Critically review the competitive rivalry within global retailing, paying particular attention to the importance of internal resources and market positioning to the search for competitive advantage. You should use both appropriate theory and a range of company examples.
Table of Contents
Introduction
Global Retailing and Competitive Advantage
Competitive Rivalry in Global Retailing
Dimensions of Global Retailing Competition
Conclusion
References
Introduction
Competitive advantage is defined as the set of significant advantages possessed by an organisation over its competitors in market. These advantages serve as a source of adding more value in a market as compared to major competitors (Lynch, 2003). Major focus of an organisation looking for creating and gaining competitive advantage is to create value for its customers; the value can be in the form of low price or higher quality as compared to the products offered by competitors in the market. Different models, theories and views for creating competitive advantage have been proposed e.g. market based competitive advantage or outside – in approach and value chain model.
Porter (2008), who has been advocating market based competitive strategy, believed that long term and sustainable competitive advantage could be achieved by understanding the key market forces threat of new entrants, suppliers, consumers, buyers, substitutes and competitive rivalry. Thus, managers can formulate a successful competitive strategy by considering these forces and this strategy would help to obtain long term profitability (Porter, 2008). Moreover, De Wit and Meyer (2010) also supported this approach and suggested that organisations should understand its market and industry in order to make valid and logical strategic decisions and achieve strategic positioning in the market. Another view is the inside out approach that emphasises an organisation should concentrate on its internal resources and develop them into core competencies to achieve competitive advantage over its rivals in a market (Barney, 1999).
Research on analysing environmental opportunities and threats has been the focus while internal strengths and weaknesses have not been in the spotlight when compared to the external environment (Alexander and Qunn, 2002). Literature regarding strategic management and competitive advantage emphasises issue diagnosis, Porter’s analysis of industry attractiveness and some other techniques especially designed to analyse strategically importance factors outside an organisation (Barney, 1995). Research regarding internal assessment of an organisation is focused on functional assessment of human resources, financial issues, information systems, internal strengths and weaknesses of a firm instead of focusing and identifying the existing and prospective competitive advantages of a firm (Barney, 1999). In light of this context, the current essay aims at exploring competitive rivalry within global retailing with special emphasis on the internal resources and market positioning of the major players and their role in acquiring competitive advantage in the global retail industry.
Global Retailing and Competitive Advantage
As stated above, it is important for managers to understand organisation resources and core competencies and their contribution to the formation of strengths of an organisation as well as to the development of considerable competitive advantage over its rivals in order to strategically manage the organisation. According to Ellis and Callantone (2005), the competitive advantage of a firms evolves from its internal resources; including both tangible e.g. equipment, building, land, cash etc and intangible resources e.g. market share, brand name, technology, experience, knowledge, product patents etc. In addition to these resources, human resources and capabilities (e.g. rapid delivery, management abilities, rapid development and processing, learning proficiencies etc) of a firm are also vital for developing competitive advantage in the market (Knorr and Arndt, 2003).
Thus, analysis of a firm’s internal resources is crucial for management in order to formulate and implement effective competitive strategy. According to Porter (2008), strong resources of a firm support an efficient strategy as changes in strategy are often accompanied by changes in the competitive advantage. Moreover, it is also suggested that core competencies of a firm are, in fact, competitive advantage and capabilities that emerge and evolve with the passage of time and become central to the overall strategy of a firm. Thus, core competencies of a firm serve as competitive advantage in the long run. According to (Alexander and Quinn, 2002), the internal resources, core competencies and capabilities of a firm must be coordinated with the external environment in order to formulate a successful strategy and failure to do this may cause reductions in market share and profitability of a retailing firm.
It is exemplified by the failure of Wal-Mart in Germany as the firm did not consider external environment of the German Market and solely relied upon its internal resources and competencies (i.e. strengths) to gain competitive advantage over its rivals in the German retail sector. It applied similar strategy as was applied in the USA to gain competitive advantage but it failed to gain considerable market share (Knorr and Arndt, 2003). It is important to discuss and understand the concept of competitive rivalry as described in Porter in his five forces model of analysing an organisation in a market.
Competitive Rivalry in Global Retailing
As suggested by Porter (2008), competitive rivalry in an industry may take certain familiar forms including price discounts, innovation, new product introductions, and service improvements and advertising campaigns. However, it is also suggested that profitability of the industry is inversely related to the competitive rivalry. The negative impact of competitive rivalry on an industry’s profit depends on the intensity of the competition between existing rivals and on the basis on which the existing firms compete e.g. price and non price dimensions.
Competitive rivalry as described by Porter (2008) refers to the intensity of competition among existing firms in an industry. Global retailing is full of competitive rivalry due to rapid development in technology that has turned this planet into a global village. Major players of this industry include Wal-Mart, Tesco, Sainsbury, Carrefour etc and this industry can be termed as highly competitive on the global level. According to Porter (2008), industries with higher competition promise low returns due to the higher costs of competition. Global retail industry has many players of roughly same size with minor dominance; their products and services are almost similar and it is a mature industry with less opportunities of growth as far as developed countries are concerned.
This intense competition leaves no option for the major retailers but to steal customers from their existing competitors. This competition can be aggressive, price based (it results in lowered profits) and sometimes in non price aspects (e.g. marketing and innovation) (Ellis and Callantone, 2005). Large retailers maintain their customers through different schemes such as loyalty cards (e.g. Tesco) and attract other customers by marketing and intensive advertisement focusing on the utility of their products and services for the customers over the products and services offered by their rivals (Porter, 2008).
Dimensions of Global Retailing Competition
Retailers are considered as intermediaries between manufacturers of products or services and customers or end consumers (Grant, 1991). In this industry, consumers are associated with attributes including small, uninformed and immobile because their purchases amount to small share of their overall household expenditure, their unwillingness to travel long distances for making routine purchases and due to their lack of information regarding the availability, prices and quality of products respectively (Porter, 2008). The characteristics of end consumers not only describe the existence of retail industry but also account for the way retailers compete with one another.
Competitive advantage of a retailer may result from lower prices due to efficient product development process and use of innovative technology for maintaining the supply of products and rapid supply chains. It may include a reputation of a retailer for proven credibility or at least reliability for providing sufficient value to the end consumers. For instance, Wal – Mart has competitive advantage over its rivals due to its famous ‘everyday low prices’ and its pledge for ‘we sell for less-always’(Knorr and Arndt, 2003). Similarly, Tesco is known to provide low price but high quality products to its customers due to its efficient supply, experience, skilled staff and fast delivery for online orders. Thus, it has larger market share and competitive advantage over its existing rivals due to its internal resources (Alexander and Qunn, 2002).
Another internal resource of a retailer is its location or place that can cause significant competitive advantage because customers favour and prefer to purchase from the retailers that are near and easily accessible e.g. Tesco and Wal-Mart retain a competitive edge over their rivals due to their higher number of retail outlets and efficient e – marketing. According to Alexander (1997), easy accessibility (i.e. location) can allow a retailer to charge relatively higher prices due to the additional convenience of location or accessibility. Another important internal resource of a firm is its product development process by analysing and understanding the products of its rivals in the market. According to Porter (2008), better and improved product selection by a retailer and product category management may also promise significant competitive advantage over its current rivals. Product category management refers to the product range that is especially selected to meet end consumer’s requirements and provide him/her utility better than the rivals do.
Superior customer service of a retailer also results in increased competitive advantage. For example, Tesco’s pledge that every customer is treated by its staff as the only customer in the retail store earned it significant competitive advantageover other retailers operating in global retail sector. Moreover, other retailers are also paying special attention to the customer service and using it to gain competitive advantage and market share. According to Knorr and Andrt (2003), legal barriers as well as some behavioural regulations may shield the existing retailers from efficient, innovative and service oriented new retailers. Some of these barriers include inflexible planning regimes and geographical regulations that delay or sometime hinder new entry as well as expansions or renovation of existing stores in new geographical areas. Behavioural regulations include restrictive shopping hours and unfair trading regulations that restrict competition or prevent some forms of sales promotion and advertising (Barney, 1999).
From above discussion, it is clear that non price decisions like customer service, store location, product range and quality of products offered by retailers are also important source of creating competitive advantage in global retail industry. Therefore, retailers use product line, variety and a wide range of products to attract large group of customers (i.e. gain competitive advantage), enhance their market share and gain market power by utilising portfolio effects (Nevo, 2001). Different strategies adopted by large retailers to increase their share in the global market include organic growth, joint ventures, franchising, strategic alliances, mergers, acquisitions and minority/majority shareholdings.
Continuously growing body of empirical as well as theoretical literature highlight the merits and demerits of either approach adopted by retailers to gain competitive advantage and face competitive rivalry in the global market. However, all strategies are utilised by one or the other retailer and some also gain success in improving their market share by following certain approaches. It is pertinent to mention that a single strategy or approach to use internal resources and acquire competitive advantage cannot be successful everywhere as is evident from failure of Wal-Mart in Germany (Knorr and Arndt, 2003).
Thus, internal resources and market positioning of retailers significantly affect the performance of these firms. The firms have different competitive market position (i.e. different market share, different geographical representation, different accessibility etc) and some firms are more attractively positioned as compared to other retailers. For instance, large retailers in China are more attractively positioned in the country and have maximum reach to the end users (Chuang, Donegan and Ganon, 2012). Therefore, these retailers are successful and occupy the largest market share. Wal-Mart, on the other hand, has tried to enter into Chinese retail sector and occupy some market share due to its core competencies in retailing and external factors prevailing in the Chinese retail market; but it has not succeeded in its attempt to steal customers from the large retailers of China.
According to Chuang, Donegan and Ganon (2012), Wal-Mart failed to extend its oligopolistic dominance in the Chinese retail sector due to some issues. Different issues identified by Chuang, Donegan and Ganon (2012) included the formation of alliances and impact of these alliances on store locations, impact of relatively under – developed infrastructure on supply chain, unique business culture in China and its impact on supplier relationships, difference in consumer behaviour and its impact on sourcing and procurement and immature IT environment that impeded communication to some extent. These results emphasise the importance of external as well as internal resources to gain competitive advantage in global retail market. The managers must identify the internal resources that can create competitive advantage depending upon the geographical location and culture of the target market.
Porter (2008) argued that management should look into external opportunities and utilise internal strengths (i.e. resources and market positioning) to gain competitive advantage over other competitors. For this purpose, management should select such strategies that can best exploit the internal resources of a firm in relation to external opportunities. The same was implemented by Tesco when it expanded its retail stores to developing countries like India (Alexander and Quinn, 2002). It identified the opportunity in external environment and utilised its core competencies (i.e. skill, human resource, experience, rapid product development process) to capture considerable market in the host country. In order to identify firm’s internal resources that can evolve into core competencies and cause competitive advantage in market, different tools e.g. SWOT analysis are utilised (Porter, 2008). These tools help in assessing the value of existing resources as potential source of competitive advantage and implementation of strategies that can make best use of the identified internal resources (i.e. strengths of a retailer). For example, the management of Tesco Plc identified that its rapid product development and distribution system was not matched by any of its existing competitors; it decided to use this system to gain competitive edge over other retailers and became the largest retailer in the UK.
Conclusion
From the above discussion, it can be concluded that competitive rivalry is a major force in Porter’s five forcesmodel and rivalry exists in global retail industry. It was also concluded that different internal resources of a retail firm included knowledge, experience, skilled human resource, product development processes, consumer service and all other internal activities that are essential in carrying out the business processes. From different examples, it was examined that how different retailers were using their internal resources to gain competitive advantage over other competitors. Market positioning of the firms also impacted their competitive advantage and market share as consumers prefer to purchase from the retailers that are easily accessible and provide utility in terms of price as well as quality. For instance, Wal-Mart could not gain dominance in the Chinese retail market due to the strong market positioning of the Chinese retailers and different culture of end users in the country. Thus, the firms with extensive networks of retail stores and maximum accessibility to the consumers can create more competitive advantage as compared to their rivals in the industry. The essay has also outlined different dimensions of competitive rivalry along with examples of implementation of the internal resources of the firm to acquire competitive advantage that, in turn, generates higher market share and enhanced profitability. However, it also identified that coordination of external factors and internal resources is essential to gain success in global retailing industry. Management should identify opportunities in the external environment and formulate strategies that help in making best use of the firm’s internal resources.
References
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