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In current environment, with growing interdependence between the markets and in increasing

competition, it is more difficult to maintain current enterprise market position. It is more and
more important to correctly select companies’ strategy, because as mentioned by Kotler: “if the
company has the same strategy as the competitors, it actually does not have a strategy. For these
reasons it is necessary for the company to base this strategy on their own market position and
build on their distinctive competitive advantage.” Thus, the aim of this paper is to explain why a
small business must create competitive advantage in the market. However, the paper will begin
by defining key words such as competitive advantage, and thereafter, discuss the main purpose
of the paper.

A competitive advantage is defined as a condition or circumstance that allows a company to gain


a favorable position over its competitors—this usually occurs when the company is able to offer
the same value of goods or services at a lower price or is able to differentiate its goods from
those of competitors by increasing their value. In other words, a competitively advantageous
company is able to create more economic value for their goods or services. A competitive
advantage can also be established by superior customer service, for example, having a policy in
place to ship all orders same-day.

On the other hand, Competitive advantage is defined by Smith and Flanagan (2006) as
something, what separates the enterprise from others and keeps it alive and growing. Yet the
biggest marketing mistake made by enterprises, is not fully utilizing their competitive advantage.
Other enterprises assume that they know their competitive advantage but in fact they do not
possess it. Others actually have the advantage, but they fail to utilize it. In simplicity,
competitive advantage is the recognition that a company either delivers quality products at a
lower cost than the competition or offers support and services at a greater value than the
competition.

Consequently, establishing a competitive advantage may be more difficult for small to medium-
sized companies, as opposed to large corporations, as they often lack the financial or
management resources needed to do so. However, establishing a competitive advantage is
incredibly important for small companies, as it differentiates them from the competition and
encourages consumers to be more faithful to that company rather than shop around, ultimately
helping the company become more profitable. Small businesses should analyze market trends,

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consumers' needs, and even past mistakes in order to identify which areas can be strengthened or
adapted to help them gain this competitive advantage.

The changes in the competitive environment determined the small and medium enterprises to
identify new ways to satisfy their clients and to offer them constantly value in a way much more
efficient than their competitors. In order to gain competitive advantage, the firms must choose
the type of competitive advantage that she is trying to obtain and the field in which she will
obtain it. The choice for the competitive field or for the activities of the firm can play an
important role in determining the competitive advantage because the firm aims to establish a
profitable and sustainable position against the forces that determine the competition in its field of
activity. The survival of small and medium enterprises in a highly globalized and competitive
environment suggests that these firms have different competences and they use them efficiently.

However, there are a number of reasons why a small business must create competitive advantage
in the market. Some of these reasons include the following;

Competitive advantage examines the economics of a firm's business focusing primarily its ability
to generate excess returns on capital and links the business strategy with fundamental finance
and capital markets, for a longer period of time. In the end, it is a firm's competitive advantage
that allows it to earn excess returns for its shareholders. Without a competitive advantage, a firm
has limited economic reason to exist-- its competitive advantage is its reason of life. Without it,
the firm will decline. Creating a sustainable competitive advantage may be the most important
goal of any organization and may be the most important single attribute on which each firm must
place its most focus ( ).

According to Huff et al. (2009: 123), in an economy, different small businesses vary in terms of
the conditions governing the selection of cost-effective strategies, which makes profit generation
a natural requirement for business owners. Simply speaking, business is a tool to convert inputs
into outputs. Inputs are basic factors such as labor, earth, capital, management, and know-how.
Outputs are the products and services a business generates. The simplest way to measure
efficiency is by the amount of inputs used for producing outputs. Efficiency is the ratio of output
to input. ……………………… ( ) added that lower amount of input used to produce a certain
amount of output will enhance efficiency. Higher efficiency helps a company achieve
competitive advantage (via low cost structure). The major component of efficiency for many
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firms is employee productivity, which is often measured based on the output of each employee.
A firm that has the highest employee productivity usually has the lowest production cost. Thus,
creating a sustainable competitive advantage may be the most important in the market as a way
to measure inputs and outputs.

Furthermore, creating a sustainable competitive advantage helps to produce quality products that
satisfy the needs of customers. Quality means what the customer really wants. In the other
words, a product is of high quality when it is in agreement with customers’ needs and demands.
Perceived quality refers to customer’s judgment about the total superiority or advantage of
something. Perceived quality is a form of vision related to satisfaction; however, it is not the
same as vision, and results from comparing performance expectations and perceptions (Thijs,
2008: 167). Higher levels of service quality lead to higher sale revenues and productivity. High
quality products are those products and services that are reliable, meaning that they perform well
the task they were designed for, and create distinctive properties for enhancing its value for
customers.

Besides this, when customers learn that products from one company (regarding form, properties,
performance, sustainability, reliability, design, style, etc.) provide a higher value for them
compared to those offered by competitors, then these products are said to be of high quality. In
fact, when a customer experiences positive emotions, higher levels of satisfaction with service
are expressed. High-quality products enhance a product’s value before the customers and make it
distinctive. This high perception of value lets the firm set higher prices for its products. Ren et al.
(2010: 33) further pointed out that high-quality service created positive emotions in customers.
Moreover, higher efficiency and lower price are achieved by high-quality products.

Creating a sustainable competitive advantage also helps small business investors to be


innovative. Innovation can be defined as new or innovative methods used by the firm or the new
products it generates. Innovation includes the creation of new products and processes. Perhaps
competitive advantage is the most important source of innovation. Therefore, Chesbrough et al.
(2006: 229) states that it is competitive advantage through innovation that stimulates
competitors. Since innovation provides a firm with unique advantages (which competitors lack),
it can be regarded as the main source of competitive advantage. Uniqueness enables the firm to
make itself distinct from competitors and put higher prices on its products or significantly reduce
its costs compared to competitors. Product innovation is the process of producing new products
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regarded as valuable by customers and which enhance a firm’s authority on pricing. Process
innovation creates value by lowering production cost. Thus, creating a sustainable competitive
advantage may be the most important in the market.

Moreover, Rezaian (2010: 166) stipulates that creating a sustainable competitive advantage may
be the most important in the market especially in terms of accountability. Accountability to the
customer means identifying and meeting customers’ demands in a manner better than
competitors, increasing the value of customers’ regard for the firm’s products, resulting in the
creation of competitive advantage. Higher quality and innovation is an indispensable part of
accountability. An important issue in accountability is customization of products and services
according to special demands of customers (individual or group). The amount of time before a
response to a customer is an aspect of accountability. Resources of accountability other than
quality, customization, and response time include superior design, superior services, after sale
services, and superior support. Suitable responsiveness to customer differentiates a company’s
products and services, and creates loyalty to the brand and extra pricing.

Armstrong and Kotler (1999: 57) pointed out in Principles of Marketing that when competing
products or services are similar, buyers may perceive a difference based on company or brand
image. Thus, creating a sustainable competitive advantage helps small business or companies to
establish images that differentiate them from competitors within the marketplaces. A favorable
brand image takes a significant amount of time to build. Additionally, competitive advantage
helps small businesses or Companies can also differentiate the services that accompany the
physical product. Two companies can offer a similar physical product, but the company that
offers additional services can charge a premium for the product.

For instance, Dr. Frendo Cosmetics offers skin-care and glamour cosmetics that are very similar
to those offered by many other cosmetic companies; but these products are usually accompanied
with an informational, instructional training session provided by the consultant. This additional
service allows Dr. Frendo to charge more for their product than if they sold the product through
more traditional channels. In the personal computer business, Dell and Gateway claim to provide
excellent technical support services to handle any glitches that may occur once a consumer has
bought their product. This 24-hour-a-day tech support provides a very important advantage over
other PC makers, who may be perceived as less reliable when a customer needs immediate
assistance with a problem. Thus, creating a sustainable competitive advantage helps to
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differentiate the services that accompany the physical product of small businesses or medium
enterprises.

Furthermore, small businesses through competitive advantage enables them have distribution
differentiation. Channels of distribution can also be an effective means of differentiation.
Distribution can provide coverage or availability, immediate access to expertise, and greater ease
of ordering, and higher levels of customer or technical service. For many manufacturers facing a
fragmented market, it is not feasible to reach the end user without the distribution function.
Building materials, for example, have to somehow move from factory plant to contractor. Such
products typically move through two stages of distribution including master distributors,
specialty dealers, and retailers (Barney, 1991: 179).

To conclude this paper, it can be seen that the achievement of competitive advantage is not
always permanent or even long lasting. Once a firm establishes itself in an area of advantage,
other firms will follow suit in an effort to capitalize on their similarities. A firm is said to have a
"sustainable" competitive advantage when its competitors are unable to duplicate the benefits of
the firm's strategy. In order for a firm to attain a "sustainable" competitive advantage, its generic
strategy must be grounded in an attribute that meets four criteria. It must be: Valuable - it is of
value to consumers. Rare - it is not commonplace or easily obtained. Inimitable - it cannot be
easily imitated or copied by competitors. Non-substitutable - consumers cannot or will not
substitute another product or attribute for the one providing the firm with competitive advantage.
Hence, it is important for a small business (or for any business) to establish a competitive
advantage so that it can create a customer base that is loyal to it.

A competitive advantage is simply anything that sets one business apart from another. If a given
small firm does not have a competitive advantage, people will not perceive any reason to be
faithful to that business. They will patronize competitors’ firms whenever it is more convenient
for them. Therefore, a firm needs to create a competitive advantage through something like the
quality of its products or its service. This will make customers feel that that firm is better than
the others, and the customers will be less likely to patronize other firms. Thus, it is very vital for
small businesses to create competitive advantage in the market. This is because small and
medium enterprises (SMEs) are considered as the backbone of economic growth in all countries,
because they account for 80% of global economic growth.

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BIBLIOGRAPHY

Armstrong, G., and Kotler, P. (1999). Principles of Marketing: Introduction to Small and
Medium- sized Business (8th Ed.). Upper Saddle
River, NJ: Prentice Hall.

Barney, J. (1991). Firm Resources and Sustained Competitive Advantage: Trustworthiness as a


Source of Competitive Advantage. London: Macmillan Publication.

Chesbrough, H., Vanhaverbeke, W., West, J. (2006). Open Innovation: Researching a New
Paradigm. Oxford University Press: New York, NY, USA,

Ren, L.; Xie, G.; Krabbendam, K. 2010). Sustainable Competitive Advantage and Marketing
Innovation With in Firms. Oxford, UK: Oxford University Press.

Rezaian, A.; Lashkar, B.M. 2010. Competitive Intelligence and Strategic Decision Making.
Cambridge, MA, USA: MIT Press.

Porter, M.E. (1985). Competitive Advantage: Creating and Sustaining Superior Performance.
New York: Free Press.

Thijs, N., and Staes, P. (2008). European Primer on Customer Satisfaction Management.
European Institute of Public Administration: Slovenian: Poetical
Publications.

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