Suppose, you are the CEO of a company doing business in pharmaceuticals/RMG/Fast

Food/Leather Goods/IT etc. you wish to run your enterprise strategically. Now you are

required to decide upon the following:

1. Make a “Mission” and “Vision” statement of your enterprise what should be your major

goods for the next 5(Five) years.

2. Put in brief your plan of action regarding:

A) SWOT Analysis

B) The Five Forces Model

C) Implementing Total Quality Management (TQM)

D). Binding relationship between the stakeholder & the enterprise

E). Ensuring Distinctive competences in business

3. In the business Level which strategy, cost leadership/Differentiation/focuses you would

like to follow? Why?

4. Find out the roots of your competitive advantage and show them with the help of a

diagram.

5. Is there any scope of vertical integration? If “yes” what advantage you may have out of

it?

6.

A). Can you think of creating any Diversification of a vertical integration strategy-Evaluate

through diversification? Explain.

B). Should you consider about strategic alliance or outsourcing?

7.

A). If you consider your position to be in the ‘Shakeout” Stage in the industry LCM (Life

Cycle Model)-How would like to reach the mature stage Shakeout.

B). If you are interested to do business Globally, What strategy and Entry Mode would you

like to follow?

1. Make a “Mission” and “Vision” statement of your enterprise what should be your

major goods for the next 5 (Five) years.

The first component of the strategic management process is crafting the organization’s

mission statement, which provides the framework or context within which strategies are

formulated.

A sentence describing a company's function, markets and competitive advantages; a short

written statement of your business goals and philosophies. A mission statement defines what

an organization is, why it exists, its reason for being.

Mission Statement A formal commitment to stakeholders that the firm’s strategy

incorporates and recognizes their claims on the organization.

A mission statement has four main components

A statement of the raison deter of a company or organization (which is normally referred to

as the mission) A statement of some desired future state (usually referred to as the vision)

A statement of the key values (organization is committed)

A statement of major goals.

For example, the mission of Beximco Pharmaceuticals Ltd.,

Mission We are committed to enhancing human health and well-being by

providing contemporary and affordable medicines, manufactured in full compliance with

global quality standards. We continually strive to improve our core capabilities to address the

unmet medical needs of the patients and to deliver outstanding results for our shareholders.

Vision statement-is a declaration of an organization's objectives, ideally based on economic

foresight, intended to guide its internal decision-making.

Vision The vision of a company lays out some desired future state; it articulates, often in bold

terms, what the company would like to achieve.

vision We will be one of the most trusted, admired and successful

pharmaceutical companies in the region with a focus on strengthening research and

development capabilities, creating partnerships and building presence across the globe.

Major Goals-having stated the mission, vision, and key values, strategic managers can take

the next step in the formulation of a mission statement: establishing major goals. A goal is a

precise and measurable desired future state that a company attempts to realize. In this context,

the purpose of goals is to specify with precision what must be done if the company is to attain

its mission or vision.

Well-constructed goals have four main characteristics:

They are precise and measurable. Measurable goals give managers a yardstick or

standard against which they can judge their performance.

They address crucial issues. To maintain focus, managers should select a limited

number of major goals to assess the performance of the company. The goals that are

selected should be crucial or important ones.

They are challenging but realistic. They give all employees an incentive to look for

ways of improving the operations of an organization. If a goal is unrealistic in the

challenges it poses, employees may give up; a goal that is too easy may fail to

motivate managers and other employees.

They specify a time period in which the goals should be achieved, when that is

appropriate. Time constraints tell employees that success requires a goal to be attained

by a given date, not after that date. Deadlines can inject a sense of urgency into goal

attainment and act as a motivator. However, not all goals require time constraints.

Well-constructed goals also provide a means by which the performance of managers can be

evaluated.

Major Goals of

Core Values

Our core values define who we are; they guide us to take decisions and help realize

our individual and corporate aspirations.

Commitment to quality

We adopt industry best practices in all our operations to ensure highest quality

standards of our products.

Customer satisfaction

We are committed to satisfying the needs of our customers, both internal and external.

People focus

We give high priority on building capabilities of our employees and empower them to

realize their full potential.

Accountability

We encourage transparency in everything we do and strictly adhere to the highest

ethical standards. We are accountable for our own actions and responsible for

sustaining corporate reputation.

Corporate Social Responsibility

We actively take part in initiatives that benefit our society and contribute to the

welfare of our people. We take great care in managing our operations with high

concern for safety and environment.

2. Put in brief your plan of action regarding:

A) SWOT Analysis

This are most important component of strategic thinking requires the generation of a series of

strategic alternatives, or choices of future strategies to pursue, given the company’s internal

strengths and weaknesses and its external opportunities and threats. The comparison of

strengths, weaknesses, opportunities, and threats is normally referred to as a SWOT analysis.

The central purpose is to identify the strategies to exploit external opportunities, counter

threats, build on and protect company strengths, and eradicates weaknesses.

For Example the SWOT Analysis of

This SWOT analysis of Beximco pharmaceuticals elaborates the strength & weakness of,

opportunities & threats for Beximco pharmaceuticals Company. It will provide a visual

overview that will prompt discussion around the company’s strategy and situation. This

SWOT analysis of Beximco pharmaceuticals can be used to evaluate the position of their

business. This can be utilized to guide business strategy session of Beximco pharmaceuticals.

SWOT analysis of Beximco Pharmaceuticals

Strength: In the first part of SWOT analysis of Beximco Pharmaceuticals Ltd, Strength

of Beximco Pharmaceuticals Ltd is analyzed.

(Internal Strategic Analysis)

1. Largest exporter in the country: – in the pharmaceuticals sector beximco is the largest

exporter in Bangladesh. It earns 55% of its revenue from exporting.

2. Strong brand image: – it has consistently been improving its products and so the brand

image.

3. Bigger market share: – In Bangladesh it possesses the bigger market share than many

other giant medication providers. It offers more than 400 products.

4. Product diversity: – it produces more than 200 generic which are available in more

than 400 different forms, and many of them are leaders among others.

5. Foreign market share: – As the most of the revenue comes from exporting, it

possesses large market share in the foreign markets.

6. Unique product: – it is the first company in Bangladesh to produce ARV drugs for

AIDS/HIV cases.

7. Corporate social responsibility: – it always has been working for social

improvements. It is connected with many social welfare organization

8. Public health checking point: – it has its own health checking point where they can

directly communicate with people and gather information. They have pharmacies

almost every division in Bangladesh.

9. Expert employees: – Beximco Pharma has many experts like chemists, pharmacists,

doctors, MBAs, microbiologists, and engineers who are highly educated. It makes the

company gather more strength in the similar industrial sector.

10. Certified by Global regulatory bodies – The global regulatory bodies of European

Union, Brazil, Australia, Gulf nations, among others certified Beximco Pharma’s

state-of-the-art manufacturing facilities.

11. Strong R&D: – Beximco Pharmat is continuously searching for the next treatment

advancements. The portfolio of Beximco features a list of high-quality, effective

products which gave it an advantage to be staying in the top leading company list in

the similar sector.

Weakness: In the second part of SWOT analysis of Beximco Pharmaceuticals Ltd,

Strength of Beximco Pharmaceuticals Ltd is analyzed.

(Internal Strategic Analysis)

1. Inconsistent in supplying product: Sometimes they are not able to produce specific

products efficiently; as a result they cannot supply those products to retailers timely.

2. Dependency on foreign products: – Beximco has to import Capsule Cap from other

countries. It’s a big advantage for them to acquire larger market. It also imports dry-

aluminum hydro-oxide , Dry magnesium hydro-oxide, and Lutin from abroad.

3. Strong competitor: – Square pharma has larger market share than Beximco in

Bangladesh, and the difference is stable.

4. Use of cash for promotional purposes: – they donate money for promoting their

products to the doctors, and distributors. Beximco already has a large market share. If

they do not stop this behavior right now, they may lose market share in future.

5. Loan defaulter: – one of the owners of Beximco Pharma did take a loan from Sonali

Bank, and did not pay it back yet. It may harm the company image in long term.

6. Environmental pollution: – for producing purpose, they are polluting water, and soil

in the area where they setup their factories

Opportunities: In the third part of SWOT analysis of Beximco Pharmaceuticals

Ltd,

Strength of Beximco Pharmaceuticals Ltd is analyzed.

(External Strategic Analysis)

1. Enormous Growth – with an employee’s range of more than 2700, the company is growing day by day which is capable for growing market as well.

2. Advantage as a globally certified company – it has been certified by different

countries as a reputed medicine manufacturer. It can use this opportunity to enter

other countries.

3. Building Stonger Brand – as it fulfills social responsibilities, there is a huge

possibility of getting more market share in future.

Threats: In the fourth part of SWOT analysis of Beximco Pharmaceuticals Ltd,

Strength

of Beximco Pharmaceuticals Ltd is analyzed.

(External Strategic Analysis)

1. Threat to environment – as it pollutes environmental elements, if the Bangladeshi

regulatory body takes any steps against it, that may create problem for its growing.

2. Huge competition – first level companies like Square Pharmaceuticals and Incepta

Pharmaceuticals are doing well, and gradually they are gaining more market shares

which is another barrier for Beximco pharmacuticals.

3. New Entrants in the market – as the whole country is doing well in the pharmaceutical

sector, the number of new comers are increasing more than ever. This may result in

declining market shares.

Outcomes of SWOT Analysis of Beximco pharmaceuticals Ltd

If we closely look at the SWOT Analysis of Beximco pharmaceuticals, we can see that there

are more competitive advantages than the disadvantages. The strategic operations are highly

functional. If weak points are not overlooked, and proper steps are taken, this company will

be able to be staying in leading position consistently.

B) The Five Forces Model

An important and sometimes overlooked factor that distinguishes one company from another

in the pharmaceutical industry is strategic planning. This article aims to provide information

to assist managers during their business planning sessions and is based on research

undertaken by Michael Porter of Harvard University. He has analyzed companies across a

range of industries, so the principles are also applicable to our industry, pharmaceuticals.

Porter’s model looks at the competitive arena in which businesses operate and describes five

basic competitive forces that directly impact on how successfully a business unit operates. By

understanding and knowing what these competitive forces are and how they impact on the

business, managers are better equipped to prepare their plans. They are also more able to

focus on those aspects that have the greatest impact on their business and can, if necessary,

realign their resources to ensure the best outcome.

Figure-Five Forces Model

1. Threats of entry posed by new or potential competitor (LOW)

High entry barriers due to costs associated with research & development of new drugs (i.e. years of investment in R&D for a drug that may/may not work)

Government regulation (i.e. FDA)

The threat of entry posed by new or potential competitor is a LOW competitive force

due to the above entry barriers & regulatory constraints.

2. Degree of rivalry among existing firms (HIGH)

High rivalry among main companies in the industry. For example the current rivalry

in the erectile dysfunction space where Bayer & GlaxoSmithKline claim that Levitra

works faster or Eli Lilly & ICOS claim that Cialis works longer than Pfizer’s Viagra.

The degree of rivalry among existing firms is a HIGH competitive force

3. Bargaining power of buyers (MEDIUM)

Hospitals & other health care organizations buy in bulk quantities and exert pressure

on pharmaceutical companies to keep prices in check

Regular patients have lost bargaining power due to price increases in generic drugs

The bargaining power of buyers is a MEDIUM competitive force.

4. Bargaining power of suppliers (LOW)

Sales for the pharmaceutical industry concentrate in a handful of large players and

that has decreased the bargaining power of suppliers.

The bargaining power of suppliers is a LOW competitive force.

5. Closeness of substitute products (HIGH)

Demand for generic versus brand name drugs has increased because of the costs

Generic drug companies do not have the high costs associated with the research &

development of new drugs and that allows them to sell at cheaper prices

The closeness of substitute products is a HIGH competitive force

Overall and based on the above analysis of Porter’s Five Forces, we can conclude that the

pharmaceutical industry is not attractive for new entrants.

C) Implementing Total Quality Management (TQM)

A philosophy that involves everyone in an organization in a continual effort to

improve quality and achieve customer satisfaction.

Total Quality Management (TQM) in Pharmaceutical Industries

The pharmaceutical industry is a vital segment of health care system which is regulated

heavily because; any mistake in product design or production can severe, even fetal. The poor

qualities of drug are not only a health hazard but also a waste of money for both government

and individual consumers. So, the maintenance of the quality with continuous improvement is

very important for pharmaceutical industries. From this concept Total Quality Management

(TQM) was established. The aim of TQM is prevention of defects rather than detection of

defects. So TQM is very important for pharmaceutical industries to produce the better

product and ensure the maximum safety of healthcare system and also protect waste of

money for both government & individual consumers.

TQM stand as….

Total: Made up of the whole.

Quality: Degree of excellence of a product or service provides

Management: Act/Art, Manner of handling, controlling& directing it.

Fig-TQM

Objective of TQM

Continuous improvement.

Involvement of everyone in the organization.

goal of customer satisfaction

Five Approaches of Defining TQM

what customers want Ex. surveys, focus groups, interviews etc.

Design a product or service.

Design processes-Known as mistake-proof/Fail-safing.

Keep track of results and never stop trying to improve.

Extend these concepts throughout the supply chain

Elements of TQM

Basic/Foundation

Ethics-Discipline Concerned

Integrity–Honesty, Morals, Values, Fairness etc.

Trust –Trust is a by-product of integrity and ethical conduct

Continuous Improvement

Competitive Benchmarking

Employee Empowerment

Team Approach

Decisions based on facts rather than opinions-Gathers & Analyzes Data

Knowledge of Tools

Champion

Supplier Quality

Quality at the Source

Suppliers

Flexible production

Process improvements

Process measuring

Scale For TQM Measurement

Six Sigma

Lean/Six Sigma

Advantage of TQM:

Improves reputation- faults and problems are spotted and sorted quicker.

Higher employee morale- workers motivated by extra responsibility, team work and

involvement indecisions of TQM

Lower cost decrease waste as fewer defective products and no need for separate.

Quality control inspector

Disadvantage of TQM:

Initial introduction cost.

Benefits may not be seen for several years.

Workers may be resistant to change.

D). Binding relationship between the stakeholder & the enterprise

Stakeholders and the Enterprise

A stakeholder is a party that has an interest in an enterprise or project. The primary

stakeholders in a typical corporation are its investors, employees, customers and suppliers.

However, modern theory goes beyond this conventional notion to embrace additional

stakeholders such as the community, government and trade associations.

The term "enterprise" has two common meanings.

Firstly, an enterprise is simply another name for a business. You will often come across the

use of the word when reading about start-ups and other businesses…"Simon Cowell's

enterprise" or "Michelle set up her successful enterprise after leaving teaching".

Secondly, and perhaps more importantly, the word enterprise describes the actions of

someone who shows some initiative by taking a risk by setting up, investing in and running

a business.

Relationship between Stakeholders and the Enterprise

Contributions

Contributions

Inducements/incentives

Inducements

E). Ensuring Distinctive competences in business

A distinctive competency is often defined as a unique competency or capability that your

competitors do not share a distinction that separates you from the pack. The problem with

that definition is that the word unique means no one else has that particular competency.

Distinctive competence of a firm refers to a set of activities or capabilities that a company is

able to perform better than its competitors and which gives it an advantage over them.

Distinctive competence can lie in different area such as technology, marketing activities, or

management capability.

Distinctive competencies are the combination of the best practices and technical skills that

increase the competitiveness of an organization.

The idea of core competencies is to create unique and creative product that will be impossible

for competitors to copy.

Distinctive competencies are the main source for organizations to grow and survive, and

that’s precisely what differentiates the brand from competitors.

Evaluating both internal and external business environments is crucial to determine core

competencies. Furthermore, distinctive competencies may be related to different areas.

For example, technology, marketing, or management.

Characteristics:

Skills in effectively coordinating and managing resources for productive use.

Unique resources and capabilities, or

Common resources and

unique capabilities.

Importance of Competencies

Effective Human Resource Management

Training Programs

SWOT Analysis

Outsourcing Options

The Vision of the Company

Innovation is Essential

Pros of Distinctive Competencies

Distinctive Competencies Lead to Competitive Advantage – Distinctive competencies may

lead to determining the most effective and efficient business development strategies.

For instance, after Kodak understood that its core competence is imagining, their company

gained an edge over the competition.

Distinctive Competencies Bring Firm Sustainability – If an organization is not focused on

offering certain products or services, and its goal is to gain sustainable advantage, it’ll result

in solving new problems, rather than resolving the same over and over again.

Learning Faster Than Your Competitors – One of the best perks of distinctive competencies

is learning and adapting to new requirements faster than your competitors.

Identifying and Establishing Core Competencies

Analyzing the capabilities of new products that aim to cover a large number of potential

consumers, will result in developing perfect competencies that are impossible to imitate,

which will eventually lead to gaining competitive advantage.

In order to perfect a strategy that will unleash the full potential of the distinctive

competencies, firstly, they must be defined.

Applying the method stated above will provide value to your consumers.

How to Differentiate From Competitors

Assuming that your market research is done, it’s essential to consider that other organization

may declare being professionals in your field of competence.

So, finding a way to stand out from your competitors is a must.

Your first priority must be creating a strategy that effectively communicates your core

competencies.

Take the Helm

Focus on Market

Set Specific Objectives

Think in Multiple Dimensions

3. In the business Level which strategy, cost leadership/Differentiation/focuses you

would like to follow? Why?

A plan of action to use the firm’s resources and distinctive competencies to gain competitive

advantage.

Abell’s “Business Definition” process based on What, Who & How..

Customer needs – product differentiation (what)

Customer groups – market segmentation (who)

Distinctive competencies – competitive actions (how)

Types of Business-Level Strategies

Choosing a Business-Level Strategy depends up some characteristic this are discuss

below

Cost-leadership strategy success is affected by:

Competitors producing at equal or lower costs.

The bargaining strength of suppliers.

Powerful buyers demanding lower prices.

Substitute products moving into the market.

New entrants overcoming entry barriers.

Example McDonald's

The restaurant industry is known for yielding low margins that can make it difficult to

compete with a cost leadership marketing strategy. McDonald's has been extremely

successful with this strategy by offering basic fast-food meals at low prices. They are able to

keep prices low through a division of labor that allows it to hire and train inexperienced

employees rather than trained cooks. It also relies on few managers who typically earn higher

wages. These staff savings allow the company to offer its foods for bargain prices.

Differentiation strategy success is achieved through:

An emphasis on product or service quality.

Innovation in providing new features for which customers will pay a premium price.

Responsiveness to customers after the sale.

Appealing to the psychological desires of customers.

Competitors imitating features and services.

Increases in supplier costs exceeding differentiator’s price premium.

Buyers becoming less brand loyal.

Substitute products adding similar features.

New entrants overcoming entry barriers related to differentiator’s competitive

advantage.

Example Businesses use the marketing strategy of product differentiation to distinguish their

products from those of their competitors. Since the 1980s, Apple Inc. has successfully used

product differentiation to separate its products from those of other electronics manufacturers.

From its MacIntosh home computers to the iPod music players and iPhone and iPad mobile

devices, Apple has employed a differentiation strategy to target a section of the consumer

market and send a powerful message that its products stand out from the crowd.

Product Design

Pricing Strategy

Retail Oultets

Brand Loyalty

Focus strategy success is affected by:

Competitor entry into focuser’s market segment.

Suppliers capable of increasing costs affecting only the focuser.

Buyers defecting from market segment.

Substitute products attracting customers away from focuser’s segment.

New entrants overcoming entry barriers that are the source of the focuser’s

competitive advantage.

4. Find out the roots of your competitive advantage and show them with the help of a

diagram.

Competitive advantage is a relative measure of how successfully an agent can compete, on

the average, to achieve its goals.

When a firm sustains profits that exceed the average for its industry, the firm is said to

possess a competitive advantage over its rivals. The goal of much of business strategy is to

achieve a sustainable competitive advantage.

Competitive advantage is a firm’s ability to outperform its competitors (earn higher profits).

The source of competitive advantage is value creation for customers.

Sustained competitive advantage comes from maintaining higher profits than competitors

over long periods of time.

Identified two basic types of competitive advantage:

cost advantage

differentiation advantage

A competitive advantage exists when the firm is able to deliver the same benefits as

competitors but at a lower cost (cost advantage), or deliver benefits that exceed those of

competing products (differentiation advantage). Thus, a competitive advantage enables the

firm to create superior value for its customers and superior profits for itself.

Cost and differentiation advantages are known as positional advantages since they describe

the firm's position in the industry as a leader in either cost or differentiation.

A resource-based view emphasizes that a firm utilizes its resources and capabilities to create

a competitive advantage that ultimately results in superior value creation. The following

diagram combines the resource-based and positioning views to illustrate the concept of

competitive advantage:

Fig- Competitive Advantage

Resources and Capabilities

According to the resource-based view, in order to develop a competitive advantage the firm

must have resources and capabilities that are superior to those of its competitors. Without this

superiority, the competitors simply could replicate what the firm was doing and any

advantage quickly would disappear.

Resources are the firm-specific assets useful for creating a cost or differentiation advantage

and that few competitors can acquire easily. The following are some examples of such

resources:

Patents and trademarks

Proprietary know-how

Installed customer base

Reputation of the firm

Brand equity

Capabilities refer to the firm's ability to utilize its resources effectively. An example of a

capability is the ability to bring a product to market faster than competitors. Such

capabilities are embedded in the routines of the organization and are not easily

documented as procedures and thus are difficult for competitors to replicate. The firm's

resources and capabilities together form its distinctive competencies. These competencies

enable innovation, efficiency, quality, and customer responsiveness, all of which can be

leveraged to create a cost advantage or a differentiation advantage.

Cost Advantage and Differentiation Advantage

Competitive advantage is created by using resources and capabilities to achieve either a

lower cost structure or a differentiated product. A firm positions itself in its industry

through its choice of low cost or differentiation. This decision is a central component of

the firm's competitive strategy.

Another important decision is how broad or narrow a market segment to target. Porter

formed a matrix using cost advantage, differentiation advantage, and a broad or narrow

focus to identify a set of generic strategies that the firm can pursue to create and sustain a

competitive advantage.

Value Creation

The firm creates value by performing a series of activities that Porter identified as the

value chain. In addition to the firm's own value-creating activities, the firm operates in a

value system of vertical activities including those of upstream suppliers and downstream

channel members.

To achieve a competitive advantage, the firm must perform one or more value creating

activities in a way that creates more overall value than do competitors. Superior value is

created through lower costs or superior benefits to the consumer (differentiation).

5. Is there any scope of vertical integration? If “yes” what advantage you may have out

of

it?

“Yes” the are many scope of Vertical integration.

Vertical integration describes a company's control over several or all of the production and/or

distribution steps involved in the creation of its product or service.

The degree to which a firm owns its upstream suppliers and its downstream buyers is referred

to as vertical integration. Because it can have a significant impact on a business unit's

position in its industry with respect to cost, differentiation, and other strategic issues, the

vertical scope of the firm is an important consideration in corporate strategy.

Example Lets assume XYZ Company, which manufactures frozen french fries, wants to

vertically integrate. By purchasing a potato farm and a potato processing plant, XYZ could

engage in upstream integration (also known as backward integration) and control the

quantity, cost, and quality of the product's raw materials. Likewise, XYZ Company could

engage in downstream integration (also known as forward integration) to control the

distribution of the company's products by purchasing a packaging plant and a fleet of delivery

trucks. Ultimately, XYZ could also use balanced integration, which incorporates both

upstream and downstream integration, to control the cost and quality of the entire production

and distribution process

Integration choice is that of which value-adding activities to compete in and which are better

suited for others to carry out.

Two types of Integration

Integration backward into supplier functions

Assures constant supply of inputs.

Protects against price increases.

Integration forward into distributor functions

Assures proper disposal of outputs.

Captures additional profits beyond activity costs.

Advantages of a vertical integration strategy:

Builds entry barriers to new competitors by denying them inputs and customers.

Facilitates investment in efficiency-enhancing assets that solve internal mutual

dependence problems.

Protects product quality through control of input quality and distribution and service

of outputs.

Improves internal scheduling (e.g., JIT inventory systems) responses to changes in

demand.

6.

A). Can you think of creating any Diversification of a vertical integration strategy:-

9gvalue

through diversification? Explain.

Firms using diversification strategies enter entirely new industries. While vertical integration

involves a firm moving into a new part of a value chain that it is already is within,

diversification requires moving into new value chains. Many firms accomplish this through a

merger or an acquisition, while others expand into new industries without the involvement of

another firm.

Two types

1. Related diversification

Entry into new business activity based on shared commonalities in the components of the

value chains of the firms.

2. Unrelated diversification

Entry into a new business area that has no obvious relationship with any area of the existing

business.

Creating Value Through Diversification

Superior internal governance

Place business units in self-contained divisions.

Manage divisions in a decentralized manner.

Link performance to incentive pay.

Acquisition and restructuring strategy

Replace nonperforming top management team.

Dispose of unproductive assets.

Establish performance goals requiring significant improvements in operating

efficiency.

Transferring competencies:

Lowers the cost of value creation activities in the diversified businesses.

Creates opportunities for differentiation and premium pricing value creation

activities.

Adds value where commonalities important to competitive advantage exist.

Creates value by applying skills for one business opportunity and applying them

to another.

Economies of scope

Sharing of resources and functions by business units creates value in high asset

utilization and lower operating costs.

Economies of scope and scale are closely related. Greater operational capacity and

larger markets can help a competitor attain low-cost position.

Resource sharing creates significant competitive advantage when it outweighs

coordination costs.

Bureaucratic Costs and the Limits of Diversification

Number of businesses

Information overload can lead to poor resource allocation decisions and create

inefficiencies.

Coordination among businesses

As the scope of diversification widens, control and bureaucratic costs increase.

Resource sharing and pooling arrangements that create value also cause

coordination problems.

Limits of diversification

The extent of diversification must be balanced with its bureaucratic costs.

B) Should you consider about strategic alliance or outsourcing?

Strategic Alliance or outsourcing

A strategic alliance is an agreement between two or more parties to pursue a set of agreed

upon objectives needed while remaining independent organizations. This form of cooperation

lies between mergers and acquisitions and organic growth.

Some examples of Strategic Alliances

In R&D: Microsoft and Nokia - a software partnership for Nokia’s Windows Phones.

CISCO Systems’ agreement with China’s biggest on-line commercial company Alibaba, to

explore business services for SMEs.

Claris (India) manufacturer of sterile injectables has an out-licensing agreement with pfizer to

develop products for the US.

GSK – Dr. Reddy Labs: The Indian Company will manufacture nearly 100products mainly

under GSK brand name for sale in some emerging markets.

Pfizer and Biocon: To market Biocon’s insulin biosimilar products in world markets.

For Market Entry: Tommy Hilfiger / PHV group last October acquired a stake in

Pros/Advantages

Avoids bureaucratic costs of diversification.

Shared costs and risks.

Uses complementary skills of each partner.

Creates value through economies of scope.

Corns/Disadvantages

Profits must be shared.

Disclosure of critical know-how to potential competitor.

7.

A). if you consider your position to be in the ‘Shakeout” Stage in the industry LCM

(Life Cycle Model)-How would like to reach the mature stage Shakeout.

‘Shakeout”

An upheaval or reorganization of a business, market, or organization due to competition and

typically involving streamlining and layoffs.

A reduction or elimination of competing businesses or products in a particular field.

A decline in a securities market that forces speculators to sell their positions, often at a loss.

A dramatic change in market conditions that forces speculators to sell their positions, often at

a loss.

Fig-The Industry Life Cycle Model

Example

One of the most notable shakeouts happened in the US automobile tyre industry before the

Great Depression. Between 1922 and 1929, the number of independent producers dropped

from 278 to 122, in spite of a fast growth in industry output.

According to Jovanovic and MacDonald (1994), what caused this shakeout was the invention

of the Banbury mixer in 1916. This equipment, which is used for mixing rubber and plastic,

increased the efficient scale of production.

The US beer brewing industry experienced a similar phenomenon a few decades earlier. The

number of producers dropped by 40% between 1880 and 1890. But perhaps the most famous

shakeout was the one that characterised the US automobile industry in the early 20th century.

The number of car manufacturers dropped from 274 in 1909 to 121 in 1918.

Explosive growth cannot be maintained indefinitely. Sooner or later, the rate of growth slows,

and the industry enters the shakeout stage. In the shakeout stage, demand approaches

saturation levels: most of the demand is limited to replacement because there are few

potential first-time buyers left.

As an industry enters the shakeout stage, rivalry between companies becomes intense.

Typically, companies that have become accustomed to rapid growth continue to add

capacity at rates consistent with past growth. However, demand is no longer

Fig-Shakeout Stage difference

growing at historic rates, and the consequence is the emergence of excess productive

capacity. This condition is illustrated in Figure, where the solid curve indicates the growth in

demand over time and the broken curve indicates the growth in productive capacity over

time. As you can see, past point t1, demand growth becomes slower as the industry becomes

mature. However, capacity continues to grow until time t2. The gap between the solid and

broken lines signifies excess capacity. In an attempt to use this capacity, companies often cut

prices. The result can be a price war, which drives many of the most inefficient companies

into bankruptcy and is enough to deter any new entry.

Maturity Stage: After the Embryonic Stage and Growth stages, a product passes into the Maturity stage. The

third of the product life cycle stages can be quite a challenging time for manufacturers. In the

first two stages companies try to establish a market and then grow sales of their product to

achieve as large a share of that market as possible. However, during the Maturity stage, the

primary focus for most companies will be maintaining their market share in the face of a

number of different challenges.

Challenges of the Maturity Stage

Sales Volumes Peak: After the steady increase in sales during the Growth stage, the

market starts to become saturated as there are fewer new customers. The majority of

the consumers who are ever going to purchase the product have already done so.

Decreasing Market Share: Another characteristic of the Maturity stage is the large

volume of manufacturers who are all competing for a share of the market. With this

stage of the product life cycle often seeing the highest levels of competition, it

becomes increasingly challenging for companies to maintain their market share.

Profits Start to Decrease: While this stage may be when the market as a whole

makes the most profit, it is often the part of the product life cycle where a lot of

manufacturers can start to see their profits decrease. Profits will have to be shared

amongst all of the competitors in the market, and with sales likely to peak during this

stage, any manufacturer that loses market share, and experiences a fall in sales, is

likely to see a subsequent fall in profits. This decrease in profits could be

compounded by the falling prices that are often seen when the sheer number of

competitors forces some of them to try attracting more customers by competing on

price.

Benefits of the Maturity Stage

Continued Reduction in Costs: Just as economies of scale in the Growth stage

helped to reduce costs, developments in production can lead to more efficient ways to

manufacture high volumes of a particular product, helping to lower costs even further.

Increased Market Share Through Differentiation: While the market may reach

saturation during the Maturity stage, manufacturers might be able to grow their

market share and increase profits in other ways. Through the use of innovative

marketing campaigns and by offering more diverse product features, companies can

actually improve their market share through differentiation and there are plenty of

product life cycle examples of businesses being able to achieve this.

B). If you are interested to do business Globally, What strategy and Entry Mode would

you

like to follow?

‘Global Strategy’ is a shortened term that covers three areas: global, multinational and

international strategies. Essentially, these three areas refer to those strategies designed to

enable an organization to achieve its objective of international expansion.

In developing ‘global strategy’, it is useful to distinguish between three forms of international

expansion that arise from a company’s resources, capabilities and current international

position. If the company is still mainly focused on its home markets, then its strategies

outside its home markets can be seen as international.

For example, a dairy company might sell some of its excess milk and cheese supplies outside

its home country. But its main strategic focus is still directed to the home market.

Implications of the three definitions within global strategy:

International strategy: the organisation’s objectives relate primarily to the home market.

However, we have some objectives with regard to overseas activity and therefore need an

international strategy. Importantly, the competitive advantage – important in strategy

development – is developed mainly for the home market.

- Create value by transferring skills and products abroad.

Multinational strategy: the organisation is involved in a number of markets beyond its

home country. But it needs distinctive strategies for each of these markets because

customer demand and, perhaps competition, are different in each country. Importantly,

competitive advantage is determined separately for each country.

-Maximize local responsiveness by customizing products and marketing strategy for local

markets.

Global strategy: the organisation treats the world as largely one market and one source

of supply with little local variation. Importantly, competitive advantage is developed

largely on a global basis.

- Pursue low-cost status, offer standardized global products.

Transnational strategy

-Use global learning to achieve low-cost status, differentiation, and local responsiveness

simultaneously.

Fig. Four Basic Strategies

Benefits of a global strategy

The business case for achieving a global strategy is based on one or more of the factors set

out below – see academic research by Theodore Leavitt, Sumanthra Ghoshal, Kenichi

Ohmae, George Yip and others. For the full, detailed references, go to the end of Chapter 19

in either of my books, Corporate Strategy or Strategic Management

1. Economies of scope: the cost savings developed by a group when it shares activities

or transfers capabilities and competencies from one part of the group to another – for

example, a biotechnology sales team sells more than one product from the total range.

2. Economies of scale: the extra cost savings that occur when higher volume production

allows unit costs to be reduced – for example, an Arcelor Mittal steel mill that

delivers lower steel costs per unit as the size of the mill is increased.

3. Global brand recognition: the benefit that derives from having a brand that is

recognized throughout the world – for example, Disney..

4. Global customer satisfaction: mulitnational customers who demand the same product,

service and quality at various locations around the world – for example, customers of

the Sheraton Hotel chain expect and receive the same level of service at all its hotels

around the world.

5. Lowest labour and other input costs: these arise by choosing and switching

manufacturers with low(er) labour costs – for example, computer assembly from

imported parts in Thailand and Malaysia where labor wages are lower than in

countries making some sophisticated computer parts (such as high-end computer

chips) in countries like the USA

6. Recovery of research and development (R&D) costs and other development costs

across the maximum number of countries – new models, new drugs and other forms

of research often amounting to billions of US dollars. The more countries of the world

where the goods can be sold means the greater number of countries that can contribute

to such costs. For example, the Airbus Jumbo A380 launched in 2008 where

development costs have exceeded US$ 10 billion.

7. Emergence of new markets: means greater sales from essentially the same products.

The Japanese car company, Toyota, has built itself into the world’s largest car company. It

has developed this through a global strategy that includes economies of scale and scope,

branding, customer recognition and the recovery of its extensive research and development

costs in many markets around the world. Yet it has also been cautious in its global strategy.

For example, its strategy in the People’s Republic of China has been through joint ventures

with the local car companies FAW and Guangzhou Auto. Whereas, its main strategies in

Europe have been partly through wholly-owned ventures and partly through co-operation

with other European car companies on some joint production.

For other models like the Lexus, Toyota still exports directly from its major production plant

in Japan. The reason is that it is able to gain the economies of scale for theup-market low-

volume Lexus brand that would not be present if it was to produce in smaller quantities in

each world region, like the USA and

European Union.

The Choice of Entry Mode

A mode of entry into an international market

is the channel which your organization

employs to gain entry to a new international

market.

Foreign market entry modes (Participation

strategy) differ in degree of risk they present,

the control and commitment of resources they

require and the return on investment they

promise. There are two major types of entry modes: equity and non-equity modes.

Types of Entry Mode Exporting Licensing Franchising Joint Ventures Wholly Owned Subsidiaries Distinctive Competencies and Entry Mode Pressures for Cost Reduction and Entry Mode

Exporting

Exporting is the marketing and direct sale of domestically-produced goods in another

country. Exporting is a traditional and well-established method of reaching foreign markets.

Since exporting does not require that the goods be produced in the target country, no

investment in foreign production facilities is required. Most of the costs associated with

exporting take the form of marketing expenses.

Exporting commonly requires coordination among four players:

o Exporter

o Importer

o Transport provider

o Government

Licensing

Licensing essentially permits a company in the target country to use the property of the

licensor. Such property usually is intangible, such as trademarks, patents, and production

techniques. The licensee pays a fee in exchange for the rights to use the intangible property

and possibly for technical assistance.

Because little investment on the part of the licensor is required, licensing has the potential to

provide a very large ROI. However, because the licensee produces and markets the product,

potential returns from manufacturing and marketing activities may be lost.

Joint Venture

There are five common objectives in a joint venture: market entry, risk/reward sharing,

technology sharing and joint product development, and conforming to government

regulations. Other benefits include political connections and distribution channel access that

may depend on relationships.

Such alliances often are favorable when:

o the partners' strategic goals converge while their competitive goals diverge;

o the partners' size, market power, and resources are small compared to the industry

leaders; and

o partners' are able to learn from one another while limiting access to their own

proprietary skills.

The key issues to consider in a joint venture are ownership, control, length of agreement,

pricing, technology transfer, local firm capabilities and resources, and government intentions.

Potential problems include:

conflict over asymmetric new investments

mistrust over proprietary knowledge

performance ambiguity - how to split the pie

lack of parent firm support

cultural clashes

if, how, and when to terminate the relationship

Joint ventures:

Strategic imperative: the partners want to maximize the advantage gained for the joint

venture, but they also want to maximize their own competitive position.

The joint venture attempts to develop shared resources, but each firm wants to

develop and protect its own proprietary resources.

The joint venture is controlled through negotiations and coordination processes, while

each firm would like to have hierarchical control.

Foreign Direct Investment

Foreign direct investment (FDI) is the direct ownership of facilities in the target country. It

involves the transfer of resources including capital, technology, and personnel. Direct foreign

investment may be made through the acquisition of an existing entity or the establishment of

a new enterprise.

Direct ownership provides a high degree of control in the operations and the ability to better

know the consumers and competitive environment. However, it requires a high level of

resources and a high degree of commitment.

International Agents and International Distributors

Agents are often an early step into international marketing. Put simply, agents are individuals

or organizations that are contracted to your business, and market on your behalf in a

particular country. They rarely take ownership of products, and more commonly take a

commission on goods sold. Agents usually represent more than one organization. Agents are

a low-cost, but low-control option. If you intend to globalize, make sure that your contract

allows you to regain direct control of product. Of course you need to set targets since you

never know the level of commitment of your agent. Agents might also represent your

competitors – so beware conflicts of interest. They tend to be expensive to recruit, retain and

train. Distributors are similar to agents, with the main difference that distributors take

ownership of the goods. Therefore they have an incentive to market products and to make a

profit from them. Otherwise pros and cons are similar to those of international agents.

Strategic Alliances (SA)

Strategic alliances is a term that describes a whole series of different relationships between

companies that market internationally. Sometimes the relationships are between competitors.

There are many examples including:

Shared manufacturing e.g. Toyota Ayago is also marketed as a Citroen and a Peugeot.

Research and Development (R&D) arrangements.

Distribution alliances e.g. iPhone was initially marketed by O2 in the United

Kingdom.

Marketing agreements.

Essentially, Strategic Alliances are non-equity based agreements i.e. companies remain

independent and separate.

Wholly Owned Subsidiaries

A wholly owned subsidiary includes two types of strategies: Greenfield investment and

Acquisitions. Greenfield investment and acquisition include both advantages and

disadvantages. To decide which entry modes to use is depending on situations.

Franchising

The franchising system can be defined as: "A system in which semi-independent business

owners (franchisees) pay fees and royalties to a parent company (franchiser) in return for the

right to become identified with its trademark, to sell its products or services, and often to use

its business format and system.

Turnkey Contracts

" Turnkey Contracts Ability to earn returns from process technology skills in countries

where FDI is restricted Creating efficient competitor, lack of long-term market presence.