I don't buy that. Why can't they pull ahead? If the sculpts are lacking, hire new sculptors. If the paint is lacking, hire new painters. It seems cut and dry to me.
Its not that easy. This happens with any business when new competition pops up that can do things cheaper or better. Sideshow has a set way of doing things, including personnel, business relationships, and operating procedures broadly that are very difficult (and very expensive) to change. They have set administrative staff, production people, suppliers of production material, distributors, marketing personnel, etc., and to change any one of these things requires significant investment, and involves a high degree of risk.
Ultimately, their quality and costs are an attempt to maximize their profits (which includes selling stuff and maintaining a fan base), and often the best way to do this, unless the market dictates otherwise, is to keep things as they are, making only incremental changes (like the Prometheus body), and to raise the price a bit. Though their process is tweaked little by little overtime, you can't just thow out your entire business model and do the same things that Hot Toys is. For whatever reason, it appears that HT is able to produce better stuff more efficiently (read: cheaper) than Sideshow. But Sideshow isn't run by a bunch of idiots. I'm sure that they would make better stuff if they could, but they either can't justify the costs involved (whereas Hot Toys must be able to), or are satisfied with the way that things currently are. Again, even their 1/6 stuff is, for the most part, selling and selling well. If they can move crappier Star Wars stuff for almost the same price as Hot Toys figures, then that means they are bringing in more profits than if they were to invest in the new sculpters, materials, production processes, etc. that you are referring to.
I have no idea what the process and costs involved in production of these things entails, but keep in mind that Hot Toys is a Hong Kong based company, whereas Sideshow is based in the U.S. Sure both companies probably get their toys produced in the same type of factory in China, but administrative costs, and the costs of staff here in the U.S. would be a much bigger financial burden for Sideshow, and that tradeoff occurs in the manner of a crappier product and toys that are more expensive than they would be if Hot Toys were to release them.