Competitive Advantage of Business Strategy

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COMPETITIVE ADVANTAGE OF BUSINESS STRATEGY

World trade is growing faster than world GDP – this is a key consequence of globalization. Trade barriers are being reduced and protectionist policies are no longer acceptable to the many countries that believe in the free-trade concept. This means that companies must compete not only with domestic rivals but with competitors from across the globe. Many of these competitors will have either: lower costs or differentiated products. According to Michael Porter, these are the two main factors that can lead to a significant competitive advantage. Business managers must decide whether they want business strategy to focus on competitiveness gained through low costs (and prices) or differentiated products that would allow higher prices to be charged. What strategies can be adopted to increase a business’s competitive advantage when faced with a globalized marketplace? Here are three examples: 1. Automation. BMW’s takeover of the iconic Mini brand led to an investment of over $400 million in 230 new robots at the UK factory. These offer some of the most advanced and productive manufacturing production facilities in the world. This helps to reduce the costs of manufacture, but it also allows a flexible production system that can make all three types of Mini body shell on the same production line. So, in effect, both lower costs and differentiated products were achieved by this automation strategy. 2. Rationalization. The merger of two of Europe’s main travel companies, Thomas Cook and MyTravel, aimed to cut costs to increase competitiveness. It seemed to achieve its aims because, within two years, cost savings of over $300 million had been achieved by a combination of redundancies – especially when job titles were unnecessarily duplicated after the merger – and bulk purchasing of holiday accommodation. 3. Research and development (R&D). Shell, the oil giant, increased its R&D spending by 36% in 2008. The Company has a...
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