Case Study: The Spanish Wine Industry

Strategic advantage

According to Porter, the competitive position of an industry or sector, depends on five forces and it is their joint action which determines an industry's potential benefit. These forces are: barriers to entry, supplier power, buyer power, the threat of substitutes, and the intensity of internal rivalry. The objective of a company's strategic plan is to find a position that allows it to better defend itself against these forces or be able to influence them in its favor. After analyzing the forces and how they emerge, the company's strengths and weaknesses can be identified. Next, the company should be positioned to achieve the competitive advantage by building defenses against the competitive forces or looking for positions within the industry where these forces are weaker. The firm can influence the balance of forces through strategic moves. Two generic strategies allow for the pursuit of a competitive advantage position: cost leadership or differentiation. But there is another variable that defines the strategic positioning, and it is the competitive area. The company must decide whether it serves the entire market or focuses on a specific segment. Depending on the decision taken, a third strategic option arises, which consists on using one of the two generic strategies (costs or differentiation) but in a given segment. Intermediate positions should not be adopted, as they lead to a loss of competitiveness. Although Porter's approach has received some criticism, it remains a reference in scientific papers and empirical studies. Critical comments focus on the overly static nature of Porter's approach, and on the fact that a company's real strategies have evolving components not addressed by the theory. Others suggest that cost positioning and differentiation are not equally beneficial for the company, considering that differentiation is better than cost strategy.