A company's competitive strategy deals exclusively with the specifics of management's game plan for competing successfully - its specific efforts to please customers, strengthen its market position, counter the maneuvers of rivals, respond to shifting mar
Market Coverage:
Presence in a Broad Range of Market Segments.
* Overall Low Cost Provider Strategy
* Broad Differentiation Strategy
Market Coverage: Presence in a Limited Number of Market Segments
* Focused Low Cost Strategy
* Focused Differentiation Str
Core Concept: A competitive strategy concerns the specifics of management's game plan for competing successfully and securing a competitive advantage over rivals in the marketplace.
1. A Low-Cost Provider Strategy: Striving to achieve lower overall costs than rivals and appealing to a broad spectrum of customers, usually by underpricing rivals.
2. A Broad Differentiation Strategy: Seeking to differentiate the company's product of ser
Low-Cost Provider Strategies:
Striving the be the industry's overall low-cost provider is a powerful competitive approach in markets with many price-sensitive buyers. A company achieves low-cost leadership when it becomes the industry's lowest-cost provid
Core Concept: A low-cost leader's basis for competitive advantage is lower overall costs than competitors. Success in achieving a low-cost edge over rivals comes from eliminating and/or curbing "nonessential" activities and/or outmanaging rivals in perfor
Core Concept: Cost Driver:
A cost driver is a factor having a strong effect on the cost of a company's value chain activities and cost structure.
Revamping the Value Chain: Dramatic Cost Advantages can often emerge from reengineering the company's value chain in ways that eliminate costly work steps and bypass certain cost-producing value chain activities. Such value chain revamping can include:
*
Concepts & Connections 5.1: describes the path that Vanguard had followed in Achieving its Position as the Low-Cost Leader in the Investment Management Industry:
Vanguard is now one of the world's largest investment management companies. It became an indu
Vanguard keeps its costs low in several other ways. One notable way is its focus on its employees and organizational structure. The company prides itself on low turnover rates (8%) and very flat organizational structure. In several instances Vanguard has
When a Low-Cost Provider Strategy Works Best.
A competitive strategy predicated on low-cost leadership is particularly powerful when:
1. Price Competition Among Rival Sellers is Especially Vigorous: Low-cost providers are in the best position to compete offensively on the basis of price and to survive price wars.
2. The Products of Rival Sellers are Essentially Identical and Are Readily
Pitfalls To Avoid In Pursuing A Low-Cost Provider Strategy:
Perhaps the biggest pitfall of a low-cost provider strategy is getting carried away with overly aggressive price cutting and ending up with lower, rather than higher, profitability. A low-cost/lo
Broad Differentiation Strategies:
Differentiation Strategies are attractive whenever buyers' needs and preferences are too diverse to be fully satisfied by a standardized product or service. A company attempting to succeed through differentiation must stu
Core Concept:
The essence of a broad differentiation strategy is to offer unique product or service attributes that a wide range of buyers find appealing and worth paying for.
Successful Differentiation Allows a Firm to:
* Command a premium price and/or
* Increase unit sales (because additional buyers are won over by the differentiating feature) and/or
* Gain buyer loyalty to its brand (because additional buyers are won over by
Approaches to Differentiation
Companies can pursue differentiation from many angles; a unique taste (Red Bull, Doritos), multiple features (Microsoft Office, Apple Watch), wide selection and one-stop shopping (Home Depot, Amazon.com), superior service (Ri
Managing the Value Chain in Ways that Enhance Differentiation
Success in employing a differentiation strategy results from management's ability to offer superior customer value through the addition of product/service attributes and features that different
Select all that apply
In general, a company's competitive strategy includes which of the following?
a. efforts to please customers
b. responding to changes in market conditions
c. imitating competitors' product or service offerings
d. securing a competiti
a. efforts to please customers
b. responding to changes in market conditions
&
d. securing a competitive advantage versus rivals
The five generic competitive strategies are essentially derived from choices made about
a. pricing strategy and profit margins.
b. market coverage and the type of competitive advantage pursued.
c. marketing strategy and product placement in various compet
b. market coverage and the type of competitive advantage pursued.
Select all that apply
Which competitive strategies target a broad range of customers?
a. A focused low-cost strategy
b. A broad differentiation strategy
c. A low-cost provider strategy
d. A focused differentiation strategy
b. A broad differentiation strategy
&
c. A low-cost provider strategy
A company achieves a successful low-cost provider strategy by
a. boasting lower costs than rivals, but not necessarily the absolutely lowest cost.
b. always having the rock-bottom lowest cost in the industry regardless of profit margins.
c. being one of s
a. boasting lower costs than rivals, but not necessarily the absolutely lowest cost.
The two major avenues for achieving low-cost leadership are both accomplished by focusing on the company's
a. market share.
b. target pricing.
c. value chain activities.
d. level of product or service differentiation.
c. value chain activities.
Note
Why Not:
b. target pricing:Reason:
Low-cost leadership depends on reducing costs.
&
d. Reason:
Low-cost leadership does not depend on differentiation of products or services.
Although companies pursue different competitive strategies, all strategies deal with plans for
a. offering the lowest prices in the industry.
b. competing successfully.
c. keeping profit margins as high as possible.
d. offering a broad range of products o
b. competing successfully.
Factors that have an especially strong effect on the costs of a company's value chain activities are known as
cost drivers.
value chain activities.
profit margins.
service charges.
a. cost drivers.
Select all that apply
Which of the following are among the common competitive strategy options?
a. best-cost provider strategy
b .broad differentiation strategy
c. overall, or broad, low-cost provider strategy
d. differentiated unfocused strategy
a. best-cost provider strategy
b .broad differentiation strategy
c. overall, or broad, low-cost provider strategy
Select all that apply
Which of the following are approaches for effective management of the cost drivers in a company's value chain?
a. employing advanced process design to improve efficiency
b. striving to capture all available economies of scale
c. taki
a. employing advanced process design to improve efficiency
b. striving to capture all available economies of scale
c. taking full advantage of learning curve effects
Because it blends elements of various other strategies, a best-cost provider strategy is considered a
a. hybrid strategy.
b. provider strategy.
c. differentiation strategy.
d. resource-based strategy.
a. hybrid strategy.
When a company strives to achieve lower overall costs than rivals and appeals to a broad spectrum of customers, it pursues
a. a focused low-cost strategy.
b. a best-cost provider strategy.
c. a broad differentiation strategy.
d. an overall low-cost provid
d. an overall low-cost provider strategy.
Select all that apply
Reengineering the company's value chain to achieve significant cost advantages can include which of the following?
a. reducing manufacturing capacity to lower fixed overhead costs
b. reducing materials handling and shipping costs
c.
b. reducing materials handling and shipping costs
c. streamlining operations by eliminating low valued-added or unnecessary activities
d. selling directly to consumers by circumventing distributors and dealers
Select all that apply
Which of the following are avenues for performing value chain activities at a lower cost?
a. conducting essential value activities more cost-effectively than rivals
b. increasing costs across the value chain so that they are more tha
a. conducting essential value activities more cost-effectively than rivals
&
d. changing the value chain to streamline the process
Select all that apply
Under which of the following conditions will a low-cost provider strategy likely work?
a. when there are few ways to achieve product differentiation
b. when buyers can switch between sellers at low cost
c. when products of rival sell
a. when there are few ways to achieve product differentiation
b. when buyers can switch between sellers at low cost
c. when products of rival sellers are readily available and essentially identical
Select all that apply
Which of the following are potential cost drivers that managers can seek to contain?
a. employee benefits packages
b. governmental regulatory requirements
c. the size of a company's product line
d. the components used in product asse
a. employee benefits packages
c. the size of a company's product line
d. the components used in product assembly
Only when prices are cut by less than the size of the cost advantage or the added volume makes up for lower margins per unit does a low-cost/low- ____________________ advantage result in improved profitability.
PRICE
Substituting lower-cost inputs when there is no loss in product quality and trying to capture all available economies of scale are two approaches for managing the cost drivers in a company's ______________ chain.
VALUE
A broad differentiation strategy
a. is mostly based on clever advertising capabilities.
b. is only sustainable with higher-end, more expensive products.
c. appeals to customers who don't tend to be particularly loyal to a brand and who will willingly swit
d. is based on offering a unique product or service that a wide range of buyers find appealing and worth paying for.
Note:
Is based on offering a unique product or service that a wide range of buyers find appealing and worth paying for.
Select all that apply
Which competitive strategies target a broad range of customers?
a. A low-cost provider strategy
b. A broad differentiation strategy
c. A focused differentiation strategy
d. A focused low-cost strategy
a. A low-cost provider strategy
b. A broad differentiation strategy
Select all that apply
A successful differentiation strategy allows a company to do which of the following?
a. reduce the features a product has
b. gain buyer loyalty to a brand
c. command a premium price
d. increase unit sales
c. command a premium price
d. increase unit sales
By creating its own direct sales force, a company can
a. reduce materials handling and shipping costs.
b. eliminate middle management.
c. circumvent the need for distributors or dealers.
d. outsource certain value chain activities.
c. circumvent the need for distributors or dealers.
When buyers incur low costs in switching their purchases from one seller to another, a ______ strategy works best.
lowest-profit leadership
focused differentiation
low-cost provider
broad differentiation
low-cost provider
Select all that apply
A differentiation strategy has the most success when which of the following are true?
a. The differentiation is easy for rivals to imitate.
b. The differentiation is based on service rather than product innovation.
c. The differentia
c. The differentiation is expensive for rivals to imitate.
&
d. The differentiation is hard for rivals to imitate.
Select all that apply
Which of the following are among the pitfalls to avoid when pursuing a low-cost provider strategy?
a. reducing costs in a way that rivals can easily replicate
b. focusing insufficiently on cost reduction
c. becoming overly concerned
a. reducing costs in a way that rivals can easily replicate
c. becoming overly concerned about cost reduction
d. focusing too much on cutting prices
Select all that apply
Which of the following should a company attempting to succeed through differentiation do?
a. study buyers' needs and behavior
b. include standardized products or services in products
c. include desirable features that set itself apar
a. study buyers' needs and behavior
c. include desirable features that set itself apart from rivals
&
d. understand what buyers are willing to pay for
Improving customer service, investing in production R&D, and striving for input quality are drivers that
a. lower costs.
b. blur product recognition.
c. enhance differentiation.
d. lead to commodity-like products.
c. enhance differentiation.
Whenever the extra price that a product commands outweighs the cost of achieving the differentiation, ___________ is enhanced.
Profitability or Profit
Select all that apply
Reengineering the company's value chain to achieve significant cost advantages can include which of the following?
a. selling directly to consumers by circumventing distributors and dealers
b. reducing materials handling and shipping
a. selling directly to consumers by circumventing distributors and dealers
b. reducing materials handling and shipping costs
c. streamlining operations by eliminating low valued-added or unnecessary activities
Select all that apply
Differentiation that is based on which of the following yields a more durable and profitable competitive edge?
a. comprehensive customer service
b. technical superiority
c. product innovation
d. cosmetic changes to
a. comprehensive customer service
b. technical superiority
c. product innovation
Only when prices are cut by less than the size of the cost advantage or the added volume makes up for lower margins per unit does a low-cost/low- _______________ advantage result in improved profitability.
price
Select all that apply
Which of the following are value chain activities that can enhance differentiation?
a. resourceful attempts to clone features of products from successful competitors
b. strict quality specifications on raw materials from suppliers
c.
b. strict quality specifications on raw materials from suppliers
c. superior product features and performance
d. product innovations and technological advances
Select all that apply
A successful differentiation strategy allows a company to do which of the following?
reduce the features a product has
increase unit sales
command a premium price
gain buyer loyalty to a brand
increase unit sales
command a premium price
gain buyer loyalty to a brand
By creating its own direct sales force, a company can
Multiple choice question.
outsource certain value chain activities.
reduce materials handling and shipping costs.
eliminate middle management.
circumvent the need for distributors or dealers.
circumvent the need for distributors or dealers.
Select all that apply
Which of the following are basic ways for delivering value to customers via a differentiation strategy?
commanding a premium price and increasing unit sales
including product attributes and features that lower the buyer's costs
incor
including product attributes and features that lower the buyer's costs
incorporating tangible features that improve product performance
incorporating intangible features that enhance buyer satisfaction
Select all that apply
A differentiation strategy has the most success when which of the following are true?
Multiple select question.
The differentiation is expensive for rivals to imitate.
The differentiation is hard for rivals to imitate.
The differenti
The differentiation is expensive for rivals to imitate.
The differentiation is hard for rivals to imitate.
The price premium commanded by a differentiation strategy reflects the value perceived by the buyer and the
intangible features desired by the buyer.
image and brand loyalty.
quality promised by the manufacturer.
value actually delivered to the buyer.
value actually delivered to the buyer.
Note:
why Not
quality promised by the manufacturer: Reason:
Recall that the price premium commanded by a differentiation strategy reflects the value perceived by the buyer and the value actually delivered to the buye
Select all that apply
Which of the following are among the pitfalls to avoid when pursuing a low-cost provider strategy?
Multiple select question.
focusing too much on cutting prices
focusing insufficiently on cost reduction
reducing costs in a way that r
focusing too much on cutting prices
reducing costs in a way that rivals can easily replicate
becoming overly concerned about cost reduction
Under which of the following situations will a differentiation strategy likely be least successful?
Multiple choice question.
when there are only a few ways to differentiate that have value to buyers
when few competitors are following a similar differenti
when there are only a few ways to differentiate that have value to buyers
Improving customer service, investing in production R&D, and striving for input quality are drivers that
Multiple choice question.
blur product recognition.
lead to commodity-like products.
lower costs.
enhance differentiation.
enhance differentiation.
Whenever the extra price that a product commands outweighs the cost of achieving the differentiation, is enhanced.
profitability or profit
Select all that apply
In which of the following ways can a company make its products more economical for buyers?
Multiple select question.
by reducing product reliability to reduce maintenance costs
by reducing a buyer's inventory requirements
by providin
by reducing a buyer's inventory requirements
by providing free technical support
by reducing the buyer's raw materials waste
Select all that apply
As part of a differentiation strategy, signaling value is as important as real value in which of the following situations?
Multiple select question.
when repurchase is infrequent
when buyers are highly sophisticated
when the nature o
when repurchase is infrequent
when the nature of differentiation is hard to quantify
when buyers are making a first-time purchase
Differentiation strategies tend to work best when
buyers' needs and uses of a product are diverse.
competition is based on features that undergo little change.
technological change in the industry is slow-paced.
many rival firms are following the same app
buyers' needs and uses of a product are diverse.
Select all that apply
Under which of the following circumstances can differentiation strategies fail?
when buyers see little value in the unique features of the product or service
when the company spends too much on efforts to differentiate, eroding profi
when buyers see little value in the unique features of the product or service
when the company spends too much on efforts to differentiate, eroding profitability
when competitors can easily copy the product or service attributes
Select all that apply
Which of the following are value chain activities that can enhance differentiation?
product innovations and technological advances
superior product features and performance
resourceful attempts to clone features of products from succ
product innovations and technological advances
superior product features and performance
strict quality specifications on raw materials from suppliers
Select all that apply
In a focused, or market niche, strategy the targeted segment can be defined by which of the following?
the price sensitivity of commodity buyers
a range of products that appeal to a broad variety of customers
special product attribut
special product attributes that appeal only to niche customers
geographic uniqueness
Select all that apply
A successful differentiation strategy allows a company to do which of the following?
command a premium price
gain buyer loyalty to a brand
increase unit sales
reduce the features a product has
command a premium price
gain buyer loyalty to a brand
increase unit sales
Select all that apply
Which of the following are basic ways for delivering value to customers via a differentiation strategy?
incorporating tangible features that improve product performance
incorporating intangible features that enhance buyer satisfactio
incorporating tangible features that improve product performance
incorporating intangible features that enhance buyer satisfaction
including product attributes and features that lower the buyer's costs
The price premium commanded by a differentiation strategy reflects the value perceived by the buyer and the
a. image and brand loyalty.
b. quality promised by the manufacturer.
c. value actually delivered to the buyer.
d. intangible features desired by th
value actually delivered to the buyer.
Overdifferentiating so that product quality or service exceeds buyers' needs
is a common mistake companies make in trying to compete using a differentiation strategy.
is a good strategy to ward off competitors' efforts at imitating differentiating feature
is a common mistake companies make in trying to compete using a differentiation strategy.
A ______ strategy aims at securing a competitive advantage by serving buyers in the target market niche at a lower cost and lower price than rivals.
best-cost
overall low-cost
focused low-cost
resource-based cost
focused low-cost
Which of the following describes how a focused competitive strategy differs from overall low-cost and broad differentiation strategies?
It places greater emphasis on quality and customer service.
It concentrates on a narrow piece of the total market.
It i
It concentrates on a narrow piece of the total market.
Whenever the extra price that a product commands outweighs the cost of achieving the differentiation, __________ is enhanced.
Profitability or Profit
A company using a ______ strategy offers carefully designed products or services to appeal to the unique needs and preferences of a narrow, well-defined group of buyers.
segment-based
focused differentiation
broad differentiation
core competence
focused differentiation
Select all that apply
In which of the following ways can a company make its products more economical for buyers?
by reducing the buyer's raw materials waste
by reducing a buyer's inventory requirements
by reducing product reliability to reduce maintenance
by reducing a buyer's inventory requirements
by providing free technical support
by reducing the buyer's raw materials waste
Select all that apply
A focused low-cost or focused differentiation strategy is attractive under which of the following conditions?
It is costly or difficult for rivals to meet the specialized needs of niche buyers.
Industry leaders have chosen not to com
It is costly or difficult for rivals to meet the specialized needs of niche buyers.
Industry leaders have chosen not to compete in the niche market.
Few rivals are attempting to specialize in the same target market.
Select all that apply
As part of a differentiation strategy, signaling value is as important as real value in which of the following situations?
when the nature of differentiation is hard to quantify
when buyers are highly sophisticated
when repurchase is
when repurchase is infrequent
when the nature of differentiation is hard to quantify
when buyers are making a first-time purchase
The difference between a low-cost provider strategy and a focused low-cost strategy is
the company's willingness to accept a lower profit margin.
the size of the company's targeted buyer group.
the length of the value chain.
the uniqueness of the product
the size of the company's targeted buyer group.
True or false: Focused low-cost and focused differentiation strategies carry very little risk for the companies that make use of them.
False
Select all that apply
In a focused, or market niche, strategy the targeted segment can be defined by which of the following?
a range of products that appeal to a broad variety of customers
special product attributes that appeal only to niche customers
the
special product attributes that appeal only to niche customers
geographic uniqueness
A company that incorporates appealing features, good-to-excellent product performance, and more satisfying customer service into its product offering at a lower cost than rivals is using a(n) ______ strategy.
focused differentiation
best-cost
overall low-
best-cost
With a focused differentiation strategy, a company focuses on the needs of
many buyers groups.
a well-defined group of buyers.
consumers abroad.
diverse market segments.
a well-defined group of buyers.
When industry leaders have chosen not to compete in a certain niche, a focused strategy allows small producers to
churn out a very large number of products at once.
focus on competing with the largest competitors.
avoid competition with the strongest comp
avoid competition with the strongest competitors.
The price premium commanded by a differentiation strategy reflects the value perceived by the buyer and the
value actually delivered to the buyer.
image and brand loyalty.
quality promised by the manufacturer.
intangible features desired by the buyer.
value actually delivered to the buyer.
A ______ strategy works best in markets where product differentiation is the norm and large numbers of value-conscious buyers will purchase midrange products.
focused differentiation
best-cost
focused low-cost
broad differentiation
best-cost
Select all that apply
Which of the following are risks of a focused low-cost or focused differentiation strategy?
Buyers incur high costs in switching from one brand to another within the niche market.
Competitors find effective ways to match the focused
Competitors find effective ways to match the focused firm's capabilities in serving the target niches.
The segment becomes so attractive that competitors move in, intensifying rivalry and negatively impacting profits.
The preferences and needs of niche me
Select all that apply
To profitably employ a best-cost provider strategy, a company must have which of the following?
a highly differentiated product targeted to a narrow, price-sensitive customer base
core competencies that allow differentiating attribut
core competencies that allow differentiating attributes to be incorporated at a low cost
a superior value chain configuration that eliminates or minimizes activities that do not add value
&
unmatched efficiency in managing essential value chain activities
A company using a ______ strategy offers carefully designed products or services to appeal to the unique needs and preferences of a narrow, well-defined group of buyers.
broad differentiation
focused differentiation
segment-based
core competence
focused differentiation
True or false: A firm that uses a best-cost provider strategy risks being squeezed between firms that use low-cost strategies and firms that use differentiation strategies.
True false question.
True
Select all that apply
A focused low-cost or focused differentiation strategy is attractive under which of the following conditions?
Industry leaders have chosen not to compete in the niche market.
Few rivals are attempting to specialize in the same target
It is costly or difficult for rivals to meet the specialized needs of niche buyers.
Industry leaders have chosen not to compete in the niche market.
Few rivals are attempting to specialize in the same target market.
Which competitive strategy works well during an economic recession when many buyers become value-conscious yet seek products and services with appealing attributes?
best-cost
broad differentiation
focused differentiation
focused low-cost
best-cost
Reason:
Recall that a best-cost provider strategy works well during an economic recession when many buyers become value-conscious yet seek products and services with appealing attributes.
True or false: Focused low-cost and focused differentiation strategies carry very little risk for the companies that make use of them.
True false question.
False
A company that incorporates appealing features, good-to-excellent product performance, and more satisfying customer service into its product offering at a lower cost than rivals is using a(n) ______ strategy.
focused differentiation
focused low-cost
best-
best-cost
Select all that apply
Which of the following resources would be a good fit for a firm pursuing a low-cost provider strategy?
the innovative capability to bypass value chain activities needed by its rivals
the customer service expertise to make its product
the innovative capability to bypass value chain activities needed by its rivals
&
the expertise to manage its value chain more cost-effectively than its rivals can
The essential challenge of a best-cost provider strategy is to
add differentiating features without significantly increasing costs.
to add as many features to its products as possible.
become the low-cost leader of its industry.
become a high-end differen
add differentiating features without significantly increasing costs.
When industry leaders have chosen not to compete in a certain niche, a focused strategy allows small producers to
avoid competition with the strongest competitors.
churn out a very large number of products at once.
focus on competing with the largest comp
avoid competition with the strongest competitors.
A ______ strategy works best in markets where product differentiation is the norm and large numbers of value-conscious buyers will purchase midrange products.
focused low-cost
focused differentiation
best-cost
broad differentiation
best-cost
Select all that apply
Which of the following are risks of a focused low-cost or focused differentiation strategy?
Buyers incur high costs in switching from one brand to another within the niche market.
The preferences and needs of niche members shift towa
Competitors find effective ways to match the focused firm's capabilities in serving the target niches.
The segment becomes so attractive that competitors move in, intensifying rivalry and negatively impacting profits.
&
The preferences and needs of niche
Select all that apply
The success of a firm's competitive strategy depends on having a strategy that is well matched to which of the following?
the firm's internal situation
the right set of resources
the original size of the firm
the appropriate expertis
the firm's internal situation
the right set of resources
&
the appropriate expertise
Which competitive strategy works well during an economic recession when many buyers become value-conscious yet seek products and services with appealing attributes?
focused low-cost
broad differentiation
best-cost
focused differentiation
best-cost
Reason:
Recall that a best-cost provider strategy works well during an economic recession when many buyers become value-conscious yet seek products and services with appealing attributes.
Select all that apply
Which of the following resources would be a good fit for a firm pursuing a low-cost provider strategy?
the customer service expertise to make its products more appealing to customers
the technology to add unique features to its produ
the innovative capability to bypass value chain activities needed by its rivals
&
the expertise to manage its value chain more cost-effectively than its rivals can
The Competitive Advantage of a Low-Cost Provider
Read the overview below and complete the activities that follow.
In employing a low-cost provider strategy, a company must do a better job than rivals of cost-effectively managing internal activities, or it
underpricing rivals to attract price-sensitive buyers
Vanguard's low-cost advantage results primarily from its ability to do which of the following?
a. offer deep discounts
b. differentiate their product features from their rivals
c. use advanced technology and advice
d. do a better job than rivals of perfor
do a better job than rivals of performing value chain activities cost efficiently
Vanguard has been particularly effective in managing which of the following value chain cost drivers?
a. production technology and design, outsourcing or vertical integration, learning and experience, and capacity utilization
b. bargaining power, outsourc
economies of scale, learning and experience, capacity utilization, communication systems, and information technology
A low-cost provider strategy is appropriate for use in the investment management industry for all except which of the following choices?
a. consumer buyers, who have significant power to bargain down prices
b. several ways to achieve product differentiati
consumer buyers, who have significant power to bargain down prices
In what way has Vanguard failed to some degree in the execution of its low-cost provider strategy?
a. Vanguard has not failed in the execution of its low-cost provider strategy.
b. Vanguard has become too fixated on cost reduction and ignoring increased b
a. Vanguard has not failed in the execution of its low-cost provider strategy.
Economic Value Creation
This video explains economic value creation.
Click the ? button to watch the video. Then, answer the questions that follow.
When Frank sells a pie to Jean instead of Sarah, the economic value created in society is lower because of
c. consumer surplus.
Frank the baker has been growing the number of pies he has been selling so much that he is now able to negotiate more favorable terms from his suppliers. This change is likely to impact:
a. production costs.
b. producer surplus.
c. consumer surplus.
d. ec
b. producer surplus.
Frank the baker has imported some specialty baking flour from Italy that is especially prized by Sarah. Frank's use of this flour, in his transaction with Sarah, should impact the:
a. production costs
b. reservation Price
c. consumer surplus
d. purchase p
b. reservation Price
Firms focusing on operating a cost leadership strategy are most likely to develop their product or service to emphasize the:
a. social aspects.
b. functional aspects.
c. presentational aspects.
d. emotional aspects.
e. promotional aspects.
functional aspects.
Mont Blanc uses a differentiation strategy that focuses on the social and emotional aspects of their product to appeal to a specific consumer segment. Which of the following initiatives would most be in keeping with their strategy?
a. an agreement with Of
an engraving service for pen owners who may wish to will their pens to loved ones
Which of the following would NOT be a reason for Bic to decide to compete in Mont Blanc's market?
a. Bic's distribution capabilities are not well designed to reach Mont Blanc's target market.
b. Bic's marketing department isn't geared to addressing Mont B
d. Bic is a large publicly traded company with significant financial resources.
Which one of the five generic competitive strategies can be utilized to compete successfully in the business simulation?
a. A best-cost strategy is almost always the best in offering quality and a comparable price.
b. A company can employ any of the five
b. A company can employ any of the five generic strategies as long as the product or service is perceived to have superior value compared to the product/service of rivals.
Which cost drivers and value drivers are important in creating superior customer value in the business simulation?
a. Operating facilities at normal capacity and equipment not used should be sold or left idle.
b. Companies who substitute lower-cost inputs
b. Companies who substitute lower-cost inputs without sacrificing product quality or performance will have a strong effect on its value chain activities and customer value.
Which of the following is not one of the hazards of pursuing a differentiation strategy?
a. charging too high a price premium for the differentiating features
b. over-differentiating so that the features and attributes incorporated exceed buyer needs and
c. striving to create strong brand loyalty rather than being content with weak brand loyalty (which usually means lower costs and higher profitability)
What sets focused (or market niche) strategies apart from low-cost leadership and broad differentiation strategies is
a. extra attention paid to establishing a distinctive competence.
b. concentrated attention on serving the needs of buyers in a narrow pi
b. concentrated attention on serving the needs of buyers in a narrow piece of the overall market.
A broad differentiation strategy works best in which of the following market circumstances?
a. when buyers have a low degree of bargaining power and purchase the product frequently
b. when new and improved products are introduced frequently
c. when buyers
e. when most competitors are resorting to clever advertising and promotions in an attempt to set their product offerings apart
A low-cost provider's basis for competitive advantage is:
a. using an everyday low pricing strategy to gain the biggest market share.
b. larger profit margins than rival firms'.
c. high buyer switching costs because of the company's differentiated product
d. meaningfully lower costs than competitors' but not necessarily the absolutely lowest cost/price.
A firm pursuing a best-cost provider strategy:
a. seeks to offer more value-adding features than the industry's low-cost providers and lower prices than those pursuing differentiation.
b. tries to have the best cost (as compared to rivals) for each activi
a. seeks to offer more value-adding features than the industry's low-cost providers and lower prices than those pursuing differentiation.
Examples of uniqueness drivers do not include:
a. product features, design, and performance.
b. production R&D.
c. customer service.
d. continuous quality improvement.
e. eliminating low value-added activities and work steps.
e. eliminating low value-added activities and work steps.
The two pivotal factors that distinguish one competitive strategy from another boil down to:
a. (1) whether the company has a customer value proposition, profit formula, and collection of valuable resources; and (2) whether the company's market target is
e. (1) whether the company's market target is broad or narrow, and (2) whether the company is pursuing a competitive advantage linked to lower costs or differentiation.
The strategic target of a best-cost provider is:
a. the extremely price-conscious customer in a low-end market range.
b. the extremely price-conscious customer in a high-end market range.
c. any customer in a narrow market niche where buyers' needs and pr
d. the value-conscious customer in a middle-market range.
Successful differentiation allows a firm to:
a. gain buyer loyalty to its brand (because some buyers are strongly attracted to the differentiating features and bond with the company and its products).
b. gain buyer loyalty to its brand (because some buyer
b. gain buyer loyalty to its brand (because some buyers are strongly attracted to the differentiating features and bond with the company and its products); and command a premium price for its product and/or increase unit sales (because additional buyers a
The most appealing approaches to broad differentiation:
a. are those that hinge upon first-rate R&D and frequent product innovation.
b. involve features or attributes that have considerable buyer appeal and are hard or expensive for rivals to duplicate.
c
b. involve features or attributes that have considerable buyer appeal and are hard or expensive for rivals to duplicate.
Striving to be the low-cost provider is a particularly attractive competitive strategy when:
a. managers must launch a concerted, ongoing effort to ferret out cost-saving opportunities in every part of the value chain; for example, cost drivers such as nu
a. managers must launch a concerted, ongoing effort to ferret out cost-saving opportunities in every part of the value chain; for example, cost drivers such as number of products in the product line, capacity utilization, production technology and design,
The competitive advantage of a best-cost provider like Trader Joe's is derived from:
a. its distinctive competence in delivering top-notch quality and customer service.
b. its brand name reputation.
c. its capability to incorporate upscale or attractive a
c. its capability to incorporate upscale or attractive attributes into its product offerings at lower costs than rivals in the supermarket industry.
CHAPTER 6:
Once a company has settled on which of the five generic competitive strategies to employ, attention turns to what other strategic actions it can take to complement its competitive approach and maximize the power of its overall strategy. As illu
When to undertake strategic moves based upon whether it is advantageous to be a first mover of a fast follower or a late mover.
Whether and when to go on the offensive and initiate aggressive strategic moves to improve the company's market position.
Wheth
Figure 6.1:
Timing of strategic moves to capture first mover or late mover advantages
Offensive strategies to improve market position
Scope of the firm strategic decision
Defensive strategies to protect market positions
Vertical integration to broaden resources and capabilities or achieve cost efficiencies.
Outsourcing to achieve cost efficiencies and improve resource utilization.
Strategic alliances and joint ventures to broaden resources and capabilities.
Horizontal me
Vertical integration to broaden resources and capabilities or achieve cost efficiencies.
Outsourcing to achieve cost efficiencies and improve resource utilization.
Strategic alliances and joint ventures to broaden resources and capabilities.
Horizontal me
Vertical integration to broaden resources and capabilities or achieve cost efficiencies.
Outsourcing to achieve cost efficiencies and improve resource utilization.
Strategic alliances and joint ventures to broaden resources and capabilities.
Horizontal me
CHOOSING THE BASIS FOR COMPETITIVE ATTACK:
Generally, strategic offensives should be grounded in a company's competitive assets and strong points and should be aimed at exploiting competitor weaknesses.
Ignoring the need to tie a strategic offensive to a
The best offensives use a company's most competitively potent resources to attack rivals in those competitive areas where they are weakest
The principal offensive strategy options include:
1. Offering an equally good or better product at a lower price. Lower prices can produce market share gains if competitors offering similarly performing products do not respond with price cuts of their own. Price-cutting offensives are best initiated by c
Choosing Which Rivals to Attack:
Offensive-minded firms need to analyze which of their rivals to challenge as well as how to mount that challenge. The best targets for offensive attacks are:
* Market leaders that are vulnerable. Offensive attacks make good sense when a company that leads in terms of size and market share is not a true leader in terms of serving the market well. Signs of leader vulnerability include unhappy buyers, an inferior
Blue Ocean Strategy - A Special Kind of Offensive:
A blue ocean strategy seeks to gain a dramatic and durable competitive advantage by abandoning efforts to beat out competitors in existing markets and, instead, inventing a new industry or distinctive mar
This strategy views the business universe as consisting of two distinct types of market space. One is where industry boundaries are defined and accepted, the competitive rules of the game are well understood by all industry members, and companies try to o
Blue Ocean Strategies: offer growth in revenues and profits by discovering or inventing new industry segments that create altogether new demand.
Other examples of companies that have achieved competitive advantages by creating blue ocean market spaces include Drybar in hair blowouts, FedEx in overnight package delivery, Uber in ride-sharing services, and Cirque du Soleil in live entertainment. Cir
Etsy's Blue Ocean Strategy in Online Retailing of Homemade Crafts:
Etsy was a market discovery of three New York entrepreneurs who saw that eBay had become too large and ineffective for craftspeople and artisans who wished to sell their one-of-a-kind prod
Typical Etsy buyers valued craftsmanship and wanted to know how items were made and who made them. The ability to develop a direct relationship with the seller was important to many Etsy buyers who enjoyed a personalized shopping experience. Purchases mad
Using Defensive Strategies to Protect a Company's Market Position and Competitive Advantage
In a competitive market, all firms are subject to offensive challenges from rivals. The purposes of defensive strategies are to lower the risk of being attacked, w
Good Defensive strategies can help protect competitive advantage but rarely are the basis for creating it.
Blocking the Avenues Open to Challengers:
The most frequently employed approach to defending a company's present position involves actions to restrict a competitive attack by a challenger. A number of obstacles can be put in the path of would-be challengers. A defender can introduce new features,
Signaling Challengers That Retaliation is Likely
the goal of signaling challengers that strong retaliation is likely in the event of an attack is either to dissuade challengers from attacking or to divert them to less threatening options. Either goal can be achieved by letting challengers know the battl
Timing a Company's Offensive and Defensive Strategic Moves:
Recognize when being a first mover or a fast follower or a late mover can lead to competitive advantage.
When to make a strategic move is often as crucial as what move to make. Timing is especially important when first mover advantages or disadvantages exist. Under certain conditions, being first to initiate a strategic move can have a high payoff in the for
Core Concept:
Because of first-mover advantages and disadvantages, competitive advantage can spring from when a move is made as well as from what move is made.
Sometimes, though, markets are slow to accept the innovative product offering of a first mover,
There are five conditions in which first mover advantages are most likely to arise:
1. When pioneering helps build a firm's reputation and creates strong brand loyalty. Customer loyalty to an early mover's brand can create a tie that binds, limiting the s
The Potential for Late-Mover Advantages or First-Mover Disadvantages:
There are instances when there are actually advantages to being an adept follower rather than a first mover. Late-mover advantages (or first-mover disadvantages) arise in four instances
1. When pioneering leadership is more costly than followership and only negligible experience or learning curve benefits accrue to the leader - a condition that allows a follower to end up with lower costs than the first mover.
2. WHen the products of an
Deciding Whether to Be an Early Mover or Late Mover:
In weighing the pros and cons of being a first mover versus a fast follower versus a slow mover, it matters whether the race to market leadership in a particular industry is a marathon or a sprint. In m
Thus the speed at which the pioneering innovation is likely to catch on matters considerably as companies struggle with whether to pursue a particular emerging market opportunity aggressively or cautiously. For instance, it took 5.5 years for worldwide mo
Strengthening a Company's Market Position via Its Scope of Operations:
Apart from considerations of offensive and defensive competitive moves and their timing, another set of managerial decisions can affect the strength of a company's market position. The
Core Concept: The scope of the firm refers to the range of activities the firm performs internally, the breadth of its product and service offerings, the extent of its geographic market presence, and its mix of business.
Four dimensions of firm scope have the capacity to strengthen a company's position in a given market: the breadth of its product and service offerings, the range of activities the firm performs internally, the extent of its geographic market presence, and
Core Concept:
Horizontal Scope: is the range of product and service segments that a firm serves within its focal market.
Vertical Scope: is the extent to which firm's internal activities encompass one, some, many, or all of the activities that make up an
Horizontal Merger and Acquisition Strategies:
Mergers and acquisitions are much used strategic options to strengthen a company's market position.
A Merger is the combining of two or more companies into a single corporate entity, with the newly created com
An Acquisition is a combination in which one company, the acquirer, purchases and absorbs the operations of another, the acquired. The difference between a merger and an acquisition relates more to the details of ownership, management control, and financi
Combining the operations of two companies, via merger or acquisition, is an attractive strategic option for achieving operating economies, strengthening the resulting company's competencies and competitiveness, and opening avenues of new market opportunit
Horizontal mergers and acquisitions, which involve combining the operations of companies within the same product or service market, allow companies to rapidly increase scale and horizontal scope. For example, the merger of AMR Corporation (parent of Ameri
Merger and Acquisition Strategies typically set sights on achieving any of the five objectives:
Five objectives:
1. Extending the company's business into new product categories. Many times a copany has gaps in its product line that need to be filled. Acquisition can be a quicker and more potent way to broaden a company's product line than going thro
Walmart's Expansion into E-Commerce Via Horizontal Acquisition:
As the boundaries between traditional retailing and online retailing have begun to blur, Walmart has responded by expanding its presence in e-commerce via horizontal acquisition. In 2016, Wal
Walmart, like other brick and mortar retailers, was facing a myriad of issues caused by changing customer expectations. Consumers increasingly valued large assortments of products, a convenient shopping experience, and low prices. Price sensitivity was in
Why Mergers and Acquisitions Sometimes Fail to Produce Anticipated Results
Despite many successes, mergers and acquisitions do not always produce the hoped for outcomes. Cost savings may prove smaller than expected. Gains in competitive capabilities may take substantially longer to realize or, worse, may never materialize. Effor
Vertical Integration Strategies:
Explain the advantages and disadvantages of extending a company's scope of operations via vertical integration.
Vertical integration extends a firm's competitive and operating scope within the same industry. It involves expanding the firm's range of value chain activities backward into sources of supply and/or forward toward end users. Thus, if a manufacturer inves
Core Concept: A vertically integrated firm is one that performs value chain activities along more than one stage of an industry's overall value chain.
A firm can pursue vertical integration by starting its own operations in other stages of the vertical activity chain, by acquiring a company already performing the activities it wants to bring in house, or by means of a strategic alliance or joint venture
Core Concept:
Backward Integration involves performing industry value chain activities previously performed by suppliers or other enterprises engaged in earlier stages of the industry value chain; forward integration involves performing industry value cha
The Advantages of a Vertical Integration Strategy:
The two best reasons for investing company resources in vertical integration are to strengthen the firm's competitive position and/or to boost its profitability. Vertical integration has no real payoff un
two best reasons for investing company resources in vertical integration
Reason 1:
Integrating Backward To Achieve Greater Competitiveness
It is harder than one might think to generate cost savings or boost profitability by integrating backward into activities such as parts and components manufacture. For backward integration to be a viable and profitable strategy, a company must be able to
two best reasons for investing company resources in vertical integration
Reason 2:
Integrating Forward to Enhance Competitiveness
Vertical integration into forward stages of the industry value chain allows manufacturers to gain better access to end users, improve market visibility, and include the end user's purchasing experience as a differentiating feature.
For Example:
Harley-Dav
The Disadvantages of a Vertical Integration Strategy:
Vertical integration has some substantial drawbacks beyond the potential for channel conflict.
The most serious drawbacks to vertical integration include:
* Vertical integration increases a firm's capital investment in the industry.
* Integrating into more industry value chain segments increases business risk if industry growth and profitability so
A Vertical integration strategy has appeal only if it significantly strengthens a firm's competitive position and/or boosts its profitability.
Electric Automobile maker Tesla, Inc. has made vertical integration a central part of its strategy, as described in concepts & connections 6.3.
6.3 continued
Outsourcing Strategies: Narrowing the Scope of Operations:
Describe the conditions that favor farming out certain value chain activities to outside parties.
Outsourcing Forgoes attempts to perform certain value chain activities internally and instead farms them out to outside specialists and strategic allies. Outsourcing makes strategic sense whenever:
1. An activity can be performed better or more cheaply by
A company should guard against outsourcing activities that hollow out the resources and capabilities that it needs to be a mater of its own destiny.
The Big Risk of an Outsourcing Strategy
The biggest danger of outsourcing is that a company will farm out the wrong types of activities and thereby hollow out its own capabilities. In such cases, a company loses touch with the very activies and expertise
Strategic Alliances and Partnerships
Companies in all types of industries have elected to form strategic alliances and partnerships to complement their accumulation of resources and capabilities and strengthen their competitiveness in domestic and interna
The most common reasons companies enter into strategic alliances are to expedite the development of promising new technologies or products, to overcome deficits in their own technical and manufacturing expertise, to bring together the personnel and expert
Failed Strategic Alliances and Cooperative Partnerships
Most alliances with an objective of technology sharing or providing market access turn out to be temporary, fulfilling their purpose after a few years because the benefits of mutual learning have occ
Alliances are more likely to be long lasting when:
1. They involve collaboration with partners that do not compete directly
2. A trusting relationship has been established
&
3. Both parties conclude that continued collaboration is in their mutual interest
The Strategic Dangers of Relying on Alliances for Essential Resources and Capabilities
The Achilles' heel of alliances and cooperative strategies is becoming dependent on other companies for essential expertise and capabilities. To be a market leader (and perhaps even a serious market contender), a company must ultimately develop its own re
Once a company has selected which of the five basic competitive strategies to employ in its quest for competitive advantage, then it must decide whether and how to supplement its choice of basic competitive strategy approach.
1. Companies have a number of offensive strategy options for improving their market positions and trying to secure a competitive advantage: (1) attacking competitors' weaknesses, (2) offering an equal or better product at a lower price, (3) pursuing susta
Attacking the competitive weaknesses of rivals, adopting and improving on the good ideas of other companies, and deliberately attacking market segments where rivals make a huge profit, are examples of
a. offensive strategies
b. blue ocean strategies
c. ea
a. offensive strategies
Which of the following is not a good target for an offensive attack?
a. market leaders with strong profitability and solid market share
b. market leaders having a weak competitive strategy with regard to cost versus differentiation
c. small local and regi
a. market leaders with strong profitability and solid market share
Reason:
Recall that market leaders should only be attacked when they show signs of vulnerability, such as poor customer service ratings.
REASON:
b. Such a firm has vulnerabilities that cou
In terms of business strategy, a blue ocean is
a. a strategy to improve market share within the existing market space of the industry.
b. a situation where industry boundaries are well-defined and accepted by industry members.
c. a defensive strategy used
d. an untapped market space or industry opportunity.
Note:
WHY NOT:
A: Reason:
Recall that a blue ocean strategy seeks to gain a dramatic and durable competitive advantage by abandoning efforts to beat out competitors in existing markets and inventing a n
Select all that apply
Which of these is/are examples of defensive strategies that can be carried out by a company?
a. Maintain low-priced options to defend against low-price attacks by competitors.
b. Grant volume discounts to distributors to discourage t
a. Maintain low-priced options to defend against low-price attacks by competitors.
b. Grant volume discounts to distributors to discourage them from using other suppliers.
&
d. Introduce new features or otherwise expand on existing products or brands.
Publicly announcing a commitment to maintaining the company's current market share, publicly committing the company to a policy of matching competitors' prices, and maintaining a war chest of cash and marketable securities are examples of
a. signaling cha
a. signaling challengers that strong retaliation is likely in the event of an attack.
Note WHY NOT:
d. implementing strategic offensives to improve market share.
Reason:
The items described do not actively improve market share but do serve as a potential
Which of the following is not an example of a strategic offensive?
a. innovating in order to capture market share from competitors
b. moving quickly to take advantage of a rare opportunity
c. offering lower prices on superior products
d. publicly committi
d. publicly committing to matching competitors' prices
NOTE WHY NOT:
A. innovating in order to capture market share from competitors
Reason:
This indeed is an example of a strategic offensive.
B. moving quickly to take advantage of a rare opportunity
Reas
Challenging a firm that is on the verge of failure is an example of a(n)
defensive strategy.
late-mover strategy.
offensive strategy.
blue ocean strategy.
offensive strategy.
REASON WHY NOT A BLUE OCEAN: A blue ocean strategy seeks to gain a durable competitive advantage by abandoning efforts to beat out competitors in existing markets and, instead, inventing a new industry.
A ______ strategy involves identifying and targeting a new and distinctive market segment rather than competing in established market spaces.
guerrilla warfare
defensive
new product
blue ocean
blue ocean
Which of the following is not true regarding defensive strategies?
They can lower the risk of being attacked by other firms.
They can influence competitors to aim their efforts at other rivals.
They can weaken the impact of attacks that occur by other fir
They usually help enhance a firm's competitive advantage.
NOTE WHY NOTs:
a: defensive strategies can indeed lower the risk of being attacked by other firms.
B: defensive strategies can indeed influence competitors to aim their efforts at other rivals.
C:
Being a first mover is strategically important because
a. it almost always results in a sustainable competitive advantage.
b. it creates significant barriers to entry for other firms and allows first-movers to maintain a monopoly.
c. it leads firms to ide
it leads firms to identify the correct marketing mix to gain a significant share in a new market.
WHY NOT:
A. it almost always results in a sustainable competitive advantage.
Reason:
Recall that competitors with significant design and production resources
Select all that apply
What is/are the goals of signaling competitors that strong retaliation is likely in the event of an attack?
A. to convince challengers to pursue other strategic options
B. to prevent challenges from competitors
C. to pressure competi
...
What value chain segments has Tesla chosen to enter and perform internally?
A. Tesla has chosen to integrate forward in the value chain by owning the distribution, sales, and servicing network.
B. Tesla has chosen to integrate backward in the value chain
C. All of these choices are correct.
Required information
Skip to question
Vertical Integration Strategies
Read the overview below and complete the activities that follow.
Concepts & Connections 6.3 describes how Tesla, an automobile company, uses a vertical integration strategy from compone
D. All of these choices are correct
Has vertical integration strengthened its market position?
a. No. Although their vertical integration strategy is successful, Tesla is still a relatively small automobile company.
b. Yes. Competitors are trying to replicate Tesla's business model.
c. No.
d. Yes. Tesla's vertical integration strategy has enabled it to quickly roll out innovative new products and launch the network that is required for widespread vehicle adaption.
What would be an advantage of a horizontal merger within the industry?
a. Unrelated diversification is an advantage that can be achieved through acquisitions of companies who compete with the same product or service.
b. Acquisitions will increase the cost
d. An advantage of a horizontal merger includes achieving operating economies.
Chapter 6: Exercises for Simulation Participants
If you are participating in a strategy simulation exercise during the academic term, you may be instructed to complete the following exercise.
What are the pros and cons of vertical integration in the indus
a. A vertically integrated company performs value chain activities along more than one stage of the of the overall value chain.
What do you see as pros and cons of outsourcing in the business simulation?
a. Outsourcing involves contracting certain activities to outside specialists who have added resources and expertise.
b. Outsourcing increases a company's risk exposure to changin
a. Outsourcing involves contracting certain activities to outside specialists who have added resources and expertise.
Companies like Amazon, Apple, Facebook, and Google employ all but one of the following offensive actions to complement and supplement the choice of one of the five generic competitive strategies. Which is not an example of an offensive move?
a. focusing o
c. pursuing a market share leadership strategy
Relying heavily on alliances and cooperative strategies can be most difficult when
a. partners in the alliance will not divide profits in an equitable manner.
b. strategic allies and partners become rivals in the marketplace.
c. a company's own priorities
e. one partner becomes dependent on one or more partners for essential expertise and capabilities.
Which of the following is not a typical reason that many alliances do not live up to expectations?
a. inability of partners to work well together
b. emergence of more attractive technological paths
c. changing conditions make the purpose of the alliance o
d. disagreement over how to divide the added market share and profits gained from joint collaboration
Which one of the following statements explaining why merger and acquisition strategies typically fail is true?
a. Merger and acquisition strategies typically fail due to the development of effective integration plans conducive to employee satisfaction.
b.
c. Merger and acquisition strategies typically fail due to a misinterpretation of the cultural differences, like employee disenchantment and low morale, because of differences in management styles and operating procedures, and due to unforeseen challenges
Which of the following is not a potential advantage of backward vertical integration?
a. adds to a company's differentiation capabilities and perhaps achieves a differentiation-based competitive advantage
b. lessens a company's vulnerability to powerful s
d. offers enhanced R&D capability, better opportunity to establish a core competence in supply chain management, more flexibility in incorporating state-of-the-art parts and components, and better overall product quality
Architects of mergers and acquisition strategies typically set sights on which of the following objectives?
a. revamping a company's value chain
b. facilitating the employment of both offensive and defensive strategies
c. creating a more cost-efficient op
e. Two answers are correct: creating a more cost-efficient operation, expanding a company's geographic coverage, and extending a company's business into new product categories, and gaining quick access to new technologies or other resources and competitiv
Which of the following is typically the strategic impetus for forward vertical integration?
a. to charge lower retail prices and thereby attract a bigger, more loyal clientele of customers
b. to make it easier to expand the company's product line
c. to ga
c. to gain better access to end users and better market visibility
Which of the following is not an advantage of outsourcing the performance of certain value chain activities to outsiders?
a. being able to reduce distribution costs by eliminating the use of wholesale distributors and retail dealers and, instead, selling
a. being able to reduce distribution costs by eliminating the use of wholesale distributors and retail dealers and, instead, selling direct to end-users at the company's website
In which of the following situations is being first to initiate a particular move not likely to result in a positive payoff?
a. when potential buyers are skeptical about the benefits of a new technology or product being pioneered by a first mover
b. when
a. when potential buyers are skeptical about the benefits of a new technology or product being pioneered by a first mover
Which of the following instances does not exemplify when a late-mover advantage arises?
a. Property rights protections in the form of patents, copyrights, and trademarks prevent the ready imitation of initial moves.
b. Rapid market evolution gives fast fo
a. Property rights protections in the form of patents, copyrights, and trademarks prevent the ready imitation of initial moves.
Experience indicates that strategic alliances
a. have a high "divorce rate."
b. are generally successful.
c. work well in cooperatively developing new technologies and new products but seldom work well in promoting greater supply chain efficiency.
d. work
a. have a high "divorce rate.
Which of the following is not a strategic disadvantage of vertical integration?
a. It greatly reduces the opportunity for capturing maximum scale economies and achieving the lowest possible operating costs.
b. Vertical integration increases a firm's capit
a. It greatly reduces the opportunity for capturing maximum scale economies and achieving the lowest possible operating costs.
A hit-and-run or guerrilla warfare type of offensive strategy involves
a. random offensive attacks used by a market leader to steal customers away from unsuspecting smaller rivals.
b. undertaking surprise moves to secure an advantageous position in a fast
e. surprising moves by small challengers that have neither the resources nor the market visibility to mount a full-fledged attack on industry leaders.
Companies striving for global market leadership pursue strategic alliances or collaborative partnerships with foreign companies in order to:
a. revamp the global industry value chain, raise needed financial capital from foreign banks, and wage price wars
e. get into critical country markets quickly, gain inside knowledge about unfamiliar markets and cultures, and access valuable skills and competencies that are concentrated in particular geographic locations.
Among the purposes of defensive strategies are to:
a. aggressively retaliate against rivals pursuing offensive strategies and prevent price wars.
b. restrict a competitive attack by a challenger, weaken the impact of any attack that occurs, and influence
b. restrict a competitive attack by a challenger, weaken the impact of any attack that occurs, and influence challengers to aim their offensive efforts at other rivals.
Which of the following is not an example of a company pursuing a blue ocean strategy?
a. Starbucks in the coffee house industry
b. FedEx in overnight package delivery
c. Nordstrom in the retail industry
d. Cirque de Soleil in the live entertainment indust
c. Nordstrom in the retail industry
Which one of the following is not a strategic choice that a company must make to complement and supplement its choice of one of the five generic competitive strategies?
a. whether and when to go on the offensive and initiate aggressive strategic moves to
c. whether to employ a low-cost strategy, a differentiation strategy, or a hybrid strategy
First-mover advantages are unlikely to be present in which one of the following instances?
a. when first-time customers remain strongly loyal to pioneering firms in making repeat purchases
b. when rapid market evolution (due to fast-paced changes in techn
b. when rapid market evolution (due to fast-paced changes in technology or buyer preferences) presents opportunities to leapfrog a first-mover's products with more attractive next-version products
Bonobos's Guideshop store concept enables men to have a personalized shopping experience in which they can try on clothing in any size or color and then have it delivered the next day to their home or office. This fashion retail concept is a good example
c. an offensive strategy to seek uncharted waters and compete in blue oceans.
iRobot
iRobot in 2019: Can the Company Keep the Magic?
This new and interesting case should generate considerable student interest and provoke lively, interesting class discussion about the strategy of a very profitable, single product, a global company w
a. The driving force of innovation and the resulting advanced features appeared to have the greatest influence on increasing demand in the robotic vacuum industry. YES
b. Driving forces in the robotic vacuum industry include slow demand, shrinking differe
The next few questions will walk you through a swot analysis. What are iRobot's competitive and resource strengths, and what opportunities do you identify? What notable weaknesses and threats are facing the company? Assess the combined impact of these for
SKIP
Which of the following accurately characterize iRobot's resource strengths and competitive capabilities?
Select "yes" for the strengths and capabilities that are accurate and choose "no" for those that are not.
a. iRobot enjoys a liquid financial position
a. iRobot enjoys a liquid financial position, a large amount of working capital, and ample financial resources to sustain its growth. YES
b. iRobot's brand is not as recognizable as its closest competitor. NO
c. iRobot has accumulated a large portfolio of
Which of the following accurately characterize iRobot's resource weaknesses and competitive liabilities?
Select "yes" for the resource weaknesses that are accurate and choose "no" for those that are not.
a. iRobot has an increasing number of competitors.
a. iRobot has an increasing number of competitors.. YES
b. The company has focused on only one product.. YES
c. iRobot has introduced many products into the market.. NO
d. iRobot faces many barriers to enter international markets.. NO
e. iRobot faces the
Which of the following accurately characterize iRobot's market opportunities?
Select "yes" for the market opportunities that are accurate and choose "no" for those that are not.
a. increasing buyer demand for robotic vacuums
b. adopting a late mover strat
a. increasing buyer demand for robotic vacuums. YES
b. adopting a late mover strategy to learn from the failures of competitors. NO
c. alliances or joint ventures with companies such as Apple, Amazon, and Google to monetize data obtained by iRobot devices
Which of the following represent external threats to iRobot's future well-being?
Select "yes" for the external threats that are accurate and choose "no" for those that are not.
a. public concerns and negative publicity about data-collecting vacuums and va
a. public concerns and negative publicity about data-collecting vacuums and vacuums connected to the internet and the "smart home". YES
b. aggressive competitive pressure in the Chinese market. YES
c. increasing strength of competition among industry riva
Considering all four SWOT lists, which of the following accurately characterize the attractiveness of iRobot's overall situation?
Select "yes" for the items that characterize the attractiveness of the situation and choose "no" for those that do not.
a. iR
a. iRobot has a winning strategy, a strong financial position, and a well-known brand name in a growing market.. YES
b. iRobot has a significant amount of proprietary technology and a large number of patents that offer the company good protection against
Describe iRobot's business strategy. Does it appear well-suited for the company in 2019?
Select "yes" for those statements below that are accurate and choose "no" for those that are not.
a. iRobot's business strategy has a focus on globalization and conti
a. iRobot's business strategy has a focus on globalization and continuation of Roomba's leadership in the consumer robotic industry. . YES
b. iRobot's business strategy includes a focus on unrelated diversification. . NO
c. iRobot focuses its business str
iRobot has the largest market share in a growing market, but does the company have a competitive advantage? A sustainable advantage? What additional strategies could the company adopt to secure or sustain competitive advantage?
Select "yes" for those stat
a. iRobot has a competitive advantage largely because of its first-mover advantage, increasing global scope of operations, and strategy execution capabilities. . YES
b. iRobot has built competitively valuable expertise and capabilities, plus a volume adva
Which of iRobot's competitors presents the greatest competitive threat? Why? Support your answer.
Select "yes" for those statements below that are accurate and choose "no" for those that are not.
a. A top competitor that presents a competitive threat is E
a. A top competitor that presents a competitive threat is Ecovacs, which is one of the top three brands of in-home robots worldwide and has 65 percent of the market in China.. YES
b. SharkNinja has presented a competitive threat to iRobot based on its low
From the provided financial data, what is iRobot's financial condition? What do the financial statements suggest about the company's future? If present trends continue, where do you see iRobot in the next few years?
Select "yes" for those statements below
a. The company had 17 percent of its assets in cash in 2018, and 19 percent in 2017, supporting the company's ability to pay current debts using cash and cash equivalents.. YES
b. iRobot's gross profit margin steadily increased from 46 percent in 2014 to
What advice would you offer to CEO Angle to improve iRobot's market position and profitability? Support your decision.
There are spaces for up to six action recommendations and supporting justifications. Each recommended action must be supported with conv
a1. Action Recommendation:
a2. Supporting Justification:
b1. Action Recommendation:
b2. Supporting Justification:
c1. Action Recommendation:
c2. Supporting Justification:
d1. Action Recommendation:
d2. Supporting Justification:
e1. Action Recommendation:
University of South Alabama
John E. Gamble
Texas A&M University - Corpus Christi
Having the largest market share in a rapidly growing industry, controlling over 75 percent of global revenue, and experiencing record growth and sales in the latest fiscal ye
However, for the management team at iRobot, those metrics only served to help fine-tune and develop strategy to improve the company's performance and defend against several looming competitive threats. The company's focus was the design and manufacture of
Although iRobot's recent past had been magical, the company faced significant headwinds. Global penetration of robotic vacuums was about 10 percent, and iRobot had about 60 percent market share in 2017, but several serious competitors had emerged, and in
Company
iRobot, the leading global consumer robot company, was founded in 1990 by MIT roboticists Colin Angle, Helen Greiner, and Rodney Brooks, who shared the vision of making practical robots a reality. The company's first robot was the Genghis, designe
In November 2005, iRobot became the first robot manufacturer to have a successful public stock offering. The company sold 4.3 million shares of stock at $24.00 and raised $103 million. Also in 2005, the Scooba - a floor washing robot, - was launched, foll
In 2010, iRobot's Seaglider maritime robot helped monitor the oil leakage following the BP Deepwater Horizon oil spill in the Gulf of Mexico. The next year, 2011, the company introduced an improved Scooba floor washing robot, a new series of Roomba dry va
A new floor scrubbing robot and a vacuuming robot that included intelligent visual mapping and cloud connected app control were launched in 2015. In 2016, the Braava jet mopping robot was introduced, and the company opened an office in Shanghai, China, wh
The iRobot Product Line in 2019:
i7 and e5 iRobot debuted new Roomba vacuums in 2019 including the i7 and e5. The Roomba i7 is the only robotic vacuum that can empty its own dirt bin, and with its Imprint Smart Mapping, the only smart vacuum that can be s
800 Series Roomba Vacuums:
The Roomba 800 series robots had an EROForce technology, which included brushless, counter-rotating extractors that increase suction for better performance than bristle brushes while requiring less maintenance than previous Room
Braava Automatic Floor Mopping Robots:
The Braava robots were designed for hard surface floors and used a different cleaning approach than did Roomba models. The Braava 380t robot, priced at $299 in February 2018, automatically dusted and damp-mopped hard
The Robotic Vacuum Industry:
According to a market report by Persistence Market Research, the residential robotic vacuum cleaner (RVS) market was estimated at $1.3 billion at year-end 2015 and was expected to increase at an annual rate of 12 percent to re
iRobot's Strategy:
The company's offensive strategy going into 2019 was to maintain Roomba's leadership in the consumer robotic industry while positioning the company as a strategic player in the emerging smart home. iRobot believed that it was critical t
iRobot's Technology Focus:
iRobot believed that a better robot lives in the world by moving around and acting more intelligently in its environment, by cooperating with the people it serves more compellingly, and by physically interacting more effectively
The Smart Home: An Ecosystem of Robots Working Together:
iRobot imagined a home that maintained itself and miraculously did just the right things, anticipating its owners' needs. The smart home would be built on an ecosystem of connected and coordinated r
iRobot Ventures:
As part of iRobot's Corporate Development team, the iRobot Ventures group fostered engagement with the entrepreneurs and early stage companies driving innovation in consumer robotics and in the connected hardware ecosystem. iRobot underst
iRobot Ventures supported teams that were passionate about using technology to solve hard problems. The company invested in applications that were consistent with its core business or represented new market opportunities, and participated in the early sta
iRobot's Financial Performance:
iRobot enjoyed a meteoric ascent in its financial performance between fiscal year 2016 and fiscal year 2018. Revenue had grown from about $661 million in fiscal 2016 to approximately $1.1 billion in fiscal 2018. The company
The company's balance sheets for fiscal year 2017 and fiscal year 2018 are presented in Exhibit 4.
Exhibit 4
The 10 year performance of its common shares between June 2009 and May 2019 is shown in Exhibit 5
Exhibit 5
iRobot's Rivals in the Floor Care Market:
The floor care market was crowded with big-name competitors. However, the iRobot Roomba models placed number two, three, six, and seven in the NPD Retail Tracking Service poll in 2017. The iRobot Roombas were the
Eufy RoboVac:
In January 2019, Consumer Reports selected the Eufy RoboVac11S, which sold for $224.99 on Amazon in January 2019, as the Second Best Robovac, and the Eufy 30C, which sold for $299.00 on Amazon, as the third best. In January 2018, PC Magazine
Neato Robotics:
The Neato Botvac D5, which sold for $500 on Amazon in late 2017, was chosen fourth best RVC by Consumer Reports in November 2017. The Dyson Botvac Connected and Botvac Connected D were chosen fourth and fifth best, respectively, by PC Maga
Dyson:
Dyson Technology, an established British manufacturer of consumer electronics, lighting, and traditional vacuum cleaners, entered the RVC market with the Dyson 360Eye, which was the result of 17 years of RVC development by the company. The new Dyso
LG:
LG is South Korean multinational conglomerate that had begun manufacturing robotic vacuums in 2001 with the Robotking. The LG Hom-Bot CR5765GD automatically adjusts suction based on the floor that is is cleaning, and is operated by a manufacturer's ap
Shark:
Shark was one of several brands developed by SharkNinja Operating, LLC, a Massachusetts based developer of cleaning solutions and household appliances. The Shark ION ROBOT 750 was Wi-Fi capable and could be controlled with a mobile app or by voice
Samsung:
Samsung, the South Korean multinational electronics and appliance manufacturer, was a late entrant into the RVC market. The newest Samsung robot models- POWERbot - are Wi-Fi capable and map the house in which they are used. The POWERbot can be co
Ecovacs:
Ecovacs, founded in 1998, is a global consumer robotics company based in China, whose focus is helping consumers "Live Smart, Enjoy Life" with their line of products to help with daily household chores. The company's product line comprises DEEBOT
Competitive Risks:
A significant risk for Roomba was the competitors' cheaper cleaning products were what consumers really wanted. In May 2016, the New York Times' Sweethome blog ousted the $375 Roomba 690 as it most recommended robovac in favor of the $2
Privacy Concerns:
iRobot's higher-end Roomba robotic vacuums collected data that identified the walls of rooms and furniture locations as they cleaned. This data enabled the Roomba to avoid collision with furniture, but it also created a map of the home t
iRobot was proactive in addressing the privacy issue and placed the following on their irobot.com website:
"iRobot does not sell data as our customers always come first. We will never violate their trust by selling or misusing customer related data, inclu
Smart home lighting, thermostats, and security cameras were already on the market, but Colin Angle, Chief Executive of Roomba maker iRobot Corp., said they were still dumb when it came to understanding their physical environment. He thought the mapping te
Looking ahead, the company believed robots had the mapping capabilities they provide would be key to enabling the smart home. For context, the concept of rooms as an organizing concept is often used. Rooms have lighting, heating, TVs, stereos, blinds, and
iRobot in 2019
In Feb 2019, iRobot's Chairman and CEO Colin Angle announced the company's fourth quarter financial results, stating, "We had a phenomenal finish to 2018, exceeding both our fourth-quarter and full-year expectations for revenue growth and p
Chairman Angle also set out iRobot's plans and financial expectations for 2019. The company expected full year 2019 revenue of $1.28 to $1.31 billion (which would be a year over year growth of 17 percent to 20 percent), operating income of $108 to $118 mi
CH 7 Strategies for Competing in International Markets
Any company that aspires to industry leadership in the 21st century must think in terms of global, not domestic, market leadership. The world economy is globalizing at an accelerating pace as countrie
Identify the primary reasons companies choose to compete in international markets:
A company may opt to expand outside domestic market for any of the five major reasons:
1. To gain access to new customers. Expanding into foreign markets offers potential f
Factors That Shape Strategy Choice in International Markets
Understand why and how differing market conditions across countries influence a company's strategy choices in international markets.
Four important factors shape a company's strategic approach to
Cross-Country Differences in Demographic, Cultural, and Market Conditions
Buyer tastes for a particular product or service sometimes differ substantially from country to country. For example, ice cream flavors such as eel, shark fin, and dried shrimp appe
Understandably differing population sizes, income levels and levels, and other demographic factors give rise to considerable differences in market size and growth rates from country to country. In emerging markets such as India, China, Brazil, and Malaysi
Opportunities for Location Based Cost Advantages:
Differences from country to country in wage rates, worker productivity, energy costs, environmental regulations, tax rates, inflation rates, and the like are often so big that a company's operating costs a
Industry Cluster Knowledge Sharing Opportunities
There are advantages available to companies operating in a location containing a cluster of related industries, including others within the same value chain system (e.g., suppliers of components and equipme
The Risks of Adverse Exchange Rate Shifts
When companies produce and market their products and services in many different countries, they are subject to the impacts of sometime favorable and sometimes unfavorable changes in currency exchange rates. The ra
The Impact of Government Policies on the Business Climate in Host Countries
National governments enact all kinds of measures affecting business conditions and operation of foreign companies in their markets. It matters whether these measures create a favo
A country's business climate is also a function of the political and economic risks associated with operating within its borders. Political Risks have to do with the instability of weak governments, the likelihood of new onerous legislation or regulations
Core Concept
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 rig
Strategy Options for Entering Foreign Markets
Identify the five general modes of entry into foreign markets:
A company choosing to expand outside its domestic market may elect one of the following five general modes of entry into a foreign market:
1. Main
Export Strategies:
Using domestic plants as a production base for exporting goods to foreign markets is an excellent initial strategy for pursuing international sales. It is a conservative way to test the international waters. The amount of capital needed
Licensing Strategies:
Licensing as an entry strategy makes sense when a firm with valuable technical know how or a unique patented product has neither the internal organizational capability nor the resources to enter foreign markets. Licensing also has th
Franchising Strategies:
While licensing works well for manufacturers and owners of proprietary technology, franchising is often better suited to the global expansion efforts of service and retailing enterprises. McDonald's, Yum! Brands (the parent of Pizz
Foreign Subsidiary Strategies
While exporting, licensing, and franchising rely upon the resources and capabilities of allies in international markets to deliver goods or services to buyers, companies pursuing international expansion may elect to take resp
Alliance and Joint Venture Strategies:
Strategic alliances, joint ventures, and other cooperative agreements with foreign companies are a favorite and potentially fruitful means for entering a foreign market or strengthening a firm's competitiveness in wo
A fifth benefit is that cross-border allies can direct their competitive energies more toward mutual rivals and less toward one another; teaming up may help them close the gap on leading companies.
A sixth driver of cross-border alliances comes into play
Concepts & Connections 7.1 discusses how Walgreens has expanded internationally through an alliance followed by merger with U.K.-based Alliance Boots.
Walgreens pharmacy began in 1901 as a single store on the South Side of Chicago, and grew to become the largest chain of pharmacy retailers in America. Walgreens was an early pioneer of the "self-service" pharmacy and found success by moving quickly to bu
The Risks of Strategic Alliances with Foreign Partners
Alliances and joint ventures with foreign partners have their pitfalls, however. Cross-border allies typically have to overcome language and cultural barriers and figure out how to deal with diverse (
Even if the alliance becomes a win-win proposition for both parties, there is the danger of becoming overly dependent on foreign partners for essential expertise and competitive capabilities. If a company is aiming for global market leadership and needs t
International Strategy: The Three Principal Options
Identify the three main options for tailoring a company's international strategy to cross-country differences in market conditions and buyer preferences.
Broadly speaking, a company's international strat
A company's Three Principal Strategic Options for Competing Internationally:
Strategic Posturing & Ways to deal with National Variations in Buyer Preferences and Market Conditions.
1. Multidomestic Strategy (Think Local, Act Local): Employ localized strat
Core Concept: A company's international strategy is its strategy for competing in two or more countries simultaneously.
Multidomestic Strategy - A Think Local, Act Local Approach to Strategy Making:
A mutlidomestic strategy or think local, act local approach to strategy making is essential when there are significant country to country differences in distribution channels a
Core Concept:
A multidomestic strategy calls for varying a company's product offering and competitive approach from country to country in an effort to be responsive to significant cross-country differences in customer preferences, buyer purchasing habits,
However, think local, act local strategies have two big drawbacks:
1. They hinder transfer a company's competencies and resources across country boundaries because the strategies different host countries can be grounded in varying competencies and capabil
Global Strategy - A Think Global, Act Global Approach to Strategy Making
While multidomestic strategies are best suited for industries where a fairly high degree of local responsiveness is important, global strategies are best suited for globally standard
Core Concept:
Global Strategies employ the same basic competitive approach in all countries where a company operates and are best suited to industries that are globally standardized in terms of customer preferences, buyer purchasing habits, distribution c
Ford's global design strategy is a move toward a think global, act global strategy by the company and involves the development and production of standardized models with country-specific modifications limited primarily to what is required to meet local co
Transnational Strategy - A Think GLobal, Act Local Approach to Strategy Making:
A transnational strategy is a think global, act local approach to developing strategy that accommodates cross-country variations in buyer tastes, local customs, and market con
Concepts and Connections 7.2 explains how Four Seasons Hotels has been able to compete successfully on the basis of transnational strategy.
Four Seasons Hotel is a Toronto, Canada - based manager of luxury hotel properties. With nearly 100 properties loca
When moving into a new market, F.S. always seeks out a local capital partner. The understanding of local custom and business relationships this financier brings is critical to the process of developing a new Four Seasons hotel. FS also insists on hiring a
Core Concept:
A transnational strategy is a think global, act local approach to strategy making that involves employing essentially the same strategic theme (Low-cost, differentiation, focused, best-cost) in all country markets while allowing some country
As a rule, most companies that operate multinationally endeavor to employ as global a strategy as customer needs and market conditions permit. Electronic Arts has two major design studios- one in Vancouver, BC and the in Los Angeles - and smaller design s
Using International Operations to Improve Overall Competitiveness:
Explain how multinational companies are able to use international operations to improve overall competitiveness.
A firm can gain competitive advantage by expanding outside its domestic mar
When to Concentrate Internal Processes in a Few Locations:
Companies tend to concentrate their activities in a limited number of locations in the following circumstances:
* When the costs of manufacturing or other activities are significantly lower in som
Companies that compete multinationally can pursue competitive advantage in world markets by locating their value chain activities in which nations prove most advantageous.
When to Disperse Internal Processes Across Many Locations
There are several instances when dispersing a process is more advantageous than concentrating it in a single location. Buyer-related activities, such as distribution to dealers, sales and advertisi
Using Cross-Border Coordination to Build Competitive Advantage
Multinational and global competitors are able to coordinate activities across different countries to build a competitive advantage. If a firm learns how to assemble its product more efficientl
Strategies for Competing in the Markets of Developing Countries
Recognize the unique characteristics of competing in developing-country markets.
Companies racing for global leadership have to consider competing in developing-economy markets such as China,
Strategy Options for Competing Developing Country Markets:
Several strategy options for tailoring a company's strategy to fit the sometime unusual or challenging circumstances presented in developing country markets include:
* Prepare to compete on the ba
Company experiences in entering developing markets such as China, India, Russia, and Brazil indicate that profitability seldom comes quickly or easily. Building a market for the company's products can often turn into a long term process that involves reed
Select all that apply
Which of the following are reasons why a company would expand outside its domestic market to international locations?
a. to solidify market share without entering foreign markets
b. to gain access to new customers
c. to achieve lower
b. to gain access to new customers
c. to achieve lower costs
d. to gain access to resources in foreign markets
Select all that apply
For a company operating in multiple international locations, customizing product offerings in each different product market can result in which of the following?
a. an increase in production and distribution costs
b. greater scale ec
a. an increase in production and distribution costs
d. more effectively matching the tastes and preferences of local buyers
Select all that apply
Which of the following countries have higher hourly compensation for manufacturing than the United States, as of 2015?
a. Japan
b. China
c. Germany
d. Norway
a. Japan
Notes:
For example, in 2016, hourly compensation for manufacturing workers average about $1.60 in India, $4.11 in China, $3.91 in Mexico, $9.82 in Taiwan, $8.60 in Hungary, $7.98 in Brazil, $10.96 in Portugal, $22.98 in South Korea, $26.46 in Jap
Exporters of goods to foreign countries gain in competitiveness when the currency of the country in which the goods are manufactured is
a. strong.
b. gold.
c. paper.
d. weak.
d. weak.
The instability of weak governments or the potential for government leaders who are hostile to foreign-owned businesses are among the ______ risks that companies faces.
a. economic
b. domestic
c. national
d. political
d. political
When domestic sales volume is too small to fully capture economies of _______________, companies are sometimes driven to sell abroad.
SCALE
Select all that apply
Which of the following strategic options exist for a company entering a foreign market?
A. home-based production with exporting to a foreign market
b. establishing a strategic alliance in a foreign market
c. establishing a subsidiary
A. home-based production with exporting to a foreign market
b. establishing a strategic alliance in a foreign market
c. establishing a subsidiary in a foreign market
e. franchising or licensing in a foreign market
One of the big strategic issues in expanding internationally is
a. adapting to language differences.
b. determining whether to employ an international or global strategy in the early stages of entering a company's largest foreign markets.
c. customizing p
c. customizing products in each country market to match preferences of local buyers versus competitive pressure to keep costs down.
Select all that apply
The location of a company's production, distribution, and customer service activities can significantly affect operating costs and profitability due to country-to-country differences in which of the following?
a. environmental regula
a. environmental regulations
c. wage rates
d. tax rates
A significant risk in the desirability of a country for low-cost manufacturing is an adverse change in the country's currency ___________ rate. (Remember to fill the blank with only one word.)
EXCHANGE
Of the various international expansion strategies, the most conservative way to "test the international waters" as a conservative mode of entry is
a. licensing.
b. creating a foreign
subsidiary.
c. exporting.
d. franchising.
c. exporting.
Select all that apply
Which of the following are examples of government policies that can negatively affect the operations of foreign companies in their markets?
a. charging import tariffs and quotas
b. lifting a ban that requires local ownership stakes i
a. charging import tariffs and quotas
c. requiring prior approval of capital spending projects
d. specifying that products contain a certain percentage of locally produced parts and components
True or false: A company can maintain a national, one-country production base and expand its domestic market by exporting.
True or False
True
Reason:
Exporting is one of several strategy options for entering foreign markets.
Select all that apply
Which of the following are considered advantages of licensing?
a. allows additional income from royalties in foreign markets
b. eliminates risk associated with committing resources in risky foreign markets
c. eliminates cost of enter
a. allows additional income from royalties in foreign markets
b. eliminates risk associated with committing resources in risky foreign markets
c. eliminates cost of entering foreign markets
A key problem with _____ as a foreign entry strategy is whether to allow the foreign company to tailor products to tastes and preferences of local buyers versus insisting on worldwide standardization of product regardless of local expectations.
Franchising
Franchising strategies are often better suited to the global expansion efforts of service and retailing enterprises.
Advantages:
�Franchisee bears many of the costs and risks of establishing foreign locations.
�Franchisor must expend only the
Which of the following countries have higher hourly compensation for manufacturing than the United States, as of 2015?
a. Norway
b. Germany
c. China
d. Japan
c. China
In order to minimize its direct investments in foreign countries, companies pursue a strategy of:
a. establishing a foreign subsidiary.
b. entering into a joint venture with a foreign company.
c. home-based production and exports.
d. franchising.
c. home-based production and exports.
NOTE WHY NOT:
All of these require a direct investment in the foreign country.
b. entering into a joint venture with a foreign company.
c. home-based production and exports.
d. franchising.
When firms want direct control over all aspects of value chain activities in the foreign market, they
a. license.
b. establish a subsidiary.
c. export.
d. create franchises.
b. establish a subsidiary.
NOTE:
Reason:
Under licensing, a firm allows a separate company to make its products and does not have direct control.
Export-minded firms in industrialized nations have historically sought alliances with firms in less-developed countries to import and market products locally, due to
a. the low cost of tariffs in less-developed countries.
b. limits on exports.
c. a lack o
d. local governmental regulations.
NOTE:
WHY NOT:
a. the low cost of tariffs in less-developed countries.... This would to be a reason to form alliances with the local firms
When a company has valuable technical know-how or a unique patented product but neither the international organizational capability nor resources to enter a foreign market on its own, it can pursue a(n) _______ strategy.
a. foreign subsidiary strategies
b
d. licensing
Select all that apply
Which of the following are considered advantages of franchising as a strategic option for foreign entry?
a. The franchisee bears most of the costs and risks versus the franchisor.
b. Franchisees are almost always highly committed to
a. The franchisee bears most of the costs and risks versus the franchisor.
c. Franchising is a more conservative and less risky option than establishing a subsidiary or joint venture.
d. Compared to licensing, franchising works better for global expansion
True or false: Strategic alliances are more effective in establishing new opportunities than achieving sustained global market leaderships.
TRUE
Select all that apply
Under which of the following conditions does it make more sense to enter a foreign country by establishing a subsidiary from scratch versus acquiring a foreign company?
a. when a start-up subsidiary has the ability to gain good distr
a. when a start-up subsidiary has the ability to gain good distribution access
b. when a start-up subsidiary will have the size, cost structure, and resources to compete head-to-head against local rivals
c. when adding new production capacity will not adv
When there are significant country-to-country differences in customer preferences and buying habits and significant cross-country differences in distribution channels and marketing, a ______ strategy is essential.
a. transnational
b. pan-country
c. multid
c. multidomestic
NOTE:
a. transnational
Reason:
The transnational approach of standardizing would not work In this situation.
Select all that apply
Which of the following are among the advantages of strategic alliances and joint ventures?
a. They are the best foreign entry option for a company that wishes to maintain complete control over value chain activities.
b. They offer fl
b. They offer flexibility in allowing a company to readily disengage if need be.
d. They allow a company to preserve its independence and avoid using significant financial resources to fund acquisitions.
Select all that apply
Which of the following are considered advantages of licensing?
a. eliminates cost of entering foreign markets
b. eliminates risk associated with committing resources in risky foreign markets
c. allows additional income from royalties
eliminates cost of entering foreign markets
eliminates risk associated with committing resources in risky foreign markets
allows additional income from royalties in foreign markets
Companies that compete in ______ industries are best suited for a global strategy..
manufacturing
globally standardized
transnationally consistent
locally differentiated
globally standardized
Select all that apply
Which of the following are characteristic of strategic alliances and joint ventures among foreign partners?
diverse and conflicting operating practices may be observed
differences in corporate values and ethics may lead to tension
co
diverse and conflicting operating practices may be observed
differences in corporate values and ethics may lead to tension
communication, trust-building, and coordination costs may be high
Select all that apply
Which of the following are considered disadvantages of a multidomestic strategy?
It does not promote building a single, unified competitive advantage, especially one that is cost-based.
It inhibits delegation to host-country managers
It does not promote building a single, unified competitive advantage, especially one that is cost-based.
It hinders transfer of a company's competencies and resources across country boundaries.
Export-minded firms in industrialized nations have historically sought alliances with firms in less-developed countries to import and market products locally, due to
local governmental regulations.
the low cost of tariffs in less-developed countries.
limi
local governmental regulations.
When a company has valuable technical know-how or a unique patented product but neither the international organizational capability nor resources to enter a foreign market on its own, it can pursue a(n) _______ strategy.
host-country manufacturing
licensi
licensing
Select all that apply
Which of the following actions are taken by companies pursing a global strategy in international competition?
Coordinate strategic actions from central headquarters
Emphasize building a global brand name and cross-border transfer of
Emphasize building a global brand name and cross-border transfer of ideas, products, and capabilities
Pursue the same basic competitive strategy (low-cost, differentiation, best-cost, or focused) in all country markets
True or false:
Strategic alliances are more effective in establishing new opportunities than achieving sustained global market leaderships.
True
When there are significant country-to-country differences in customer preferences and buying habits and significant cross-country differences in distribution channels and marketing, a ______ strategy is essential.
Multiple choice question.
transnational
f
multidomestic
Select all that apply
Which of the following are among the advantages of strategic alliances and joint ventures?
They are the best foreign entry option for a company that wishes to maintain complete control over value chain activities.
They offer flexibil
They offer flexibility in allowing a company to readily disengage if need be.
They allow a company to preserve its independence and avoid using significant financial resources to fund acquisitions.
Which of these does not accurately describe a transnational approach?
All strategic actions are coordinated from central headquarters.
Local managers are given the latitude to incorporate country-specific product variations to satisfy local buyers.
The co
All strategic actions are coordinated from central headquarters.
Select all that apply
Which of the following are characteristic of strategic alliances and joint ventures among foreign partners?
diverse and conflicting operating practices may be observed
problems due to language and cultural barriers tend not to exist
diverse and conflicting operating practices may be observed
differences in corporate values and ethics may lead to tension
communication, trust-building, and coordination costs may be high
Select all that apply
Which of the following are considered disadvantages of a multidomestic strategy?
It does not promote building a single, unified competitive advantage, especially one that is cost-based.
It often results in a "generic" approach to int
It does not promote building a single, unified competitive advantage, especially one that is cost-based.
It hinders transfer of a company's competencies and resources across country boundaries.
Under which of the following conditions would it be advisable for a company to concentrate internal processes in a limited number of international locations?
when manufacturing costs are significantly lower in certain geographic locations
when the learnin
when manufacturing costs are significantly lower in certain geographic locations
when certain locations have superior resources or other valuable advantages
when there are significant scale economies
A transnational strategy is also called a ______ approach.
think global, act local
think local, act local
think global, act global
think local, act global
think global, act local
Select all that apply
Under which of the following conditions is it desirable to disperse internal processes across many international locations?
when buyer-related activities need to be located close to buyers
when there are low transportation costs that
when buyer-related activities need to be located close to buyers
when there are high cross-border trade barriers
when diseconomies of large size make it expensive to operate from a single location
Select all that apply
In response to changes in wage rates, energy costs, tariffs, or quotas, companies do which of the following?
use locations in different countries to build competitive advantage
engage in cross-border coordination to build competitive
use locations in different countries to build competitive advantage
engage in cross-border coordination to build competitive advantage
shift production from a plant in one country to a plant in another country
Competing in developing-country markets, such as China, India, Russia, and Mexico,
should be avoided by international companies due to very high risk.
is relatively easy due the similarity of cultural norms among the various countries.
is not a desirable
is important for companies that wish to attain global leadership.
NOTE:
is relatively easy due the similarity of cultural norms among the various countries..... Reason:
The opportunities for growth are huge in developing countries, especially as their eco
When there is a steep learning curve associated with performing an internal activity, a company operating internationally should
use a multidomestic approach to manufacturing, delegating operations to local country managers to determine manufacturing proc
concentrate production in only a few locations to increase the experience of the plant's workforce as rapidly as possible.
NOTE:
disperse production over many locations to take advantage of multiple cross-cultural resources in moving up the learning curve
A ______ strategy involves employing essentially the same strategic theme (low-cost, differentiation, focused, best-cost) in all country markets, while allowing some country-to-country customization to fit local market conditions.
multidomestic
global
loc
transnational
NOTE:
WHY NOT global: a global strategy is not designed to allow country-to-country customization.
To hedge against risks of fluctuating exchange rates and adverse political developments, it would be strategically advantageous for a transnational company to
carry out value chain activities in only a few locations.
disperse internal processes across man
disperse internal processes across many countries.
NOTE WHY NOTS:
a. carry out value chain activities in only a few locations... Reason:
Limiting the number of countries increases the overall effect of adverse developments in just one or two of the countr
Strategic Choices in International Markets
Assume you are in charge of developing the strategy for a multinational company selling products in some 50 countries around the world. One issue you face is whether to employ a multidomestic, transnational, or g
A global strategy would work best since the same phone will be offered and most likely will require only very minor deviations from one country to another.
If your company's product is dry soup mixes and canned soups, which strategy for competing internationally would your company most likely employ�a multidomestic strategy, a transnational strategy, or a global strategy?
A global strategy is advisable in or
A transnational approach is appropriate. Country-to-country customization to accommodate differences in taste preferences would most likely be necessary.
If your company's product is large home appliances such as washing machines, ranges, ovens, and refrigerators, which strategy for competing internationally would your company most likely employ�a multidomestic strategy, a transnational strategy, or a glob
A multidomestic strategy is recommended because of significant country-to-country differences in customer preferences, buying habits, and government regulations in the large appliance industry.
If your company's product is apparel and footwear, would a multidomestic strategy, a transnational strategy, or a global strategy seem to have more appeal?
A multidomestic strategy is advised because of the need for manufacturers to utilize the same marke
A transnational strategy is preferred since apparel and footwear items can reflect global fashion trends while being customized as needed because of country-to-country differences in customer preferences and tastes.
The primary reasons that companies opt to expand into foreign markets are to
returns on investment, broaden their product lines, avoid tariffs and trade restrictions, and escape dealing with strong labor unions. gain access to new customers, achieve lower
gain access to new customers, achieve lower costs, enhance the company's competitiveness, capitalize on core competencies, and spread business risk across a wider market base.
Item 6
Item 6 4.16 points
Which of the following is the biggest strategic issue when competing in the markets of foreign countries?
Multiple Choice determining whether to standardize or customize the company's offerings. Correct learning about the regulat
determining whether to standardize or customize the company's offerings.
Item 7
Item 7 4.16 points
Social media giant Facebook Inc. decided to expand outside its home U.S. market in order to
Multiple Choice gain access to new customers for the company's products/services. Correct increase its business risk by competing with lo
gain access to new customers for the company's products/services.
Which one of the following statements concerning the impact of fluctuating exchange rates on companies competing in foreign markets is not true?
Multiple Choice Fluctuating exchange rates pose significant risks to a company's competitiveness in foreign ma
Domestic companies under pressure from lower-cost imports are hurt even more when their government's currency grows weaker in relation to the currencies of the countries where the imported goods are being made.
Item 9
Item 9 4.16 points
One of the biggest strategic challenges to competing in the international arena is
Multiple Choice whether to offer a mostly standardized product worldwide or whether to customize the company's offerings in each different country
whether to offer a mostly standardized product worldwide or whether to customize the company's offerings in each different country market to match the tastes and preferences of local buyers
The advantages of manufacturing goods in a particular country and exporting them to foreign markets
Multiple Choice are seriously compromised by the potential for local government officials to raise tariffs on the imports of foreign-made goods into their
are weakened when that country's currency grows stronger relative to the currencies of the countries where the output is being sold.
Using domestic plants as a production base for exporting goods to selected foreign country markets
Multiple Choice is usually a superior approach to competing in international markets. can be a competitively successful strategy when a company is focusing
can be an excellent initial strategy to pursue international sales.
Item 12
Item 12 4.16 points
Which of the following is not an advantage of utilizing a licensing strategy to participate in foreign markets?
Multiple Choice the ability to shift the costs and risks to the licensee the ability to generate income from royalt
the ability to safeguard the company's technical know-how or patents
Item 13
Item 13 4.16 points
The advantages of using a franchising strategy to pursue opportunities in foreign markets include
Multiple Choice being particularly well-suited to the international expansion efforts of companies with global strategies. having
having franchisees bear most of the costs and risks of establishing foreign locations and requiring the franchiser to expend only the resources to recruit, train, and support foreign franchisees.
Item 14
Item 14 4.16 points
A "think local, act local" multidomestic type of strategy
Multiple Choice focuses on the same basic competitive approach (low-cost, differentiation, best-cost, focused) in all countries where the firm does business. Correct alw
focuses on the same basic competitive approach (low-cost, differentiation, best-cost, focused) in all countries where the firm does business.
The multidomestic strategy of "think local, act local"
Multiple Choice is most appropriate when the need for local responsiveness is low. avoids host country ownership requirements and import quotas. facilitates the transfer of a company's capabilities, k
becomes more appealing when country-to-country differences in buyer tastes, cultural traditions, and market conditions vary significantly.
A "think global, act global" approach to strategy making is preferable to a "think local, act local" approach when
Multiple Choice customer preferences vary significantly from country to country. it is necessary to delegate strategy making to local manage
country-to-country differences are small enough to be accommodated with the framework of a mostly uniform global strategy.
Item 17
Item 17 4.16 points
The chief difference between a "think global, act global" and a "think global, act local" approach to crafting a global strategy is that
Multiple Choice a "think global, act local" approach involves charging much different pric
local managers are given more latitude in adapting the global strategy approach as may be needed to accommodate local buyer preferences and be responsive to local market and competitive conditions.
Item 18
Item 18 4.16 points
V�ronique is the CEO of a wind power energy company headquartered in Toulouse, France. Identify which company model she would emulate to craft a multidomestic strategy.
Multiple Choice Tiffany & Co., an American luxury jewelry
Headquartered in Liverpool, England, Castrol produces over 3,000 different formulas of oil lubricants to meet the requirements of different climates, vehicle types and uses, and equipment applications that characterize different country markets.
Item 19
Item 19 4.16 points
In order to use location to build competitive advantage when competing on domestic and international level, a company must
Multiple Choice transfer company expertise to cross-border markets and initiate actions to contend on an
consider (1) whether to concentrate each activity it performs in a few select countries or disperse performance of the activity to many nations, and (2) determine in which countries it should locate particular activities.
Item 20
Item 20 4.16 points
Multinational competitors tend to concentrate activities in a limited number of locations when
Multiple Choice prices and competitive conditions are strongly linked across country markets to form a world market. there are signi
there are significant scale economies and/or steep learning curve effects associated with performing certain activities in a single location, costs of performing the activity are lower in particular geographic locations, and certain locations have superio
Item 21
Item 21 4.16 points
Dispersing the performance of value chain activities to many different countries rather than concentrating them in a few country locations tends to be advantageous
Multiple Choice when high transportation costs make it expensiv
Two answers are correct: when high transportation costs make it expensive to operate from central locations; and whenever buyer-related activities are best performed in locations close to buyers.
Item 22
Item 22 4.16 points
Companies tend to concentrate their activities in a limited number of locations
Multiple Choice where the costs of manufacturing or other activities are significantly higher. where there are significant scale diseconomies. when
when there is a steep learning curve associated with performing an activity.
Which of the following statements about entering developing markets such as China, India, Russia, and Brazil is correct?
a. Observing and following the lead of local competitors is the sole guarantee of success in developing markets.
b. Building a market
a. Observing and following the lead of local competitors is the sole guarantee of success in developing markets.
c. Entering an emerging market should always involve a best-cost strategy.
d. Standardized products are typically more successful in emerging
Which of the following is not a typical option that companies have to consider in order to tailor their strategy to fit the circumstances of developing country markets?
Multiple Choice Develop new sets of core competencies that allow a company to offer va
Develop new sets of core competencies that allow a company to offer value to consumers of emerging markets in ways unmatched by rivals.
Global and multinational corporations are able to achieve _________ advantages by coordinating activities across national borders.
Competitive
In terms of purchasing power, which of the following countries is the largest economy after the United States?
United Kingdom
China
India
Russia
China
Select all that apply
Which of following are considered good strategic options for competing in developing countries?
maintain the business model used in the firm's home country despite local circumstances
avoid emerging markets where the company's busine
avoid emerging markets where the company's business model cannot be modified to accommodate local circumstances
&
try to change the local market to better match the way the company does business elsewhere
Companies expanding to developing markets
a. can expect a relatively short period of time to build a market for the company's products.
Reason: Companies often need to be patient after entering a developing market for profitable conditions to emerge.
b. f
find that profitability seldom happens quickly.
NOTE WHY NOT:
a. can expect a relatively short period of time to build a market for the company's products.
Reason: Companies often need to be patient after entering a developing market for profitable condit
Which of these strategies is essentially a middle-ground approach to competing internationally?
a. transnational strategy
b. cross-border approach
c. foreign approach
d. multidomestic strategy
a. transnational strategy
NOTE WHY NOT:
d. multidomestic strategy
REASON: This doesn't achieve the benefits of standardization as well as transnational strategy.
CH 6 Review
Strengthening a Company's Competitive Position: Strategic Moves, Timing, and Scope of Operations
Choosing Strategy Actions That Complement a Firm's Competitive Approach 1
Decisions regarding the firm's operating scope and how to best strengthen its market standing must be made:
�When should to undertake strategic moves based upon whether it is advant
Choosing Strategy Actions That Complement a Firm's Competitive Approach 2
Decisions regarding broadening resources and increasing capabilities, achieving cost efficiencies, or strengthening market position.
�Whether to integrate backward or forward into m
Launching Strategic Offensives to Improve a Company's Market Position
Aggressive offensives are called for when a firm:
�Spots opportunities to gain profitable market share at the expense of rivals.
�Has no choice but to try to whittle away at a strong ri
Principal Offensive Strategy Options 1
Offering an equally good or better product at lower price.
Leapfrogging competitors by being the first to market with next-generation technology or products.
Pursuing continuous product innovation to draw sales and m
Principal Offensive Strategy Options 2
Using hit-and-run or guerilla warfare tactics to grab sales and market share from complacent or distracted rivals.
Launching a preemptive strike to capture a rare opportunity or secure an industry's limited resources
Choosing Which Rivals to Attack
Best Targets for Offensive Attacks:
�Market leaders that are vulnerable.
�Runner-up firms with weaknesses in areas where the challenger is strong.
�Struggling enterprises that are on the verge of going under.
�Small local a
Blue Ocean Strategy�A Special Kind of Offensive
A firm seeks a large and lasting competitive advantage by abandoning existing markets and inventing an exclusive new industry or market segment (open competitive space) that makes former competitors irreleva
Concepts & Connections 6.1 Etsy's Blue Ocean Strategy in Online Retailing of Homemade Crafts
Given the rapidity with which most first-mover advantages based on Internet technologies can be overcome by competitors, what has Etsy done thus far to retain its
CORE CONCEPT: Blue Ocean Strategies
Blue ocean strategies offer growth in revenues and profits by discovering or inventing new industry segments that create altogether new demand.
Using Defensive Strategies to Protect a Company's Market Position and Competitive Advantage
Defensive strategies defend against competitive challenges by:
�Lowering the risk of being attacked.
�Weakening the impact of any attack that occurs.
�Influencing
Blocking the Avenues Open to Challengers
Blocking by:
�Introducing new features.
�Adding new models.
�Broadening product line to fill vacant niches.
�Maintaining economy-priced models.
�Making early announcements about upcoming new products or planned pri
Signaling Challengers That Retaliation Is Likely
Publicly announce management's strong commitment to maintain the firm's present market share.
Publicly commit firm to policy of matching rivals' terms or prices.
Maintain a war chest of cash reserves and li
Timing a Company's Offensive and Defensive Strategic Moves
When to make a strategic move is often as crucial as what move to make.
A first-mover can earn an advantage when:
�Pioneering builds its reputation and creates strong brand loyalty.
�First mover's
CORE CONCEPT: First-Mover Strategies
Because of first-mover advantages and disadvantages, competitive advantage can spring from when a move is made as well as from what move is made.
The Potential for Late-Mover Advantages or First-Mover Disadvantages
Late-mover advantages (or first-mover disadvantages) arise when:
�Pioneering leadership is more costly than imitation.
�A pioneering innovators' products are primitive, and do not living
Deciding Whether to Be an Early Mover or Late Mover
Key Issue: Is the race to market leadership a marathon or a sprint?
Deciding to seek first-mover competitive advantage requires asking:
�Does market takeoff depend on developing complementary products or
Strengthening a Company's Market Position via Its Scope of Operations
Scope of a Firm's Operations:
�Describes the breadth and strength of its activities and the extent of its reach into geographic, product and service market segments.
Dimensions of a Fir
CORE CONCEPT: Scope of the Firm
The scope of the firm refers to the range of activities the firm performs internally, the breadth of its product and service offerings, the extent of its geographic market presence, and its mix of businesses.
CORE CONCEPTS:
Horizontal Merger and Acquisition Strategies
Strategic options that can strengthen a firm's market position by:
�Achieving operating scale and scope economies.
�Gaining complementary competencies.
�Extending current and new market and product opportunitie
Strategic Objectives of Mergers and Acquisitions
Extend the firm's business into new product categories.
Create a more cost-efficient operation out of the combined firms.
Expand the firm's geographic coverage.
Gain quick access to new technologies or comp
Why Mergers and Acquisitions Sometimes Fail to Produce Anticipated Results
Cost savings are smaller than expected.
Gains in competitive capabilities take much longer to realize or may never materialize.
Efforts to mesh the corporate cultures stall because
Concepts & Connections 6.2 Walmart's Expansion into E-commerce via Horizontal Acquisition
Which strategic transformation outcomes did Walmart expect to gain through its acquisition strategy?
Why did Walmart choose to pursue an acquisition strategy that wa
Vertical Integration Strategies
Vertical integration involves extending a firm's competitive and operating scope within the same industry.
�Backward into sources of supply.
�Forward toward end-users of final product.
Vertical integration can take the form
CORE CONCEPT: Vertical Integration
A vertically integrated firm is one that performs value chain activities along more than one stage of an industry's overall value chain.
A vertical integration strategy has appeal only if it significantly strengthens a f
The Advantages of a Vertical Integration Strategy
There are two best reasons for vertically integrating into more value chain segments:
�Strengthening the firm's competitive position.
�Boosting its profitability.
Under the right conditions, a vertical int
Concepts & Connections 6.3 Tesla's Vertical Integration Strategy
What are the most important strategic benefits that Tesla derives from its vertical integration strategy?
Over the long term, how could the vertical scope of Tesla's operations threaten its
CORE CONCEPTS: Backward and Forward Integration
Backward integration involves performing industry value chain activities previously performed by suppliers or other enterprises engaged in earlier stages of the industry value chain
Forward integration invol
Integrating Backward to Achieve Greater Competitiveness
For backward integration to boost profitability a firm must be able to:
�Achieve the same scale economies as outside suppliers.
�Match or beat suppliers' production efficiency with no decline in qual
When Backward Vertical Integration Becomes a Consideration
Potential situations that create opportunities for cost reduction through backward vertical integration:
�When suppliers have large profit margins.
�Where the item being supplied is a major cost c
Integrating Forward to Enhance Competitiveness
Vertical integration into forward stages of the industry value chain allows manufacturers to:
�Gain better access to end users.
�Improve market visibility.
�Include the purchasing experience as a differentiat
Forward Vertical Integration and Internet Retailing
Direct selling and Internet retailing is appealing when:
�It lowers distribution costs.
�It produces a relative cost advantage over rivals.
�It produces higher profit margins.
�It allows lower prices to
CORE CONCEPT: Outsourcing
Outsourcing involves contracting out certain value chain activities to outside specialists and strategic allies.
A firm should guard against outsourcing activities that hollow out the resources and capabilities that it needs to b
Outsourcing Strategies: Narrowing the Scope of Operations 1
Outsourcing an activity should be considered when:
�It can be performed better or more cheaply by outside specialists.
�It is not crucial to achieving a sustainable competitive advantage and won'
Outsourcing Strategies: Narrowing the Scope of Operations 2
The Big Risk of an Outsourcing Strategy:
Farming out the wrong types of activities and, thereby, hollowing out strategically important capabilities that ultimately leads to reduction of the firm'
Strategic Alliances and Partnerships
Strategic alliance Is a formal contractual agreement in which two or more firms collaborate to achieve mutually beneficial strategic outcomes based on:
�Strategically relevant collaboration.
�Joint contribution of reso
CORE CONCEPTS: Strategic Alliance and Joint Venture
A strategic alliance is a formal agreement between two or more companies to work cooperatively toward some common objective.
A joint venture is a type of strategic alliance that involves the establishmen
Reasons for Firms to Enter Into Strategic Alliances
Reasons:
�To expedite development of new technologies or products.
�To overcome technical or manufacturing expertise deficits.
�To bring together personnel of each partner to create new skill sets and ca
Reasons for Firms to Continue In Strategic Alliances
Alliances are likely to be long-lasting when:
�They involve collaboration with partners that do not compete directly.
�A trusting relationship has been established.
�Both parties conclude that continued
Failed Strategic Alliances and Cooperative Partnerships
Common causes for the failure of 60 to 70% of alliances each year:
�Diverging objectives and priorities.
�An inability to work well together.
�Changing conditions that make the purpose of the allianc
The Strategic Dangers of Relying on Alliances for Essential Resources and Capabilities
The Achilles' heel of alliances and cooperative partnerships is becoming dependent on other companies for essential expertise and capabilities.
Ultimately, a firm must
While strategic alliances provide a way of obtaining the benefits of vertical integration, mergers and acquisitions, and outsourcing, they also suffer from some of the same drawbacks.