Sources of Competitive Advantage and Opportunities Free Essay Example

The topic of this research paper is closely related to the concepts of strategic management which is all about acquiring and maintaining competitive advantage. The word competition has been associated with the companies attempting and undertaking activities that would win something from other companies (Hidayat, 2016). Furthermore, the term competitive advantage has been defined as “anything that a firm does better compared to rival firms” (David, 2011). In a business context, this could mean anything that make a firm look attractive to investors, customers, suppliers and even rivals.

In today’s business world gaining and maintaining competitive advantage is one of the major focus of executives. According to Fred R. David (2011), sustaining a competitive advantage is not an easy task. He proposes that companies should continually struggle to gain sustained competitive advantage through first maintaining pace with changes in external environment and improve internal capabilities, resources and competencies. Secondly, the companies need to formulate, implement and evaluate strategies accordingly that would capitalize the actions of the first stage.

In addition, he identifies e-commerce and direct selling through internet as of the sources of gaining competitive advantage.

Fred argues that internet has changed the way businesses are done today by enabling firms to better communicate with customers, suppliers partners and competitors, sell and advertise directly and reducing some of their costs (David, 2011). Bearing this understanding in mind, our purpose in this paper will be to seek and identify the sources of competitive advantage for telecommunication companies operating in Afghanistan.

2.1 Innovation as source of competitive advantage:

Many researches have provided analysis on how innovation leads to gaining competitive advantage. For instance, Hajir, Obeidat, Al-dalahmeh, and Masa’deh (2015), in their article argue that in order to achieve competitive advantage telecom companies must constantly strive to create new products, reintroduce new and improved processes to accommodate the fast changes and increasing competition. The term “innovation” has been related with R&D activities that result in creation of new products, new processes, and gaining competitive advantage (Aref Hajir, Yousef Obeidat, Ali Al-dalahmeh, 2015). It has also been defined as “doing a business practice in a different way”. In addition, according to Hajir, aggressive competition, shorter product life cycle, altering technologies and changes in customer demand are factors that require constant innovation. To achieve innovation in telecom companies where gaining competitive advantage and staying competitive require continuous innovation in processes and services, information and knowledge have to be placed in a right context.

Furthermore, innovation is said to be the foundation for tomorrow’s competitive advantage (Duane Ireland & Webb, 2007). Exploiting today’s opportunities will make companies perform better than rivals, however exploring on what needs to be successful determine future competitiveness. The exploring ability of firms enable them to acquire and use information to affectively respond to change (Aref Hajir et al., 2015). Ireland introduces the term: “strategic entrepreneurship” and defines it as bringing together the attributes of the two words, strategy and entrepreneurship. He argues that combining the exploration-oriented characteristics with the exploitation-oriented attributes help firms develop streams of innovation to stay competitive. In other words, firms need to proactively anticipate and then appropriately respond to environmental dynamics to sustain their competitive advantage.

Though new product and services display a firm’s innovativeness to outside public, internal processes novelty or what it is called “administrative innovation” provide greater competitive advantage, as argued by some other scholars (Duane Ireland & Webb, 2007). Products and services can be imitated, yet it is much more difficult to competitors to imitate those innovations. For instance, a telecom firm manages and controls its site running cost very strictly which in return the company delivers higher profitability to the shareholders. Also, institutionalizing corporate social innovation creates competitive advantage and social value (Herrera, 2015). Maria and Herrera of the Asian Institute of Management defined social innovation as “a measureable, replicable initiative that uses a new concept or a new application of an existing concept to create shareholder and social value.” Her research identifies three components of an organization that enhance social innovation and three other components that enable it. Strategic alignment, institutional elements, and clarity in intent enhance it; stakeholder engagement, operational structures and processes, and organizational culture enable corporate social innovation (Herrera, 2015)

2.2 Technological Superiority as Source of Competitive Advantage:

Changes in the telecom and mobile industries are so rapid. The products and services of these businesses also has evolved rapidly in the last two decades. Most telecom markets have moved or moving towards Data and value added services (VAS); while, demand for voice is dropping (Ghezzi, Cortimiglia, & Frank, 2015). To make data more available and cheap, telecom firms have to invest heavily on their infrastructure. According to Raft Collective, in today’s environment data and connectivity drive users “minds and hearts” (Fletcher, 2017). The Collective identifies major trends that will drive the telecom industry’s future competitive advantage. Each trend as it is unique will require technological superiority for telecom firms to be able to quickly adapt to new demands of millions of customers. Fletcher identifies digital customer service, the ability of telecom firms to embrace new investment opportunities to serve their customers through new services like in-store analytics, bots, beacons and autonomous customer support systems and providing exclusive content as the future for competitive advantage.

According to Fred R. David, technological forces can be a major source of opportunities and threats. The technological changes can impact intensely major operations of any business nowadays. It can create new products and services, reduce cost of production, improve communication and processes and result in better competitive position (David, 2011). Fred also implies that not all sectors of economy are impacted equally by technological changes. He identifies communications sectors as one of the major industries that is affected by technological developments. Another study shows that technological advancement in telecommunication industry can alter the relationship between performance and market share performance. The rapid technological changes can redefine the market dynamics and may enable the entrance of another rival or make other competitors cost competitive (Asimakopoulos, G., & Whalley, J. 2017). Grigorios Asimakopoulos and Jason Whalley have explored the impact of technological progress in Italian telecommunication industry. They have researched the relationship of technological changes with the performance of market leaders for this industry. They have found a negative relationship when it comes to technological change and a telecom firm’s performance. This due to the changes in technology provide other competitors to offer newer products and be more competitive in the market. Thus, competitive advantage can be achieved and maintained as long as organizations own unique and difficult to imitate resources including technologies and they are able to protect their resources (Lambkin, 2013). Another study on analysis of Quality of Service (QoS) of Mobile Networks in Afghanistan, state that technological improvements can improve user satisfaction through improving QoS; however, it can also create new challenges like network complexity (M. A. Habibi, Ulman, Vaněk, & Pavlík, 2016). The study has confirmed that quality of service is hugely impacted by the technological advancement of mobile operators in Afghanistan. Most users are not satisfied when the QoS is not as per their expectations. Yet, the solution again to improve QoS is found in deploying latest technological improvements in the industry. End user satisfaction would mean more customers and more customers translate into more revenues and thus sustained competitive advantage can be achieved through technological superiority.

2.3 Network Coverage as Source of Competitive Advantage:

Every business seeks to increase its number of customers. It can be a major source of competitive advantage for telecom firms if they have a lot of satisfied customers. A number of researches have been undertaken to measure how extend of network coverage impacts competitiveness and user satisfaction. For instance, Habibi, M. A., Ulman, M., Baha, B. and Stočes, M. (2017) suggest that the bigger the network coverage the higher the revenues and customer satisfaction (Mohammad Asif Habibi, Ulman, Baha, & Stočes, 2017). Coverage of a vast geographical area requires installation of a great number of base stations. This can be a very expensive investment, yet according to this study the more a telecom firm expands its coverage the stronger brand it creates. Ayed Shafi Ayed Al-aklabi, Basheer A. Al-Allak (2011) have also identified expansion of network coverage as a way to minimize the risk from competitors (Al-aklabi & Al-allak, 2011). Accordingly, as the bargaining power of customers with the reduction of prices in the industry increase, telecom firms has to continuously invest in expansion of its services to attract new customers. In addition, other factors like customer retention which also translates in lower cost for acquisition which in return improves competitiveness has also been linked to network coverage(Awan, 2009). Awan (2009) has also found network coverage has significant influence on customers (Ali, Jawaria Fatima Ali, 2009). She also argues that customer retention translate into higher market share. Thus, this can be a good source of competitive advantage. Dr. Kamran Ahmed Siddiqu and Irshad Hussain (2015) have studied the relationship of telecom branding and have identified three main factors that shape branding in telecom: network coverage, value added services and pricing strategies (Ahmed & Hussain, 2015). If network coverage directly impacts branding of telecom firms, this could be a source of competitive advantage.

One another study of the customer churn in telecom sector, Vishal Mahahjan (2017) found out that in addition to factors like quality of service and customer service network coverage is an important factor in customer churning (Mahajan, Misra, & Mahajan, 2017). They argued that if a telecom firm has a better network coverage, it can retain customers and provide them with better service. This in return encourages loyalty and brand recognition. Accordingly, customers prefer a telecom operator with wider network coverage. In a similar study in Tamil Nadu, India by Rajeswari and Ravilochanan (2014) who analyzed effects of the network coverage besides other relevant factors like complaint resolution, internet speed and other technology based services on customer churn. They concluded that the firms focus on wider and better network coverage leads to customer retention (Mahajan et al., 2017).

In a study of top parameters to influence customer satisfaction by Kamath (2011) where the author analyzed a random sample size of 597 to identify the level of satisfaction and dissatisfaction, he identified that network coverage is the top factor which impacts customer satisfaction (Kamath, 2011). Other measures of satisfaction in this study were call charges, service quality and value added services.

2.4 Strategy formulation and Implementation as Source of CA:

Fred David (2011) talks extensively about the importance of strategy formulation and implementation as means of gaining competitive advantage in his book, Strategic Management Concpets and Cases. He presents the concept of Resource-Based View (RBV) as a crucial approach for gaining competitive advantage. The view argues that internal resources are more important than external factors in gaining and sustaining competitive advantage. The reason for this argument is that when the external environment is volatile and changing steadily, internal resources are at the firm’s hands to control, direct and manage. Therefore, a firm’s capability to understand what it is doing and will be doing with its resources is an important step toward sustained competitive advantage (David, 2011). In addition, RBV dictates that effective strategy formulation requires understanding of the internal resources’ nature, type and mix. Once the firm identifies its unique capabilities and resources, it should continually try to improve and expand them respectively. For resources to become a source of competitive advantage first it needs to be rare, secondly they should be hard to imitate and thirdly they must be hard to substitute. Michele Porter also states that a firm can sustain competitive advantage when there are no worthwhile substitutes to its products, services and resources.

Ladislav Možný (2017) has identified and summarized important strategy fundamentals for the telecom industry. His work categorizes and explains how these elements must be put in a general strategic framework. In addition to generic strategies that will be discussed in details below, infrastructure management like: price of data plans, content innovation, internet access, customer relationship and network coverage element like product features, service pricing and VAS are other frequent areas for strategic implication in telecom sector for gaining and sustaining competitive advantage (Možný, 2017).

In a study on Italian mobile network operators by Antonio Ghezzi, Marcelo Nogueira Cortimiglia and Alejandro Germán Frank (2014), it was found that telecom firms need to continuously analyze their positions within the external and internal factors effecting the industry. While some scholars argue that the external factors’ predictability is low, some other propose that environmental elements can be analyzed objectively by some tools and models. Referring to literature in this study it also states that a firm’s main source of competitive advantage is its competencies and resources since these factors change slower than market conditions and technologies (Ghezzi et al., 2015). Therefore, literature suggests that a firm needs to position and direct its competencies and resources to maximize the external opportunities.

Having the right strategy ensures the company invest on the right processes, people and opportunities at the right time (Al-aklabi & Al-allak, 2011). Al-aklabi (2011) studied the success of Saudi Telecommunications Company (STC) in sustaining its competitive advantage in Saudi market. He found out the STC has been very affective in implementing its strategies over the course of changes in technology and market dynamics. The company studies its investment opportunities very carefully. It plans allocation of resources cautiously and also takes care of the risks with on time implementation of its strategies.

Obioma Hyginus and Odiba Maria (2018) studied the relationship of generic strategies: cost leadership, focus group, and differentiation on competitiveness of telecom companies in Nigeria. As they stated that the “essence of every strategy is to achieve performance” they also have analyzed how these tactics help telecom companies achieve competitive advantage. Based on random sampling and gathering data through questionnaire from top level managers of telecom companies in Nigeria they have found out that generic strategies do have influence on firms’ competitiveness. Differentiation which is associated with providing different and unique products has the highest positive relationship (at 0.922) based on Karl Pearson Product Moment Correlation techniques. In addition, focus strategy which narrows down customers into specific target group and cost leadership involves firms to gain economies of scale or be a low cost producer in a certain area were found to have also positive relationship with the firms’ competitiveness (Obioma Hyginus, 2018).

Similar studies have been done by Arasa Robert, Gathinji Loice (2016) and Jackson Kyengo and Dr. Kepha Ombui (2014) on the influence and relationship of competitive strategies on performance of telecommunication companies in Kenya. Robert and Loice have analyzed the responds of 120 employees in the three main telecom operators: Airtel, Safaricom Limited and Telkom Kenya. The statistical analysis has shown that implementation of cost leadership has the most significant influence on performance followed by other strategies (Kyengo, Jackson Dr. Ombuie, 2017). According to Kyengo and Dr. Ombui who studied the implementation of competitive strategies and their impact on performance of the telecom firms in Kenya, product differentiation is the most common strategy employed in telecom firms in Kenya with 41% respondents indicated that their firms employed this strategy. As per the five point Likert scale questionnaire findings the implementation of competitive strategies did influence the performance of those firms in great extent as the results shown greater than 3.9 mean for question related to profitability, product development and customer retention which defines a telecom firm competitive advantage (Arasa & Gathinji, 2014).