Question

Successful businesses outperform their competitors due to some advantages that make them successful. Businesses also remain profitable due to their core competence. Discuss the concepts ‘competitive advantage’ and ‘core competence’. ( 5 marks)

Answer 1

What is a Competitive Advantage?

A competitive advantage is an attribute that enables a company to outperform its competitors. This allows a company to achieve superior margins compared to its competition and generates value for the company and its shareholders.

A competitive advantage must be difficult, if not impossible, to duplicate. If it is easily copied or imitated, it is not considered a competitive advantage.

Examples of Competitive Advantage

1. Access to natural resources that are restricted from competitors
2. Highly skilled labor
3. A unique geographic location
4. Access to new or proprietary technology
5. Ability to manufacture products at the lowest cost
6. Brand image recognition

Constructing a Competitive Advantage

Before a competitive advantage can be established, it is important to know the:

1. Benefit: A company must be clear what benefit(s) their product or service provides. It must offer real value and generate interest.
2. Target Market: A company must establish who is purchasing from the company and how it can cater to its target market.
3. Competitors: It is important for a company to understand other competitors in the competitive landscape.

To construct a competitive advantage, a company must be able to detail the benefit that they provide to their target market in ways that other competitors cannot.

core competency (core competencies)

Core competency is an organization's defining strength, providing the foundation from which the business will grow, seize upon new opportunities and deliver value to customers. A company's core competency is not easily replicated by other organizations, whether existing competitors or new entries into its market.

A company can have more than one core competency. Core competencies, which are sometimes called core capabilities or distinctive competencies, help create a sustained competitive advantage for organizations.

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