By: Michael Hsiung
In MBA programs and business schools, we learn about competitive advantage.
Most research, models, and discussions in the MBA strategy courses focus on how to gain an edge in the market. We talk about industry differences, firm resources, barriers of entry, network effect, time to market, and many other sources of competitive advantage. All of these key principles leads to a substantial difference between the winner and an organization that simply exists. What we do not talk about is “competitive disadvantage.” In light of the recent political movements and awareness, I would like to discuss an interesting way of using business school tools to understand why racial inequality in America exists.
I write this because there are still too many people in the business community who believe that “hard work” is the difference in the racial wealth gap. To disabuse the notion from a language that we all speak, let us take a basic concept as strategic locations. Real estate is a unique resource; no location is exactly the same. It determines who will be shopping, who is not there, access to public transportation, and who the neighboring stores will be. For a beauty salon, it is ideal to be next to a bookstore or grocery store as clients normally hang around the plaza. In this case, real estate in that plaza is desirable and provides an advantage because of the complementarity.
So, what if you cannot afford to relocate yourself to a more profitable location? For many Black Americans, there are laws and social orders from the past that are still contributing to modern-day competitive disadvantage.
I currently live in Saint Louis where racial tensions seem to make it to the national news on a regular basis. Saint Louis has both an economic and racial division between North County and West County, where the former is predominantly Black and the latter is White. The history of redlining and housing policies caused a historical disadvantage in Black wealth in the Saint Louis economy. This disadvantage forces the Black population to have fewer economic choices in housing so they live in the lower-priced North County. Being from a less wealthy part of town has a dramatic competitive disadvantage compared to west county workers. Most of the spending happens in either West county or within the city. Many workers from North County will have to make long commutes to and from work. Being in a community with a lot of service workers leads to a higher likelihood of contracting COVID. The list of locational disadvantages of the Black community can go on and on.
We can continue this exercise through other related but separate tools from MBA programs such as the resource-based view, barriers to entry, social network theory, and non-market strategy. Through a scrupulous MBA analysis, an MBA graduate would certainly conclude that Black Americans face challenging competitive disadvantages today. In order to address inequality, we must not only acknowledge but also review many of the disadvantages still apparent today.