Maf 640-Chap 5

NUR IZZATI ZAABA | 2012991233 | MAF 640 | CREATING AND SUSTAINING COMPETITIVE
ADVANTAGES
1. Select an industry (e.g.; retail chain and restaurants). Identify an organization

that competes on the basis of overall cost leadership and one that is a
differentiator. Are their advantages sustainable? Why or why not? Is each of
these organisations attaining parity on the other type of competitive advantage?
Michael Porter presented three generic strategies that a firm can use to
overcome the five forces and achieve competitive advantage. They are overall
cost leadership, differentiation and focus. Companies that use an overall cost
leadership
strategy
and
differentiation
strategy
share
one
important
characteristic which is both groups try to be attractive to customers in general.

These efforts to appeal to broad markets can be contrasted with a strategy that
involve targeting a relatively narrow position of potential customers which is
known as focus strategy. An industry that I have identified is fashion apparel
industry.
Overall Cost Leadership
Overall cost leadership is a generic strategy that is based on appeal to the
industry-wide market using a competitive advantage based on low cost.
Companies that follow this strategy do not necessarily charge the lowest prices
in the industry. Instead, it charges low prices relative to other firms that compete
within the target market. Example of the company in fashion apparel industry
that implement this strategy is Hennes and Maurits or H&M.
H&M is one of the companies that had successfully penetrate the fashion
apparel industry and strengthen its name and remained as a major threat by
other fashion apparel companies. H&M offers broad line of products ranging from
clothes, footwear and accessories for men, women, and kids. In line with its
message of Fashion and quality at the best price, H&M implements overall cost
leadership in a sense that it focuses on generating more profit by increasing its
production.
However, H&Ms advantage may not be sustainable, at least in the
long run. It will have problem to sustain its advantage in the fashion apparel
industry because as it focuses too much on profit by increasing its production,
the quality of its products tends to slack as its suppliers will be rushing against
time to meet the demands. Such low quality products will indirectly cause
consumers to switch to other competitors in the industry.
ADVANTAGES
Differentiation
A differentiation strategy consists of creating differences in the firms
product or service offering by creating something that offers benefits and is
perceived industrywide as unique and valued by customers. This can also be
achieved by offering better products at the same price. Example of the company
in fashion apparel industry that implement this strategy is ZARA.
In its early days, ZARA was founded to sell cheap clothes, inspired from
famous French fashion brands. Through innovation and differentiation, today
ZARA is not only one of the most recognized apparel brands worldwide, but it has
also managed to differentiate its brand from other competitors in the fashion
apparel industry. Unlike H&M, ZARA stores are stocked by new designs twice a
week and collections are small to create the exclusivity of its products. This is
because ZARA operates on the basis of its high-fashion and low-cost product
message.
ZARA has sustainable advantages due to its success to offer differences
that matter to customers and differentiated itself from its competitors by
performing key activities differently. This has consequently set challenges for
competitors because it is not easy for them to imitate or be at par on Zaras
positioning and it is this achievement that has given Zara sustainable
competitive differentiation and positioning.
In conclusion, each of both H&M and ZARA is attaining parity even on
different type of competitive advantages due to their different strategies.
While H&M focuses on producing products with lower price and capturing profit
through its volume of production, ZARA establishes its brand image through
products exclusivity. Both the companies are competing at par in the industry
since they have different target markets.
2. Explain why the concept of competitive advantage is central to the study of

strategic management.
2
ADVANTAGES
Research shows that firms that identify with one or more of the forms of
competitive advantage outperform those that do not. In order to create and
sustain a competitive advantage, companies need to analyse the needs and
preferences of their customers and work to reinforce the value of their products
for customers. They should not focus only on their internal operations instead,
competitive advantage has to be earned, gained, and defended. Therefore,
competitive advantage is central to the study of strategic management because
consequently, those firms that are agile and responsive to changing market
conditions and whose internal capabilities are aligned with the external
opportunities are those who would survive in the business world today.

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NUR IZZATI ZAABA | 2012991233 | MAF 640 | CREATING AND SUSTAINING COMPETITIVE

1. Select an industry (e.g.; retail chain and restaurants). Identify an organization

characteristic which is both groups try to be attractive to customers in general.

2. Explain why the concept of competitive advantage is central to the study of

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