Corporate Strategy and Competition Law - Essay Example

Corporate Strategy and Competition Law Introduction In order to be globally competitive, corporations have to adopt different strategies and techniques. These techniques assist in marketing corporate products and services to the consumer public with the end result of making them as profitable as possible. These strategies have to include important policies in relation to competition law and antitrust issues before they can find ultimate applications in any corporation. This study shall critically analyse and explain an optimal competitive strategy which can be applied to different corporations. Specifically, it shall consider information technology as a competitive advantage for corporations. This analysis shall also include an assessment of whether there are any competition law or antitrust issues which will need to be addressed in the application of this strategy in corporations. Discussion Information technology is one of the fastest technologies currently available to man. It is pervasive and it is also a diverse technology and is currently accessible to almost all individuals. The internet, cellular phones, and other digital media have all made the world a much smaller place. What used to be oceans or hours of plane ride away is now just a mouse click away through one’s computer. Transactions can now be carried out without parties having to meet personally with each other. Corporations who take advantage of information technology are likely to save on cost and are likely to reach a wider consumer base. Information technology now resolves the issues of advertising and marketing which used to limit corporations in terms of coverage and impact. With the advent of social networking, information technology is now in a higher level of coverage – its possibilities are limitless and for corporations, it also means that their reach and potential for profit and competitive advantage can be limitless. A firm’s technical information technology (IT) skills can be a source of sustained competitive advantage1. These skills are the know-how skills which are necessary in creating IT applications from available and current technology, with the end goal of using them to create products and provide services2. These technical skills would include knowledge in the programming of languages, knowledge in operating systems, and a thorough understanding of communication standards and rules. Such technical knowledge helps firms to manage the dangers in using and investing in IT3. An issue with the use and clamour for these skills is based on the fact that these skills are not exactly widely distributed across corporations. In instances when they are distributed across corporations, they are often highly mobile4. In effect, for corporations without the necessary analysis and design skills needed for IT investments, they are often prompted to hire IT consultants and contractors. Such mobility in technical IT skills indicates that such skills are often explicit through equations and blueprints. Since such equations can be narrated from possessor to other individuals, the recipient of the equations already learns as much as the originator5. In this case, technical IT skills can sometimes easily diffuse within a set of competing corporations. For firms who do not have the IT advantage, they can apply various solutions to the issue. First, they can train their employees in the crucial IT skills; they can hire people with the right IT skills; or they can ask their employees to take classes in the relevant IT courses in order to gain the appropriate technical skill set6. In applying all these remedies, corporations can resolve their technical issues and regain their advantage in terms of technical IT skills7. Technical skills are also seen in managerial tasks. In IT, managerial skills include an administrator’s ability to conceive of IT applications to support and improve the business processes8. IT managerial skills include: the capability of IT managers to appreciate the needs of suppliers and customers; the capability of managers to work with such suppliers and customers in the establishment of IT skills; the ability to cooperate IT tools in ways which support other suppliers and customers; and the ability of these managers to anticipate future needs of suppliers and customers9. Corporations can gain IT skills by employing computer programmers and IT analysts. Then managerial IT skills can assist analysts in finding a place in an organization’s culture, to comprehend its policies, and to establish work in other IT related activities10. These managerial skills are crucial in gaining competitive advantage for any corporation, without such skills, the corporation cannot effectively reach its goals. The frequency with which competing corporations will achieve similar IT skills is a practical issue. Nevertheless, it can be reasonable to judge that close and engaged working relationships in IT managers are not that common, and can therefore be distributed in the firms11. Managerial IT skills are built over a long period of time with the accumulation of experience and by learning from one’s mistakes12. In a way, these are ‘learning by doing’ skills. In the same way as friendships and trust can take many years to develop, so do IT skills. It may take many years for IT managers to get to the point in their IT experience when they can confidently say they are effectively working with each other to establish innovative IT applications. History is therefore an important element in the development of IT skills13. Moreover, it can involve different decisions which can be easily replicated. For as long as these skills are do not involve the corporation’s main concerns, they would likely remain ambiguous within the organization14. Moreover, the development and utilization of different managerial skills are dependent on the integrated and coordinated relationship of managers and those within the IT functions; between the IT managers and the managers carrying out other business functions; and between IT managers and consumers15. Therefore, in instances when managerial IT skills are important and distributed in other firms, then they will be a major source of competitive advantage, especially since these relationships are nurtured over time, and are very much dynamic. Information technology changes the way corporations compete with each other. The simple matter of having new electronics systems can add new value to one’s product and throw off one’s competition16. Computers have come a long way from providing support in the office, it now offers various competitive perks and advantages. For example, corporations can use computers to cause barriers to entry, to control switching costs, and to change the basis of competition17. Many companies have now seized the advantages offered by computers; others who have not considered this advantage are now relegated to the back of the business world. It is important for managers to carry out an analysis of where IT and its technologies would fit in to the corporation18. For the more conservative managers, they may view this technology as a means of support for the corporation; for other more open managers, this technology may be seen as essential to the survival of the corporation19. Either way, managers have the responsibility of evaluating how IT would fit in to the corporation in terms of role and impact in the work and the profit of the corporation. In applying IT technology, various benefits may be seen. In instances when a major distributor of services installs an online network to its main customers in order to resolve issues, such distributor would be able to easily evaluate and respond to customer complaints. The main purpose of computers in this case would be to reduce order-entry costs and to establish flexibility for customers during the processing of order submission. In applying this process, the firm can gain competitive advantage by adding value for customers and increasing their services rendered20. An aerospace company which has established a computer-aided design in managing its business dealings was able to reduce total cost and time of design changes, parts acquisition, and inventory, thereby making it even more competitive as an aerospace company21. This gain is not all that surprising because information systems and technology has now moved computers into the frontline of the management and business processing. With these gains, this aerospace company can move away from the labour intensive process of carrying out its business, into the more IT based and efficient process of carrying out business22. There is a need to assess the impact of IT in gaining competitive advantage for a corporation. One of the main advantages gained from IT is the fact that it can build barriers to entry23. For service distributors, they are able to establish new electronic options for their consumers. This option can sometimes not be replicable because the products and services which a company can offer can be distinct for such company – giving customers a chance to gain unique products and services. In order to establish a successful entry barrier, customers must be hooked because the harder the service is to replicate, the better the barrier for competition24. A defensible barrier can also be seen in the complex software packages which often creates value and can evolve and be later refined. Financial services firms using this approach to introduce different financial products often depend on these types of software25. Due to the complexity of this software, competitors are often left behind and the financial services firm is able to gain a favourable financial position in the market. Moreover, the firm can enhance its original services and products and move these to better marketability status. Electronic tools for salespeople which increase the impact and speed of price quotes also serve as barriers to entry26. By allowing sales people to come up with efficient price quotations for consumers, portable computers can provide improved sales support which gives confidence to sales people during their sales pitches. The complicated financial packages used by insurance companies are barriers to entry27. It is important to note however that the financial cost of providing such sales people with tools can be very costly. Moreover, during difficult economic situations, investing in electronic packages and tools can indicate serious costs to the company. For example, it may difficult for a large airline to reduce its computing activities in order to cope with decreased operations or cost pressures28. As corporations may encounter difficulties in establishing individual advantages, it can increase the benefits of innovations and create a favourable image. In so doing, it would be seen as an innovative and groundbreaking corporation. Another consideration in relation to IT is the fact that it is important to determine whether or not there are ways to encourage consumers to be reliant on the corporation’s electronic support. And in having such support to allow it to lead to operations which can increase operational dependence and create the notion that switching to other brands or companies would not be attractive29. In the ideal scenario, electronic options are simple enough to use. However, it also includes different complex and useful processed which integrate themselves into customer’s activities. In effect, customers would have to spend their money in order to change suppliers. And electronic home banking can make this process easier. When consumers have learned how use the system and has included all monthly payments into the system, he would then be hard put to change banks30. For heavy machine manufacturers, integrating electronic features into the business process can add value to the company’s product lines, while providing penalties for switching costs31. These companies can include electronic devices to their machinery installed in customer’s premises. In instances when mechanical issues are seen, the electronic device can transmit a signal to the main computer program where such signal is analyzed and diagnosed. A suggestion on the possible changes which can be applied to the equipment would then be revealed by the computer system32. In effect, the repair process, as well as the assessment of equipment would be faster, easier, and safer for the company and its workers. Another consideration in establishing the competitive advantage of information technology is on whether or not the technology can impact on the basis of the competition. In applying Michael Porter’s theories, three ways of characterizing competitive strategies can be applied. The first is the cost-based characterization33. In this instance, a company can come up with lower costs than their competition. The second is based on product differentiation, instances when a company sets forth a varied combination of product features. The third is specialization in one area of a market, differentiating itself through unusual costs or product qualities34. In businesses which are dictated by cost-based competition, information technology has allowed the establishment of product features which are very much different in the sense that they change the basis of competition radically35. For instance, in the 1970s, magazine newspaper distributors were in a cost-based competition industry. For a while, it utilized electronic technology to decrease costs and to develop cheaper means of sorting and then distributing these newspapers36. In using lesser staff and decreased inventories, it was able to achieve low-cost production. In 1977, the distributor considered building on the fact that their customers were not aware of their profit structures. Through its records of weekly shipments, the distributor was able to identify what was available in the newsstands. It was able to develop a program which determined computer profit per distribution area and compare such data in other newsstands in economically similar neighbourhoods37. The company was then able to tell its distributor how it can improve its sales based on its products sold and on the neighbourhood. In effect, the company was able to use IT in order to increase and manage inventory. In so doing, it was able to raise prices in areas where it was confident in its sales, and it was able to adjust its sales and profits based on the differentiation of its products. Corporations have also utilized information technology to alter the basis of the competition from product differentiation to low cost38. For instance, suppliers of an aerospace manufacturer originally competed on the basis of quality and the speed of meeting rush orders. Due to the CAD-to-CAD link, the value of the elements of differentiation has been negated. What became important was the overall cost39. Cost reduction can have a dramatic impact on the way business is carried out. In low-cost and competitive arenas, corporations must look for useful opportunities for the application of IT with the end result of decreasing cost of production or adding value to products. In the 1960s, American Airlines introduced a new way of reserving seats. This new means increased their market share and competition40. In the current industry, airlines are scrambling to establish online options for their seats. They are opting for flight recommendations on CRT screens to impact on travel agent’s purchase recommendations. In another instance, fierce competition has been seen in financial services with the merging of insurance companies, banks, and brokerage establishments41. These companies seem to be seeking the best advantage over the other. Insurance companies have been known to invest in software packages to complement their outside staff. The cost-cutting done in the 60s and 70s started to pay off in the 80s with companies cutting back on their production cost, staff, and overall expenditures42. In effect, IT has been largely beneficial for these companies which have seen the implementation of diverse and less costly overhead expenses – resulting to a larger share of the market and of the profits. In considering the impact of IT on corporations, it is also important to determine whether or not IT can shift the balance of power in supplier relationships. Developing an integrated system can be a crucial asset in any corporation or business. In cases of timely delivery systems, inventory levels can be reduced and costs can be reduced43. CAD links between organizations can also allow faster responses, smaller inventories, and improved services to end-consumers. In one instance, a large retailer was able to connect his system of ordering materials online to his suppliers’ order system. In effect, if he wants some products sent to a particular area, his computer system would automatically review his main suppliers and order such products from the supplier with the lowest cost44. Moreover, a retailer’s computer would automatically review suppliers’ inventories, factory scheduling, and commitments and compare them with his own. In so doing he would be sure to meet any unexpected demands from his consumers. In case inventories cannot meet his demands, the system would alert the supplier. Suppliers not wanting to comply with the order system would easily find themselves being removed from the order system set-up45. These types of systems can reallocate power between buyers and suppliers, allowing the buyers to attain supplies at a more efficient and less costly pace. It actually pressures the supplier to be at his best performance, or risk being dropped in the system in favour of other suppliers willing to work within the computer-generated IT system. In evaluating whether or not IT yields a competitive advantage, it is important to determine if IT can create or generate new products46. Information technology systems can actually create products which are higher in quality, which are easier and faster to deliver, and which are actually cheaper. Moreover, at low cost, these products can also be fashioned in order to fit customer’s needs. Companies may be able to consider the services of electronic support teams in order to increase the value of their products47. This can be utilized at low cost, as in instances of online diagnostic systems for their products. In order to generate profits, corporations can bundle or package their data. For example, telecommunication companies are seen branching into TV cable services, internet services, and similar related services. These bundled services allow them to dominate certain fields as well as build profit from existing lines of business. In effect, the goal for low cost and high profit can be easily achieved by corporations with the application of information technology and profitability measures. Competition law and antitrust issues In applying optimum competitive strategies, there is a need to consider the application and prohibitions of the competition laws. These provisions help regulate competition, ensuring that such competition is conducted within legal provisions and that they would not cause unfair competitive costs on competitors. These laws are there to promote healthy competition. In effect, they prevent anticompetitive agreements between corporations, including the practice of fixing prices and to carve up markets. They also prevent the practice of dominating market positions. Corporations must be aware of the laws which pertain to competition to avoid violating such laws and to avoid being victims of such laws. The Competition Act of 1998 prevents anti-competitive agreements between businesses. In effect, competing corporations and businesses must: not agree to fix prices or terms of trade; not agree to limit their production to reduce competition; not carve up markets or customers; not discriminate between customers by charging different prices or imposing different terms where there are no apparent differences in the products or services marketed. In effect, in relation to information technology, the corporations must not use the benefits of IT in order to gain an unfair advantage over the other48. This can come in the form of using the advantages of IT in order to gain access to confidential information about the competition and use such information to unfairly compete against the competition. An agreement which prevents, restricts, or distorts competition is considered under competition laws. Agreements may be formal or informal. This act applies to agreements between businesses that have a significant market share49. These businesses must therefore not be involved in cartels and use information technology to establish cartels. Corporations must also not use and abuse their dominant market positions. Practices include charging unfair prices or carrying out unfair trading practices on customers; it also includes the practice of limiting production, refusing to supply customers without objective reasons50. Information technology as a competitive advantage can be used by corporations in order to control market prices and charge unfair prices on their products and services. This practice can also involve hacking or spreading computer viruses within the corporation processes in order to sabotage a competitor51. These processes can damage systems and can delay production and other normal processes within the corporation or businesses. The end result would be lost profits and incurred cost for the affected company52. It is therefore important for corporations to use the available means of gaining competitive advantage within the purview of the legal processes and mandates set forth by the government and legislators. Mergers between competing corporations must also be considered with much caution because of the degree of possible coercion which may be involved in the process53. Merging may, for all intents and purposes be used as a corporate strategy; however, it cannot be used as a means of reducing competition. In effect, mergers which lead to a reduction of competition are against the law. Monopoly of certain corporations must be protected because it would help protect a healthy market with the logical processes of supply and demand dictating the prices of goods and services. The market must not be one which is dictated by the power and dominance of certain corporations who are monopolizing the economy. In considering the application of information technology, mergers can be considered for certain related technologies – hence, a telecommunication company acquiring a cable company is not considered a monopoly. It is also important to note that selling online or at a distance is governed by appropriate legal provisions. In selling to consumers online, or at a distance, the Distance Selling Requirements apply. In effect, potential customers must be given certain data in advance, including the corporation’s name, address, goods being sold, services being provided, price, delivery cost, delivery arrangements, and must be given the right to cancel54. Customers must also be sent an order confirmation which includes the corporate postal address and cancellation arrangements; and customers must also be given a seven-day cooling period during which they can cancel the contract with the corporation55. These considerations must be borne in mind by the corporation and the customers transacting online or at a distance. The corporation must therefore be vigilant of the process involved in online transactions. These online transactions are one of the most dominant means of carrying out transactions in the current digitized world. These transactions must however be observed under certain conditions. Moreover, the competitive advantage gained from these online transactions must be based on valid structures within the corporation and within the basic legal provisions governing corporations. Conclusion The above discussion exemplifies the use of information technology as a competitive advantage in corporations. This strategy is actually applicable now to most corporations and industries. In the current globalized and digitized world, IT has made its mark in most corporations with its impact and coverage. The above discussion sets forth the importance of organizing IT within corporations. Managers working together to apply the different IT processes would help ensure that the IT skills are widespread throughout the corporation. In so doing, the competitive advantage through IT can be applied to the entire corporation, not just to certain departments of areas, or even individuals. Corporations must first consider the advantages and the gains which can be given by IT before it can be adapted as a competitive strategy for the corporation. For the most part, IT does offer different advantages which help make the processes of doing business faster, easier, cheaper, and more profitable. In order to manage corporate competitiveness with the application of IT, the competition law must be applied and it must be observed by the corporation. Moreover, IT must not be used in order to gain unfair advantage over competitors and corporations in the same field of business. 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