Competitive Advantage - Research Paper Example

Competitive advantage Lecturer Competitive Advantage Introduction Business organizations around the world are always faced with the challenge of rival organizations trading in similar products or services. It is never guaranteed that a business organization that tops above others will remain at the top. It has to look for different means that will keep it at the top by seeking means to win more clients while earning maximum profit. This sustenance at the top is made possible by employing strategies that the organization can ride on. This paper focuses on the nature of competitive advantage in relation to two models; namely, the Porter’s Diamond Model and Hofstedes’s Dimensions of culture. Furthermore, the rankings of the Transparency International on Corruption will be put in place. Competitive advantage Competitive advantage has been defined as that favourable position sought by organizations in order to maximize its profits above their competitors. It involves the communication of larger perceived value targeting markets that cannot be met by the competitors. Competitive advantage is likely to be achieved through different avenues that include the offering of superior quality products or services. Some of these practices involve the lowering of prices as well as raising the efforts in the market. A competitive advantage that is sustainable is one that maintains a favourable position above others over a long period of time which is vital in boosting its image in the marketplace. Furthermore its valuations together with future earning potentials are also put into consideration. Generally, competitive advantage is divided into two, namely comparative advantage (also known as cost advantage) as well as differential advantage. Comparative advantage is the capacity of producing good products or services at lower costs that business rivals. It gives a business firm the propensity to selling goods along with services at relatively reduced prices in comparison to the competition or generating large sale margins. Differential advantage on the other hand is founded when the products or services of a firm differ from those of the competitors and are perceived as better compared to those of the competitors (Deardoff, 2011). Hofstede’s dimensions of culture According to Onsrud (2007), Hofstede has identified five dimensions of culture which are as follows: the Power/Distance (PD) which he identifies as the level of inequality existing, and which is generally accepted by people with power and those without. Where there is a high PD the society is seen as acknowledging unequal power distribution and everyone is comfortable with their respective place in that system. If the PD is low, there is power sharing which is well distributed and individuals perceive each other equally. Organizations in high PDs are centralized with strong hierarchies and big gaps in terms of compensation and authority, while low PD places supervisors as well as employees are seen as equal. In the former, it is important to acknowledge authority of leaders and the latter requires one to employ teamwork. Individualism (IDV) is another dimension which refers to level of cohesion. High IDV organizations have loose connections while low IDV means high close knit connections. In high IDVs people need freedom, facing of challenges and respect for privacy, and accomplishments need to be acknowledged with allowance of negotiations. On the low IDVs there is emphasis on skill-building and age and wisdom should be respected. Masculinity (MS) is another dimension which points to the levels of male gender over the female one. In high MAS there is clear division of labour and one ought to respect these divisions while in low MAS division of labour is not defined and respect and equality among the two genders is necessary. Another dimension is Uncertainty/Avoidance Index (UAI) which defines the level of anxiety in unclear and uncertain situations. In high UAI, formal business conducts and many rules and policies are common and one should know his/her expectations. In low UAI there is a lot of informal attitude to business and one should not impose rules and structures unnecessarily. Finally, there is the Long Term Orientation (LTO) which involves societal values that have endured vis-a-vis the short term ones. In high LTO the family is seen as basic unit of society and one is expected to respect traditions. In low LTO, equality is promoted as well as self-actualization and one ought to live according to the standards they set. Porter’s diamond model Porter’s diamond model of national advantage purports that comparative advantage is to be found in the endowments of a nation such as natural resources, land, labour and the population size. The model has four determinants of national advantage which include the following. The firm structure strategy and rivalry, the factor conditions, the demand conditions and the related supporting industries. Porter argues that each of these four points together with the whole diamond have their effect on four ingredients leading to national comparative advantage. These ingredients are resource and skills availability; Information used by firms in deciding the opportunities to pursue with the available resources; individual’s goals in companies and the pressure put on the company to invest. Governments are thus supposed to encourage organizations to uplift their performance with strict standards for products; focus on creating specialized factor; kindle demand for advanced products and encourage local competition (Johnson, Whittington, Scholes & Pyle, 2011). Comparing Porter’s model with Hofstede’s dimensions From the two models, it has been observed that each of them has focus of improving the comparative advantage of organizations. Hofstede on one hand emphasizes on a bifurcated view of comparative advantage which ranges from high to low on each dimension. In both ends of each dimension, none is negative or positive and thus each polar is fits a given organization in a given culture. Porter on the other hand in his dimensions considers a comprehensive look at the development of organizations influenced by five dimensions of the diamond structure which operate individually and at the same time as a whole. In both cases the focus is the comparative advantage and it allows for organizations to look at the place where it is located so as to formulate the best ways of enhancing the comparative advantage. In conclusion, the two models indicate that comparative advantage is very necessary and business organizations need to be cognizant on the best dimensions to follow. The firm has tried to make use much of Hofstede’s cultural model which has adapts to different cultures around the globe. It is observed that cultural acceptance and value assimilation is effective in the company. Actually, with more ventures, there is the chance of greater performance which will flow from local cooperation from the working populations. References Deardorff, A. V., & Stern, R. M. (2011). Comparative advantage, growth, and the gains from trade and globalization: A festschrift in honor of Alan V. Deardorff. New Jersey: World Scientific. Johnson, G., Whittington, R., Scholes, K., & Pyle, S. (2011). Exploring strategy: text & cases. Harlow: Financial Times Prentice Hall. Mind Tools (2014). Hofstede’s cultural Dimensions: Understanding workplace values around the world. Retrieved from on May, 2014. Onsrud, H. J. (2007). Research and theory in advancing spatial data infrastructure concepts. Redlands, Calif: ESRI Press. Read More