Strategic Management 05-06-07 - 08 Functional Business Competitive Industry Global Strategies

Chapter 5
Chapter 5
Functional Level Strategy
Functional Level Strategy
Strategic
Strategic Charles W. L. Hill Charles W. L. Hill
Management
Management Gareth R. J ones Gareth R. J ones
Fifth Edition Fifth Edition
PowerPoint Presentation PowerPoint Presentation
by Charlie Cook by Charlie Cook
An Integrated Approach An Integrated Approach
4-2
Production and Efficiency
Production and Efficiency
Economies of scale
Economies of scale
Lower unit costs due to large

Lower unit costs due to large
scale production volumes.
scale production volumes.
Learning effects
Learning effects
Cost reductions due to

Cost reductions due to
learning by doing.
learning by doing.
The experience curve
The experience curve
Systematic unit
Systematic unit
-
-
cost reductions that are the result of
cost reductions that are the result of
accumulated output.
accumulated output.
4-3
FIGURE 5.1
Production and Efficiency:
Economies of Scale
Economies of Scale
A typical long
A typical long
-
-
run
run
unit
unit
-
-
cost curve:
cost curve:
4-4
FIGURE 5.3
The Experience Curve
A typical experience curve:
A typical experience curve:
4-5
FIGURE 5.2
Learning Effects
Learning Effects
Economies of scale
Economies of scale
and learning effects:
and learning effects:
4-6
FIGURE 5.4
Unit production costs in an Unit production costs in an
integrated steel mill and a integrated steel mill and a minimill minimill. .
4-7
Manufacturing and Mass Customization
Manufacturing and Mass Customization
Flexible manufacturing technology (lean production)
Flexible manufacturing technology (lean production)

Reduced setup times
Reduced setup times

Increased machine utilization
Increased machine utilization

Improved quality control
Improved quality control

Lower inventory levels
Lower inventory levels
Mass customization
Mass customization

Low cost and product customization
Low cost and product customization
Flexible machine cells
Flexible machine cells

Increased variety of operations
Increased variety of operations
4-8
FIGURE 5.5
Production and Efficiency: Flexible Manufacturing
Production and Efficiency: Flexible Manufacturing
The tradeoff between The tradeoff between
costs and product variety costs and product variety
4-9
Marketing and Efficiency
Marketing and Efficiency
Marketing strategy:
Marketing strategy:
Product design
Product design
Advertising
Advertising
Promotion
Promotion
Pricing
Pricing
Distribution
Distribution
4-10
FIGURE 5.6
The Relationship Between Average
The Relationship Between Average
Unit Costs and Customer
Unit Costs and Customer
Defection Rates
Defection Rates
4-11
FIGURE 5.7
The Relationship Between Customer
The Relationship Between Customer
Loyalty and Profit
Loyalty and Profit
per Customer
per Customer
4-12
Materials Management, J IT, and
Materials Management, J IT, and
Efficiency
Efficiency
Materials management
Materials management
Getting materials into and through

Getting materials into and through
the production process and out
the production process and out
through the distribution system
through the distribution system
to the end user.
to the end user.
J ust
J ust
-
-
In
In
-
-
Time (J IT)
Time (J IT)
Reduce inventory holding costs by having materials

Reduce inventory holding costs by having materials
arrive JIT to enter the production process.
arrive JIT to enter the production process.
JIT risk: There are no buffer stocks for

JIT risk: There are no buffer stocks for
nondelivery
nondelivery
or
or
unanticipated increases in demand.
unanticipated increases in demand.
4-13
R&D Strategy and Efficiency
R&D Strategy and Efficiency
Design easy
Design easy
-
-
to
to
-
-
manufacture products
manufacture products
Reduce numbers of parts per unit.

Reduce numbers of parts per unit.
Reduce assembly time.

Reduce assembly time.
Closely coordinate R&D

Closely coordinate R&D
and production activities.
and production activities.
Pioneer process innovations
Pioneer process innovations
Innovations create competitive

Innovations create competitive
advantage through gains in process efficiencies.
advantage through gains in process efficiencies.
4-14
Achieving Superior Innovation
Achieving Superior Innovation
Causes of the high failure rate of innovation:
Causes of the high failure rate of innovation:
Uncertainty
Uncertainty

Quantum innovation
Quantum innovation

Incremental innovation
Incremental innovation
Poor commercialization
Poor commercialization
Poor positioning strategy

Poor positioning strategy
Technological myopia
Technological myopia
Slowness in marketing
Slowness in marketing
4-15
Achieving Superior Customer
Achieving Superior Customer
Responsiveness
Responsiveness
Developing a customer focus:
Developing a customer focus:

Top leadership commitment to customers.
Top leadership commitment to customers.

Employee attitudes toward customers.
Employee attitudes toward customers.

Bringing customers into the company.
Bringing customers into the company.
Satisfying customer needs:
Satisfying customer needs:

Customization of the features of products and services to meet
Customization of the features of products and services to meet
the unique need of groups and individual customers.
the unique need of groups and individual customers.

Reducing customer response times:
Reducing customer response times:
Marketing that communicates with production. Marketing that communicates with production.
Flexible production and materials management. Flexible production and materials management.
Information systems that support the process. Information systems that support the process.
Lec
Lec
4
4
Business
Business
-
-
Level Strategy
Level Strategy
Strategic
Management
4-17
What Is Business
What Is Business
-
-
Level Strategy?
Level Strategy?
Business
Business
-
-
level strategy
level strategy
A plan of action to use the firm

s resources and
s resources and
distinctive competencies to gain competitive
advantage.
advantage.
Abell
Abell
s
s
Business Definition
Business Definition

process
process
Customer needs
Customer needs
product differentiation (what)

Customer groups
Customer groups
market segmentation (who)

Distinctive competencies
competitive actions (how)

4-18
Choosing a Generic Business
-
-
Level Strategy
Level Strategy
Product/Market/Distinctive
-
-
Competency Choices
Competency Choices
and Generic Competitive Strategies
Cost Leadership Cost Leadership Differentiation Differentiation Focus Focus
Product Product
Differentiation Differentiation
Low Low
(principally (principally
by price) by price)
High High
(principally by (principally by
uniqueness) uniqueness)
Low to high Low to high
(price or (price or
Market Market
Segmentation Segmentation
Low Low
(mass market) (mass market)
High High
(many market (many market
segments) segments)
Low Low
(one or a few (one or a few
segments) segments)
Distinctive Distinctive
Competency Competency
Manufacturing Manufacturing
and materials and materials
management management
Research and Research and
development, sales development, sales
and marketing and marketing
Any kind of Any kind of
distinctive distinctive
competency competency
TABLE 6.1
4-19
FIGURE 6.1
Types of Business
Types of Business
-
-
Level Strategies
Level Strategies
4-20
Choosing a Business
Choosing a Business
-
-
Level Strategy
Level Strategy
Cost
Cost
-
-
leadership strategy
leadership strategy
success is affected by:
Competitors producing at equal or lower costs.

The bargaining strength of suppliers.

Powerful buyers demanding lower prices.

Substitute products moving into the market.

New entrants overcoming entry barriers.

4-21
Choosing a Business
Choosing a Business
-
-
Level Strategy
Level Strategy
Differentiation strategy
success is achieved
success is achieved
through:
through:
An emphasis on product or service quality.

Innovation in providing new features for which

customers will pay a premium price.
Responsiveness to customers after the sale.

Appealing to the psychological desires of customers.

4-22
Choosing a Business
Choosing a Business
-
-
Level Strategy
Level Strategy
Competitors imitating features and services.

Increases in supplier costs exceeding differentiator

s
s
price premium.
price premium.
Buyers becoming less brand loyal.

Substitute products adding similar features.

New entrants overcoming entry barriers related to

differentiator
differentiator
s competitive advantage.
4-23
Choosing a Business
Choosing a Business
-
-
Level Strategy
Level Strategy
Focus strategy
Focus strategy
Competitor entry into focuser

s market segment.
s market segment.
Suppliers capable of increasing costs affecting only

the focuser.
the focuser.
Buyers defecting from market segment.

Substitute products attracting customers away from

focuser
focuser
s segment.
s segment.
New entrants overcoming entry barriers that are the

source of the focuser
4-24
Strategic Groups and Business
-
-
Level
Level
Strategy
Strategy
Implications for business
-
-
level strategy
level strategy
Immediate competitors are companies pursuing same

strategy within the same strategic group.
Different strategic groups can have a different

standing with respect to the effects of the five
competitive forces.
competitive forces.
First mover advantage
Benefits are first choice of customers and suppliers,

setting standards, building entry barriers.
4-25
Choosing an Investment Strategy at
the Business Level
the Business Level
Investment strategy
Investment strategy
The resources (human, functional, and financial)

required to gain sustainable competitive advantage.
Competitive position
Market share is an indicator of competitive strength.

Distinctive competencies are competitive tools.

Life Cycle Effects
Life Cycle Effects
An industry
An industry
s life cycle stage affects its attractiveness

to investment prospects.
4-26
Choosing an Investment Strategy at the
Business Level
Business Level
Stage of the Stage of the
Industry Life Cycle Industry Life Cycle
Strong Competitive Strong Competitive
Position Position
Weak Competitive Weak Competitive
Position Position
Embryonic Embryonic
Share building Share building Share building Share building
Growth Growth
Growth Growth Market concentration Market concentration
Shakeout Shakeout
Share increasing Share increasing Market concentration or Market concentration or
harvest/liquidation harvest/liquidation
Maturity Maturity
Hold Hold- -and and- -maintain or profit maintain or profit Harvest or Harvest or
liquidation/divestiture liquidation/divestiture
Decline Decline
Market concentration or Market concentration or
harvest (asset reduction) harvest (asset reduction)
Turnaround, liquidation, Turnaround, liquidation,
or divestiture or divestiture
TABLE 6.2
Copyright 2001 Houghton Mifflin Company. All rights reserved.
Chapter 6
Chapter 6
Business
Business
-
-
Level Strategy
Level Strategy
Strategic
Management
Copyright 2001 Houghton Mifflin Company. All rights reserved. 6-28
What Is Business
What Is Business
-
-
Level Strategy?
Level Strategy?
Business
Business
-
-
level strategy
level strategy

s resources and
s resources and
advantage.
advantage.
Abell
Abell
s
s
Business Definition
Business Definition

process
process
Customer needs
Customer needs

Customer groups
Customer groups


-
-
Level Strategy
Level Strategy
-
-
Competency Choices
Competency Choices
Cost Leadership Cost Leadership Differentiation Differentiation Focus Focus
Product Product
Differentiation Differentiation
Low Low
(principally (principally
by price) by price)
High High
(principally by (principally by
Low to high Low to high
(price or (price or
Market Market
Segmentation Segmentation
Low Low
(mass market) (mass market)
High High
(many market (many market
segments) segments)
Low Low
(one or a few (one or a few
segments) segments)
Distinctive Distinctive
Competency Competency
Manufacturing Manufacturing
and materials and materials
management management
Research and Research and
development, sales development, sales
and marketing and marketing
Any kind of Any kind of
distinctive distinctive
competency competency
TABLE 6.1
FIGURE 6.1
Types of Business
Types of Business
-
-
Level Strategies
Level Strategies
Choosing a Business
Choosing a Business
-
-
Level Strategy
Level Strategy
Cost
Cost
-
-
leadership strategy
leadership strategy





Choosing a Business
Choosing a Business
-
-
Level Strategy
Level Strategy
success is achieved
success is achieved
through:
through:




Choosing a Business
Choosing a Business
-
-
Level Strategy
Level Strategy


s
s
price premium.
price premium.



differentiator
differentiator
Choosing a Business
Choosing a Business
-
-
Level Strategy
Level Strategy
Focus strategy
Focus strategy

s market segment.
s market segment.

the focuser.
the focuser.


focuser
focuser
s segment.
s segment.

-
-
Level
Level
Strategy
Strategy
-
-
level strategy
level strategy


competitive forces.
competitive forces.

the Business Level
the Business Level
Investment strategy
Investment strategy



Life Cycle Effects
Life Cycle Effects
An industry
An industry

Business Level
Business Level
Turnaround, liquidation, Turnaround, liquidation,
or divestiture or divestiture
harvest (asset reduction) harvest (asset reduction)
Decline Decline
Harvest or Harvest or
liquidation/divestiture liquidation/divestiture
Hold Hold- -and and- -maintain or profit maintain or profit
Maturity Maturity
harvest/liquidation harvest/liquidation
Share increasing Share increasing
Shakeout Shakeout
Market concentration Market concentration Growth Growth
Growth Growth
Share building Share building Share building Share building
Embryonic Embryonic
Weak Competitive Weak Competitive
Position Position
Strong Competitive Strong Competitive
Position Position
Stage of the Stage of the
Industry Life Cycle Industry Life Cycle
TABLE 6.2
Chapter 7
Chapter 7
Competitive Strategy and the
Competitive Strategy and the
Industry Environment
Industry Environment
Strategic
Management
Strategies in Fragmented Industries
Fragmented industry characteristics:
Fragmented industry characteristics:
Localized markets with low entry

Localized markets with low entry
barriers (e.g., Mom
barriers (e.g., Mom
s Diner).
s Diner).
Few economies of scale

Few economies of scale
opportunities exist.
opportunities exist.
High transportation costs

High transportation costs
(e.g., sand) for products.
(e.g., sand) for products.
Focus strategies predominate

Focus strategies predominate
(e.g., customer group, region).
(e.g., customer group, region).
Competing in fragmented industries requires
Competing in fragmented industries requires
strategic consolidation by:
strategic consolidation by:
Chaining (Wal
Chaining (Wal
-
-
Mart)
Mart)
Franchising (McDonald
Franchising (McDonald
s)
s)
Horizontal mergers (Dillard

Horizontal mergers (Dillard
s)
s)
Using the Internet (

Using the Internet (
eBay
eBay
)
)
Strategies in Embryonic and Growth
Industries
Industries
Three strategies for an innovator competing in
Three strategies for an innovator competing in
a newly emerging market/industry:
a newly emerging market/industry:
Develop and market the technology itself.

Develop and market the technology itself.
Develop and market the technology jointly with

Develop and market the technology jointly with
another company through a strategic alliance.
another company through a strategic alliance.
License the technology to existing companies and let

License the technology to existing companies and let
them develop the market.
them develop the market.
FIGURE 7.1
How an Innovator
How an Innovator
s Profits
s Profits
Can Be Competed Away
Can Be Competed Away
N
u
m
b
e
r

o
f

C
o
m
p
e
t
i
t
o
r
s

i
n

t
h
e

M
a
r
k
e
t
Many
Few
I
n
n
o
v
a
t
o
r
s

P
r
o
f
i
t

R
a
t
e
High
Low
Time
Time
Industries
Industries
An innovator
An innovator
s optimal choice of growth

s optimal choice of growth
industry strategy depends on:
industry strategy depends on:
Complementary assets the innovator has that can be

Complementary assets the innovator has that can be
used to exploit and market the innovation.
used to exploit and market the innovation.
High barriers to imitation by competitors (e.g.,

High barriers to imitation by competitors (e.g.,
patents).
patents).
The capability of competitors to quickly imitate the

The capability of competitors to quickly imitate the
pioneering company.
pioneering company.
Strategies for Profiting from Innovation
Strategies for Profiting from Innovation
Many Many Low Low No No License innovation License innovation
Limited Limited High High No No Entering into alliance Entering into alliance
Few Few High High Yes Yes Going it alone Going it alone
Number of Number of
Capable Capable
Competitors Competitors
Likely Likely
Height of Height of
Barriers to Barriers to
Imitation Imitation
Does Innovator Does Innovator
Have All Required Have All Required
Complementary Complementary
Assets? Assets?
Strategy Strategy
TABLE 7.1
FIGURE 7.2
Strategy in Mature Industries
Strategy in Mature Industries
Strategies for Deterring the Entry of Rivals
Strategies for Deterring the Entry of Rivals
FIGURE 7.3
Product
Product
Proliferation
Proliferation
in the
in the
Restaurant
Restaurant
Industry
Industry
McDonalds
Strategies to Manage Rivalry in Mature
Industries
Industries
Price signaling
Price signaling
Leading competitors use price changes to convey

Leading competitors use price changes to convey
their intentions to other competitors (i.e., tit
their intentions to other competitors (i.e., tit
-
-
for
for
-
-
tat).
tat).
Price leadership
Price leadership
One company sets the industry price; other

One company sets the industry price; other
competitors reference their prices to that price.
competitors reference their prices to that price.
Nonprice
Nonprice
competition
competition
Competition by any means other than price.

Competition by any means other than price.
FIGURE 7.4
Four
Four
Nonprice
Nonprice
Competitive Strategies
Competitive Strategies
Industries
Industries
Capacity control strategies
Capacity control strategies
Preempt rival firms by building capacity ahead of

Preempt rival firms by building capacity ahead of
anticipated increases in demand.
anticipated increases in demand.
Indirect coordination with rival firms to keep industry

Indirect coordination with rival firms to keep industry
-
-
wide capacity in line with demand.
wide capacity in line with demand.
FIGURE 7.5
Changes in Industry Capacity and Demand
Changes in Industry Capacity and Demand
Supply and Distribution Strategy in
Supply and Distribution Strategy in
Mature Industries
Mature Industries
Vertical integration
Vertical integration
Backward towards input suppliers.

Backward towards input suppliers.
Forward into distribution to consumers.

Forward into distribution to consumers.
Choice of integration depends on:
Choice of integration depends on:
Need for close relationships with suppliers.

Need for close relationships with suppliers.

Japanese vs. American styles
Japanese vs. American styles
Need to ensure customer relationships.

Need to ensure customer relationships.

Complexity of product
Complexity of product

Amount of product information required
Amount of product information required
Strategies in Declining Industries
Strategies in Declining Industries
Leadership strategy
Leadership strategy

A firm seeks to become dominant in the industry.
A firm seeks to become dominant in the industry.
Niche strategy
Niche strategy

Focuses on demand pockets declining more slowly than the
Focuses on demand pockets declining more slowly than the
industry as a whole.
industry as a whole.
Harvest strategy
Harvest strategy

Limits investment and optimizes cash flow.
Limits investment and optimizes cash flow.
Divestment strategy
Divestment strategy

Company exits the industry by selling out early to others,
Company exits the industry by selling out early to others,
avoiding liquidation.
avoiding liquidation.
FIGURE 7.6
Factors That Determine the Intensity of
Factors That Determine the Intensity of
Competition in Declining Industries
Competition in Declining Industries
FIGURE 7.7
Strategy
Strategy
Selection
Selection
in a
in a
Declining
Declining
Industry
Industry
FIGURE 7.8
A Harvest Strategy
A Harvest Strategy
Chapter 8
Chapter 8
Strategy in the Global Environment
Strategy in the Global Environment
Strategic
Management
Profiting From Global Expansion
Profiting From Global Expansion
Earning high returns from transferring distinctive
Earning high returns from transferring distinctive
competencies to foreign markets.
competencies to foreign markets.
Realizing location economies
Realizing location economies

Using lower
Using lower
-
-
cost locations reduces overall costs and fosters
cost locations reduces overall costs and fosters
product differentiation for premium pricing.
product differentiation for premium pricing.
Moving down the experience curve
Moving down the experience curve

Larger global markets = more accumulated volume.
Larger global markets = more accumulated volume.
Global expansion and business
Global expansion and business
-
-
level strategies
level strategies

Linked by cost reductions and value creation.
Linked by cost reductions and value creation.
Pressures for Cost Reduction and Local
Responsiveness
Responsiveness
Pressures for cost reductions
Pressures for cost reductions

Global competitors seek to minimize unit costs through
Global competitors seek to minimize unit costs through
location economies and attain low
location economies and attain low
-
-
cost competitor status.
cost competitor status.

In commodity
In commodity
-
-
type product industries, intense price
type product industries, intense price
competition predominates strategic concerns.
competition predominates strategic concerns.
Pressures for local responsiveness arise from:
Pressures for local responsiveness arise from:

Differences in local consumer tastes and preferences.
Differences in local consumer tastes and preferences.

Differences in infrastructure and traditional practices.
Differences in infrastructure and traditional practices.

Differences in distribution channels among countries.
Differences in distribution channels among countries.

Host government economic and political demands.
Host government economic and political demands.
Responsiveness
Responsiveness
FIGURE 8.1
Strategic Choice
Strategic Choice
International strategy
International strategy

Create value by transferring skills
Create value by transferring skills
and products abroad.
and products abroad.
Multidomestic
Multidomestic
strategy
strategy

Maximize local responsiveness by
Maximize local responsiveness by
customizing products and marketing
customizing products and marketing
strategy for local markets.
strategy for local markets.
Global strategy
Global strategy

Pursue low
Pursue low
-
-
cost status, offer standardized global products.
cost status, offer standardized global products.
Transnational strategy
Transnational strategy

Use global learning to achieve low
Use global learning to achieve low
-
-
cost status, differentiation,
cost status, differentiation,
and local responsiveness simultaneously.
and local responsiveness simultaneously.
Four Basic Strategies
Four Basic Strategies
FIGURE 8.2
Cost Pressures and Pressures for Local
Cost Pressures and Pressures for Local
Responsiveness Facing Caterpillar
Responsiveness Facing Caterpillar
FIGURE 8.3
The Advantages and Disadvantages of Different
The Advantages and Disadvantages of Different
Strategies for Competing Globally
Strategies for Competing Globally
Strategy Strategy Advantages Advantages Disadvantages Disadvantages
International International
Transfer of distinctive competencies Transfer of distinctive competencies
to foreign markets to foreign markets
Lack of local responsiveness Lack of local responsiveness
Inability to realize location economies Inability to realize location economies
Failure to exploit experience Failure to exploit experience- -curve curve
effects effects
Multidomestic Multidomestic
Ability to customize product offerings Ability to customize product offerings
and marketing in accordance with and marketing in accordance with
local responsiveness local responsiveness
Inability to realize location economies Inability to realize location economies
Failure to exploit experience Failure to exploit experience- -curve curve
effects effects
Failure to transfer distinctive Failure to transfer distinctive
competencies to foreign markets competencies to foreign markets
Global Global
Ability to exploit experience Ability to exploit experience- -curve curve
effects effects
Ability to exploit location economies Ability to exploit location economies
Lack of local responsiveness Lack of local responsiveness
Transnational Transnational
Ability to exploit experience Ability to exploit experience- -curve curve
effects effects
Ability to exploit location economies Ability to exploit location economies
Ability to customize product offerings Ability to customize product offerings
and marketing in accordance with and marketing in accordance with
local responsiveness local responsiveness
Reaping benefits of global learning Reaping benefits of global learning
Difficulties in implementation because Difficulties in implementation because
of organizational problems of organizational problems
TABLE 8.1
Basic Entry Decisions
Basic Entry Decisions
Which foreign markets?
Which foreign markets?

Politically and financially stable
Politically and financially stable

Developed and developing nations
Developed and developing nations

Free market systems
Free market systems
Timing of entry
Timing of entry

Pioneering costs versus
Pioneering costs versus
first
first
-
-
mover advantages.
mover advantages.
Scale of entry and strategic commitments
Scale of entry and strategic commitments

Scale of entry affects the nature of competition in the national
Scale of entry affects the nature of competition in the national
market. Implications of risks and benefits must be weighed
market. Implications of risks and benefits must be weighed
carefully.
carefully.
The Choice of Entry Mode
The Choice of Entry Mode
Exporting
Exporting
Licensing
Licensing
Franchising
Franchising
J oint Ventures
J oint Ventures
Wholly Owned Subsidiaries
Wholly Owned Subsidiaries
Distinctive Competencies and Entry Mode
Distinctive Competencies and Entry Mode
Pressures for Cost Reduction and Entry Mode
Pressures for Cost Reduction and Entry Mode
The Advantages and Disadvantages of Different Entry
The Advantages and Disadvantages of Different Entry
Modes
Modes
Entry Mode Entry Mode Advantages Advantages Disadvantages Disadvantages
Exporting Exporting
Ability to realize location and Ability to realize location and
experience experience- -curve economies curve economies
High transport costs High transport costs
Trade barriers Trade barriers
Problems with local marketing agents Problems with local marketing agents
Licensing Licensing
Low development costs and risks Low development costs and risks Inability to realize location and Inability to realize location and
Inability to engage in global strategic Inability to engage in global strategic
coordination coordination
Lack of control over technology Lack of control over technology
Franchising Franchising
Low development costs and risks Low development costs and risks Inability to engage in global strategic Inability to engage in global strategic
Lack of control over quality Lack of control over quality
Joint Joint
ventures ventures
Access to local partner Access to local partner s knowledge s knowledge
Shared development costs and risks Shared development costs and risks
Political dependency Political dependency
Inability to engage in global strategic Inability to engage in global strategic
Inability to realize location and Inability to realize location and
Lack of control over technology Lack of control over technology
Wholly owned Wholly owned
subsidiaries subsidiaries
Protection of technology Protection of technology
Ability to engage in global strategic Ability to engage in global strategic
Ability to realize location and Ability to realize location and
High costs and risks High costs and risks
TABLE 8.2
Global Strategic Alliances
Global Strategic Alliances
Advantages
Advantages

Facilitate entry into foreign
Facilitate entry into foreign
markets.
markets.

Enable partners to share
Enable partners to share
fixed costs and risks
fixed costs and risks
associated with new
associated with new
products and processes.
products and processes.

Facilitate transfer of
Facilitate transfer of
complementary skills
complementary skills
between companies.
between companies.

Help establish
Help establish
technological standards.
technological standards.
Disadvantages
Disadvantages

Risk of giving away
Risk of giving away
technological know
technological know
-
-
how.
how.

Risk of opening local
Risk of opening local
market access to foreign
market access to foreign
alliance partner.
alliance partner.

Risk of not getting
Risk of not getting
anything in return.
anything in return.
Making Strategic Alliances Work
Making Strategic Alliances Work
Partner selection when done well:
Partner selection when done well:
Helps the firm achieve

Helps the firm achieve
its strategic goals.
its strategic goals.
Results in a commonly
Results in a commonly
shared vision for the alliance.
shared vision for the alliance.
Reduces opportunistic
Reduces opportunistic
behaviors by the partners.
behaviors by the partners.
Structuring Alliances to Reduce
Structuring Alliances to Reduce
Opportunism
Opportunism
FIGURE 8.4
Walling off
Managing the Alliance
Managing the Alliance
Maximizing the benefits of an alliance:
Maximizing the benefits of an alliance:
Develop a sensitivity to cultural differences.

Develop a sensitivity to cultural differences.
Build interpersonal relationships and networks among

Build interpersonal relationships and networks among
managers from different companies.
managers from different companies.
Learn from alliance

Learn from alliance
partners and put the
partners and put the
knowledge to use in
knowledge to use in
the organization.
the organization.

Strategic Management 05-06-07 - 08 Functional Business Competitive Industry Global Strategies

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Strategic Management 05-06-07 - 08 Functional Business Competitive Industry Global Strategies

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Chapter 5

Lower unit costs due to large

Cost reductions due to

Getting materials into and through

Reduce inventory holding costs by having materials

JIT risk: There are no buffer stocks for

Reduce numbers of parts per unit.

Reduce assembly time.

Closely coordinate R&D

Innovations create competitive

Poor positioning strategy

A plan of action to use the firm

product differentiation (what)

market segmentation (who)

competitive actions (how)

Competitors producing at equal or lower costs.

The bargaining strength of suppliers.

Powerful buyers demanding lower prices.

Substitute products moving into the market.

New entrants overcoming entry barriers.

An emphasis on product or service quality.

Innovation in providing new features for which

Responsiveness to customers after the sale.

Appealing to the psychological desires of customers.

Competitors imitating features and services.

Increases in supplier costs exceeding differentiator

Buyers becoming less brand loyal.

Substitute products adding similar features.

New entrants overcoming entry barriers related to

Competitor entry into focuser

Suppliers capable of increasing costs affecting only

Buyers defecting from market segment.

Substitute products attracting customers away from

New entrants overcoming entry barriers that are the

Immediate competitors are companies pursuing same

Different strategic groups can have a different

Benefits are first choice of customers and suppliers,

The resources (human, functional, and financial)

Market share is an indicator of competitive strength.

Distinctive competencies are competitive tools.

s life cycle stage affects its attractiveness

A plan of action to use the firm

product differentiation (what)

market segmentation (who)

competitive actions (how)

Competitors producing at equal or lower costs.

The bargaining strength of suppliers.

Powerful buyers demanding lower prices.

Substitute products moving into the market.

New entrants overcoming entry barriers.

An emphasis on product or service quality.

Innovation in providing new features for which

Responsiveness to customers after the sale.

Appealing to the psychological desires of customers.

Competitors imitating features and services.

Increases in supplier costs exceeding differentiator

Buyers becoming less brand loyal.

Substitute products adding similar features.

New entrants overcoming entry barriers related to

Competitor entry into focuser

Suppliers capable of increasing costs affecting only

Buyers defecting from market segment.