What Is Resource-Based Competitive Advantage?

In any market with a number of firms competing against one another, it is necessary for a firm to have a competitive advantage if it is to be successful. A resource-based competitive advantage is a process or item that enables the enterprise to produce goods more efficiently than its business rivals, keep costs down and, therefore, sell at a lower price. A resource-based competitive advantage also may be something that enables the enterprise to produce a quality product that is superior to those of its rivals and, therefore, is preferred by consumers. The business advantage may come from resources the firm possesses that are not matched by its competitors, such as a superior workforce, patents, trademarks, know-how or other intangible assets. A firm could acquire tangible assets such as advanced technology or production processes that are not possessed by its competitors and give it a competitive advantage, at least in the short term.

An enterprise may pour considerable resources into training its staff members and providing them with incentives to stay in their jobs, developing a knowledgeable and experienced workforce that gives the enterprise a resource-based competitive advantage. This skilled workforce can only be built up over time, making it difficult for competitors to replicate in the short term. The experience of the workforce may ensure that the enterprise has a competitive advantage for a lengthy period of time.

A resource-based competitive advantage also may be created by the possession of resources such as patents and know-how that enable the enterprise to produce higher-quality products or use more efficient production processes to lower costs. Another possibility is that the enterprise has a strong trademark or has developed a valuable brand that enables it to increase sales or charge a premium for its product. Such intangible assets may be difficult to replicate while they are protected by patents, trademarks or other intellectual property rights.

In some cases, the possession of a superior tangible asset may create a resource-based competitive advantage for an enterprise. A superior product or process may be brought in or developed as a result of research and development. For example, a bespoke IT system that is expensive to set up but yields benefits in terms of efficiency may create a competitive advantage and may be difficult for competitors to replicate. An innovative production process also may give a competitive advantage to the company introducing it.