MODULE – V

COMPETITIVE STRATEGIES

Business Unit - An organizational entity with its own unique mission, set of competitors
and industry.

Competitive Advantage - A state whereby;; a business unit’s successful strategies cannot

be easily duplicated by it competitors.

Strategic Group – A select group of direct competitors who have similar strategic
profiles.

Generic Strategies – Strategies that can be adopted by business unit to guide their
organization. based on their similarities.

Generic Competitive Strategies

Michael Porter developed the most commonly cited generic strategy frame work.
According to Porter’s a business unit must address two basic competitive concerns. First
Managers must determine whether the business unit should focus its efforts on an
identifiable subset of the industry in which it operates or seek to serve the entire market
as a whole.

Second, managers must determine whether the business unit should compete primarily by
minimizing its costs relative to those of its competitors (i.e. low cost strategy) or by
seeking to offer unique and or unusual products and services (i.e. a differentiation
strategy). Efficiency is the key to such business. Ex – Nirma, Wal-Mart

1. Overall Cost Leadership Strategy - Generates competitive advantage in the form of

offering products to customers at lower prices which helps in achieving large market.-no
frill products & services. The Co pursuing overall cost leadership must aggressively
pursue a position of cost leadership by constructing the most efficient scale faculties and
must be good in engineering, manufacturing and physical distribution. The Co has a
large market share so that its per unit cost is the lowest. Ex – Hero cycles

2. Cost Focus Strategy- An organization focuses on a narrow segment of the market and
offers product at lower price than its competitors on the basis of its low cost. with no
frills product & services for a market niche with elastic demand. According to Porter,
those companies pursuing the same strategy; directed to the same target market constitute
a strategic group. The Co which has clear strategy on cost dimension performs better
than others. This strategy has the same risk like overall cost leadership strategy has.
Ex – UB Airways ticket fare Rs.1/-

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3. Differentiation Strategy - An act of designing a set of meaningful differences to
distinguish the company’s offering from competitors’ offerings in which a large business
products and markets to the entire industry products or services that can be readily
distinguished from those of it competitors. Thus, the product offered by a Co is
perceived by customers as being different from other companies offering the similar
product. The product is perceived as distinct, may attract higher price which results into
higher profitability. One must be vigil to see whether competitors also go on the same
strategy and change the design and models. Ex- Gillette blades, Pizza

4. Focused Differentiation Strategy - This strategy generates advantage based on the

ability to create more customer value for a narrowly targeted segment and results from a
better understanding of customer needs. Ex – Hotels

Strategic Alliance & Collaborative Partnership

The basic idea behind formation of a strategic alliance is to generate synergistic effect
which helps in generating competitive advantage. This is based on the idea that “ If you
can’t do a thing alone, join hands with others.” It is for a specific task or for a specific
period without having equity interest. It aims at creating a win-win situation for all
partners.

The reasons for Strategic Alliances are,

1. It brings different competencies of partners together. This combination of

competencies is able to produce better results as compared to the sum total of the
results of individual organizations competencies taken together.
2. In the age of changing technology and markets forces, all organizations cannot
develop matching competencies. Therefore, in order to match environmental
requirements, they join hand with others to complement their competencies.
3. In many cases, new product development costs are quite high. In order to bear such
costs, many organizations collaborate among themselves, share costs and outcomes
of new products.
4. Sometimes, global alliance are formed with organizations of another country to ease
entry barriers as local organizations may be well aware about the local business
conditions.
5. Strategic alliance are formed to create opportunities to learn either the new way of
doing a thing or doing new thing.

For success the essentials are,

1. Each partner should have Trust between them and no suspicion.

2. Good understanding between partners. When the business shows downtrend, there
will be more mis-understanding and quarrels leading to litigation.
3. Partrners should not compete each other. There should be transparency and
limitations in their own accepted duties. No intervention.
Classification

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 1. Technology Development Alliance – All partners poor their R & D efforts together
by exchanging information and ideas among themselves through networking in
order to reduce costs, time and risk.

2. Operations and logistics Alliance – Aims at improving production or services

efficiently through exchange of information about the task.

3. Marketing, Sales and Service Alliance – To create synergistic effect for marketing
products and or services, thereby enhancing sales revenue and reducing marketing
costs. Such alliances are quite common in India.

4. Single Country or Multi-country Alliance - Alliance among foreign country

partners or from the same country. In the globalization of world economy, many
alliances have been formed at International level.

4. X & Y Alliance - Partners may be of same skills or different skills join together to
reap the benefits of economies of scale.

Collaborative Partners

Any alliance is passable with minimum two partners and any number of partners with the
Core Competence (competitive skills), commitment and expertised back ground on these
lines. There are essential qualifications that make the Partnership successful. A
corporate-level growth strategy in which two or more firms agree to share the costs, risks
and benefits associated with pursuing new business opportunities. The strategic alliances
are often referred to as partnership

Factors should be considered in choosing alliance partners.

1. Drivers - What benefit are offered by collaboration?

2. Partners - Which partners should be chosen?
3. Facilitators - Does the external environment favor a partnership?
4. Components - Activities and processes in the network.
5. Effectiveness - Does the previous history of alliances generate good results?
6. Market Orientation – Whether partners are harder to control and may not have the
same commitment to the end user?

Selection of the right kind of partner is the most essential part of Strategic Alliance.
(1) a good partner helps the Co achieve strategic goals such as achieving market
access, share the costs and risk of new product development, or gaining access to
critical core competencies. (2) A good partner shares the firm’s vision for the
purpose of the alliance. This will make them firmly united and holds good
relations. . (3) A good partner is unlikely to try to exploit the alliance
opportunistically for its self interest. Giving little to the partner where more is to

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 be given – technical know how. All these verification can be made by referring
their behavior with earlier partnership with other firms.

Mergers & Acquisition Strategy

Merger or Amalgamation: is the integration of two or more business. Is also the joining
of two separate Cos to form a single Co – an external strategy for growth of the
organization. A corporate-level growth strategy in which a firm combines with another
firm through an exchange of stock. A merger occurs when two or more firms, usually of
similar sizes, combine into one through an exchange of stock. Mergers are generally
undertaken to share or transfer resources and or improve competitiveness by developing
synergy. The name of the merged Co will go after merging. There will be one Company
i.e. Merger.

Reasons for Merger

1. Quick entry in the business.- There is no gestation time and familiarity of the
product or service to the market and customers.
2. Faster Growth Rate - The volume of business can be raised rapidly with less risk.
You can overcome a competitors in certain cases. Ready utilities like production,
marketing, distribution, research & Development.
3. Diversification Advantages - If the acquiring Co or Merger Co wants to diversify,
they can takeover the same product Co and enter into the business with less time..
4. Reduction in Competitors and Dependence - You can eliminate Competitors and
increase in your market share. You can enjoy a ready market.
5. Tax advantage - If the merged Co possessing accumulated losses can be set off
by the Merger Co.
6. Synergistic Advantages - The complementary capabilities can be achieved like
2 + 2 = 5 in Marketing, investment, operating (utilization of common facilities,
personnel, overheads, inventories etc), Common Management and avoiding
duplicating of managerial and other personnel.

Merged Organization’s view point

1. Merger can be treated as a liquidation strategy, if it is beneficial financially,

business, employees, shareholders.
2. Merger may provide growth opportunities to the business specially when future
management can provide all resources instead of becoming sick or continuing with
sickness. Getting better technology to the existing business lines.
3. Merger gets the benefit of forward/backward integration, requiring higher support
which the present management cannot provide.

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Causes for failure

1. In accuracy (manipulated) of data causing teething problems after merger. The

advantages are over emphasized and weaknesses are suppressed.
2. Incompatibility of managerial and other persons causing misalignment of
operations.
3. Inadequate planning of merger causing confusion, misunderstanding and delays.

Acquisition or Takeover is where one business purchases another. Is the purchase of a

controlling interest in another Co. A form of a merger whereby one firm purchases
another, often with a combination of cash and stock. Firms with large, successful
businesses often acquire smaller competitors with different or complementary product or
service lines. Like Cement to Cement, Soap to Soap, Car to Car etc.
Acquiring the existing organizations, products, technology, facilities, talent or manpower
has the strong advantage of much quicker entry into the target market, while at the same
time detouring such barriers to entry as licensing, patents, technological inexperience,
lack of raw material suppliers, substantial economies of scale, establishment of
distribution channels, etc.
The acquisition or Merger goes with a strong report on survey of economics, business
prospects, brand equity and financial soundness

The acquirer should attempt an evaluation of the following

1. The prospects of technological change in the industry.

2. The size and strength of competitors.
3. The reaction of competitors to an acquisition.
4. The likelihood of government information and legislation.
5. The state of the industry and its long-term prospects.
6. The amount of synergy obtaininable from the merger or acquisition.

Takeover is done through negotiations or by calling bids by outsiders. The first basic step
in acquisition process is the definition of acquisitions objectives. This is necessary
because it will define precisely the type of organization to be acquired and consequently
the type of efforts required in the process. The terms are to be complementary to both.
The focus is on value creation to the acquirer Co. The strength and weaknesses are
worked out and solutions are found with a planning the programm of acquisition
schedule.

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Outsourcing Strategy

Contractual relationships with enterprises outside the organization – to manage many of

the functions that were previously handled in-house. Outsourcing implies a longer term
commitment associated with more complex activities. The idea behind is, the Co can
concentrate on their core or vital functions and give value addition. The minor activities
are essential in nature are outsourced for a cost.

Involves separating out some of a Co’s value creation activities within a business and
letting them be performed by a specialist in that activity. In other words, strategic
outsourcing is concerned with reducing the boundaries of the Co and focusing on fewer
value creation functions. Like payroll, pension, insurance, tax management, legal
matters, HR matters, Xeroxing, cleaning, recruitment, training etc are outsourced. The
Co gets the advice from specialists, providing conveyance economically advantageous,
fast and with less burden. It is also understood that the activities are “non core” or “non-
strategic” area outsourcing.

Outsourcing or the use of source other than internal capacity to accomplish some task or
process, has become a major operational tactic in today’s downsizing-oriented firms.
Outsourcing is based on the notion that strategies should be built around core
competencies that add the most value and functions or activities that add little value or
that cannot be done cost effectively should be done outside the firm. We can get better
quality of service at lower cost and risk. You can tap the market and get the best out of it.

First-Mover Advantages & Disadvantages

Benefits derived from being the first firm to offer a new or modified product or service.
Prospectors typically seek “First-mover advantages” by becoming First to enter the
market.

First mover advantages can be strong, as demonstrated by; product widely known by their
original brand names. Being first, however, can be a risky proposition, and research has
shown that competitors may be able to catch up quickly and effectively. As a result,
prospectors must develop expertise in innovation and evaluate risk scenarios effectively.

Defenders are almost the opposite of prospectors. They perceive the environment to be
stable and certain, seeking stability and control in their operations to achieve maximum
efficiency In high-technology industries, companies often compete by surviving to be
the first to develop revolutionary new products, that is, to be a “ First Mover” By
definition, the first mover with regard to a revolutionary product satisfies unmet
consumer needs and demand is high, the first mover can capture significant revenues and
profits. Such revenues and profits signal to potential rivals that there is money to be
made by imitation will rush into the market created by the first mover, competing away
the first mover’s monopoly profits and leaving all participants in the market with a much
lower level of returns.

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Advantages

1. An opportunity to exploit a virgin market network effects and positive feedback

loops, locking consumers into its technology.
2. Can establish significant Brand Loyalty which is expensive for later entrants to
break down.
3. Be able to grab sales volume ahead of rivals and thus reap cost advantages
associated with the realization of scale economies and learning effects.
4. Be able to create switching costs for its customers that subsequently make it
difficult for rivals to enter the market. Can change the product features what the
rivals are making. And still can compete with them.
5. Be able to accumulate valuable knowledge related to customer needs, distribution
channels, product technology process technology etc

Disadvantages

1. Significant pioneering costs is to be incurred which the rival need not. From
processing, marketing channels, pricing etc are to be done “One time” carries a risk.
2. Prone to make mistakes because there are so many uncertainties in a new market.
3. Risk of building the wrong resource and capabilities because they are focusing on a
customer set that is not going to be characteristic of the mass market. “trial &
error” cost.
4. Risk of investing in an inferior or obsolete technology as there is speed of change
on design and function of the product.

Strategies for using Internet in the Global scenario

Globalization of Trade & Commerce is rapidly progressing by the use of Internet

Services more efficiently. One can sit on any corner of the Globe and do business with
anyone on the Globe through internet and computers.

The Internet is transforming much of the way business is conducted. This is especially
true of business to business commerce.
Internet has provided a new channel of distribution, a more efficient means of gather and
disseminating strategic information, and a new way of communicating with customers.
The most fundamental change, however, concerns the dramatic shifts in organizational
structure and their influences on viable Business Models i.e. the mechanisms whereby the
organization seeks to earn a profit by selling goods.
Internet provides a wealth of information to communicate customers.

E-Commerce and the Internet

Electronic Commerce can be defined as using a computer network to speed up all stages
of the business process, from design to buying, selling and delivery. The process is fairly
familiar between companies, but less so between retailer and customer.

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The Internet is the sum of all the separate networks (or stand-alone computers) runs by
organizations and individuals like. (It has been described as an International telephone
service for computers.) The internet provides opportunities in automate tasks which
would previously have required more costly interaction with the organization. These
have often been called “ low-touch “or “zero-touch” approaches. The potential for using
the internet to allow customers and suppliers to acquire up to date information about
forecast needs and delivery schedules is a very recent development, but one which is
being used by an increasing number of companies.

Information symmetry - When all parties to a transaction where the same information
concerning that transaction.
Information asymmetry - When one party has information that another does not
World Wide Web (WWW) – The vast assortment of computers on the internet that
support hypertext.

Forms of Business

Click and Bricks – The simultaneous application of both electronic (“clicks”) and
traditional (“bricks’) forms of commerce - retail business.
Business-to Business (B2B) - The segment of electronic commerce whereby businesses
utilize the internet to solicit transactions from each other. – supplier to seller – whole sale.
or manufacturer to seller, service provider to customer.
Business-to-Consumer (B2C) – The segment of electronic commerce whereby businesses
utilize the Internet to solicit transactions from consumers, also known as e-tailing.
E-tailing – Another term for Business- to –Consumer.
Consumer to Consumer - (C2C) The segment of electronic commerce whereby
consumers utilize the Internet to solicit transactions from each other.
Consumer-to-Business - (C2B) - The segment of electronic commerce whereby
consumers utilize the Internet to solicit transactions from business.

The Internet ha had a profound effect on the field of strategic management. It increases
access to information for all parties involved in a transaction, acts as a distribution
channel for non-tangible goods and services, can improve transaction speed, offers
opportunities for interactivity among participation in business transactions, and presents
potential for cost reductions and cost shifting. B2B and B2C are two largest internet
based business.

International Business level strategies – Strategic Alliance & Joint Venture.

Global Strategy or International Business Strategy is relevant in Globalization of Trade

and commerce. Some Cos choose to be involved on an International basis by operating in
various countries but limiting their involvement to importing, exporting, licensing or
making strategic alliances. Exporting alone can significantly benefit even a small Co.
However, international joint ventures – a form of strategic alliance involving co-
operative arrangements between business across borders - may be desirable even when
resources for a direct investment are available.

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Firms with global objectives may decide to invest directly in facilities abroad. Due to the
complexities associated with establishing operations across borders, however, strategic
alliances may be particularly attractive to firms seeking to expand their global
involvement. Companies often possess market, regulatory and other knowledge about
their domestic markets but may need to “partner” with Cos abroad to gain access to this
knowledge as it pertains to international markets.

International strategic alliances provide a number of advantages to a firm . They can

provide entry into a global market, access to the partner’s knowledge about the foreign
market, and risk sharing with the partner firm. They can work effectively when partners
can learn from each other, when neither partner is large enough to function alone, and
when both partners share common strategic goal but are not in direct competition.
However a number of problems can arise from International joint ventures, including
disputes and lack of trust over proprietary. Knowledge, cultural difference between firms
and disputes over ways to share the costs and revenues associated with the partnerships

Most manufacturing Cos begin their global expansion as exporters and only later switch
to one of the other does for serving a foreign market.

1. International licensing - An arrangement whereby a foreign licensee purchases the

rights to produce a company’s products and/or use its technology in the licensee’s
country for a negotiated fee structure. Eg - Pharmaceuticals, patented goods which
has a formula.
2. International franchising - . A form of licensing in which a local franchisee pays a
franchiser in another country for the right to use the franchiser’s brand names,
promotions, materials and producer. Franchising is more used in Service Industries
such as fast food.
3. Exporting: Exporting has two distinct advantages: it avoids the costs of
establishing manufacturing operations in the host country, which are often
substantial and it may be consistent with realizing experience curve cost economies
and location economies
4. Foreign Branching: Is an extension of the Company in its foreign market – a
separate located strategic business unit directly responsible for fulfilling the
operational duties assigned to it by corporate management, including sales,
customer service and physical distribution Host counties may require that the
brands to be “domesticated”, that is, have some local managers in middle and
upper-level positions.
5. Wholly Owned Subsidiary:: Is one in which the parent Co owns 100% of
subsidiary’s shares. To establish a wholly owned subsidiary in a foreign market, a
company can either set up a completely new operation in that country or acquire an
established host country Co and use it to promote its products in the host market.
There are 3 advantages a) Competitive advantage is based on its control of a
technical (high-tech) competency b) Freedom to have full control in all areas of
operation and full profits unlike in JV c) It can recognize the local resources and

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 further develop/expand the business lines. The disadvantage is, considerable
amount of investment and running high risk.

6. Joint Venture: is a contractual arrangement whereby two or more parties undertake

an economic activity; which is subject to joint control. A form of Multi National
Strategy Cos goes for Joint Venture with a target nation firm. JV involves
Collaboration rather than mere exchange. Establishing a JV with a foreign Co has
long been a favored mode of entering a new market. The advantages are, it can
benefit from a local partner’s knowledge of a host country’s competitive conditions,
culture, language, political systems and business systems. When the development
costs and risks of opening a foreign market are high, a company might gain by
sharing these costs and risk with a local partner. Depending upon the political
linkage, the JV gets encouragement from Govt.

The disadvantage is the Technical Know-how goes in the hand of partner other
controls like market, production, quality etc The majority stake holder is likely to
dominate and take control of everything., there arising misunderstanding and
inefficiency;

JV can be made within the country which is very common. The Cos having the
core competence in their respective fields will come together, form a Co and carry
on the Economic activity.

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