In order a company to cope successfully with competitive market forces and generate a superior profit, in the long run, it has to obtain sustainable competitive advantage. This paper explains theoretically how the company can achieve it. Analysis in the paper ar based on the model established by Michael Porter, according to whom, there are two basic types of competitve advantage: cost leadership (low costs) and differentiation. Both can be more broadly approached or narrow, which results in the third viable competitive advantage: focus. According to cost leadership strategy, a company sets out to become the low cost producer in its industry. The sources of cost advantage include the pursuit of economies of scale, proprietary technology, preferential access to raw materials and other factors. In a differentiation strategy a firm seeks to be unique in its industry along some dimensions that are widely valued by buyers. It selects one or more attributes that many buyers in an industry perceive as important, and uniquely positions itself to meet those needs. It is rewarded for its uniqueness with a premium price. The generic strategy of focus rests on the choice of a narrow competitive scope within an industry. The focuser selects a segment or group of segments in the industry and tailors its strategy to serving them to the exclusion of others. The focus strategy has two variants. A) In cost focus a firm seeks a cost advantage in its target segment, while in B) differentiation focus a firm seeks differentiation in its target segment.



competitive advantage, competition, costs, differentiation, focus



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