Collaborative Strategies. Supplementing the Chosen Competitive Strategy

Transcription

1 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.

2 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 Combination Strategies

3 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 tocompany dealings but fall short of merger or full joint venture partnership.

4 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

5 Characteristics of a Strategic Alliance Strategic alliance A formal agreement between two or more separate companies where there is Strategically relevant collaboration of some sort Joint contribution of resources Shared risk Shared control Mutual dependence Alliances often involve Joint marketing Joint sales or distribution Joint production Design collaboration Joint research Projects to jointly develop new technologies or products

6 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

7 Why Are Strategic Alliances Formed? To collaborate on technology development or new product development To fill gaps in technical or manufacturing expertise To create new skill sets and capabilities To improve supply chain efficiency To gain economies of scale in production and/or marketing To acquire or improve market access via joint marketing agreements

8 Potential Benefits of Alliances to Achieve Global and Industry Leadership Get into critical country markets quickly to accelerate process of building a global presence Gain inside knowledge about unfamiliar markets and cultures Access valuable skills and competencies concentrated in particular geographic locations Establish a beachhead to participate in target industry Master new technologies and build new expertise faster than would be possible internally Open up expanded opportunities in target industry by combining firm s capabilities with resources of partners

9 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

10 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

11 Merger and Acquisition Strategies Merger Combination and pooling of equals, with newly created firm often taking on a new name Acquisition One firm, the acquirer, purchases and absorbs operations of another, the acquired Merger acquisition strategy Much used strategic option Especially suited for situations where alliances do not provide a firm with needed capabilities or cost reducing opportunities Ownership allows for tightly integrated operations, creating more control and autonomy than alliances

12 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

13 Pitfalls of Mergers and Acquisitions Combining operations may result in Resistance from rank and file employees Hard to resolve conflicts in management styles and corporate cultures Tough problems of integration Greater than anticipated difficulties in Achieving expected cost savings Sharing of expertise Achieving enhanced competitive capabilities

14 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

15 Strategic Advantages of Backward Integration Generates cost savings only if volume needed is big enough to capture efficiencies of suppliers Potential to reduce costs exists when Suppliers have sizable profit margins Item supplied is a major cost component Resource requirements are easily met Can produce a differentiation based competitive advantage when it results in a better quality part Reduces risk of depending on suppliers of crucial raw materials / parts / components

16 Strategic Advantages of Forward Integration To gain better access to end users and better market visibility To compensate for undependable distribution channels which undermine steady operations To offset the lack of a broad product line, a firm may sell directly to end users To bypass regular distribution channels in favor of direct sales and Internet retailing which may Lower distribution costs Produce a relative cost advantage over rivals Enable lower selling prices to end users

17 Strategic Disadvantages of Vertical Integration Boosts resource requirements Locks firm deeper into same industry Results in fixed sources of supply and less flexibility in accommodating buyer demands for product variety Poses all types of capacity matching problems May require radically different skills / capabilities Reduces flexibility to make changes in component parts which may lengthen design time and ability to introduce new products

18 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!

19 Outsourcing Strategies Concept Outsourcing involves withdrawing from certain value chain activities and relying on outsiders to supply needed products, support services, or functional activities Suppliers Internally Performed Activities Functional Activities Support Services Distributors or Retailers

20 When Does Outsourcing Make Strategic Sense? Activity can be performed better or more cheaply by outside specialists Activity is not crucial to achieve a sustainable competitive advantage Risk exposure to changing technology and/or changing buyer preferences is reduced It improves firm s ability to innovate Operations are streamlined to Improve flexibility Cut time to get new products into the market It increases firm s ability to assemble diverse kinds of expertise speedily and efficiently Firm can concentrate on core value chain activities that best suit its resource strengths

21 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

22 Offensive and Defensive Strategies Offensive Strategies Used to build new or stronger market position and/or create competitive advantage Defensive Strategies Used to protect competitive advantage (rarely lead to creating advantage)

23 Principles of Offensive Strategies Focus relentlessly on Building competitive advantage and Striving to convert it into decisive advantage Employ the element of surprise as opposed to doing what rivals expect Apply resources where rivals are least able to defend themselves Be impatient with the status quo and display a strong bias for swift, decisive actions to boost a firm s competitive position visà vis rivals

24 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

25 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

26 What Is a Blue Ocean Strategy? Seeks to gain a dramatic, durable competitive advantage by Abandoning efforts to beat out competitors in existing markets and Inventing a new industry or distinctive market segment to render existing competitors largely irrelevant and Allowing a company to create and capture altogether new demand

27 Type of Markets: Blue Ocean Strategy Typical Market Space Industry boundaries are defined and accepted Competitive rules are well understood by all rivals Companies try to outperform rivals by capturing a bigger share of existing demand Blue Ocean Market Space Industry does not exist yet Industry is untainted by competition Industry offers wide open opportunities if a firm has a product and strategy allowing it to Create new demand and Avoid fighting over existing demand

28 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

29 Using Offensive Strategy to Achieve Competitive Advantage Strategic offensives offering strongest basis for competitive advantage entail An important core competence A unique competitive capability A better known brand name A cost advantage in manufacturing or distribution Technological superiority A superior product

30 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

31 Block Avenues Open to Challengers Participate in alternative technologies Introduce new features, add new models, or broaden product line to close gaps rivals may pursue Maintain economy priced models Increase warranty coverage Offer free training and support services Reduce delivery times for spare parts Make early announcements about new products or price changes Challenge quality or safety of rivals products using legal tactics Sign exclusive agreements with distributors

32 Signal Challengers Retaliation Is Likely Publicly announce management s strong commitment to maintain present market share Publicly commit firm to policy of matching rivals terms or prices Maintain war chest of cash reserves Make occasional counter response to moves of weaker rivals

33 Web Site Strategies Strategic Challenge What use of the Internet should a company make in staking out its position in the marketplace? Five Web site approaches Use to disseminate only product information Use as minor distribution channel to sell direct to customers Use as one of several important distribution channels to access customers Use as primary distribution channel to access buyers Use as exclusive channel to transact sales with customers

34 Using the Internet to Disseminate Product Information Approach Website used to provide product information of manufacturers or wholesalers Relies on click throughs to websites of dealers for sales transactions Informs end users of location of retail stores Issues Pursuing online sales may Signal weak strategic commitment to dealers Signal willingness to cannibalize dealers sales Prompt dealers to aggressively market rivals brands Avoids channel conflict with dealers Important where strong support of dealer networks is essential

35 Using the Internet as a Minor Distribution Channel Approach Use online sales to Achieve incremental sales Gain online sales experience Conduct marketing research Learn more about buyer tastes and preferences Test reactions to new products Create added market buzz about products Unlikely to provoke much outcry from dealers

36 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

37 Brick and Click Strategies: An Appealing Middle Ground Approach Approach Sell directly to consumers and Use traditional wholesale/retail channels Strategic appeal for wholesalers and retailers Economic means of expanding a company s economic reach Provide both existing and potential customers another choice of how to Communicate with a company Shop for product information Make purchases Resolve customer service problems

38 Strategies for Online Enterprises Approach Use Internet as the exclusive channel for all buyer seller contact and transactions Strategic issues for an online company How to deliver unique value to buyers Whether it will pursue competitive advantage based on lower costs, differentiation, or better value for the money Whether it will have a broad or narrow product offering Whether to perform order fulfillment activities internally or to outsource them How it will draw traffic to its Web site and then convert page views into revenues

39 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!

40 First Mover Advantages When to make a strategic move is often as crucial as what move to make First mover advantages arise when Pioneering helps build firm s image and reputation Early commitments to new technologies, new style components, and distribution channels can produce cost advantage Loyalty of first time buyers is high Moving first can be a preemptive strike

41 First Mover Disadvantages Moving early can be a disadvantage (or fail to produce an advantage) when When costs of pioneering are more than being an imitative follower and only negligible learning/experience curve benefits accrue to the leader Innovator s products are primitive, not living up to buyer expectations Demand side of the market is skeptical about the benefits of new technology/product of a first mover Rapid technological change allows followers to leapfrog pioneers

42 Strategic Issues: To Be a First Mover or Not Key issue Is the race to market leadership in an industry a marathon or a sprint? Seeking a competitive advantage by being a firstmover involves addressing several questions Does market takeoff depend on development of complementary products or services not currently available? Is new infrastructure required before buyer demand can surge? Will buyers need to learn new skills or adopt new behaviors? Will buyers encounter high switching costs? Are there influential competitors in a position to delay or derail the efforts of a first mover?

43 Strategies for Companies Expanding into Foreign Markets

44 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

45 Why Do Companies Expand Gain access to new customers Capitalize on core competencies into Foreign Markets? Achieve lower costs and enhance competitiveness Obtain access to valuable natural resources Spread business risk across wider market base

46 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

47 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

48 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

49 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

50 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

51 Two Primary Patterns of International Competition Multi Country Global Competition

52 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!

53 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!

54 Strategy Options for Competing in Foreign Markets Exporting Licensing Franchising strategy Multi country strategy Global strategy Strategic alliances or joint ventures

55 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

56 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

57 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

58 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

59 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

60 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.

61 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 strategymaking latitude Plants produce different products for different local markets Marketing and distribution are adapted to fit local customs and cultures

62 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

63 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

64 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.

65 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

66 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 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

67 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

68 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?

69 Concentrating Activities to Build a Global Competitive Advantage Activitiesshould 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

70 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

71 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

72 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