Strategies of gaining competitive advantage at the generic and business unit level: A study comparing American, Japanese and German companies operating in the United States

Multinational Business Review, Spring 2000 by Shah, Abhay, Zeis, Charles, Ahmadian, Ahmad, Regassa, Hailu

This study investigates the differences in Porter's generic and business level strategies of U.S., Japanese, and German companies operating in the United States. The study found that even though the companies from the three different countries were selling their products in the same market (U.S), they followed different generic and business level strategies in order to achieve competitive advantage.

INTRODUCTION

Scholars have been very interested in the differences in behaviors of different companies with different country of origin. However, researchers have not studied differences in generic strategies and business unit level strategies of U.S., Japanese, and German companies operating in the U.S. The objective of this study is to overcome this shortcoming.

LITERATURE REVIEW

Strategy has been considered as a course of action consciously, and deliberately taken by top management, and as an analytical exercise by staff strategists (Porter 1985).

Porter's Generic Strategies

Porter's (1985) book, "Competitive Advantage: Creating and Sustaining Superior Performance" stimulated many scholars to study how companies gain competitive advantage and formulate competitive strategy. According to Porter (1985), a firm can gain competitive advantage if it is able to create value for its buyers.

Companies can provide this superior value by offering products/services that are lower in prices than that of their competitors, or by offering benefits that are so unique that consumers are willing to pay a higher price for them. The former generic strategy is called the strategy of -cost leadership" while the latter is labeled the strategy of "differentiation". The third strategy: "focus", is when a firm chooses a narrow segment within its industry and tailors its offerings (strategy) to that segment. Finally, Porter labels firms that follow each generic strategy, but do not achieve any of them as "stuck in the middle".

If a firm wishes to pursue the strategy of cost leadership, it has to be the low cost producer. A firm may gain cost advantage through economics of scale, proprietary technology, cheap raw material, etc. The strategy of differentiation involves offering a different product, a different delivery system, or using a different marketing approach. And it is up to the management of the company to decide which factors it wants to emphasize in order to gain competitive advantage (Porter, 1985).

A study of European, Japanese and U.S. companies by Arora and Gambardella (1997) found that in comparison to U.S. industries, European and Japanese industries have greater competitiveness if the underlying competencies are not product specific. Similarly, the study by Doyle, Saunders, and Wong (1986) found that Japanese companies had a long-term perspective. They were much more interested in growth and long term strategies to capture market share (volume) at the expense of immediate short term profits, and subsequently they report having lower profits than their American counterparts (Haar, 1989). Even though the Japanese are seen as great performers, they do not make a lot of money (Johansson and Yip, 1994).

Japanese firms spend far more than their European and American counterparts in R&D activities, and this may explain their superiority over them when marketing in other countries on issues like product and process innovation. The Japanese have learned to cut product adaptation since it results in lower profitability and lower market share. Japanese companies increasingly emphasize product standardization since it results in economies of scale in marketing and production (Kotabe, 1990).

Japanese companies have also been known to pursue globally integrated strategies so that they can benefit from cost reductions, improved product quality, and higher customer preference in order to gain competitive advantage (Hout, Porter and Rudden, 1982). The Japanese have also been known to be very flexible and quick to strategically adapt to changes. Most of the expenditure on research by Japanese companies are in applied research rather than basic research, but when exporting, Japanese companies have also excelled in production process improvements as well as product development innovation (Johnson, 1984).

Business Level Strategies

Business level strategies are those that a corporation's business unit has to develop in order to stay competitive and profitable. Strategies at this level include marketing strategies and production/manufacturing strategies.

Production/Manufacturing and Quality Issues Quality is believed to be an important corporate strategy, and American and European firms are trying to catch up with Japanese firms by improving their quality standards. The Japanese pioneered the concept of "Quality" during the 1940s, and it did a lot to improve their position as a world economic power.

The American Society for Quality Control indicates that 60% of the directors and top managers believe that quality is a management concern. Research shows that only 20% of U.S. computer firms expect to center their use of technology on meeting client expectations. During 1991, only 20% of the automotive companies included customers in their design teams. This was expected to increase to 43% by the late 1990s (Computerworld, 1992).