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St.Joseph’s College of Engineering
Department of MBA
Strategic Management
Assignment questions (Unit II)

Part A
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7.
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What is environment scanning?
What is low cost strategy?
Explain differentiation strategy
What factor determines nation’s competitive position?
Define globalization and its distinctive stage
Define core competency
What are the building blocks of distinctive competence?
What are the factors that determine competitive advantage according to
Michel porter?

Part B
1. Explain in detail Porters five force model in the business
2. Define organizational life cycle. How can a corporation keep from sliding on to
the decline stage of the organizational life cycle
3. Define globalization. Explain distinct stages of globalization. What are choices
of global entry mode?
4. Explain cost leadership strategy and differentiation strategy in detail

Part A answers are available in the question bank

explains as to how strategic choices will be affected by the forces of industry competition and also about how their choices affect the five forces and change conditions in the industry. so that all forces need to be considered when performing industry analysis. • A single generic strategy is not always best because within the same product customers often seek multi-dimensional satisfactions such as a combination of . Explain in detail Porters five force model in the business Porter’s five force analysis is a powerful tool that helps the managers to think strategically. It is to be noted that in the five forces model. one competitive force often affects the others.2 Part B Assignment questions answers 1.

Product standardization and switching cost.3 quality. rivalry among competing sellers (2) The market attempts of companies in other industries.(4) the bargaining power and leverage exercisable by suppliers of key raw material and components. to win customers to their own substitute products (3) The potential entry of new competitors. and (5)The bargaining power and leverage exercisable by buyers of the product • 1. style. Intensity of rivalry within industry.. . and price. Strategic stake and exit barrier. Industry’s profit potential depends on five forces. Indivisibility of capacity enhancement. Fixed or storage cost. Diverse competitors and switching costs. They are: (1) Intensity of competitive rivalry with in industry (i.e. This depends on: Number of firms and market share. convenience. State of growth of industry. Fragmented or consolidation. Expected retaliation from competitors.

• 5. Monopoly elements. which identifies five sequential states in the evolution of the industry that lead to five distinct kinds of environment . Economics of scale. How satisfactory the substitutes are in terms of quality. Importance of buyer to the supplier. Extent of differentiation or standardization of the product and Potential forward integration by supplier 2. Product differentiation. Brand loyalty and Customer’s switching cost • 3.4 • 2. Threat of substitutes: Weather alternatively priced substitute is available. switching costs. Cost advantages and independence of scale. Switching cost. Importance of the industry’s product with respect to the quality of buyers product or services and Extent of buyer information. Profitability of the buyers. Capital requirements. performance and other relevant attributes with which buyer’s can switch to substitutes • 4. Bargaining power of suppliers: Extension of concentration and domination in the supplier industry. Potential of integration by the buyer. Risk of entry by potential competitors: Government policy. Importance of the product to the buyer. Bargaining power of buyers: The volume of purchase relative to the total sale of the sellers. Define organizational life cycle. the importance of standardization or differentiation of the product. How can a corporation keep from sliding on to the decline stage of the organizational life cycle Organizational life cycle or otherwise called as Industry life cycle analysis is a tool for analyzing the effect of industry evolution on competitive forces in the industry life cycle. Extent of substitute of the product.

being high growth industry this can be absorbed(Bharathi-Airtel) . first time demand is expanding rapidly as many new customers enter in to the market. Though potential competitors are high. the industry develops the characteristics of growth industry. When industry grows consumers becomes familiar with the product. Though potential competitors are high. Growth stage. shakeout. In the growth industry. Once the demand for industry’s product begins to take off. being high growth industry this can be absorbed(Bharathi-Airtel) 2. In the growth industry. mature and decline Explanations in the Embryonic stage 1. Growth at this stage is slow because of the factors like(1)Buyer’s unfamiliarity with the product(2)High price charging due to missing of economic scale(3)Poorly developed distribution channel. When industry grows consumers becomes familiar with the product. Once the demand for industry’s product begins to take off. growth. the industry develops the characteristics of growth industry. prices fall due to experience curve and scale of economics(example cellular telecom industry).5 They are embryonic. An embryonic stage is just beginning to develop(example DVD in 2000). first time demand is expanding rapidly as many new customers enter in to the market. prices fall due to experience curve and scale of economics(example cellular telecom industry).

It is a mindset which views entire world as a single market so that corporate strategy is based on dynamics of business environment. . Explain distinct stages of globalization. What growth there comes from population expansion that brings new customers in to the market or an increase in replacement demand (Example breakfast cereal industry and pharmaceutical industry). hurting baby and child products) and International competition-competitive low cost products from China. competitive pressure can become intense in the shake out stage. including technological substitution.6 3. International business (NIIT). Declining stage environment. As growth slows during the shakeout. 3. Depending upon the speed of decline. What are choices of global entry mode? • Globalization is a transnationalisation of world economy and developed by corporate strategy. and exit barriers. barriers to entry increases and the threat of entry in to potential competitors’ decreases. Global business (Nestle). demand approaches saturation levels. Multinational business (Ford). Globalization pass through four distinct stages: Domestic business (Hindustan times). and growth is slow or zero. The main problem in the declining industry is falling demand. During mature stage the market is totally saturated. Shake out environment. rivalry among established companies. In the shake out stage. In the decline stage. Maturity stage environment. companies no longer maintain historic growth rates. as demand is no longer growing. As industry enters maturity. In the shake out stage rivalry becomes intense.(air travel from rail travel) social changes (Health consciousness. growth rates merely holding on their market share. If we want to globalize the business you need do value creation activity. growth becomes negative for a variety of reasons. hitting tobacco firms) demographics (declining birth rate. Define globalization. Often the result is price war( cell). Competition for market share develops driving down prices. Firms focus on customization and brand loyalty 5. most of the demand is limited to replacement because there are few potential first time buyers left(example DVD and Cell). demand is limited to replacement demand. there is emergence of excess production capacity 4. Globalization is attitude of mind of mind. (VCR to DVD).

3. Leveraging core competencies. Experienced effect The systematic reduction in production costs that occurs over the life of a product which was first observed in aircraft industry where unit costs reduced by 80% each time output was doubled.7 Value Creation of a firm. caused due to learning effects and economies of scale 4. and create different stages of value chain which can be dispersed to various locations . Learning effect is . Location economies. Cost savings that come from learning by doing. Learning effects. 1. help in differentiation of products from competitors. Profit determined by: The amount of value customers place on firm’s goods or services (V) Firm’s cost of production (C). which can lower costs of value to enable low cost strategy and/or. Two basic strategies to create value and attain competitive advantage according to Michael Porter: Low cost and Differentiation strategy. Cost economies from experience effects. political and economic risks and management difficulties. trade barriers. Advantages of Global Expansion. Consumer surplus occurs when price charged by a firm on a good or service is less than value placed on it by a customer. However Complications arise due to transportation costs. Leveraging subsidiary skills and Profitability is constrained by product customization and the “imperative of localization”. Location Economies. This will lead to perceived value is maximized or costs of value creation are minimized. enhances increased worker productivity and management efficiency. Value creation = V-C. 2. often arise due to differences in factor costs. Realized by performing a value creation activity in an optimal location anywhere around the globe.

Examples: bulk chemicals. steel. Core competence is the skills within the firm that competitors cannot easily match or imitate and this would earn greater returns by transferring these skills and/or unique product offerings to foreign markets that lack them. Differences in infrastructure & traditional practices: consumer electrical system in North America is based on 110 volts. commodity type product that serve universal needs. Explain cost leadership strategy and differentiation strategy in detail • The primary determinant of a firm's profitability is the attractiveness of the industry in which it operates. Value created by identifying firm skills and applying them to its global network of operations. 5. Economies of scale. a firm that is optimally positioned can generate superior returns. Global strategy and Transnational strategy 4. Differences in distribution channels: Germany has a few retailers dominating the food market. As such there are four basic strategies to enter in the international environment: 1. Leveraging subsidiary skills. after two or three years and decline after this point comes from economies of scale. actions are to be initiated in the case of industries of standardized.S. while in Italy it is fragmented. in Europe on 240 volts. firms allowed them to dominate European consumer product market in 1960s and 70s. . Differences in consumer tastes & preferences: Example: North American families like pickup trucks while in Europe it is viewed as a utility vehicle for firms. The important secondary determinant is its position within that industry. meaningful differentiation on non-price factors is difficult. This will be due to the ability of large firms employ increasingly specialized equipment or personnel 6. personal computers 8. A firm positions itself by leveraging its strengths.8 significant in cases of technologically complex task. Leveraging core competencies. as there is a lot to be learned. Pressures for Local Responsiveness. 7. Host-Government demands: Health care system differences between countries require pharmaceutical firms to change operating procedures. Major competitors are based in low-cost locations as such consumers are more powerful and face low switching costs. Examples: Consumer marketing skills of U. The firm that moves down the experience curve most rapidly has a cost advantage over its competitors. petroleum. 3. International strategy 2. However learning effect ceases. as such action can be taken over sources which reduce fixed costs by spreading it over a large volume. Multi domestic strategy. An industry may have below-average profitability.

as the industry matures and prices decline. Vertical Integration . By applying these strengths in either a broad or narrow scope. In the event of a price war. The cost leadership strategy usually targets a broad market.9 • Michael Porter has identified that a firm's strengths ultimately fall into one of two headings: Cost leadership and Differentiation. the firms that can produce more cheaply will remain profitable for a longer period of time. They are called generic strategies because they are not firm or industry dependent. The firm sells its products either at average industry prices to earn a profit higher than that of rivals. Even without a price war. the firm can maintain some profitability while the competitors suffer losses. or below the average industry prices to gain market share. differentiation. and focus. Cost Leadership Strategy • Generic strategy calls for being the low cost producer in an industry for a given level of quality. three generic strategies result: cost leadership. • A firm positions itself by leveraging its strengths in the following manner as given below: These strategies are applied at the business unit level.

for example. Because of the product's unique attributes. Cost leadership and internal strength • If a company succeeds on cost leadership. the firm may be able to sustain a competitive advantage based on cost leadership. it has an internal strength of: • Access to the capital required making a significant investment in production assets. • Highly skilled and creative product development team. If competing firms are unable to lower their costs by a similar amount. other firms may be able to lower their costs as well. Efficient distribution channels. Skill in designing products for efficient manufacturing. The firm hopes that the higher price will more than cover the extra costs incurred in offering the unique product. Risks in Low cost strategy • For example. having a small component count to shorten the assembly process. this investment represents a barrier to entry that many firms may not overcome. High level of expertise in manufacturing process engineering. several firms following a focus strategy and targeting various narrow markets may be able to achieve an even lower cost within their segments and as a group gain significant market share. or avoiding some costs altogether. . the competition may be able to leapfrog the production capabilities. Differentiation Strategy • A differentiation strategy calls for the development of a product or service that offers unique attributes that are valued by customers and that customers perceive to be better than or different from the products of the competition. thus eliminating the competitive advantage.(2) gaining unique access to a large source of lower cost materials. Success in the differentiation strategy through internal strengthfactors • Access to leading scientific research. The value added by the uniqueness of the product may allow the firm to charge a premium price for it. Additionally.(3) making optimal outsourcing and vertical integration decisions. As technology improves.10 • Some of the ways that firms acquire cost advantages are by (1) improving process efficiencies. if suppliers increase their prices the firm may be able to pass along the costs to its customers who cannot find substitute products easily.

Focus Strategy • The focus strategy concentrates on a narrow segment and within that segment attempts to achieve either a cost advantage or differentiation. .11 • Strong sales team with the ability to successfully communicate the perceived strengths of the product. The premise is that the needs of the group can be better serviced by focusing entirely on it. Compatibility of Generic strategy • Michael Porter identified that to be successful over the long-term. Firms that are able to succeed at multiple strategies often do so by creating separate business units for each strategy. convenience. firms pursuing a differentiation-focused strategy may be able to pass higher costs on to customers since close substitute products do not exist. and this entrenched loyalty discourages other firms from competing directly. • Because of their narrow market focus. it may be fairly easy for a broad-market cost leader to adapt its product in order to compete directly. Otherwise." • A single generic strategy is not always best because within the same product customers often seek multi-dimensional satisfactions such as a combination of quality. A firm using a focus strategy often enjoys a high degree of customer loyalty. • Firms that succeed in a focus strategy are able to tailor a broad range of product development strengths to a relatively narrow market segment that they know very well. • Corporate reputation for quality and innovation. a firm must select only one of these three generic strategies. firms pursuing a focus strategy have lower volumes and therefore less bargaining power with their suppliers. Some risks of focus strategies include imitation and changes in the target segments. style. By separating the strategies into different units having different policies and even different cultures. with more than one single generic strategy the firm will be "stuck in the middle" and will not achieve a competitive advantage. a corporation is less likely to become "stuck in the middle. other focusers may be able to carve out sub-segments that they can serve even better. However. Furthermore. Finally. and price.

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