LO: What distinguishes each of the five generic strategies and why some of these strategies work better in certain kinds of competitive conditions than in others.
Deciding which of the five generic competitive strategies to employ - overall low cost, broad differentiation, focused low cost, focused differentiation, or best cost - is perhaps the most important strategic actions a company undertakes and sets the whol
LO: The major avenues for achieving a competitive advantage based on lower costs.
In employing a low-cost provider strategy and trying to achieve a low-cost advantage over rivals, a company must do better job than rivals of cost-effectively managing value chain activities and/or it must find innovative ways to eliminate cost-producing
LO: The major avenues to a competitive advantage based on differentiating a company's product or service offering from the offerings of rivals.
Broad differentiation strategies seek to produce a competitive edge by incorporating attributes that set a company's product or service offering apart from rivals in ways that buyers consider valuable and worth paying for. This depends on the appropriate
LO: The attributes of a best-cost provider strategy - a hybrid of low-cost provider and differentiation strategies.
A focused strategy delivers competitive advantage either by achieving lower costs than rivals in serving buyers constituting the target market niche or by developing a specialized ability to offer niche buyers an appealingly differentiated offering that m
Cost Driver
A factor that has strong influence on a company's costs.
Broad Differentiation
Essence of this strategy is to offer unique product attributes that a wide range of buyers find appealing and worth paying for.
Best Cost Provider
A hybrid of low-cost provider and differentiation strategies that aims to produce more desirable attributes (quality, features, performance, service) while beating rivals on price.
Value Driver
A factor that can have a strong differentiating effect.
Focused Low-Cost
Aims at securing a competitive advantage by serving buyers in the target market niche at a lower cost and lower price than those of rival competitors.
Low-Cost Provider
Basis for competitive advantage is lower overall costs than competitors. Successful low-cost leaders, who have the lowest industry costs, are exceptionally good at finding ways to drive costs out of their businesses and still provide a product or service
Focused Differentiation
Involves offering superior products or services designed to appeal to the unique preferences and needs of a narrow, well-defined group of buyers.
LO: Whether and when to pursue offensive or defensive strategic moves to improve a company's market position.
Once a company has settled on which of the five generic competitive strategies to employ, attention turns to how strategic choices regarding (1) competitive actions, (2) timing of those actions, and (3) scope of operations can complement its competitive a
LO: When being a first mover or fast follower or a later mover is most advantageous.
Strategic offensives should, as a general rule, be grounded in a company's strategic assets and employ a company's strengths to attack rivals in the competitive areas where they are weakest.
LO: The advantages and disadvantages of extending the company's scope of pertains via vertical integration.
The purposes of defensive strategies are to lower the risk of being attacked, weaken the impact of any attack that occurs, and influence challengers to aim their efforts at other rivals. Defensive strategies to protect a company's position usually take on
LO: The strategic benefits and risks of expanding a company's horizontal scope through mergers and acquisitions.
Companies have a number of offensive strategy options for improving their market positions: using a cost-based advantage to attack competitors on the basis of price or value, leapfrogging competitors with next-generation technologies, pursuing continuous
Blue-ocean Strategy
Offers growth in revenues and profits by discovering or inventing new industry segments that create altogether new demand.
Later Mover
* When pioneering is more costly than imitating and offers negligible experience or learning-curve benefits.
* When the products of an innovator are somewhat primitive and do not live up to buyer expectations.
* When rapid market evolution allows fast fol
Vertical Scope
The extent to which a firm's internal activities encompass the range of activities that make up an industry's entire value chain system, from raw-material production to final sales and service activities.
Forward Integration
Involves entry into value chain system activities closer to the end user.
First Mover
* When pioneering helps build a firm's reputation and creates strong brand loyalty.
* When a first mover's customers will thereafter face significant switching costs.
* When a property rights protections thwart rapid imitation of the initial move.
*When a
Scope of the Firm
Refers to the range of activities that the firm performs internally, the breadth of its product and service offerings, the extent of its geographic market presence, and its mix of businesses.
Vertically Integrated
A firm that performs value chain activities along more than one stage of an industry's value chain system.
Outsourcing
Involves contracting out certain value chain activities that are normally performed in-house to outside vendors.
Fast Follower
A company that is quick to follow first movers.
Horizontal Scope
The range of product and service segments that a firm serves within its focal market.
Backward Integration
Involves entry into activities previously performed by suppliers or other enterprises positioned along earlier stages of the industry value chain system;
Strategic Alliance
A formal agreement between two or more separate companies in which they agree to work cooperatively toward some common objective.
LO: The primary reasons companies choose to compete in international markets.
Competing in international markets allows a company to (1) gain access to new customers, (2) achieve lower costs through greater economies of scale, learning and increased purchasing power, (3) gain access to low-cost inputs of production, (4) further exp
LO: How and why differing market conditions across countries influence a company's strategy choices in international markets.
Strategy making is more complex for five reasons: (1) Different countries have home-country advantages in different industries; (2) there are location-based advantages to performing different value chain activities in different parts of the world; (3) var
LO: The three main strategic approaches for competing internationally.
There are five strategic options for entering foreign markets. These include maintaining a home-country production base and exporting goods to foreign markets, licensing foreign firms to produce and distribute the company's products abroad, employing a fr
LO: The five major strategic options for entering foreign markets.
The strategies of firms that expand internationally are usually ground in home-country advantages concerning demand conditions, factor conditions, related and supporting industries, and firm strategy, structure, and rivalry, as described by the Diamond of
Diamond of National Competitive Advantage
- Demand Conditions: Home-market size and growth rate; buyers' tastes
- Firm Strategy, Structure, and Rivalry: Different styles of management and organization; degree of local rivalry
- Factor Conditions: Availability and relative prices of inputs (e.g.,
Political Risks
Stem from instability or weakness in national governments and hostility to foreign business.
Economic Risks
Stem from the stability of a country's monetary system, economic and regulatory policies, and the lack of property rights protections.
Greenfield venture
A subsidiary business that is established by setting up the entire operation from the ground up.
Global Strategy
One in which a company employs the same basic competitive approach in all countries where it operates, sells standardized products globally, strives to build global brands, and coordinates its actions worldwide with strong headquarters control. It represe
Transnational Strategy
A think-global, act-local approach that incorporates elements of both multidomestic and global strategies.
Multidomestic Strategy
One in which a company varies its product offering and competitive approach from country to country in an effort to be responsive to differing buyer preferences and market conditions. It is a think-local, act-local type of international strategy, facilita
LO: When and how business diversification can enhance shareholder value.
The purpose of diversification is to build shareholder value. Diversification builds shareholder value when a diversified group of businesses can perform better under the auspices of a single corporate parent than they would as independent, stand-alone bu
LO: The merits and risks of unrelated diversification strategies.
There are two fundamental approaches to diversification - into related businesses and into unrelated businesses. The rational for related diversification is to benefit from strategic fit: Diversify into businesses with commonalities across their respectiv
LO: The analytical tools for evaluating a company's diversification strategy.
Unrelated diversification strategies surrender the competitive advantage potential of strategic fit at the value chain level in return for the potential that can be realized from superior corporate parenting or the sharing and transfer of general resource
LO: What four main corporate strategy options a diversified company can employ for solidifying its strategy and improving company performance.
Related diversification provides a stronger foundation for creating shareholder value than does unrelated diversification, since the specialized resources and capabilities that are leverage in related diversification tend to be more valuable competitive a
Tests of Corporate Advantage
To add shareholder value, a move to diversify into a new business must pass three tests:
1. The Industry Attractiveness Test
2. The Cost of Entry Test
3. The Better-off Test
Synergy
Creating added value for shareholders via diversification requires building a multibusiness company in which the whole is greater than the sum of its parts - such 1 + 1 = 3 effects are known as this.
Acquisition Premium
Otherwise known as control premium. The amount by which the price offered exceeds the pre-acquisition market value of the target company.
Transaction Costs
The costs of completing a business agreement or deal, over and above the price of the deal. They can include the costs of searching for an attractive target, the costs of evaluating its worth, bargaining costs, and the costs of completing the transaction.
Related & Unrelated Businesses
Related possess competitively valuable cross-business value chain and resource commonalities. Unrelated have dissimilar value chains and resource requirements, with no competitively important cross-business commonalities at the value chain level.
Strategic Fit
Exists whenever one or more activities constituting the value chains of different businesses are sufficiently similar to present opportunities for cross-business sharing or transferring of the resources and capabilities that enable these activities.
Economies of Scope
Cost reductions that flow from operating in multiple businesses (a larger scope of operation). This is in contrast to economies of scale, which accrue from a larger-sized operation.
Corporate Parenting
Refers to the role that a diversified corporation plays in nurturing its component businesses through the provision of top management expertise, disciplined control, financial resources, and other types of general resources and capabilities such as long-t
Umbrella Brand
A corporate brand name that can be applied to a wide assortment of business types. As such, it is a type of general resource that can be leveraged in unrelated diversification.