STRATEGIC MANAGEMENT & BUSINESS POLICY

13TH EDITION
THOMAS L. WHEELEN

J. DAVID HUNGER

Opening case
Midamar Corporation is company in Cedar Rapids, Iowa, that has
carved out a growing niche for itself in the world food industry:
supplying food prepared according to strict religious standards. The
company specializes in halal foods, which are produced and
processed according to Islamic law for sale to Muslims. Why did it
focus on this one type of food? According to owner-founder Bill
Aossey, Its a big world, and you can only specialize in so many
places.
Although halal foods are not as widely known as kosher foods
(processed according to Judaic law), their market is growing along
with Islam, the worlds fastest-growing religion.
Midamar purchases halal-certified meat from Midwestern companies
certified to conduct halal processing. Certification requires practicing
Muslims schooled in halal processing to slaughter the livestock and
to oversee meat and poultry processing.
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Opening case
Aossey is a practicing Muslim who did not imagine such a vast
market when he founded his business in 1974. The company has
grown to the point where it now exports halal-certified beef, lamb,
and poultry to hotels, restaurants, and distributors in 30 countries.
Midamar is successful because its chief executive formulated a
strategy designed to give it an advantage in a very competitive
industry. It is an example of a differentiation focus competitive
strategy in which a company focuses on a particular target market to
provide a differentiated product or service. This strategy is one of
the business competitive strategies discussed in this chapter.

Prentice Hall, Inc. 2012

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Learning Objectives
Generate strategic options by using the TOWS matrix

Understand the competitive and cooperative

strategies available to corporations
List the competitive tactics that would accompany
competitive strategies
Identify the basic types of strategic alliances

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Strategy formulation- often referred to as

strategic planning or long-range planning, is
concerned with developing a corporations
mission, objectives, strategies and policies
It begins with situation analysis:
Vision ????
Situation Analysis- the process of finding a
strategic fit between external opportunities
and internal strengths while working around
external and internal weaknesses
Prentice Hall, Inc. 2012

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Obj1L Organize environmental and organizational information

using SWOT analysis and a SFAS matrix

In the Strategic Decision-Making Process in Figure 1

5, step 5(a) is analyzing strategic factors in light
of the current situation using SWOT analysis.
SWOT- Strengths-Weaknesses-Opportunities-Threats

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Strategy= opportunity/capacity
Opportunity has no real value unless a company has the
capacity (i.e., resources) to take advantage of that
opportunity
This approach, considers only opportunities and strengths when
considering alternative strategies. By itself, a distinctive
competency in a key resource or capability is no guarantee
of competitive advantage. Weaknesses in other resource
areas can prevent a strategy from being successful. SWOT
can thus be used to take a broader view of strategy
through the formula for (Strategic Alternative), SA = O/(S
W). This reflects an important issue strategic managers
face: Should we invest more in our strengths to make them
stronger (a distinctive competence) or should we invest in
our weaknesses to at least make them competitive?
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Criticisms of SWOT analysis

Generates lengthy lists

Uses no weights to reflect priorities
Uses ambiguous words and phrases
Same factor can be in 2 categories (S maybe W)
No obligation to verify opinion with data or analysis
Requires only a single level of analysis
No logical link to strategy implementation

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2. Generating a Strategic Factors Analysis

Summary (SFAS) Matrix
SFAS summarizes an organizations strategic
factors by combining the external factors
from the EFAS Table with the internal
factors from the IFAS Table

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 The EFAS and IFAS examples given of Maytag

Corporation list a total of 20 internal and external
factors. These are too many to use in strategy
formulation. The SFAS Matrix requires a strategic
decision maker to condense these strengths,
weaknesses, opportunities, and threats into fewer
than 10 strategic factors. This is done by reviewing
and revising the weight given each factor. The
revised weights reflect the priority of each factor. The
highest-weighted EFAS and IFAS factors should
appear in the SFAS Matrix.
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As shown in Figure 61, you can create an SFAS Matrix by following these steps:
1. In Column 1 (Strategic Factors), list the most important EFAS and IFAS items. After
each factor, indicate whether it is a Strength (S), Weakness (W), an Opportunity (O),
or a Threat (T).
2. In Column 2, assign weights for all of the internal and external strategic factors. As
with the EFAS and IFAS Tables presented earlier, the weight column must total
1.00. This means that the weights calculated earlier for EFAS and IFAS will
probably have to be adjusted.
3. In Column 3 (Rating), assign a rating of how the companys management is
responding to each of the strategic factors. These ratings will probably (but not
always) be the same as those listed in the EFAS and IFAS Tables.
4. In Column 4 (Weighted Score), multiply the weight in Column 2 for each factor by its
rating in Column 3 to obtain the factors rated score.
5. In Column 5 (Duration), depicted in Figure 61, indicate short-term (less than one
year), intermediate-term (one to three years), or long-term (three years and beyond).
6. In Column 6 (Comments), repeat or revise your comments for each strategic factor
from the previous EFAS and IFAS Tables. The total weighted score for the average
firm in an industry is always 3.0.
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6-12

The SFAS Matrix includes only the most important factors

gathered from environmental scanning and thus provides
information that is essential for strategy formulation.
SFAS Matrix deals with some of the criticisms of SWOT
analysis. For example, the use of the SFAS Matrix reduces
the list of factors to a manageable number, puts weights on
each factor, and allows one factor to be listed as both a
strength and a weakness (or as an opportunity and a
threat).

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3. Finding a Propitious Niche ) (

One desired outcome of analyzing strategic factors is
identifying Propitious niche- where an
organization can use its core competencies to
take advantage of a particular market
opportunity. A niche is a need in the marketplace
that is currently unsatisfied i.e., the niche is just
large enough for one firm to satisfy its demand.
Such a niche may also be called a
Strategic sweet spot- (Figure 62)where a company is able
to satisfy customers needs in a way that rivals cannot.

Finding such a niche or sweet spot is not always

easy. A firm must be always looking for a
Strategic window- a unique market opportunity that
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is available for a particular time

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 As a niche grows, so can a company within that nicheby

increasing its operations capacity or through alliances with
larger firms. EX: MS with DOS
Niches can also changesometimes faster than a firm can
adapt to that change. A companys management may
discover in their situation analysis that they need to invest
heavily in the firms capabilities to keep them competitively
strong in a changing niche.

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4. Review of Mission and Objectives

A re-examination of an organizations current mission and
objectives must be made before alternative strategies
can be generated and evaluated. Even when formulating
strategy, decision makers tend to concentrate on the
alternativesthe action possibilitiesrather than on a
mission to be fulfilled and objectives to be achieved.
because it is much easier to deal with alternative courses
of action that exist right here and now than to really
think about what you want to accomplish in the future
resulting choosing strategies that set our objectives for
us rather than having our choices incorporate clear
objectives and a mission statement.
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Review of Mission and Objectives

Performance problems can derive from:
(1)inappropriate (narrow or too broad) mission
statements and objectives
managers may be unclear about where the
company is heading.
(2) Objectives and strategies might be in conflict
with each other.

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Review of Mission and Objectives

(3)A companys objectives can also be inappropriately
stated. They can either focus too much on shortterm operational goals or be so general that they
provide little real guidance . There may be a gap
between planned and achieved objectives. When
such a gap occurs, either the strategies have to be
changed to improve performance or the objectives
need to be adjusted downward to be more
realistic. Consequently, objectives should be
constantly reviewed. EX: Boeing from largest to
most profitable. This had a significant effect on its
strategies and policies
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So far we have discussed how a firm uses SWOT analysis to

assess its situation. SWOT can also be used to generate a
number of possible alternative strategies.

5. TOWS Matrix- (another way of saying SWOT)illustrates

how the external opportunities and threats can be
matched with internal strengths and weaknesses
to result in 4 possible strategic alternatives.

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To generate a TOWS Matrix

Use the (EFAS) Table and the (IFAS) Table To build
Figure 64, take the following steps:
1. In the Opportunities (O) block, list the external
opportunities available in the companys or business units
from the EFAS Table.
2. In the Threats (T) block, list the external threats facing the
company or unit from the EFAS Table.
3. In the Strengths (S) block, list the specific areas of current
and future strength for the company from the IFAS Table.
4. In the Weaknesses (W) block, list the specific areas of
current and future weakness for the company from the
IFAS Table.

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To generate a TOWS Matrix

5. Generate a series of possible strategies for the company
or business unit under consideration based on particular
combinations of the four sets of factors:
SO Strategies are generated by thinking of ways in which
a company or business unit could use its strengths to take
advantage of opportunities.
ST Strategies consider a companys or units strengths as
a way to avoid threats.
WO Strategies attempt to take advantage of opportunities
by overcoming weaknesses.
WT Strategies are basically defensive and primarily act to
minimize weaknesses and avoid threats.
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 TOWS is a good way to

1. Provides a means to brainstorm more alternative
strategies.
2. Forces managers to create various kinds of growth and
retrenchment strategies
3. Used to generate corporate as well as business unit
strategies within a corporation.
Nevertheless using a TOWS Matrix is only one of many
ways to generate alternative strategies.

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from ch1:
Business firm usually considers three types of strategy:
corporate, business, and functional.
1. Corporate strategy describes a companys overall direction .
Corporate strategies typically fit within the three main categories of
stability, growth, and retrenchment .
2. Business strategy usually occurs at the business unit or product level,
and it emphasizes improvement of the competitive position of a
corporations products or services. Business strategies may fit
within the two overall categories, competitive and cooperative
strategies.

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from ch1:
Business firm usually considers three types of strategy:
corporate, business, and functional.
3. Functional strategy is the approach taken by a functional area to achieve
corporate and business unit objectives and strategies by maximizing
resource productivity. It is concerned with developing a distinctive
competence to provide a company or business unit with a competitive
advantage. Examples of R&D functional strategies are technological
followership (imitation of the products of other companies) and
technological leadership (pioneering an innovation). For years, Magic
Chef had been a successful appliance maker by spending little on
R&D but by quickly imitating the innovations of other competitors.
This helped the company to keep its costs lower than those of its
competitors and consequently to compete with lower prices.

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Business strategy focuses on improving the

competitive position of a companys or
business units products or services
within the specific industry or market
segment it serves
Business strategy is important because business unit effects have double the
impact on overall company performance than do either corporate or
industry effects.

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Business strategy (can be) is comprised of:

Competitive strategy: Business strategy
can be competitive (battling against all
competitors for advantage) OR

Cooperative strategy: (working with one or

more companies to gain advantage against
other competitors).

Just as corporate strategy asks what industry(ies) the

company should be in, business strategy asks how the
company or its units should compete or cooperate in
each industry.
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Porters competitive strategies

Porter proposes two generic competitive strategies for
outperforming other corporations in a particular industry:
lower cost and differentiation. These strategies are called
generic because they can be pursued by any type or size of
business firm.

Lower cost strategy- the ability of a company or a business

unit to design, produce and market a comparable
product more efficiently than its competitors
Differentiation strategy- the ability of a company or a
business unit to provide a unique or superior value to
the buyer in terms of product quality, special features,
or after sale service
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Porters competitive strategies

Porter further proposes that a firms competitive advantage
in an industry is determined by its competitive scope,
that is, the breadth of the companys or business units
target market? Before using one of the two generic
competitive strategies, the firm must choose the range of
product varieties it will produce, the types of buyers it will
serve, the geographic areas in which it will sell. Simply
put, a company or business unit can choose a broad
target (mass market) or a narrow target (market niche).
Combining these two types of target markets with the
two competitive strategies results in the four variations
of generic strategies (Figure 65.)
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6-32

Porters competitive strategies

1. Cost leadership- a lower-cost competitive

strategy that aims at the broad mass market
and requires efficient scale facilities, cost
reductions, cost and overhead control; avoids
marginal customers, cost minimization in R&D,
service, sales force, and advertising

Provides a defense against competitors

Its lower costs allow it to continue to earn profits
during times of heavy competition.
Provides a barrier to new entry
Generates increased market share means that it will
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have high bargaining power relative to its suppliers

2.

Porters competitive strategies

Differentiation- involves the creation of a
product or service that is perceived throughout
the industry as unique. Can be associated with
design, brand image, technology, features,
dealer network, or customer service
Lowers customers sensitivity to price
Increases buyer loyalty resulting in
Better Barrier to entry
Can generate higher profits
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Porters competitive strategies

3. Cost Focus- low-cost competitive strategy that
focuses on a particular buyer group or
geographic market and attempts to serve only
this niche to the exclusion of others (imitation)
4. Differentiation Focus- concentrates on a
particular buyer group, product line segment,
or geographic market to serve the needs of a
narrow strategic market more effectively than
its competitors
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Porters competitive strategies

Risks in Competitive Strategies
No one competitive strategy is guaranteed to achieve success, and if
successfully implemented one of Porters competitive strategies it
could not sustain the strategy. As shown in Table 61, each of the
generic strategies has risks. For example, a company following a
differentiation strategy must ensure that the higher price it charges
for its higher quality is not too far above the price of the
competition; otherwise customers will not see the extra quality as
worth the extra cost. This is what is meant in Table 6.1 by the term
cost proximity. For years, Deere was the leader in farm machinery
until low-cost competitors from India and other developing
countries began making low-priced products. Deere responded by
building high-tech flexible manufacturing plants using masscustomization to cut its manufacturing costs and using innovation to
create differentiated products which, although higher-priced,
reduced customers labor and fuel expenses.
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Risks in Competitive Strategies

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Issues in Competitive Strategies

1. Stuck in the middle:
Porter argues that to be successful, a company or
business unit must achieve one of the generic
competitive strategies. Otherwise, the company or
business unit is stuck in the middle of the competitive
marketplace with no competitive advantage and is
doomed to below-average performance. K-Mart spent
a lot of money trying to imitate both Wal-Marts lowcost strategy and Targets quality differentiation
strategyonly to end up in bankruptcy with no clear
competitive advantage.
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Issues in Competitive Strategies

1. Stuck in the middle:
Other research suggests that some combination of the
two competitive strategies may also be successful,
e.g., Toyota. Thanks to advances in technology, a
company may be able to design quality into a
product or service in such a way that it can achieve
both high quality and lower costs. Although Porter
agrees that it is possible for a company or a
business unit to achieve low cost and
differentiation simultaneously, he continues to
argue that this state is often temporary.
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Issues in Competitive Strategies

1. Stuck in the middle:
Although there is generally room for only one company to
successfully pursue the mass-market cost leadership
strategy, there is room for an almost unlimited number of
differentiation and focus strategies (depending on the
range of possible desirable features and the number of
identifiable market niches). Quality, alone, has eight
different dimensionseach with the potential of providing
a product with a competitive advantage (see Table 62).

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6-41

Issues in Competitive Strategies

cont..

Entrepreneurial firms follow focus strategies

where they focus their product or service on
customer needs in a segment of the market
and differentiate their product from those of
other competitors based on quality and service

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2. Industry Structure and Competitive Strategy

Although each of Porters generic competitive strategies
may be used in any industry, certain strategies are
more likely to succeed than others in some instances.
Examples:
1- Fragmented industry- many small- and mediumsized companies compete for relatively small shares
of the total market, e.g., book publishing.
Fragmented industries are typical for products in
the early stages of their life cycles.
Focus strategies are used
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Industry Structure and Competitive Strategy

2. Consolidated industryAs an industry matures or through strategic rollup,
fragmentation is overcome, and the industry tends to
become a consolidated industry dominated by a few large
companies.
After product standards become established for minimum
quality and features, competition shifts to a greater
emphasis on both cost and service. R&D shifts from product
to process improvements. Overall product quality improves,
and costs are reduced significantly.

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2. Industry Structure and Competitive Strategy

2. Consolidated industry
Emphasis on cost and service

Slower growth,

overcapacity,

economies of scale by building

Regional and national brands

knowledgeable and sophisticated buyers

combine to put a premium on a firms ability to achieve cost
leadership or differentiation.
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3. Hyper-competition and Competitive Advantage

Sustainability
It is difficult to sustain a competitive advantage for very
long. Market stability is threatened by many factors.
Firms must find new ways not only to reduce costs
further or following a differentiation strategy.

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Hyper-competition and Competitive Advantage

Sustainability
. DAveni contends that when industries become
hypercompetitive, they tend to go through escalating
stages of competition.
1. Firms initially compete on cost and quality, until an
abundance of high-quality, low-priced goods result.
2. firms then raise entry barriers to limit competitors. E.g.,
Economies of scale, distribution agreements, and
strategic alliances.
3. After the established players have entered and
consolidated all new markets, the next stage is for the
remaining firms to attack and destroy the strongholds
of other firms, e.g., acquisition.
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 The Hypercompetition framework is based on the

following assumptions:

1. Every advantage is eroded, Advantages only last until competitors

have duplicated or outmaneuvered them. Once an advantage is no
longer an advantage, it becomes a cost of doing business.
2. Sustaining an advantage can be a deadly distraction .

Sustaining an advantage can take attention away from

developing new ones.
3. The goal of advantage should be disruption , not
sustainability. A company seeks to stay one step ahead through a
series of temporary advantages that erode competitors positions, rather
than by creating a sustainable position in the marketplace.

Ch 1-

Hyper-competition and Competitive Advantage

Sustainability
4. According to DAveni, as industries become
hypercompetitive, there is no such thing as a sustainable
competitive advantage. Successful strategic initiatives in this
type of industry typically last only months to a few years.
According to DAveni, the only way a firm in this kind of
dynamic industry can sustain any competitive advantage is
through a continuous series of multiple short-term initiatives
aimed at replacing a firms current successful products with
the next generation of products before the competitors can
do so. Intel and Microsoft are taking this approach.

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Hyper-competition and Competitive Advantage

Sustainability
One danger of DAvenis concept of hypercompetition, however,
is that it may lead to an overemphasis on short-term tactics over
long-term strategy.

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3. DAvenis Framework

DAvenis framework suggests seven approaches (7 Ss) an

organization can take in its business strategy. Companies
can use these approaches to disrupt competition, depending
on their particular capabilities to seize initiative and pursue
tactics that can create a series of temporary advantages.

Ch 1-

DAvenis framework- New 7 Ss.

Approach
Superior stakeholder
satisfaction
Strategic soothsaying

Definition
Understanding how to maximize customer
satisfaction by adding value strategically

Seeking out new knowledge that can

predict or create new windows of opportunity

Positioning for speed

Preparing the organization to react as

quickly as possible

Positioning for surprise

Preparing the organization to respond

to the marketplace in a manner that will
surprise competitors
Finding new ways to serve customers
which transform the industry
Communicating the intended actions of
a company, in order to stall responses by
competitors
Taking a series of steps designed to stun
and confuse competitors in order to disrupt or block their
efforts

Shifting the rules of

competition
Signaling strategic intent

Simultaneous and
sequential strategic thrusts

Ch 1 -52

Which Competitive Strategy Is Best?

Before selecting one of Porters generic
competitive strategies for a company or
business unit, management should assess
its feasibility in terms of company or
business unit resources and capabilities.
Porter lists some of the commonly
required skills and resources, as well as
organizational requirements, in Table 63.
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Competitive Tactics
Tactic- a specific operating plan that details
how a strategy is going to be
implemented in terms of when and where
it is to be put into action
Narrower in scope and shorter in time
horizon than strategies

(like policies) as a link between the formulation

and implementation of strategy

Tactics available to implement competitive strategies are

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timing tactics and market location tactics.

Timing Tactics: When to Compete

Timing Tactics- deals with when a company
implements a strategy
The first company to manufacture and sell a new product
or service is called the first mover (or pioneer).
Some of the advantages of being a first mover are: the
company is able to establish a reputation as an industry
leader, cost-leader position, earn temporarily high profits,
first mover can also set the standard for all subsequent
products in the industry, greater market share and
shareholder wealth than does moving later..
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Timing Tactics: When to Compete

First mover disadvantages: These disadvantages can be,
conversely, advantages enjoyed by late-mover firms. Late
movers may be able to imitate the technological advances of
others (and thus keep R&D costs low), keep risks down by
waiting until a new technological standard or market is
established, and take advantage of the first movers natural
inclination to ignore market segments. Research indicates that
successful late movers tend to be large firms with considerable
resources and related experience. Microsoft is one example.
Once Netscape had established itself as the standard for Internet
browsers in the 1990s, Microsoft used its huge resources to
directly attack Netscapes position with its Internet Explorer.

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2. Market Location: Where to Compete

Market location tactics- deals with where a company
implements a strategy. Competitive strategy can be either:

1. Offensive tactics: usually takes place in an established

competitors market location. Methods used to attack a
competitors position are:

Frontal assault: The attacking firm goes head to head with

its competitor. It matches the competitor in every category
from price to promotion to distribution channel. This is
generally a very expensive tactic and may serve to awaken a
sleeping giant, depressing profits for the whole industry.

Flanking maneuver: a firm may attack a part of the

market where the competitor is weak.

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2. Market Location: Where to Compete

Offensive tactics:
Bypass attack: a company or business unit may choose

to change the rules of the game. by offering a new type of

product that makes the competitors product unnecessary.

Encirclement: Occurs as an attacking company or unit

encircles the competitors position in terms of products or

markets or both (e.g., a complete product line, ranging
from low to high price) or serves more markets.

Guerrilla warfare : a firm or business unit

may choose to hit and run. characterized by the use of
small, intermittent assaults on different market segments
held by the competitor.
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2. Market Location: Where to Compete

2. Defensive tactics : aim to lower the probability of
attack, divert attacks to less threatening avenues, or
lessen the intensity of an attack. Instead of increasing
competitive advantage, they make a companys or
business units competitive advantage more sustainable
by causing a challenger to conclude that an attack is
unattractive.
These tactics deliberately reduce short-term
profitability to ensure long-term profitability:

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2. Market Location: Where to Compete

2. Defensive tactics :

1. Raise structural barriers to block a challengers logical

avenues of attack. Some, are to:
1. Offer a full line of products in every profitable market segment to
close off any entry points (E.g., Coca Cola offers unprofitable
noncarbonated beverages to keep competitors off store shelves);
2. Block channel access by signing exclusive agreements with distributors;
3. Raise buyer switching costs by offering low-cost training to users;

4. Raise the cost of gaining trial users by keeping prices low on

items new users are most likely to purchase;
5. Increase scale economies to reduce unit costs;

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2. Market Location: Where to Compete

Defensive tactics :

1. Raise structural barriers to block a challengers logical

avenues of attack. Some, are to:
6. Foreclose alternative technologies through patenting or licensing;
7. Limit outside access to facilities and personnel;
8. Tie up suppliers by obtaining exclusive contracts or
purchasing key locations;
9. Avoid suppliers that also serve competitors; and
10. Encourage the government to raise barriers, such as safety
and pollution standards or favorable trade policies.

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2. Market Location: Where to Compete

Defensive tactics :

2. Increase expected retaliation: This tactic is any

action that increases the perceived threat of retaliation for an
attack. For example, management may strongly defend any
erosion of market share by drastically cutting prices or matching a
challengers promotion through a policy of accepting any pricereduction coupons for a competitors product. This counterattack is
especially important in markets that are very important to the
defending company or business unit. For example, when Clorox
Company challenged P&G in the detergent market with Clorox
Super Detergent, P&G retaliated by test marketing its liquid
bleach, Lemon Fresh Comet, in an attempt to scare Clorox into
retreating from the detergent market. Research suggests that
retaliating quickly is not as successful in slowing market share
loss as a slower, but more concentrated and aggressive response.
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2. Market Location: Where to Compete

Defensive tactics :

3. Lower the inducement for attack:

is to reduce a challengers expectations of future profits
in the industry. Like Southwest Airlines, a company can
deliberately keep prices low and constantly invest in
cost-reducing measures. With prices kept very low,
there is little profit incentive for a new entrant.

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2. Cooperative Strategies Competitive strategies and tactics used to

gain competitive advantage by battling
against other firms.
cooperative strategies used to gain a
competitive advantage within an
industry by working with other firms
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Types of cooperative strategies:

1. Collusion- the active cooperation of

firms within an industry to reduce output
(limit the sales volume) and raise prices to
avoid economic law of supply and
demand. Can be explicit through direct
communication and negotiation, or tacit, in
which case firms cooperate indirectly
through an informal system of signals.
Explicit collusion is illegal in most countries
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Types of cooperative strategies:

Tacit collusion in an industry is most likely to be successful
if (1) there are a small number of identifiable
competitors, (2) costs are similar among firms, (3) one
firm tends to act as the price leader, (4) there is a
common industry culture that accepts cooperation, (5)
sales are characterized by a high frequency of small
orders, (6) large inventories and order backlogs are
normal ways of dealing with fluctuations in demand, and
(7) there are high entry barriers to keep out new
competitors.
Tacit collusion can, however, be illegal. EX: Book 196
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2. Strategic Alliances- a long-term cooperative

arrangement between two or more independent
firms or business units that engage in business
activities for mutual economic gain
In the U.S. s/w industry, the percentage of firms that
engaged in alliances increased from 32% in 1990 to
95% in 2001.
Some alliances are very short term, lasting till one
partner to establish a beachhead in a new market.
Over time, conflicts over objectives and control often
develop among the partners. For these and other reasons,
around half of all alliances perform unsatisfactorily.
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2. Strategic AlliancesUsed to:

Obtain or learn new capabilities
Obtain access to specific markets
Reduce financial risk: Alliances take less
financial resources than do acquisitions
(alliances with suppliers)
Reduce political risk: Forming alliances with
local partners

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Types of Cooperative Agreements

Mutual Service Consortia: similar companies that
pool their resources to gain a benefit that is too expensive to
develop alone. appropriate for partners that wish to work
together but not share their core competencies.

Joint Venture:

cooperative business activity, that creates an independent business entity and allocates

ownership, operational responsibilities, and financial risks and rewards to each member, while preserving their separate identity/autonomy.
Along with licensing arrangements, joint ventures lie at the midpoint of the continuum and are formed to pursue an opportunity that needs a
capability from two or more companies or business units, such as the technology of one and the distribution channels of another.

Licensing Arrangements:

is an agreement in which the licensing firm grants rights to another firm in another

country or market to produce and/or sell a product. The licensee pays compensation to the licensing firm in return for technical expertise.

Value-Chain Partnerships: is a strong and close alliance

in which one company or unit forms a long-term arrangement
with a key supplier or distributor for mutual advantage.
Stronger

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1. What industry forces might cause a propitious niche

to disappear?
2. Is it possible for a company or business unit to follow
a cost leadership and a differentiation strategy
simultaneously? Why or why not?
3. Is it possible for a company to have a sustainable competitive
advantage when its industry becomes hyper-competitive?
4. What are the advantages and disadvantages of being a
first mover in an industry? Give some examples
of first movers and late mover firms.
5. Why are strategic alliances temporary?

Prentice Hall, Inc. 2012

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