Core competence and competitive advantage

Core competency: Organizations with core competencies enjoy global leadership. It represents the organization’s will to harmonize their multiple resources and skills. It distinguishes the firm in a market place because of its products and service’s uniqueness and because they become difficult to imitate by others. In such an organization, all business strategies revolve around the core competency. Core competencies give a company one or more competitive advantages, in creating and delivering value to its customers in its chosen field. Organizations which believe in spending generously on research and development can and the ones which experiment and investigate the processes can develop core competency. Core competencies lead to the development of core products. Core products are not directly sold to end users; rather, they are used to build a larger number of end-user products. For example, let’s take the example of Honda’a expertise in engines. Honda was able to exploit its core competency to develop a variety of quality products from lawn mowers and snow blowers to trucks and automobiles. Honda can boast of its sharp and competitive engineer’s team who can be credited for its core competency. In another example, Microsoft has expertise in many IT based innovations where, for a variety of reasons, it is difficult for competitors to replicate or compete with Microsoft’s core competences in building software.

The term was popularized by Hamal and Prahalad, back in 1990 in the Harvard Business Review. Peter Drucker was one of the first to mention it in 1964 when he focused on ‘strength analysis’. A core competency comprises of reliable processes, synergy with customers & suppliers, a patent, an industrial design, know-how, unique product development, a brand/s, marketing strategy, business strategy, supply chain etc.

Core competencies are a pack of skills and technologies that are very difficult or impossible to copy or match; skilled employees, tacit knowledge, organizational endowment, collective values, supreme technology, and organizational ethics culture – these are some features which add to the core competency of an organization. The primary reason for 3M’s success is its people. 3M has always motivated its employees to innovate, think different and progress in their relative careers. This company has been blessed with generations of imaginative, industrious employees in all parts of its enterprise, all around the world.

Globally leading organizations are realizing that one of the components of core competency is people. A study was conducted on three hundred and fifty-eight Managers across the Johnson & Johnson Consumer & Personal Care Group (JJC&PC Group) globally to assess if there are specific leadership traits and competencies that distinguish high performers from average performers. The company did not stop only at conducting a study, it designed and organized educational and developmental programs for its employees across different ranks globally, to familiarize employees with the concepts of emotional, social and relational competency, and to share strategic leadership process. These sessions also served as the launch for the newly enhanced leadership models. As usual many other organizations have already replicated them.

Companies with core competencies identify their key business processes, manage them centrally, and invest in them heavily, looking for a long-term payback.

Sony’s  innovations have become part of mainstream culture, including: the first magnetic tape and tape recorder in 1950; the transistor radio in 1955; the world’s first all-transistor TV set in 1960; the world’s first color video cassette recorder in 1971; the Walkman personal stereo in 1979; the Compact Disc (CD) in 1982; the first 8mm camcorder in 1985; the Minidisc (MD) player in 1992; the PlayStation game system in 1995; Digital Mavica camera in 1997; Digital Versatile Disc (DVD) player in 1998; and the Network Walkman digital music player in 1999.
Today, Sony continues to fuel industry growth with the sales of innovative Sony products, as well as with the company’s convergence strategy. The company has never compromised on persistence in R&D.

Back home, a cigarette manufacturing company ITC has got into a wide range of diversifications such hotels, processed foods, biscuits and greeting cards. How does ITC manage this unrelated diversification? Unrelated diversification will succeed only if it is based on the core competency of the firm. ITC has leveraged beautifully on its core competency of distribution, brand building capability and its strength of quality outsourcing.

Core competencies take a long time to build and practice. Organizations which continue the practice with perseverance by adding accuracy and particular sets of skills succeed in building core competency. New sets of skills and newly acquired knowledge should be steadily spread in the organization to facilitate the processes.

Competitive advantage is a business strategy where companies find ways to differentiate themselves from their competitors to attract more business. Service-based industries, such as hospitality, banks, health care use competitive advantage strategies to gain an elevated position in the field. Usually competitive advantage is sought out of one or more functional advantages. Competitive advantages give a company an edge over its rivals and a capability to produce greater value for the firm and its shareholders. The more sustainable the competitive advantage, the more complex it is for competitors to offset the advantage.

There are two main types of competitive advantages: comparative advantage and differential advantage. Comparative advantage, or cost advantage, is a firm’s ability to produce a good or service at a lower cost than its competitors, which gives the firm the ability sell its goods or services at a lower price than its competitors or to generate a larger margin on sales. A differential advantage is created when a firm’s products or services differ from its competitors and are seen as better than a competitor’s products by customers. Today India can boast of comparatively younger, English speaking low cost labour as one of her competitive advantage. This factor has given boost to outsourcing business in India.

The sources of competitive advantage have their limited life. Therefore, businesses are engaged in a never ending search to find new angles of competitive advantages. It’s all about finding some way of differentiating products and services from the competitor’s offerings. The whole purpose of business strategy is to find new sources of competitive advantage. Wal-Mart’s success lies in their cost cutting. Wal-Mart’s most operational processes are carried out in China because of their labor costs are which are much lower than many countries in world.

Toyota is Japan’s biggest car company and the second largest in the world after General Motors.   The fundamental reason for Toyota’s success in the global marketplace is its competitive advantage which lies in its corporate philosophy, the set of rules and attitudes that govern the use of its resources. The Toyota philosophy is often called as the Toyota Production System. The system depends partly on human resources management policy that stimulates employee creativity and loyalty besides Toyota has also built a highly efficient network of suppliers and components manufacturers. Much of Toyota’s success in the world markets can be attributed directly to its competitive advantage of its policies in human resources management and supply-chain networks.

One of the competitive advantages Hindustan Unilever enjoys is its edge over competitors in procuring raw material at low cost.  The company in past faced slow volume sales in categories such as soaps, laundry and tea, where rivals managed to gain market share through aggressive price cuts. But, HUL managed the price correction soon after sourcing more suppliers who offered the raw material at more competitive prices.

Warren Buffet the most successful investor of all times has always given importance to businesses with durable competitive advantage. He always relies on an extensive research-and-analysis. Buffet says that the global economy is complex and volatile, the economy and the stock market do not move in sync with it. The market discount mechanism moves instantly to incorporate news into the share price and last but not the least the returns of long-term equities cannot be matched anywhere else.

By “competitive advantage” Buffet meant a unique product or service that a business either makes or provides. Even if the employees can walk away from the business but they cannot take the business’s “competitive advantage” with them. Some examples of businesses with competitive advantage Buffet considers – are business’s brand names, for instance, Bell, Pizza Hut, Kentucky Fried Chicken or Wal-Mart. He gives importance to a business’s regional monopoly. We have plenty of brand names in India which enjoy regional monopoly such as Ghadi Detergent, Sasa washing powder, Wagh Bakari Chai, Sapat Chai, and Wai Wai noodles. The regional brands can afford to lose their micro focus from their markets. They have such a grip on their markets that national or international products need to spend tremendous resources to fight their regional counterparts. Buffet believes that durable competitive advantage companies can pass on their saving to their shareholders, and their investors.

When we think of best deal we think of Wall mart. Owing to its size it has enormous bargaining power with suppliers and sells at heavily discounted prices. They are low cost buyer and seller- Here the margins are traded for volumes; the advantage is buying at the cheapest price and selling at lowest prices to induce customers to its stores all over the world.

According to Hamel and Pralhad, the process of developing core competencies starts with the strategic intent of being a leader in the market by leveraging the resources. This thought of being a leader in the market is called strategic intentand it points at identifying various opportunity gaps.

Switch on your television for watching any program – be it news, a movie, dance show, award function anything and you are going to watch some of the baby brands’ commercials highlighting the usage and benefits. You will see cute babies and their pretty mummies in the commercials. Baby care products range from baby hair oil, talcum powders, strollers, baby diaper brand, nappies brand, baby soap brand, baby shampoo brand, baby skin care brand, feeding bottles, feeding spoons, baby furniture to a baby food brand! Baby products are available all over the market, be it an exclusive baby store, online, retailers or medical shops or the shop in shops in malls. The market size of Indian baby care products are expected to grow by 40 per cent to Rs 4,200 crore in 2014 on account of rising income levels and increasing awareness, ASSOCHAM (The Associated Chamber of Commerce & Industry) reported in Economic Times recently.

Baby care products need a well planned promotional mix for their positioning. Product Positioning is a marketing technique intended to present products in the best possible light to different target audiences. Since these products are bought for babies, the marketers need to target parent’s mindshare. And, parents will think and make sure whether the products are worth for their precious child. The baby care products need to connect to the emotions of the parents. The promotional mix comprises of five elements these elements are personal selling, advertising, sales promotion, direct marketing and publicity.  Promotional mix specifies how much attention to pay to each of these five elements, and how much money to budget for each. A promotional plan can have a wide range of objectives, varying from increase in sale, lunching new product, retaining its position, acceptance, creation of brand equity, positioning, competitive retaliations, and last but not the least shaping the corporate image.

Parents are keen to give their child the best of all. They want to see their baby growing happily and comfortably. And, the market is booming with products to meet with the parents’ expectations and demands like never before! India has emerged as the most preferred market for the companies involved in baby care product manufacturing and marketing, says a RNCOS (a business research and consultancy firm) report. The growing segment of population in the age group of 0-4 years in India provides the desired kick in comparison to other baby products’ markets worldwide. Many new entrants and existing players have flooded the market with traditional and specialized products in a bid to grab the market shares.

In a country like India, there is one core challenge which needs to be addressed. The Indian baby care market is restricted majorly to the urban areas. Despite accounting for majority sales, the urban areas are still to be fully penetrated when compared to other developed and developing markets in the Western countries. Thus, the players need to work on under-penetrated yet over crammed market. I am calling the baby care products under-penetrated because the demographic spread is broad and far-flung which needs to be covered, and the market is crammed because of substitution of cheaper local brands. When it comes to Infant food products there are challenges such as cultural aspects, competition from cheaper substitutes, and regulations on ‘Infant Food Promotion’ from Ministry of Health and Family Welfare which plays a key role in hindering the growth of this potential market in the country. However, baby care market in India has experienced growth over the past few years due to changing consumer mindset and increasing awareness of baby care products.

Rise in disposable income level, availability of premium products, and increasing awareness have significantly revolutionized the baby care market. Unlike olden days, when mothers would devote their all time to the infant, today’s moms can’t do it because family and career both are equally important for today’s women. She needs to balance her career and parenting on a fine line; she depends on support from family members, maids, nannies, crèches and the baby care products to bring up her child.

But, it is observed that baby care products are still taking baby steps while positioning strategies are concerned.  Baby steps are a tentative act or measure which is the first stage in a long or challenging process. The buyer behavior needs a closer look.

Even today in 21^st century majority of Indian households believe in using lentil atta (flour) for rubbing rubbing on the body of newly born baby before bath. It is supposed to remove hairs on the body. Flour is kneaded in to a soft dough ball dipped in warm oil. Turmeric and almond oil is used to knead the flour. Honey is the most common first food for most of the babies born in India.  For the care of umbilical region mustard oil or coconut oil is used, black kajal is used for eyes is applied on fore head to keep evil souls away from the baby. The child is kept inside the room for almost a month so that it is not exposed to communicable diseases. Traditional massage of a baby starts from the feet to head of the body of a baby with coconut/almond/olive oil prior to bath. It is customary not to cut nails of infant for few months. In India cutting of hairs for the first time generally after one or three years is like a festival for most of the people. It’s common practice of keeping hing (asfoetida) or ajwain (carom seeds) tied to the naval region of the baby. It is believed that it improves the digestion of the baby and helps in checking the colic pain. The home-made nappies are still in used for babies. So here goes the scenario. The traditional style is still practiced and it works great wonders. The child’s entry in the household is thoroughly enjoyed by all members. The entire family is engaged in bringing up the baby.

While we see the above described traditional childcare practice, we also see Proctor & Gamble, Johnson & Johansson, Wipro, Dabur and Kimberly-Clark working on profitable business models and well-positioned brands. That’s India.

Procter & Gamble’s diaper Pampers targets guardians and healthcare professionals handling babies and toddlers who use baby products as part of their daily routine. This includes baby care centers, hospitals, and other infant care providers. Pampers brand consists of three major product lines namely: diapers and pants, wipes, and Kandoo and bibsters. In it’s more than 50 years of history, Pampers successful positioned itself as a dependable brand in the market. The message of quality and product value still rings a bell in the minds of consumers. By educating and informing consumers on the possible products that can be used for the different developmental stages of babies, Pampers is able to gain loyalty from consumers. From time to time, Pampers had reinvented itself time and again and suitable strategies are adapted to suit with the current atmosphere and environment of the market. Currently, Pampers is giving a tough fight to substitute brands such as Huggies, Luvs, and number of private and generic brands that are also eroding the market share of Pampers. Huggies of Kimberly-Clark is the major competitor of Pampers because of its close similarity in terms of quality and price, in fact Huggies has superseded Pampers market share.

Dabur which is which is one of the leading players in the baby care segment, has three products in its portfolio, including the flagship Dabur Lal Tel which is used for massaging the child, it enjoys an overall market share of over 25 per cent. The company has other products such as Janma Ghunti (baby tonic) and Gripe Water (digestive tonic). The company emphasizes on the usage of power of Ayurvedic herbs andplant extracts thus making it safer to consume. There are brand loyalists of Dabur who will buy their products even when they shifted their base from India.

Johnson & Johnson sells baby skin care, bath acre, linen, washcloth, talcum powder, foaming products, shampoo and conditioning. J&J Brand positioning is done by increasing consumer awareness, through advertising & promotional activities, good product visibility which I think is very important and availability in the market through best supply chain practices.  J&J provides good visibility, consumer offer to the shoppers, better service to retailers, good competitive schemes, and better quality products at reasonable rates; thus, making its brand effective in the market in comparison of other brands.

A lot of market research goes in the entire product life cycle of the products. Marketing research is one of the most important marketing activities. Products are introduced depending on the taste preference and keeping the price point in mind. Three P’s – Popularity, Positioning and Pricing of the product matters in the market.  Young parents still go for affordable products while shopping for their babies. Thus, consumer buying behavior, purchase pattern and complex buyer behavior play a key role in deciding on the lines of introducing products/entering a target market.

While we see the market overflowing at times cluttered with range of products, in the coming years, innovation in products and marketing strategies will be the key focus areas for most of the companies operating in the Indian baby care market. It can also be very much expected that in future, penetrating deep into the urban market in conjunction with the rural market will provide exciting growth opportunities to the potential industry players. While we discuss about the positioning strategies, we need to seriously deliberate on some of the glaring features of Indian market:

Indian demographic distribution is 72 percent in rural areas while the rest 28 percent live in urban or semi-urban areas. With the average purchasing power of the Indian population increasing along with hygiene awareness the rural market is the market of the future. To me, the rural-urban divide is slowly blurring. However the traditional make-up of Indian families needs a different strategic treatment.

• India requires specialized products. It requires a flexible marketing mix offer.  You cannot afford to shake the traditional style of the childcare.

• The TV and print media can reach the buyers. These two media forms the potential to create the brand awareness among the buyers through various advertisements and promotional campaigns.

• Indian customers go for ‘value-for-money’ concept; reasonably priced, easy to use, less complicated instructions, comfortable, good fit, cleanliness-prone, and environment friendly and hygienic products are accepted. Most importantly products need small packaging – smaller packs are sold easily. Frugal packaging is always best sold in India.

• Indian market is OTC driven (over the counter); regular revamping of distribution network helps backed by re-staging of brands. The retail networking is expanding very fast; hence retail outlets are best suited for baby care products.
• The main drivers for the baby care market in India, will however, remain to be the rise in investments from companies, the soaring demand and the increasing working women population apart from the factors discussed above which will set the pace for this industry in India in the coming years.
• Developing a distinctive, differentiating and value-based positioning concept is a must. Creating a positioning statement which will touch the Indian mind set with key messages will always work.

Brevi from Italy, Combi from Japan, Bubba Blue from Australia, Tiny Love from Israel, Grup Baby from Turkey, US Baby from China, Kiddy Gmbh from Germany, Tolly Joy from Singapore and Farlin from Taiwan are some of the top brands which will be foraying into the Indian baby care products market. The market is growing at a fast pace.