BUSINESS STRATEGY- Concept, Components and Importance

Business strategy is the strategic initiatives a company pursues to create value for the organization and
its stakeholder and gain a competitive advantage in the market. This strategy is crucial to a company's
success and is needed before any goods or services are produced or delivered.

The Importance of Business Strategy

A business strategy is foundational to a company's success. It helps leaders set organizational goals and
gives companies a competitive edge. It determines various business factors, including:

Planning: In a highly competitive market, any slip could be detrimental to a small or established
corporation. A strictly planned strategy prevents that from happening as it ensures meeting the
objectives and goals of the company and provides a clear direction for the management to follow.

Strengths and weaknesses: Every business has a set of strengths and weaknesses and companies can
strategize in a way that optimizes the former. This can also help companies overshadow or even
eliminate their shortcomings.

Efficiency: With the help of strategy, businesses can easily understand how to allocate resources
effectively to meet their goals. This way, everyone within the company can know what they require to
do, allowing teams to plan ahead, leading to greater operational efficiency.

Competitive advantage: With a strategy in place, businesses can focus on capitalizing on their strengths
to gain an edge within the marketplace. This could make them distinct and give you a competitive
advantage whilst trimming costs.

Other important factors of adopting business strategies,

 Trends
 Securing an advantageous position
 Meeting the challenges and threats
 Directing efforts, behavior and
 Gaining command over the situation

Levels of Strategies
 The three primary levels of business strategy are:
 Corporate level strategy
Corporate level strategy is a long-range, action-oriented, integrated, and comprehensive plan, which
is formulated by the top management of a company. It is very helpful to ascertain business lines,
expansion, growth, takeovers and mergers, diversification, integration, and the latest fields for
investment.
 Business level strategy
The strategies that relate to a specific business are known as business-level strategies. It is developed
by the general managers, who convert mission and vision into concrete, clear, and result-driven
strategies. It acts like a blueprint for the total business.
 Functional level strategy
Developed by the first-line managers or supervisors, the functional level strategy involves decision-
making at the operational level concerning functional areas such as marketing, production, human
resources, research and development, finance, and so on.

Components of a strategy
Here are the critical components of a strategy:

Mission and business objectives

Your business objective or mission statement identifies a gap in the market that your business hopes to
address. A business's pre-defined strategy intends to meet a company's goals and provides the vision
and directions through a clearly laid out plan. This entails what and how the company operates in the
future and pre-defines the allotment of tasks to specific employees in line with business objectives. It
also helps set a clear business direction and set future agendas for the company.
Core values

With a strategy, it becomes easy for all departments to comprehend the business plan and the elements
they may require to avoid. Ultimately, a good business approach highlights its core values and explains
its importance in business operations. It helps everyone stay on the right path while moving towards a
common goal.

SWOT analysis

A SWOT is an analysis of the current situation of a business. It stands for strengths, weaknesses,
opportunities and threats. This is crucial to making a strategy as it highlights the advantages and the
strengths a company possesses and all available opportunities it can use for growth and stability. The
analysis also helps you become aware of the weakness or threats that could create challenges to
progress, along with things that may threaten its existence.

Tactics of operation

Business strategies look carefully into the details of the operation of a company and help find ways of
how employees may do work so that they can maximize efficiency. This can help save a lot of time and
effort as individuals may clearly know what they require to do and how. Having a pre-defined
operational strategy can also help streamline work processes, which in turn may increase efficiency and
reduce delays.

Plan for resource allocation

Business strategies are pre-defined where you can find the required resources to execute the company's
goals. They also look at how the business can allocate resources and who is responsible for each
process. With this information, you could plan out the allocation of resources to increase work efficiency
and reach business goals.

CORPORATE STRATEGY - Concept, Components and Importance

A corporate strategy is a valuable tool for expanding and defining the values of a company. Companies
use corporate strategies to create and identify long-term goals aimed toward improvement and success.
Understanding what a corporate strategy is can help you increase overall profits and financial stability
for your company.

What is a corporate strategy?

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.

Key components of a corporate strategy

Here are several key components of a corporate strategy:

 Guidance and Direction

Corporate strategy provides a roadmap for the organization, outlining its vision, mission and objectives.
It guides decision making and resource allocation for the company.

 Portfolio management
Portfolio management analyzes the different components of a business to see if they work well
together. A corporate strategy uses portfolio management to decide which areas of the company to
work on or invest in, which could include:
 Deciding on a market
 Investing in new opportunities
 Diversifying the company
 Analyzing competition
 Assessing the performance of existing units

 Objectives
To create and implement a corporate strategy, employees typically need to set objectives. A corporate
strategy is a plan, goal or course for the company to follow, and the plan consists of tasks that describe
the company's mission. Objectives allow a company to record and measure its progress because
employees can track whether they've completed a goal.

 Resources
Allocating assets like money, technology, and talent to achieve strategic goals.

 Risk Management
Corporate strategy helps identify and mitigate risks that may threaten the organization’s success. By
conducting thorough risk assessments and developing contingency plans, it enhances the company’s
resilience and ability to navigate uncertainties.

 Design
In a corporate strategy, design ensures that the employees organize the structure of the company in a
way that maximizes efficiency. This can refer to distributing power within a company, such as
determining the hierarchy of the company or how the company makes decisions. An example of this
could be deciding how much freedom or authority a certain department receives.

 Market Positioning
Corporate positioning involves determining the organization’s positioning within target markets,
including its unique value proposition, competitive advantages and differentiation strategies. It
identifies the target customer segments, market segments, and geographic regions the organization aim
to serve.

IMPORTANCE

 Guidance for business strategies

A corporate strategy gives a starting point to build individual business unit strategies.
 Innovation and Growth
Corporate strategy encourages innovation and fosters a culture of continuous improvement within the
organization.

 Stakeholder Alignment
Corporate strategy facilitates alignment and coherence across various stakeholders, including
employees, customers, investors, and partners.

 Continuous Evaluation and Adaptation

Corporate strategy is not something that stays the same, but rather a process that needs ongoing
evaluation and adjustment. In a rapidly changing business world, companies have to regularly check if
their strategies are working, keep an eye on the market, and listen to what stakeholders have to say.
This helps organizations find any problems, change their priorities, and adjust what they do. By
encouraging a culture of learning, coming up with new ideas, and being flexible, companies can stay
ahead, make the most of new chances, and stay competitive even when things keep changing.

 Optimizing Resource Allocation

It’s important for organizations to use their resources wisely to do well and achieve their goals. A
corporate strategy helps with this by providing a plan for using resources effectively. This means putting
resources toward the best opportunities and important initiatives. When resources are aligned with the
most important goals, companies can work better, waste less, and improve how they do things overall.

Types of Corporate Strategies -

There are four corporate-level strategies - growth, stability, retrenchment, and combination

Growth Strategy / Expansion Strategy

An expansion strategy also known as growth strategy is a plan or method used by a company to achieve
business expansion. There are several different types of growth strategies that can be used by an
organization in an effort to expand its business. Some common growth strategies include entering new
markets, launching new products or services, acquiring other companies, increasing advertising, and/or
expanding into new geographic regions. Each of these strategies can play an important role in aiding
businesses to achieve rapid and sustainable growth that is profitable.
These strategies are important for businesses because they provide a roadmap for how the company
can achieve its growth goals. Without a growth strategy, businesses may struggle to find new customers
or markets to enter, and they may also miss out on opportunities to launch new products or services.
 Growth strategies can also help businesses to avoid potential pitfalls that could lead to stagnation or
decline.
i. Organic Growth: Organic, or internal, growth is one of the fundamental types of business growth
strategies. It relies on using the company’s existing capabilities and resources to expand. This might
involve opening new locations, hiring additional staff, increasing production capacity, or investing in
marketing to boost sales. The essence of organic growth is building on the company’s strengths and
gradually expanding its footprint in the market.

 Market Penetration

When employing a market penetration strategy, management seeks to sell more of its existing products
into markets that they’re familiar with and where they have existing relationships. Typical execution
strategies include:

 Increasing marketing efforts or streamlining distribution processes

 Decreasing prices to attract new customers within the market segment
 Acquiring a competitor in the same market

 Market Development
Market development is a high-risk strategy that can yield significant returns, and you should only
consider this strategy when you possess enough capital and resources.

Expanding into new markets with existing products is a classic approach to growth. This could mean
geographical expansion, targeting new customer segments within existing markets, or finding new
applications for products. These segments can be build around location, age, income, or industry
identifiers.

Once you've selected your ideal market segment, you must create a marketing and branding strategy
that advertises your existing product or service to attract a new type of customer. Try attracting new
customers and markets by finding further uses for a current product or adding new features and
benefits.

 Product development
Another internal growth strategy involves introducing new products or enhancing existing ones to meet
changing customer needs or tap into new customer segments. It requires a strong focus on research and
development (R&D) and understanding market trends. Instead of increasing market share, it focuses on
improving your product line to attract more clients in your existing market segment.

Imagine a dessert restaurant that only serves ice cream. Expanding their menu to include waffles could
increase existing customers' buying rates from their business.

To determine new products, you should undergo extensive consumer research focusing on demands
and competitor analysis. Product development requires a solid cross-functional collaboration between
teams to be successful.
  Diversification
Diversification is the riskiest of the four growth options. A diversification strategy is a business strategy
where a company expands its business activities into different markets or industries. The primary goal of
diversification is to spread risk and create multiple sources of revenue, thus reducing dependence on a
single market or product.

Implementing a diversification strategy in an industry facing an extreme financial downturn or a

company losing significant market share within a core part of its business may help prevent further
damage or closure. When markets are challenging, and competition is fierce, many companies choose to
protect their core business while simultaneously exploring new possibilities.

There are mainly two types of diversification strategies undertaken by the organization:

1. Concentric Diversification: When an organization acquires or develops a new product or service that are
closely related to the organization’s existing range of products and services is called as a concentric
diversification. For example, the shoe manufacturing company may acquire the leather manufacturing
company with a view to entering into the new consumer markets and escalate sales.
2. Conglomerate Diversification: When an organization expands itself into different areas, whether related
or unrelated to its core business is called as a conglomerate diversification. Simply, conglomerate
diversification is when the firm acquires or develops the product and services that may or may not be
related to the existing range of product and services.

ii. Inorganic Growth (Expansion through Cooperation): Unlike organic growth, inorganic growth
involves expanding through mergers, acquisitions, or partnerships. This approach can provide quick
access to new markets, technologies, or products. It is a way to achieve rapid scale, but it has
complexities, including integrating different company cultures and systems.

The Expansion through Cooperation is a strategy followed when an organization enters into a
mutual agreement with the competitor to carry out the business operations and compete with one
another at the same time, with the objective to expand the market potential.

The inorganic growth strategies are mergers and acquisitions (M&A), Joint Ventures and strategic
alliances.

 Mergers and acquisitions (M&A)

Mergers and acquisitions refer to transactions between business entities that involve a complete
exchange of ownership. A merger is a financial transaction in which two companies unite into one new
company with the approval of the boards of directors of both companies. In a merger, the involved
companies may create a completely new entity (under a new brand name) or the acquired company
may become a part of the acquiring company.
Conversely, an acquisition is a financial transaction in which the acquiring company (bidder) purchases a
controlling stake in a target company. It can be done with the consent of the management and
shareholders of a target company (friendly takeover) or without it (hostile takeover).

 Strategic alliances

Unlike M&A transactions, strategic alliances do not involve a complete exchange of ownership between
the participating companies. Instead, companies combine their assets and resources for a certain period
of time to achieve predetermined goals while remaining independent.

A strategic alliance can take one of two forms: equity and non-equity alliances. Equity alliances are
created when independent companies become partners and establish a new entity jointly owned by the
participating partners. The most common form of an equity alliance is a joint venture.

On the other hand, non-equity alliances are created through contracts. Examples of non-equity alliances
are franchising and licensing agreements, in which one company provides products, services, or
intellectual property to another company in exchange for a fee.

 Joint Venture

Under the joint venture, both the firms agree to combine and carry out the business operations jointly.
The joint venture is generally done, to capitalize the strengths of both the firms. The joint ventures are
usually temporary; that lasts till the particular task is accomplished.

Other Expansion Strategies

 Expansion through Integration

The Expansion through Integration means combining one or more present operation of the business
with no change in the customer groups. This combination can be done in two forms : combining similar
things or combining dissimilar things but having close relationships. There are two ways of integration:
Vertical and Horizontal Integration
Vertical integration: The vertical integration is of two types: forward and backward. When an
organization moves close to the ultimate customers, i.e. facilitate the sale of the finished goods is said to
have made a forward integration. Example, the manufacturing firm open up its retail outlet.

Whereas, if the organization retreats to the source of raw materials, is said to have made a backward
integration. Example, the shoe company manufactures its own raw material such as leather through its
subsidiary firm.

Horizontal Integration: A firm is said to have made a horizontal integration when it takes over the same
kind of product with similar marketing and production levels. Example, the pharmaceutical company
takes over its rival pharmaceutical company.

 Expansion through Concentration

Concentration strategy is a wise and sensible business strategy. It focuses on a single niche and
competes in the same category. 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.

Concentration strategy has three major types- market penetration, market development, and product
development.
 Market penetration strategy: The firm focusing intensely on the existing market with its present
product.
 Market Development type of concentration: Attracting new customers for the existing product.
 Product Development type of Concentration: Introducing new products in the existing market.

 Expansion through Internationalization

The Expansion through Internationalization is the strategy followed by an organization when it aims to
expand beyond the national market. The need for the Expansion through Internationalization arises
when an organization has explored all the potential to expand domestically and look for the expansion
opportunities beyond the national boundaries.

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.

B) Multi domestic Strategy: Under this strategy, the multi-domestic firms offer the customized products
and services that match the local conditions operating in the foreign markets. Obviously, this could be a
costly affair because the research and development, production and marketing are to be done keeping
in mind the local conditions prevailing in different countries. For eg- food company H. J. Heinz adapts its
products to match local preferences. Because some Indians will not eat garlic and onion, for example,
Heinz offers them a version of its signature ketchup that does not include these two ingredients.

C) Global Strategy

A firm using a global strategy sacrifices responsiveness to local requirements within each of its markets
in favor of emphasizing lower costs and better efficiency. This strategy is the complete opposite of a
multi-domestic strategy. Some minor modifications to products and services may be made in various
markets, but a global strategy stresses the need to gain low costs and economies of scale by offering
essentially the same products or services in each market.
Microsoft, for example, offers the same software programs around the world but adjusts the programs
to match local languages. Global strategies also can be very effective for firms whose product or service
is largely hidden from the customer’s view, such as silicon chip maker Intel. Lenovo also uses this
strategy. For such firms, variance in local preferences is not very important, but pricing is.

D) Transnational Strategy

A firm using a transnational strategy seeks a middle ground between a multi-domestic strategy and a
global strategy. Such a firm tries to balance the desire for lower costs and efficiency with the need to
adjust to local preferences within various countries. For example, large fast-food chains such as
McDonald’s rely on the same brand names and the same core menu items around the world. These
firms make some concessions to local tastes too. In France, for example, wine can be purchased at
McDonald’s. This approach makes sense for McDonald’s because wine is a central element of French
diets. In Saudi Arabia, McDonalds serves a McArabia Chicken sandwich, and its breakfast menu features
no pork products like ham, bacon, or sausage.

Stability Strategy
A stability strategy is a corporate strategy where a company concentrates on maintaining its current
market position. A company that adopts such an approach focuses on its existing product and market. A
few examples of this strategy are offering the same products to the same clients, not introducing new
products, maintaining market share, and more.

Usually, a company satisfied with its current market share or position uses such a strategy. Also, a
company following this strategy does not need any additional resources and work using the existing
expertise of the workforce. But, this strategy is useful only if there is a simple and stable environment.

Example of Stability Strategy: Coco-Cola

It consistently maintains its core product line of soft drinks while making subtle adjustments to adapt to
changing consumer preferences. This strategy helps the company sustain its brand identity and market
share over time.

No-change Strategy

As the name suggests, a company following this strategy does not take up any new activities. Instead,
the company continues with its current business. Companies that are well established may go for this
strategy.

Profit Strategy

Organizations follow this strategy to maintain profit by any means. They may cut investment, use
simpler processes, standard parts, increase the price, etc. Businesses use a profit strategy when facing
some temporary issue or the market has short-term turbulence. Profit strategy is not a long-term
strategy. It is a temporary solution.

Pause/ Proceed with Caution Strategy

A company adopts such a strategy if, in the past, it has enjoyed rapid growth. By using this strategy, the
company wants to take some rest before pushing for growth again. Or, we can say, a company moves
cautiously for some time before pursuing growth. It is a temporary strategy. A company can use the rest
period to make its production more efficient to exploit future opportunities.

Retrenchment Strategy Definition: The Retrenchment Strategy is adopted when an organization aims at
reducing its one or more business operations with the view to cut expenses and reach to a more stable
financial position. In other words, the strategy followed, when a firm decides to eliminate its activities
through a considerable reduction in its business operations, in the perspective of customer groups,
customer functions and technology alternatives, either individually or collectively is called as
Retrenchment Strategy. The firm can either restructure its business operations or discontinue it, to
revitalize its financial position.

There are three types of Retrenchment Strategies:

Turnaround strategy
 Captive company strategy
 Sellout/ Divest strategy
 Liquidation strategy

Turnaround Strategy - The Turnaround Strategy is a retrenchment strategy followed by an organization

when it feels that the decision made earlier is wrong and needs to be undone before it damages the
profitability of the company. Simply, turnaround strategy is backing out or retreating from the decision
wrongly made earlier and transforming from a loss making company to a profit making company. Now
the question arises, when the firm should adopt the turnaround strategy. Following are certain
indicators, which make it mandatory for a firm to adopt this strategy for its survival.
These are:
Continuous losses
 Poor management
 Wrong corporate strategies
 Persistent negative cash flows
 High employee attrition rate
 Poor quality of functional management
 Declining market share
 Uncompetitive products and services

In addition, the need for a turnaround strategy arises because of the changes in the external
environment Viz, change in the government policies, saturated demand for the product, a threat from
the substitute products, changes in the tastes and preferences of the customers, etc. Example: Dell is
the best example of a turnaround strategy.
 In 2006, Dell announced the cost cutting measures and to do so; it started selling its products directly,
but unfortunately, it suffered huge losses. Then in 2007, Dell withdrew its direct selling strategy and
started selling its computers through the retail outlets and today it is the second largest computer
retailer in the world.

Captive Company Strategy-

The captive company strategy involves giving up independence in exchange for security. A firm with a
weak competitive position may not be able to take the turnaround strategy in such a situation it has to
opt for a captive strategy. As the firm is continuously facing declining sales and declining profits, it
desperately seeks to increase sales and profitability. In such a situation, it makes an angle with one of its
largest buyers who then will buy its products.

As such, the firm becomes captive to this customer. In doing so, the firm may get assured of sales and
security and its marketing costs got reduced. In return, it has to lose its independence.

For example, Simpson Motors agreed to become a captive company to General Motors whereby it
agreed to supply 80% of the company's production to General Motors through negotiated contracts.
A captive company strategy is suitable when:
 The company has a single large customer who purchases 75% of its production.

 The customer also performs many of the functions that the company is performing. Thus by becoming
the captive the company can save costs by cutting down on all common functions.

Sell-Out/Divestment Strategy

If a company has a very weak competitive position and is not able to adopt a turnaround strategy or
captive company strategy, it is better for it to go for a sell-out/divestment strategy. This strategy makes
sense if management can still obtain a good price for its shareholders and the employees can keep their
jobs by selling the entire company to another firm.

If the company gets a good price from its sales the shareholders of the company get a good return for
their investment. And, employees may also get a chance to stay in their current jobs.

The best part of the sell-out strategy is that if the firm still has some possibilities the buying company
having a good resource base and competency can effectively turnaround and generate reasonable
profits.

Liquidation Strategy

This is the worst situation for a firm. This situation comes when the firm cannot adopt any of the
turnaround, captive, and sell-out strategies. Bankruptcy involves giving up management of the firm to
the courts in return for some settlement of the company’s obligation. The management believes that
once the court decides the claims of the company, the company will be stronger and better able to
compete in a more attractive industry.
 In addition, liquidation is the termination of the firm. When the industry is unattractive and the
company is too weak to continue, liquidation may be a viable option.

COMPETITIVE STRATEGY
A competitive strategy is a plan of action that companies use to gain an advantage over their
competitors. It involves analyzing competitors, identifying strengths and weaknesses, and devising
strategies to capitalize on opportunities and reduce threats.

 A competitive advantage is what sets a company apart from its competitors, in the eyes of its consumers.
 These advantages allow a company to achieve and maintain superior margins, a better growth profile, or
greater loyalty among current customers.
 According to Michael Porter, competitive strategy is devised into 4 types-

1. Cost leadership

The goal of a cost leadership strategy is to become the lowest cost manufacturer or provider of a good
or service. This is achieved by producing goods that are of standard quality for consumers, at a price that
is lower and more competitive than other comparable product(s).

Firms employing this strategy will combine low profit margins per unit with large sales volumes to
maximize profit. Companies will seek the best alternatives in manufacturing a good or offering a service
and advertise this value proposition to make it impossible for competitors to replicate.

2. Differentiation
A differentiation strategy is one that involves developing unique goods or services that are significantly
different from competitors. Companies that employ this strategy must consistently invest in R&D to
maintain or improve the key product or service features.

By offering a unique product with a totally unique value proposition, businesses can often convince
consumers to pay a higher price which results in higher margins.

3. Focus

A focus strategy uses an approach to identifying the needs of a niche market and then developing
products to align to the specific need area. The focus strategy has two variants:

 Cost focus: Lowest-cost producer in a concentrated market segment. An example of a company

that uses this strategy is Netflix, which offers streaming services to its target audience
 Differentiation focus: A narrow strategy that focuses on a specific market segment or
niche. The goal is to outperform competitors by offering a product that consumers perceive as
superior, even if it costs more. Customized or specific value-add products in a narrow-targeted
market segment.

Thus, Cost leadership refers to a strategy where a firm aims to have the lowest costs in the
industry, while cost focus involves targeting a specific market segment with low-cost products.

Competitive Advantage in the Marketplace

Three notable examples are:

1. Walmart: Walmart excels in a cost leadership strategy. The company offers “Always Low Prices”
through economies of scale and the best available prices of a good.
2. Apple: Apple uses a differentiation strategy to appeal to its consumer base. It provides iconic
designs, innovative technologies, and, therefore, highly sought-after products; this ensures that
consumers are willing to pay a premium for Apple devices.
3. Sonata : Watches are focused towards giving wrist watches at a low cost as compared to its
competitors like Rolex, Titan and Omega, etc.(Cost focus strategy)
4. Titan: Titan watches concentrates on premium segment which includes jewels in its watches.
(Differentiation focus strategy)
Different Modes of Entering International Business