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A Companys Menu of Strategy Options

1. Collaborative Strategies: Alliances and Partnerships


2. Merger and Acquisition Strategies
3. Vertical Integration Strategies: Operating Across More Stages of the Industry
Value Chain
4. Outsourcing Strategies: Narrowing the Boundaries of the Business
5. Offensive Strategies: Improving Market Position and Building Competitive
Advantage
6. Defensive Strategies: Protecting Market Position and Competitive Advantage
7. Web Site Strategies
8. Choosing Appropriate Functional-Area Strategies
9. First-Mover Advantages and Disadvantages
(Also Known as Corporate Strategies)
Collaborative Strategies:
Alliances and Partnerships
Companies sometimes use strategic alliances
or collaborative partnerships to complement
their own strategic initiatives and strengthen
their competitiveness.

Such cooperative strategies go beyond


normal company-to-company dealings but fall
short of merger or full joint venture
partnership.
Alliances Can Enhance a Firms Global
Competitiveness
Alliances, collaboration 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 new markets,
expertise and capabilities.
Characteristics of a Strategic Alliance for
International Growth
Strategic alliance A formal agreement between two or more separate
companies where there is

Strategically relevant interest 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

Joint Venture Financial Partnership / Sharing Control / Sharing Profit & Loss
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 (base) 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
firms capabilities with resources of partners
Other Benefits of Strategic Alliances
Pitfalls Strategic Alliances
Guidelines in Forming Strategic Alliances
Joint Ventures
Going with a partner in foreign country:

JV is a useful strategy in competitive markets


Control exercised with shared risk
JV agreement with a company from the target country market is an entry strategy

Types of JVs:
Contractual Joint Ventures (for projects with time frame)
Equity Joint Ventures (long term)

JV may be necessary due to legal restrictions on foreign investment


Reduces the investment required by a foreign firm, besides reducing risk
Foreign partner stands to gain from local expertise
Foreign investor may find the local partner redundant after some time
Local partner may become a competitor after the end of the agreement
Example: Hero Honda Motors Ltd.,
Merger and Acquisition Strategies
M&A refers to the corporate strategy dealing with the buying, selling and
combining of different companies that can aid, finance, or rapid growth of
company without having to create another business entity.

A merger happens when two firms agree (mutually consented) to go forward


as a single new company rather than remain separately owned and
operated. When firms are of about the same size called "merger of equals.

In the 1999 merger of Glaxo Wellcome and SmithKline Beecham, both firms
ceased to exist when they merged, and a new company, GlaxoSmithKline,
was created.

An acquisition (takeover) is the purchase of one company by another


company. It may be friendly or hostile.

When the deal is unfriendly (that is, when the target company does not want
to be purchased) it is always regarded as an acquisition.
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
Objectives of Mergers and Acquisitions
To create a more cost-efficient operation
To expand a firms geographic coverage
To extend a firms 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
Rationales for M&A
Acquiring firms seek improved financial performance or growth by:

Economy of Scale: reduction in fixed cost and increasing profit margins.

Economy of Scope: Increasing the scope of marketing and distribution, of


different types of products.

Vertical Integration: Merger of an upstream and downstream firm.

Increasing revenue or market share: Merged identity increases market


power (market share of competitor) to set prices.

Synergy: Increased opportunities of specialization and managerial and


purchasing economics.

Taxation: Reducing tax liability by acquiring assets of a non-performing


company.
Vertical Integration Strategies
The degree to which a firm owns its upstream suppliers and its downstream
buyers is referred to as vertical integration.

Extend a firms competitive scope with in same industry

Can aim at either full or partial integration

Deciding issues for vertical integration are: Cost & Control

Forward Integration: downstream expansion of activities (towards end-users


of final product)

Backward Integration: upstream expansion of activities (into sources of


supply)

Improve supplychain efficiency, better control over inputs/outputs, expansion


of core competencies, capturing upstream / downstream profit margins
Overview of an Enterprise
upstream downstream

Backward Integration Forward Integration


Example of Backward & Forward Integrations
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 firms competitiveness

Many companies are finding that de-integrating value chain activities


is a more flexible, economic strategic option!
Outsourcing Strategies
Outsourcing involves withdrawing from certain value chain
activities and relying on outsiders to supply needed
products, support services, or functional activities
Internally
Performed
Activities Functional
Suppliers Activities

Support Distributors
Services or Retailers

Involves farming out certain value chain activities to outside vendors


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 firms ability to innovate

Operations are streamlined to


Improve flexibility
Cut time to get new products into the market
It increases firms ability to assemble diverse kinds of expertise speedily and

efficiently

Firm can concentrate on core value chain activities that best suit its resource

strengths
Risk: Losing touch with activities and expertise that determine overall long-term
success
Offensive and Defensive Strategies
Type of marketing warfare strategy designed to obtain an objective, usually market
share, from a target competitor.
In addition to market share, an offensive strategy could be designed to obtain key
customers, high margin market segments, or high loyalty market segments.

Offensive Strategies Defensive Strategies

Used to build: Used to protect:


new or stronger market competitive advantage
position (rarely lead to creating
and / or advantage)
create competitive
advantage
Low-cost Country Sourcing (LCCS) Strategy
Common examples:

Labor - intensive manufacturing: products


produced using low-cost Chinese labor,

Call centres staffed with low-cost English


speaking workers in the Philippines and India,

IT work performed by low-cost programmers in


India and Eastern Europe.
Just- in-Time Strategy
Requires cooperation, coordination, and information sharing to
eliminate inventory across the supply chain. Strategic features:

Commitment to zero defects by seller and buyer.


Frequent shipments of small lot sizes according to strict quality and
delivery performance standards.
Closer, even collaborative, buyer-seller relationship.
Stable production schedule sent to suppliers on a regular basis.
Extensive information sharing electronically between supply chain
members.
Electronic data interchange capability with suppliers.
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 (Catalogue website)
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 (E-
commerce website)
Effective Website Strategies
Having a website is one thing, but making it work
to produce enquiries and sales is quite another.
In simple terms your website should achieve 3
objectives:
Attract visitors
Engage them so they stay on your site
Covert them from visitors to customers
Online marketing initiatives are cost effective
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 firms 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