What are the sources of sustainable competitive advantage a business can exploit? How can I dominate my niche? How did companies like Apple, Google, Microsoft, Wal-Mart, General Electric, Berkshire Hathaway and Virgin become market leaders? Well, you will find out below.
“If you don’t have a competitive advantage, don’t compete.” – Jack Welch
Most entrepreneurs and business owners know that one of the key to surviving in business is to have a competitive advantage. Every business must have a competitive advantage; if a business doesn’t, then its days are numbered. Companies that have stood the test of time are companies with a strong competitive advantage.
Now how do you gain competitive advantage? What are the sources of competitive advantage a business can exploit? In this article, I will be sharing with you 12 sources of competitive advantage in business. If you are ready to learn, then read on.
“An organization’s ability to learn and translate that learning into action rapidly is the ultimate competitive advantage.” – Jack Welch
12 Best Sources of Sustainable Competitive Advantage in Business
1. Strong research and development capabilities
A business can gain a strong competitive advantage in its industry if it has strong research and development capabilities. Strong research and development reflects in the company’s product development processes. Companies with strong research capabilities often lead the market with innovation.
2. Access to intellectual properties
The next source of sustainable competitive advantage a business can exploit is the holding of an intellectual right; which can exist in the form of trademarks, trade names, copyrights and patents.
3. Exclusive re-selling or distribution rights
Holding exclusive distribution right is another source of sustainable competitive advantage. When a company holds exclusive rights to a product within a given territory; that product can only be sourced from the distributor or holder of such rights.
4. Ownership of capital equipment
This source of competitive advantage is mainly exploited by companies operating in industries where heavy machinery is needed. Example of such industries where ownership of capital equipment is a competitive advantage includes publishing, manufacturing, oil exploration, construction and mining.
5. Superior product or customer support
Any company that has the capacity to quickly respond to customers need and provide subsequent support will have a competitive advantage over competitors.
6. Low cost or high volume production
If your business has the capacity to produce in high volume; then it can gain a sustainable competitive advantage by reducing its profit margin and recoup it through high volume sales and turnover.
7. Economic factors
The seventh source of sustainable competitive advantage is the economic factor of a region within a speculated time frame. A manufacturing company operating from China or India will have competitive advantage over a company manufacturing in the United States because the economic system in China is more favorable with respect to start up overhead and labor cost.
8. Superior database management and data processing capabilities
This source of competitive advantage is quite clear and understandable. A company that demonstrates the capacity to process data speedily will have a competitive advantage over other firms with lower processing capacity. This source of competitive advantage usually plays itself out in the banking industry, telecommunication industry and the service industry in general.
9. Strong marketing strategy
In the market place, the company with the best marketing strategy wins. No doubts about it. The competition to gain a stronger competitive advantage in the marketplace is the reason why giant corporations spend millions of dollars on marketing research and advertising annually.
10. Access to working capital
Access to working capital is one of the strongest sustainable competitive advantages a business can have over its competitors. Access to working capital is the difference between a billion dollar company and a million dollar company or a small business and a big business.
11. Excellent management team and operations
Show me a business that is a market leader in its industry and I will show you a business backed by a strong management team. Exploiting other sources of competitive advantage without a strong business team on ground will only be a futile attempt. A business management team is essential to harnessing opportunities that create the needed competitive advantage.
12. Barriers to entry or monopoly
Some businesses have gained competitive advantage because the entry in their industry has been limited by surrounding circumstances. A good example of industry where barriers to entry creates competitive advantage is the oil exploration and mining sector (industries where licenses are needed to gain entry because there is government restriction on entry). Monopoly is also a sustainable competitive advantage and can be gained by having strong ties with the government.
As a final note, these are the 12 sources of sustainable competitive advantage a business can exploit. Remember that a company without a competitive advantage cannot compete and when you can’t compete; you are as good as dead.