Competitive Advantage, Societal Homogeneity and Meta-National Corporations: 5 Probable Futures
Competitive Advantage is the set of abilities that allows an organisation to outperform its competition. The set includes everything from highly skilled workforce to access to the required natural resources, resulting in lower price offerings to the customers for the same product or higher value (determined by the consumer) at a competitive price. Porter (1985) laid down the three generic strategies for competitiveness. This includes Cost Leadership, Differentiation, and Focus. The bulk of all competitive strategies implemented in the market, can be traced back to these three psyches.
A company is said to have attained Cost Leadership when it can offer a product at the lowest price in the market, e.g. Walmart’s “Always Low Prices” strategy. The company’s growth in the first five decades of its creation is attributed to this strategy.
Differentiation is achieved by being unique in an industry, e.g. Pixar in the film industry. The company starts a movie idea from a rough board sketch, called story boards, instead of a script. Reportedly, Pixar used 27,565 story boards for A bug’s life, 43,526 for Finding Nemo, and 98,173 for Wall-E. The company calls this process “Going from suck to non-suck”, pursuing excellence along the way.
The Focus Strategy aims to narrow down the group of customers that a firm can serve with a specific product or service e.g. Gestamp Automation in the car parts manufacturing industry. The company opens production units near its major customers and then serves them at a competitive price because of this distance advantage. This leads to understanding the customer requirements better, which creates a further competitive advantage against any competition.
Factors Changing the Competitive Strategy
The basis of competitive strategy, and ultimately competitive advantage, have not been disturbed since the conception of the idea. This has started to change with globalization, and with the fact that companies have started to find new ways to act in their interest, resulting in the following two phenomena:
1. Societal Homogeneity
Mehrabanfar (2015) considers Culture, Politics, and Economics the three pillars events of today. With increased globalisation, and assuming the current rate of change the most probable, the effect of these pillars on regional human events will reduce. In case of Politics, the difference between different nations has already started to fade, and so has the difference between local and foreign policies. The eyes of the globe are on every event of every major country of the world, and this rate of exposure will surely increase. Some experts also believe that human culture integration has started, giving the example of common channels of knowledge through the internet. In case of Economics, the era of multiple theories (Smithian, Marxian, Neoclassical, Keynesian etc.) is almost behind us. Mehrabanfar also states that with time, all theories will be tested and an ultimate system will emerge, which will be applied worldwide.
A future where all humans are similar will show a backward movement, but luckily, knowing human nature, we can be assured that new differences and pillars of effect will emerge along the way.
2. Multi-National to Meta-National Corporations
Interestingly, when global powers are discussed, most researches tend to talk about governments. The hot topic for the past few years has been whether China will surpass the USA in the coming years (Some individuals jump over and declare China the supreme power already). In all this debate, we seem to forget that there are multinational companies who boast higher revenues than most of the countries. One of the biggest examples here is Apple, a company exceeding the GDP of 2/3rd of the world’s countries. Experts, such as Yves L. Doz, Jose Santos and Peter J. Williams use the term “meta-national” for companies that have surpassed the multi-national status.
The term is now used for companies that pick and choose their locations according to friendly regulations, and command great powers in negotiating deals with different countries. An example here is Accenture, which, over the decades have had central offices in USA, Switzerland, Bermuda and Ireland (alongside many regional offices). The company has been moving its personnel around 200 cities in 55 countries during projects, while centring them in locations such as Dubai and Prague, to gain tax breaks.
What does the Future Hold for us
The future of trying to gain competitive advantage may bring the following scenarios:
1. Continued Acquisitions by Major Corporations
Keeping an eye on the financial news, mergers and acquisitions get quite the coverage. The two terms are generally used together but there is a slight difference. Merger refers to a combination of usually two equally sized companies, while Acquisition refers to the practice of buying a smaller company. This difference is important in discussing the future, because the later practice is getting more and more common.
The trend of acquiring companies in the tech world has been especially intense. Google started buying companies before its popularity boom. Companies, such as Android, YouTube, and Maps, have all been added through this process. Other giants in the sector, including Facebook, Amazon and Microsoft, started the process with the increase of available cash (Luckerson 2015). Alphabet Inc. (holding company of Google) has bought over 200 companies, Facebook over 65, Amazon roughly over 70 (no complete list available), and Microsoft over 190. These tech giants are also trying to diversify their core business and move into other sectors. The most recent example was the acquisition of Whole Foods by Amazon.
It is also interesting to note that tech companies are quite quick in picking up potential buys. An example here is the acquisition of Nest Thermostat by Google. They were interested in the company almost from the time of its inception, when the idea was demonstrated in a TED conference in 2011. The company’s CEO at the time, Tony Fadell, wanted to keep the company as a start-up for as long as he could. Later, with increasing size of the company, logistics and lawsuit issues escalated, and Google came back with a better offer in 2013. The CEO kept his job, the company expanded quickly to five countries, and Google provided help on all the issues at hand (Luckerson 2015).
In short, market giants not only hold the financial resources, but the knowledge to tackle problems as well. This is almost impossible for many start-ups and small companies. Combining this with the concept of meta-national companies, the trend of acquisitions is likely to continue (or even increase).
2. Reverting to Individual / Field Sales
Field sales is the practice of selling goods and services outside an office, while Individual sales is the practice of marketing and selling through a salesperson. Businesses might start considering these platforms again, if the current market trends persist. The key numbers to consider are:
a. Marketing banners have a click rate of 0.12% (eMarketer 2014)
b. Mobile banners have a click rate of 0.14% (eMarketer 2014)
c. AdBlocking online grew by 41% in 2015 (PageFair 2015)
d. Data Driven Marketing Revenue increased by 57% in 2015 (eMarketer 2015)
e. 67% of B2C companies declared email newsletters effective (Content Marketing Institute 2015)
f. 56% of display ads go unseen (Kantrowitz 2014)
g. 56% marketers believe that individual ads produce higher returns (eMarketer 2014)
h. Internet Spend will surpass TV for the first time in 2017 (Connelly 2017)
These numbers show that mainstream marketing is either on a decline or the viewing rates are quite low for mass produced advertisements. Moreover, the concept of data driven marketing and individual catering is on the rise. Furthermore, businesses are losing trust in television as a marketing medium.
Before digital entertainment (TV and now Internet) became the norm, field and individual sales were the key marketing strategies of major corporations. Companies used to spend thousands on training salespersons, and even more on keeping them out in the field. With the change of market mood, this art has been on the decline, except in a few industries, e.g. agriculture. Farmers, even in this modern day and age, may buy their fertilizers and other chemicals through agents, who provide a personal service according to the terrain. Companies like OMEX, also pitch in a free soil-sampling test, a water analysis, and subsidized storage tanks for their customers.
There are also multiple researches showing that a human connection is the way forward in marketing. Currently, some companies are using this phenomenon for their traditional marketing, but if the trend continues, the next logical step is one-on-one marketing with a personal service. Even though humanity is moving towards homogeneity, a rise in the feeling of individualism is also occurring, pointing in the same direction for marketing.
3. Increased Outsourcing
Outsourcing is the process of contracting out a business process or service. The general conception around the term is of factories moving out to cheaper countries, but the idea goes beyond that. The main reason of outsourcing is generally reducing costs, to compete with the given market competition.
In the words of Friedman (2005), the world is getting flat (as in a level playing field, and not the flat earth theory). Services can now be pushed to places where they can be performed the most efficiently, or for the lowest price. You may already hire a personal assistant that is stationed in Bengaluru, India for less than half the salary payable in the western countries. The assistant will stay connected to you over the internet and serve all the duties you should expect (except serving you coffee maybe). There is no limiting factor to this phenomenon, if the service provided is in a specific language, interestingly, not limited by English. Japanese companies have been hiring the small Japanese speaking population of China, and even providing training to polish any required skills. Combining this with the factors of international homogeneity and meta-national organisations, the trend is likely to increase.
There are similar examples in other fields, e.g. medical doctors in the eastern countries checking x-rays for US hospitals at night time and offering advice, Boeing using a Japanese consultancy to teach its employees Lean Management, and the data companies outsourcing the analyst jobs to members stationed in India. Keeping these trends in mind, the concept of outsourcing will be broadened and increased.
4. Renting Diversification
Renting/Letting is the practice of agreeing a payable price for the use of a service or good. The term is generally associated with solid properties, but companies have started to diversify the use of this principle, to streamline their cash flows.
The concept of renting services is on the rise already. Instead of buying a song, you may subscribe to a service like Google Play, Apple Music, or Spotify, and pay per month for unlimited streaming. Instead of buying photoshop for your professional needs, you could subscribe to a membership plan and get the newest version all the time. Instead of buying a mobile phone, you may call your provider and find out 12 or 24 month plans to get the device.
The debate of renting vs buying is still not settled, but the concept has both positives and negatives for the customers, depending on the level of use and service. Companies generally profit more by renting, helping them forecast their projections more efficiently (which provides a competitive advantage on its own). Keeping the market trends in mind, the practice of renting is likely to increase and spread to other industries in the future.
5. Emphasis on “Partial” Differentiation
Product Differentiation is the process of showcasing the difference between two products. The aim is to increase the attractiveness of a given product, in comparison to the competition. This strategy is one of the main contributors of competitive advantage.
With mega companies moving away from drastic changes and innovative overhauls, the differentiation strategy is being finely tuned and minimised to the bare minimum. The concept is to run with a tested and accepted product, with the least changes. There are many examples of these in the industry, such as the minimum difference between each generation of smart phones, sequels and prequels in the movie industry, and beauty products changing their packaging while contents inside usually staying the same.
The bulk of innovation is moving towards smaller businesses, and sometimes even individuals. In case of success, these start-ups are acquired by big businesses and made a part of the larger network. This, of course, minimises the risk of loses, as the product already has a market that can be grown further with the larger network. This trend points in the direction of increased “partial” differentiation, as more companies catch on to the trend and play it safe.
This article tries to outline the factors that may change the future of competitive strategy, and hence competitive advantage, as we know it. Scenarios have been derived from these changes, which provide an image of the future. The underlining assumption is the continuation of current trends into bigger market players.
Moving away from the line, the subject of the future of marketing is still a dubious one. Experts, along the years, have tried to predict this sector with mixed results. In 1966, John Louth drew up a list of six scenarios of marketing that have all come true in different capacities. These included Customer Domination, Increased Market Research, Rise of the Computer, Test Marketing, Field Selling and Global Planning. I am drawing towards the revival of Field Selling, considering the psychological changes (individualism) that have happened along with globalisation. People want to feel as unique creatures, even though there are arguments that we are more similar than we care to believe. There is always a higher level of uncertainty when trying to understand human emotions. Considerable work is available on the partial rationality of human kind, and sadly the marketing sector falls into that.
Other projections, i.e. Increased Inquisitions to gain bigger market shares, heightened outsourcing, renting diversification, and partial differentiation from the big players, make more sense in terms of intuition. Unless regulations are amended and bounds are in place for sizing, these trends will continue to progress and undermine traditional governance across the world. The results of such changes are yet to be seen.
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