Value chain in sizing up competitive advantage


It is obvious that competitive advantage grows fundamentally out of the value a firm is able to create for its buyers. It is also obvious that if a value should become a competitive advantage for the firm, it should be superior to the value generated by competitors in the same activity. In other words, the firm has to create differential value. It may take the form of prices lower than the competitor’s for equivalent benefits, or the provision of unique benefits that more than offset a premium price. The name of the game is to enhance value relative to competition in the vast matrix of value-creating activities performed by the firm and develop a value chain that is superior to that of the competitor.

By analyzing the value chain of the competitor, the firm gets a good grasp of the strengths and weakness of the competitors. It can also get an idea of the costs and performance in the competitor’s value chain. By comparing the costs and performance in its value chain with that of the competitors, the firm can find out where it stands relative to competition. If the firms performs some value-creating activities better than its competitors, to that extent it achieves a competitive advantage.

Obviously, in order to be useful in the context of competitive advantage, the value chain exercise has to be enlarged; it has to cover the value chains of the competitors. In fact, it should cover the value chains of the firm’s suppliers, distributors and customers. Similarly, it should cover the value chains of the suppliers, distributors and customers of the competitors. Such in-depth comparison of value chains enhances the firm’s scope for identifying and building its competitive advantage.

Competitive Advantage through Integration:

When Videocon decided to buy out the Uptron Color Picture Tubes unit paying a very high price, Videocon was trying to acquire a substantial competitive advantage through integration so that the company can become a totally integrated TV manufacturer. Takeover of Uptron would make Videocon the only company in the country having an integrated manufacturing line for color televisions from glass shells to picture tubes to complete TV sets. The integration meant a distinct competitive advantage to Videocon, in pricing as well as quality parameters.

Competitive Advantage through Brand Power:

We saw earlier that brand power is an important source of competitive advantage. This fact is demonstrated well by Nestle’s Maggi Noodles. When Brooke Bond’s new food venture Indo-Nissin Foods decided to launch its Ramen brand of noodles in the Indian market, they were entering a market dominated by Maggi Noodles for nearly 10 years. Nestle had nurtured the brand in such a fine way that Maggi had become a household name. Maggi had assiduously built its brand equity. The assurance of ‘quick food’ was its first winning point. The welcome taste was the second. Retail support built over 10 years gave it further strength. Nestle used all these winning points well and thereby built Maggi’s brand equity. Top ramen could not take off against Maggi’s brand power.

Competitive Advantage through JVs and Alliances:

A firm can also gain advantage through a joint venture, or some kind of an alliance with another firm. The plethora of JVs and strategic alliances taking place in recent times underscore the importance of this route for acquiring competitive advantage. Strategic alliances sometimes take place even between rivals. In a number of cases, they resort to it in order to have better access to selected markets, to the mutual advantage of both partners. Alliances such as the ones between IBM-Apple, IBM-Siemens, Motorola-Toshiba and Intel-NEC are examples.

Building Competitive Advantage is also possible through a Conscious and long term Process. Developing and nurturing durable competitive advantages involve a conscious choice and medium/long-term efforts. It also needs considerable resources. In fact, more than resources per se, what is of greater importance is the strategic application of the resources. Even when the resources available with the firm are limited, the firm has to ensure that the right share of the limited resources goes to those factors which constitute the source of its competitive advantage. It has to nourish the particular factors that confer the competitive advantage.