Key to International Strategic Advantage International Strategic Advantage is the strategy that companies use which allows them to outperform competitors consistently in the long-run.

Key to International Strategic Advantage
International Strategic Advantage is the strategy that companies use which allows them to outperform competitors consistently in the long-run.

Use of Porter’s five forces framework
The five forces framework is a useful tool but must be applied carefully. Criticisms include the following:
The framework is applied at the most appropriate level – not necessarily the whole industry. For example, the European low cost airline industry must be separated out from the airlines industry, globally.
A five forces analysis may assume too much stability. In most modern competitive environments, there is a higher dynamism than Porter assumed when he designed the framework back in 1985.
Five forces analysis tends to neglect the growing importance of complementors. An organisation is your complementor when a) customers value your product more if they use it along with the other company’s product/service than when they use your product alone, and b) it is more attractive for suppliers to provide resources to both you and the other organisation(s), rather than to you alone.

Resource-based view of stategy

Competitive positioning approach
(Porter's Five Forces)

Rivalry between competitors

The threat of entry by new rivals and barriers to their entry

Threat of substitutes

The bargaining power of suppliers

The bargaining power of buyers

Competitive rivals are organizations with similar products and services aimed at the same customer group and are in the same industry/market.
For example, in Europe Air France and British Airways compete directly for airline passengers. Trains are a substitute service.
The degree of rivalry is increased when:

There is a low level of differentiation.

Competitors are of roughly equal size. This leads to more intense struggles for dominance between the firms.

Competitors are aggressive in seeking leadership. The market is mature or declining.

There are high fixed costs (e.g. industries requiring high capital equipment costs like the steel industry).

The exit barriers are high, for example, due to high costs of redundancy or the decommissioning of capital equipment that is not easily resaleable.

Substitutes are products or services that offer a similar benefit to an industry’s products or services, but by a different process.
Customers will switch to alternatives (and thus the threat increases) if:

the price/performance ratio of the substitute is superior (e.g. aluminium may be more expensive than steel but it is more cost efficient for some car parts)

the substitute benefits from an innovation that improves customer satisfaction (e.g. high speed trains can be quicker than airlines from city centre to city centre such as in Europe, London to Paris)

Buyers are the organization’s immediate customers, although not necessarily the ultimate consumers.
If buyers are powerful, then they can demand cheap prices or product/service improvements to reduce profits. Buyer power is likely to be high when:

buyers are concentrated, where a few buyers account for the majority of sales. Thus hundreds of automobile components suppliers try to sell to a small number of carmakers

buyers have low switching costs, meaning they can switch easily between suppliers. Switching costs are low when the item bought is a weakly differentiated commodity and is easily available (e.g. sugar)

buyers can supply their own inputs (backward vertical integration). For example, some Chinese steel companies have gained power over their iron ore suppliers by acquiring iron ore sources for themselves, putting them in a strong bargaining position relative to their existing suppliers

Suppliers are those who supply what organisations need in order to produce the product or service.
Supplier power is likely to be high when:

there are very few of them and they provide a specialist or rare input. For example, for Coca-cola bottlers there is only supplier – Coca-Cola – of Coke Syrup. If Coca-Cola changes the price, there is little the bottlers can do but pay.

buyers represent only a small part of sales by the supplier. Thus Boeing will not offer lower prices for new aircraft to small airlines, but may well offer large discounts to Singapore Airlines, Malaysian Airlines or British Airways

switching costs are high and it is disruptive or expensive to change suppliers (for example, Microsoft is a powerful supplier in the PC industry because of the high switching costs of moving from one operating system to another)

suppliers can integrate forwards (for example, low cost airlines have cut out the use of travel agents).

Barriers to entry are the factors that need to be overcome by new entrants if they are to compete in an industry. T
he threat of rival entry is low when they are kept out by high entry barriers such as:

• Economies of scale/high fixed costs. The steel and semi-conductor industries are just two examples.

• Non-scale-based advantages, for example patents, difficult to imitate know-how, superior information about customers.

• High experience and learning needed to succeed in the industry.

• Difficulty in accessing supply and distribution channels.

• High market penetration costs

• Difficult government restrictions (e.g. licensing, tax regimes).

• Possible revenge by existing firms in the market, for example slashing prices against a new rival.

Use of Porter’s five forces framework
With the 5 forces framework, you are trying to assess the attractiveness of an industry, and how to make it more attractive, from a business perspective.
It is important, therefore, to ask:
Should we enter or leave this industry?
What leverage can we use to improve our chances of success?
How are competitors reacting to the five forces, and how will they react to moves we make?

The most fundamental questions asked by the resource-based view are:
Do the resources add value?
Do they enable a company to exploit an external opportunity and/ or neutralise an external threat?

Tangible resources

Financial:
Ability to generate internal funds
Ability to raise external capital

Intagible resources

Human
Knowledge
Trust
Organizational culture

Physical
Location of plants, offices and equipment
Access to raw mateial and distribution channels

Technological
Possesion of patents, trademarks, and copyrights

Organisational
Formal planning, command and control systems
Integrated management information systems

Innovation
A supportive atmosphere for new ideas
R&D capabilities
Capabilities for organizational innovation and change

Reputational
Perceptions of product quality, reliability among customers
Reputation as a good employer
Reputation as a socially responsible corporate citizen

While all such capabilities can contribute to competitive advantage, some may become primary for a company in specific circumstances.
For example, Wal-Mart today is the biggest retail company in the world. It does not make a single thing. All it ‘makes’ is a hyper-efficient supply chain.
Its logistics capabilities give Wal-Mart speed, scale and cost advantages over rivals, and also enable Wal-Mart to provide logistics advice and services to other companies.

One of the critical questions on capabilities a company must answer is
whether a capability is critical enough to be kept in-house, or whether it is not a core critical capability and can be outsourced, or can be the subject of a strong partnering relationship with another company or service supplier.