Image From: http://www.ifdaonline.org A moat is defined as a broad and deep ditch which may be filled with water or dry, and historically surrounds a town or castle to offer it a primary defensive line. On the other hand, an economic moat is a technical term that was popularized and invented by business tycoon Warren Buffett. According to Buffett, this term talks about the ability of a business to keep their competitive advantages over the international food distributor and the competition to safeguard its market share and long-term profits from other companies that offer similar goods and services. To make a long story short, the economic moat is a factor that can possibly provide a sustainable competitive advantage to an industry.
Here are some ways for an enterprise to get an economic moat:
Low Cost Manufacturing
The corporations that can deliver their services or commodities at an affordable cost (normally because of captive raw material sources or economies of scale), have a unique competitive advantage since they have the power to undercut the competition on price. Examples include coal mines or iron ore mines.
High Switching Expenses
Switching expenses refer to the one-time costs or inconveniences that the consumers go through when they are transferring from one service or item for another. The best examples of this include banks, ISPs (Internet Service Providers), and telecom corporations.
The Network Effect
This effect takes place when the value of a specific service or product goes up for the existing and new customers as more consumers use it. Excellent examples of the Network Effect are social networking sites such as LinkedIn or Facebook, and the networks that credit cards use.
Subtle Assets
A handful of firms have an edge over their competition due to distinct subtle, intangible or nonphysical assets which involve an international food distributor. These intangibles cover things like geographic advantages, brand names, government approvals, and intellectual property rights.
Here are some ways for an enterprise to get an economic moat:
Low Cost Manufacturing
The corporations that can deliver their services or commodities at an affordable cost (normally because of captive raw material sources or economies of scale), have a unique competitive advantage since they have the power to undercut the competition on price. Examples include coal mines or iron ore mines.
High Switching Expenses
Switching expenses refer to the one-time costs or inconveniences that the consumers go through when they are transferring from one service or item for another. The best examples of this include banks, ISPs (Internet Service Providers), and telecom corporations.
The Network Effect
This effect takes place when the value of a specific service or product goes up for the existing and new customers as more consumers use it. Excellent examples of the Network Effect are social networking sites such as LinkedIn or Facebook, and the networks that credit cards use.
Subtle Assets
A handful of firms have an edge over their competition due to distinct subtle, intangible or nonphysical assets which involve an international food distributor. These intangibles cover things like geographic advantages, brand names, government approvals, and intellectual property rights.
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