Collaborative Strategies.
Supplementing the Chosen
Competitive Strategy
“Successful business strategy is about actively shaping
the game you play, not just playing the game you find.”
Combination Strategies
Merger
• Two firms agree to integrate their operations on a relatively co‐equal basis to be a new one firm
Acquisition
• One firm buy another smaller firm with the intent of using a core competence more effectively by controlling and making a acquired firm as subsidiaries business within its portfolio
Joint Ventures
• Involves establishing a company , operated for the benefit of the co‐owners.
Strategic Alliance
• Involves creating a partnership between two or more companies that contribute skills and expertise to a cooperative project
• Exists for a defined period
• Does not involve the exchange of equity
2
Collaborative Strategies: Alliances and Partnerships
Companies sometimes use strategic alliances or collaborative partnerships
to complement their own strategic initiatives and strengthen their competitiveness. Such cooperative strategies go beyond normal company‐to‐
company dealings but fall short of merger or full joint venture partnership.
Alliances Can Enhance a
Firm’s Competitiveness
• Alliances and partnerships can help companies cope with two demanding competitive challenges
– Racing against rivals to build a market presence in many different national markets
– Racing against rivals to seize opportunities on the frontiers of advancing technology
• Collaborative arrangements can help a company lower its costs and/or gain access to needed expertise and capabilities
Characteristics of a Strategic Alliance
y Strategic alliance – A formal agreement between two or more separate companies where there is
y
y
y
y
y
Strategically relevant collaboration of some sort
Joint contribution of resources
Shared risk
Shared control
Mutual dependence
y Alliances often involve
y
y
y
y
y
y
Joint marketing
Joint sales or distribution
Joint production
Design collaboration
Joint research
Projects to jointly develop new technologies or products
What Factors Make an Alliance Strategic?
•
It is critical to a company’s achievement of an important objective
•
It helps build, sustain, or enhance a core competence or competitive advantage
•
It helps block a competitive threat
•
It helps open up important market opportunities
•
It mitigates a significant risk to a company’s business
Why Are Strategic Alliances Formed?
y To collaborate on technology development or new product development y To fill gaps in technical or manufacturing expertise
y To create new skill sets and capabilities
y To improve supply chain efficiency
y To gain economies of scale in production and/or marketing
y To acquire or improve market access via joint marketing agreements
Potential Benefits of Alliances to
Achieve Global and Industry Leadership
y Get into critical country markets quickly to accelerate process of building a global presence
y Gain inside knowledge about unfamiliar markets and cultures
y Access valuable skills and competencies concentrated in particular geographic locations
y Establish a beachhead to participate in target industry
y Master new technologies and build new expertise faster than would be possible internally
y Open up expanded opportunities in target industry by combining firm’s capabilities with resources of partners
Capturing the Benefits of Strategic Alliances
• Benefits from forming partnerships are a function of
– Picking a good partner
– Being sensitive to cultural differences
– Recognizing an alliance must benefit both parties
– Ensuring both parties live up to their commitments
– Structuring the decision‐making process so actions can be taken swiftly when needed
– Managing the learning process and then adjusting the alliance agreement over time to fit new circumstances
Why Alliances Fail
• Ability of an alliance to endure depends on
– How well partners work together
– Success of partners in responding and adapting to changing conditions
– Willingness of partners to renegotiate the bargain
• Reasons for alliance failure
– Diverging objectives and priorities of partners
– Inability of partners to work well together
– Changing conditions rendering purpose of alliance obsolete
– Emergence of more attractive technological paths
– Marketplace rivalry between one or more allies
Merger and Acquisition Strategies
y Merger – Combination and pooling of equals, with newly created firm often taking on a new name
y Acquisition – One firm, the acquirer, purchases and absorbs operations of another, the acquired y Merger‐acquisition strategy
y Much‐used strategic option
y Especially suited for situations where alliances do not provide a firm with needed capabilities or cost‐reducing opportunities
y Ownership allows for tightly integrated operations, creating more control and autonomy than alliances
Objectives of Mergers and Acquisitions
• To create a more cost‐efficient operation
• To expand a firm’s geographic coverage
• To extend a firm’s business into new product categories or international markets
• To gain quick access to new technologies
or competitive capabilities
• To invent a new industry and lead the convergence of industries whose boundaries are blurred by changing technologies and new market opportunities
Pitfalls of Mergers and Acquisitions
y Combining operations may result in
y Resistance from rank‐and‐file employees
y Hard‐to‐resolve conflicts in management styles and corporate cultures
y Tough problems of integration
y Greater‐than‐anticipated difficulties in
y Achieving expected cost‐savings
y Sharing of expertise
y Achieving enhanced competitive capabilities
Vertical Integration Strategies
• Extend a firm’s competitive scope within
same industry
– Backward into sources of supply
– Forward toward end‐users of final product
• Can aim at either full or partial integration
Activities, Costs, &
Margins of
Suppliers
Internally
Performed
Activities, Costs, &
Margins
Activities, Costs,
& Margins of
Forward Channel
Allies &
Strategic Partners
Buyer/User
Value
Chains
Strategic Advantages
of Backward Integration
y Generates cost savings only if volume needed is big enough to capture efficiencies of suppliers
y Potential to reduce costs exists when
y Suppliers have sizable profit margins
y Item supplied is a major cost component
y Resource requirements are easily met
y Can produce a differentiation‐based competitive advantage when it results in a better quality part
y Reduces risk of depending on suppliers of crucial raw materials / parts / components
Strategic Advantages
of Forward Integration
y To gain better access to end users and better market visibility
y To compensate for undependable distribution
channels which undermine steady operations
y To offset the lack of a broad product line, a firm may sell directly to end users
y To bypass regular distribution channels in favor of direct sales and Internet retailing which may
y Lower distribution costs
y Produce a relative cost advantage over rivals
y Enable lower selling prices to end users
Strategic Disadvantages
of Vertical Integration
y Boosts resource requirements
y Locks firm deeper into same industry
y Results in fixed sources of supply and less flexibility in accommodating buyer demands for product variety
y Poses all types of capacity‐matching problems
y May require radically different skills / capabilities
y Reduces flexibility to make changes in component parts which may lengthen design time and ability to introduce new products
Pros and Cons of
Integration vs. De‐Integration
• Whether vertical integration is a viable
strategic option depends on its – Ability to lower cost, build expertise, increase differentiation, or enhance performance of strategy‐critical activities
– Impact on investment cost, flexibility, and administrative overhead – Contribution to enhancing a firm’s competitiveness
Many companies are finding that
de-integrating value chain activities is a
more flexible, economic strategic option!
Outsourcing Strategies
Concept
Outsourcing involves withdrawing from
certain value chain activities and relying
on outsiders to supply needed products,
support services, or functional activities
Internally
Performed
Activities
Suppliers
Support Services
Functional Activities
Distributors or Retailers
When Does Outsourcing Make Strategic Sense?
y Activity can be performed better or more cheaply by outside specialists y Activity is not crucial to achieve a sustainable competitive advantage
y Risk exposure to changing technology and/or changing buyer preferences is reduced
y It improves firm’s ability to innovate
y Operations are streamlined to
y Improve flexibility
y Cut time to get new products into the market
y It increases firm’s ability to assemble diverse kinds of expertise speedily and efficiently
y Firm can concentrate on “core” value chain activities that best suit its resource strengths Risk of an Outsourcing Strategy
• Farming out too many or the wrong activities, thus – Hollowing out capabilities
– Losing touch with activities and expertise that determine overall long‐term success
Offensive and Defensive Strategies
Offensive Strategies
Defensive Strategies
Used to protect competitive Used to build new
advantage (rarely lead to or stronger market position
creating advantage)
and/or create competitive advantage
Principles of Offensive Strategies
y Focus relentlessly on
y Building competitive advantage and
y Striving to convert it into decisive advantage
y Employ the element of surprise as opposed to doing what rivals expect
y Apply resources where rivals are least able to defend themselves
y Be impatient with the status quo and display a strong bias for swift, decisive actions to boost a firm’s competitive position vis‐
à‐vis rivals
Types of Offensive Strategy Options
1. Offer an equally good or better product at a lower price
2. Leapfrog competitors by being
–
First adopter of next‐generation technologies or
–
First to market with next‐generation products
3. Pursue continuous product innovation to draw sales and market share away from less innovative rivals
4. Adopt and improve on the good ideas of other companies
Types of Offensive Strategy Options (con’t)
5. Deliberately attack market segments where a key rival makes big profits
6. Attack competitive weaknesses of rivals
7. Maneuver around competitors and concentrate on capturing unoccupied or less contested market territory
8. Use hit‐and‐run or guerrilla warfare tactics to grab sales and market share from complacent rivals
9. Launch a preemptive strike to secure an advantageous position that rivals are prevented from duplicating
What Is a Blue Ocean Strategy?
y Seeks to gain a dramatic, durable competitive advantage by
y Abandoning efforts to beat out competitors in existing markets and
y Inventing a new industry or distinctive market segment to render existing competitors largely irrelevant and
y Allowing a company to create and capture altogether new demand
Type of Markets: Blue Ocean Strategy
Typical Market Space
y Industry boundaries are defined and accepted
y Competitive rules are well understood by all rivals
y Companies try to outperform rivals by capturing a bigger share of existing demand
Blue Ocean Market Space
y Industry does not exist yet
y Industry is untainted by competition
y Industry offers wide‐open opportunities if a firm has a product and strategy allowing it to
y Create new demand and
y Avoid fighting over existing demand
Choosing Rivals to Attack
• Four types of firms can be the target of a fresh offensive
– Vulnerable market leaders
– Runner‐up firms with weaknesses where challenger is strong
– Struggling rivals on verge of going under
– Small local or regional firms with limited capabilities
Using Offensive Strategy to Achieve Competitive Advantage
y Strategic offensives offering strongest basis for competitive advantage entail
y An important core competence
y A unique competitive capability
y A better‐known brand name
y A cost advantage in manufacturing or distribution
y Technological superiority
y A superior product
Defensive Strategy
Objectives
• Lessen risk of being attacked
• Blunt impact of any attack that occurs
• Influence challengers to aim attacks at other rivals
Approaches
‹ Block avenues open to challengers
‹ Signal challengers vigorous retaliation is likely
Block Avenues Open to Challengers
y Participate in alternative technologies
y Introduce new features, add new models, or broaden product line to close gaps rivals may pursue
y Maintain economy‐priced models
y Increase warranty coverage
y Offer free training and support services
y Reduce delivery times for spare parts
y Make early announcements about new products or price changes
y Challenge quality or safety of rivals’ products using legal tactics
y Sign exclusive agreements with distributors
Signal Challengers Retaliation Is Likely
y Publicly announce management’s strong commitment to maintain present market share
y Publicly commit firm to policy of matching rivals’ terms or prices
y Maintain war chest of cash reserves
y Make occasional counter‐response to moves of weaker rivals
Web Site Strategies
y Strategic Challenge – What use of the Internet should a company make in staking out its position in the marketplace?
y Five Web site approaches
y Use to disseminate only product information y Use as minor distribution channel
to sell direct to customers y Use as one of several important distribution
channels to access customers
y Use as primary distribution channel to access buyers
y Use as exclusive channel to transact sales with customers
Using the Internet to
Disseminate Product Information
y Approach – Website used to provide product information of manufacturers or wholesalers y Relies on click‐throughs to websites of
dealers for sales transactions
y Informs end‐users of location of retail stores
y Issues – Pursuing online sales may
y Signal weak strategic commitment to dealers
y Signal willingness to cannibalize dealers’ sales
y Prompt dealers to aggressively market rivals’ brands
y Avoids channel conflict with dealers – Important where strong support of dealer networks is essential
Using the Internet as a
Minor Distribution Channel
y Approach – Use online sales to
y Achieve incremental sales
y Gain online sales experience
y Conduct marketing research
y Learn more about buyer tastes and preferences
y Test reactions to new products
y Create added market buzz about products
y Unlikely to provoke much outcry from dealers Reasons to Use the Internet
as a Minor Distribution Channel
• Manufacturer’s profit margin from online sales is bigger than that from sales through traditional channels
• Encouraging buyers to visit a firm’s website educates them to the ease and convenience of purchasing online
• Selling directly to end users allows a manufacturer to make greater use of build‐to‐order manufacturing and assembly
Brick‐and‐Click Strategies:
An Appealing Middle Ground Approach
y Approach
y Sell directly to consumers and
y Use traditional wholesale/retail channels
y Strategic appeal for wholesalers and retailers
y Economic means of expanding a company’s economic reach
y Provide both existing and potential customers another choice of how to
y
y
y
y
Communicate with a company
Shop for product information
Make purchases
Resolve customer service problems
Strategies for Online Enterprises
y Approach – Use Internet as the exclusive channel for all buyer‐seller contact and transactions
y Strategic issues for an online company
y How to deliver unique value to buyers
y Whether it will pursue competitive advantage based on lower costs, differentiation, or better value for the money
y Whether it will have a broad or narrow product offering
y Whether to perform order fulfillment activities internally or to outsource them
y How it will draw traffic to its Web site and then convert page views into revenues
Choosing Appropriate
Functional‐Area Strategies
•
Involves strategic choices about how functional areas are managed to support competitive strategy and other strategic moves
•
Functional strategies include
–
–
–
–
–
Research and development
Production
Human resources
Sales and marketing
Finance
Tailoring functional-area strategies to
support key business-level strategies is critical!
First‐Mover Advantages
y When to make a strategic move is often as crucial as what move to make
y First‐mover advantages arise when
y Pioneering helps build firm’s image and reputation
y Early commitments to new technologies, new‐style components, and distribution channels can produce cost advantage
y Loyalty of first time buyers is high
y Moving first can be a preemptive strike
First‐Mover Disadvantages
y Moving early can be a disadvantage (or fail to produce an advantage) when
y When costs of pioneering are more than being an imitative follower and only negligible learning/experience curve benefits accrue to the leader
y Innovator’s products are primitive, not living up to buyer expectations
y Demand side of the market is skeptical about the benefits of new technology/product of a first‐mover
y Rapid technological change allows followers to leapfrog pioneers Strategic Issues:
To Be a First‐Mover or Not
y Key issue – Is the race to market leadership in an industry a marathon or a sprint?
y Seeking a competitive advantage by being a first‐
mover involves addressing several questions
y Does market takeoff depend on development of complementary products or services not currently available?
y Is new infrastructure required before buyer demand can surge?
y Will buyers need to learn new skills or adopt new behaviors?
y Will buyers encounter high switching costs?
y Are there influential competitors in a position
to delay or derail the efforts of a first‐mover?
Strategies for Companies Expanding into Foreign Markets
The Four Big Strategic Issues
in Competing Multinationally
• Whether to customize a company’s offerings in each different country market to match preferences of local buyers or offer a mostly standardized product worldwide
• Whether to employ essentially the same basic competitive strategy in all countries or modify the strategy country by country
• Where to locate a company’s production facilities,distribution
centers, and customer service operations to realize the greatest locational advantages
• How to efficiently transfer a company’s resource strengths and capabilities from one country to another to secure competitive advantage
Why Do Companies Expand
into Foreign Markets?
Gain access to
new customers
Obtain access to
valuable natural
resources
Achieve lower
costs and enhance
competitiveness
Spread
Capitalize
business risk across
on core
wider
competencies
market base
Cross‐Country Differences in Cultural, Demographic, and Market Conditions
• Cultures and lifestyles differ among countries
• Differences in market demographics and income levels
• Variations in manufacturing and distribution costs
• Fluctuating exchange rates
• Differences in host government economic and political demands
How Markets Differ from Country to Country
• Consumer tastes and preferences
• Consumer buying habits
• Market size and growth potential
• Distribution channels
• Driving forces
• Competitive pressures
Different Countries Have
Different Locational Appeal
• Manufacturing costs vary from country to country based on
– Wage rates
– Worker productivity
– Inflation rates
– Energy costs
– Tax rates
– Government regulations
• Quality of business environment varies from country to country
• Suppliers, trade associations, and makers of complementary products often find it advantageous to cluster their operations in the same general location
Fluctuating Exchange Rates Affect a Company’s Competitiveness
• Currency exchange rates are unpredictable
– Competitiveness of a company’s operations partly depends on whether exchange rate changes affect costs favorably or unfavorably
• Lessons of fluctuating exchange rates
– Exporters always gain in competitiveness when the currency of the country where goods are manufactured grows weaker
– Exporters are disadvantaged when the currency of the country where goods are manufactured grows stronger
Differences in Host
Government Trade Policies
•
•
•
•
Local content requirements
Restrictions on exports
Regulations on prices of imports
Import tariffs or quotas
• Other regulations
–
–
–
–
–
Technical standards
Product certification
Prior approval of capital spending projects
Withdrawal of funds from country
Ownership (minority or majority) by local citizens
Two Primary Patterns
of International Competition
• Multi‐Country
• Global Competition
Characteristics of Multi‐Country Competition
• Market contest among rivals in one country not closely connected to market contests in other countries
• Buyers in different countries are attracted to different product attributes
• Sellers vary from country to country
• Industry conditions and competitive forces in each national market differ in important respects
Rival firms battle for national championships –
winning in one country does not necessarily signal the ability to fare well in other countries!
Characteristics of Global Competition
• Competitive conditions across country markets are strongly linked
– Many of same rivals compete in many of the same country markets
– A true international market exists
• A firm’s competitive position in one country is affected by its position in other countries
• Competitive advantage is based on a firm’s world‐wide operations and overall global standing
Rival firms in globally competitive
industries vie for worldwide leadership!
Strategy Options for Competing in Foreign Markets
• Exporting
• Licensing
• Franchising strategy
• Multi‐country strategy
• Global strategy
• Strategic alliances or joint ventures
Export Strategies
• Involve using domestic plants as a production base for exporting to foreign markets
• Excellent initial strategy to pursue international sales
• Advantages
– Conservative way to test international waters
– Minimizes both risk and capital requirements
– Minimizes direct investments in foreign countries
• An export strategy is vulnerable when
– Manufacturing costs in home country are higher than in foreign countries where rivals have plants
– High shipping costs are involved
– Adverse fluctuations in currency exchange rates
Licensing Strategies
• Licensing makes sense when a firm
– Has valuable technical know‐how or a patented product but does not have international capabilities to enter foreign markets
– Desires to avoid risks of committing resources to markets which are
• Unfamiliar
• Politically volatile
• Economically unstable
• Disadvantage
– Risk of providing valuable technical know‐how to foreign firms and losing some control over its use
Franchising Strategies
• Often is better suited to global expansion efforts of service and retailing enterprises
• Advantages
– Franchisee bears most of costs and risks of establishing foreign locations
– Franchisor has to expend only the resources to recruit, train, and support franchisees
• Disadvantage
– Maintaining cross‐country quality control
Localized Multicountry Strategies or a Global Strategy?
Strategic Issue
• Whether to vary a company’s competitive approach to fit specific market conditions and buyer preferences in each host county
OR
• Whether to employ essentially the same strategy
in all countries
Strategic Options for Dealing with
Cross‐Country Variations
• A Company’s Strategic Options for Dealing with Cross‐Country Variations in Buyer Preferences and Market Conditions
– THINK LOCAL, ACT LOCAL
– THINK GLOBAL, ACT LOCAL
– THINK GLOBAL, ACT GLOBAL
What Is a “Think‐Local, Act‐Local” Approach to Strategy Making?
A company varies its product offerings and basic competitive strategy from country to country in an effort to be responsive to differing buyer preferences and market conditions.
Characteristics of a “Think‐Local,
Act‐Local” Approach to Strategy Making
• Business approaches are deliberately crafted to
– Accommodate differing tastes and expectations of buyers in each country
– Stake out the most attractive market positions vis‐à‐vis local competitors
• Local managers are given considerable strategy‐
making latitude
• Plants produce different products for different local markets
• Marketing and distribution are adapted to fit local customs and cultures
When Is a “Think‐Local, Act‐Local”
Approach to Strategy Making Necessary?
• Significant country‐to‐country differences in customer preferences and buying habits exist
• Host governments enact regulations requiring products sold locally meet strict manufacturing specifications or performance standards
• Trade restrictions of host governments are so diverse and complicated they preclude a uniform, coordinated worldwide market approach
Drawbacks of a “Think‐Local,
Act‐Local” Approach to Strategy Making
Poses problems of transferring competencies across borders
Works against building a
unified competitive advantage
What Is a “Think‐Global, Act‐Global” Approach to Strategy Making?
A company employs the same basic competitive approach in all countries where it operates.
Characteristics of a “Think‐Global,
Act‐Global” Approach to Strategy Making
• Same products under the same brand names are sold everywhere
• Same distribution channels are used in all countries
• Competition is based on the same capabilities and marketing approaches worldwide
• Strategic moves are integrated and coordinated worldwide
• Expansion occurs in most nations where significant buyer demand exists
• Strategic emphasis is placed on building a global brand name
• Opportunities to transfer ideas, new products, and capabilities from one country to another are aggressively pursued
What Is a “Think‐Global, Act‐Local” Approach to Strategy Making?
A company uses the same basic competitive theme in each country but allows local managers latitude to . . .
1. Incorporate whatever country‐specific variations in product attributes are needed to best satisfy local buyers and
2. Make whatever adjustments in production, distribution, and marketing are needed to compete under local market conditions
The Quest for Competitive
Advantage in Foreign Markets
• Three ways to gain competitive advantage
1. Locating activities among nations in ways that lower costs or achieve greater product differentiation
2. Efficient/effective transfer of competitively valuable competencies and capabilities from company operations in one country to company operations in another country
3. Coordinating dispersed activities in ways a domestic‐only competitor cannot
Locating Activities to Build a
Global Competitive Advantage
• Two issues
– Whether to • Concentrate each activity in a few countries or
• Disperse activities to many different nations
– Where to locate activities
• Which country is best location for which activity?
Concentrating Activities to Build
a Global Competitive Advantage
• Activities should be concentrated when
– Costs of manufacturing or other value chain activities are meaningfully lower in certain locations than in others
– There are sizable scale economies in performing the activity
– There is a steep learning curve associated
with performing an activity in a single location
– Certain locations have
• Superior resources
• Allow better coordination of related activities or
• Offer other valuable advantages
Dispersing Activities to Build a
Global Competitive Advantage • Activities should be dispersed when
– They need to be performed close to buyers
– Transportation costs, scale diseconomies, or trade barriers make centralization expensive
– Buffers for fluctuating exchange rates, supply interruptions, and adverse politics are needed
Transferring Valuable Competencies to Build a Global Competitive Advantage
• Transferring competencies, capabilities, and resource strengths across borders contributes to
– Development of broader competencies and capabilities
– Achievement of dominating depth in some competitively valuable area
• Dominating depth in a competitively valuable capability is a strong basis for sustainable competitive advantage over
– Other multinational or global competitors and
– Small domestic competitors in host countries
Coordinating Cross‐Border Activities to Build a Global Competitive Advantage
• Aligning activities located in different countries contributes
to competitive advantage in several ways
– Choose where and how to challenge rivals
– Shift production from one location to another to take advantage of most favorable cost or trade conditions or exchange rates
– Use online systems to collect ideas for new or improved products and to determine which products should be standardized or customized
– Enhance brand reputation by incorporating same differentiating attributes in its products in all markets where it competes