Strategic Management in a Global Context – Business Level Strategy

Running head: MANAGEMENT
Strategic Management in a Global Context – Business Level Strategy
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1MANAGEMENT
Question 2:
The competitive advantage of a firm over the other lies in earning a higher rate of profit or
having a potential of earning higher profit. Firms competing within the industry tends to use the
Porter’s generic competitive strategy for gaining competitive advantage.
According to Porter, the alternative generic strategies that enables a firm in gaining
competitive advantage includes, cost leadership, differentiation and the focus strategy. Cost
leadership strategy (CL) represents the low cost producer within industry that has higher level
of operating margins compared to rivals and puts forward a price that closer to industry average
(Kaliappen & Hilman 2013). For example, Unilever is found to follow the strategy of cost
leadership by offering standard products and constantly striving towards reducing cost in the
value chain through targeting cost drivers. This strategy helps in gaining competitive advantage
for a firm by increasing barriers to entry, increasing the bargaining power against suppliers,
making substitutes lesser vulnerable and viability in the face of price competition. Cost
leadership also have certain risks. The dramatic change in the technology can eliminate the
advantages of cost. There is also the risk of imitation of value chain by competitors. Besides,
stronger focus on efficiency might lead to paying lesser attention on changing needs of
customers.
Differentiation strategy depends on the unique aspects of a products or service that allows a
firm in charging premium price and in earning higher margins compared to the rivals (Brenes,
Montoya & Ciravegna, 2014). For example, Four Season Hotels follows a differentiation
strategy by providing an unmatchable service to the customers. This particular strategy enables a
firm in gaining competitive advantage by raising barriers to the entry, providing higher margins
for price thereby providing flexibility against the supplier. Firms having this strategy are less