Question Tag: Competitive Advantage

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  • 10 Marks

CSEG – Nov 2015 – L2 – Q3a – Internal control and audit

Explain the composition and functions of an Audit Committee in corporate governance.

The role of Audit Committee in corporate governance cannot be overemphasized.

i) What should be the composition of an Audit Committee? [4marks]

ii) Explain FOUR (4) functions of an Audit Committee. [6marks]

i) The composition of the Audit Committee

  1. The audit committee should comprise at least three directors, the majority of whom should be non-executive.
  2. The membership of the audit committees should ideally comprise directors with adequate knowledge of finance, accounts and the basic element of the laws under which the corporate body operates or is subject to.
  3. The chairman of the committee should be a non-executive director.
  4. The managing director/chief executive officer , the finance director, the head of internal audit and a representative of the external auditors should ordinarily be invited to attend meetings

(4 marks)

ii) Functions of the Audit Committee

The primary functions of the audit committee will be to:

  1. Recommend the appointment of the external auditors of the corporate body;
  2. Liaise with the external auditors for the purposes of maintaining and ensuring audit quality, effectiveness, risk assessment, interaction with internal auditors and dealing with situations governing the resignation of the external auditors and dealing with situations governing the resignation of the external auditors;
  3. Review with the auditors their report on the financial statements of the corporate body;
  4. Review the adequacy of systems and internal controls and of the degree of compliance with material policies, laws and the code of ethics and business practices of the corporate body;
  5. Provide a direct channel of communication between the board and the external and internal auditors of the corporate body, accountants and compliance officers (if any) of the corporate body;
  6. To report to the board on all issues of significant extraordinary financial transactions;
  7. To assist the board in developing policies that would enhance the controls and operating systems of the corporate body.
  • 20 Marks

CSEG – May 2019 – L2 – Q3 – Strategic alternatives, analysis and selection

Analysis of competitive advantage bases and factors influencing industry rivalry, with application of Porter’s Five Forces model to the mobile money industry.

a) Asawasi Company, a relatively new company, is in the business of designing and building farm equipment and machinery. Whilst it has been successful in its first few years of operation, sales are now in decline as competition in the industry has intensified and there is greater rivalry between the competing organisations.

A review undertaken by consultants has recommended that in order to gain sustained competitive advantage, the company needs to establish the basis on which it can compete more effectively against its rivals in the future.

Required:

i) Describe the concept of competitive advantage and include references to the different bases Asawasi Company could use to achieve competitive advantage.
(5 marks)

ii) Describe the factors that can create competitive rivalry between organisations.
(5 marks)

b) An introduction of a new technology is an introduction of a new business. This is a statement of fact and evidence abounds in many African economies. The introduction of mobile phones came with space-to-space business and eventually gave rise to mobile money services.

Required:

Using Porter’s Five Forces model, identify the competitive forces that influence the state of competition in the mobile money industry and the profit potential of the industry as a whole.
(10 marks)

a) i) Concept of Competitive Advantage

Competitive advantage refers to any activity or factor which gives one organisation an edge over its rivals. The edge that an organisation has over its competitors may be viewed from three angles: superior position, superior skills, and superior resources. Organisations should adopt a strategy that is intended to achieve some form of competitive advantage. Doing something better or more efficiently than competitors should ultimately lead to profitability. If this can be done long-term, despite the efforts of competition, then the organisation possesses a sustainable competitive advantage.

(2 marks)

Bases of Competitive Advantage:

  1. Cost Leadership:
    • Being the lowest cost producer in the industry as a whole. By producing at the lowest cost, the company can compete on price with every other producer in the industry and earn higher unit prices.
  2. Differentiation:
    • Exploiting a product or service that the industry as a whole believes to be unique. This can be achieved via brand image, product special features, marketing techniques, etc.
  3. Focus:
    • Restricting activities to only part of the market (a segment). This is also known as a niche strategy. It can be achieved by providing goods/services at a lower cost to that segment (cost focus) or by providing a differentiated product/service to that segment (differentiation focus).

(3 points @ 1 mark each = Total of 3 marks)

ii) Factors Creating Competitive Rivalry

Organisations that provide a similar product/service aimed at the same target market will experience a certain degree of competitive rivalry. The intensity of competitive rivalry within an industry will affect the profitability of the industry as a whole, as price wars and advertising fees reduce the profits of the rivals.

Factors Creating Competitive Rivalry Include:

  1. Low Barriers to Entry:
    • Low barriers to entry increase the number of organisations in that industry, thus creating rivalry.
  2. Market Growth:
    • Rivalry is intensified when firms are competing for a greater market share in a total market where growth is slow or stagnant.
  3. Cost Structure:
    • High fixed costs can tempt firms to compete on price, as any contribution from sales is better than none at all.
  4. Switching Costs:
    • Low switching costs make it easier for customers to change suppliers, leading to increased competition.
  5. Uncertainty:
    • Uncertainty in the environment can increase rivalry as firms compete to secure their position.
  6. High Exit Barriers:
    • Difficulty in exiting the industry forces firms to fight for market share, intensifying competition.
  7. Strategic Importance:
    • When success in a particular market is a prime objective for many firms, competition is likely to be more intense.

(2 points @ 2.5 marks each = 5 marks)

b) Porter’s Five Forces Analysis of the Mobile Money Industry

1. Threat of New Entrants:

  • New entrants bring additional capacity and more competition to the industry. The strength of this threat depends on the barriers to entry, such as the amount of capital required to start the business and the likely response of existing competitors.

2. Availability of Substitutes:

  • A substitute product is one produced by another industry that satisfies the same customer needs. For example, online banking through mobile apps could serve as a substitute for mobile money services.

3. Bargaining Power of Customers:

  • Customers’ ability to force down prices or demand better quality affects profitability. Factors influencing this power include the cost of the service, its importance to the customer’s business, and switching costs.

4. Bargaining Power of Suppliers:

  • Suppliers of key inputs or services can exert pressure for higher prices. The strength of this power depends on the availability of substitute services, the importance of the supplier’s input to the mobile money industry, and the cost of switching suppliers.

5. Rivalry Among Existing Competitors:

  • The intensity of competitive rivalry affects overall profitability. Rivalry might take the form of price competition, advertising battles, or the introduction of new products and services. Increased competition can lead to market expansion or reduce profitability if demand remains unchanged.
  • 10 Marks

CSEG – May 2017 – L2 – Q3a – Strategic alternatives, analysis and selection

Discuss the impact of strategic alliances on companies and how they contribute to competitive advantage.

Strategic alliances have become an important part of the corporate world, with companies joining forces for various strategic reasons. A well-formed alliance can provide a competitive advantage to the companies involved.

Required:

a) Explain FIVE ways in which strategic alliances can impact companies.

1. Access to New Markets: Strategic alliances allow companies to enter new markets and expand their geographical reach without having to go it alone. By partnering with local firms, companies can leverage their partner’s market knowledge, distribution networks, and customer relationships to penetrate new markets more effectively.

2. Sharing of Resources: Companies in an alliance can share resources such as technology, expertise, and capital. This can reduce costs and increase efficiency, allowing the companies involved to achieve economies of scale and improve their competitive position in the market.

3. Risk Sharing: Entering into a new market or launching a new product involves significant risks. Strategic alliances allow companies to share these risks with their partners, reducing the burden on any one company and increasing the likelihood of success.

4. Enhancing Innovation: Alliances can foster innovation by bringing together different perspectives, skills, and technologies. When companies collaborate, they can create new products or services that neither could have developed on their own, giving them a competitive edge.

5. Strengthening Competitive Position: By forming alliances, companies can strengthen their competitive position against rivals. This can be particularly important in industries where competition is fierce, and alliances can provide the scale and scope needed to compete effectively.

  • 10 Marks

BMIS – Dec 2023 – L1 – Q5b – Finance, R&D and marketing strategies

Explains five elements of the 7 Ps of the marketing mix that businesses can use to gain competitive advantage.

Marketing experts have suggested that businesses, particularly service organizations that desire to have efficient and effective performance and gain competitive advantage, should adopt and apply all the 7 Ps of the marketing mix.

Required:

Explain FIVE (5) of these Ps.

The 7 Ps of Marketing:

  1. Product:
    A product is anything that can be offered to a market for attention, acquisition, use, or consumption. It can be a physical or non-physical item that has been manufactured for sale by an organization. In the context of services, the product is intangible and involves the service offering itself.
    (2 marks)
  2. Price:
    Price refers to the economic value attached to a product. It represents the monetary payment expected by marketers for the delivery of goods or services. Pricing strategies must consider factors such as cost, competition, and customer perceived value.
    (2 marks)
  3. Place:
    Place is the channel of distribution used by marketers to make goods and services available to purchasers or end-users. This element focuses on ensuring that products are accessible to the target market through appropriate distribution channels.
    (2 marks)
  4. Promotion:
    Promotion encompasses the various tools and strategies that marketers use to communicate their products to the target market. It includes advertising, sales promotions, public relations, and personal selling. Effective promotion is key to creating awareness and generating demand.
    (2 marks)
  5. People:
    People refer to the individuals and groups involved in the delivery of products or services made by an organization to the target market. In service marketing, people are often seen as a key differentiator, as the quality of service is heavily influenced by the interactions between customers and service providers.
    (2 marks)
  • 10 Marks

BMIS – Aug 2022 – L1 – Q5b – Competitive advantage and strategic direction

Explains Michael Porter's three generic strategies for gaining competitive advantage.

Michael Porter identified three broad generic strategies which he asserted an organisation can utilise to gain competitive advantage over other firms.

Required:

Explain these THREE (3) generic strategies.

Michael Porter’s Three Generic Strategies:

  1. Cost Leadership Strategy:
    This strategy seeks to achieve the position of the lowest-cost producer in the industry. By producing at the lowest cost, the firm can compete on price with every other entity in the industry and earn the highest unit profits. This strategy is best pursued when the manufacturer uses high technology and enjoys economies of scale through mass production.
    (3.33 marks)
  2. Differentiation Strategy:
    This strategy involves raising the quality of the product, and in doing so, raising the product’s cost and sales price. The manufacturer endeavors to improve the quality of the product so that the customer perceives it as more valuable and is prepared to pay more for superior quality. The firm attempts to achieve an optimal balance for the customer between quality and price.
    (3.33 marks)
  3. Focus Strategy:
    The focus strategy is based on segmenting the market and concentrating on a particular market segment. The firm does not sell its products industry-wide but focuses its marketing efforts on a particular type of buyer or geographical area, serving a narrow strategic target more effectively and efficiently than its competitors. This strategy may be cost-focused, where the firm specializes in a particular product, or quality-focused, where the entity competes in a market segment on the basis of product quality.
    (3.33 marks)
  • 20 Marks

BMIS – Nov 2015 – L1 – Q4 – Competitive advantage and strategic direction

Explain competitive advantage, corporate reputation, and key variables of the marketing mix.

Marketing mix refers to the particular combination of key variables under a company’s control that can be used to affect demand and to gain competitive advantage.

Explain the following:
a) Competitive advantage. (4 marks)
b) Corporate reputation. (4 marks)
c) List the key variables of the marketing mix and, within each, FOUR associated sub-variables.

(12 marks)

a) ‘Competitive advantage’ may be termed as anything which gives an organization an edge over its rivals in the products it sells or the services it offers. It can also refer to a situation where an organization does something that its competitors cannot do or which they can do only at a disproportionate cost to them. (4 Marks)

b) ‘Corporate reputation’ is an image that describes an organization for its achievements and what it stands for. It also serves as goodwill to the firm. Circumstances that can result in a company having a positive reputation include integrity, good customer relations, reliability, and quality of products/services. A good corporate reputation results in increased demand for company products. (4 Marks)

c) The key variables of the marketing mix may be listed as:

Key Variables Sub-Variables
Product Product variety, Quality, Design, Features, Brand name
Price List price, Discounts, Allowances, Payment period, Credit terms
Promotion Sales promotion, Advertising, Sales force, Public relations, Direct marketing
Place Channels, Coverage, Locations, Assortments, Inventory

(12 Marks)

Total: 20 Marks

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