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

Mehta Auto Components has a core competence in precision casting. A consultant tests whether this skill qualifies as a core competence using Hamel and Prahalad's criteria. Which test would be MOST appropriate to confirm that it is a core competence?

A skill is a core competence if it gives access to a wide variety of markets, contributes significantly to the customer's perceived benefit and is hard for competitors to imitate. Skills that are common to all rivals, easily bought, or merely tangible assets fail this test.

  1. AIt provides potential access to a wide variety of markets and contributes significantly to perceived customer benefitCorrect
  2. BIt can be easily purchased from the market by any competitor
  3. CIt is a skill possessed equally by all firms in the industry
  4. DIt is a tangible asset shown in the balance sheet

Explanation

Hamel and Prahalad say a core competence should give access to a wide variety of markets, make a significant contribution to perceived customer benefits, and be difficult for competitors to imitate. Skills held by all firms or bought easily do not differentiate. Core competences are not balance-sheet tangible assets.

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