.

CHAPTER 5-8 REVIEWER

CORPORATE LEVEL STRATEGY- It is concerned on the direction of the organization it involves making
decisions on what business should the firm be in and wants to be in. Firms may diversify in expanding
their operations but should still be based on the mission of the organization.

THREE BASIC CORPORATE STRATEGIES

1. GROWTH STRATEGY- Organization wants to create new opportunities by expanding their

operations through introducing new products or increasing the number of market being served
this can be attained by investing or acquiring additional business units. Under this concept
organization can grow in several ways:

 Concentration-This is the strategy where business expands its business by increasing the
production capacity or sales and operates on single business and industry.

 Diversification- This is the process of expanding its operation or new businesses through
merging or acquiring either with related or unrelated industries

RELATED DIVERSIFICATION- A firm entering a different business in which it can benefit from
leveraging core competencies, sharing activities or building market power.
ECONOMIES OF SCOPE- Cost savings from leveraging core competencies or sharing related
activites among businesses in a corporation.
CORE COMPETENCIES- a firm’s strategic resources that reflect the collective learning in the
organization

 Vertical Integration- This is the acquisition or development of new businesses that produce
parts or components of the organization products. (Bateman & Snell, 2008) Backward
integration occurs when firm is producing its own supplies or raw materials while forward
integration occurs when manufacturing firm distribute or deals directly to the consumer.

UNRELATED DIVERSIFICATION- a firm entering a different business that has little horizontal
interaction with other businesses of a firm

2. STABILITY STRATEGY- This is a strategy focus on maintaining the organization’s current business
operation. Managers use this strategy when they are not willing to take risky decision for the
organization. They want to maintain present condition of the business.

3. RETRENCHMENT STRATEGY- This is a strategy that an organization use when they wants to
reduce the scope of their operations by eliminating products or business units. There are three
common reasons why organization use retrenchment strategy or sometimes called defensive
strategies. Organization wants to focus on their core competencies, Organization wants to
improve its performance by increasing efficiency, Organization realizes that they entered an area
wherein they lack product expertise or weak market which resulted less or unprofitable
business.
BUSINESS LEVEL STRATEGY- This is the strategy deals on how an organization will compete in a
particular industry. In large organization each business will have its own strategy in building and
strengthening its position in the market to attain competitive advantage.

THREE GENERIC STRATEGIES

1) OVERALL COST LEADERSHIP- A firm’s generic strategy based on appeal to the industry wide
market using a competitive advantage based on low cost.
Experience Curve- The decline in unit cost of production as cumulative output increases
Potential Pitfalls of Overallcost Leadership
 Too much focus on one or few value chain activities
 All rivals share a common input or raw material
 The strategy is imitated too easily
 A lack of parity on differentiation
 Erosion of cost advantages when the pricing information available to customers increase

2) DIFFERENTIATION STRATEGY- A firm’s generic strategy based on creating differences in the firm’s
product or service offering by creating something that is perceived industry wide as unique and
valued by customers.
Differences can take many forms: Prestige or brand image, Technology, Innovation, Features,
Customer Service, and Dealer Network.
Potential Pitfalls of Differentiation
 Uniqueness that is not valuable
 Too much differentiation
 Too high a price premium
 Differentiation that is easily imitated
 Dilution of brand identification through product line extensions

3) FOCUS STRATEGY- a firm’s generic strategy based on appeal to a narrow market segment within
an industry.
Potential Pitfalls of Focus strategies
 Erosion of cost advantages within the narrow segment
 Even product and service offerings that are highly focused are subject to competition
from new entrants and from imitation.
 Focusers can become too focused to satisfy buyer needs.

MASS CUSTOMIZATION- A firm’s ability to manufacture unique products in small quantities at low cost
COMBINATION STRATEGIES- Firm’s integrations of various strategies to provide multiple types of value
to customers.

INDUSTRY LIFE CYCLE- the stages of introduction, growth, maturity and decline that typically occur over
the life of an industry
 INTRODUCTION STAGE- the first stage of the industry life cycle characterized by (1) new
products that are not known to customers, (2) poorly defined market segment (3) unspecified
 product features, (4) low sales growth (5) rapid technological change (6) operating losses and (7)
a need for financial support.
 GROWTH STAGE- the second stage of the product life cycle characterized by (1) strong increases
in sales (2) growing competition (3) developing brand recognition and (4) a need for financial
complementary value-chain activities such as marketing, sales, customer service and research
and development.
 MATURITY STAGE- The third stage of the product life cycle characterized by (1) slowing demand
growth (2) saturated markets (3) direct competition, (4) price competition and (5) strategic
emphasis on efficient operations.
 DECLINE STAGE- The fourth stage of the product life cycle characterized by (1) falling sales and
profits (2) increasing price competition and (3) industry consolidation.

REVERSE POSITIONING- A break in industry tendency to continuously augment products, characteristics

of the product life cycle, by offering products with fewer products attributes and lowers prices.
BREAKAWAY POSITIONING- a break in industry tendency to incrementally improve products along
specific dimensions, characteristics of the product life cycle by offering products that are still in the
industry but that are perceived by customers as being different.

FOUR BASIC STRATEGIES IN DECLINE PHASE

 Maintaining- refers to keeping a product going without significantly reducing marketing support,
technological development or other investment in the hope that competitors will exit the
market.
 Harvesting-involves obtaining as much profit as possible and requires that costs be reduced
quickly.
 Existing the market- Involves dropping the product from a firm’s portfolio.
 Consolidation strategy- a firms acquiring or merging with other firms in an industry in order to
enhance market power and gain valuable assets.

TURNAROUND STRATEGY- A strategy that reverses a firms decline in performance and returns it to
growth and profitability
HORIZONTAL RELATIONSHIPS- the leveraging of core competencies or the sharing of activities across
business units within a corporation.
HIERARCHICAL RELATIONSHIPS—the creation of synergies from the interaction of the corporate office
with the individual business units

PORTFOLIO MANAGEMENT- a method of (a) assessing the competitive position of a portfolio of

businesses within a corporation (b) Suggesting strategic alternative for each business and to identifying
priorities for the allocation of resources across the businesses.

 STAR- (high growth rate, high market share) fast growing market, they need additional
investment to maintain their position and to finance rapid growth.
  CASH COW- (low growth rate, high market share) generate large amount of cash, good source of
cash to support other SBUs, they need little investment because of slow growth industry.

 QUESTION MARK- (high growth rate, low market share) requires substantial investment to
improve position because it’s in a attractive industry but very risky due to small share in the
market.

 DOGS- (low growth rate, low market share) business in a declining industry and in a weak
position because do not produce much profit.

ACQUISITIONS- the incorporation of one firm into another through purchase

MERGERS- the combining of two or more firms into one new legal entity

BENEFITS OF MERGERS AND ACQUISITIONS

 Can be a means of obtaining valuable resources that can help an organization expand its product
offerings and services.
 Can provide the opportunity for firms to attain the three bases of synergy- leveraging, core
competencies, sharing activities and building market power.
 Can lead to consolidation within an industry and can force other players to merge.

DIVESTMENT- The exit of a business from a firm’s portfolio

STRATEGIC ALLIANCES- cooperative relationships between two or more firms
JOINT VENTURES- new entities formed within a strategic alliance in which two or more firms, the
parents, contribute equity to form the new legal entity.

MANAGERIAL MOTIVES- managers acting in their own self interest rather than in maximizing long-term
shareholder value
ANTITAKEOVER TACTICS
GREENMAIL- a payment by a firm to a hostile party for the firm’s stock at a premium, made
when the firm’s management feels that the hostile party is about to make a tender offer.
GOLDEN PARACHUTE- a prearranged contract with managers specifying that, in the event of a
hostile takeover, the target firm’s managers will be paid a significant severance package.
POISON PILL- used by a company to give shareholders certain rights in the event of takeover by
another firm.

GLOBALIZATION- has two meanings. One is the increase in international exchange, including trade in
goods and services as well as exchange, including trade in goods and services as well as exchange of
money, ideas, and information. Two is the growing similarity of laws, rules, norms, values, and ideas
across countries.

FACTORS AFFECTING A NATION’S COMPETITIVENESS

 FACTOR ENDOWNMENTS- a nation’s position in factors of production
 DEMAND CONDITIONS- The nature of home market demand for the industry’s product or
service.
  RELATED AND SUPPORTING INDUSTRIES- the presence, absence and quality in the nation of
supplier industries and other related industries that supply services, support or technology to
firms in the industry value chain.
 FIRM STRATEGY, STRUCTURE AND RIVALRY- The conditions in the nation governing how
companies are created, organized and managed as well as the nature of domestic rivalry. Rivalry
is particularly intense in nations with conditions of strong consumer demand, strong supplier
bases and high new entrant potential from related industries.

INTERNATIONAL EXPANSION: A COMPANY’S RISK

1. POLITICAL RISK- potential threat to a firm’s operations in a country due to ineffectiveness of the
domestic political system
2. ECONOMIC RISK- Potential threat to a firm’s operations in a country due to economic policies
and conditions, including property rights laws and enforcement of those laws.
3. CURRENCY RISK- potential threat to a firm’s operations in a country due to fluctuations in the
local currency’s exchange rate.
4. MANAGEMENT RISK- potential threat to a firm’s operations in a country due to the problems
that managers have making decisions in the context of foreign markets.

GLOBAL DISPERSION OF VALUE CHAINS:

 OUTSOURCING- Occur when a firm decides to utilize other firms to perform value creating
activities that were previously performed in-house.
 OFFSHORING- takes place when a firm decides to shift an activity that they were performing in
domestic location. Or shifting a value creating activities from a domestic to a foreign location.

FOUR BASIC STRATEGIES CAN BE USE TO COMPETE IN THE GLOBAL MARKETPLACE

1. INTERNATIONAL STRATEGY- a strategy based on firm’s diffusion and adaptation of the parent
companies knowledge and expertise to foreign markets, used in industries where the pressures
for both local adaptation and lowering costs are low.
2. GLOBAL STRATEGY- a strategy based on firm’s centralization and control by the corporate office,
with the primarily emphasis on controlling costs and used in industries where the pressure for
local adaptation is low and the pressure for lowering costs is high.
3. MULTIDOMESTIC STRATEGY- a strategy based n firm’s differentiating their products and services
to adapt to local markets, used in industries, where the pressure for local adaptation is high and
the pressure for lowering costs is low.
4. TRANSNATIONAL STRATEGY- a strategy based on firm’s optimizing the trade-offs associated
with efficiency, local adaptation and learning used in industries where the pressure for both local
adaptation and lowering costs are high.

ENTRY MODES OF INTERNATIONAL

 EXPORTING- producing goods in one country to sell to residents of another country.
 LICENSING- a contractual arrangement in which a company receives a royalty or fee in exchange
for the right to use its trademark, patent, trade secret or other valuable intellectual property.
  FRANCHISING- a contractual arrangement in which a company receives a royalty or fee in
exchange for the right to use its intellectual property; it usually involves a longer period than
licensing and includes other factors such as monitoring of operations, training and advertising.
 WHOLLY OWNED SUBSIDIARY- A business in which a multinational company owns 100 % of the
stock

ENTREPRENEURSHIP- the creation of new value by an existing organization or new venture that involves
the assumption of risk

OPPORTUNITY RECOGNITION- the process of discovering and evaluating changes in the business
environment such as a new technology, socio-cultural trends, or shifts in consumer demand that can be
exploited; Four qualities for an opportunity to be viable: Attractive, Achievable, Durable, Value creating.

ENTREPRENEURIAL RESOURCES
 FINANCIAL RESOURCES- one of the most important resources of an entrepreneurial firm. Some
sources of small business finance are bank financing, public financing and venture capital.
 HUMAN CAPITAL- The most important asset an entrepreneurial firm can have is strong and
skilled management.
 SOCIAL CAPITAL- New ventures founded by entrepreneurs who have extensive social contacts
are more likely to succeed than are ventures started without the support of a social network.
 GOVERNMENT RESOURCES- Many government agencies support entrepreneurial firms by giving
them to participate to bid on contracts to provide goods and services to the government.

ENTREPRENEURIAL STRATEGY- a strategy that enables a skilled and dedicated entrepreneur, with a
viable opportunity and access to sufficient resources, to successfully launch a new venture.

THREE ENTRY STRATEGIES

1. PIONEERING NEW ENTRY- A firm’s entry into an industry with a radical new product or highly
innovative service that changes the way business is conducted.
2. IMITATIVE NEW ENTRY- a firm’s entry into an industry with products or services that capitalize
on proven market successes and that usually has a strong marketing orientation.
3. ADAPTIVE NEW ENTRY- A firm’s entry into an industry by offering a product or service that is
somewhat new and sufficiently different to create value for customers by capitalizing on current
market trends.

COMPETITIVE DYNAMICS- Intense rivalry, involving actions and responses among similar competitors
vying for the same customers in a marketplace

MODEL OF COMPETITIVE DYNAMICS

  NEW COMPETITIVE ACTION- acts that might provoke competitors to react, such as new market
entry, price cutting, imitating successful products and expanding production capacity.

Five reasons why companies launch new competitive actions

1. Improve market position
2. Capitalize on growing demand
3. Expand production capacity
4. Provide an innovative new solution
5. Obtain first mover advantages.

 THREAT ANALYSIS-A firm’s awareness of its closest competitors and the kinds of competitive
actions they might be planning.
 Market commonality- the extent to which competitors are vying for the same customers
in the same markets.
 Resource similarity- the extent to which rivals draw from the same types of strategic
resources.
 MOTIVATION AND CAPABILITY TO RESPOND- Companies need to evaluate on how they will
respond to competitors attacked. They need to be clear about what problems a competitive
response is expected to address and what types of problems it might create.
 TYPES OF COMPETITIVE ACTIONS
 Strategic Actions- Major commitments of distinctive and specific resources to
strategic initiatives.
 Tactical Actions- refinements or extensions of strategies usually involving minor
resource commitments.

 LIKEHOOD OF COMPETITIVE REACTION

 Market dependence- If a company has a high concentration of its business in a particular
industry.
 Competitor’s resources- one of the factors that need to be considered in assessing
competitor’s ability to respond.
 Actor’s reputation- whether a company should respond to a competitive challenge will
also depend on who launched the attack against it.
 Forbearance- a firm’s choice of not reacting to a rival’s new competitive action.
 Co-opetition- a firm’s strategy of both cooperating and competing with rival firms.