Unit – 3

Subject: Business Policy

Subject Code - F010302T-B

1. Business Strategy

1.1. Concept

In essence, a business strategy is an organizational master plan. This plan is what the
management of a company develops and implements to achieve their strategic
goals. Essentially, a business plan is a long-term sketch of the desired strategic
destination for a company.

This long-term sketch will contain an outline of the strategic, as well as tactical
decisions a company must take to reach its overall objectives. This business strategy
will then act as a central framework for management.

Once this framework is defined, management must live and breathe it. It helps the
different departments within a business work together, ensuring that all departmental
decisions support the overall direction of the organization. This helps to avoid working
in silos, or different teams pulling in opposite directions.

At this point it is important to highlight the difference between a business strategy,

and a mission statement. One example is Amazon’s “to be Earth’s most customer-
centric company” this is not a strategy, more the vision that the strategy will deliver,
and creates the framework within which the strategy will be developed.

Strategy as we’ve identified refers to the long-term goal or roadmap for an

organization, and how it plans to reach them. Or, the path the organization will take
towards its goals.
Conversely, tactics refer to the specific set of actions taken to reach the organizational
goals, or strategy.

1.2. Key Components of a Business Strategy

Business strategies come in all shapes and sizes (see some examples/resources
below) and can vary significantly in their depth. Most business strategy documents
will however contain the following:

a. Vision and Objectives

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A business strategy is intended to help you reach your business objectives. The vision
element of this provides a clear direction for the business. This enables you to
develop tactical instructions within the business strategy for what tasks need to be
completed, and which of your resources are responsible for completing them.

b. Core Values

A business strategy guides leaders, as well as departments, about what should and
should not be done, according to the organization’s core values. Defining the
organizations core values helps to ensure that employees are on same page, and with
the same goals.

c. SWOT (Strengths, Weaknesses, Opportunities and Threats)

For any business, understanding its strengths, weaknesses, opportunities and threats
is critical. This is a core part of any business strategy, and ensures that humility, and
self-awareness are present. Understanding this helps to define where the organization
can win, and areas that must be addressed in the future.

d. Tactics and Operational Delivery

The tactical element of a business strategy will set out the operational details that
define how the work should be delivered. Tactical delivery is critical for the success of
any business strategy, and managers who have responsibility for tactics understand
what needs to be done. This ensures that time, and effort is not wasted.

e. Resources and Resource Allocation

Generally the resource element of a business plan will cover the allocation of existing
resources, as well as where additional resources will be found. Most businesses rely
on many different resources, people, technology, financial, and physical resources.
Having a clear picture of it, and future requirements enables leaders to see where to
add more resources in order to achieve their goals.

f. Measurement and Analysis

The evaluation phase places emphasis on how a business is performing in relation to

the business strategy. Measurement helps you to stay closely aligned to the strategy,
define deadlines and goals and address things such as budget concerns. Nowadays,
data and business intelligence platforms play a crucial role in this phase.

1.3. Importance of Devising a Business Strategy

 In the initial phase of a business, a lot of planning is required. While a plan

clarifies the goals, it is the strategy that helps in executing and reaching the
vision.

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 When leaders formulate a strategy, it helps them understand their strengths
and weaknesses. This way, they can capitalize on what they are good at and
improve on their weaker aspects.
 It ensures that every aspect of a business is planned. This means more efficiency
and better and more effective plans. Everyone in the team is aware of what they
need to do, and the capital is allocated properly.
 It can help businesses gain a competitive advantage over others in the
segment. It also makes them unique in the eyes of their customers.
 It ensures that leaders have control over the processes. This means they will
also go as planned.

1.4. Different Levels of Business Strategy

Different business strategies are deployed at every level of a business. The levels of
business strategy will depend on the goal that every part of an organization wants to
achieve. Based on common parameters, there are three levels of business strategy.

a. Corporate Level
This is the highest of all levels. It defines the goals and the ways to achieve them.
Precisely, this level defines the mission, vision, and corporate objectives for the entire
organization.

b. Business Unit Level

At this level, the business strategy will be different for every unit of the organization.
This is because every unit has different processes and operations and therefore,
different strategies can be deployed for every unit to achieve higher efficiency.
However, every business strategy should be in alignment with that organizational
goals and objectives.

c. Functional Level
At the functional level, the strategy is set by departments such as marketing, sales,
operations, finance, etc. These kinds of functional-level strategies are needed to
ensure the efficiency of day-to-day functions within the organization. All of these
overarch towards a common goal.

2. Corporate Strategy

2.1. Concept

Corporate strategy refers to the overall plan or direction of an organization in pursuit

of its long-term objectives. It includes defining the company's mission, vision, values,
and goals, as well as identifying the markets and products it will focus on, the
competitive advantages it aims to build, and the resources and capabilities it needs to
achieve its objectives.

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Corporate-level strategy involves developing a strategic roadmap for the
organization to guide its actions. By doing so, the organization stays focused on its
long-term strategic objectives while remaining agile (able to move quickly and easily)
enough to respond to changes in the business environment. A corporate strategy is a
long-term plan that outlines clear goals for a company. While the objective of each
goal may differ, the ultimate purpose of a corporate strategy is to improve the
company. A company's corporate strategy may be to focus on sales, growth or
leadership. For example, a business might implement a corporate strategy to expand
its sales to different markets or consumers. It may also use corporate strategy to
prioritize resources. Another purpose of corporate strategy is to create company value
and to motivate employees to work toward that value or set of goals.

2.2. Types of Corporate Strategies

Here are some types of corporate strategies you can implement into your business:

a. Growth
A growth strategy is a plan or goal for the company to create considerable growth in
different areas. It could refer to overall growth, but it could also encompass only
specific areas, such as sales, revenue, following or company size. Companies can
accomplish growth strategies through concentration or diversification. Concentration
refers to a company developing the core of its business, such as a bookstore investing
in selling more books. Diversification is when a company enters new markets to
expand its business.

b. Stability
Stability strategies refer to a company staying within its current industry or market
because it's already succeeding in its current situation. This strategy maintains the
company's success by continuing practices that work for the company. To do this, the
company might invest in areas in which they're doing well, such as customer
satisfaction. For example, the marketing team might create advertisements with
coupons on them to send to customers to further improve customer appraisal.

c. Retrenchment
The retrenchment strategy encourages the company to change paths to improve the
business. This might mean switching business models or changing markets. The goal
of this is to reduce or manage parts of the business that don't work for the company.
A company might achieve this by either switching the business's pathway or by
removing parts of the business. For example, if a product line is decreasing company
sales, the product management team might remove the line to save profit.

d. Reinvention
Reinvention strategies are when a company reinvents, or redesigns, an aspect of the
business that may be old or irrelevant. The company might update it with new
designs, technologies or products. To accomplish this strategy, a project
manager could reinvent a function by significantly changing a good or service. An
example of this could be converting a physical store into an online store.

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e. Combination Strategy
A combination strategy is useful when organizations are large and operate in complex
environments, such as having several enterprises operating in different industries with
different needs. For example, a company may utilize a stability and retrenchment
strategy to keep profits growing while preserving capital. Or they can continue taking
risks to pursue growth while keeping certain portions of the enterprise stable.

2.3. The Components of Corporate Strategy

There are several important components of corporate strategy that leaders of

organizations focus on. The main tasks of corporate strategy are:

1. Allocation of Resources
The allocation of resources at a firm focuses mostly on two resources: people and
capital. In an effort to maximize the value of the entire firm, leaders must determine
how to allocate these resources to the various businesses or business units to make
the whole greater than the sum of the parts.

2. Organizational Design
Organizational design involves ensuring the firm has the necessary corporate structure
and related systems in place to create the maximum amount of value. Factors that
leaders must consider are the role of the corporate head office (centralized vs
decentralized approach) and the reporting structure of individuals and business units
– vertical hierarchy, matrix reporting, etc.

3. Portfolio Management
Portfolio management looks at the way business units complement each other, their
correlations, and decides where the firm will “play” (i.e. what businesses it will or
won’t enter).

4. Strategic Tradeoffs
One of the most challenging aspects of corporate strategy is balancing the tradeoffs
between risk and return across the firm. It’s important to have a holistic view of all
the businesses combined and ensure that the desired levels of risk management and
return generation are being pursued.

2.4. Importance of Corporate Strategy

A corporate strategy is important, as it can help indicate the future success and health
of the company. Here are some reasons why a corporate strategy is important:

1. Larger company overview: Instead of considering each business unit, this

strategy focuses on the entire company.
2. Organisational rearrangement: It can help re-engineer an organisation radically

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if required.
3. Problem identification: A corporate strategy helps identify existing or potential
problems in an organisation that could impede its ability to achieve its goals.
4. Prevent counterproductive measures: It can help prevent the implementation
of any other plan or strategy that can be counterproductive or not viable for the
company's healthy growth.
5. Guidance for business strategies: A corporate strategy gives a starting point to
build individual business unit strategies.
6. Contingency plans: It can help the company create appropriate contingency
plans to implement when the need arises.

2.5. Characteristics of A Corporate Strategy

When deciding on the most suitable corporate strategies, here are some of the
characteristics to keep in mind:

1. Forward Integration
This refers to a company's advancement along the supply chain. They may try to take
on a role that was previously served by another company or entity in the value chain.
The company attempting a forward integration can be a clothing company that wishes
to get into direct distribution and retail of its product by opening retail outlets.
Previously, a different company or outlet may have been fulfilling this role.
For example, the supply chain for a clothing business may look like the example:
Cotton - Cotton fabric or cloth - Cotton garment or clothing - Distribution - Retailing -
Consumer

2. Backward Integration
While forward integration implies moving forward in the supply or value chain,
backward integration is a movement in the opposite direction. For example, a clothing
company might want to start producing the raw materials that it currently sources
from another company. This could mean reduced production costs, thus increasing
the profit margins on the final product. A company can consider increasing the need
for higher production capacity if the predicted returns are high.

3. Horizontal Integration
Horizontal integration occurs when two companies of the same product offering or
within the same industry merge. They may have been competitors but after analysing
some external and internal factors they have realised that a merger may be in the
best interests of the companies and the market. A merger comes with many
demands, such as the need for learning new procedures, eliminating elements of each
company that do not serve anymore and continuing to enhance the strategies and
products that have been working.

4. Diversification
A business may use a diversification strategy to venture into new markets or launch a

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new product. Diversification can be of three types: concentric diversification,
conglomerate diversification and horizontal diversification.
Concentric diversification means launching a new product within an existing product
line. In a conglomerate diversification strategy, a company may introduce a product or
service that differs vastly from its current products and services. Horizontal
diversification involves tapping into the current customer base, identifying a need
within that customer base and launching a new product to meet that need or demand.

5. Turnaround
Turnaround means improving the efficacy and quality of current products to increase
sales. Companies improve turnaround by boosting their testing procedures and raising
the quality assurance standards. This can significantly increase profits by enhancing
the customer experience.

6. Profit
A profit strategy primarily focuses on increasing the profit margin of the business by
reducing costs and increasing prices. Cost-cutting measures include trying to source
the raw materials from cheaper suppliers or identifying aspects of the product or
service that may be redundant and doing away with them.

7. Divestment
This is a retrenchment strategy where a company plans to improve its financial
standing by absolving the assets or business units that may be redundant (not or no
longer needed or useful). This is possible by selling or closing a business unit or filing
for bankruptcy.

3. External Vs. Internal growth options, their conditions and

prerequisites.

3.1. Internal Growth

Internal growth, also known as organic gro wth, occurs when a company uses its
own tools and resources to expand. In most cases, this involves increasing
production, developing new products or services or other developmental strategies.
Internal growth can take time since the company must evaluate its growth potential,
determine a strategy and then implement the growth plan. However, internal growth
is usually sustainable and can help improve the company's overall success.

The four strategies are:

 Market Penetration: Selling more of the company’s existing products

to existing markets. To penetrate and grow the customer base in the existing
market, a company may cut prices, improve its distribution network, invest more in
marketing and increase existing production capacity.

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 Market Development: Selling more of the company’s existing products
to new markets. This strategy is about reaching new customer segments or
expanding internationally by targeting new geographic areas.
 Product Development: Developing and selling new products to existing markets
Product development means making some modifications in the existing products to
give increased value to the customers for their purchase or developing and
launching new products alongside a company’s existing offering.
 Diversification: Entering new markets with new products that are either related
or completely unrelated to a company’s existing offering. Diversification in turn can
be classified into three types of diversification strategies:
1. Concentric/Horizontal diversification (or related diversification): Entering
a new market with a new product that is somewhat related to a company’s
existing product offering.
2. Conglomerate diversification (or unrelated diversification): Entering a new
market with a new product that is completely unrelated to a company’s existing
offering.
3. Vertical diversification (or vertical integration): Moving backward or forward
in the value chain by taking control over activities that used to be outsourced
to third parties like suppliers, OEMs or distributors.

Internal growth has a few advantages compared to external growth strategies (such
as alliances, mergers and acquisitions):

 Knowledge improvement: Organic growth strategies improve the company’s

knowledge through direct involvement in a new market or technology, thus
providing deeper first-hand knowledge that is likely to be internalized in the
company.

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 Investment spread: Gradually growing internally helps to spread investment
over time, which allows a reduction of upfront costs and commitments, making it
easier to reverse or adjust a strategy if conditions in the market change.
 No availability constraints: The company is not dependent on the availability of
suitable acquisition targets or potential alliance partners. Organic developers also
do not have to wait for a perfectly matched acquisition target to come on to the
market.
 Strategic independence: This means that a company does not need to make
the same compromises as might be necessary in an alliance, for example, which is
likely to involve constraints on certain activities and may limit future strategic
choices.
 Culture management: Organic growth allows new activities to be created in the
existing cultural environment, which reduces the risk of culture clash—a common
difficulty with mergers, acquisitions, and alliances.

Internal growth strategies have a few disadvantages. For instance, developing internal
capabilities can be slow and time-consuming, expensive, and risky if not managed
well.

3.2. Advantages of Internal Growth

There are several advantages to implementing an internal growth strategy. Consider

these benefits of pursuing internal growth for your organization:

Increased knowledge: Since internal growth necessitates a deep understanding of

the company's strengths and weaknesses, employing an internal growth strategy
helps the organization's leadership develop a deeper understanding of how the
business works and performs.

Strategic investing: While most internal growth strategies require capital

investments either from the company's coffers or from investors, often, the company
can spread the cost of the total growth strategy over the course of the project rather
than needing all the funding upfront.

Flexible timing: External growth relies on another company or partner to develop

the organization, which means the business is reliant on their timeline and needs.
Internal growth, by contrast, is completely independent, allowing for flexibility in the
implementation process.

Sustained independence: Since the company itself drives internal growth, there's
no reliance on any other organizations for guidance, leaving the company fully
independent.

Consistent culture: When companies partner with one another in an external

growth strategy, the company's internal culture can shift to reflect the merger.
Internal growth means the company can maintain its current culture.

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3.3. External Growth

External growth (or inorganic growth) strategies are about increasing output or
business reach with the aid of resources and capabilities that are not internally
developed by the company itself. Rather, these resources are obtained through the
merger with/acquisition of or partnership with other companies. External growth
strategies can therefore be divided between M&A (Mergers and Acquisitions)
strategies and Strategic Alliance strategies (e.g. joint ventures).

a. Mergers and Acquisitions

M&A offers a number of advantages as a growth strategy that improves the

competitive strength of the acquirer. They include:

 Business extension: M&A can be used to extend the reach of a firm in terms of
geography, products or market coverage.
 Consolidation: M&A can be used to bring together two competitors to increase
market power by reducing competition; to increase efficiency by reducing surplus
capacity or sharing resources, for instance head-office facilities or distribution
channels; and to increase production efficiency or increase bargaining power with
suppliers, forcing them to reduce their prices.
 Building capabilities: M&A may increase a company’s capabilities. Instead of
researching a new technology from scratch, for instance, acquirers may wait for
entrepreneurs to prove an idea and then take them over to incorporate the
technological capability within their own portfolio.
 Speed: M&A allows acquirers to act fast—and this may be an advantage in itself,
wrong-footing competition and changing the industry landscape faster than
competitors can evolve in response.
 Financial efficiency: This may allow a company with a strong balance sheet to
combine with another company with a weak balance sheet, enabling the latter to
save on interest payments by using the stronger company’s assets to pay off its
debt. The acquired firm could also access investment funds from the stronger
company that were otherwise unavailable.
 Tax efficiency: For example, profits or tax losses may be transferable within the
combined company in order to benefit from different tax regimes between
industries or countries, subject to legal restrictions.
 Asset stripping or unbundling: Some companies are effective at spotting other
companies whose underlying assets are worth more than the price of the company
as a whole. This makes it possible to buy such companies and then rapidly sell off
(unbundle) different business units to various buyers for a total price that is
substantially in excess of what was originally paid for the whole. Although this is
often dismissed as merely opportunistic profiteering (asset stripping), if the
business units find better corporate parents through this unbundling process, there
can be a real gain in economic effectiveness.

b. Strategic Alliances

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Mergers and acquisitions bring together companies through complete changes in
ownership. However, companies can also share resources and activities to pursue a
common strategy without sharing in the ownership of the parent companies. There
are two main kinds of strategic alliance: equity and non-equity alliances.

 Equity alliances involve the creation of a new entity that is owned separately by
the partners involved. The most common form of equity alliance is the joint
venture, where two companies remain independent but set up a new company
that is jointly owned by the parents. Alliances can also be formed with several
partners, and these are termed a consortium alliance.
 Non-equity alliances are typically looser, and do not involve the commitment
implied by ownership. Non-equity alliances are often based on contracts. One
common form of contractual alliance is franchising, where one company (the
franchisor) gives another company (the franchisee) the right to sell the franchisor’s
products or services in a particular location in return for a fee or royalty.
McDonald’s restaurants and Subway are examples of franchising. Licensing is a
similar kind of contractual alliance, allowing partners to use intellectual property,
such as patents or brands, in return for a fee. Long-term subcontracting
agreements are another form of loose non-equity alliance, common in automobile
supply.

4. Five Generic Competitive Strategies Business Strategies

Companies need to have competitive strategies in place to beat the competition and
gain a competitive advantage in the market. The question is, what exactly is a
competitive strategy?
A competitive strategy is a comprehensive plan of actions a company develops to
defend its market position and gain a sustainable competitive advantage in the
industry.
From product quality to superior customer service, companies are fighting each other
for every inch in the race. A competitive strategy is developed by assessing your
competition's strengths and weaknesses and identifying opportunities and threats in
the market. Marketers conduct these analyses with the help of market data about the
competitors and the target audience.

The Michael Porter's Five Generic Strategies has a focus on creating

strategies that helps to gain competitive advantages from three different bases: Cost
leadership, Differentiation and focus.

Types of Competitive Strategies

American academic and economist Michael Porter divided competitive strategies into
four types. Check them out below.

1. Cost leadership strategy. It suits large businesses that can produce a big
volume of products at a low cost, and that is why Walmart implemented this strategy.

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It means that companies using a cost leadership strategy are the lowest price sellers
on the market. Hence, the cost price of a product should be low to make a profit. This
is possible with the help of large-scale production and high capacity utilization along
with a variety of distribution channels. The competitive advantage within this strategy
is the lowest price. Walmart is an example of a cost leadership strategy. It focuses on
cutting costs during operations and offers low-priced branded items.

2. Differentiation leadership strategy. This is an unique strategy that allows

brands to stand out among competitors. It requires identifying a unique quality that
makes a company different. With this strategy, businesses become superior to their
rivals on the market, which allows them to charge more for their products. There
must be a unique selling proposition (USP) that a company could use to attract more
customers and charge premium prices. Starbucks and Apple belong to brands using
this strategy. In the automotive industry, Tesla has surely made a name for itself. It
offers cars that are energy sustainable, high-tech, and environment friendly.

3. Cost focus strategy. This strategy is similar to the cost leadership strategy in
terms of providing customers with the lowest price. The only difference is that a cost
focus strategy implies targeting a specific market segment with its unique needs and
wants. This way, it’s easier for companies to establish brand awareness. Companies
using this strategy often concentrate their efforts on geographic markets with special
needs. An IT service provider could offer its services to a market like India, where this
industry is growing exponentially.

4. Differentiation focus strategy. Companies using this strategy also focus on

specific market segments, but their driving force is the unique value. While cost focus
strategy means providing the lowest price in a small niche, differentiation focus
strategy means improving the product with the help of unique features (keep its USPs
intact) that will make your company stand out on the market.

5. Best-cost strategy. A best-cost strategy relies on offering customers better value

for money by focusing both on low cost and upscale difference. The ultimate goal of
the best-cost strategy is to keep costs and prices lower than other providers of similar
products with comparable quality and features. Best-cost strategy combines the
differentiation and low-cost provider strategies. To attract buyers, they focus on
providing appealing performance, features and other related characteristics at a
cheaper price than their rivals. It is a method of producing high-quality products at
low prices. It focuses on giving customers items that satisfy their expectations and are
within their budget.

Examples of Competitive Strategy

There can be several examples based on the four parameters given by Michael Porter.
Some examples are given below:

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 1. Cost leadership:
Xiomi/Redmi smart phones and mobile phones are giving good quality products at an
affordable price which contain all the features which a premium phone like Apple or
Samsung offers.

2. Differentiation leadership:
BMW offers cars which are different from other car brands. BMW cars are more
technologically advanced, have better features and have got personalized services.

3. Cost focus:
Sonata watches are focused towards giving wrist watches at a low cost as compared
to competitors like Rolex, Titan, and Omega etc.

4. Differentiation focus:
Titan watches concentrates on premium segment which includes jewels in its watches.

5. Best-cost provider strategies

Although Toyota Motor Company is known for its low-cost strategy, it applied the
best-cost strategy when it manufactured its luxury-car Lexus models. To compete
against such luxury-car makers as BMW and Mercedes-Benz, Toyota management
started making Lexus a car with premium-quality at costs below those of competitors.
Toyota’s best-cost strategy was so successful that the Lexus model was ranked
among the top 10 models and the second best-selling luxury brand in the US market.

INFLUENCE OF MICHAEL PORTER ON INDIA

PM Narendra Modi had a very insightful meeting with the father of Competitive
strategy for NITI AYOG TRANSFORMATION on May 2017. Prime Minister Narendra
Modi today met eminent economist Michael E Porter.

This meeting was held on May 2017 for the NITI AYOG Transforming India series. The
schema of Michael Porter’s lecture is the Competitiveness of Nations and States:

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New Insights. Also, Porter’s study on strategy for the past 30 years has revolved
around what works for business leaders, governments, healthcare practitioners and
social organizations.

According to an official statement, the third lecture in the series of ‘NITI Lectures:
Transforming India’ was successfully delivered by renowned Professor at Harvard
Business School, Dr Michael E Porter on May 25, 2017. On Comparing with other
countries India is underperforming on social progress, according to Michael E. Porter,
the Father of corporate strategy and management.

India posses all the ingredients to win, says Michael Porter.

India is at a very good scenario in terms of prosperity performance. We’re seeing lots
of signs of progress here,” the prominent economist said. Initiatives like Jan Dhan-
Aadhaar-Mobile (JAM) model in India are found to be breaking new ground in
economic policy and the process of development.”

JAM (short for Jan Dhan-Aadhaar-Mobile) trinity refers to the government of India
initiative to link Jan Dhan accounts, mobile numbers and Aadhaar cards of Indians to
plug the leakages of government subsidies.

5. Growth Strategies- Concentration, Concentric, Horizontal,

Vertical

A. Concentration Strategies

Concentration strategies are meant to compete in one, single industry. The world’s
leading fast-food brands like Subway, McDonald’s, and Starbucks follow the same
concentration strategy by targeting a specific target audience in one sort of
product/service. It’s one of the main reasons behind their success.
There are four sub-strategies of concentration strategies: (1) market penetration, (2)
market development, (3) product development and (4) horizontal integration.
However, an organization can use one, two, or all aspects of these strategies to try to
excel within an industry.
1. Market Penetration
Market penetration means gaining additional share of an organization’s existing
markets by utilizing existing products/products or we can say that the market
penetration strategy’s goal is to increase the market share by selling the current
products/services to the existing customer market. Often businesses and companies
increase the marketing and advertisement campaigns to bring more customers.

Example: Nike features popular and known athletes in print and television ads to
snatch market share within the athletic shoes business from rivals Adidas, Puma and
Lotto.

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Reliance JIO entered the Indian telecom industry with a penetration price approach.
With its financial capabilities, Reliance JIO was able to acquire the essential facilities
and offer the services for three months without charge. However, after three months,
the prices steadily rose.

2. Market Development
Market development means to sell existing products/services to the newer market. It
means that the company has to enter into a more new market by employing new
retail channels.

Example: Adidas, Nike and Reebok, which have entered international markets for
expansion. These companies continue to expand their brands across new global
markets. That's the perfect example of market development.

3. Product Development
Product development involves building and selling new products to already existing
markets. A product development strategy guides development of new products or
changes to existing products to maximize sales. The aim of product development
strategy is to gain competitive advantage by placing product offerings in the best
possible position to drive business goals such as sales growth, revenue, and profits.
Walt Disney used to be the animated cartoon production company. The brand
developed its product portfolio and started producing movies with real videos and
actors/actresses in 1940.
Example: Apple is an example of a platform/derivative strategy. They connect their
top-level strategy to their product development process. The tech giant tends to be
product-driven. Apple creates products and then finds the market for them later.
Steve Jobs famously suggested that customers do not always know what they want.
Apple bets that customers will pay a premium for superb products and tends to focus
on optimizing existing offerings. Apple relies on brand loyalty and is happy to allow
competitors to control the market with lower-priced products that compete with
Apple’s.
Coca-Cola has become focused entirely on consumers and what they want from
beverages. As consumer tastes change, for example toward options with less sugar,
Coke is moving with them. In recent years Coke has rolled out new products in
response to consumer demand, from juices to coconut water, to organic tea.
Consumers want beverages with benefits. Some call for smaller, more convenient
packages than the classic Coke can. Coke’s strategy is to continue to listen to the
voice of the customer and to respond.

McDonald’s started its business by offering burgers initially; the company expanded
its product portfolio by offering French fries, breakfast, and soft drinks. The product
development helped the company to increase its revenue and market share.

B. Concentric Strategy

The concentric strategy is used when a firm wants to increase its products portfolio to

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include like products produced within the same company. This is a growth strategy in
which a company seeks to grow and develop by adding new products to its existing
product lines to attract new customers; also called convergent diversification.

The goal of concentric diversification is twofold: profit maximization while minimizing

risk. This is a powerful business strategy. Businesses are dynamic and changeable.
Changes in consumer preferences and needs and the economy at large mean that if
you aren’t prepared to evolve, your chances of long-term survival are not strong.

Example: Swiggy genie is a new service for customers in which one can order
groceries, medicines and can send the parcels documents to concern persons, clothes
altered, homemade meals, laundry, pickup, send cakes, etc.

C. Horizontal Integration Strategy

Horizontal integration is when a business grows by acquiring a similar company in
their industry at the same point of the supply chain. In other means, expanding by
acquiring or merging with one of the rival organizations is known as horizontal
integration.
An acquisition occurs when an organization buys another organization. Generally,
the acquired organization is smaller than the buyer organization.
A merger joins two companies into one. Mergers occur with similar sized companies.
Horizontal integration is preferable and attractive for many reasons. Horizontal
integration may lower costs by gaining a greater economies of scale. Fitting horizontal
integration alongside Porter’s five forces model, it means that such moves also
reduces the intensity of rivalry and can make the industry more profitable.
Horizontal integration can also offer new distribution channels, where a firm may
produce or acquire production units that are similar—either complementary or
competitive.
Example: The merger of Vodafone and Idea, 35% share of the market. Both
companies are into the telecommunication business and offer services to customers
such as phone, mobile, internet facility, data, etc. This merger is one of the famous
examples of horizontal integration.

One of the most definitive examples of horizontal integration was the acquisition of
Instagram by Facebook (now Meta) in 2012 for a reported $1 billion. Both
companies operated in the same industry (social media) and shared similar production
stages in their photo-sharing services.

D. Vertical Strategy

Vertical integration is the business arrangement in which a company controls different

stages along the supply chain. Instead of relying on external suppliers, the company
strives to bring processes in-house to have better control over the production process.

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Example, Netflix shifted from licensing shows and movies from major studios to
producing its own original content is an example of vertical integration (Backward
Integration).

Coca-Cola Company and PepsiCo were originally vertically integrated. The

companies developed the products, manufactured and distributed them, and took
care of marketing.

There are three forms this strategy takes: backward integration, forward
integration, and balanced integration:

1. Backward Integration
A company that chooses backward integration (upstream) moves the ownership
control of its products to a point earlier in the supply chain or the production process.
This form of vertical integration is aptly named as a company often strives to acquire
a raw material distributor or provider towards the beginning of a supply chain. The
companies towards the start of the supply chain are often specialized in their distinct
step in the process (i.e. a wood distributor to a furniture manufacturer). In an attempt
to streamline processes, the furniture manufacturer would try to bring the wood
sourcing in-house.

2. Forward Integration
A company that decides on forward integration expands by gaining control of the
distribution process and sale of its finished products. Forward integration
(downstream) is a less common form of vertical integration because it is often more
difficult for companies to acquire others that are further along the supply chain. For
example, the largest retailers at the end of the supply chain often have the
greatest cash flow and purchasing power. Instead of these retailers being acquired,
they often have the capital on hand to be the acquirer, which is an example of
backward integration.

Example: E-commerce platform Myntra launched its own logistics service, Myntra
Logistics, to cut costs, improve turnaround time and ensure that its customers receive
their orders on time.

3. Balanced Integration
A balanced integration is an approach to vertical integration where a company aims
to merge with companies both before it and after it along the supply chain. A
company must be the middleman and manufacture a product to engage in balanced
integration. That's because it must both source raw materials as well as work with
retailers to deliver the final product.

Example: Apple, extended itself both forward in the supply chain with the opening
of its retail stores and backward, when it designed its own semiconductors.

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6. Retrenchment- Turnaround, Divestment and Liquidation
Strategies

Retrenchment is a corporate-level strategy that involves reducing the size, scope, or

diversity of a company's operations. Retrenchment aims to improve the company's
financial performance by cutting costs, streamlining operations, and focusing on core
business activities.
Retrenchment strategies are often used when a company is experiencing financial
difficulties or facing intense market competition. By focusing on core activities and
cutting costs, a company can become more competitive and increase its chances of
long-term success.

a. Turnaround Strategy

A turnaround strategy is used when a company is experiencing financial difficulties

and needs to make significant changes to its operations in order to return to
profitability. It can also involve cutting down the expenditure of the company so that
it becomes financially viable. It may involve restructuring the company, reducing
costs, and selling non-core assets. It aims to decrease the scale of operations of the
company. It can involve reducing the number of product lines or businesses,
withdrawing from certain geographical markets so that the company becomes
financially sustainable.

There are several different approaches to implementing a turnaround strategy, but

some common steps include the following:

1. Identifying the root causes of the company’s financial difficulties, which could
include poor management decisions, increased competition, or changes in the market.

2. Developing a plan to reduce costs and improve efficiency could involve downsizing
the workforce, closing unprofitable business units, or selling off non-core assets.

3. Communicating the strategy to employees, shareholders, and other stakeholders to

ensure everyone knows the company’s plans and goals.

4. Implementing the strategy carefully and systematically, focusing on minimizing the

negative impact on employees and maintaining the company’s reputation in the
market.

5. Monitoring the strategy results and adjusting as needed to ensure that the
company is moving in the right direction.

While turnaround retrenchment strategies can effectively improve a company’s

financial performance, they can also be disruptive, resulting in job losses and other
negative consequences.

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b. Divestment Strategy

Divestment strategy involves selling off non-core businesses or assets in order to

focus on the company’s core competencies. This can help the company to improve its
overall performance by freeing up resources and reducing complexity.

Divestment involves selling off a company’s non-core or underperforming assets. By

divesting or retrenching, a company can free up resources and focus on its core
competencies, which can help it become more competitive and profitable. The
divestment strategy has risks, however. Selling off assets can reduce a company’s
revenue streams and result in a loss of valuable intellectual property or customer
relationships.

The decision to pursue a divestment retrenchment strategy should be carefully

considered and balanced against other strategic options. It is important for companies
to thoroughly assess their strengths and weaknesses before deciding to divest or
retrench and to have a clear plan in place for executing the strategy and mitigating
any associated risks.

Divestments can occur for several reasons and be used in various

strategies:

1. Focus on Core Operations: Companies often divest business units or

subsidiaries that are not part of their core operations. The company might have
initially expanded into those areas as part of a growth strategy. Still, over time,
these areas may distract from their core business or not generate sufficient profits.
2. Raise Capital: Companies might divest assets or business units to raise capital
for new investments or to repay debts. The company can quickly generate cash by
selling off assets.
3. Efficiency Improvements: Divestments can also be used to improve operational
efficiency. By selling underperforming or non-core business units, a company can
reduce its complexity and strengthen its focus on its most profitable areas.
4. Regulatory Requirements: Sometimes, divestment is necessary due to
regulatory requirements. For example, after mergers or acquisitions, a company
might have to divest certain assets to avoid violating antitrust laws (Antitrust laws
are the broad group of state and laws that are designed to make sure businesses
are competing fairly. The “trust” in antitrust refers to a group of businesses that
team up or form a monopoly to dictate pricing in a particular market).
5. Environmental, Social, and Governance (ESG) Concerns: Some divestment
strategies are driven by social or environmental considerations rather than purely
financial ones. For example, a company might choose to divest from industries
seen as harmful to the environment or society, such as fossil fuels or tobacco. This
can also apply to investment funds that follow socially responsible investing (SRI)
principles.

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c. Liquidation Strategy

Liquidation strategy involves selling off all of a company’s assets in order to pay off its
debts and close down the business. It is typically used as a last resort when a
company is facing insurmountable financial difficulties. These strategies are typically
employed when a company decides to cease operations, dissolve, or when it enters
bankruptcy.

The primary goal of a liquidation strategy is to reduce costs and improve profitability
by eliminating non-core businesses or unprofitable products or services. This may
involve selling off assets such as real estate, equipment, or inventory, as well as
cutting jobs or reducing the size of the workforce.

While a liquidation retrenchment strategy can effectively improve a company’s

financial position, it can also have significant drawbacks. For example, selling off
assets or cutting jobs can lead to a loss of talent and expertise and a reduction in
overall capacity and capability. Additionally, customers or partners may be feeling
cautious of doing business with a company that appears to be in financial trouble or is
downsizing.

7. Modes of Entering Foreign Markets

By selling your product or service in another country, you can introduce your company
to huge markets, increase your sales and profits, gain brand recognition, reduce the
risk of only operating in one market (eg, due to economic or seasonal downturns) and
extend your product’s life cycle.

WHICH COUNTRY?

You may already have a country in mind, or you may simply have the idea of
exporting but no idea where to. Start by making a list of countries you are interested
in. When you have a list, consider more carefully your product – is it suitable for any
of the countries on your list? The culture, religion and law of each country are
extremely important to consider here. Like for clothes or eatables habits, etc.

MARKET ENTRY METHODS

There are several market entry methods that can be used:

a. Exporting

Exporting is the direct sale of goods and / or services in another country. It is possibly
the best-known method of entering a foreign market, as well as the lowest risk. It
may also be cost-effective as you will not need to invest in production facilities in your
chosen country – all goods are still produced in your home country then sent to
foreign countries for sale.

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a. Direct Export- The organization produces their product in their home market and
then sells them to customers overseas.

b. Indirect Export- The organizations sells their product to a third party who then
sells it on within the foreign market.

b. Licensing

Licensing allows another company in your target country to use your property. The
property in question is normally intangible – for example, trademarks, production
techniques or patents. The licensee will pay a fee (royalty payment) in order to be
allowed the right to use the property.

Licensing requires very little investment and can provide a high return on investment.
The licensee will also take care of any manufacturing and marketing costs in the
foreign market. For example, a movie production company may sell a school supply
company the right to use images of movie characters on backpacks, lunchboxes and
notebooks.

c. Foreign Direct Investment

Foreign direct investment (FDI) is when you directly invest in facilities in a foreign
market. It requires a lot of capital to cover costs such as premises, technology and
staff. FDI can be done either by establishing a new venture or acquiring an existing
company.

d. Franchising

A franchise is a chain retail company in which an individual or group buyer pays for
the right to manage company branches on the company's behalf. The organisation
puts together a package of the ‘successful’ ingredients that made them a success in
their home market and then franchise uses this package to overseas investors. The
Franchise holder may help out by providing training and marketing the services or
product. McDonalds is a very popular example of a Franchising option for expanding
in international markets.

e. Contracting

Contracting (Contract manufacturing- it specifies the terms), when a foreign firm hires
a local manufacturer to produce their product or a part of their product it is known as
contract manufacturing. This method utilizes the skills of a local manufacturer and
helps in reducing cost of production. The marketing and selling of the product is the
responsibility of the international firm.

f. Joint Venture

A joint venture consists of two companies establishing a jointly-owned business. One

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of the owners will be a local business (local to the foreign market). The two
companies would then provide the new business with a management team and share
control of the joint venture.
There are several benefits to this type of venture. It allows you the benefit of local
knowledge of a foreign market and allows you to share costs. However, there are
some issues – there can be problems with deciding who invests what and how to split
profits.

g. Outsourcing

Outsourcing involves hiring another company to manage certain aspects of business

operations for your company. As a market entry strategy, it refers to making an
agreement with another company to handle international product sales on your
company's behalf. Companies that choose to outsource may relinquish a certain
amount of control over the sale of their products, but they may justify this risk with
the revenue they save on employment costs.

8. Multi Domestic Strategy

A multi domestic strategy is a marketing approach where a company focuses on

customizing advertising and commercial efforts to local markets. The company might
introduce a new brand for each region, adjusting marketing, packaging, services and
sometimes product lines to match local preferences, norms and customs. For
example, a multi domestic beverage company could release unique drink flavours in
different regions. Websites also undergo localization, using local languages and often
featuring residents of the region.

Companies typically conduct extensive research before entering a new market and
may adapt many aspects of its business operations to suit the local market. When
starting in the new region, the company sets up regional operations that may include
management, customer support, storefronts, offices and manufacturing facilities. The
amount of independence under which a regional unit operates often depends on the
parent company.

9. Global Strategy

A global strategy is a strategy that a company develops to expand into the global
market. The purpose of developing a global strategy is to increase sales across the
world. The term "global strategy" includes standardization, and international and
multinational strategies. To develop a global strategy, it's important to consider how
your business's products can perform in global markets. Global strategy creation also
involves analyzing your competitors, global customers, production sites and other
components of your business to help you ensure that your business succeeds in the
global market.

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a. International Strategy

The firms adopt an international strategy to create value by offering those products
and services to the foreign markets where these are not available. This can be done,
by practicing a tight control over the operations in the overseas and providing the
standardized products with little or no differentiation.

An international strategy involves importing and exporting products. Using an

international strategy can allow you to work with foreign suppliers and sell to
customers around the world while keeping your physical premises within your home
country. Typically, international strategies still focus mainly on the company's home
market while doing some business overseas.

b. Global standardization

A global standardization strategy is a marketing approach that uses standard

marketing strategies to promote products internationally. In a standardization
strategy, you sell the same products in every location. A standardization strategy is
characterized by keeping control centralized rather than delegating decisions to local
markets. Some of the benefits of a standardization strategy include the ability to
develop products more quickly and easily coordinate activities across locations.

Companies and businesses that sell their products and services to international
audiences adopt global standardization. They must set guidelines that are generally
acceptable with how their firms operate across various countries and cultures. The
product or services should exhibit a high level of consistency and create the same
appeal globally to drive steady sales. Most companies that adopt global
standardization use standard methods to brand, package and distribute their
products.

Most renowned global electronic companies have adopted the global standardization
strategy. It has enabled them to achieve product uniformity globally. The design,
specifications and functions of their products match all regions. Their employees also
follow strict guidelines in customer service. They also use more personalized
communication approaches.

c. Transnational Strategy

In business is a type of international business plan that fits two primary criteria. These
two criteria are that the business must have high local responsiveness and high global
integration. This means that a transnational business is one that usually has
branches or offices in all the countries they serve, but that these local branches are
integrated into the larger global goals and plans of the business. This strategy is
invested in overseas operations and assets, connecting them to every nation in which
the company operates.
Transnational businesses consider the cultures in the countries they operate in and
how best to appeal to those people specifically rather than assuming every country's
population wants the exact same thing.

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