A comprehensive study on profits and sustainable competitive advantages

Abstract

Purpose

The purpose of this paper is to evaluate which strategic resources or industry structural conditions help firms build up a competitive advantage and sustain it over time.

Design/methodology/approach

Our approach is based on one main variable. Firm‐specific profits (proxy for competitive advantage) were estimated as the difference between a firm's profits and the average profitability of its industry. From it, two measures of firm performance were estimated, the firm‐specific projected profitability (FSPP) and the persistence of firm‐specific profits (FSPPe) which were used two split the sample in two type of firms, out performers and underperformers.

Findings

The results suggested that FSPPe and FSPP are two different indicators of firms' performance and may not be influenced by the same factors. The results show that neither the FSPPe nor its sustainability is explained through strategic resources.

Practical implications

While intangible investments might help firms build up a competitive advantage, these might not help to preserve it.

Research limitations/implications

Further examination on unobserved strategic factors should help gain better understandings of what makes out performers earn/sustain higher level of profits over time.

Originality/value

Investments on certain strategic resources above industry average can lock firms into persistent competitive disadvantages.

Citation

Gonzalo Ramirez, P. and Hachiya, T. (2008), "A comprehensive study on profits and sustainable competitive advantages", Management Research News, Vol. 31 No. 9, pp. 670-682. https://doi.org/10.1108/01409170810898563