Class 12 - BU381

Offensive strategic moves

Strategic moves to improve a firm's market position

Examples

• Offer equally good/better product at lower price

• Leapfrogging competitors

• Hit-and-run/guerrilla marketing tactics

Best Targets for Offensive Attacks

• Market leaders in vulnerable positions

• Struggling enterprises on the verge of going under

• Runner-ups with weaknesses where challenger is strong

• Small firms with limited capabilities

Defensive strategies

Lower the risk of an attack and weakens its impact if it occurs.

1. Block avenues open to challengers

   • Introduce new features/models

   • Challenge quality/safety of rivals

2. Signal challengers retaliation is likely

   • Publicly announcing commitment to market share/prices

   • Maintain a war chest of cash

First mover advantages/disadvantages

Advantages

• Pioneering helps build a firm’s reputation/loyalty

• Property rights prevent rapid imitation

• Customers will thereafter face switching costs

Disadvantages

• Pioneering more costly than imitating with negligible learning curve

• Customer loyalty is low and products do not live up to expectations

• Market uncertainties make it difficult to determine what will be successful

Vertical integration strategies

Full integration

• Firm participates in all stages of vertical activity chain

Partial integration

• Firm builds positions in only selected stages of vertical chain

Tapered integration

• Mix of in-house and outsourced activity in any stage of vertical chain

Vertical integration advantages/disadvantages

Advantages

• Add to technological capabilities

• Strengthen competitive position

• Boost firm’s profitability

Disadvantages

• Large capital investment is risky

• Less flexibility in accommodating shifting buyer preferences

• New/different resource requirements

Outsourcing advantages/disadvantages

Advantages

• Performed better or more cheaply by specialists

• Improves organizational flexibility and speeds processes

• Allows focus on core business activities

Disadvantages

• Loss of control over activity coordination and quality

• Lack of incentives for outside parties to make investments specific to value chain needs of firm

Strategic Alliance vs JV

Strategic alliance

• Formal agreement between two or more separate firms in which they agree to work cooperatively toward some common objective

Joint venture

• Partnership involving the establishment of an independent corporate entity that shares revenues and expenses

Strategic alliances advantages/disadvantages

Advantages

• Minimize problems with M&A, vertical integration, outsourcing

  • Lower initial investment/risks

  • More quickly deployed

• Useful for international expansion/diversification strategies

• Useful when industries are facing rapid tech. advances

Disadvantages

• Culture clash and integration problems

• Risk of becoming dependent on partner firms for capabilities

• Gains not materializing due to overly optimistic synergy views/poor fit of partner resources and capabilities