage and is also highly variable for both a domestically competitive firm and an internationally competitive one. This can be seen in industries such as tailoring or construction. By outsourcing, a firm with a global strategy can neutralize or even exploit changes in factor costs that harm its country's interests. For example, Swedish firms that produce heavy trucks (Volvo and Saab-Scania) have long moved part of their production to countries such as Brazil and Argentina. In addition, firms whose only advantage is factor cost gains rarely emerge as new industry leaders. The strategy of emulating leaders is too easy to be rendered ineffective by transferring to offshore production or offshore provisioning. Firms with low factor costs will be able to become leaders only if they combine this advantage with a focus on some industry segment ignored or unoccupied by the leaders and/or with capital investment in large factories equipped with the most modern technology at the moment. And they will be able to keep their advantage only by globally competing and constantly strengthening this advantage. The influence of country conditions on the initial advantage of firms, the ability of firms to develop these advantages through a global strategy, the ability and will of firms to achieve new advantages over time are the main topics of subsequent chapters.

Leading the way in global strategy

An immediate response to any change in the structure of an industry is just as important in global competition as it is in domestic competition, if not more so. Ultimately, the leaders in many global industries are those firms that are the first to recognize a new strategy and apply it globally. For example, Boeing was the first to apply a global strategy in the production of aircraft, Honda - motorcycles, IBM - computers, and Kodak - photographic films. American and British firms, producing a wide variety of packaged consumer goods, retain their leadership in no small part because they were the first to adopt a global strategy.

Global competition amplifies the benefits of a quick response to change. Early Birds are the first to spread their activities around the world; this added value, in turn, leads to reputational, scale, and uptake advantages. And already the positions won on the basis of such advantages can be held for decades and even longer. Thus, in the production of tobacco products, whiskey and high-quality porcelain, English firms have been leading for more than a century, despite the decline in the British economy as a whole. Similar examples of long-term leadership can be found in Germany (printing machines, chemicals), the US (soft drinks, movies, computers) and virtually every other developed country.

The reasons for changing the positions of countries in the competitive race are the same as in the more general cases discussed above. Established international leaders lose ground if they do not respond to changes in the structure of the industry, giving other firms the opportunity to bypass them through the rapid transition to new technologies or products. Thus, economies of scale, reputation and connections with the distribution channels of established leaders are lost. Thus, the traditional leaders of some industries have given way to Japanese firms in those industries that have been greatly changed by the advent of electronics (for example, the production of machine tools and tools) or where mass production has replaced the traditional small-scale production (production of cameras, forklift trucks, etc.). Existing leaders also fail if other firms discover new market segments that have been ignored by the leaders. Thus, Italian firms that produce electrical household equipment saw an opportunity to produce compact, unified models using mass production and sell them to fledgling retail chains to sell them under their own brand. By actively developing this rapidly growing new segment, Italian manufacturers of household appliances have become European leaders. Firms that are the first to exploit changes in industry structure often become new leaders because they benefit from the next change in industry structure. The home country significantly affects the ability of firms to respond to these changes, and, as already mentioned, firms in one or two countries often become global leaders in the industry.

The ability of firms to retain the benefits gained from the old strategy is often the result of sheer luck, namely that there are no major changes in the industry. But still, more often it is the result of constant updating in order to adapt to changing conditions. Subsequent chapters explore in detail the country characteristics that explain this adaptability. The forces that enable a country's firms to maintain a competitive advantage once achieved are the main pillar of a country's prosperity.

Alliances and global strategy

Strategic alliances, which can also be called coalitions, are an important vehicle for pursuing global strategies. These are long-term agreements between firms that go beyond ordinary trading but do not go as far as merging firms. The term "alliance" refers to a number of types of cooperation, including joint ventures, sale of licenses, long-term supply agreements and other types of intercompany relationships24. They are found in many industries, but are especially common in automotive, aircraft, aircraft engines, industrial robots, consumer electronics, semiconductors, and pharmaceuticals.

International alliances (firms in the same industry based in different countries) are one of the means of global competition. With an alliance, there is a division between partners of the activities included in the value chain around the world. Alliances have been used for quite some time, but their nature has changed over time. Previously, firms from developed countries formed alliances with firms from less developed countries for marketing (often such a maneuver was required to gain market access). Now, more and more firms from highly developed countries are making alliances to work together in large regions or around the world. In addition, alliances are now entered into not only for marketing, but also for other activities. Thus, all American automobile companies have alliances with Japanese (and in some cases Korean) firms to produce cars sold in the United States.

Companies enter into alliances for the sake of gaining advantages. One is economies of scale, or reductions in development time and costs, achieved through collaborative efforts in marketing, manufacturing components, or assembling certain models of finished products. Another advantage is access to local markets, necessary technologies, or meeting the requirements of the government of the country in which the company operates that a company operating in the country belongs to that country. For example, General Motors Corporation's alliance with Toyota - NUMMI - was conceived by General Motors in order to learn from Toyota's manufacturing experience. Another benefit of alliances is risk sharing. For example, some pharmaceutical companies have entered into cross-licensing agreements in the development of new drugs to reduce the risk that research in each individual company will fail. Finally, firms with complex and advanced technologies often use alliances to influence the nature of competition in an industry (for example, by licensing technology that is in high demand to achieve standardization). Alliances can offset competitive disadvantages, whether it be costly inputs or outdated technology, while maintaining company independence and eliminating the need for costly mergers.

However, alliances are costly both strategically and organizationally. Take, for a start, the very real problems of coordinating the activities of independent partners with substantially different and even contradictory goals. Difficulties in the coordination order jeopardize the benefits of a global strategy. In addition, today's partners may well be tomorrow's competitors; this is especially true for partners with a stronger or more rapidly developing competitive advantage. Japanese firms have confirmed this idea many times. To top it off, the partner gets a share of the firm's profits, sometimes quite substantial. Alliances are fragile and can fall apart or collapse. Often everything starts out great, but soon the alliance breaks up or ends with a merger of companies.

Alliances are often a temporary measure, they are common in industries that are undergoing structural changes or intensifying competition, and managers of firms fear that they can not cope alone. Alliances are the result of firms' lack of confidence in their abilities and are most often found in second-tier firms trying to catch up with leaders; at first they give hope to weak competitors to remain independent, but in the end it may well come to the sale of the company or its merger with another.

As can be seen from the above, the alliance is not a panacea. And to stay ahead of the competition, a firm must develop internal reserves in the areas most important to achieving competitive advantage. As a result, world leaders rarely, if ever, rely on partners when they need the funds and skills they need to gain a competitive edge in their industry.

The most successful alliances are very specific. The alliances forged by world leaders such as IBM, Novo Industry (the insulin company) and Canon are narrowly focused, focused on entering certain markets or accessing certain technologies. Alliances are generally a means of increasing competitive advantage, but they are rarely an effective means of creating it.

Influence of National Conditions on Competitive Success

The principles of competitive strategy outlined above show how much to take into account when highlighting the role of the home country in international competition. Different strategies are more suitable for different industries, since the structure of industries and the sources of competitive advantage in them are not the same. And within the same industry, firms may choose (and successfully apply) different strategies if they seek different types of competitive advantage or target different segments of the industry.

A country succeeds when the conditions in the country are conducive to pursuing the best strategy for an industry or segment. A strategy that works well in this country should lead to a competitive advantage. Many of the characteristics of the country facilitate or, conversely, make it difficult to implement a particular strategy. These features are heterogeneous - from the behavioral norms that determine the methods of managing firms, to the presence or absence of certain types of skilled labor in the country, the nature of demand in the domestic market and the goals that local investors set for themselves.

Gaining competitive advantage in complex industries requires improvement and innovation—finding new, better ways to compete and applying those ways everywhere, as well as continuous product and technology improvement. A country is successful in these industries if its conditions are conducive to such activities. Gaining advantage requires anticipating new ways to compete and a willingness to take risks (and invest in risky ventures). And countries that succeed are those whose environments give firms a unique opportunity to recognize new competitive strategies and an incentive to immediately apply these strategies. Those countries whose firms do not properly respond to changes in the situation or do not have the necessary capabilities, are the losers.

Maintaining a competitive advantage for a long period requires the improvement of its sources. Improving the edge requires, in turn, more sophisticated technologies, skills and production methods, and constant investment. Countries succeed in sectors where they have the skills and resources to change their strategy. Firms that rest on their laurels, using a once and for all fixed concept of competitive advantage, quickly lose ground as competitors copy the techniques that once allowed these firms to get ahead.

The constant change required to maintain competitive advantage is both inconvenient and organizationally difficult. Countries succeed in industries where firms are under pressure to overcome inertia and engage in continuous improvement and innovation rather than sitting idle. And in those industries where firms stop improving, the country loses.

The country excels in those industries where its advantages as a national base carry weight in other countries and where improvements and innovations precede international needs. To achieve international success, firms must transform domestic leadership into international leadership. This makes it possible to strengthen the advantages gained “at home” with the help of a global strategy. Countries thrive in industries where domestic firms compete globally, encouraged by the government or under duress. In looking for the determinants of a country's competitive advantage across industries, one needs to identify the conditions in a country that are conducive to competitive success.

Honestly, competitive advantages This is a topic that I am of two minds about. On the one hand, rebuilding a company from competitors in the market is a very interesting task. Especially when the company, at first glance, is like everyone else, and does not stand out in anything special. In this matter, I have a position of principle. I am convinced that any business can be rebuilt, even if it is one in a thousand and trades at prices above the market average.

Types of competitive advantages

Conventionally, all the competitive advantages of any organization can be divided into two large groups.

1. Natural (price, terms, delivery terms, authority, customers, etc.)
2. Artificial (personal approach, guarantees, promotions, etc.)

Natural benefits carry more weight because they are factual information. Artificial advantages are more of a manipulation, which, if used correctly, can significantly strengthen the first group. We will return to both groups below.

And now the most interesting. Even if a company considers itself the same as everyone else, inferior to competitors in terms of prices and believes that it does not stand out in any way, it still has natural advantages, plus, you can make artificial ones. You just need to spend a little time to find them and formulate them correctly. And here it all starts with competitive analysis.

Competitive analysis that is not

Do you know what is the most amazing thing about Runet? 80-90% of businesses do not conduct a competitive analysis and do not highlight the company's advantages based on its results. Everything, but what is enough time and energy in most cases is to look at competitors and tear some elements from them. That's the whole setup. And it is here, by leaps and bounds, that clichés grow. Who do you think was the first to come up with the phrase “Young and dynamically developing company”? It doesn't matter. Many have taken and ... Quietly adopted. Under the noise Similarly, clichés appeared:

• Individual approach
• Highly qualified professionalism
• High quality
• First class service
• Competitive prices

And many others, which in fact are not competitive advantages. If only because not a single company in its right mind will say that amateurs work for it, and the quality is slightly worse than none.

I am generally surprised by the attitude of some businessmen. You will communicate with them - everything “somehow” works for them, orders “somehow” go, there is a profit - and that’s fine. Why invent, describe and count something? But as soon as things start to get tight, that's when everyone remembers marketing, detuning from competitors and the advantages of the company. It is noteworthy that no one counts the money that was not received due to such a frivolous approach. But it is also a profit. Could be...

In 80-90% of cases, the Runet business does not conduct a competitive analysis and does not show the company's advantages to its customers.

However, there is a positive side to all of this. When no one shows their advantages, it's easier to rebuild. This means that it is easier to attract new customers who are looking for and comparing.

Competitive advantages of products (goods)

There is another blunder that many businesses make when they formulate benefits. But here it is worth mentioning right away that this does not apply to monopolists. The essence of the error is that the customer is shown the benefits of the product or service, but not the company. In practice, it looks like this.

That is why it is very important to correctly place emphasis and bring to the fore the benefits and emotions that a person receives and experiences when working with an organization, and not from buying the product itself. Again, this does not apply to monopolists that produce a product that is inextricably linked to them.

Main competitive advantages: natural and artificial

It's time to return to the varieties of benefits. As I said, they can be divided into two large groups. Here they are.

Group #1: Natural (Actual) Benefits

Representatives of this group exist on their own, as a fact. Only a lot of people don't write about them. Some, thinking it's obvious, others because they hide behind corporate clichés. The group includes:

Price- one of the strongest competitive advantages (especially when there are no others). If your prices are lower than those of competitors, write by how much. Those. not “low prices”, but “prices 20% below market”. Or "Wholesale retail prices". Numbers play a key role, especially when you work in the corporate segment (B2B).

Timing (time). If you deliver goods from today-to-today - tell us about it. If you deliver to remote regions of the country in 2-3 days, tell us about it. Very often, the issue of delivery time is very acute, and if you have thoroughly worked out the logistics, then write specifically where and for how much you can deliver the goods. Again, avoid abstract clichés like “fast/prompt delivery”.

An experience. If your employees “ate the dog” on what you sell and know all the ins and outs of your business, write about it. Buyers like to work with professionals who can be consulted. In addition, when buying a product or service from an experienced seller, customers feel more secure, which brings them closer to buying from you.

Special conditions. If you have any special delivery conditions (deferred payment, post-payment, discounts, showroom availability, geographic location, wide warehouse program or assortment, etc.). Everything that competitors do not have will fit.

Authority. Certificates, diplomas, major clients or suppliers, participation in exhibitions and other certificates that increase the importance of your company. A big help is the status of a recognized expert. This is when company employees speak at conferences, have a promoted YouTube channel or give interviews in specialized media.

Narrow specialization. Imagine that you have a Mercedes car. And you have two workshops in front of you: a specialized service that deals only with Mercedes and a multidisciplinary one that repairs everything from UAZs to tractors. Which service do you apply to? I bet the first one, even if it has higher prices. This is one of the varieties of a unique selling proposition (USP) - see below.

Other actual benefits. For example, you may have a wider assortment than your competitors. Or a special technology that others do not have (or that everyone has, but which competitors do not write about). Anything can be here. The main thing is that you have something that others do not have. As a fact. This is also your USP.

Group #2: Artificial Advantages

I especially love this group, because it helps out a lot in situations where the customer's company does not have advantages as such. This is especially true in the following cases:

1. A young company, just entering the market, has no customers, no cases, no reviews. As an option, specialists leave a larger company and organize their own.
2. The company occupies a niche somewhere in the middle: it does not have a wide assortment, like large retail chains, and there is no narrow specialization. Those. sells goods, like everyone else, at prices slightly above the market average.
3. The company has a detuning, but the same as that of competitors. Those. everyone in the niche is using the same actual benefits: discounts, experience, etc.

In all three cases, the introduction of artificial advantages helps. These include:

Added value. For example, you sell laptops. But you can't compete on price with a bigger seller. Then you go to the trick: install an operating system and a basic set of programs on a laptop, selling it a little more. In other words, you are creating added value. This also includes various promotions a la "Buy and win ...", "When buying an apartment - a T-shirt as a gift", etc.

Personal adjustment. It works great when everyone around is hiding behind corporate clichés. Its essence is that you show the face of the company (for example, directors) and engage. Works great in almost any niche: from selling children's toys to armored doors.

A responsibility. A very strong advantage that I actively use on the site of my laboratory. Perfectly combined with the previous paragraph. People love to work with people who are not afraid to take responsibility for the products and/or services they sell.

Reviews. As long as they are real. The more authoritative the person who gives you feedback, the stronger the impact on the audience (see the trigger “ ”). Testimonials on letterhead with a seal and signature work better.

Demonstration. The best presentation is a demonstration. Let's say you don't have any other benefits. Or is, but implicit. Make a visual presentation of what you are selling. If these are services, show how you provide them, shoot a video. At the same time, it is important to correctly place the accents. For example, if you check each product for performance, tell us about it. And this will be an advantage for your company.

Cases. This is a kind of visual demonstration of the tasks solved (completed projects). I always recommend describing them because they work great for sales. But there are situations when there are no cases. This is especially true for young companies. Then you can make so-called artificial cases. The bottom line is simple: do yourself a favor or a hypothetical client. As an option - to a real client on a net basis (depending on the type of service, if possible). So you will have a case that you can show and demonstrate your expertise.

Unique selling proposition. We have already talked about it a little higher. Its essence is that you enter some detail or disclose information that sets you apart from your competitors. Here, take me. I provide copywriting services. But copywriting services in a wide range are provided by many specialists. And my USP lies in the fact that I give a guarantee of the result, expressed in numbers. Those. I work with numbers as an objective measure of performance. And it's gripping. You can find out more about USP in.

How to find and correctly describe the advantages of the company

As I said before, I firmly believe that every company has its own advantages (and disadvantages, but it doesn't matter now :)). Even if she is a strong middle peasant and sells everything like everyone else. And even if it seems to you that your company does not stand out in any way, the easiest way to understand the situation is to ask directly the clients who already work with you. However, be prepared that the answers may surprise you.

The easiest way to find out the strengths of your company is to ask your customers why they chose you.

Some will say that they work with you because you are closer (geographically). Someone will say that you inspire confidence, but someone just liked you. Collect and analyze this information and it will increase your profit.

But that's not all. Take a piece of paper and write down the strengths and weaknesses of your company. Objectively. As in spirit. In other words, what you have and what you don't (or don't have yet). At the same time, try to avoid abstractions, replacing them with specifics. See examples.

Far from all the benefits can and should be written on the same site. However, at this stage, the task is to write out as many strengths and weaknesses of the enterprise as possible. This is an important starting point.

Take a pen, paper. Divide the sheet into two columns and write down the advantages in one and the disadvantages of the company in the second. You can have a cup of coffee. Do not look at the mountain ash, it is here so, for the entourage.

Yes, we have, but this

See examples:

You got the idea. So you have several types of competitive advantages at once:

1. Natural (factual information that you have that sets you apart from your competitors)
2. Artificial (amplifiers that also set you apart from competitors - guarantees, personal approach, etc.)
3. “Changelings” are flaws that are turned into virtues. They complement the first two points.

little trick

I use this trick from time to time when there is no way to show the dignity to the fullest, as well as in a number of other cases when something more “weighty” is needed. Then I don’t just write the benefits of the company, but combine them with the benefits that the client receives from the product or service. It turns out a kind of "explosive mixture".

See what it looks like in practice.

• It was: Experience 10 years
• It became: Budget savings up to 80% due to 10 years of experience

Or another example.

• It was: Low prices
• It became: The price is 15% lower, plus a 10% reduction in transport costs due to our own fleet.

You can learn in detail about how to correctly generate benefits from.

Summary

Today we examined the types of the main competitive advantages of the company and, using examples, analyzed how to formulate them correctly. At the same time, it is important to understand that everything that we did today should by default be part of a competitive strategy (if one is being developed). In other words, everything will work better when it is tied into a single system.

I really hope that the information in this article will expand your opportunities and allow you to more effectively conduct competitive analysis. In turn, if you have any questions - ask them in the comments.

I'm sure you will succeed!

However, when making any changes, it is necessary to adhere to one of the main principles of marketing: first of all, when creating or changing a product, it is necessary to take into account the desires and interests of the consumer.

This principle is the first step towards a successful and prosperous business. But one attitude to consumers is not enough, it is necessary to create a certain competitive advantage that will allow you to overtake competitors in the chosen niche.

Creating an advantage

The concept of "competitive advantage" means an exclusively positive difference between a product and the products of competitive organizations. It is this advantage that is the factor by which the consumer chooses this product, and not the product of competing companies. A competitive advantage can be, for example, the quality of a product or service.

When creating a competitive advantage, it is important to adhere to two main principles:

• This advantage should be really important for the consumer;
• The consumer must see and feel the competitive advantage.

Despite such a great efficiency in creating a competitive advantage, it must be remembered that competitors will still determine this advantage over time and apply it to their products.

However, as practice shows, this time is enough to recoup the costs, get significant profits and overtake direct competitors.

Creating a competitive advantage should not take huge company budgets, so it is necessary to use a certain methodology that allows not only creating a competitive advantage, but also significantly reducing the costs of this process.

In this methodology, four main stages can be distinguished, each of which is an integral part of the entire process of creating a product advantage:

• Segmentation;
• Specialization;
• Differentiation;
• Concentration.

Segmentation

In this case, the concept of a segment hides end consumers who are looking for one or another type of product with certain parameters. In other words, each consumer has certain needs and interests, based on which he chooses the necessary products. Thus, all consumers can be divided into groups of requests.

When carrying out (individuals), gender, age characteristics, place of residence, vehicle availability, etc. are often chosen as parameters of the segmentation process.

In addition, sometimes more detailed consumer data is used, that is, targeting is carried out. On the other hand, consumers can be organizations to which products are supplied. In this case, segmentation is carried out according to the organization's belonging to a certain type: store, dealer, manufacturer, etc.

One of the main segmentation parameters in this case is the size of the company, knowing which, you can easily determine the total amount of products passing through the organization.

After determining the signs of segmentation and identifying the future competitive advantage, it is necessary to apply the usual marketing tools to promote the product: advertising products, direct introduction of the product in the company, sending letters asking to purchase the product, and other methods.

Of course, all of these methods have a big problem: there is no guarantee that the company will decide to purchase the product. In this regard, there is a more practical way - the implementation of consumer segmentation based on the problems present in this area.

Surely, in every business there is a bottleneck that arises from the fact that consumers cannot find what they need. For example, customers of a butcher's shop want a certain type of meat to cost not 300 rubles, but 250.

Or that the delivery of pizza home was carried out not in one hour, but in 30 minutes. Thus, segmentation is carried out according to unsatisfied consumer needs.

It is quite easy to evaluate such requests, for example, by the usual survey of potential consumers. Polls have always given the most effective result. After analyzing the results of the survey, the most acute problem is selected and a competitive advantage is built on its basis. Thus, the promoted products will be associated with the target audience precisely with this competitive advantage.

Specialization

Identifying problems in a particular market segment is only half the trouble. It is necessary to decide on one problem that needs to be eliminated and made into an advantage. However, this is not as easy as it seems. The choice of a specific problem for its further solution depends on a number of factors, which include money, the presence of certain conditions, staff, time.

In particular, time, money and personnel are the determining criteria in choosing a particular problem. After all, with a large budget, an unlimited amount of time and specialized personnel, any problems can be solved. Therefore, before choosing, it is necessary to correctly assess the available resources.

An equally important step is to assess the importance of this problem. The relevance and severity of a particular problem determine the success of the competitive advantage. Don't pick a problem that other organizations can easily fix. And, of course, we should not forget about the eternal problems that exist in every market segment.

It's about price, staff and range. Each consumer always wants the purchased products to be of the highest quality and cheapest in a huge assortment, and the service personnel do everything to ensure that he is satisfied and arrives in a good mood.

These problems cannot be completely and forever eradicated, since nothing is perfect. But you can reduce the severity of the problem by increasing the quality, reducing the cost of products, expanding the range and recruiting qualified personnel.

Evaluating all the above factors and criteria, you need to choose the most appropriate problem that you can handle. At the same time, it is important to remember that the more acute the problem, the more effective it will be to create a competitive advantage, and the longer this advantage will last. In this matter, the difficulty of the whole process of creating a competitive advantage is only a plus, and not vice versa.

Differentiation

Having decided on the problem that needs to be solved, that is, after identifying a competitive advantage, it is necessary to start advertising. The stage of differentiation as a whole consists in the implementation of various kinds of advertising.

At the same time, it is necessary to advertise not just a company, service or product, but to advertise with an emphasis on the chosen competitive advantage. Thus, the consumer will know that this particular product has a certain advantage, which he has been looking for so long from other companies.

At the same time, it is not forbidden to use various images and graphic techniques, slogans and quotes, the main thing is that the emphasis is on the competitive advantage of products.

But so that it is not short, since all consumers have different inertness in the perception of advertising, that is, a certain period during which the target audience gets used to the advertising material. This period is different for all groups.

Thus, for individuals, the inertness in the perception of advertising is usually up to 6 months, and for organizations - up to several tens of months. Of course, this indicator depends on the specifics of the promoted product and the business as a whole.

Concentration

The stage of concentration is no less important in creating a competitive advantage, since it is negligence, relaxation and absent-mindedness that can cause failure. For the most effective creation of a competitive advantage, it is recommended to make this task a priority by informing all employees of the company. It is this pace and daily work on this problem that guarantees the continued success of the products.

Do not forget about re-segmentation, which is recommended to be carried out annually. It will not only help identify new problems in a particular market segment, but will also determine the current state of affairs in relation to the previously selected competitive advantage, which will allow you to more accurately assess the company's strategy in the market and draw the right conclusions.

Combining all the stages, and competently performing each of them, it is important to remember that creating a competitive advantage is a rather complex and time-consuming process that requires considerable financial and time costs. Therefore, the stages of segmentation and specialization are so important for choosing a problem and assessing the possibilities for solving it.

If there is a financial opportunity, it is often useful to re-segment, but in your own region, in the region of the manufacturer. With a professional and competent approach, the company takes a significant step forward due to its competitive advantage.

Strategic management is designed to ensure the survival of the company in the long term. Of course, when it comes to survival in a competitive market environment, there is no question that the company can drag out a miserable existence. It is very important to understand that as soon as someone from those who are associated with the company, this connection becomes not a joy, he moves away from the company, and after a while it dies. Therefore, survival in the long term automatically means that the company is quite successfully coping with its tasks, bringing satisfaction to those who enter into the sphere of its business interaction with its activities. First of all, this applies to customers, employees of the company and its owners.

The concept of competitive advantage

How can an organization ensure its long-term survival, which must be inherent in it so that it can cope with its tasks? The answer to this question is quite obvious: the organization must produce a product that will consistently find buyers. This means that the product must be, firstly, so interesting to the buyer that he is ready to give money for it, and, secondly, more interesting to the buyer than a product similar or similar in consumer qualities produced by other firms. If a product has these two properties, then the product is said to have competitive advantages.

Therefore, a firm can successfully exist and develop only if its product has competitive advantages. Strategic management is called upon to create competitive advantages.

Consideration of the issue of creating and maintaining competitive advantages involves an analysis of the relationship and, accordingly, the interaction of three subjects of the market environment. The first subject is “our” company that produces a certain product. ect is a buyer who may or may not buy this product. The third killer is competitors who are ready to sell their products to the buyer that can satisfy the same need that and a product manufactured by "our" firm. The main thing in this market "love" triangle is the buyer. Therefore, the competitive advantages of a product are the value for the buyer contained in the product, which encourages him to buy this product. Competitive advantage does not necessarily arise from comparing "our" firm's product with competitors' products. It may be that there are no firms on the market offering a competitive product, yet the product of “our” firm is not for sale. This means that it does not have sufficient value for the buyer or competitive advantages.

Types of competitive advantages

What creates competitive advantage? It is believed that there are two possibilities for this. First, the product itself can have competitive advantages. One kind of competitive advantage of a product is its price feature. Very often, the buyer purchases a product only because it is cheaper than other products with similar consumer properties. Sometimes a product is bought just because it is very cheap. Such purchases can occur even if the product has no utility for the buyer.

The second type of competitive advantage is differentiation. In this case, we are talking about the fact that the product has distinctive features that make it attractive to the buyer. Differentiation is not necessarily related to the consumer (utilitarian) qualities of the product (reliability, ease of use, good functional characteristics, etc.). It can be achieved at the expense of such characteristics that have nothing to do with its utilitarian consumer properties, for example, at the expense of the brand.

Second, in addition to creating a competitive advantage in a product, a firm may be trying to create a competitive advantage in its product. market position. This is achieved by securing the buyer, or, in other words, by monopolizing part of the market. In principle, this situation is contrary to market relations, since in it the buyer is deprived of the opportunity to choose. However, in real practice, many firms manage not only to create such a competitive advantage for their product, but also to maintain it for a long time.

Strategy for creating competitive advantage

There are three strategies for creating competitive advantage. The first strategy is price leadership. With this strategy, the focus of the firm in the development and production of the product is cost. The main sources of creating price advantages are:

Rational business management based on accumulated experience;

Economies of scale by reducing costs per unit of output with an increase in production volume;

Savings on diversity as a result of cost reduction due to the synergistic effect that occurs in the production of various products;

Optimization of intra-company communications, contributing to the reduction of company-wide costs;

Integration of distribution networks and supply systems;

Optimization of the company's activities in time;

The geographic location of the company's activities, which allows to achieve cost reduction through the use of local features.

Bringing to life pricing strategy To create a competitive advantage for a product, a firm should not forget that its product must at the same time meet a certain level of differentiation. Only in this case, price leadership can bring a significant effect. If the quality of the price leader's product is significantly lower than the quality of similar products, then creating a price competitive advantage may require such a strong price reduction that it can lead to negative consequences for the firm. However, it should be borne in mind that the price leadership strategy and the differentiation strategy should not be mixed, and even more so should not be attempted to implement them at the same time.

Differentiationis the second strategy for creating competitive advantage. With this strategy, the company tries to give the product something distinctive, unusual, that the buyer may like and for which the buyer is willing to pay. A differentiation strategy aims to make a product different from what competitors do. To achieve this, the firm has to go beyond the functional properties of the product.

Firms do not necessarily use differentiation to gain a price premium. Differentiation can help expand sales by increasing the number of products sold, or by stabilizing consumption, regardless of fluctuations in market demand.

In the case of implementing a strategy for creating competitive advantages through differentiation, it is very important to focus on consumer priorities and the interests of the buyer. Earlier it was said that the differentiation strategy involves creating a product that is unique in its own way, different from the products of competitors. But it is important to remember that in order to have a competitive advantage, it is necessary that the unusualness of the product, its novelty or uniqueness be of value to the buyer. Therefore, the differentiation strategy assumes, as a starting point, the study of the interests of the consumer. For this you need:

It is enough to clearly present not just who the buyer is, but who makes the decision on the purchase;

To study consumer criteria by which a choice is made when purchasing a product (price, functional properties, guarantees, delivery time, etc.);

Determine the factors that shape the buyer's idea of ​​the product (sources of information about the properties of the product, image, etc.).

After that, based on the ability to create a product of an appropriate degree of differentiation and an appropriate price (the price should allow the buyer to purchase a differentiated product), the company can begin to develop and manufacture this product.

A third strategy that a firm can use to create competitive advantage in its product is focus on the interests of specific consumers. In this case, the company creates its product specifically for specific customers. Concentrated product creation is associated with the fact that either some unusual need of a certain group of people is satisfied (in this case, the firm's product is very specialized), or a specific system of access to the product is created (the system for selling and delivering the product). By pursuing a strategy of concentrated creation of competitive advantages, the firm can use both price attraction of buyers and differentiation at the same time.

As can be seen, all three strategies for creating competitive advantages have significant distinctive features that allow us to conclude that the company must clearly define for itself what strategy it is going to implement, and in no case mix these strategies. At the same time, it should be noted that there is a certain relationship between these strategies, and this should also be taken into account by firms when creating competitive advantages.

Navigation

⏱ reading time: 15 minutes

The goal of a marketing strategy is to understand and deal with the competition. Some companies are always ahead of others. Industry affiliation does not matter - the gap in the profitability of companies within the same industry is higher than the differences between industries.

Differences between companies are especially important in times of crisis, when the competitive advantage created is an excellent foundation for profitable growth.

Competitive advantages of the company

• Advantage Any success factor that increases a consumer's willingness to pay or reduces a company's costs.
• Competitive advantage- a significant success factor for the consumer, in which the company surpasses all competitors

Building a competitive advantage means achieving a larger gap between costs and the buyer's willingness to pay for a product than competitors.

Step 1. Determine success factors

The answer to the question “how to create a competitive advantage for a company” is not so important. If you are confident that you will achieve superiority over competitors through 24/7 delivery, then you will find a solution for how to realize this competitive advantage. It is much more difficult to determine what exactly they will become.

To do this, first of all, we write out all the advantages, or success factors, that are important for buyers. For example, here are.

Step 2. Segmenting the target audience

A separate shuttle for business class passengers is an advantage. But the achievement of this competitive advantage is completely indifferent for those flying in the "economy" segment. The definition of competitive advantages always takes place for a specific segment of the target audience - with its specific needs and desires.

The decision to sell to "everyone" leads to the question of where to find these "everyone" and what to offer them. It turns out that “everyone” must be searched “everywhere” and offered “everything”. Such a strategy will kill the budget of any company.

Take the example of achieving competitive advantage for a flower company. Among the target audience, we will single out segments of those who buy flowers impulsively, prepare a pre-planned gift, or, say, decorate houses.

Having determined for whom we are going to form a competitive advantage, we will evaluate whether it is worth it - we will give an assessment of the market capacity and the intensity of competition in each segment.

Read more about segmentation criteria in our article: ""

Step 3. Identify Key Success Factors

The buyer is demanding. For him, many factors are important - from the consultant's smile and website design to low prices. But if the buyer wants something, this does not mean at all that he is ready to pay for it.

The significance of competitive advantage is the willingness of the buyer to pay for it. The more money they are willing to pay for the development of a competitive advantage, the higher its importance.

Our task is to form a very short list of key success factors that can determine the company's competitive advantages from a long list of various "wants" of the consumer.

In our example, the key success factors are the same for all three target audience segments. In real life, each segment usually has 1-2 of its own factors.

Step 4. Assess the importance of key success factors for target audience segments

What is important for one segment of the target audience may be a weak competitive advantage for consumers from another segment.

If you got the idea to buy flowers to give them this evening, then for an impulsive decision, the main thing is the appearance (fullness of the bud opening) and the speed of the purchase. This is more important than the ability to choose from a large assortment, the life span of a bouquet - it is necessary that the flowers are and look good that particular evening.

The opposite situation is buying flowers to decorate the house. Delivery does not "burn", but the question of how long the flowers will last comes to the fore.

Therefore, the importance of key success factors is determined for each segment of the target audience separately.

*) we clarify - KFU are taken as an example, close to life, but not reflecting the real case.

For our company, determining the right competitive advantages that allow our customers to attract more consumers, get more money from them and interact with them for longer is one of the main blocks of the developed marketing strategy. Therefore, in we are striving to achieve an ideal situation - when each cell of all the tables in this article is expressed in money. It is possible to create a working marketing strategy only by understanding the cost of CFU from the point of view of the buyer, the market volume, costs, etc.

All this information is available. But sometimes there is no time or resources for this. Then we advise you to use a comparison on a 5 or 10-point scale. In this case, remember that any factual data is better than guesswork. Hypotheses need to be put forward based on the big data of the company, monitoring customer reviews, observing the process of selling competitors, and not taking it out of your head “because it seems so to me”. Expert forecasts too often do not work.

Step 5. Compare achieved competitive advantages

At this point, we figured out what is important for your consumers. This is good. It's bad that competitors are also in the know.

To understand the starting conditions, it is necessary to assess the current degree of development of the company's competitive advantages. Strictly speaking, you have a competitive advantage only when your offer outperforms all direct competitors in some key success factor.

The assessment of competitive advantages is made exclusively from the point of view of consumers. The opinion of the company's employees, and especially the management, does not say anything. The director may be proud of the site developed according to his idea, on which millions have been spent, but this in no way indicates the convenience of the site for clients.

Step 6. Identify sources of competitive advantage

Any competitive advantage is the result of the company's activities. Each action incurs costs and at the same time affects the buyer's willingness to purchase the product. Differences in the results of these actions form competitive advantages.

Therefore, we make a list of all the activities of the company by desegregating its activities into separate processes. In projects, we start the analysis with the activities that are necessary to produce the basic product or service, and only then add related activities.

Step 7. Linking key success factors and company performance

Competitive advantage is formed at the intersection of various activities. For example, the growth of the assortment in the flower trade requires an increase in working capital, the availability of storage space for products, sufficient area of ​​points of sale, additional qualification of sellers and service personnel, etc.

We determine which business processes are associated with the development of each of the found competitive advantages and the size of their contribution.

Step 8. Estimate the company's costs of creating competitive advantages

At this step, we look at how much it costs to achieve a competitive advantage. Any activity of the company has its costs.

In our example, we evaluate the level of costs on a scale of 1 to 10, but in real life, a company must know its costs more or less accurately. Pay attention to the calculation methodology - usually accountants tend to record most of the costs in production, thereby reducing indirect costs.

Having understood the size of the costs, we determine their drivers. Why are the costs the way they are? Maybe we pay a lot for shipping because the size of the business is small and we do not have enough cargo? There are many cost drivers. They depend on the size of the firm, its geographical location, institutional factors, access to resources, etc.

Cost driver analysis helps to assess the costs of competitors to create a similar competitive advantage. It is difficult to obtain data directly, but by understanding the drivers that affect the amount of costs, one can assume the level of expenses of competitors.

Step 9. Looking for resources to create a competitive advantage

Maintaining the achieved competitive superiority at a constant level is possible only if there are sufficient resources. In addition, the analysis of the resources available to the company helps to choose the area of ​​rapid formation of competitive advantage.

Step 10. Choose a direction for developing a competitive advantage

We look at the two resulting final pictures and reflect. There are only three possibilities for achieving competitive advantage:

• increase willingness to buy a product without raising costs too much
• sharply reduce costs, with little effect on willingness to buy
• increase willingness to buy and reduce costs at the same time.

The third direction looks the most attractive. But finding such a solution is extremely difficult. Typically, companies simply waste valuable resources trying to build competitive advantage across the board.

Basic rules for determining competitive advantage.

• We are looking for options that create the largest gap between the buyer's willingness to pay and our costs.
• We do not try to select all attractive options at once. Having decided to occupy one peak, we will not climb another. It is most profitable to choose a peak that is not crowded with competitors.
• We remember competitors, what drives each of them. If you decide to change some business process, how will your closest competitor react?

• success factors. The more you find, the better. Habit managers typically focus on a few product features. This reduces the perception of the benefits that the consumer receives and brings your marketing strategy closer to that of competitors. To find competitive advantages that aren't as competitive, think about the benefits the company creates for all of its stakeholders: customers, employees, suppliers, dealers, and so on.
• Key success factors. The more significant the factor, the more restructuring of the company's activities it requires. If you are not among the industry leaders, it is better not to try to immediately compete on the main factors, or groups of factors ("best in quality")
• Market. The question should not be “can we create a competitive advantage for this segment of the target audience”, but “can we create a competitive advantage for this segment of the target audience and remain profitable.” Having current costs in hand, we assume how much the company will pay for turning a key success factor into a full-fledged competitive advantage
• Current competitive position. It is difficult to build up a competitive advantage in which you are hopelessly behind. Especially if it is a capital-intensive or time-consuming process.
• Costs. Competitive advantage can be gained by focusing on costs that are most different from competitors, are large enough to affect the overall cost structure and are associated with separate activities.

Fear often hinders competitive advantage. The desire to become the best will necessarily entail an increase in prices or, conversely, a decrease in the desire to buy our product. Reducing costs reduces the desire of the client to use our service (a ticket for a low-cost airline is cheap, but you can’t take luggage with you, there is no food, airports are far away). Improving product performance leads to higher costs. This is absolutely normal. The only important thing is to widen the gap between the buyer's willingness to pay and the company's costs.

Step 11. We create competitive advantages by changing the company's actions

As I wrote above, the creation of competitive advantages is the result of the company's actions. In order for the offer to surpass all competitors, it is necessary to reconfigure some of the activities.

For example, achieving a competitive advantage "low cost". It is pointless to try to compete with a discounter by simply cutting prices. A successful discounter has become so because much of the company's activities are dedicated to creating this competitive advantage. If a Walmart employee wants to borrow a new pen, he or she returns the old one. There are no trifles in creating a competitive advantage.

Again, we look at the connection between the chosen competitive advantage and the company's activities. Where is this competitive advantage created? And we invest in the development of selected business processes.

Ask yourself the following questions

• Are our actions different from those of our competitors?
• Are we doing the same things but in a different way?
• How can we change our set of activities to gain a competitive advantage?

As a result, determine the minimum and sufficient set of activities that the company must perform in order to form a competitive advantage. Usually they try to copy only obvious things, forgetting that much is hidden under water. It is the complex of activities that creates a competitive advantage that cannot be copied.

Actions aimed at developing a competitive advantage should be linked by a single logic. A classic example of M. Porter is SouthWest Airlines' set of actions that created its competitive advantage. As a result, the airline was the only low-cost carrier on the market for 25 years. It is impossible to achieve a similar competitive advantage with a swoop.

In fact, this is the marketing strategy. Such a set of actions is almost impossible to copy and surpass.