What is Competitive advantage?

Learn about Competitive advantage with Avtaar.

Case Breakdown: Movie Avtaar

The scene that you just saw, shows the owner of Laxmi Narayan & Co. who is curious to know why suddenly the sales of the company have dipped. He son-in-law informs him that Avtaar Enterprise (Owned by Rajesh Khanna in the movie) is selling the products i.e. ball bearings, piston rings etc. at  lower costs. Hence their sales have taken a hit.

Bearings (as mentioned in the scene) are mechanical devices employed to reduce friction between rotating equipment. In a traditional hatchback, an average of about 60 bearings are fitted and the number goes up in the case of sedans and SUVs.

Competitive Advantage:

Competitive advantage allows a competitor to produce the goods and services at lower costs compared to other market players. Among two similar products, a rational consumer would choose a cheaper product.  This allows the company (Avtaar enterprise in this case) to earn higher margins. This situation can occur due to many reasons, such as advanced quality products, branding, customer service, distribution network etc.

Competitive advantage can be further divided into 2 parts namely comparative advantage and differential advantage.

Comparative Advantage:

A company’s capacity to produce the product (ball bearings) more efficiently compared to the other company. Comparative advantage does not necessarily mean a better product, but it does mean producing same value at a lower cost.For example: India’s workforce is educated, English speaking and comes at a lower cost, hence many companies from abroad outsource their work to India rather than Bangladesh or Nepal or Pakistan. This is India’s comparative advantage.

If we consider the bearing industry in India,  Indian bearings market constitutes less than 5 per cent of global bearings demand. In terms of consumption, about 60 per cent requirement is catered through domestic production while remaining is met through imports. Indian bearing size is estimated at Rs 95 billion.

Differential Advantage:

This occurs when the competitor’s products are considered to different from competitors’ products and are much more respected. Product is assumed to have better quality and superior design or a hassle-free services. For e.g. Apple Inc. differs in its innovative products, it is considered to be innovative and hence are highly priced. Consumer wants to buy Apple Iphone, Ipods and watches, not because they are cheaper but because they are different.

Similarly, If we consider the bearing industry, Cars and SUV’s have a strong demand on bearing for better durability, stiffness and at the same time being light weight. These demands can only be met by products that are using light weight materials

 

Written by: Ms. Gitika Chandra

 

References:

https://auto.economictimes.indiatimes.com/news/auto-components/changing-market-dynamics-landscape-of-automotive-bearing-industry-in-india/64598105

 

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