Changing Nature of Competitive Advantage

Abstract

The most viable strategy for generating and sustaining competitive advantage has become one of both continuous innovation and corporate renewal. A sustainable competitive advantage is now essential for survival in a hyper-competitive global marketplace, with its rapidly vanishing borders. Capital and information flow with the speed of light anywhere in the world, bypassing regulatory, cultural and language barriers while undercutting central bank controls of exchange and interest rates, as well as capital flows. Nation-state sovereignty over both economic and financial affairs is rapidly eroding. These unprecedented time-compressed changes have been precipitated by an exponential increase in the rate of development of advanced technology, magnified by the demise of the Marxist-socialist paradigm which recently has released billions of people in the lesser developed countries (LDCs) to participate in global markets. Although the LDCs have limited access to cutting-edge new technologies, they can easily replicate existing operations. Consequently, any rice paddy can be transformed in a year or two to a state-of-the-art production facility operated by $2 dollar-an-hour labor. These new facilities can underprice comparable operations in the industrialized nations, and have also created an enormous glut of excess capacity in world markets. China and other countries are currently operating below 50 percent of capacity while exporting at prices often below cost-a primary cause of the Asian meltdown. Worldwide disinflationary effects of this phenomenon will likely persist until the excess capacity can be written off. Moreover, this excess capacity will require the and reengineering of many non-competitive large companies in the United States, Europe and Japan. In the U.S., downsizing has already seen the demise of many famous corporate names, and since 1982, a concomitant loss of about 40 million jobs-far exceeding job losses during the last great Depression. Simultaneously, however, (also since 1982), the U.S. has created 11 million new businesses and 80 million new jobs--over 50 percent of which have been high-paying professional, technical and managerial in nature (1). About 70-to-90 percent of the new jobs (depending on the year) were generated by the new businesses. This remarkable phenomenon, which Europeans have called the American Miracle, has more than offset the downsizing process in the United States. Short-Term Competitive Advantage Japan and Europe have lagged in this restructuring process, while often continuing to rely on government protection and subsidies, or on attempting to be a low-cost producer. In addition, Japan adopted the Boston Consulting Group (BCG) fast-follower, targeted-industry, government-subsidized learning-curve theory, which BCG first developed in the late 1960s (2). The theory provided Japan with a window of opportunity (since closed), which resulted (during the 1970s and early 1980s), in what appeared to be an invincible competitive advantage. BCG had observed that, on average, every doubling of volume in an industry resulted in a 20 percent or greater reduction in production costs. Therefore, by pricing below all competitors' costs, a market could be rapidly captured, and concomitantly increasing home production would soon bring costs down to breakeven or below. The interim negative cash flow sustained would be government-subsidized by providing essentially zero real interest rates, special subsidies, and elimination of the value-added tax for exports. Meanwhile, the home market would be protected from competition by tariffs to allow the same products to be priced higher than those for export (now called dumping). This strategy for achieving a competitive advantage was enormously successful for a time and led to rapid capture of market share in, for example, consumer electronics, machine tools, robots, textiles, shoes, fax machines, and by 1984, about 90 percent of the world market for semiconductor memory chips. …