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SUSTAINABILITY OF COMPETITIVE ADVANTAGE: A MUST FOR EVERY FIRMS

By
Dr. Oluwole Iyiola
College of Business and Social Studies (Marketing)
Covenant University, Ota
Ogun State. Nigeria.
Introduction:
Competition is the act of striving against another force for the purpose of achieving
dominance or attaining a reward or goal, or out of a biological imperative such as survival.
Competition is a term widely used in several fields, including biochemistry, ecology, economics,
business, politics, and sports. Competition may be between two or more forces, life forms
agents, systems, individuals, or groups, depending on the context in which the term is used
(Encyclopedia -Wikipedia). For example, in marketing terms, competition is the process by
which independent sellers vie with each other for customers in a market (Weitz, 1985, p. 229).
According to McCathy and Perreault (1984), a market is a group of potential customers
with similar needs and sellers offering goods and services to satisfy those needs. Because
substitutes exist for most products and services, firms typically encounter competitors when
marketing their offerings (Weitz, 1985). In view of this, for a firm to be effective, will depend on
how such firms program will react to both customers and competitors. Since it is the ultimate
desire of businesses to satisfy customer needs, it must consider customers responses in
formulating and developing its programs.
What is sustainable competitive advantage?
"Sustainable competitive advantage is the unique position that an organization develops in
relation to competitors that allows it to outperform them consistently (Hofer and Schendel,
1978). A sustainable competitive advantage (SCA), is when a firm possesses value-creating
processes and positions that only cannot be easily duplicated or imitated by other firms that lead
to the production of above normal rents. SCA is different from a competitive advantage (CA),
because it provides a long-term advantage that is not easily replicated. Therefore, a sustainable
competitive advantage is one that can and must be maintained for a significant amount of time
even in the presence of competition (www. wikipedia.org). Sustainable competitive advantage
will allow the maintenance and improvement of the company's competitive position in the
market. It enables business to survive against its competition over a long period of time.
Sustainable competitive advantage can be built up over a period of time based upon some
unique competencies. They can be based upon knowledge, know-how, experience, innovation,
and unique information use (Lowson, 2002). According to Coyne (1986), competitive advantage
will be meaningful only if it is felt in the marketplace and the differentiation must be perceived
as an important buying criterion to a substantial customer base. Therefore, such advantage will
be sustainable, only if it cannot be imitated (Barney, 1991).
How a firm can acquire a sustainable competitive advantage:
Barney (1991), maintained that a firm will obtain sustainable competitive advantages over
her competitors, by implementing strategies that exploit their internal strengths, only if they can
response to environmental opportunities and at the same time neutralizing external threats and

avoiding internal weaknesses. He maintained that, a firm can only acquire a sustainable
competitive advantage when such firm possesses a particular valuable resource only if it can
improve its efficiency and effectiveness in ways that competing firms cannot. Wernerfelt, defines
a firms resources at a given time as those (tangible and intangible) assets, which are tied semipermanently to the firm (Wernerfelt, 1984, pg. 172). Firm can acquire a sustainable competitive
advantage in many ways:
1. Human capital resource: Human Capital offers solutions and strategies to help
companies invest in employee skills and talent, so as to create successful company that
is a great place to work. Becker, G.S. (1964), also held this view. For most firms,
human capital is one of the largest investments, and it represents one of the most
difficult management challenges (Schiemann, 2006). These are resources that are
directly related to the personnel make-up of the company. Companies today are not just
looking for ordinary employees; they are looking for experienced employees, with
better judgment, intelligence, and a team player who can effect positive changes within
the company. In the 1980s Chrysler Motor Company was in trouble and found the
answer in the person of Lee Iacocca former president of Ford Motors, who twice
rescued Chrysler Corporation from the brink of bankruptcy (Smith, 2006). Companies
must be willing to invest in their employees progress, by providing adequate training
and also creating a positive conducive environment to work.
2. Physical capital resources: Companies must be willing to invest heavily in latest
equipments, plants, and technology to facilitate quick production process. All these can
only be possible if the firm is financially sound. This view was also supported by
Williamson, (1975).
3. Organizational capital resources: This includes the administrative aspect of the
company. How does the company plan, control, inter-departmental relationship and
coordinate all activities within the company and the environment.
4. Organizational culture: Globalization has changed the traditional ways of doing
business. Today, many companies find themselves in a totally different culture. To this
end, companies are now must understand the culture, society, and government within
which they operate.
5. Corporate entrepreneurship: This is the ability of an organization to regularly introduce
new products or enter new markets, by navigating its current environment, and to the
organization's creation and exploitation of new product-market arenas, respectively
(Covin & Miles, 1999). It has long been recognized as a potentially viable means for
promoting and sustaining corporate competitiveness. Many authors such as:
Schollhammer (1982), Miller (1983), Khandwalla (1987), Guth and Ginsberg (1990),
Naman and Slevin (1993), and Lumpkin and Dess (1996), have all indicated that
corporate entrepreneurship can be used to better companys competitive positioning,
thereby transform corporations, their markets, and industries. Recently, Zahra and
Covin (1995) identified a positive linkage between corporate entrepreneurial behavior
and financial performance.
Barneys position:
According to Barney (1991), organizations will obtain a sustainable competitive advantage
over her competitors, only if that organization can fully exploit her strength based on two vital
factors the internal strength and the external strength and at the same time neutralizing the
external threats, while at the same time avoiding internal weaknesses. Barney (1991) noted that

two assumptions are elemental to the RBV: (1) resources are distributed heterogeneously across
firms, and (2) these productive resources cannot be transferred from firm to firm without cost
(i.e., resources are sticky). Heterogeneity is a concept, meaning that the firms competing in the
marketplace have varying capabilities to compete, and this is seen as a requisite for a firm to
have the possibility of gaining sustainable competitive advantage (Peteraf, 1993).
He argued that this is only possible if the firm is able to implement a value creating strategy that
its competitors are not implementing at the same time. He even went further to indicate that such
strategy must be unable to duplicate by the competitors. Since nothing last forever, Barney
argued that such sustainable competitive advantage may sometimes come to and end due to
various factors, such as economic structure of an industry could change, thereby making
opportunities available to other firms.
Another valid argument that Barney put forth was that in other for a firm to have this
sustainable competitive advantage, four things must be in place:
(a).

it must be valuable, in the sense that it exploits opportunities and/or neutralizes


threats in a firms environment,

(b).

it must be rare among a firms current and potential competition,

(c).

it must be imperfectly imitable, and

(d).

there cannot be strategically equivalent substitutes for this resource that are
valuable but neither rare nor imperfectly imitable. (Barney, 1991).

Barney (1991) argued that there are four empirical indicators for potential as a firms
resources: value, rareness, imitability and substitutability. Valuable resource was defined by
Barney as ability to exploit opportunities or neutralize threats. Therefore, a resource must also
be relatively rare among the firms competitors to have potential for competitive advantage.
Also perfect imitation and the ability of competitors to field good enough substitutes would of
course remove the rent-earning ability of the formerly superior resources. According to
Lippman and Rumelt (1982), the uncertainty regarding which of the resources actually are
responsible for the competitive advantage and in what way is one reason for imperfect
imitability and causal ambiguity. Other reasons for this are the social complexity of the resource
(Diericx & Cool, 1989) or its dependence of what is termed a unique historical conditions
(Barney, 1991). Path dependent models suggest that the industry structure is not the only
explaining factor of a firms performance, but also the development path of the firm matters
(Arthur, 1983).
Argument against Barney:
Sampo Strand in his article of Spring 2006: Patents as a source of sustainable
competitive advantage, put forth some arguments to counter the claim of Barney. Below are his
arguments. (http://emertech.wharton.upenn.edu).
Intellectual property as a resource
Forms of intellectual property
Strand argued there are many natures of intellectual property that were not
considered by Barney.. Prominent among them are the trademarks, copyrights, patents, trade

secrets and domain names (Tao et al. 2005). These he argued are properties to company. While
being only a subset of knowledge assets or intellectual assets they are relatively well defined
and codified part of a firms resources, and as such are well suitable for further study of
knowledge as a resource of the firm. The ability of patents to function as a source of sustainable
competitive advantage is weighed. A patent portfolio the set of patents held by a firm (he
claimed) is one of its major intellectual property resources. Therefore, the potential of patents to
create sustainable competitive advantage can be verified by going through Barneys criteria for a
source of competitive advantage.
Value, he argued that it is something intricately connected to patents. He said not only do
they have a legalistic value as a form of property, but they can also by definition be used to
neutralize threats to a firms rent earning ability, as they endow a legal monopoly for their
holder for the invention which they cover. Also, they act as enablers of business, as they can be
used through cross licensing to ensure access to a market, where a host of patents are required to
operate. This happened to be true in case of the semiconductor industry, where according to
Reitzig (2004): the main purposes of patenting in this industry are not necessarily to deter
entry but to create a market for knowhow, exchange and to remove the threat of being shut
down by established competitors. Furthermore, Mouritsen and Koleva (2005), also find in their
research that patents create value by being linked to a series of other resources and purposes (in
actions). They see patents as options that derive some of their value from their relationship to
production, marketing and finance mechanisms.
Rareness would from the first look seem to be a given for a patent. However, even though
a patent grants its holder a monopoly, it may well be not enough as there is always the risk of
substitution a competitor may find a way to enter the same market through the use of a patent
with a very similar field of coverage and action. He went further to argue that there can also be
numerous technical ways to fulfill a market need. A well created patent portfolio can; however,
prevent this or at least create a degree of rareness through the building of a patent fence,
meaning the patenting of not only the core invention but also any easy to build substitutes
(Reitzig 2004).
Imperfect imitability: Follows from the typically 20 year, or in some cases 25 year
monopoly (Reitzig 2004) given to the holder of the patent. Patents have history of dependent
type of resources, as the competitor cannot imitate the technology protected by the patent or
patent portfolio, and the first one to develop the technology has thus gained a medium to long
term protection from imitation.
Substitutability: Can become a threat to a competitive advantage based on patents, if the
patent portfolio is not created carefully to also include any similar technological options. Patents
can, if used in an efficient, can act as a resource that is difficult to substitute. Based on this
analysis, a patent portfolio would seem to provide a resource, which can act as a source of firm
resource heterogeneity. Mouritsen and Koleva (2005), also see them as an instrument whose
value depends on how well they are integrated or entangled with the other resources of the
company, which would indicate a degree of immobility as a resource. A patent portfolio can
then be a source of sustainable competitive advantage based on the criteria of Barney (1991).
Based on the criteria of Peteraf (1993), patents can also function as a source of competitive
advantage, due to the analysis above, provide heterogeneity, act as ex post limits to competition
and are a somewhat imperfectly mobile resource. However, whether the patent portfolio in

question does actually confer its holder sustainable competitive advantage depends on the ex
ante limits to competition namely, if gaining the patents was very expensive. Finally, if all the
competitors have similar patent portfolios then, there is no heterogeneity, and there is of course
the risk of substitution in case the portfolio does not have wide enough coverage. Patents would
then seem to be able to function as a source of above average rents in some instances. But how
to measure their potential, and whether they actually do confer competitive advantage (Strand,
2006).
Priem and Butlers Argument:
First of all Priem and Butler based their argument on Barney (1991) work only. They
started by stating that though as a potential theory, the elemental resource-based view (RBV) is
not yet in a theoretical structure. Furthermore, they claimed that RBV proponents have assumed
stability in product markets and eschewed determining resources' values (Priem and Butler,
2001). They agreed that the RBV is popular and this is supported in the literature, still little
critical evaluation of the RBV as a theoretical system has not been fully done except Ryall,
(1998),and McWilliams & Smart, (1995). They therefore, indicated that in their 2001 article,
they will attempt to restrain, at least briefly, the RBV's momentum while encouraging efforts to
clarify its fundamental theoretical statements and to specify its likely contributions to
knowledge. They started initial step toward a more rigorous critique and hopeful clarification of
the RBV by addressing two elemental questions: (1) Is the foundational and unembellished
RBV actually a theory? (2) Is the RBV likely to be useful for building understanding in strategic
management? (Priem and Butler, 2001).
However, Makadok (2001), shed some light on this issue. He said unlike some other
theories, the RBV was not fully developed all at once in a single article, but it was gradually
gathered in piecemeal fashion in four different articles over the course of ten years -- first by
Wernerfelt (1984), Barney (1986, 1991), and finally Peteraf (1993). Each of these four
articles, the author focused on a different aspect of the problem. Wernerfelt (1984) focused on
the corporate-level implications of resource heterogeneity.
While Barney (1986) focused on the creation of competitive advantage and value-yes,
value. In fact, value is fully endogenous in Barney's (1986) work, because the value of
resources that a firm acquires is hypothesized to be a function of the private information it
possesses about the resources available for purchase. Barney (1991), focused on how
competitive advantages and value, once created, can be sustained. Finally, Peteraf (1993) tied
all the pieces together in a single coherent framework encompassing how competitive
advantage is created and how it is sustained, with applications at both business-unit and
corporate levels Makadok, (2001), therefore Priem and Butler were wrong to based their
argument solely on Barney, (1991).
Each of these four articles, taken in isolation, is merely a brick in the wall of the RBV.
Thus, when Priem and Butler (2001a) isolate Barney's 1991 article-as if it were, by itself, the
entirety of "the RBV"-and conclude that it is not a theory, it is as though they removed a brick
from a wall and concluded that the brick is not a wall (Makadok, 2001).

Taken into account the above arguments, I strongly believe that Barney (1991), has a valid
argument. Therefore, I support his argument and work.
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