Which of the following statements about technology is true?
Technological improvements are not important in strengthening a firm’s strategic advantages.
Technology alone is enough to provide sustainable competitive advantage to a firm.
Technology cannot be used by late entrants to gain a share of the industry.
Technological improvements can often be copied by rivals, leading to a profit-eroding arms race.
The correct answer and explanation is :
The correct answer is:
“Technological improvements can often be copied by rivals, leading to a profit-eroding arms race.”
Explanation:
Technology plays a critical role in shaping a firm’s strategic position and competitive advantage. However, it is not an exclusive or foolproof way to sustain market dominance. Many technological advancements can be easily imitated, reverse-engineered, or even improved upon by competitors, leading to a cycle of continuous innovation and competition—often referred to as a profit-eroding arms race.
For example, in industries like consumer electronics or software development, companies frequently introduce new features, but competitors quickly respond with similar or enhanced products. This leads to price reductions, increased spending on research and development (R&D), and diminishing returns for all players in the industry.
The incorrect options:
- “Technological improvements are not important in strengthening a firm’s strategic advantages.”
- This is false because technology can significantly enhance operational efficiency, customer experience, and overall competitiveness. Firms that leverage technology effectively, such as Amazon with its supply chain innovations, can achieve strong strategic advantages.
- “Technology alone is enough to provide sustainable competitive advantage to a firm.”
- This is false because sustainable competitive advantage typically requires a combination of factors, including brand strength, customer loyalty, economies of scale, and continuous innovation. Without these, technology alone is insufficient.
- “Technology cannot be used by late entrants to gain a share of the industry.”
- This is false because late entrants can leverage cutting-edge technology to disrupt established players. Companies like Tesla (in the automotive industry) and Netflix (in streaming) have done this successfully.
Thus, while technology is crucial, it often leads to intense competition rather than long-term dominance.