“Sustained competitive advantage is the utmost important condition, any organization should aim at enjoying, as it paves the way to continued profitability and long-term success.” In defending this idea, I must first define what my interpretation of Sustained Competitive Advantage is and how I understand it must be looked at. From the assigned readings, the statement – “firms obtain sustained competitive advantages by implementing strategies that exploit their internal strengths, through responding to environmental opportunities, while neutralizing external threats and avoiding internal weaknesses” (Barney, 1991) – is the definition that most resonates with everything I have learned from experiences and read from cases and literature.

To explain why I agree with the first statement presented on the assignment, it is essential to bring up the connection with the concepts of strategic thinking we discussed previously. There is also a necessity to understand what we are protecting when trying to sustain a competitive advantage. These ideas create a clear connection to our strategic thinking discussion and its relationship with the company’s “Why.” Life is defined by a succession of events. We are born, grow, reproduce or not, and die. Death is a consequence of living, and our most basic instinct is self-preservation. When we feel the need to protect ourselves, we immediately think of protecting our life. Our most raw instinct of fight or flight kicks in because we know that what we have most precious (our life) is at risk. For parents, this instinct changes (or should) as the instinct becomes to protect our spawns before our own selves. Either way, we naturally know precisely what is at stake, and from then on, we decide our actions depending on how the threat presents itself.
Although businesses are not physical matters, we can point out many similarities to a living system. From the business perspective, as much as we have instincts, the “what” we are protecting is not so natural and must be studied and well understood. And to do so, we need to understand the company’s why, as I wrote about in my previous reflection. Assuming that the company understands its place and why it exists in the market, we can start looking at the company’s position and the forces that regulate this market so we can understand and cope with competition (Porter, 2008). Understanding competitors, customers, suppliers, potential entrants, and substitute products is the basis for strategic thinking and achieving or maintaining sustained competitive advantage.

A concept that I found interesting is that sustained competitive advantage does not depend upon the calendar period (Barney, 1991). A sustained competitive advantage is simply a competitive advantage that lasts a long period of calendar time (Jacobsen, 1988; Porter, 1985). Then, we must agree that sustaining this competitive advantage is a constant process, and companies cannot fall into the trap of comfort and narrowly looking at the market. New technologies can shift and even merge industries as the world constantly changes. We have seen how personal computers and the Internet have changed offices and how companies do business. This change has drastically or even killed the office supplies market with the extinction of typewriters and fax machines and immensely reducing the number of physical filing systems and even paper mail and copy machines. Technology is not the only agent of change. As Porter explains, industry structure continuously undergoes modest adjustment, but can abruptly change due to new technology, changes in customer needs, or other events. We have all lived through the pandemic. With this recent example, many forces were shifted without notice in the blink of an eye.

As a product designer, I have been a part of many strategic teams and often had to look at the market with a strategic thinking mindset. For inexperience, this was usually done with a much narrower look. In the case of the company I currently work for, the objective was to recover its market competitiveness, which we failed, and, unfortunately, had to shut it down. Are Embalagens had many years of success which started with market domination in the early 80s due to import restrictions which created a barrier to entry for global companies. During that time, an obstacle for local companies was the complexity of the product. Therefore, the company enjoyed vast profits. During the early ’90s, the Brazilian economy opened to imported items, and Are failed to understand the forces were shifting. At this time, foreign companies (becoming multinationals) had many advantages. Economies of scale, due to their operations on a global level, access to capital for investment in new plants in Brazil, and a product that would replace Are’s with no additional cost to the customers. After entering the market with lower prices and better products, these foreign companies, more significant than the Brazilian cosmetic companies, had strong bargaining power to negotiate quantities and terms. In the late 2000s, with the entrance of Chinese imported products at much lower costs, the product became commoditized, and profit margins were reduced almost to zero. As Are Embalagens had lost its competitive advantage, it also lost its bargaining power. With smaller margins and a lack of investments in automation and R&D, Are Emabalagens stopped investing in new products, and by 2010, it had lost most of its large customers. Being reduced to a small company, besides having no bargaining power with its customers, it also lost bargaining power on the supplier side. After a fire in its plant and the inability to reposition itself, Are Embalagens decided in April 2022 to shut down its operation after more than 40 years.

In conclusion, Are Emalagens’ failure to maintain sustainable competitive advantage came, in my opinion, from not understanding that it needed to restructure itself by reinvesting its profits in new technologies to compete in a market with lower profit margins. Another option was to diversify its portfolio of products and find new markets where it could have more significant profits and balanced cycles. With this experience and everything I am learning from the readings, I can conclude that achieving and protecting a “Sustainable Competitive Advantage” is vital to prosper. But I also realize that to achieve this objective, a company must be aware of its surroundings, not only of what is in clear sight but also of any potential changes in adjacent or even non-related areas. A successful company has managers who understand the company’s “Why” and, through strategic thinking, understand, as great ballplayers do, that it is essential to keep an eye on the ball and be positioned where the ball will be and not where it is right now.

Credit: The original work for this article was done for ADM730 – Fundamentals of Strategic Thinking @ COPPEAD – Universidade Federal do Rio de Janeiro in May 2022

References:

• Porter, M. (1980; 2008) The Five Competitive Forces that Shape Strategy. Harvard Business
• Review, January 2008: 79-93.
• Barney, J. (1997) Firm Resources and Sustained Competitive Advantage. Journal of
• Management, 17(1): 99-120 (excerpts).