There is a close relationship between core competence and competitive advantage because both of these provide an edge to the company over other companies in their field by distinguishing them from their competitors. There are several areas that companies can focus on to get an advantage over their competitors. Companies can stand out from the rest when they possess unique characteristics because of which they are considered better than their competitors. Core competencies refers to these unique qualities of a company, which may be in the form of skills or resources because of which a company gains a competitive advantage. When companies are successful at developing their core competencies, they are more likely to get past the competition and acquire benefits like higher market share, increased profits, and customer satisfaction and loyalty.
This is why it is important to elaborate on the two concepts and understand the differences between the two, as well as how they are related to each other.
Definitions and meanings
Competitive advantage refers to an edge that a company has over its competitors in terms of its products, services, competencies, strategies etc., because of which it is able to generate a greater number of sales or profit margins and/or sustain more customers in comparison to other firms in the market. In other words, a competitive advantage is something that takes a company ahead of its competitors.
There are different kinds of competitive advantages that a company may have, such as its unique product offerings, cost structure, customer support and supply and distribution channels. A company that has a competitive advantage is able to create a greater value for the firm, its shareholders and its customers. The greater the sustainability of the competitive advantage, the more challenging it is for the competitors to move ahead of the company.
There are three main ways in which companies can acquire a competitive advantage, which are cost leadership, differentiation and market segmentation. Cost leadership is when a company is able to offer goods to its customers at a low price. This can be achieved by increasing the efficiency of organizational processes. Differentiation occurs when a company offers unique and improved products to its customers. To achieve differentiation, companies need to inculcate innovation and creativity in their operations. Finally, market segmentation, also known as focus, requires companies to comprehend the particular needs of the target market better than the competitors.
Core competence refers to the particular skills and experience possessed by a company that makes it different from its competitors. It is made up of a mix of different resources, skills and knowledge through which a company acquires a unique position in the market
Core competence of a business is something that fulfills three key criteria. Firstly, a core competency should offer the potential to gain access to several markets. This shows that the product has an initial value, and is capable of acquiring greater value in the future. The second feature of core competency is that it is beneficial for the consumers with respect to decrease in costs and improved quality of products. Finally, core competency is a unique attribute that cannot easily be copied or reproduced by the competitors. When it is not possible for a competitor to copy the core competency of a company, it means that is not capable of achieving the same degree of success as that company.
Some examples of core competencies possessed by companies are technological expertise, skilled labor, supply channels and procedures, customer relationship management skills, and so on. Companies that are quite successful have managed to develop core competencies, which they use to maximize their profits. For example, the objective of Amazon is to become the most ‘customer-centric company in the world’, and this represents its core competence that offers it a competitive advantage over various other retailers.
Differences between competitive advantage and core competence
The main difference between competitive advantage and core competence is explained below:
Competitive advantage is a particular feature or aspect of a company that makes it stand out from the rest of the companies in the market. Core competence, on the other hand, is a combination of skills and strengths possessed by the company that offers it a competitive advantage in the market.
2. Success duration
Competitive advantage does not ensure that the company will remain successful in the long term, while core competence ensures that the company remains successful for an extended time period.
A company with a competitive advantage is able to acquire competitive strength in a specific product or business, whereas core competence ensures that a company gains superiority in a number of businesses and products.
The impact of competitive advantage on a business is restricted and specific to a given area, while core competence has a more widespread impact on the business because it helps the company progress on the whole.
Competitive advantage can be achieved by companies by adopting three key strategies: cost leadership, differentiation and focus. Companies can develop core competence when they encourage innovation in development of products/services and offering improved products and value to customers by determining ways in which niche target markets can be served, services can be offered in a timely and efficient manner and product quality can be enhanced.
Core competence is one that fulfills three criteria: provides access to several markets, increases benefit to customers and is difficult to be reproduced by other companies. Competitive advantage, however, exists when a company stands out from the rest of the companies in the market.
Competitive advantage vs core competence – tabular comparison
A tabular comparison for competitive advantage and core competence is presented below:
|That aspect of business that enables the company to exhibit better performance that its competitors in the market||The particular skills, know-how and experience possessed by companies that cannot be copied by the competitors|
|Competitive edge achieved in a particular business or product||Superiority and excellence is achieved in a wide variety of products and business of the company|
|Restricted to a given business area||More widespread impact; brings progress in the overall company operations|
|Cost leadership, differentiation, market segmentation (Focus)||Innovative production processes, offering better quality products to customers|
|Exists when a company stands ahead of all others in the market/industry||Access to markets, benefits to customers, unable of being reproduced or copied|
Conclusion – competitive advantage vs core competence
It is the core competencies of a company that are a significant source of achieving competitive advantage in a company. In addition, core competence helps in identifying those areas that should be concentrated upon by the company. It facilitates the company in determining potential opportunities that improves value for its customers. In contrast, competitive advantage is what helps a company receive an edge over other companies in the market. Therefore, both of the concepts are crucial for the success of the business.