UK Marketing Director helps Chinese firm compete with the Japanese
A marketing director friend of mine has helped run a company in Beijing for an Italian-Chinese joint venture for the last 10 years. One of his many marketing achievements is that his company has successfully created marine-class deep freeze equipment that enables Chinese fishermen and fishing companies to compete with the Japanese for catches in the Pacific tuna fisheries. This, however, is not the main point of this article. In my discussions with my marketing director chum, we worked out that China’s five main competitive advantages are:
i) People. People in sheer weight of numbers creates a highly cost-effective and competitive domestic labour market.
ii) Education. The major cities at least run highly effective education systems.
iii) A global policy of expansionism albeit not quite in the colonial sense as yet. The motivator here is China’s relentless quest for resources, commodities and raw materials. You may not think this is a competitive advantage but witness their miraculous transformation from an inward-looking country to their current status as a massive trading nation.
iv) Currency – strong and stable.
v) Intellectual Property – grab and copy policy! China has been accused of turning a blind eye to international laws on intellectual property (IP) as a conscious government policy.
So imagine my surprise when I received an e-mail claiming to be from a Chinese internet domain registration company treading ever so gently around a delicate IP matter. I am fortunate enough to have a company which has the company name as a competitive keyword and also own the UK domain name for the same keyword. Upon receiving the e-mail from the Chinese domain company I was amazed as they asked whether their applicant was linked to my company in any way with a view to protecting my rights over the keyword. My flabber was completely gasted! Either the Chinese company is being very, very polite or the Chinese authorities are finally changing an unwelcome facet of Chinese competitiveness. If this small act is an example of the national picture, China may consider that it stands to gain more by easing up on its fifth key competitive advantage.
Which leads me to ponder: ‘What is my competitive advantage?’ and ‘What is my business’ competitive advantage?’. More importantly, what is your business’ competitive advantage and how can this be leveraged to best effect in your business. These fundamental questions are addressed by the world-renowned business academic and writer, Michael Porter. He wrote the mother of all business strategy books, ‘Competitive Advantage: Creating and Sustaining Superior Performance’ in the 1980′s. It is still a key reference tome for businesses after more than 30 printings.
A model of competitive advantage
In order to develop a competitive advantage, a business must have resources and capabilities that are better than those its competitors. Without this superiority, competitors could simply replicate what the company was doing and any advantage quickly would disappear.
Resources are the business-specific assets useful for creating a cost or differentiation advantage that few competitors can acquire easily. The following are some examples of such resources:
- Proprietary knowledge
- Customer base
- Company Reputation
- Brand equity
Capabilities refer to a business’ ability to utilize its resources effectively. An example of a capability is the ability to bring a product to market faster than competitors.
The firm’s resources and capabilities together form its distinctive competencies as shown in the diagram below. These competencies enable innovation, efficiency, quality, and enhanced customer service, all of which can be leveraged to create a cost advantage or a differentiation advantage.
Cost Advantage and Differentiation Advantage
Competitive advantage is created by using resources and capabilities to achieve either a lower cost strategy to build market share or a differentiated product to build profitablity and organizational focus..
Then a business should decide how broad or narrow a market segment to target. Porter’s famous matrix, using cost advantage, differentiation advantage, and a broad or narrow focus, helps to identify a set of generic strategies that the firm can pursue to create a sustainable competitive advantage and higher profits.
A business creates value by performing a series of activities that Porter identified as the value chain. To achieve a competitive advantage, a business must perform at least one value-creating activity in a way that creates more overall value than their competitors do. Superior value and increased returns for shareholders are typically created through lower costs or superior benefits to the consumer (differentiation).
I could really do with another reading of Porter although he might be a bit ‘heavy’ for the beach.