Durability of Competitive Advantage

DURABILITY OF COMPETITIVE ADVANTAGE

Durability of competitive advantage refers to the rate at which the firm’s capabilities and resources depreciate or become obsolete. It depends on three factors:

A)   Barriers to Imitation:

Barriers are factors which make it difficult for a competitor is copy a company’s distinctive competencies. The longer the period for the competitor to imitate the distinctive competency, the greater the opportunity that the company has to build a strong market positioned reputation with consumers. Imitability refers to the rate at which others duplicate a firm underlying resources and capabilities.

Tangible resources can be easily imitated but intangible resources cannot be imitated and capabilities cannot be imitated.

B)   Capability of Competitors:

When a firm is committed to a particular course of action in doing business and develops a specific set of resources and capabilities, such prior commitments make it difficult to imitate the CA of successful firms.

A major determinant of the capability of competitors to imitate a company’s competitive advantage rapidly is the nature of the competitor’s prior strategic commitments & Absorptive capacity.

i)     Strategic commitment:

A company’s commitment to a particular way of doing business that is to developing a particular set of resources & capabilities.

ii)   Absorptive capacity:

Refers to the ability of an enterprise to identify value, assimilate, and use new knowledge.

C) Dynamism of industry: Dynamic industries are characterized by high rate of innovation and fast changes and competitive advantage will not last for a long time. The most dynamic industries tend to be those with a very high rate of product innovation.

Ex: Computer industry.