Question

Do you agree with I/O theorists that external factors are more important than internal factors in a firm achieving competitive advantage? Explain both your and their position.

BUSINESS STRATEGY COURSE

Answer 1

According to the industrial organisation approach to competitive advantage, in a firm the external factors are more important than the internal factors for achieving competitive advantage. The industrial organization theorists contend that the competitive positioning of a firm in an industry largely determines competitive advantage. The negative impact of the recent global economic recessions on both strong and weak firms have added support to this argument. There have been some firms however, which went bankrupt during the growth periods. The reasons behind the bankruptcy of these firms have completely been the internal factors. Therefore, it seems that internal and external factors are both equally important. In some situations and circumstances the external factors may assume greater importance and in other situations and circumstances the internal ones. Thus, developing effective understanding of both type of the factors and their proper integration is important for maintaining competitive advantage.