Chapter 5: Selecting Business-Level Strategies • Low cost producer must find and exploit all

Generic Strategies sources of cost advantage to achieve and

sustain overall cost leadership
A general way of positioning a firm’s business level
strategy within an industry • Leads to above average performance in its
industry
• Focusing on generic strategies allows
executives to concentrate on the core • Assuming can set prices at or near industry
elements of firms’ business-level strategies average
• Builds on the strategic resources available to Overall Cost Leadership
the firm
• Aggressive construction of efficient-scale
• The most popular set of generic strategies is facilities
based on the work of Professor Michael
• Vigorous pursuit of cost reductions from
Porter HBR
experience
Strategy-a Road map of the actions an
• Tight cost and overhead control
entrepreneur draws up to achieve a company’s
mission, goals, and objectives. It is the Differentiation
company’s game plan for gaining a competitive
Differentiation strategy: A generic strategy that
advantage.
attempts to convince customers to pay a premium
price for its good or services by providing unique
and desirable features.

• Using a differentiation strategy firm

compete based on uniqueness, rather than
price (only)
Generic Bus Strategies
• Success depends on offering unique features
Two competitive dimensions are key: that CUSTOMERS value!

• Source of competitive advantage • and communicating this enhanced value to

the potential customers
• keep costs down or
Differentiation can take many forms
• offer something unique in market
• Prestige/brand
• Scope of operations
• Quality
• target all possible customers or
focus on a smaller segment or • Technology
sub-section of market
• Innovation
*Effective strategy must offers low prices, provides
• Features
satisfactory quality, & attract enough customers to
be profitable. • Customer service

*Generic strategies based on source of competitive • Dealer network

advantage - price or differentiation, &
*Scope of operations targets a broad or narrow
market
Cost Leadership

• Cost leadership: Generic strategy that

offers products or services with acceptable
quality and features to a broad set of
customers at a low price

• Economies of scale: Exists when the costs Potential Pitfalls of Differentiation Strategies
of offering goods and services decreases as
the firm is able to sell more items • Uniqueness/differentiation that add little
valuable
• Become the low cost producer in its industry
• Too much differentiation
 • Too high a price premium firm offers differentiated goods and services
at relatively low prices.
• Differentiation that is easily imitated
• This strategy difficult to execute in part
Focused Cost Leadership &
because creating unique features and
Focused Differentiation
communicating to customers why these
• Focus strategies: The generic focus strategy features are useful generally raises a firm’s
rests on competing (only) within a sub- costs of doing business.
section of the potential buyers instead of
Stages of Industry Life Cycle
across all consumers within an industry.

• Firms select a target population in the

industry and tailors its strategy to serving
them to the (possible) exclusion of others
Focused cost leadership: competing based on
price, but only within a narrow market

- Firms that charge relatively low prices for a

sub-group of the overall marketplace. Could
be based on geography, demographics,
channel (internet only) or features

- Difficult to execute - Creating unique

Strategies in Introduction Stage
features and communicating to customers
why these features are useful generally • Products are unfamiliar to consumers
raises a firm’s costs of doing business
• Market segments not well defined
- Similar to overall Cost Leadership lower
• Product features not clearly specified
overhead costs and economies of scale
useful • Competition tends to be limited
Strategies in the Growth Stage
Focused differentiation: offering unique features • Characterized by strong increases in sales
that fulfill the demands of a sub-group of consumers
• Attractive to potential competitors
• strategy requires competing based on price
• Primary key to success is to build consumer
only within a narrow or limited marketplace
preferences for specific brands
• While a differentiation strategy involves
Strategies in the Maturity Stage
offering unique features that appeal to a
variety of customers, the need to satisfy the • Aggregate industry demand slows
desires of a narrow market means that the
• Market becomes saturated, few new
pursuit of uniqueness is often take to the
adopters
proverbial “next level” by firms using a
focused differentiation strategy. • Direct competition becomes predominant
• The unique features provided by firms • Marginal competitors begin to exit
following a focused differentiation strategy
Strategies in the Decline Stage
are often very specialized
• Industry sales and profits begin to fall

• Strategic options become dependent on the

actions of rivals
Chapter 6: Supporting the Business-Level
Strategy:
Competitive and Cooperative Moves
First Mover Advantage

Best-Cost Strategy A first-mover advantage exists when making the

initial move into a market allows a firm to establish
• A best-cost strategy can be an effective a dominant position that other firms struggle to
business level strategy to the extent that a overcome
Recall - a strategic resource is an asset that is Responding to Disruptive Innovation
valuable, rare, difficult to imitate, and non-
When rival introduces disruptive innovation, firm
substitutable.
have 3 choices
• Often requires significant R&D, & product
• 1st, executives may believe that innovation
testing costs
will not replace established offerings
• A first-mover cannot be sure that customers entirely & choose to focus on traditional
will embrace its offering, making a first business models, ignoring disruption
move inherently risky
• For example, traditional bookstores
Blue Ocean Strategy did initially consider Amazon to be a
competitive threat until online sales
Involves creating a new, untapped market rather
began to grow
than competing with rivals in an existing market
• 2nd, firm counter challenge by attacking
Creating a brand new market place
along a different dimension
• Coffee Shops, Women’s underwear stores
• For example, Apple responded to
• Transportation - Mom Vans / SUV / direct sales of cheap computers by
Electronic Dell & Gateway by adding power
and versatility
• Voluntourism
• 3rd possibility is to simply match
Bricolage
competitor’s move
• Most innovation are improvements to
• Merrill Lynch, for example,
existing products (including new uses)
confronted online trading by forming
• Many others, Bricolage, are joining two its own Internet-based unit. Here the
products or services together to create firm risks cannibalizing its
something new traditional business, but executives
may find that their response attracts
Responding to Other’s Moves
an entirely new segment of
customers
Making Cooperative Moves

• Cooperative moves such as forming joint

ventures and strategic alliances may allow
firms to enjoy successes that might not
otherwise be reached

• Share (rather than duplicate)

resources

• Learn from each other’s strengths

Four types of Cooperative Moves

• Joint venture is a cooperative arrangement

that involves two or more firms each
contributing to the creation of a new entity

- The partners share decision-making

authority, control of the operation, & any
Making Cooperative Moves profits

• Research indicates that three factors

determine the likelihood that a firm will
respond to a competitive move:
awareness, motivation, & capability ->
Mutual forbearance - occurs when rivals do not
act aggressively because each recognizes that the
other can retaliate in multiple markets
 • Strategic alliance is a cooperative • Stronger leverage when negotiating prices
arrangement between two or more with suppliers, and potential for access to
organizations that does not involve the new suppliers (reduce both costs & risk)
creation of a new entity

• Co-location occurs when goods and services

International Market Risk
offered under different brands are located
very close to each other. • Political Risk of government upheaval or
interference

• Unstable gov’ts make it difficult to

plan for future

• Hostile gov’t may impose new taxes

& regulations
• Co-opetition refers to a blending of
competition and cooperation between firms • Nationalization: Seizure of privately-owned
businesses

• Economic risk: potential for adverse change

in country’s economic conditions & policies,
property rights protections,& currency
exchange harming viability of business
Chapter 7: Competing in International Markets • Cultural risk: potential for a company’s
operations in a country to struggle due to
Economies of Scale
differences in language, customs, norms and
More (international) customers lowers costs for customer preferences
many goods

• Overhead (fixed costs) shared across more

sales.

• Shared Marketing costs (with different

language!)

• Shared R&D
Offshoring
• Natural disasters
• Offshoring involves relocating a business Firm strategy, Structure, & Rivalry (Diamond
activity (manufacturing) to another country
Model)
• It While it can reduce a firm’s costs of doing How challenging it is to survive domestic
business, the job losses in the firm’s home competition
country can devastate local communities,
bad publicity • Companies that have survived intense
rivalry within their home markets are likely
• Increase delivery time & costs, sometimes to have developed strategies and structures
quality issues that will facilitate their success when
Suppliers competing in international markets

• International production can increase Supply Demand Conditions

Chain risk through longer transportation : Developing excellence in product, production,
times, export/import regulations delivery, etc to serve domestic market, can create a
strategic advantage when facing global market
 • especially when domestic consumer have - A firm that exports its goods loses control of
high expectations of the goods & services them once they are turned over to a local
that they buy firm for sale locally

• Car examples But, local distributor may treat customers poorly

and thereby damage the firm’s brand
• Japanese - high quality
Distributors limited incentive for loyalty…
Factor Conditions
Licensing- Franchisor receives a royalty or fee
The nature of raw material and other inputs that
firms need in order to create goods and services Franchisee gets to use trademark, patent, trade
secret or other valuable intellectual property
• Firms benefit when they have good access to
factor conditions and face challenges when Franchising
they do not
• Similar to licencing, except significantly less
• Just-in-time inventory management: A investment
production system that conserves space and
• Good control over quality of product /
lowers costs, by requiring inputs to a
service
production process to arrive at the moment
they are needed. • Franchising Contract protects, but legal
systems different around world
Types of International Strategies
• Used by many firms, especially service
Multinational corporation: A firm that has
industries, to develop a worldwide presence
operations in more than one country (KFC,
Walmart, Kia) • Franchisee uses brand name, products, &
processes in exchange for an upfront
International strategy - used to guide a firm’s
payment (franchise fee) & a percentage of
effort in various countries
revenues (royalty fees)
• These strategies vary in emphasis on
Joint Venture
achieving efficiency around world &
responding to local needs Partnerships enable firms to share risks & potential
profits. Partners:
Types of International Strategies
• gain exposure to new knowledge and
Multi-domestic strategy: Sacrifices efficiency in
technologies
favor of being responsive to local preferences
within each market. • Develop core competencies that can lead to
competitive advantages
Global Strategy: Sacrifices responsiveness to local
preferences in favor of efficient & economies of • Gain information on local markets
scales at global level [complete opposite of multi- conditions
domestic strategy]

- Some minor local modifications may be

made, but offers essentially same products
or services in each market.
Transnational Strategy: Involves balancing the
desire for efficiency with responding to local
preferences

- Seeks a middle ground between a multi-

domestic strategy and a global strategy
Entry Options for Competing in International
Markets
Exporting - Relatively inexpensive way to
enter foreign market
- Assemble goods at home, &
ship - Minimal risk
- Uses local sales companies