Question

Our Chapter 6 discussions will focus on working capital and the financing decision, tell us your reaction to the following:

In addition to the companies' high public recognition, they have good sales, an excellent turnover growth year on year as well. Moreover, both companies' movement of the inventory and collection from credit sales should be decent. Staying over the good accumulated earnings over the years, the large firms are less reliant on the outside sources of funds or due to such accumulated reserves. Furthermore, the fund availability is always making a positive impact from banks and other financial institutions.

Nevertheless, due to the difference between large and small firms, there is still a possible competitive advantage with the large firms over the small once. Based on my observations of the market, small firms cannot attract customers because of the shortage of advertisement and customer coverage. In contrast, large firms have goodwill among the customer, and their presence exists everywhere, thereby providing extensive customer coverage to that of other firms.

As a large firm, there is a duplex advantage because of its ability to efficiently manage the working capital and taking financing decisions, thereby running a heavy competition to small firms and distracting customers away from these small firms. Without the mentioned above strategies, the growth rate of large firms would not merely keep on growing.

What do you think of the advantage a large firm (for example Wal-Mart) has over a small firm in terms of both working capital management as well as financing decisions. In particular please consider competitive advantage

Answer 1

I think this is a good question basically customers are of high importance and take the example of saravan stores in chennai he sells at a lower cost and makes a huge profit you could have studied in cost accounting "LOWER THE COST HIGHER THE PROFIT" this is also one of the important point i would like to highlight  for the competitors around the world basically if you take amazon they also sell at par prices and their products are best as saravana stores in chennai  this is what the customers expect and some of the things  i would like to highlight below. Some of them are:

• Brand Image Recogonition
• Ability to manufacture products at a lower costs

what are the key points required for gaining competitive advantage ?

BENEFITS: A company must be clear about the benefits they give on their products and services .It must offer real value and generate interest.

TARGET MARKET: Target market is nothing but where you advertise and sell your products to gain an advantage over the other competitors and where the marketing techniques are taken care of .

COMPETITORS : It is important for us to understand about the other competitors in the competitive landscape

SOME OF THE IMPORTANT STRATEGIES I AM GOING TO DISCUSS ABOUT FOR GAINING A COMPETITIVE ADVANTAGE. SOME OF THEM ARE

1. COST LEADERSHIP
2. DIFFERENTIATION
3. FOCUS

• ​​​​​​COST FOCUS
• DIFFERENTIATION FOCUS

COST LEADERSHIP:​ In a cost leadership strategy the objective is to become the lowest cost producer.This is achieved through Large -scale production where companies can exploit economies of scale.It means as discussed above the example of saravana stores in chennai what he does is he sells the products at a lower prices and at a large scale production and his products will serve benefits and value for a longer duration and he makes a huge profit okkay lets take another example amazon sells a product lesser than mrp that if a product value is 700 the product will be sold at 588 so the company sells at a low cost and gains profit.If a company is able to utilize economies of scale and produce products at a cost lower than that of its competitors, the company is then able to establish a selling price that is unable to be replicated by other companies.Therefore a company adopting a cost leadership strategy would be able to reap profits due to its significant cost advantage over its competitors

DIFFERENTIATION: In a differentiation strategy, a company products or services are differentiated from that of its competitors. This can be done by delivering High quality products or services to customers or innovating products or services. If a company is able to differentiate sucessfully,the company would be able to set a premium price on its products or services

FOCUS:In a focus strategy , a company focuses on narrow target market segment.This strategy is successful if the company is able to sucessfully create products or services that can cater to these customers. The focus strategy has two variants

• ​​​​​​COST FOCUS: Lowest cost producer in a narrow market segment..
• DIFFERENTIATION FOCUS: Differentiated products or services in a narrow market segment.

some of the examples are:

Mcdonalds :Mcdonalds main competitive advantage relies on a cost leaderswhip strategy.The company is able to utilize economies of scale and produce products at a low costs and as a result, offers products at a lower selling price than that of its competitors.

LOUIS VUITTON: Louis vuitton advantage relies on both differentiation and a differentiation focus strategy.The company is able to be a leader in the luxury market and command premium prices through product uniqueness.

WALMART: Walmart advantage relies on a cost leadership strategy. Walmart is able to offer" everyday low prices through economies of scale.