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Strategy Options for Competing in Emerging Industries

Win early race for industry leadership by employing a bold, creative strategy

Push hard to Perfect technology Improve product quality Develop attractive performance features

Move quickly when technological uncertainty clears and a dominant technology emerges

Form strategic alliances Capture potential first-mover advantages

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Strategy Options for Competingin Emerging Industries (cont.)

Pursue New customers and user applications Entry into new geographical areas

Focus advertising emphasis on Increasing frequency of use Creating brand loyalty

Use price cuts to attract price-sensitive buyers Prepare for entry of established firms when

industry future clears and risk lessens

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Strategy Options for Competingin High Velocity Markets

Invest aggressively in R&D Develop quick response capabilities

Match rivals Shift resources Adapt competencies Create new competitive

capabilities Speed new products to market

Use strategic partnerships to develop specialized expertise and capabilities

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Keys to Success in Competingin High Velocity Markets

Cutting-edge expertise Speed in responding to new developments Collaboration with others Agility Innovativeness Opportunism Resource flexibility First-to-market

capabilities

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Strategy Options for Competingin a Mature Industry

Prune product line

Emphasize process innovation

Strong focus on cost reduction

Increase sales to present customers

Purchase rivals at bargain prices

Expand internationally

Build new, more flexible competitive capabilities

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Competing in a Mature Industry: The Strategy Pitfalls and Mistakes

Employing a ho-hum strategy with no stand-out or distinctive features thus leaving the company “stuck in the middle” with no good options for improving its position

Concentrating on short-term profits rather than strengthening long-term competitiveness

Being slow to adapt competencies to changing customer expectations

Being slow to respond to price-cutting Having too much excess capacity Overspending on marketing Failing to pursue cost reductions aggressively

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Strategy Options for Competingin a Stagnant or Declining Industry Pursue focus strategy aimed at fastest growing

market segments Stress differentiation based on quality

improvement or product innovation Work diligently to drive costs down by

Outsourcing Redesign internal processes Consolidate under-utilized production facilities Close low-volume, high-cost distribution outlets Cut marginal activities from value chain

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Competing in a Stagnant Industry: The Strategic Mistakes

Being overly optimistic about industry’s future (believing things will get better)

Getting embroiled in a profitless battle for market share with stubborn rivals

Diverting resources out of the business too quickly

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Competing in a Fragmented Industry: The Strategy Options

Construct and operate “formula” facilities

Become a low-cost operator

Increase customer value via backward or forward integration

Specialize by product type

Specialize by customer type

Focus on limited geographic area

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What Is the Motivationfor Competing Internationally?

Gain access to

new customers

Capitalizeon resource

strengths andcompetencies

Need toachieve

lower costsSpread

business risk across wider market base

Obtain access to valuable natural

resources

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Competitive Features ofInternational Markets

Market differences among countries

Cost variations among countries

Fluctuating exchange rates

Differences in host government trade policies

Pattern of international competition

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Market Differences Among Countries

Buyer needs and habits

Distribution channels

Long-run growth potential

Driving forces

Competitive pressures

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Cost Differences Among Countries

Wage rates

Worker productivity

Natural resource availability

Inflation rates

Energy costs

Tax rates

Fluctuating currency exchange rates

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Differences in HostGovernment Trade Policies

Import tariffs or quotas Local content requirements Price control policies Other regulations

Technical standards Product certification Minority ownership by local citizens Prior approval of capital spending projects Withdrawal of funds from country

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Manufacturing Share vs. Market Share

Firm with the biggest manufacturing share is best able to fully capture scale economies

Consequently manufacturing share is a better indicator than market share of the industry’s global low-cost producer

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Characteristics ofMulti-Country Competition

Each country market is self-contained Competition in one country market is

independent of competition in other country markets

Rivals competing in one country market differ from set of rivals competing in another country market

Rivals vie for national market leadership No “international” market, just a collection

of country markets

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Characteristics of Global Competition

Competitive conditions across country markets are strongly linked together Many of same rivals compete in many of

the same country markets Rivals vie for worldwide leadership A true international market

A firm’s competitive position in one country is affected by its position in other countries

A firm’s overall competitive advantage is based on its entire world-wide operations

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Types of International Strategies

Licensing

Exporting

Multicountry strategy

Global low-cost strategy

Global differentiation strategy

Global focus strategy

Global best-cost strategy

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Multi-Country Strategy

Strategy in each country market is matched to local market circumstances

Different country strategies are called for when Buyers in one country want a product that is

different from buyers in another country Host government regulations preclude

uniform global approach Two drawbacks

1. Poses problems of transferring competencies across borders

2. Works against building a unified competitive advantage

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Global Strategy

Strategy for competing is similar in all country markets

Involves Coordinating strategic moves globally Selling in many, if not all, nations where

significant market exists Works best when products and buyer

requirements are similar from country to country

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Concentrating vs. Dispersing Activities to Build Global Advantage Activities should be concentrated when

Scale economies or experience curve effects need to be captured

Coordination of related activities is enhanced Activities should be dispersed when

They need to be performed close to buyers Transportation costs, scale diseconomies, or

trade barriers make centralization expensive Buffers for fluctuating exchange rates, supply

interruptions, and adverse politics are needed

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Achieving Global Competitivenessvia Strategic Alliances

Allows firms to compete on a More global scale and Preserve their independence

Types of alliances Joint research efforts Technology-sharing Joint use of production facilities Marketing one another’s products Joint manufacturing or assembly

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Benefits of Strategic Alliances

Gain scale economies in production and/or marketing

Fill gaps in technical expertise or knowledge of local markets

Share distribution facilities and dealer networks

Direct combined competitive energies toward defeating mutual rivals

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Pitfalls of Strategic Alliances

Becoming too dependent on another firm for essential expertise over the long-term

Different motives and conflicting objectives

Time consuming

Language and cultural barriers

Mistrust when collaborating in competitively sensitive areas

Clash of egos and company cultures

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Guidelines in FormingStrategic Alliances

Pick a compatible partner

Choose ally whose strengths complement firm’s products and customers

Learn thoroughly and rapidly about partner’s technology and management

Do not share competitively sensitive information

View alliance as temporary, not permanent

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Why a Global Competitor CanDefeat a Domestic-Only Firm

A one-country firm is hard-pressed to defend its

market share in the long-term against a global

firm intent on global dominance because

Global or multicountry rivals can use profits

earned elsewhere to subsidize price cutting in

domestic firm’s profit sanctuary

If domestic firm retaliates with matching price cuts it erodes its own profitability in its only profit sanctuary

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Objectives:Fortify-and-Defend Strategy

Make it harder for new firms to enter and for challengers to gain ground

Hold onto present market share

Strengthen current market position

Protect competitive advantage

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Fortify-and-Defend: Strategic Options

Increase advertising and R&D Provide higher levels of customer service Introduce more brands to match attributes of rivals Add personalized services to boost buyer loyalty Keep prices reasonable and quality attractive Build new capacity ahead of market demand Invest enough to remain cost competitive Patent feasible alternative technologies Sign exclusive contracts with best suppliers and

distributors

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Objectives: Follow-the-Leader Strategy

Use competitive muscle to encourage runner-up firms to be content followers

Signal smaller rivals that moves to cut into leader’s business will be hard fought

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Follow-the-Leader: Strategic Options

Be quick to meet competitive price cuts Counter with large-scale promotional

campaigns if challengers boost advertising Offer better deals to major customers of

maverick firms Dissuade distributors from carrying rivals’

products Attempt to attack key executives of rivals Use “hard ball” measures to signal aggressive

small firms who should lead

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Strategic Options forRunner-up Firms: Case # 1

Where large size yields significantly lower unit costs giving large-share firms a cost advantage, two options exist

1. Build market share

Become a lower-cost producer

Pursue a differentiation strategy

2. Withdraw from business

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Strategic Options forRunner-up Firms: Case # 2

Where large size does not yield a cost advantage, runner-up firms have six strategy options:

1. Vacant niche strategy

2. Specialist strategy

3. “Ours is better than theirs” strategy

4. Content follower strategy

5. Growth via acquisition strategy

6. Distinctive image strategy

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Overcoming Obstaclesof Small Size

Where big size is a competitive asset, firms with low market share face obstacles

Less access to economies of scale

Difficulty in gaining customer recognition

Inability to afford mass media advertising

Difficulty in funding capital requirements

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Overcoming Obstaclesof Small Size: Strategic Options

Focus on a few segments where strengths can yield a competitive edge

Develop technical expertise highly valued by customers

Aggressively pursue development of new products for customers in target segments

Use innovative entrepreneurial approaches to out-manage slow-to-change leaders

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What Is a Harvest Strategy?

Steers middle course between status quo and exiting quickly

Involves gradually sacrificing market position in return for bigger near-term cash flow/profit

Objectives

Short-term - Generate largest feasible cash flow

Long-term - Exit market