STRATMASEMI and adopt.

However, despite similar forces and

elements faced by companies in a particular industry,
CONCEPT AND NATURE OF A STRATEGY
businesses still adopt different ways of reacting to
The term "strategy" comes from the Greek word situations. Wheelen and Hunger (2010) referred to
strategia which refers to the art of a troop leader or a them as strategic types which represent the category
general. Dess et al. (2012) defines strategy as the of companies based on their common strategic
analysis, decision, and action that enables a company orientation and combination of structure, culture, and
to succeed. Wheelen and Hunger (2010) define it as processes.
the comprehensive plan that states how a company
will achieve its mission and objectives. In the context The four strategic types are as follows:
of strategic management, this text defines strategy as 1. Defenders. These are businesses with few
a plan formulated after an extensive critical analysis product lines, and they intend to defend them
of a company's resources which is then implemented from new products entering the market. Their
in order for a company to achieve its mission and foremost concern is how to improve their
objectives effectively. operating activities in terms of cost reduction.
Companies that formulate their strategies without Being cost- and efficiency-oriented, they are
critically analyzing the external and internal unlikely to make bolder steps to innovate and
environments are likely to face business difficulties move to new areas.
which could lead to failure. Weak and defective 2. Prospectors. These are companies with
strategies are hollow. Good and effective strategies broad lines of products. Product development
make companies achieve competitive advantage and innovation, and a new market are the essence
overcome competitive disadvantage. They guide a of their strategy orientation, Creativity for
company to take the most appropriate steps in the them is more important than efficiency in
event of adversaries and unfavorable changes in the operations,
environment. They can also be used as a basis for 3. Analyzers. These are multi-divisional
performance analysis. companies that compete in at least two types
industries, one stable and one variable, while
Characteristics of a Good and Effective Strategy maintaining stability and flexibility.
4. Reactors. These are businesses that do not
A good and effective strategy has the following
have firm or consistent strategic orientations
features:
They adopt piecemeal or quick-response
1. It is based on critical analyses of different strategies which are oftentimes ineffective to
factors comprising a company's environment. the pressures, changes, and challenges of the
2. It is supported by relevant data obtained from environment.
reliable sources.
Hierarchy of Strategies
3. It is directed to and aligned with the
organizational goals and objectives of a The types of strategies according to hierarchy are as
company. follows:
4. It is clear and realistic.
5. It considers a company's limitations in 1. Corporate strategy
resources and capabilities. 2. Business strategy
6. It provides operational directions and guides 3. Functional strategy
a company's decision-making. A corporate strategy, which is usually formulated by
7. It covers a long-term period. the top-level management, is comprehensive master
8. It uses key indicators that are realistic, plan that describes the overall direction of a
measurable, and attainable. company. A business strategy which occurs at the
9. It makes use of reasonable assumptions based business or product unit, describes how a company
on available information. improves its competition position in a specific
10. It depicts the nature of a business and its industry. A functional strategy is a plan taken by
priorities. functional areas the intended to maximize the
Strategic Types of Businesses productivity of a resource to achieve competitive
advantage.
The level or intensity of competition in an industry
influences the strategy that a company may formulate
These three strategies do not operate independently of Growth strategies are broadly classified into two as
each other but complement and support each other. follows:
For example, the business strategy must be aligned
1. Concentration strategy
with the corporate strategy to achieve organizational
2. Diversification strategy
goals and objectives. In a similar manner, the business
strategy must support functional strategy in the Concentration Strategy
maximization of resource productivity. Figure 7.1
presents the hierarchy the strategies and the concerns A concentration strategy is appropriate to adopt when
of each level. a company can reasonably determine that its current
product lines have real growth potentials. This
strategy works effectively when an industry is
growing and attractive.

The two types of concentration strategies are as

follows:

1. Horizontal growth strategy

2. Vertical growth strategy

Horizontal growth strategy. In a horizontal growth

strategy, a business expands its operations in two
Strategy formulation, the first stage of the strategic ways as follows:
management process, is the process developing a 1. By entering into other geographic locations
comprehensive plan to effectively manage the 2. By increasing the range of product lines for
external environmental strategic forces (e.g., the current market
opportunities and threats) relative to a company's
strengths and weaknesses. Strategy formulation A horizontal growth strategy results in a horizontal
occurs after a thorough and critical analysis of the integration where a company operates in various
environment is conducted. It is not however, a rigid geographic locations. A company can make an
and fixed process. When new developments happen international entry using the following mechanisms:
in the environment while the strategies are being 1. Exporting - A company ships goods to other
formulated, the new development is considered in foreign countries.
setting the direction of the strategies. 2. Licensing - A company enters into an
CORPORATE STRATEGY agreement with another company from
another country to produce or sell the
The formulation of a corporate strategy is conducted product/s of the former.
by the top-level management, with inputs from 3. Franchising-A company enters into an
stakeholders in the form of quantitative or qualitative agreement with a franchiser to use the name
information. It is concerned with the overall direction and system of the latter.
of a company and is considered the general or grand 4. Joint venture A company combines its
strategy of the company. This strategy is broadly resources with other companies from foreign
categorized into three general orientations as follows: countries to produce new products.
1. Growth strategy 5. Acquisition - A company purchases a foreign
2. Stability strategy company.
3. Retrenchment strategy 6. Green-field development A company
constructs its own plant and invests with
GROWTH STRATEGY other assets in a foreign country.
7. Turnkey operations - A company constructs
A growth strategy is a corporate strategy that a
operating facilities and transfers the same the
company may adopt if it aims to expand its present
host country when completed.
operating activities. In short, the company intends to
8. BOT (build, operate, transfer) scheme A
grow. Growth may happen internally or externally.
company constructs facilities, operates then
Internal growth occurs when a company expands its
when completed, and turns them over to the
operation domestically or globally. On the other hand,
host country.
external growth happens when a company enters into
mergers, acquisitions, or strategic alliances.
Vertical growth strategy. A company takes over the 2. How do you differentiate concentric diversification
from conglomerate diversification?
functions of a supplier and a distribute in a vertical
growth strategy. It results in a vertical integration STABILITY STRATEGY
where a company takes high responsibility of all
activities in the value chain (eg. from the acquisition Another type of corporate strategy is stability
of raw materials up to the delivery to final customers). strategy. In this strategy, a company plans to continue
The degrees of vertical integration are categorized as its current activities without substantial change in its
follows: direction. It is effective for short-term planning but
may be detrimental if used for long-term planning.
1. Full integration - A company takes 100% Small businesses can benefit using this strategy
control of the value chain. because they usually belong to a predictable
1. 2 Taper integration (backward integration) - environment.
A company acquires not more than 50% d
requirements from outsiders. The common types of stability strategies are the
2. Quasi-integration (forward integration) - A following:
company purchases most of its requirement 1. Pause or proceed-with-caution strategy
from outsiders. 2. No-change strategy
3. Long-term contracts - A company enters 3. Profit strategy
into an agreement with other companies
provide goods to each other over a specified Pause or Proceed-with-Caution Strategy
period of time.
In a pause or proceed-with-caution strategy, a
Diversification Strategy company takes a temporary timeout from its major
activities while observing changes in its external
A diversification strategy is an appropriate growth environment. It is a temporary strategy. In such a
strategy when the original industry appears to have situation, a company does not make significant moves
matured, plateaued, and consolidated already. until the environment becomes favorable to them.
Diversification growth strategies can be categorized This is the strategy adopted by most companies when
as follows: there is a financial crackdown and a pessimistic
1. Concentric diversification strategy economic outlook.
2. Conglomerate diversification strategy The pause or proceed-with-caution strategy does not
Concentric diversification strategy. The concentric imply that a company will shut down its operations. It
diversification growth strategy is more appropriate in only temporarily stops major critical activities before
a less attractive industry and for a company with a shifting to the growth or retrenchment strategy. The
strong competitive position. In this case, a company company makes a deeper critical analysis of the
has a greater chance to succeed by utilizing its core environment before making any bold steps. This will
competency in exploiting a related industry. For enable the company to consolidate its resources for a
example, a company manufacturing refrigerators competitive position before moving to the growth
employs concentric diversification as its growth strategy.
strategy when it starts to manufacture air- No-Change Strategy
conditioning units for houses and commercial units.
When an industry is not facing turbulent variables and
Conglomerate diversification strategy. a company is enjoying the fruits of its continued
Conglomerate diversification happens when a successful activities, it may adopt the no-change
company enters another industry which is not related strategy as its corporate strategy. This indicates that
to the industry where it presently belongs. A company the company, which has a dominant position in the
may consider this strategy as its growth strategy when market, will not take anything new; rather, it will
its present industry is no longer attractive and it lacks continue implementing its current activities in the
the required abilities to transfer resources to related near future.
products or services. For example, a company
engaged in transportation may enter the The no-change strategy is effective when an industry
manufacturing industry. is relatively stable with little expected growth, and
consolidation is not expected to occur in the
Questions
foreseeable future. However, businesses that are not
1. What are the two types of growth strategies?
maintaining successful operations may find this business. In the consolidation stage, resources are
strategy detrimental. consolidated, programs are developed, and the
remaining best and qualified personnel are motivated
Profit Strategy
to establish a new look and a strong company that can
As a corporate strategy, the profit strategy is a achieve competitive advantage in an industry.
temporary plan for a company in its desire increase its
Captive Company Strategy
profits when revenues are declining. It is a cost-
cutting mechanism to address a decline in profit The captive company strategy is adopted by a
because of a decrease in sales. Companies may reduce company that has a weak competitive position in an
their discretionary expenditures operating expenses industry and does not have the capability to
on advertising, research and development implement a complete turnaround strategy. In this
expenditures, and investments as a way of supporting strategy, a weak company becomes the captive of a
the profits. strong company, which is usually its customers, in
order to have continued existence. This means that the
In a profit strategy, a company usually has a
majority of the sales of the weak company is
disadvantaged position in an industry. The way of
dependent on the strong company, which is conducted
supporting the profits. management blames their
through long-term contracts. It is inevitable for the
company's poor position in relation to the external
weak company to lose its corporate independence in
factors of the environment such as the lack of
exchange for financial security.
government support, unethical competition, financial
crackdown or unfavorable market conditions. This Sell-out or Divestment Strategy
strategy may not be beneficial for a company if
The term "sell-out" implies that a business is selling
adopted as a long-term strategy
the entire company, including all the business units
Exercises and divisions. However, “divestment” occurs when a
1. Justify when a company should adopt the stability company only sells its division or business unit that
strategy as their corporate strategy. does not operate profitably. This strategy is adopted
2. Describe the three types of stability strategies. when a company has a weak competitive position in
RETRENCHMENT STRATEGY an industry and is not able to look for a strong partner
to whom its business unit can be a captive. A sell-out
The third type of corporate strategy that a top-level or divestment strategy is a favorable option when a
management may formulate is the retrenchment company is able to look for a good price for the
strategy. This is the strategy to be adopted when a company.
company experiences poor competitive position and
operating performance and competitive disadvantage. Bankruptcy or Liquidation Strategy
The most common retrenchment strategies include The bankruptcy or liquidation strategy is adopted
the following: when a company that is suffering heavy losses
1. Turnaround strategy terminates its operations. In bankruptcy, a company
gives up its management to a court and settles some
2. Captive company strategy
3. Sell-out or divestment strategy financial obligations in return. Meanwhile,
4. Bankruptcy or liquidation strategy liquidation involves the conversion of non-cash
assets to cash through selling to settle financial
Turnaround Strategy obligations. This is usually the last strategy that a
company adopts when it has a very weak competitive
The turnaround strategy is adopted when a company
position in an industry and nobody is willing to buy
is not yet critically bleeding financially A company
the company.
intends to improve its operational efficiency by
adopting drastic actions for a leaner organization. It In the formulation of a corporate strategy, there are
undergoes two basic phases-contraction and several factors that must be considered. One
consolidation. important factor is the industry itself. An industry
must be evaluated in terms of its growth, level of
In contraction, being the initial stage of this strategy,
competition, factors and barriers influencing
there is an overall cost reduction in the entire
competition, industry structure, and its present stage
company. Businesses that do not appear profitable are
in the industry cycle.
divested, processing plants are closed and jobs across
the company are eliminated to have a strong lean
Another important factor that must be considered is Conduct a critical environmental analysis. The first
the status of a company in an industry. Companies step in strategy formulation is to conduct a deep and
that have competitive advantage tend to adopt the critical environmental analysis. It is intended for the
growth strategy as their corporate strategy, but gathering of reliable and relevant information as basis
companies with weak competitive positions consider when making a sound forecast about an industry (e.g.,
the retrenchment strategy. expected trends, growth, and competitive forces) and
the capability of a company to exploit its resources for
Figure 8.3 presents the different types of corporate
competitive advantage. Figure 6.3 of Chapter 6
strategies and the different variations under them.
presents the interrelated and interdependent activities
Questions when conducting an environmental analysis.
1. How is a turnaround strategy different from a captive Set the overall orientation of the company. With the
company strategy?
relevant and reliable data on hand provided by an
2. When can the sell-out strategy be executed?
3. What is the bankruptcy or liquidation strategy? environmental analysis, the next step is to set the
overall orientation of a company. A company can
CRAFTING A CORPORATE LEVEL choose to adopt the growth, stability, or retrenchment
STRATEGY strategy. When deciding on the behavior and
There are several suggested ways of formulating preferences, societal factors, and internal
corporate level strategies, as there can be various environment factors, should be highly future overall
conflicting issues that a company may attempt to direction of a company considered. company, the
resolve. The three key issues that must be settled first industry, particularly its growth and life cycle,
in the formulation of a corporate level strategy are as customer behavior and preferences, societal factors,
follows: and internal environment factors, should be highly
considered
1. The overall orientation of a company toward
growth, stability, or retrenchment Identify the industry or market to compete in. At
the corporate level, it must be clear what industry or
2. The industry or the market that a company intends market a company will compete in. This is especially
to compete in true if a company adopts the company cannot serve
all types of customers with different tastes,
3. The manner in which a company builds its
preferences and priorities. This way, a company will
capabilities and supports its functional units
be able to focus its efforts and activities toward its
Considering the significant contributions of the three ultimate growth strategy. A comp direction. This is
key issues, the best way to formulate, corporate easily facilitated with the aid of a portfolio analysis,
strategy is by doing the following: particularly the BCG growth-share matrix model
1. Conduct a critical environmental analysis. Define how the company transfers resources to its
2. Set the overall orientation of the company. business or functional units. Different functional
3. Identify the industry or market to compete in. units do not operate independently for their own
4. Define how the company transfers resources growth and success. The last stage of corporate
to its business or functional units. strategy formulation involves a business being able to
define how its different functional units create
These steps are not rigid and distinct from each other;
synergy as it transfers resources from one unit to
rather, the entire process is reiterative It involves
another. At the corporate level. the different
continuous refinement by moving from one step to
functional units must be able to obtain synergy in
another. The bottom line of these steps is to answer
view of the resources, skills, and capabilities provided
the following "how" questions:
to them. This cascades down to the achievement of
1. For the growth strategy: How can growth be competitive advantage.
achieved in a company?
2. For the stability strategy: How can the current
performance be continued to achieve
stability?
3. For the retrenchment strategy: How can the
present operating activities discontinue but
receive a fair return on investment?
BUSINESS STRATEGY Table 8.1 presents the differences of these four
variations. The two dimensions where these
The second level of strategy in strategic
variations differ are the breadth of the market and the
management is business strategy. This strategy is
area where to gain competitiveness.
formulated at the middle-level management with
strong and close coordination with the corporate and
functional levels. Business strategies provide the
plans on how a company should compete in an
industry and gain and sustain competitive advantage.

The following are commonly raised questions

in the formulation of business level strategies:
• Lower Cost Strategy
1. What business should the company compete
with? The lower cost strategy is a business level
strategy that enables a company to produce a
2. Should the business compete in cost? comparatively similar product more efficiently than
its competitors. A company that pursues the lower
3. Should the business differentiate its products
cost strategy has to critically evaluate its entire value
or services from others to become
chain for two reasons: to lower the cost of the product,
competitive?
and to eliminate activities that do not add value to the
4. Should the business compete with the largest product. This does not mean, however, that the quality
competitor? of the product should be sacrificed. It is highly
emphasized that the needs and wants of the customers
5. Should the business compete on a particular
are the primary concerns when producing goods.
niche?
Customers tend to avoid buying low-cost products
Business level strategies are broadly classified once these items are proven to be of low-quality or
as follows: defective.

1. Competitive strategy Companies that adopt the lower cost strategy as

their competitive business level strategy may be able
2. Cooperative strategy to attain their competitiveness in cost through the
COMPETITIVE STRATEGY following ways:

A competitive strategy is designed to 1. Produce products at costs lower than that of

outperform or battle against all competitors, whether their competitors.
a close rival or not, for a company's advantage. The 2. Remove activities in the value chain that do
following are the two kinds of competitive strategies: not add value to a product from the
1. Lower cost strategy customers' perspective.

2. Differentiation strategy The two variations of lower cost strategy are as

follows:
A very important factor to consider in the
selection of a competitive strategy is the market to 1. Cost leadership
serve. A business, after considering its resources and Cost leadership, as a lower cost strategy, can be
industry in terms of growth and intensity of adopted by companies that aim to serve a broad target
competition, may serve a broad or a narrow market. A market with low-cost products or services. They can
broad market implies a wider geographic area, several sell their products or services at low competitive
types of buyers, different product lines, and complex prices and still earn satisfactory profit levels. The
distribution channels. As a result, there are four production of low-cost goods entails multiple
variations of competitive strategies that a business technical operations, especially in the facilities and
unit may choose from after considering the materials used in the production, in order to reduce or
aforementioned factors. control costs at reasonable levels. The different
The four variations of competitive strategies activities of an entire operation are continuously
are the following: evaluated for possible ways to reduce or adjust the
cost.
1. Cost leadership
A company with cost leadership as its
2. Cost focus competitive business strategy does not necessarily
3. Differentiation mean that they are considered the market leader. With
an effective cost leadership strategy, a company is
4. Differentiation focus able to withstand the five forces of competition. For
example, a business may not consider substitute A product or service may be able to gain
products as a threat to its low-cost products. competitive advantage through differentiation if the
following conditions are present:
2. Cost focus
1. The product or service is considered
The cost focus, as a lower cost strategy, is a
unique in terms of performance, features,
strategy that is more appropriate to employ when a
reliability and so on as perceived by the
company's target market is narrow (e.g., a niche
customers.
market), and it aims to compete in cost. A company
does not have to engage in heavy advertising to 2. The product provides value from the
promote its product or service, but it should focus all perspective of the customers.
its marketing and promotional activities to a selected
4. Differentiation focus
niche only. This indicates that the design of the
product and all its features are intended to satisfy the Differentiation focus is a competitive business
requirements of the niche market. In other words, a strategy that focuses on the needs of a narrow market
company aims to obtain competitive edge in the niche by providing a product or service that is differentiated
by offering low-cost products and, at the same time, from competitors. Companies advocating for this
dominating a large portion of it. strategy have a strong belief that a unique product
intended to serve a niche market has greater
• Differentiation Strategy
advantage than products that aim to address the
Differentiation strategy is another competitive different needs of different users. Studies reveal that
strategy that a company may consider in the process companies who adopt differentiation focus have
of formulating its business level strategy. With the greater market shares than companies who employ
differentiation strategy, a company intends to other types of competitive strategies.
compete using the uniqueness of its product from the
The two competitive strategies, including their
perspective of the customers relative to its value,
variations, will not provide competitive advantage to
quality, features, and even the services provided after
a company under the following situations:
the sale.
1. The uniqueness of a product is imitated by
Differentiation can be in the form of packaging,
competitors.
features, design, technology, brand image,
innovation, and, customer service. A differentiation 2. The basis that differentiates the product or
strategy becomes more effective under the following service is less important to the buyers.
situations:
3. The demand for the product or service
1. When technological changes are fast disappears.
2. When there are various ways to differentiate 4. There is a change in technology.
the product
5. The market is becoming less attractive.
3. When consumers have different needs
COOPERATIVE STRATEGY
4. When only a few competitors adopt a similar
A company may be able to obtain competitive
approach to differentiate their products
advantage in an industry not only through
The two variations of the differentiation competition but also by cooperating with other
strategy are as follows: companies in the industry. This business level
strategy is called cooperative strategy. It aims to
3. Differentiation
achieve competitive advantage by working with other
As a business level strategy, is a strategy companies.
designed to serve a wider target market and achieve
The two types of cooperative strategies are as
competitive advantage by offering products which are
follows:
unique relative to the quality and value from the
customers' view. The uniqueness of a product can be 1. Collusion
in the form of its performance, features, reliability,
Collusion exists when competitors expressly or
durability, conformance, serviceability, aesthetics,
impliedly agree to reduce their production (supply) so
and perceived quality. Companies that adopt the
that the prices of goods produced will increase or
differentiation strategy tend to realize higher profits
remain high. This is an illegal form of cooperative
than those who employ other types of competitive
strategy in most countries, and the government can
strategies.
impose fines on colluding companies if proven.
 Collusion can be explicit or tacit. In an explicit each other resulting in a closer, long-term
collusion, cooperating companies conspire through relationship. For example, a company may outsource
direct communication and negotiation. In a tacit some of its activities from suppliers or it may involve
collusion, cooperating companies conspire indirectly suppliers in the design of products.
through informal means. Collusion among competing
FACTORS INFLUENCING THE SELECTION
companies reduces competition at the expense of the
OF A BUSINESS LEVEL STRATEGY
consumers.
Corporate level strategies are designed to
2. Strategic alliances
provide the overall direction of a company. There are
Companies form strategic alliances to achieve three major classifications of corporate level
competitive advantage by entering into a long-term strategies, namely, the growth, stability, and
arrangement for mutual benefits. Companies engage retrenchment strategies. On the other hand, business
in strategic alliances for the following reasons: level strategies are formulated so that a company can
gain competitive advantage in an industry. There are
1. To reduce business risks in relation to
two major types of business level strategies, namely,
finance, politics, legal matters, and so on
the competitive and cooperative strategies. These two
2. To enter the international market levels of strategies are closely coordinated, with the
business level strategies supporting the corporate
3. To improve capabilities level strategies.
The following are the different types of Since a business level strategy is designed for
strategic alliances that companies may enter into: a company to gain competitive advantage in an
1. Mutual service consortium industry, it would mean that the two business level
strategies (i.e., competitive and cooperative) support
Mutual service consortium. This is a the corporate growth strategy. This indicates that
partnership established by similar companies in an there are no business level strategies that support the
industry who put together their resources but not their
core competencies for a particular project that is too
expensive for one company to undertake. It is a fairly
weak alliance since little interaction happens among
the participating companies.

2. Joint venture

Joint venture. In a joint venture arrangement,

similar participating companies, while preserving remaining two corporate strategies (i.e., stability and
their own legal entities, temporarily establish an retrenchment). Figure 8.1 shows this relationship.
independent separate unit. The newly created
business unit independently undertakes a project or The strategic management model discussed in
activity for which it is created. The operational this book, which is presented in Figure 1.3 of Chapter
responsibilities, ownership, and even financial 1, illustrates that a strategic environmental analysis
rewards are allocated among the partners. The joint and evaluation must be conducted first before a
venture is dissolved once the project is completed strategy, whether planned or reactive, is formulated.
The environmental analysis, particularly the industry
3. Licensing analysis, will identify the degree of competition
among existing companies. In addition to the different
Licensing. Licensing happens when a company
industry forces that influence the selection of a
in a particular country (e.g., a licensing company)
business level strategy, the following elements must
grants rights to another company in another country
be highly considered:
(licensee) to produce or sell the products of the
former. It is an effective strategic alliance when the 1. Industry structure (fragmented and
licensing company finds it very expensive to establish consolidated)
an operating unit in a foreign country. The licensee
pays a certain amount for the technical assistance 2. Industry evolutionary stage (embryonic,
provided by the licensing company. growth, shakeout, mature, and decline)

4. Value chain partnership 3. Product life cycle (introduction, growth,

maturity, and decline)
Value chain partnership. This type of strategic
alliance is established when a company makes a long- 4. Company's skills and resources
term agreement with its key supplier or distributor for
mutual advantage. Both companies work closely with
 5. Figure 8.2 presents the two major types of ISSUES TO RESOLVE IN BUSINESS LEVEL
business level strategies and the different STRATEGY FORMULATION
variations under each.
In the formulation of a business-level strategy,
(Table at the back page) the three important issues that must be resolved are as
follows:
REQUIRED SKILLS AND RESOURCES
1. The strengths, weaknesses,
The selection of a business-level strategy is not
opportunities, and threats of a company.
simply based on the whims and caprices of managers.
There is a need for a company to assess its skills and 2. The forces of competition in an industry.
resources as it aims to achieve competitive advantage.
3. The location in which a company
There is a need to assess its strengths and weaknesses.
competes.
A company without the required skills and resources
to compete, either in cost or differentiation, will lose The Location in which a Company Competes
in a competition.
Based on the business-level strategy adopted, a
Overall Cost Leadership Strategy company can compete either in the market location of
its competitor or in its current market position.
A company must possess the following skills
Competing in the market location of a competitor is
and resources when adopting the overall cost
considered an offensive tactic, while competing in
leadership strategy:
the current market location is considered a defensive
1. It must have a low-cost production and tactic.
distribution system.
A company can adopt the following offensive
2. There is ease in the design and tactics:
manufacture of a product.
1. Frontal assault
3. It must have an effective process
2. Flanking maneuver
engineering skill.
3. Guerrilla warfare
4. It requires intense supervision and
monitoring of production costs. 4. Bypass attack
5. There is easy access to funding from both Frontal assault: With this tactic, a
internal and external sources. company attacks its competitor head-to-head,
from pricing down to distribution.
Differentiation Strategy
Flanking maneuver: A company attacks
When adopting the differentiation strategy, a
the market where its competitor is weak.
company must have the following skills and
resources: Guerrilla warfare: It is an offensive attack
characterized by the use of small intermittent
1. The company has creative and innovative
attacks on the market held by a competitor.
capabilities.
Bypass attack: This offensive attack
2. There is efficient product engineering.
redefines the market where a company offers a
3. It has strong orientation in business new product that makes its competitor’s product
research. outdated.

4. It has a good reputation in technology The following are major defensive tactics that
and quality performance. a company can implement:

5. It has strong marketing abilities and 1. Increase entry barriers.

capabilities.
2. Increase the expected aggressive
Focus Strategy retaliation.

When a company intends to adopt the focus 3. Lower the inducement for possible attacks.
strategy, it must possess the above-mentioned
Increase entry barriers: When the entry
combined skills and resources relative to a particular
barriers are increased considerably, a new entrant
target market, either a cost focus or differentiation
is discouraged to enter a market.
focus market.
Increase the expected aggressive
retaliation: Expected entrants are discouraged to
 join a market or industry when they perceive The analysis and evaluation are aided by the resource-
aggressive retaliation from existing companies. based framework, a SWOT analysis, or a value chain
analysis.
Lower the inducement for possible
attacks: Possible new entrants are discouraged to Define the Specific Business Level Strategy to be
join when they are expecting a low profit level in Adopted
a market.
The assessment of the industry and the
Crafting a Business Level Strategy
resources of a company leads to the identification of
Corporate strategy precedes business strategy. the most appropriate business-level strategy. It is
This means that a business strategy is formulated once highly emphasized that the minimum requirements of
a company, at the corporate level, has already the particular strategy, including the aspect of where
determined the market or industry to compete in. The to compete, must be satisfied in the selection of the
objective of making a business-level strategy is to business-level strategy. For example, the cost focus
gain and sustain competitive advantage in an industry. strategy is more appropriate when the objective is to
compete on cost in a narrow market. In this strategy,
The basic question that guides the formulation
the objective is to compete on cost, and the
of a business-level strategy is: How can a company
requirement is that the market should be narrow.
outperform its closest rival and other competitors
in a market? The corollary question is: How can a Map the Tactic to be Employed
company achieve competitive advantage in an
industry? The final step is to define where a company
will implement its selected business-level strategy.
The following steps are to be observed when
The company has to decide whether it will compete
formulating a business-level strategy:
in its current market situation, using the defensive
1. Conduct a thorough evaluation of the tactic, or in the market situation of its competitor,
industry or market identified at the using the offensive tactic.
corporate level.

2. Assess the internal resources and

capabilities of the company.

3. Define the specific business level strategy

to be adopted.

4. Map the tactic to be employed (offensive or

defensive).

Conduct a Thorough Evaluation of the Industry

or Market Identified at the Corporate Level

The industry or market that has been initially

defined and analyzed at the corporate level is the
starting point of the business-level strategy
formulation. At this time, however, there is a need to
make a deeper analysis and evaluation using Porter’s
five forces of competition model. It begins by
identifying and defining the structure of the industry
and its life cycle, product life cycle, market
preference, closest rival, and the expected risks
involved. The final output of the evaluation is the
identification of the opportunities to be exploited and
the threats that must be avoided.

Assess the Internal Resources and Capabilities of

the Company

Once the opportunities and expected benefits

have been identified, the next step is to assess the
company’s available resources and capabilities. This
will ensure that the company has the resources and
required competency to gain competitive advantage.