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Strategic ManagementPG-401 (Session 11 to 25)
PGDM (2010-12) - Term 4
Institute of Management StudiesNoida
Compiled By:
Sunil Garg
B. Tech. M. Tech. MBAManagement Professor & Visiting Faculty
(IB, SCM & Strategy)
Email: [email protected]
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A Company’s Menu of Strategy Options
1. Collaborative Strategies: Alliances and Partnerships
2. Merger and Acquisition Strategies
3. Vertical Integration Strategies: Operating Across More Stages of the Industry
Value Chain
4. Outsourcing Strategies: Narrowing the Boundaries of the Business
5. Offensive Strategies: Improving Market Position and Building Competitive
Advantage
6. Defensive Strategies: Protecting Market Position and Competitive Advantage
7. Web Site Strategies
8. Choosing Appropriate Functional-Area Strategies
9. First-Mover Advantages and Disadvantages
(Also Known as Corporate Strategies)
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Collaborative Strategies:
Alliances and Partnerships
• Companies sometimes use strategic alliances
or collaborative partnerships to complement
their own strategic initiatives and strengthen
their competitiveness.
• Such cooperative strategies go beyond
normal company-to-company dealings but fallshort of merger or full joint venture
partnership.
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Alliances Can Enhance a Firm’s Global
Competitiveness
Alliances, collaboration and partnerships can helpcompanies cope with two demanding competitivechallenges
Racing against rivals to build a market presence in manydifferent national markets
Racing against rivals to seize opportunities on thefrontiers of advancing technology
Collaborative arrangements can help a companylower its costs and/or gain access to new markets,expertise and capabilities.
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Characteristics of a Strategic Alliance for
International GrowthStrategic alliance – A formal agreement between two or more separate
companies where there is
Strategically relevant interest of some sort
Joint contribution of resources
Shared risk
Shared control
Mutual dependence
Alliances often involve
Joint marketing
Joint sales or distribution
Joint production
Design collaboration
Joint research
Projects to jointly develop new technologies or products
Joint Venture –Financial Partnership / Sharing Control / Sharing Profit & Loss
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Benefits of Alliances to Achieve Global
and Industry Leadership
Get into critical country markets quickly to accelerate process of
building a global presence
Gain inside knowledge about unfamiliar markets and cultures
Access valuable skills and competencies concentrated in particulargeographic locations
Establish a beachhead (base) to participate in target industry
Master new technologies and build new expertise faster than would
be possible internally
Open up expanded opportunities in target industry by combining
firm’s capabilities with resources of partners
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Other Benefits of Strategic Alliances
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Pitfalls Strategic Alliances
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Guidelines in Forming Strategic Alliances
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Joint VenturesGoing with a partner in foreign country:
• JV is a useful strategy in competitive markets• Control exercised with shared risk
• JV agreement with a company from the target country market is an entry strategy
• Types of JVs:
Contractual Joint Ventures (for projects with time frame)
Equity Joint Ventures (long term)
• JV may be necessary due to legal restrictions on foreign investment
• Reduces the investment required by a foreign firm, besides reducing risk
• Foreign partner stands to gain from local expertise
• Foreign investor may find the local partner redundant after some time
• Local partner may become a competitor after the end of the agreement
Example: Hero Honda Motors Ltd.,
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Merger and Acquisition Strategies
M&A refers to the corporate strategy dealing with the buying, selling and
combining of different companies that can aid, finance, or rapid growth of company without having to create another business entity.
A merger happens when two firms agree (mutually consented) to go forward
as a single new company rather than remain separately owned and
operated. When firms are of about the same size called "merger of equals”.
In the 1999 merger of Glaxo Wellcome and SmithKline Beecham, both firms
ceased to exist when they merged, and a new company, GlaxoSmithKline,
was created.
An acquisition (takeover) is the purchase of one company by anothercompany. It may be friendly or hostile.
When the deal is unfriendly (that is, when the target company does not want
to be purchased) it is always regarded as an acquisition.
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Merger and Acquisition Strategies
Merger – Combination and pooling of equals, with newly created
firm often taking on a new name
Acquisition – One firm, the acquirer, purchases and absorbs
operations of another, the acquired
Merger-acquisition strategy
Much-used strategic option
Especially suited for situations where alliances do not provide a
firm with needed capabilities or cost-reducing opportunities
Ownership allows for tightly integrated operations, creating more
control and autonomy than alliances
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Objectives of Mergers and Acquisitions
To create a more cost-efficient operation
To expand a firm’s geographic coverage
To extend a firm’s business into new product categories or
international markets
To gain quick access to new technologies or competitive
capabilities
To invent a new industry and lead the convergence of industries
whose boundaries are blurred by changing technologies and
new market opportunities
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Rationales for M&A
Acquiring firms seek improved financial performance or growth by:
• Economy of Scale: reduction in fixed cost and increasing profit margins.
• Economy of Scope: Increasing the scope of marketing and distribution, of
different types of products.
• Vertical Integration: Merger of an upstream and downstream firm.
• Increasing revenue or market share: Merged identity increases market
power (market share of competitor) to set prices.
• Synergy: Increased opportunities of specialization and managerial andpurchasing economics.
• Taxation: Reducing tax liability by acquiring assets of a non-performing
company.
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Vertical Integration Strategies The degree to which a firm owns its upstream suppliers and its downstream
buyers is referred to as vertical integration.
Extend a firm’s competitive scope with in same industry
Can aim at either full or partial integration
Deciding issues for vertical integration are: Cost & Control
• Forward Integration: downstream expansion of activities (towards end-users
of final product )
• Backward Integration: upstream expansion of activities (into sources of
supply )
Improve supply – chain efficiency, better control over inputs/outputs, expansion
of core competencies, capturing upstream / downstream profit margins
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Overview of an Enterprise
upstream downstream
Backward Integration Forward Integration
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Example of Backward & Forward Integrations
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Pros and Cons of
Integration vs. De-Integration
Whether vertical integration is a viable strategic option depends onits
Ability to lower cost, build expertise, increase differentiation, or
enhance performance of strategy-critical activities
Impact on investment cost, flexibility, and administrative overhead
Contribution to enhancing a firm’s competitiveness
Many companies are finding that de-integrating value chain activities
is a more flexible, economic strategic option!
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Strategic Framework for Supply Chain
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Outsourcing Strategies
Outsourcing involves withdrawing from certain value chain
activities and relying on outsiders to supply needed
products, support services, or functional activities
Internally
PerformedActivities
Suppliers
Support
Services
Functional
Activities
Distributors
or Retailers
Involves farming out certain value chain activities to outside vendors
Wh D O i M k
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When Does Outsourcing Make
Strategic Sense?
• Activity can be performed better or more cheaply by outside specialists
• Activity is not crucial to achieve a sustainable competitive advantage
• Risk exposure to changing technology and/or changing buyer preferences is reduced
• It improves firm’s ability to innovate
• Operations are streamlined to
Improve flexibility
Cut time to get new products into the market
• It increases firm’s ability to assemble diverse kinds of expertise speedily and
efficiently
• Firm can concentrate on “core” value chain activities that best suit its resource
strengths
Risk: Losing touch with activities and expertise that determine overall long-term
success
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Offensive and Defensive Strategies
Offensive Strategies Defensive Strategies
Used to build:
new or stronger market
position
and / orcreate competitive
advantage
Used to protect:
competitive advantage
(rarely lead to creating
advantage)
Type of marketing warfare strategy designed to obtain an objective, usually market
share, from a target competitor.
In addition to market share, an offensive strategy could be designed to obtain keycustomers, high margin market segments, or high loyalty market segments.
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Low-cost Country Sourcing (LCCS) Strategy
Common examples:
• Labor - intensive manufacturing: productsproduced using low-cost Chinese labor,
• Call centres staffed with low-cost Englishspeaking workers in the Philippines and India,
• IT work performed by low-cost programmers inIndia and Eastern Europe.
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Just- in-Time Strategy
Requires cooperation, coordination, and information sharing to
eliminate inventory across the supply chain. Strategic features:
• Commitment to zero defects by seller and buyer.
• Frequent shipments of small lot sizes according to strict quality and
delivery performance standards.
• Closer, even collaborative, buyer-seller relationship.
• Stable production schedule sent to suppliers on a regular basis.
• Extensive information sharing electronically between supply chain
members.
• Electronic data interchange capability with suppliers.
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Web Site Strategies
Strategic Challenge – What use of the Internet should a company
make in staking out its position in the marketplace?
Five Web site approaches
• Use to disseminate only product information (Catalogue website)
• Use as minor distribution channel to sell direct to customers
• Use as one of several important distribution channels to access
customers
• Use as primary distribution channel to access buyers
• Use as exclusive channel to transact sales with customers (E-
commerce website)
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Effective Website Strategies
Having a website is one thing, but making it workto produce enquiries and sales is quite another.
In simple terms your website should achieve 3
objectives:
• Attract visitors
• Engage them so they stay on your site
• Covert them from visitors to customers
‘Online marketing initiatives are cost effective’
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Effective Website Strategies
1. Define your target audience (ideal visitors profile)2. Content is king (appropriate & relevant to target audience)
3. Tell people about it (display widely)
4. Optimise it online (SEO & SMO)
5. Make sure you measure (web analytical tools for traffic,
transactions & customer satisfaction)
6. What will your website do? (either selling, or information or
both)
7. Differentiate your website (stand out from the crowd and easy
to navigate)
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Private & Confidential
Advertisement will appear here A d v e
r t i s e m e n t w i l l a
p p e a r h e r e
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Google Analytics
Website Traffic Measurement
May 8,2010 to June 7, 2010 (After the Campaign)
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First-Mover Advantages
When to make a strategic move is often as crucial
as what move to make
First-mover advantages arise when
Pioneering helps build firm’s image and reputation
Early commitments to new technologies, new-stylecomponents, and distribution channels can produce costadvantage
Loyalty of first time buyers is high
Moving first can be a preemptive strike
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Strategy for Foreign Markets
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Motivation for Foreign Markets
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Entering Strategy for Foreign Markets
Exporting (Indirect/Direct) >>> Joint Ventures >>> Direct investment
Indirect Exporting:
• Exporting through intermediary or distribution channel.
• Involve least risk and limited capital expenditure.
• Use merchants who sell the products of the company in international
markets or
• Use the distribution facilities of other firms in the international markets
• Export through merchant exporters or large trading houses who export
products on behalf of several small firms collectively
Distribution chains e.g. Wal-Mart, Malls, Stores
Products: FMCG, garments, handicrafts, processed food, medicines,
electronics, etc.
Exporters: Haldiram, MDH, LG, Samsung, Dell, HP, etc.
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Entering Strategy for Foreign Markets
Direct Exporting:
• Company decides to export its products itself and Shipping goods directly to a
foreign buyer.
• Develops overseas contacts, undertakes marketing research, handles
documentation and transportation, and decides the marketing mix.
• Involve identification of foreign buyers and taking risk directly.
• May establish a sales and marketing office in the foreign market
Long term and repeated supplies to Original Equipment Manufacturers (OEMs),spare part markets, large scale industries, projects, etc.
Products: Auto Parts, Hand Tools, Industrial Raw Materials, etc.
Exporters: like Sundram Fasteners, MRF Tyre, Sesa Goa, …………….
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Strategy Options for Competing in
Foreign Markets
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International Vs. Global Competition
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International Corporate-Level Strategies
St t I l t ti
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Strategy Implementation:Why Strategic Plans Often Fails
Poor prioritization –
highest level of strategy is selection of
priorities.
Lack of detailed planning to support plan goal
achievement – planning is road map while communication and
feedback are essence of execution.
Strategy and culture misalignment – plans to match
the existing culture, human system and operating procedures.
Accountability missing from plan goals
–
defining
clear responsibilities and authority for rewards and sanctions.
Poor planning governance – high-level leadership for
overall plan performance.
Ill-defined strategic goals
–
ambiguity avoidance
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Strategic Audit
Type of management audit that is extremely useful
as a diagnostic tool to pinpoint corporate-wide
problem areas and to highlight organization
strength and weakness.
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