GBA 490 Exam 2 (Meyer)

The two biggest factors that distinguish one competitive strategy from another:

1)whether a company's market target is broad or narrow

2)whether the company is pursuing a competitive advantage linked to lower costs or differentiation

Low-cost Provider strategy

striving to achieve lower overall costs than rivals on comparable products that attract a broad spectrum of buyers, usually by underpricing rivals

Broad Differentiation Strategy

seeking to differentiate the company's product offering from rivals' with attributes that will appeal to a broad spectrum of buyers

Focused low cost Strategy

concentrating on the needs and requirements of a narrow buyer segment (or market niche) and striving to meet these needs at lower costs than rivals (thereby being able to serve niche members at a lower price)

focused differentiation strategy

concentrating on a narrow buyer segment (or market niche) and outcompeting rivals by offering niche members customized attributes that meet their tastes and requirements better than rivals' products

best cost provider strategy

striving to incorporate upscale product attributes at a lower cost than rivals.

allows a company to give customers more value for their money

hybrid strategy

Low-cost leadership

achieves this when it becomes the industry's lowest-cost provider rather than just being one of perhaps several competitors with comparatively low costs

low-cost provider's foremost strategic objective

meaningfully lower costs than rivals, but not necessarily the absolutely lowest possible cost

two options for translating a low-cost advantage over rivals into profits

1)use the lower-cost edge to underprice competitors and attract price-sensitive buyers in great enough numbers to increase total profits

2)maintain the present price, be content with the present market share, and the lower-cost edge to earn a higher profit margin on each unit sold, thereby raising the firm's total profits and overall return on investment.

Two major avenues for achieving a cost advantage

1)perform value chain activities more cost effectively than rivals

2)revamp the firm's overall value chain to eliminate or bypass some cost-producing activities

Cost drivers

a factor that has a strong influence on a company's cost

Cost-cutting approaches that demonstrate an effective use of the cost drivers:

1)Capturing all available economies of scale

2)taking full advantage of experience and learning-curve effects

3)operating facilities at full capacity

4)improving supply chain efficiency

5)substituting lower-cost inputs wherever there is little or no sacrifice in product quality or performance

6)using the company's bargaining power vis-a-vis suppliers or others in the value chain system to gain concessions

7)using online systems and sophisticated software to achieve operating efficiencies

8)improving process design and employing advances production technology

9)being alert to the cost advantages of outsourcing or vertical integration

10)motivating employees through incentives and company culture

Revamping of the value chain system to lower costs

1)selling direct to consumers and bypassing the activities and cost of distributors and dealers

2)streamlining operations by eliminating low-value-added or unnecessary work steps and activities

3)reducing materials handling and shipping costs by having suppliers locate their plants or warehouses close to the company's own facilities

success in achieving a low-cost edge over rivals comes from out-managing rivals in finding ways to perform value chain activities faster more accurately, and more cost-effectively

when a low-cost provider strategy works best:

1)price competition among rival sellers is vigorous

2)the products of rival sellers are essentially identical and readily available from many eager sellers

3)it is difficult to achieve product differentiation in ways that have value to buyers

4)most buyers use the product in the same ways

5)buyers incur low costs in switching their purchases from one sellers to another

A low cost provider is in the best position to:

win the business of price-sensitive buyers, set the floor on market price, and still earn a profit

reducing price does not lead to higher total profits unless

the added gains in unit sales are large enough to offset the loss in revenues use to lower margins per unit sold

a low-cost provider's product offering must always contain

enough attributes to be attractive to prospective buyers-- low price, by itself, is not always appealing to buyers

broad differentiation strategy

the essence is to offer unique product attributes that wide range of buyers find appealing and worth paying more for

Value Driver

a factor that can have a strong differentiating effect

Value drivers

1)Create product features and performance attributes that appeal to a wide range of buyers

2)improve customer service or add extra services

3)invest in production-related R&D activities.

4)Strive for innovation and technological advantages

5)pursue continuous quality improvement

6)increase marketing and brand-building activities

7)seek out high-quality inputs

8)emphasize human resource management activities that improve the skills expertise, and knowledge of company personnel

Strategic offensives

called for when a company spots opportunities to gain profitable market share at its rivals' expense or when a company has no choice, but to try to whittle away at a strong rival's competitive advantage

the best offensives tend to incorporate several principles including

1)focusing relentlessly on building competitive advantage and then striving to convert it into a sustainable advantage

2)applying resources where rivals are least able to defend themselves

3)employing the element of surprise as opposed to doing what rivals expect and are prepared for

4)displaying a capacity for swift and decisive actions to overwhelm rivals

sometimes a company's best strategic option is to:

seize the initiative, go on the attack, and launch a strategic offensive to improve its market position

The principal offensive strategy options include:

1)offering an equally good or better product at a lower price

2)leapfrogging competitors by being first to market with next-generation products

3)pursuing continuous product innovations to draw sales and market share away from level innovative rivals

4)pursuing disruptive product innovations to create new markets

5)adopting and improving on the good ideas of other companies (rivals or otherwise)

6)using hit-and-run or guerrilla warfare tactics to grab market share from complacent or distracted rivals

7)launching a preemptive strike to secure an industry's limited resources or capture a rare opportunity

Example of preemptive moves

1)securing the best distributors in a particular geographic region or country

2)obtaining the most favorable site at a new interchange or intersection, in a new shopping mall, and so on

3)tying up the most reliable, high-quality suppliers via exclusive partnerships, long-term contracts, or acquisition

4)moving swiftly to acquire the assets of distressed rivals at bargain prices

best targets for offensive attacks

1)market leaders that are vulnerable

2)runner-up firms with weaknesses in areas where the challenger is strong

3)struggling enterprises that are on the verge of going under

4)small local and regional firms with limited capabilities

a blue-ocean strategy

offers growth in revenues and profits by discovering or inventing new industry segments that create altogether new demand.

good defensive strategies can help:

protect a competitive advantage but rarely are the basis for creating one

signals to would-be challengers that retaliation is likely can be given by:

-publicly announcing management's commitment to maintaining the firm's present market share

-publicly committing the company to a policy of matching competitors' terms or prices

-maintaining a war chest of cash and marketable securities

-making an occasional strong counter-response to the moves of weak competitors to enhance the firm's image as a tough defender.

first-mover advantages and disadvantages

competitive advantage can spring from when a move is made as well as from what move is made

Conditions in which first-mover advantages are most likely to arise

1)when pioneering helps build a firm's reputation and creates strong brand loyalty

2) when a first mover's customer's will thereafter face a significant switching costs

3)when property rights protections thwart rapid imitation of the initial move

4)when a first mover can set the technical standard for the industry

5)when a fiver mover can set the technical standard for the industry

late-mover advantages (or first mover disadvantages)

1)when the costs of pioneering are high relative to the benefits accrued and imitative followers can achieve similar benefits with far lower costs

2)when an innovator's products are somewhat primitive and do not live up to buyer expectations, so followers can come in with a product that better suits the buyers' wants.

3)when rapid market evolution give second movers the opening to leapfrog the first mover's products

4)when market uncertainties make it difficult to determine what will actually succeed, allowing late movers to wait until these needs are clarified

5)when customer loyalty to the pioneer is low and first mover's skills, know-how, and actions are easily copied or surpassed

questions to ask when choising to be a first mover

1)Does market takeoff depend on the development of complementary products or services that currently are not available?

2)is new infrastructure required before buyer demand can surge?

3)will buyers need to learn new skills or adopt new behaviors?

4)will buyers encounter high switching costs in moving to the newly introduced product or service?

5)are there influential competitors in a position to delay or derail the efforts of a first mover?

scope of the firm

the range of activities that the firm will perform internally, the breadth of its product and service offerings, the extent of its geographic market presence, and its mix of businesses

horizontal scope

the range of product and service segments that a firm serve within its focal market

vertical scope

the extent to which a firm's internal activities encompass the range of activities that make up an industry's entire value chain system, from the raw material production to final sales and service activities.

Merger

the combining of two or more companies into a single corporate entity, with the newly created company often taking on a new name.

acquisition

the combination on which one company, the acquirer, purchases and absorbs the operations of another, the acquired

difference between a merger and an acquisition

relates more tho the details of ownership, management control, and financial arrangements than to strategy and competitive advantage

What do horizontal mergers and acquisitions provide?

an effective means for firms to rapidly increase the scale and horizontal scope of the core business

Mergers and acquisition strategies try to achieve these objectives

1)creating a more cost-efficient operation out of the combined companies

2)expanding a company's geographic coverage

3)extending the company's business into new product categories

4)gaining quick access to new technologies or other resources and capabilities

5)leading the convergence of industries whose boundaries are being blurred by changing technologies and new market opportunities

Horizontal mergers and acquisitions can strengthen a firm's competitiveness in five ways

1)by improving the efficiency of its operations

2)by heightening its product differentiation

3)by reducing market rivalry

4)by increasing the company's bargaining power over suppliers and buyers

5)by enhancing its flexibility and dynamic capabilities

Vertically integrated firm

one that participates in multiple stages of an industry's value chain system

one that performs value chain activities along more than one stage of an industry's value chain system

Vertical integration strategies can aim at

1)full integration (participating in all stages of the vertical chain)

2)partial integration (building positions in selected stages of the vertical chain)

3)tapered integration (a mix of in-house and outsourced activity in any given stage of the vertical chain)

backwards integration

involves entry into activities previously performed by suppliers or other enterprises positioned along earlier stages of the industry value chain system

For backward integration to a cost-saving and profitable strategy, a company must be able to

1)achieve the same scale economies as outside suppliers

2)match or beat suppliers' production efficiency with no drop-off in quality

Forward integration

involves entry into chain system activities closer to the end user

The disdvantages of a vertical integration strategy

1)raises a firm's capital investment in the industry, thereby increasing business risk

2)slower to adopt technological advances or more efficient production methods when they are saddled with older technology or facilities

3)can result in less flexibility in accommodating shifting buyer preferences

4)may not enable a company to realize economies of scale

5)poses all kinds of capacity-matching problems

6)backwards or forward integration typically calls for developing new types of resources and capabilities

Outsourcing

contracting out certain value chain activities that are normally performed in house to outside vendors

Outsourcing can make strategic sense whenever:

1)an activity can be performed better or more cheaply by outside specialists

2)the activity is not crucial to the firm's ability to achieve sustainable competitive advantage

3)the outsourcing improves organizational flexibility and speeds time to market

4)it reduces the company's risk exposure to changing technology and buyer preferences

5)it allows a company to concentrate on its core business, leverage it's key resources and do even better what it already does best

strategic alliance

a formal agreement between two or more separate companies in which they agree to work cooperatively toward some common objective

joint venture

a partnership involving the establishment of an independent corporate entity that the partners own and control jointly, sharing in its revenues and expenses

An alliance becomes "strategic" as opposed to just a convenient business arrangement when it serves these purposes

1)facilitates achievement of an important business objective (like lowering costs or delivering more value to customers in the form of better quality, added features, and greater durability)

2)helps build, strengthen, or sustain a core competence or competitive advantage

3)helps remedy an important resource deficiency or competitive weakness

4)helps defend against a competitive threat, or mitigates a significant risk to a company's business

5)increases bargaining power over suppliers or buyers

6)helps open up important new market opportunities

7)speeds the development of new technologies and/or product innovations

Benefits of strategies alliances come from

1)picking a good partner

2)being sensitive to cultural differences

3)recognizing that the alliance must benefit both sides

4)ensuring that both parties live up to their commitments

5)structuring the decision-making process so that actions can be taken swiftly when needed

6)managing the learning process and then adjusting the alliance agreement over time to fit new circumstances

principal advantages of strategic alliances over vertical integration or horizontal mergers and aquisitions

1)the lower investment costs and risks for each partner by facilitating resource pooling and risk sharing

2)they are more flexible organizational forms and allow for a more adaptive response to changing conditions

3)they are more rapidly deployed

companies that have greater success in managing their strategic alliances and partnerships credit

1)create a system for managing their alliances

2)they build relationships with their partners and establish trust

3)protect themselves from the threat of opportunism by setting up safeguards

4)make commitments to their partners and see that their partners do the same

5)make learning a routine part of the management process

A company may opt to expand outside its domestic market for any of five major reasons

1)to gain access to new customers

2)to achieve lower costs through economies of scale, experience, and increased purchasing power

3)to gain access to low-cost inputs of production

4)to further exploit its core competencies

5)to gain access to resources and capabilities located in foreign markets

Diamond of National Competitive Advantage

A theory showing four features as important for competitive superiority: demand conditions, factor conditions, related and supporting industries, and firm strategy, structure, and rivalry

(Diamond) Demand conditions

home-market size and growth rate: buyers tastes

(diamond) factor conditions

availability, quality, and cost of raw materials and other inputs

(Diamond) related and supporting industries

proximity of suppliers, end users, and complementary industries

(diamond) Firm strategy, structure, and rivalry

the conditions governing how companies are created, organized, and managed, and the nature of domestic rivalry

different styles of management and organization; degree of local rivalry

political risks

stem from instability or weakness in national governments and hostility to foreign business

economic risks

stem from instability in a country's monetary system, economic and regulatory policies, and the lack of property rights protections

sizable shifts in exchange rates pose significant risks for two reasons

1)they are hard to predict because of the variety of factors involved and the uncertainties surrounding when and by how much these factors will change

2)they create uncertainty regarding which countries represent the low-cost manufacturing locations and which rivals have the upper hand in the marketplace

fluctuating exchange rates pose significant economic risks to a company's competitiveness in foreign markets. Exporters are disadvantaged when the currency of the country where goods are being manufactured grows stronger relative to the currency of the comporting country

domestic companies facing competitive pressure from lower cost imports benefit when their government's currency grows weaker in relation to the currencies of the countries where the lower-cost imports are being made

buyer tastes for a particular product or service sometimes differ substantially from country to country

companies operating in an international marketplace have to wrestle with

whether and how much to customize their offerings in each country market to match local buyers' tastes and preferences or whether to pursue a strategy of offering a mostly standardized product worldwide

five major strategic options for entering foreign markets

1)maintain a home-country production base and export goods to foreign markets

2)license foreign firms to produce and distribute the company's products abroad

3)employ a franchising strategy in foreign markets

4)establish a subsidiary in a foreign market via acquisition or internal development

5)rely on strategic alliances or joint ventures with foreign companies

Export Strategies

-help minimize direct investments in foreign countries

-a manufacturer can limit its involvement in foreign markets by contracting with foreign wholesalers experienced in importing to handle the entire distribution and marketing function in their countries or regions of the world

export strategies are vulnerable when

1)manufacturing costs in the home country are substantially higher than in foreign countries where rivals have plants

2)the costs of shipping the product to distant foreign markets are relatively high

3)adverse shifts occur in currency exchange rates

4)importing countries impose tariffs or erect other trade barriers

licensing strategies

franchising strategies

foreign subsidiary strategies

greenfield venture

(internal startup) a subsidiary business that is established by setting up the entire operation from the ground up

greenfield venture is appealing when

-creating an internal startup is cheaper than making an acquisition

-adding new production capacity will not adversely impact the supply demand balance in the local market

-a startup subsidiary has the ability to gain good distribution access (perhaps because of the company's recognized brand name)

-a startup subsidiary will have the size, cost structure, and capabilities to compete head-to-head against local rivals

alliance and joint venture strategies

international strategy

strategy for competing in two or more countries simultaneously