Diversify on core to sustain competitive advantage
Company urges invest in something new to achieve advantage to develop their business. However with technology improving and market becoming mutual the “pie” seems not big enough for such increasing amount of investors. Many fail to gain economies of scale. Moreover, in the current market company is in the competition also turns to be fiercer. An excessive investment to unrelated and “hot” may compel company neglect their existing business developments which result in competitive advantage lose. Porter (1985) insisted that company who abandoned its core business prematurely, searching for new opportunities that only erode their core. Data from 185 companies in 33 industries shoe that market leaders earned a 25.4% return on capital, compared with 14.3% for companies in a weaker market position (Zook 2001). It is the time for company to make more affect on sustaining their competitive advantage. A prudent competitive strategy should be chosen to support this.
Managers are challenged by whether to diversify or not. Kastens (1973) believes:” Diversification is fundamentally a negative strategy…diversifiers are always run away from something.” Actually, diversification effects on performance should not be absolutely denied. A kind of prudent diversification can be of sense. This essay identify focusing on core competency diversification can be considered to be an approach to improve sustainable competitive advantage that acquire company to achieve their goal in a long-term run.
To win the business game companies have to possess advantages relative to competitors including innovation, process improvement, higher quality, lower cost and marketing. However, with the competition is ever-increasing violence rivals find a quick way to catch up with those companies who have achieved competitive advantage, even go beyond, which refers to imitation.
To keep the advantages in the market it is inevitable for firm to raise barriers that make entrance or imitation difficult-which means to create sustainable competitive advantage. Since barriers are not insurmountable more investment is required to offer a moving target to rivals that continually improve their competitive advantage (Porter 1985). It is widely accepted that investment in core competence is the source of competitive advantage (Christensen, 2001; Reeb, D.M., C.C.Y. Kwok & H.Y. Baek ,1998). .
It is suggested that to achieve sustained and profitable growth at least one strong and differentiated core business is fundamental firm to build (Zook & Allen 2001). This requires company to insisting exploring its capacity to consolidate technologies and production skills that empower business to be unique to response demand. This uniqueness will be rewarded by gaining the chance to charge a premium price resulted from differentiation and, in some circumstances, to be the cost leader. In 1980, Intel was smaller in total market value than either Advanced Micro Devices or National Semiconductor. But by reinvesting with a narrow focus on digital logic chips for PCs, Intel today dwarfs those two firms, which spread their R&D funds over a range of businesses.
Diversification is a strategic management issue in the development of a marketing plan. It is defined as a strategy which takes the organization into new markets and products or services and therefore increases the diversity that a corporate parent must oversee (Johson et al. 2006).It can mainly divided into two categories: related diversification and unrelated diversification. Related diversification can be defined as strategy development beyond current products and markets, but within the capabilities or value network of organization. Unrelated diversification, then, refers to development of products or markets beyond the current capabilities or value network
Portfolio theory appeals investment in a...
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