Competitive Advantage And Its Role In Firm Performance
Concept of Competitive Advantage According to Roy and Singh (2015) competitive advantage is an advantage a company has over its competition that creates differentiation (Ferrer-Lorenzo, Abella-Garcés & Maza-Rubio, 2017). Kiveu (2017) Explained that competitiveness is a critical factor for a firm’s survival, growth and success. Intense competition requires firms to be competitive for survival. Small firms in developing countries need to enhance their competitiveness to survive by surmounting the limitations in their local markets to thrive.
According to Porter (1990) firm competitiveness is “the ability of a given firm to successfully compete in a given business environment”. According to him competitiveness is dependent on dynamism, innovation and the ability to change and adjust. Lall (2001) on the other hand considers competitiveness as “the ability of a firm to do better than others in terms of profitability, sales and market share”. He argues that firm competitiveness is essential for them enhance and defend their position in the market (Kiveu, 2017). The relativeness of competitiveness makes it difficult to come up with a definitive conclusive measure. However there seems to be consensus on several factors/ measures that can be used to measure competitiveness. Competitiveness is a function of several firm factors that are interrelated and include productivity, market share, profitability, efficiency, product range, value creation and customer satisfaction. Sources of firm competitiveness include product differentiation, product/ service quality and variety, novelty, process efficiency, cost reduction, adoption of technology and export attractiveness (Pedraza, 2014).
The competitiveness of SMEs in the manufacturing sector is affected by several challenges that hinder them from maximizing their potential, consequently limiting their contribution to socio-economic development (Kiveu, 2017). The challenges include stiff competition from large enterprises and multinationals; limited access to resources, information and markets; overcrowded saturated markets; limited technology and unfavourable legal regulation among others. These have been compounded by globalization, shortened product lifecycles, advancement in technology, increased standards requirements and changing consumer needs (Kiraka, 2009). Hence for the enterprises to remain relevant in national development, they need to develop strategies that will help them develop and sustain their competitiveness. Sinaga & Gallena (2018) in their study on the influence of competitive advantage on firm performance of small medium enterprises (SMEs), Lembang, Bandung, Indonesia: Case Study, realized that the economy of Indonesia is being backed up by the Small Medium Enterprises (SMEs). SMEs in Lembang sector have huge contribution to the livelihood of owners and individuals who are employed to this type of business. Most of the SMEs improve its products or services in order to maintain its competitive advantage.
The result showed that competitive advantage has significant influence on firm performance and growth. Safari, Ahmadi and Hashemi (2011) postulated that one of the organizations' major concerns is to care about customers' needs and wants and transform such needs and wants into targeted aptitudes or areas called 'competitive dimensions'. These dimensions that organizations focus on and show great interest in, while providing services and products so as to meet market demand, can help organizations achieve competitive advantage (Krajewski & Ritzman, 1999). These competitive dimensions, claim, are four: cost, quality, time, and flexibility, innovation and Responsiveness which can be explained as following:
Cost: Organizations must make some kind of compromise between the cost and the characteristics of their products and services. In general, most organizations choose to cut total cost by stripping fixed costs and applying continuous control on raw materials, reducing employee compensation rates, and by achieving higher levels of productivity (Dilworth, 1992).
Quality: Quality can be achieved by adding unique attributes to products to enhance their competitive attractiveness so as to benefit customers in the final stage (Best, 1997). Also, quality can be achieved through a couple of dimensions such as the quality of design which means to adapt product design to its function (Adam & Ebert, 1996), and the quality of conformity which stands for the organizational capability to transform inputs to conformable outputs or outputs in accordance to the specific design characteristics, and the focus on quality will be reflected in competitive advantage and profitability of the organization.
Time: Organizations can consider the time factor to compete among each other’s. Delivery time can be a source of competitive advantage when organizations try to reduce the period of time between receiving and accepting customer orders and provisions of products or services to customers (Stonebrake & Leong, 1994). It is also a measure of the organizations' adherence to delivery schedules agreed upon with customers. The speed of product development also refers to the time factor; that is the time period between product idea generation till achieving the final design or production (Evans, 1993).
Flexibility can be viewed as the ability of the processes to switch from one product to another or from one customer to another at the least cost or impact. Flexibility also can be defined as the ability to adapt the production capacity to changes in the environment or market demands (Evans, 1993). Flexibility also encompasses product flexibility in the first place which is defined as the ability of the organization to trace changes in consumers' needs, tastes and expectations so as to carry out changes in product designs. The second flexibility has to do with volume which stands for the organization's capability to respond to changes in consumer demand. It is believed that such flexibility can yield benefits such as introducing new products along with product variety, and controlling volume and delivery time (Safari, Ahmadi & Hashemi, 2011).
Innovation: empowered employees will be a source of new ideas and innovation. High performance employees are born in the empowered organization which will increase in its efficiency and productivity. If time, training and resources are given for the process to evolve, employees are expected to develop feelings of self-efficacy, job satisfaction, security, confidence and job meaningfulness (Safari, Ahmadi and Hashemi (2011).
Customer Satisfaction
The last decades have spawned a number of studies on customer satisfaction. A key motivation for the growing emphasis on customer satisfaction is that highly satisfied customers can lead to a stronger competitive position resulting in higher market share and profit (Safari, Ahmadi and Hashemi, 2011). Customer satisfaction is also generally assumed to be a significant determinant of repeat sales, positive word-of-mouth, and customer loyalty (Bearden and Teel, 1983). As a result, there is increasing attention among academics and business practitioners to customer satisfaction as a corporate goal (e. g. Bolton and Drew, 1991).
