Competitive advantage types and export market performance in international firms

1 Summary of “Which Competitive Advantage(s)? Competitive Advantage–Market Performance Relationships in International Markets”

Introduction

Kaleka and Morgan (2017) conducted a study to evaluate the elements of competitive advantage among exporters in the UK. Specifically, they looked at the factors that affect competitive advantage and which types of competitive advantage yield the best results. The authors focused on price, product and service quality in relation to performance among international firms. The framework for analysis included how customer value logic affects value creation and value capture. This paper describes the objectives of the study, the methodology used, and the findings.

Methodology

To provide a framework for the study, the authors focused on value and the ways in which consumers perceive it. As value creation is one of the main goals of a business, it stands to reason that value is an important metric that should be understood from the perspective of the consumer. Customer value logic was thus at the heart of the authors’ framework, for, as they explained, “the key stage in [the] process of value creation and capture is when customers develop perceptions of the value of the firm’s offering, as they explicitly or intuitively compare its offering with those of competitors” (Kaleka & Morgan, 2017, p. 27). To define the process of value creation and capture for firms and customers, the authors created a figure that expresses the process visually. That process begins with a firm developing a value offering and marketing it. Customers then develop perceptions of that value offering and compare it to other options in the market. At this point, the business’s positional competitive advantage is established. Customers then offer money in exchange for value offering and the firm captures value from the exchange, while customers do as well because of the use they obtain from the firm’s value offering. The business then focuses on even more ways to create more value offerings.

The theory of the authors is that “environmental factors affect the transformation of positional advantage to actual sales and market share in the overseas markets through influencing customer needs and purchasing power” (Kaleka & Morgan, 2017, p. 28). They hypothesize that “contingencies render the firm’s extraction of financial rents ambiguous and, in doing so, contribute to weaknesses in viewing competitive advantage as a sustainable strategic goal” (Kaleka & Morgan, 2017, p. 28). In other words, if firms do not understand how contingency factors affect value capture, they cannot maximize their ability to create greater value offerings.

With that framework, theory and hypothesis in place, the authors situated their study within the context of exporters in the UK durable goods industry. These were companies that sold goods through local retailers overseas. Both distributors and end-user customers were included in the study as customers.

The main assumption targeted in the study is the assumption that there is a “direct positive relationship between competitive advantage and market performance” (Kaleka & Morgan, 2017, p. 28). Because this assumption affects model-building and is rarely tested, the authors believed it was important to assess whether “more specific competitive advantage–performance mechanisms [were] discernible at a lower level of aggregation” (Kaleka & Morgan, 2017, p. 28).

To test this assumption, the authors randomly selected 887 companies from the Dun and Bradstreet Directory of UK exporting manufacturers from a cross-section of different industries. Surveys were mailed to these selected companies and 312 responses were returned, representing a 35.25% response rate. 30.2% of the sample were in the machinery (except electrical) industry; 25.9% were in the electrical and electronic machinery, equipment, and supplies industries; 14.6% were in the chemical and allied products; 12.9% were in the apparel and fabrics industries; 12% were from the rubber and plastics industries; and 4.3% were from the textile mills industry. The survey was directed to the executives of these companies. The executives were asked to select a single venture with which they were most familiar and to use that venture when answering the survey. In total 268 ventures were identified. Of these ventures, nearly half of them were ventures in the EU; 15% of them were in North America; less than 3% of them were in Japan; less than 5% of them were in other developed nations; less than 4% of them were in former Soviet Bloc states; slightly more than 15% of them were in developing countries; and slightly more than 8% of them were in recently industrialized nations.

Based on anecdotal evidence, the authors concluded that competitive advantage is a subjective construct that often means different things to different people. Therefore, to measure competitive advantage, the authors relied on measurements of three specific dimensions—price, product and service advantage.

For price advantage, those surveyed were asked to compare their value offerings with competitors in terms of cost of goods sold and selling price to end-users.

For product advantage, those surveyed were asked to compare their value offerings with competitors in terms of product quality, design, and packaging.

For service advantage, those surveyed were asked to compare their value offerings with competitors in terms of “product accessibility,” “technical support and after-sales service,” and “delivery speed and reliability” while providing a reflective rating in terms of “overall service quality” and “overall satisfaction with the service offering” (Kaleka & Morgan, 2017, p. 33).

Those surveyed also provided data on “sales volume,” “market share,” and “revenue from products introduced during the past three years” in comparison with their main competitors in the specific market (Kaleka & Morgan, 2017, p. 33).

The researchers confirmed through assessment of scale reliability and validity tests that common method bias was not an issue of concern in the study. The researchers conducted regression analysis to statistically evaluate the results of the surveys.

Conclusion and Findings

The findings showed that very nearly every firm that took part in the survey believed itself to have competitive advantage in terms of product and service advantage but that when it came to price advantage the firms viewed themselves as having only a marginal advantage when compared to competitors. The ventures that the firms chose to select when providing responses tended to be high-performing ventures. After conducting regression analysis, the researchers found that “only price and service advantage paths to market performance were significant” (Kaleka & Morgan, 2017, p. 34). The researchers thus concluded that the findings were consistent with their theory and that “achieving competitive advantage is far from sufficient to guarantee an exporting firm an increase in sales” (Kaleka & Morgan, 2017, p. 34).

Additionally, the researchers found that performance is influenced more when one competitive advantage is more developed than another. By focusing the business on developing one specific competitive advantage, the business tended to perform better. At the same time, the researchers concluded that “asymmetric achievement of product–service advantage has a more positive effect on market performance when the asymmetry errs toward service advantage” (Kaleka & Morgan, 2017, p. 35). Overall, the researchers drew two important conclusions from the findings: one being that avoiding placing emphasis solely on product advantage and complementing it in a balanced way with service advantage seems to be a recipe to strong market performance; the other being that achievement of a clear service advantage contributes to satisfactory performance, but an unbalanced combination of product and service advantage has a negative effect on performance (Kaleka & Morgan, 2017, p. 38).

The findings show that overseas customers want a high-quality service at a low-cost price and that if a company can satisfy this demand, the firm will perform very well in its industry. Nonetheless, the researchers also offered this caveat: “there is no indication that a product perceived as high quality will necessarily sell—on its own or under various contingencies” (Kaleka & Morgan, 2017, p. 38). For this reason, the researchers believed themselves to be justified in their framework, which highlighted the importance of the act of exchange and points to an array of factors potentially affecting the relationship between the variables. Price advantage is not to be underestimated in overseas markets when it comes to value creation and capture.

There is thus a need to update models of quality and satisfaction in industries. Companies place a great deal of emphasis on product advantage, but that contributor alone does not necessarily lead to better competitive advantage or to greater market performance. The main take-away from the study is that positive customer perceptions do not always translate into sales and superior market performance. There is some nuance and discretion needed when applying a model, particularly with respect to the service component of a value offering. Service should be just as important if not more important in the competitive advantage concept as product advantage. However, it infrequently ranks as a top consideration among executives. Emphasizing service quality could improve distributorship overall, according to the researchers.

The researchers do note the limitations of their study, particularly the use of cross-sectional data, self-reported data and the sample, which consisted entirely of UK firms. The nuances of understanding competitive advantage might be more deeply understood if a single case study approach were to be used. The researchers note that more understanding is needed of the relationships between price, product and service advantage. Every customer and industry and overseas market is likely to have more variables that should be considered when developing a model to help executives form a competitive strategy. The building blocks for such a model may be found in the findings and conclusions of this study, but more precise focus should be undertaken in future research so as to clarify and deepen this understanding. All told, the study is helpful for drawing attention to a much ignored assumption of relationships when it comes to developing competitive advantage strategies. However, the study does show that this understanding can be achieved through statistical analysis. At the same time, closer scrutiny is needed to shed increased light on various industries and how superior market performance can be obtained.