Asawasi Company, a relatively new company, is in the business of designing and building farm equipment and machinery. Whilst it has been successful in its first few years of operation, sales are now in decline as competition in the industry has intensified and there is greater rivalry between the competing organisations.
A review undertaken by consultants has recommended that in order to gain sustained competitive advantage, the company needs to establish the basis on which it can compete more effectively against its rivals in the future.
Required:
i) Describe the concept of competitive advantage and include references to the different bases Asawasi Company could use to achieve competitive advantage. (5 marks)
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Competitive advantage refers to any activity or factor which gives one organisation an edge over its rivals. The edge that an organisation has over its competitors may be viewed from three angles namely superior position, superior skills and superior resources. Organisations should adopt a strategy which is intended to achieve some form of competitive advantage. Doing something better, or more efficiently than competitors should ultimately lead to profitability. If this can be done long term, despite the efforts of competition, then the organisation possesses a sustainable competitive advantage.
There are three bases on which Asawasi company could use to achieve competitive advantage.
- Cost leadership
This means being the lowest cost producer in the industry as a whole. By producing at the lowest cost, the manufacturer can compete on price with every other producer in the industry and earn higher unit prices. - Differentiation
This is the exploitation of a product or service which the industry as a whole believes to be unique. This can be achieved via brand image, product special features, marketing techniques etc. - Focus
This involves restricting activities to only part of the market (a segment). This is also known as a niche strategy. There are two ways to achieve this:
Providing goods/services at a lower cost to that segment (cost focus)
Providing a differentiated product/service to that segment (differentiation focus)