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CA Intermediate · Financial Management and Strategic Management · Strategic Analysis: Internal Environment

Meera Auto Components cuts costs year after year by moving along its experience curve, and its cost per unit has fallen with cumulative output. A competitor, Sagar Gears, launches a new robotic process that makes the old learning irrelevant and gives lower cost than Meera at current volumes. Which conclusion is most consistent with core competence and cost-advantage analysis?

Meera's experience-based cost advantage is eroded because a technological discontinuity makes its accumulated learning less relevant. Experience curve benefits hold only while technology is stable, so Meera should reassess its resources and capabilities and respond to the rival's new process.

  1. AMeera's cost advantage is protected because experience is always costly to imitate
  2. BMeera's experience-based advantage is eroded by a technological discontinuity, so it should reassess its resources and capabilitiesCorrect
  3. CSagar's advantage is only temporary because experience curves always favour the first mover
  4. DMeera should ignore the change since cost advantage depends only on economies of scale

Explanation

The experience curve gives an advantage only while the underlying technology stays stable. A new process technology resets the learning and lets a rival get lower cost without accumulated volume, so Meera's advantage is eroded. Option A wrongly assumes experience is permanently protected; the other options ignore the technological shift.

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