Creation and preemption for competitive advantage

Competitive advantage arises from the differential among firms along any dimension of firm attributes and characteristics that allows one firm to better create customer value than do others. Generic sources of competitive advantage include ownership of assets or position; access to distribution and supply, as well as proficiency ± knowledge, competence, and capability ± in business operation. To achieve and sustain competitive advantage, a firm needs to creatively and proactively exploit the three generic sources, preempt rivals' attempt at these sources, and/or pursue any combination of proactive and preemptive efforts. Juxtaposing creation and preemption as well as ownership-based, accessbased, and proficiency-based sources, this article advances an integrative framework that helps management practitioners systematically analyze the nature and cause of competitive advantage. The author would like to thank the editor and reviewers of this journal for suggestions on an earlier version of this article. a firm has to gain individual competitive advantages one at a time. Enhancing one's understanding of the generic bases of the various competitive advantages is expected to help in the endeavor of advantage building. This article helps general managers to do just that. It will focus primarily on gaining advantage in the business arena. More broadly speaking, however, the essence of competitive advantage in any human endeavors is indeed the differential along any comparable dimension from which people derive value or to which people attach value, real or perceived. Before I present my framework on generic sources of competitive advantage in business settings, let's first take a detour in a different but relevant social context so as to warm up to the various factors discussed in the integrative framework. It is perhaps reasonable to say that to have the license number of one's automobile as low as possible is often regarded as a social advantage in the USA. The advantage, albeit a largely perceived one, ± prestige, pride, and attention received ± associated with a lower numbered license plate is often great enough for people to have endless thirst and obsession for it. Why is it an advantage? Scarcity, distinction, uniqueness. Small numbers easily differentiate themselves from the regular multi-digit-and-letter plates alike. How can one achieve such an advantage? Power, merit, resource, luck, lobbying, coercion, or any combination of them. In the State of Rhode Island and Providence Plantation[1], the smallest continental state in the USA, there would be 27 license plates that are Number One, in different vehicle categories respectively. The best chance to get a lower number is to work for the government, and in powerful positions that is. In all the official categories, State Plates, City Plates, Police Plates, and so on, each has a Number One. The chief officer has the formal authority to sport Number One on their respective vehicles in each official category. Also, in mid-1990s, an outgoing governor would give a lower-numbered plate to his wife as a birthday gift. It's a power thing. One could also earn a lower number by merits, e.g. the Number One plate for the Veterans category should usually belong to the most honorable and often famous veteran in the state or the region. Or should it be an auction by the Motor Vehicle Registration for the low numbers, the one with deep-pocket resources win. Should it be a lottery procedure for equity reasons, then luck determines. Better yet, you could change the rule of the game and write your own law. Campers unsatisfied with being ``lumped over in the category with commercial trucks for tax purposes'' would lobby for their own category. The champion for this cause earned the right of Number One for his RV motor home. In the secondary market after a lower number has already been assigned, many underground dealings could happen. Some car dealers would be arrested for faking license transfer letters without the owners permission. Other dealers would fight to buy a choice plate with a price as high as $25,000; and the ensuing battle would go all the way to the state Supreme Court. Furthermore, even some government officials would sometimes coerce lower-number plates holders and try to take them away by picking bones from within eggs, e.g. they say your plate might not be displayed correctly. So what is the implication of this example for advantage of business firms? Arguably, the license plate game is of limited scope and more or less single-staged and the results of which often perpetually sustain. This, to a great extent, differentiates it from typical business games where competition is often ongoing through multiple iterations; where managers could have possibly more latitude for strategic choice in addition to environmental determination. Yet the source of advantage in both types of games are actually very similar. In fact, to gain advantage in any kind of game, one needs knowledge, resources, capabilities, creativity, and, luck. Moreover, in any socially-construed game or interaction, it often depends on who you are, who you know, what you have, and what you can do. The game of business is no exception. Prior research in strategic management has pointed out various potential sources for firm advantage. Market power (Porter, 1980), unique resources (Barney, 1991), innovation (Schumpeter, 1934; 1950), efficiency (Williamson, 1991), to name but a few. Building on prior research and observations regarding the rising of advantage in various business situations, I develop a framework that helps general managers systematically analyze the generic sources of competitive advantage. These sources could be either exploited through purposeful strategizing (Andrews, 1971) or be made available to a firm by luck (Barney, 1986), or a combination of both luck and managerial action (Lieberman and Montgomery, 1988). The important thing is, however, that managers should at least be aware of these generic sources and the relationship among them so that they can be better informed in their search for competitive