CHAPTER 2 LITERATURE REVIEW
2.13. C OMPETITIVE S TRATEGY
The competitive strategy framework is an important tool for appraising the attractiveness (or lack thereof) of a particular business environment (Salunke et al., 2011). It is based on four generic strategies (Porter, 1985). Porter (1985) argued that in order to achieve competitiveness, a company has a choice of four strategies based on the competitive advantage sought against how those advantages will be achieved through cost reduction and differentiation. Peng (2013) notes that any company which applies these strategies will be able to outperform its rivals. However, this framework “only performs better when companies concerned are positioned to configure their resource base according to the new typology which recognizes the market scope and the basis through which the advantage is achieved” (Campbell-Hunt 2000:133). Based on this evidence and while building on Porter’s (1985) model, (Campbell-Hunt, 2000) developed an extended typology which identifies a set of nine possible competitive strategies as shown in Table 2.1 below.
33 Table 2.1: The extended model of competitive advantage
Source: Campbell-Hunt, 2000.
The major departure point from Campbell-Hunt’s (2000) modified model is the need for companies to consider a diverse range of competitive options while the same time learning from other competing companies. Campbell-Hunt (2000:135) asserts that “collaboration may present a crucial gap through which domestic firms may use to escape the challenges of globalization” as “collaborating with other companies (domestic or multinational) would allow companies to learn from others, thus accumulating experiences, leverage resources, and share risks.” Therefore, “firms in emerging economies may wish to fully utilize this approach as they pursue their global strategies” (Campbell-Hunt 2000:147).
2.14. Porter 5 Forces Model -The Concept of Competitiveness
Although there are many models for analyzing the industry competitive environment, Porter’s Fives Forces Model remains one of the most dominant and popular model to be used by academics and practitioners (Indiatsy et al., 2014). The model is an illustration of how the “Five” competitive forces can be used to explain the competitive position of a company in any industry (Eskandari et al., 2015). The Five forces are grouped as the threat of new entrants, bargaining power of buyers, supplier power, threat of substitutes, and rivalry among the already established firms (Eskandari et al., 2015). Eskandari et al., (2015) note that the intensity of each of these forces determines the expected level of profitability of a company. As the intensity increases, profitability is reduced since the company attempts to defend its position and existence in the market (Hove & Masocha, 2014). The threat of new entrants for example,
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affect existing companies as any new entrant will strive to secure a sizable market share of the market thus affecting the profits of existing companies (Hove & Masocha, 2014). The challenge is for existing companies to erect barriers to entry (Hove & Masocha, 2014). According to Porter (1985) major barriers to entry may come in the form of economies of scale and differentiation. These factors prevent potential competitors by giving them a significant cost disadvantage and a high capital requirement in various ways (Indiatsy et al., 2014). Supplier power can be curtailed through backward integration and widening sources of supply. The various strategies are explained on Table 2.2 below.
Table 2.2: Porter’s Generic Strategies
Source: Porter, 2003
2.14.1. A critique of Porter’s 5 Forces Model
Though Porter’s (1985) Five Forces model has been within academic and business circles since the early eighties, there in now an urgent need to upgrade it in order to the reflect new realities and competitive forces facing business (Jarzabkowski & Kaplan, 2015; Johnson et al., 2008; Mohapatra, 2012). Porter’s (1985) framework is premised on the five forces that influence competition and threaten the company to
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make a profit and survive in the competitive environment (Jarzabkowski & Kaplan, 2015). In his arguments, what makes a market attractive largely depends on how the market is structured which in turn influences the way how a business reacts through the various strategies at its disposal (Jarzabkowski &
Kaplan, 2015). According to Porter (1985:137), “the awareness of these forces can help a company stake out a position in its industry that is less vulnerable to attack.” However, recent criticisms of this model for achieving competitiveness has largely centered on the effect of the changing environment and that in its current form, the model focuses on a ‘static’ market (Jarzabkowski & Kaplan, 2015). The reality however, is that industry conditions have drastically changed and new realities are at play which calls for a thorough re-look at a model which has served industry quite well for all these past years (Zhang & London, 2013; Conklin & Tapp, 2000). Several criticisms centre on the fact that the model assumes an industry in which competition is perfect and all the variables are known (Zhang & London, 2013; Vining, 2011). It does not take into consideration the effect of time; assuming industry conditions will remain static for the foreseeable future making it more non-applicable to contemporary companies operating in dynamic environments where competition is unpredictable (Allio & Fahey, 2012). Therefore the dimension of time should have been considered (Dulčić et al., 2012) as this allows managers to make
‘time related’ decisions (Allio & Fahey, 2012). Making use of the framework without considering external factors will not make the organization competitive (Jarzabkowski & Kaplan, 2015) but they should also consider the effect of the rapid changes in the business environment (Hill & Jones, 2008).
The literature reveals that modern companies must not be ‘slaves’ of the Five Forces model but must consider contemporary factors which affect the competitive environment (Jarzabkowski & Kaplan, 2015;
Zhang & London, 2013; Grant, 2011). It is thus important to see how the model can be overhauled in order to include the role of technology; especially information technology which has transformed the face of marketing in recent years (Karagiannopoulos et al., 2005). This is a fatal omission in the existing model and many authors acknowledge the deficiency of Porter’s (1985) Model “because of the missing attention to digitalization, globalization and deregulation” (Johnson, 2014). Information technology has become a key variable to consider when implementing marketing strategies and business planning in general (Johnson, 2014). It has been noted that information technology has drastically changed the rules of competition in more ways than one and a radical shift towards adaptation is needed particularly so by all the companies who are yet to embrace new technologies in the businesses (Mohapatra, 2012).
Furthermore, it has become apparent that the way how an organization utilizes/deploys its resources and capabilities largely determines how competitive it will be and this omission, should also be considered when using the Five Forces Model (Rivard et al., 2006). In addition to the above mentioned factors, it paramount to consider the role of the government in determining the competitiveness of a company
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(Zhang & London, 2013). Zhang and London (2013) assert that the role of government must be considered as the sixth force within the model (Mohapatra, 2012). This is because not only do government policies influence all the other factors, but also directly influence internal company strategies (Mohapatra, 2012). Government’s intervention; whether through their regulatory policies or direct support, remains a powerful force which affect strategy and must be taken as such (Macmillan &Tampoe 2000). Many authors believe that while the validity of Porter’s Model cannot be overemphasized, its renewal is also urgent (e.g. Jarzabkowski & Kaplan, 2015; Walder, 2012; Mohapatra, 2012). Achieving competitiveness in the clothing and textile industry in Zimbabwe requires a critical look at a model which industry has learnt to trust all these years.