The major avenues for achieving a cost advantage over rivals include
A. performing value chain activities more cost-effectively than rivals or revamping the firm’s overall value chain to eliminate or bypass some cost-producing activities.
B. having a management team that is highly skilled in cutting costs.
C. being a first-mover in adopting the latest state-of-the-art technologies, especially those relating to low-cost manufacture.
D. outsourcing high-cost activities to cost-efficient vendors.
E. paying lower wages and salaries than rivals.
The Correct Answer Is:
- A. performing value chain activities more cost-effectively than rivals or revamping the firm’s overall value chain to eliminate or bypass some cost-producing activities.
In order to gain a cost advantage over competitors, a firm may either perform value chain activities more efficiently and effectively or redesign its value chain to eliminate or bypass some costly activities. In order to achieve this, technologies can be implemented that save costs, processes can be streamlined, non-core activities can be outsourced, and economies of scale can be implemented. Cost advantage can also be achieved through vertical integration, which can also reduce costs.
By sharing resources or complementing capabilities, a company can produce multiple products or services at a lower cost than its competitors, which is another way to achieve cost advantage. As well as strategic sourcing and procurement, companies can also find alternative sources of materials or negotiate better prices with suppliers to gain a cost advantage.
Location plays an important role in determining the overall cost of doing business, as different countries have different labor costs, taxes, and regulations. Developing countries, for instance, offer low costs that can give companies a cost advantage.
A company’s value chain must be thoroughly understood and opportunities for cost reduction must be identified in order to achieve a cost advantage over rivals. In order to achieve this, it is possible to implement cost-saving technologies, streamline processes, outsource non-core activities, implement economies of scale, economies of scope, vertical integration, strategic procurement and sourcing, and choose a location that is conducive to operations.