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IAI Actuarial Core Principles · Business Management · Strategy, competitive advantage, strategic decision process and PEST analysis

Himalaya General Insurance has differentiated itself through very fast claim settlement. A rival, Deccan Assure, now matches settlement speed using similar technology bought from the same vendor. Which statement best explains, using the resource-based view of competitive advantage, why Himalaya's advantage is now weakened?

Himalaya's advantage weakened because it rested on a resource that was not rare or hard to imitate. Technology available from a common vendor can be copied, so under the resource-based view the advantage was not sustainable.

  1. AIts advantage was based on a resource that was neither rare nor costly to imitate, so it was not sustainableCorrect
  2. BDifferentiation can never produce an advantage in financial services
  3. CPorter's model says an advantage lasts only if the firm adopts cost leadership
  4. DCompetitive advantage depends only on the external PEST environment
  5. Matching by one rival always eliminates the advantage of every differentiator

Explanation

Under the resource-based view, sustainable advantage requires resources that are valuable, rare, hard to imitate and not easily substituted. Technology bought from a common vendor is easy to copy, so the advantage eroded. The other statements are overgeneralisations or incorrect.

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