Summary: Lecture 5

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• 1 lecture 5

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• A. How does the firm create a competitive advantage?

  
  1.Market Based "Outside-In" Models
  2.Resource Based "Inside-Out" Models

• B. How does the firm sustain a competitive advantage?

  deploying an isolating mechanism refers to the economic forces that limit the extent to which a competitive advantage can be duplicated.
  There are two types of isolating mechanisms:
  (1) Impediments to Imitation
  (2) Early-Mover Advantages

• Impediments to imitation (isolating mechanism)

  (1) Impediments to Imitation
  There are 4 distinctive isolation mechanisms in this category
  •Legal restrictions
  •Superior access to inputs and customers
  •Market size and Scale Economies
  •Intangible Barriers to Imitation

• Early mover advantages

  (2) Early Mover Advantages
  There are 4 distinctive isolation mechanisms in this category
  •Learning Curves
  •Reputation and Buyer Uncertainty
  •Buyer Switching Costs
  •Network Effects
  

• Market Based "Outside-in" models

  the competitive advantage comes from the firm's ability to optimally structure itself to meet the market, to attract customers, and to earn a profit, in the face of competition (porters five forces).

• Porter's five market forces

  •The threat of entry -How real is the threat that new entrants appear in the market? Start-ups are one threat, diversifications are another.
  
  •The threat of rivalry - How competitive is the industry? How intensive is the competition in our industry? Are we a monopolist, or one of many?
  
  •The threat of substitutes - Can competitors substitute away from our product? Is our offering unique, or not?
  
  
  •The threat of powerful suppliers
  
  •The threat of powerful buyers
  
  
  Where is the power? Are there few suppliers? Are there few customers?

• Resource Based "inside-Out" Models

  The Resource Based View focuses on the internal resources of the organization in considering the source of competitive advantage.
  
  In contrast to Porter-type models, the RBV suggests that its unique clusters of resources that determine profitability.
  
  
  And therefore the answer as to why firms within the same industry experience different levels of performance is to be found by looking inside the organization

• Resources can be tangible and intangible.

  　
  •Tangible resources refer to the physical assets that an organization possess and can be categorized as physical, financial, or human.
  •Intangible resources comprise intellectual and technological resources, as well as assets such as reputation, culture, knowledge and brands. Intangible resources are embedded in the routines and practices that have been developed by the firm, over time

• Resources can be divided into: (Amit & Schoemaker, 1993)

  1. Resources are firm-specific but tradable.
  
  
  2. Capabilities are "a special type of resource, specifically an organizationally embedded non-transferable firm-specific resource whose purpose is to improve the productivity of the other resources possessed by the firm". Capabilities can also be understood to be an organization’s capacity to deploy resources. And are built through the bundling of the resources.

• internal resources should be... in order to be a sustained competitive advantage

  • Valuable
  • Rare
  • Inimitable
  • non-substitutable

  
  
  Essentially, this suggests that key resources must be heterogeneous in nature – that is, different – and not perfectly mobile between firms. If and only if this holds, the firm’s resources can be used to produce sustainable advantage.