Strategic Management

PG-401 (Session 11 to 25) PGDM (2010-12) - Term 4

Institute of Management Studies

Noida
Compiled By: Sunil Garg B. Tech. M. Tech. MBA Management Professor & Visiting Faculty (IB, SCM & Strategy) Email: sunil.garg.edu@gmail.com

A Companys 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)

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 fall short of merger or full joint venture partnership.

Alliances Can Enhance a Firms Global Competitiveness

Alliances, collaboration and partnerships can help companies cope with two demanding competitive challenges
Racing against rivals to build a market presence in many different national markets

Racing against rivals to seize opportunities on the frontiers of advancing technology

Collaborative arrangements can help a company lower its costs and/or gain access to new markets, expertise and capabilities.

Characteristics of a Strategic Alliance for International Growth

Strategic 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

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 particular

geographic 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 firms capabilities with resources of partners

Other Benefits of Strategic Alliances

Pitfalls Strategic Alliances

Guidelines in Forming Strategic Alliances

Joint Ventures
Going 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.,

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 another company. 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.

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

Objectives of Mergers and Acquisitions

To create a more cost-efficient operation To expand a firms geographic coverage To extend a firms 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

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 and purchasing economics.

Taxation: Reducing tax liability by acquiring assets of a non-performing company.

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 firms 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 supplychain efficiency, better control over inputs/outputs, expansion of core competencies, capturing upstream / downstream profit margins

Overview of an Enterprise
upstream downstream

Backward Integration

Forward Integration

Example of Backward & Forward Integrations

Pros and Cons of Integration vs. De-Integration

Whether vertical integration is a viable strategic option depends on its 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 firms competitiveness Many companies are finding that de-integrating value chain activities is a more flexible, economic strategic option!

Strategic Framework for Supply Chain

Outsourcing Strategies
Outsourcing involves withdrawing from certain value chain activities and relying on outsiders to supply needed products, support services, or functional activities
Internally Performed Activities
Suppliers

Functional Activities

Support Services

Distributors or Retailers

Involves farming out certain value chain activities to outside vendors

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 firms ability to innovate

Operations are streamlined to Improve flexibility Cut time to get new products into the market

It increases firms 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

Offensive and Defensive Strategies

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 key customers, high margin market segments, or high loyalty market segments.

Offensive Strategies

Defensive Strategies

Used to build: new or stronger market position and / or create competitive advantage

Used to protect: competitive advantage (rarely lead to creating advantage)

Low-cost Country Sourcing (LCCS) Strategy

Common examples:

Labor - intensive manufacturing: products produced using low-cost Chinese labor, Call centres staffed with low-cost English speaking workers in the Philippines and India,

IT work performed by low-cost programmers in India and Eastern Europe.

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.

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 (Ecommerce website)

Effective Website Strategies

Having a website is one thing, but making it work to 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

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)

Advertisement will appear here

Advertisement will appear here

Private & Confidential

Website Traffic Measurement

May 8,2010 to June 7, 2010 (After the Campaign)

Google Analytics

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 firms image and reputation Early commitments to new technologies, new-style components, and distribution channels can produce cost advantage Loyalty of first time buyers is high

Moving first can be a preemptive strike

Strategy for Foreign Markets

Motivation for Foreign Markets

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.

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, .

Strategy Options for Competing in Foreign Markets

International Vs. Global Competition

International Corporate-Level Strategies

Strategy Implementation:
Why Strategic Plans Often Fails
Poor prioritization
priorities.

highest level of strategy is selection of

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. defining clear responsibilities and authority for rewards and sanctions.

Accountability missing from plan goals

Poor planning governance

overall plan performance.

high-level leadership for

Ill-defined strategic goals ambiguity avoidance

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.