MGT Notes

Reference: Strategic Management (5e) – Frank T. Rothaermel (Pg 86)

The advantages independent of size that incumbent firms possess are mainly related to cost and quality factors. Brand Loyalty is one such advantage that is developed over time. Loyal customers can contribute to word-of-mouth marketing and improves sales. Incumbent firms also possess Preferential Access to raw materials since they have developed relationships with suppliers. This assumes that the technology does not change rapidly. Preferable locations such as regions with access to quality human resources and venture capital as well as world class institutions is another advantage that firms that incorporate in such regions have. Finally, cumulative learning over a period of time and valuable experience gained is advantageous since firms trying to imitate these in a short period of time face time compression diseconomies where the quality of progress is not as good and sustainable. These factors lower the threat of entry for incumbent firms and make it more difficult for competitors to enter the market.