Competitive advantage analysis

When a firm sustains profits that exceed the average for its industry, the firm is said to possess a competitive advantage over its rivals. The goal of aids’

business strategy is to achieve a sustainable competitive advantage. Michael Porter identified two basic types of competitive advantage:

• Cost advantage

• Differentiation advantage

A competitive advantage exists when the firm is able to deliver the same benefits as competitors but at a lower cost (cost advantage), or deliver benefits that exceed those of competing products (differentiation advantage). Thus, a competitive advantage enables the firm to create superior value for its customers and superior profits for itself. Cost and differentiation advantages are known as positional advantages since they describe the firm's position in the industry as a leader in either cost or differentiation.

A resource-based view emphasizes that a firm utilizes its resources and

capabilities to create a competitive advantage that ultimately results in superior value creation. Figure 16 combines the resource-based and positioning views to illustrate the concept of competitive advantage:

Resources

Distinctive Competencies

Cost Advantage or

Differentiation Advantage

Value Creation

Capabilities

Figure 16 A Model of Competitive Advantage

Aids enterprise seems not able to provide cost advantage due to small quantity and wide variety. Stock and low cash flow will cause pressure on business.

Hence, adding human engineering may provide difference advantage. Besides, just in time manufacture, web based selling, and adding some disposable materials in the device may provide extra value to the enterprise.

Strengths, Weaknesses, Opportunities and Threats Analysis (SWOT) SWOT analysis provides a practical method to describe the present status of aids enterprise. The analysis results are shown in Table 8.

Table 8 Strengths, Weaknesses, Opportunities and Threats Analysis

S

z Long term and stable interaction with value chain enterprise.

z Collaboration team has common consensus

z Very good reputation with professional skill

z Possesses innovative approach in designing and building frames.

z Speed and great flexibility than potential competitors

O

z The demand for aging care device can be expected to increase by 20 percent in next decade.

z 2 to 3 percent of annual growth for the next four years.

z Anticipate at least a 15 percent increase in sales in 2006 and then 3 percent every year after that for the next four years.

z Light weight and cheap modules are developed.

z More and more elders live alone and they have enough budgets to buy service.

W

z Technology development needs more time and fund for support z A substantial amount of work

to do in order to obtain a large portion of the market.

z Currently competing with huge international enterprises in the U.S. and Europe who are dominating this market.

z National loyalty often is a factor in choosing aging care device.

z Budget constraints and resources need further integration

z Manpower fluctuation and technology IP protection await further effort

z Because of its relatively small size, this enterprise is not a common name among non-professional users.

T

z Financial constraints cause enterprises lacking long term development planning and strategy

z International enterprises in Europe and America may enter local market and threaten the development of local enterprise and survive opportunities.

z Numbers of the high-end medical device companies have retooled their facilities to take advantage of the sustained demand for health care device manufacture and have been aggressively pursuing market share in the U.S. and abroad.

3.5 Chapter Conclusion

The chapter illustrates the business model for aging care service enterprise.

First, the bottlenecks, products, markets, economics, opportunities and risks were explored. Second, business plan, service model and business opportunities

were discussed. Then, we tried to count the revenue and gross profit margins in the first 5 years. The net present value was predicted and the investment taken back schedule in different profit margin was calculated using scenario analysis and sensitivity test. We assume system maintenance and payroll around 20,000,000 NTD per year. Gross margin is 30% of revenue and required rate of return is 12%. High fix cost and few clients number cause negative present value even profit margins is 30%. Hence, decrease fix cost, attracting group elders to order the service, enlarging market size are important issues for care service to break even. Leverage value chain enterprises’ resources and lease their capacity we cost down fix cost of the service enterprise. Besides, home for the aged will be the potential group customers of this business. It may help the service center to well use its capacity to service several group users at a time and enlarge market scale.

Hereafter, the SWOT analysis, 5 forces analysis, and competitive advantage analysis of Michael Porter are used to estimate the environment climate. According to the simulation results of this chapter, caring business seems profitable. It is possible to reach break even point in 3 years after established. Yet, low ROI and Low MIRR ratio caused some troubles in managing enterprise cash flow. Hence, stable shareholder structure, focusing on the city population and profitable service will make the investment more economic and more affordable. The firm must perform value creating activities before making money from clients. Besides, keeping at least 30% of gross margin and creating extra value are still the most important core competence of aging care enterprise.