1. 1 © The McGraw-Hill Companies, Inc., 1998 Irwin/McGraw-Hill Strategy Options for Competing in Emerging Industries l Win early race for industry leadership by employing a bold, creative strategy l Push hard to 4 Perfect technology 4 Improve product quality 4 Develop attractive performance features l Move quickly when technological uncertainty clears and a dominant technology emerges l Form strategic alliances l Capture potential first-mover advantages

2. 2 © The McGraw-Hill Companies, Inc., 1998 Irwin/McGraw-Hill Strategy Options for Competing in Emerging Industries (cont.) l Pursue 4 New customers and user applications 4 Entry into new geographical areas l Focus advertising emphasis on 4 Increasing frequency of use 4 Creating brand loyalty l Use price cuts to attract price-sensitive buyers l Prepare for entry of established firms when industry future clears and risk lessens

3. 3 © The McGraw-Hill Companies, Inc., 1998 Irwin/McGraw-Hill Strategy Options for Competing in High Velocity Markets l Invest aggressively in R&D l Develop quick response capabilities 4 Match rivals 4 Shift resources 4 Adapt competencies 4 Create new competitive capabilities 4 Speed new products to market l Use strategic partnerships to develop specialized expertise and capabilities

4. 4 © The McGraw-Hill Companies, Inc., 1998 Irwin/McGraw-Hill Keys to Success in Competing in High Velocity Markets l Cutting-edge expertise l Speed in responding to new developments l Collaboration with others l Agility l Innovativeness l Opportunism l Resource flexibility l First-to-market capabilities

5. 5 © The McGraw-Hill Companies, Inc., 1998 Irwin/McGraw-Hill Strategy Options for Competing in a Mature Industry l Prune product line l Emphasize process innovation l Strong focus on cost reduction l Increase sales to present customers l Purchase rivals at bargain prices l Expand internationally l Build new, more flexible competitive capabilities

6. 6 © The McGraw-Hill Companies, Inc., 1998 Irwin/McGraw-Hill Competing in a Mature Industry: The Strategy Pitfalls and Mistakes l 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 l Concentrating on short-term profits rather than strengthening long-term competitiveness l Being slow to adapt competencies to changing customer expectations l Being slow to respond to price-cutting l Having too much excess capacity l Overspending on marketing l Failing to pursue cost reductions aggressively

7. 7 © The McGraw-Hill Companies, Inc., 1998 Irwin/McGraw-Hill Strategy Options for Competing in a Stagnant or Declining Industry l Pursue focus strategy aimed at fastest growing market segments l Stress differentiation based on quality improvement or product innovation l Work diligently to drive costs down by 4 Outsourcing 4 Redesign internal processes 4 Consolidate under-utilized production facilities 4 Close low-volume, high-cost distribution outlets 4 Cut marginal activities from value chain

8. 8 © The McGraw-Hill Companies, Inc., 1998 Irwin/McGraw-Hill Competing in a Stagnant Industry: The Strategic Mistakes l Being overly optimistic about industry’s future (believing things will get better) l Getting embroiled in a profitless battle for market share with stubborn rivals l Diverting resources out of the business too quickly

9. 9 © The McGraw-Hill Companies, Inc., 1998 Irwin/McGraw-Hill Competing in a Fragmented Industry: The Strategy Options l Construct and operate “formula” facilities l Become a low-cost operator l Increase customer value via backward or forward integration l Specialize by product type l Specialize by customer type l Focus on limited geographic area

10. 10 © The McGraw-Hill Companies, Inc., 1998 Irwin/McGraw-Hill What Is the Motivation for Competing Internationally? Gain access to new customers Capitalize on resource strengths and competencies Need to achieve lower costs Spread business risk across wider market base Obtain access to valuable natural resources

11. 11 © The McGraw-Hill Companies, Inc., 1998 Irwin/McGraw-Hill Competitive Features of International Markets l Market differences among countries l Cost variations among countries l Fluctuating exchange rates l Differences in host government trade policies l Pattern of international competition

12. 12 © The McGraw-Hill Companies, Inc., 1998 Irwin/McGraw-Hill Market Differences Among Countries l Buyer needs and habits l Distribution channels l Long-run growth potential l Driving forces l Competitive pressures

13. 13 © The McGraw-Hill Companies, Inc., 1998 Irwin/McGraw-Hill Cost Differences Among Countries l Wage rates l Worker productivity l Natural resource availability l Inflation rates l Energy costs l Tax rates l Fluctuating currency exchange rates =

14. 14 © The McGraw-Hill Companies, Inc., 1998 Irwin/McGraw-Hill Differences in Host Government Trade Policies l Import tariffs or quotas l Local content requirements l Price control policies l Other regulations 4 Technical standards 4 Product certification 4 Minority ownership by local citizens 4 Prior approval of capital spending projects 4 Withdrawal of funds from country

15. 15 © The McGraw-Hill Companies, Inc., 1998 Irwin/McGraw-Hill Manufacturing Share vs. Market Share l Firm with the biggest manufacturing share is best able to fully capture scale economies l Consequently manufacturing share is a better indicator than market share of the industry’s global low-cost producer

16. 16 © The McGraw-Hill Companies, Inc., 1998 Irwin/McGraw-Hill Characteristics of Multi-Country Competition l Each country market is self-contained l Competition in one country market is independent of competition in other country markets l Rivals competing in one country market differ from set of rivals competing in another country market l Rivals vie for national market leadership l No “international” market, just a collection of country markets

17. 17 © The McGraw-Hill Companies, Inc., 1998 Irwin/McGraw-Hill Characteristics of Global Competition l Competitive conditions across country markets are strongly linked together 4 Many of same rivals compete in many of the same country markets 4 Rivals vie for worldwide leadership 4 A true international market l A firm’s competitive position in one country is affected by its position in other countries l A firm’s overall competitive advantage is based on its entire world-wide operations

18. 18 © The McGraw-Hill Companies, Inc., 1998 Irwin/McGraw-Hill Types of International Strategies l Licensing l Exporting l Multicountry strategy l Global low-cost strategy l Global differentiation strategy l Global focus strategy l Global best-cost strategy

19. 19 © The McGraw-Hill Companies, Inc., 1998 Irwin/McGraw-Hill Multi-Country Strategy l Strategy in each country market is matched to local market circumstances l Different country strategies are called for when 4 Buyers in one country want a product that is different from buyers in another country 4 Host government regulations preclude uniform global approach l Two drawbacks 1. Poses problems of transferring competencies across borders 2. Works against building a unified competitive advantage

20. 20 © The McGraw-Hill Companies, Inc., 1998 Irwin/McGraw-Hill Global Strategy l Strategy for competing is similar in all country markets l Involves 4 Coordinating strategic moves globally 4 Selling in many, if not all, nations where significant market exists l Works best when products and buyer requirements are similar from country to country

21. 21 © The McGraw-Hill Companies, Inc., 1998 Irwin/McGraw-Hill Concentrating vs. Dispersing Activities to Build Global Advantage l Activities should be concentrated when 4 Scale economies or experience curve effects need to be captured 4 Coordination of related activities is enhanced l Activities should be dispersed when 4 They need to be performed close to buyers 4 Transportation costs, scale diseconomies, or trade barriers make centralization expensive 4 Buffers for fluctuating exchange rates, supply interruptions, and adverse politics are needed

22. 22 © The McGraw-Hill Companies, Inc., 1998 Irwin/McGraw-Hill Achieving Global Competitiveness via Strategic Alliances l Allows firms to compete on a 4 More global scale and 4 Preserve their independence l Types of alliances 4 Joint research efforts 4 Technology-sharing 4 Joint use of production facilities 4 Marketing one another’s products 4 Joint manufacturing or assembly

23. 23 © The McGraw-Hill Companies, Inc., 1998 Irwin/McGraw-Hill Benefits of Strategic Alliances l Gain scale economies in production and/or marketing l Fill gaps in technical expertise or knowledge of local markets l Share distribution facilities and dealer networks l Direct combined competitive energies toward defeating mutual rivals

24. 24 © The McGraw-Hill Companies, Inc., 1998 Irwin/McGraw-Hill Pitfalls of Strategic Alliances l Becoming too dependent on another firm for essential expertise over the long-term l Different motives and conflicting objectives l Time consuming l Language and cultural barriers l Mistrust when collaborating in competitively sensitive areas l Clash of egos and company cultures

25. 25 © The McGraw-Hill Companies, Inc., 1998 Irwin/McGraw-Hill Guidelines in Forming Strategic Alliances l Pick a compatible partner l Choose ally whose strengths complement firm’s products and customers l Learn thoroughly and rapidly about partner’s technology and management l Do not share competitively sensitive information l View alliance as temporary, not permanent

26. 26 © The McGraw-Hill Companies, Inc., 1998 Irwin/McGraw-Hill Why a Global Competitor Can Defeat a Domestic-Only Firm l 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 l Global or multicountry rivals can use profits earned elsewhere to subsidize price cutting in domestic firm’s profit sanctuary 4 If domestic firm retaliates with matching price cuts it erodes its own profitability in its only profit sanctuary

27. 27 © The McGraw-Hill Companies, Inc., 1998 Irwin/McGraw-Hill Objectives: Fortify-and-Defend Strategy l Make it harder for new firms to enter and for challengers to gain ground l Hold onto present market share l Strengthen current market position l Protect competitive advantage

28. 28 © The McGraw-Hill Companies, Inc., 1998 Irwin/McGraw-Hill Fortify-and-Defend: Strategic Options l Increase advertising and R&D l Provide higher levels of customer service l Introduce more brands to match attributes of rivals l Add personalized services to boost buyer loyalty l Keep prices reasonable and quality attractive l Build new capacity ahead of market demand l Invest enough to remain cost competitive l Patent feasible alternative technologies l Sign exclusive contracts with best suppliers and distributors

29. 29 © The McGraw-Hill Companies, Inc., 1998 Irwin/McGraw-Hill Objectives: Follow-the-Leader Strategy l Use competitive muscle to encourage runner-up firms to be content followers l Signal smaller rivals that moves to cut into leader’s business will be hard fought

30. 30 © The McGraw-Hill Companies, Inc., 1998 Irwin/McGraw-Hill Follow-the-Leader: Strategic Options l Be quick to meet competitive price cuts l Counter with large-scale promotional campaigns if challengers boost advertising l Offer better deals to major customers of maverick firms l Dissuade distributors from carrying rivals’ products l Attempt to attack key executives of rivals l Use “hard ball” measures to signal aggressive small firms who should lead

31. 31 © The McGraw-Hill Companies, Inc., 1998 Irwin/McGraw-Hill Strategic Options for Runner-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 D Become a lower-cost producer D Pursue a differentiation strategy 2. Withdraw from business

32. 32 © The McGraw-Hill Companies, Inc., 1998 Irwin/McGraw-Hill Strategic Options for Runner-up Firms: Case # 2 l 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

33. 33 © The McGraw-Hill Companies, Inc., 1998 Irwin/McGraw-Hill Overcoming Obstacles of Small Size l Where big size is a competitive asset, firms with low market share face obstacles 4 Less access to economies of scale 4 Difficulty in gaining customer recognition 4 Inability to afford mass media advertising 4 Difficulty in funding capital requirements

34. 34 © The McGraw-Hill Companies, Inc., 1998 Irwin/McGraw-Hill Overcoming Obstacles of Small Size: Strategic Options l Focus on a few segments where strengths can yield a competitive edge l Develop technical expertise highly valued by customers l Aggressively pursue development of new products for customers in target segments l Use innovative entrepreneurial approaches to out-manage slow-to-change leaders

35. 35 © The McGraw-Hill Companies, Inc., 1998 Irwin/McGraw-Hill What Is a Harvest Strategy? l Steers middle course between status quo and exiting quickly l Involves gradually sacrificing market position in return for bigger near-term cash flow/profit l Objectives 4 Short-term - Generate largest feasible cash flow 4 Long-term - Exit market