1 | ee 4 1 N = : bE R Factors (Select the most : safant opportunities/threats sis iar, Table 4-5 and the most ularly fro Fant strengths ry weaknesses - olalo Table 5-2 /eightes pers mn wi | ang || YT] a ;—— E Comments, 71 Quality Maytag culture (S) 10 5.0 5K 2 §§ Hoover's international 50 X | Quality key to success orientation (S) 10 mee : 28 _ yb Financial position (W) 10 4a 38 |X| XY | Name recognition o> Ws Global positioning (W) «5 22 a hello a : ly in . U.K., and + 0} Economic integration of ‘Australia es 10 | ad al X | Acquistion of (© Demographics favor quality (0) | 10 5.0 50 x hia aaine > 05 ‘Trend to super stores (O +) 10 18 is |x eee 1} Whitlpool and Electrolux (T) a5 30 as |x Pa “15 lgaese appliance Jominate industry |_exmparies 1) 10 16 16 X | Asian presence Toll Scores 1.00 3.01 “ie |. List each of the most important factors developed in your IFAS and EFAS Tables in Column 1. 2. Weight each factor from 1.0 (Most Important) to 0.0 (Not Important) in Column 2 based on that factors probable impact on the compa |_ 2 strategic position, The total weights must sum to 1.00. (Rate each factor from 5.0 (Outstanding) to 1.0 (Poor) in Colut 4 Makiply each factor’s weight times its rating to obtain each factor’ wei |. Reeduation in Column 5, check appropriate column (short term—Iess than 1-year; intermedi [We Colum 6 (comments fr rationale used for ech feo. umn 3 based on the company's response to that factor. jghted score in Column 4. * fiate—1 to 3 years; ong termm—over 3 years). SOURCE TL. Whe ; s SPAS)" Copyright © 1987, 1988, 1989, 1990, 1991, 1982, 1993, Im igs Wheelen, J.D, Hunger, “Strategic Factor Anaya a Wheelen and Asscits. Reprinted by permission. 5, 1996 and 2005 by T.L. Wheelen Copyright oak 6.3 Generating Alte WS Matrix — oe pee TO s e oo WOT analysis to assess is situation, sor can vecussed bow amuses SU! TT Tie strategies. The TOWS Mattie ~ “Thus far we have discussed TN of possible aera the extemal opportunities and also be used to generate # Ty swOr) illustra ar company’s intemal strengths (TOWS is just anole oration a Be matched Wi mnatives. (See Figure 6-3.) This threats facing a particulat . rar sets of possible siecle might at oer be tnd weaknesses to result OT reat alterna’ : rain is a good way to use native Strategies by Using aAED) PART 3 strtegy Formulation The Strategic Sweet Spot Ficure 6-2 ae The Strategic ‘The strategic sweet spot Of 8 i oe is where it meets customers’ nee is in a way tat rivals can't, given the context SOURCE: D.J. Collis and MG. Rukstad, “Can Yo Business Review. “The Strategic Sweet Spot from April 2008. Copyright © 2008 by the Harvard Busi FIGURE 6-3 A. TOWS Matrix ‘racrons Sensths (S) Weaknesses (W) a0 externa, (FAS) Pel ea 10 interna List 5 - 10 internal re RS weaknesses here (EFAS) Bees (0) SO Strategies WO Strategies ~ 10 external opportunities here, eral strategies here Generate strategies her® advanetenaths to take that take advantage o! 'g@ of Opportunities opportunities by ae overcoming weaknesses reats ST Strate, List 5 ~ 10 external Ge a WT Strategies threats here at uaa aos here Generate strategies here ngths to that mint jknes avoi iat minimize weal ic threats ‘and avoid threats cprinted Jrom Long-Range Situational Analysis: e-Range Pi .60. ‘ange Plann Copyright © 1982 in which it competes. (technology, damoqraphes, regulation, and so on) ith, CONTEXT industry, CUSTOMERS’ needs 1 Say What Your Strategy Is?” Reprinted by permission of Havel “Can You Say What Strategy is?” by D. J. Collis & M.G-Ruissl iness School Publishing Corporation, All rights reserved. lf Vol. 15, No. 2, 1 aa 982, Weihrich “The TOWS Matrix Permission ofgRATEGY highlight 6.1 NATCO PHARMA INDIA; NICHE STRATEGY The Indian Pharm, industry is one of thy science-based aceutical 'e leading ‘ industries in bilities. It ranks very high in the third world, in terms. of yard range of medicines manufactured, wo o yype of medicine is now made indigenously in india? ‘te industry structure of Indian pharma industry 2 ted. AS per the Organization of Pharmaceu, Producers of India (OPPI) estimates, the industryis ve i with over 20,000 registered unit? companie, ‘atucng 400 bulk drugs and over 60,000 generic formu: igors? This means that none of the generic players get pamatket shares. Strong presence of substitute and com- sete generic drugs also means that the industry is septible to price competition. Ratco Pharama Limited is a niche company, which almost. sxiusnely sells generics in oncology. Natco Pharma Limited as incorporated in Hyderabad in 1981 with an initial rnesmnent of INR 3.3 million and mere 20 employees.* ‘Gexeraly speaking, in India no insurance policy covers the «at of daily medicines, therefore, affordability of daily éegsbecomes 2 key variable for the success of companies. The multinational products when sold in Indian markets a2 yery highly priced and therefore, unaffordable by peo- Sethe company understood this aspect of consumer ‘eed and behavior and introduced generic drugs in oncol- ‘m1 These drugs can be bought at 1/10-1/20 the price of considered. It forces strategié mat be use retrenchment strategies. It can Strategy Highlight 6.1 to learn ‘To generate a TOWS Matt nal Factor Analysis Summary (Ft nal Factor Analysis Summary ( Figure 6-4, t 1, In the Opportunitis or business unit's cul 2. In the Threats ( the future from th 3. In the Strengths () company or unit fro" ‘riginal product Natco’s business model is an alliance- | ake the following steps: es (0) block, lis rent and future block, list the ex! is BAS Table (Table 4-5). Jock, list the s aa IFAS Table (Tabl nagers to create variou ; id to generate corporate as well as business st about Natco Pharma's niche strategy. + for Maytag Corporation in 199: 2AS) Table listed in FAS) Table listed in based m ‘del. The company, using its strong technological capabilites apprenits develops a hard-to-make niche product. Then, it marketing oe to help out with the litigation and the markets with tee Paty helps its MNIC partner enter into rather nent lesser costs where the volume makes profits has heh Prices per unit. This niche-based business model ped Natco Pharma business grow from one unit to five manufacturin c 19 facilities spread than 2500 employees se inae wth more L Pharmaceutical Drug Manufacturers , Indian larmaceutical Industry, accessed on 25 Oct 2011, from http:twwww.pharmaceutical-drug-manufacturers.com/ pharmaceutical-industry/ 2. CCI,A Brief Report on Pharmaceutical Industry in india, Jan 2011, accessed on 25 Oct 2011, from http:uwww.cci.in/pdfisurveys. reportsindian- pharmaceuticals-industry. pdf 3. Overview, accessed on 25 Oct 2011, from httpzfinfo shine.com/industry-information/ Pharmaceuticals/819.aspx 4. Natco Pharma, Welcome to Natco Pharma Limited, accessed on 25 Oct 2011, from httpuwwwenatcopharma.co.inv 5. Media Center, Interview with Rajeev Nannapaneni, Focus reports, accessed on 25 Oct 2011, from * http:/Awww pharma focusreports.net/index.php* \ * state=interviewDetail€ide1288 *hutp:www pharma, focusreports.nev/index phpistate=interviewDetail&i e128 s kinds of growth as welll as ategies. See for example, use the Exter- ‘Table 4-5 from Chapter 4 and the Inter- 1 Table 5-2 from Chapter 5. To build jes available in the company's EFAS Table (Table 4-5). company or unit now and in 1 the external opportunit environment from the temal threats Facing the fe areas of current and future strength for the speciHEED vars Formulation = oration FIGURE 6-4 Ganerating # TOWS Matrix for Maytag Corp’ Weighted ‘Score ‘Comments \ Rating t Internal Strategic Factors 1 f ee hl | Strengths 15 Quality key t0 success SI Quality Maytag culture lS, 21 Know appliances, $2. Experienced top management 05 39 Dedicated factories $3. Vertical integration 10 5 Good, but deteriorating $4 Employee relations 05 42 Hoover name in cleaner, $5_ Hoover's intemational orientation AS Weaknesses i Slow on new products Wi Process-oriented R&D 05 10 ‘Superstores replacing al W2? Distribution channels 05 dealers ee 30 High debt load - eee z $2 | Hoorerveatoite 4 posi 1g United Kingdom and Australia WS Manufacturing facilities 05 Investing now Total Scores 1.00 4 Weighted External Strategie Factors Weight Rating Score ‘Comments 1 2 3 4 iB Opportunities O1 Economic integration of European Community 20 4. 02 Demographics favor quality 82 Acquisition of Hoover appliances t 10 5.0 7 03 Economic development of Asia ‘05 10 2 Maytag quality ] 04 Opening of Eastern Europe 0s 20 46 ves ees present 05 Trend to “Super Stores” 1 5 ill take time a Ps ° 18 18 Maytag weak in this channel Threats TI Increasing government regulations 10 i : T2 Strong U.S. competition ‘10 =z 43 Well positioned 3. Whirlpool and Electrolux strong : 40 Well positioned globally 15 30 T4 New product advances ‘05 a ee Hoover weak globally TS. Japanese appliance companies “10 ie 6 Questionable sn aust : ‘ i cos ‘Total Scores 1.00 as Only Asian present “The most important external and internal factors ae identified inthe Epa \d IFAS Tal And IFAS Tables as chown ba an tae FeO— aa Internal Factors (IFAS Table 5-2) eral Factors guste) {Opportunities (0) | oy Ezonomic integration of European Community ‘02 Demographics favor quality 103 Economic development of Asia £4 Opening of Eastern Europe (0S Tiend toward super stores ~ PTER 6 Strategy 5 ®Y Formutation Strengths (g) S! Quati 'y Maytag culture 82 Experionesy cule . P Managemen Sy petted imtegration - ss Employee relations ° Hoover's international orientation ae SO Strategies * Use worldwide Hoover distribution channets to sell both Hoovs Maytag major appliances. * Find joint venture pariners in Eastern Europe and Asia, rer and cn Anion ins Sey ET Weaknesses (W) WI Process-oriented R&D W2 Distribution channels W3 Financial position W4 Global positioning WS Manufacturing facilities WO Strategies * Expand Hoover's presence in continental Europe by improving Hoover quality and reducing ‘manufacturing and distribution costs. + Emphasize superstore channel for all non-Maytag brands. ‘Threats (T) T Increasing government regulation A TrStrong U.S, competition "TS Whirlpool and Electrolux pasitioned for global economy 14 New product advances TS Inpanese appliance companies ST Strategies *+ Acquire Raytheon’s appliance business to increase U.S. market share. + Merge with a Japanese major home appliance company. * Sell off all non-Maytag brands and strongly defend Maytag's U.S. niche. WT Strategies * Sell off Dixie-Narco Division to reduce debt. + Emphasize cost reduction to reduce break-even point. + Sell out to Raytheon ora Japanese firm, 4, In the Weaknesses (W) bloc! the com ation base¢ tm SO Str: @ ST Str: 1 WO Strategies al uw WT St avoid teats. The TOWS Matis ss unit might not ott ‘ makers of a company © tion as a whole ( the corpora to generate alt corporation in Generate a series of po “could use its strengths (0 é Hoover Europe), oF i Hoover's floor care pro .d on particular -ategies are generat ategies consider « company rategies are basicaly defensive ful for generating r busine! (as F be used for a specific in ; odes) Nevertheless using @ i tegies. Another erative rile competi terms of Po advantage of OPP 0 tempt (0 eye and primarily act 0 mi herwise have consi i Figure 6-4 with Maytag C is done in Mfc business unit withit ther approach is je and coop ‘, list the specific areas of current and future weakness for pany or unit from the IFAS Table (Table 5-2), sible strategies for the company or business unit under consider- ‘combinations of the four sets of factors: : fed by thinking of ways in which a company or business unit fake advantage of opportunities. +s or unit's strengths as & way to avoid threats. ortunities by overcoming weaknesses. (ize weaknesses and a series of alternatives that the decision dered. It. can be used for ith Maytag Corporation before it sold in a corporation (such as WS Matrix is only one of many ways to evaluate each business unit within a srative strategies.—————_—___ Marke ye, 7 Essen hewew mabia Tseve Priori Uraeo “Teeve Pow ae Meckvi x. — eto bs mele adecicigyn mails, ce Fee : Wich pnvenbow, 40 out wo Arc l lee 1 plece ~ = 5 oe dees es wich poducl nuedoR BBB oo § plirnadect | fablapeli of em Solve o Prablen be enabuoute result - — ee 2 Peaclon aloout nloout avabila foyer & or | Paolvets. Oe hati ov otleas hommowow but | eae be teched beok - = | ©_do later 4 Tt ic AMR avant bob nol by yet Tey ™S don need - = Rave hed an Used ee pv Should —cehe a_delicadk oh ime “fy “Tnx Quad rard £Q_meetine, with anew eaprlier or readin, pon an Waneent for RIC il. , MWese ‘ave peal Ver Povo ¢ Re ee —fre BY ng feces an but jet swe Swe pt fie: a i Smne firey Weert Comes a == os L® — : ‘| A) ic | also imparten+ These advikes might be mpetant +e _cumeone elee So mmole suo bo ack ane ow self if De Jagh ‘ic Swngorteund bY Sorne ome elce'. jcthese esks Could Ee deleaale ol be Someone else by poems The feawest bot wilh thhe> tack themselves - © Climin ele, Neiller wgyeeS hey SESH ke *| —— kn ie. Oye AON NCL oe Ac. [wy Shp tal ea Lan \ be obs ie! he ATM Yen twee, pe thoold rel _ be -dbsing = ‘Vhe. oor ew _obon 4 get. any _pabl em rE flee heave fo > elimina an Prrdach 442 ebminahine terete Pheu _bovidl be. Qa Li 3 Wwe waste «| “yeu Can _ agi L Seed ra = —padeel te Rem ted tempeh ; a]¥y Formulation Business Strategies _ he competitive position of a company’s orb, ' t ness st suses on improving the ¢ ‘egment that Business strategy focuses on imrON NE dustry oF market se tthe compen unit's products or services wi eiuemely important BecaUS FESCrch shy ‘business unit serves, Business strates: yan’ formance th: business unit effects have double the ieee che] batting ankiaet corporate or industry effects.? Business $ eimore curiae cliors for advantage) and/or cooperative (working with one companies og petitors for ag rategy asks what industries) i orate sti advantage against other competitors). Just as Cort ‘it ‘company shouldbe in, business strategy asks how the company or its units should compe ‘cooperate in each industry. PORTER’S COMPETITIVE STRATEGIES J Competitive strategy raises the following questions: Should we compete on the basis of lower cost (and thus price), or should we differentiae ‘our products or services on some basis other than cost, such as quality or service? = Should we compete head to head with our major competitors for the biggest but mat sought-after share of the market, or should we focus on a niche in which we can satisfya less sought-afier but also profitable segment of the market? Michael Porter proposes two “generic” competitive strategies for outperforming other corporations in a particular industry: lower cost and differentiation." These strategies ae called generic because they can be pursued by any type or size of business firm, even by nor fo profit organizations: = Lower cost strategy is the ability of a company or a business unit to design, produce, ap! arket a comparable product more efficiently than its competitors. © Differentiation strategy is the ability of a company to provide unique and superior vot to the buyer in terms of product quality, special features, or after-sale service. Porter further proposes that a firm's competitive advantage in an industry is determine! by its competitive scope, that is, the breadth of the company's or business unit’ tg market. Before using one of the two generic competitive strategies (lower cost or dffereti* tion), the firm or unit must choose the range of product varieties it will produce, the dist tion channels it will employ, the types of buyers it will serve, the geographic areas in which will sell, andthe array of related industries in which it wil also compete, This should 28! an understanding ofthe firm's unique resources. Simply put, a company or business unit 2 choose a broad target (that is, aim at the middle of the mass marke) or a narrow target (O is, aim at a market niche). Combining these two types of target markets with the two com itive strategies results in the f strategy."eer a SMategy Kory ‘orm lation: Si ; uation Analysis and Business Strat Suategy Ge wt Generic titive 2 ‘Ompetitive Advantas Lower Cost z ‘strategies Differentiation Cost Leadership Broad Target Differentiation Competitive Scope Cost Foct us, Differentiation Focus Narrow Target SOURCE: Reprit pe ‘The Fr COMPETITIVE teprinted with pert is iin of The Free Press, A Division of Simon & Si * A n of Simon & Schuster, from THE: ADVANTAGE OF NATIONS by Michael E. Porter. Copyright © 1990, 1998 by The Free Pr oe } re Press. llrightsreserved. SA Cost leadership is alowercost Cost leaders -cost competitive requires aggressive construction of eee Setar xperience, tight cost and overhead control, avoid ee eaonrieane ad cost minimization in areas like R&D, service Beye errr t sof its lower costs, the cost leader is able to charge a eae pee unin cape ere ea erie for its products than its competitors industry, it has lower costs than its competitors. Spies smartly Towing hs strategy are ‘Wal-Mart (discount retailing), McDonald's ee aeese) Tel Geo a Alamo (Fenta cars, Ald (grocery sores), Southwest Airlines, and Timex ae gee is a hypermarket chain that combines the 100k and feel of Indian bazaars, with the ene moder retail such as thoice, convenience, and hygiene. The store displays related produets in an organized manner such as displaying shower curtains, towels, and ceramic bathroom acces- series on one aisle. This arrangement encourages sale of “multiples” of related products, ‘The attention to layout details helps the store shape shopper's attitude. The fun and colorful interi- ar puze with energy and customer excitomer! "The store offers bargain prices and an assorme unlike other stores in India. The iseounts offered range from 5% to OOF (discount stores is till a nascent concept in India) that ‘makes ita cost-foeus store. Many retailing executives consider it ana waimart of India. The store fae sing a delle lane tomers that its prices are Ow without Sythe people ee that testers, rm gives a company of business Unit © defense against Having a lower-cost postion 0 rivals. Its Teer costs allow itt0 ontinue to earn profits during ‘of heavy competition. Its high market share means that i i high bargaining power relative to its suppliers igh market s! a * : z Gecaise it buys in large quantities). Is low price will ae sarees : bi : i Few new entrants will be able to match the -advantage. AS are : Likely to earn above NTE ei ie road mass market and involves the creation ofa product or \~__ Differentiate jis aimed’ outits industry as uniah me peompany or business unt may gen i ibe associated with design &F brand image, jon isa viable strategy for fice thatis perceived! ‘this specially 4” sexy its product, THIS SPEC ton A ft charge a premium for its rework oF Dien band Wye Over a crarzs roy. features 8 EN a specie Dan use te Te 1 he ber Buyer — ing above averBB° vice, Increased A eamnit asitivit - rarrier to entry because ult, cost leaders areew firms must develop tne oT atinctive comp, me way in order to compete successtlly. Examples feat tiation strategy are Walt Disney Productions (enon, shoes), Apple Computer (computers and coq), ple examples of companies adopting diffe) Hray Suscesfily. Foe rhet research project beiped ITC develop an understanding ge Tear couse win ceoana to the company’s Or EERE 2nd ina products (come competion had ignored) The company Use TON sia 2003 launched Sunfeast with six ranges. aa eran ver Limited (HUL), India’s largest FMCG Company, touches lives, mpany has over 20 product lines in home ag These product lines contribute to company'yy million tonnes and sales of nearly Rs Ba loyalty also serves as an entry barriers to differentiate their products in sor nies that successfully use a differe! BMW (automobiles), Nike (athletic sonal care products and foods and beverages. 1 folio with a scale of combined volumes of abou ic n crores."? HUL has achieved such a successful portfolio by focusing on growth strategy zx product line pruning. The company ‘concentrated on brands that constitute ‘most of the busines; From marketing 110 brands in 2000, HUL reduced the product line to 35 power brands, as Lifebuoy, Lux, Surf Excel, Rin, Wheel, Fair & Lovely, Pond’s, Sunsilk, Clinic Plus, Pepsoden, Close-up, etc. These were chosen on basis of their scale and potential. The company hx also divested or transferred non-core business. This has helped HUL achieve product difete. tiation and improvement in sales.!® Research does suggest that a differentiation strategy is more likely to generate higher prot its than does a low-cost strategy because differentiation creates a better entry bartier. A low-cot strategy is more likely, however, to generate increases in market share." For an example ofa differentiation strategy based upon environmental sustainability, see the Environment Sustainability Issue feature on Wipro. Cost focus is a low-cost competitive strategy that focuses on a particular buyer groupe geographic market and attempts to serve only this niche, to the exclusion of others. In using cost focus, the company or business unit seeks a cost advantage in its target segment. A gol example of this strategy is Potlach Corporation, a manufacturer of toilet tissue. Rather thn compete directly against Procter & Gamble’s Charmin, Potlach makes the house brands fr Albertson's, Safeway, Jewel, and many other grocery store chains, It matches the quality ofthe well-known brands, but keeps costs low by eliminating advertising and promotion expe’ As a result, Spokane-based Potlach makes 92% of the private-label bathroom tissue and 00 third of all bathroom tissue sold in Western U.S. grocery stores 29 bine Pitesti! focus like on focus, concentrates on a particular buyer group, prod tha dante een market, This is the strategy successfully followed by Midam Corporation (distributor of halal foods), Morgan Motor Car Compan (a manufacturer of sic British sports cars), Nickelodeon (a cable channel for childven), Osphagenix (phar ticals), 7 local ethnic grocery stores. In using differentiation focus, Toma or busines unit seeks differentiation ina targeted market segment, This strategy is valued By thos vt cal company that avoids head-to-head competition lerck by developing “orphan” drugs to target “ise” that affect fewer than 200,000 people—diseases such as eke ell Scie and spinal ms lar atrophy that big drug makers are overlooking 2! Risks in Competitive Strategies No one competitive strategy is guarantee, d to achit anies that successfully implemented one of Porter's aco nie v® SUCEESS, and some companies ry Competitive ctrataninn t v couldAccording to th tional Association of tec ics Recycers, about 400 milion Pr units of electronic junk, or "c waste," is generate : Z discarded electronic inte tes The ream are called e-waste, Rest of itis thou fs we Sass" dosets and basements ~ as consumers more reticent to send their gadgets to landfills, but ro cue how to responsibly dispose of them, glatistcsaren’t ost on Bangalore-based IT services mivion Technologies which has adopted a differenta- If srategy based on enwvironmental sustainability. Fol ng this strategy, the company aims at finding ways of ving so that it and its stakeholders cause least harm to peenvionment. Mr. Azim Premji, Chairman, Wipro Lim- ia. 335, “We firmly believe business cannot be built at tecastof ecology. It is not sustainable. Ecological sustain- sity willincreasingly be the defining force for society and busines globally. Wipro believes ecological sustainability is te fight thing to. do — in fact is the only way forward." ito believes that enormous business opportunities lie ‘rabusiness which builds itself and its profit motivations ound ecological sustainability. Inlune, the 96,000-employee firm launched a company vide initatve called Eco Eye. The initiative attempts to ergzge with increasing levels of intensity with al stakehold- ¢s-Wipro’s own employees, partners, suppliers, customers andimmediate communities. According to Mi. Premiji, Eco feisthe “eye” through which the company attempts to Seeeverything, and act for ecological sustainability. The framework has five themes and seven goals ident ‘ed fr implementation. The five themes include being 2 ‘gy Form ‘dogiclsuplus organization, larger ‘sustainability initia- is beyond Wipro, profitable investments, transparent i sh sustain the strategy. AS Sho ple, a company following lity is not for its higher quality i rat gee the extra quality a8 worl imil ars, cost proximity. For ye2 competitors from India at Deere responded b: tion to ut its mare which, although hig! in Table 6-1, eere & Compa «other developing co ‘ing high-tech flexible man Fee costs and using inno duced customers’ I ation: § ation Analysis and Business Strategy INMENT, i aL Sustainability issue SES SUSTAINABILITY AS A STRATEGY ene risk planning and mitigation. The website ton et wir ocorporate.comfecoeyel has various sec- ae ipro Charter, city eco news, how green are you, Sco-galley, eco action, green tips, atcles and feedback ae which also reviews what others are saying. then Hine Pee achieve a per capita GHG intensity of less than T ton of COve per capita by 2025, 25 years ahead of 1 global target of 1 ton per capita by 2050. It aims to set new standards in recycling waste and facilitate employees achieve @ higher ecological footprint in their personal lives. Italso aims to achieve transparency in sustainability report- ing and incorporate the expected effects of climate change and other areas of environmental degradation into Wipro’s tisk strategy. Wipro ‘has taken up several initiatives in ecological sus- tainability. Some of the initiatives adopted to make its internal operations green has resulted in 13% reduction in average electricity consumption in 2007-08 over 2001-02 (from 338 Kwh per person to 294 Kwh per person) and meet 52% of its water requirement with recycled water. Its campus at Gurgaon and Kochi are rated Platinum and Gold rated green buildings respectively by LEED. Its operations | are ISO 14001 certified. On the customer front, Wipro is at the forefront to build green data cente's, launch Greenware PCs, India’ first eco- friendly PC range, eco-friendly product engineering designs, e-waste disposal service and water treatment solutions. ‘The company is very proud of its reputation as a “Green Company’, but also wants the firm to be economically sus- tainable as well. The company engages into these experi- ments to see if they can run it so its there 100 years from now and always makes best quality stuff. ipro Technologies Ltd. cach ofthe generic strategies has risks. For exam~ i tegy must ensure that the higher Price itcharges price ofthe competition; otherwise cuOTeTS will cee This is what is meant in Table 6.1 by the 10% yy was the leader in farm ‘machinery until low-cost vintries began making low-priced products. syfacturing plants using mass-customiza wation to create differentiated products bor and fuel expensesGED arr ox Risks of Generic Competitive strategies (ene each jphaciueyseus i ‘The focus strategy is imitateu, Cost leadership is not sustained: Differentiation isnot sustaiies The target Segment BECOMES siutiegy ae unattractive: © Competitors imitate © Competitors inl on become ' © Technology changes. "2 Other bases for cost erode. 1 Bases for differential ts Struiture erodes: leadership _less important to buyers. ts Demand disappears. Broadly targeted competitors overwhe, Proximity in differentiation is lost. Cost proximity is lost the segment: Cost focusers achieve even lower Differentiation focusers achieve even cost in segments. ‘SOURCE: Reprinted with permission of The Free Press, a Division of Simon & Schuster, 1B The segment’s differences from othe, segments narrow. am The advantages of a broad line inreae New focusers subsegment the industry, Inc. rom COMPETITIVE ADVANTAGE: Creaing og Sustaining Superior Performance by Michael E, Porter. Copyright © 1985, 1998 by The Free Press. All rights reserved. Issues in Competitive Strategies Porter argues that to be successful, a company or business unit must achieve one of the pri ously mentioned generic competitive strategies. Otherwise, the company or business unitis stuck in the middle of the competitive marketplace with no competitive advantage and is doomed to below-average performance. A classic example of a company that found itselfstick in the middle was K-Mart. The company spent a lot of money trying to imitate both Wal-Man's low-cost strategy and Target's quality differentiation strategy—only to end up in bankruptcy with no clear competitive advantage. Although some studies do support Porter's argument tht companies tend to sort themselves into either lower cost or differentiation strategies and tht Successful companies emphasize only one strategy, other research suggests that some com- bination of the two competitive strategies may also be successful.24 The Toyota and Honda auto companies are often presented as examples of successtil firms able to achieve both of these generic competitive strategies. Thanks to advances in tect nology, a company may be able to design quality into a Product or service in such a way tht high market share—thus lowering costs.2s Although Pot niches). Quality, alone, has eight diffe product with a competitive advantage (see Tabl ; le 6-2) Most s eri sce ffom terete aa focus strategies, The successful ones iter ; ‘tors in the areas of qualit service, and they f° otha pu of he mane as 2 SSEBMen ofthe martes haety sane minal that pa harket. Adopting guerrilla warfare tact, i cae u sf aftergight mrsions suai e's cleaning 2. Features Bells and whistles, : stich basic functions, — is cruise control in a car, that supplement the 3 bility Probability thatthe produc significant meanest Will continue functioning without any intenance, Degree t € 10 whic ich a product meets standards. When a customer buys @ Product out of the warehouse, it shor on the showroom hee should perform identically to that viewed 4, Conformance 5. Durability Number of years of service it significantly deteriorates be durable but 4 consumer can expect from a product before Differs from reliability in that a product can ill need a lot of maintenance. Product's ease of repair 7. Aesthetics How 8. Perceived Quality 6. Serviceability 4 product looks, feels, sounds, tastes, or smells. Product's overall reputation. Especially important if there are no objective, easily used measures of qual SOURCE: Reprinted withthe permission of The Free Pr ermission of The Free Pres, A Division of Simon & Schuster, Ine. fom MANAGING QUALITY: The Strategic and Cor i ‘ rategic and Competitive Edge by David A. Garvin, Copyright © 1988 by David A. Garvin. All rights reserved. = — for example, where many small- and medium-sized local companies compete for relatively small shares of the total market, focus strategies will likely predominate, Fragmented indus- tries are typical for products in the early stages of their life cycles. If few economies are to be gained through size, no large firms will emerge and entry barriers will be low—allowing a stream of new entrants into the industry. Chinese restaurants, veterinary care, used-car sales, ethnic grocery stores, and funeral homes are examples. Even though PF. Chang’s and the Panda Restaurant Group have firmly established themselves as chains in the United States, Jocal, family-owned restaurants still comprise 87% of Asian casual dining restaurants.” if a company is able to overcome the limitations ofa fragmented market, however. it can reap the benefits of a broadly targeted cost-leadership or dilfereniation strategy. Until Pizza Hut was able to use advertising to differentiate itself from local eompettos, the pizza fast food business was a fragmented industry composed primarily of lovally owes pitta Patio cach with its own distinctive product and service offering, Subsequently Domino eve the market share. ' : a deat ea fragmentation is overcome, and the industry tends to become a i any industries start ‘ ‘a few large companies. Although many inc s out being fragmented, bas ie adket share of a feww companies. After product standards se a H “ grea 1a maranatha Speci become estate ce Slower growth O¥TeDes enon ange ies sis on cost and service. SIT achieve cost leadership or CATE provements. Overall puta premium on afm’ iy rom proto oe i sired by the : 2 ificantly. : sions most desi yes, and cost ate rent HFS gn ecient way oily consol product quality improves, taped in the mid-L9905 3S Ot capitalists, an entrepreneur ‘The strategic rollup WAS aid of money from Vi date a fragmented industy. small businesse > The resulting large firm creates economies acquires hundreds of owner-0P2™ sels bes ctices across all aspects of mar- practices across = small businesses could pre- res regional OF anager than the st of scale by building 1B more so gers and acc ss ‘tions in three ways: (1) they Keting and operations om contin oer ro wlouay afford oro i Os reinvent an entire industry.” intel ve a of Pomental advantage, bul 10" obiective is not 10 gai” tional bran isticatedceone in which cost leadership and gig, i ; re as hecome Aish one competitive strategy may jg iy | consolidated, an industry hen ote Sa wd to various. degrees. even a Mian market she simply through gy trp A fr ca 0 ONE? EO gn minim evel iy fog The buyers are more sophi ee iter Staples introduced in 2007 a line Of premium yt For example, Io. cos ce oer to halt siding Sais. reed MeDonala’, jy supplies called “My Style. My Wid Tygon forced to add healthier and more upscale, roger ast so estan BS RE tere access inane en salad, comforta istomer base- high enough and “The same is true for firms emphasizing high 0°? 1 valued by the customer enough to jus, ing costs) to compete effeci ned (through lowering cost eh be pad for example, spent years restructuring its com — age from 20% to just 10%.*! Consolidation si Tine, computer, and home appliance industries, items, suchas Asian chi its increasingly sophisticated ity. Either the quality must be higher price or the price must the lower priced products. Hewlett business in order to cut Dell's cost ad place worldwide in the automobile, a Hypercompettion and Competitive Advantage Sustainability Some firms ae able to sustain their competitive advantage for many year” but most find competitive advantage erodes overtime. In his book Hypercomperition, D” Aveni proposes ty itis becoming increasingly difficult to sustain a competitive advantage for very long. “Marx stability is threatened by short product life cycles, short product design cycles, new techrl. gies, frequent entry by unexpected outsiders, repositioning by incumbents, and tactical red initions of market boundaries as diverse industries merge.” Consequently, a company business unit must constantly work to improve its competitive advantage. It is not enovghin be just the lowest-cost competitor. Through continuous improvement programs, competites are usually working to lower their costs as well. Firms must find new ways not only to redux costs further but also to add value to the product or service being provided. ‘The same is true of a firm or unit that is following a differentiation strategy. Maytag Corpo: tion, for example, was successful for many years by offering the most reliable brand in Nor’ American major home appliances. It was able to charge the highest prices for Maytag brand was ing machines. When other competitors improved the quality of their products, however, itbecan: incresinaly difficult forenstomers to justify Maytag’s significantly higher price. Consequetts Meyts Corpraton was freed notonly to add new features tits products but ls oredzecot ae ia sae Snare So that its prices were no longer out of line with ts dispar ot baling ao 'ypercompetition is supported by developing reseathet (diced peice ie, namic capabilies to better cope with uncertain ewe ly in Chapter 5 in the resource-based izati ). D’Aveni contends that when industries b Se oe ed escalating stages of competition. Fim inially connec oe dene anhisicaail a initially compete on cost and quality, until an abu" igh-quality, low-priced goods result, This occurred i jor home app ance industry by 1980. In a second stage of competition, the ceive rain both Europe and the Americas and then moved likewise entered Europe and the Americas in According to D’ Aveni, firms then raise e Scale, distribution agreements, and strategie into Asia, Strong Asian firms like LG and the late 1990s, try barriers to limit competitors. Boom alliances made it all but impossible fora" the end of the 20th century, After the est remaili ks i North American stronghold led 0 its acquisieen ne wees: Maytag’s inability t0 hold a a niesIndian telecom sector, till late 2000, was dominated by 4-5 big telecom service providers. These companies ‘adopted product differentiation ‘and pretended to cater t0 CUS: strategy ity network and value-services 9 valued quell es tt plans.” vers industry structure cid not hold for long. ‘market numbers motivated many companies to ane forthe indian tlecor! industry. At the end sae “008, it was estimated that India had more enon wireless connections and had already States to become the world second” fagest telecom market? ‘such numbers motivated the testo enter into Indian market. “therefore, with ently ‘of new players and advent of elecom operators Such as Tata DoCoMo, MTS, tins tsalat,etc., the industry ‘structure evolved. Today, Wo or has 12~13 players and is the fastest growing teecom market in the of subscribers per toni with call rates y other contr in the world. i ewcomers understood that they needed to ‘ight with incumbents such as Airtel and Vodafone to arate a market presence and market share. These NeW ‘ines lke Tata DoCoMo, changed the competitive timensions of the industry by adopting 2 cost-leadership Stotegy. These companies Yatroduced extremely low: pied plans (as low as 50 paise/minute) tO attract mas. Tis cost leadership- based strategy tactically eet the Indian telecom industry. The industty fees chenaed 1 ag tne strategy led to erosion of all Siitpetin kantage Price bece! mec ene) these 70 to 12 operators. one into a hypercompetitive indust tors competed on the basis of pr y Tay became 2 loser except for the Indian customer innit though the Indian mobile telecom companies are Process, signing up 15 million ‘customers every tasnesg new subscriber brings less than Sea em Therefore, these ma ae very thin margins.” The incumbents have Writing, > control thal operating costs y outsourcing Sete ereryining from petmnagament of TT Functions mo ‘and call center operations and als ‘0 sharing | ATEGY nigniugur v.4 \\ HYPERCOMPETITIVE TELECOM INDUSTR passive infrastructure such a! ators.© However, it is between the winners industry, the high-speed mobile data services pany, The incu high-speed mobile data services the hypercompetition. Therefore, hypercom over a period of time ar competitive advantages. shorter product de new technologies, frequent ent repositioning the market. works at im YY OF INDIA 5 telecom te not the cost thi and losers: In the indiat differentiation stems from tt fs provided by the com- ty services. 1-- opents have to offer quali s 0 survive at lower prices t ry happens erosion OF life cycles, petition in an indust ind is characterized BY jesign cycles, frequent if ry by unexpected outsiders, NS tactical redefinitions of the business constantly ive advantage and ‘by incumbents, 37 in such an industry, proving their competit reducing their costs. 1 __ Budget 2011: Telecom ‘Admin, The great Indian Telecom War, posted on oct 2009, accessed on 25 Oct 2011, from http:/microreviews: ‘orgithe-great-indian- telecom-warl nowiedge@Wharton, NTT DoCoMo's T8 Deal: Why Sita Telecom Firms Want t Dial India, published on Fou 2008 in India Knowledge@W hare ‘accessed from hrtouknowledge wharton. ‘upenn.eduindia/article.cim? article 4335 Indian Hypercompetie Telecom Market HS Admin ation started with Etisalat and Reliance Consolation, posted on 2 Jun 2010, accessed on seer 20" 1, from hitpwnwcareervorid investor 201 jora/os/oz/ndan-telecommarker has the ine ed conaadaton-sartegwitrets20 one teliance-communicatior’ vandustan Times, A-roaming we will 99,6 Hin On east Updated: 02:35 ST(12/10201 », cessed on httpzvworwshindustan aes comvstoryPage/Prin/7S6183.25P% Admin, ‘accessed on 25 Oct 2011, from pees awnwequitymasterconvoudget201 v sectorstelecom.asP wharton.upen® model-debate! price-wars-the-ED PART 3 Strategy Formulation petitors work their way i a situation OF beri fits are minimal. to D’Aveni, the rem: advantage and prof in competition in which no one has any avi provided compte svanage le 1 tition, Ie industries, is no longer Behar. ay ee des, Except (0 Be live deren mich tins years, perhaps for decades. come hypercompelitive, thers B0 Such hing asa sy i a i, initiatives in of in According to D'Aveni. 2 nd eel state a sec or oF Induy iy, of éynamie industry can sustain any compellive cal ye moma product mmuliple short-term initiatives aimed at replacing & a “go an. total aad Mcebofh an ith next generation of products bef ‘aking fore the coment ms ; itive computer industry. ths approach inthe hypereompetive COMPLE me seca was Hypereompetition views competi jusiry competition Becomes more intense, the ay wettest edmaachot wat indy or iil moll highe id \ire more dext “4 : Forney he yee tach new Tug wave One danger of D'Avenis concept of hypercompetition, however, is tr tray lead to cn overemphasison short-term tactics (discussed inthe nex section) over lng sem Stategy Too mc of an orientation onthe individual waves of hypercompetition coud aye, company to focus too much on short-term temporary advantage and not enough on achieving is rome tenn objectives through building sustainable competitive advantage. Nevertheless, seach supports D’Aveni's argument that sustained competitive advantage is increasingly a matter notch a single advantage maintained over time, but more a matter of sequencing advantages over tne ‘See Strategy Highlight 6.2 to leam about the hypercompetition in telecom industry of India. ing large global com industries be Which Competitive Strategy Is Best? Before selecting one of Porter's generic competitive strategies for a company or business unit, ‘management should assess its feasibility in terms of company or business unit resources and capabilities. Porter lists some of the commonly required skills and resources, as well organizational requirements, in Table 6-3. Competitive Tactics Studies of decision making report that half the decisions made in organizations fail because of poor tactics.** A tactic is a specific operating plan that details how a strategy is to be implemented in terms of when and where itis to be put into action. By their nature, tactics are narrower in soop. and shorter in time horizon than are strategies. Tactics, therefore, may be viewed (like police) asa link between the formulation and implementation of strategy. Some of the tactics availble ‘o implement competitive strategies are timing tactics and market location tactics, Timing Tactics: When to Compete A timing tactic deals with when a comp: any implements a strategy. The first company 0" aa ‘and ala new product or setvice is called the first moter (or pioneer, Some of advantages of being a aa mover are that the company is able to establish a reputation 5% industry a lown the learning curve to assume the cost-leader position, and eat then able to offer further products : oftware with its Wind: ating 5 and Netscape garnered over an 80% sha hits Windows oper ize the product successfully, Research met browser market by being st 0! s e 's indicate that moving first or secom new industry or foreign Country results in greater market shane oh ae aes well stea Cs i i ElasGe Wiican ‘cost Sustained capital investment and ace Cries 1 Cedat gulsut ® Process engineering ® Tight cost control ae 2 Intense supervision of labor © Frequent, detailed control reports 1 Products designed for ease of manufacture & Structured organization and responsibilities @ Low-cost distribution system = © Incentives based on meeting strict quantitative targets 55 10 capital a Strong marketing abilities ® Product engineering | Strong coordination among functions in 1 Creative flair R&D, product development, and marketing & Strong capability in basic research ® Subjective measurement and incentives instead of quantitative measures 5 Amenities to atract highly skilled labor, scientists, or creative people 1 Corporate reputation for leadership © Long tradition in the industry or unique combination of skills drawn from other businesses Strong cooperation from channels quality or technological Foes @ Combination of the above policies directed at the Hl 3 Combination of the above policies directed particular strategic target, at the particular strategic target se Se ae ett ean 4 re ee read SOURCE: Reprinted with the permission of The Free Press, a Division of Simon & Schuster, from COMPETITIVE ADVANTAGE: Techniques {Analyzing Industries and Competitors by Michael E. Porter. Copyright © 1980, 1998 by The Free Press. All rights reserved. does moving later.” Being first provides a company profit advantages for about 10 years in consumer goods and about 12 years in industrial goods.°5 This is true, however, only if the first mover has sufficient resources to both exploit the new market and to defend its position: against later arrivals with greater resources.» Gilt for example, has been abe to Keep its leader ship ofthe razor category (70% marketshare) by continuously introducing new products. Being a first mover does, however, have is disadvantages. These disadvantages can be conversely, advantages enjoyed by late-mover firms. Lite movers may beable to imitate the 4 oe of others (and thus keep R&D costs low), Keep risks down by waiting Lane pacarene andard or market is established, and take advantage of the first 5 ical st = eer ie to ignore market segments.*" Research indicates that successful late oe Sain firms with considerable resources and related experience.‘ Microsoft movers tend to ished itself as the standard for Internet browsers in is coe example. oes ai ba Gace directly attack Netseape’s position with its Inter~ the 1990s, Microsoft used Seas to also set the standard in the developing and highly ine net Explorer. It did not want Ne By 2004, Microsoft's Internet Explorer dominate 8 8 tive intranet market inside aes ‘a minor presence. Nevertheless, research sone ee browsers, and Netscape was 0 a ‘and late movers may not always genera ie Loe iM ‘ advantages and a ae Tarrers and the resources of the specific competitors tries because of differences i Market Locat fompete is i ee i s a strategy. A company or a Market La se dea ih whe aor rts oy. A A. market loatin pent competitive se gtr’ market sation A defensive : business unit can impleme”” fan established Cor re on as adefense against possi- jac tactic usually takes PI ble attack by a rival’—_ Ria asians yds used to attack a competitor's position are. methods us des : 2s head to head with its competitor. It may To promotion o distribution channel, Tp pete ve Tactics. Some of th TT ing firm £0 : The attacking firm & ‘Ut Frontal assault: The at 82 is competitor in every category iy superior resources, but also the willingness to ful, the attacker must have nae fei 7 ay ee eto tens ssn sp : generally ve SrA phi is what Kimberly-Clark did when it introdyeg yt ing profits for the whole industry. ae i A irket- fies disposable diapers against PR's a ofits battle between the two firms depressed Ke is aight for a competitor's position of g flanking maneuver: Rather than going a erik matkel Were the Cotas a - with a frontal assault, a firm may attac! ded competing directly with Intel by develo, Neca lastest amiss cell phones, and medical devices ine) i consul hae i computers. Taken eb these other applications are worth more in terms of dolla ang influence than are computers, where Intel dominates." : “Bypass attack: Rather than directly attacking the established ee Fromtally or nig flanks, a company or business unit may choose to change the rules of the game. This tis attempts to cut the market out from under the established defender by offering a new type qj product that makes the competitor's product unnecessary. For example, instead of competing directly against Microsoft's Pocket PC and Palm Pilot for the handheld computer mare, Apple introduced the iPod as a personal digital music player. It was the most radical change to the way people listen to music since the Sony Walkman. By redefining the market, Ape successfully sidestepped both Intel and Microsoft, leaving them to play “catch-up? a Encirclement: Usually evolving out of a frontal assault or flanking maneuver, encirclement occurs as an attacking company or unit encircles the competitor's position in terms of prot ucts or markets or both. The encircler has greater product variety (e.g., a complete product line, ranging from low to high price) and/or serves more markets (e.g., it dominates every secondary market). For example, SAP is a leading manufacturer of enterprise applications in terms of software and software-related service revenues. SAP empowers people aod organizations to work together more efficiently and uses business insight more effective to stay ahead of the competition. Motivated by numbers, Oracle entered into the market of enterprise resource planning software. Initially, it tried to enter the market against the incut bent by moving beyond databases and other “infrastructure” software and break into en Prise applications with its own programs. When this failed, it decided to lead consolidation S ne ae industry and “surround” SAP with acquisitions.** Oracle surrounded SAP i Cuca wore nerd ofa nin ee Ree amare ne Hs a te ; . a and extensive resource-expensive attack ee characterized by the use of small, internat seo and TuN-” Guerilla wa by the competiser Tn this eyes = sia assaults on different market segme d seriously theateninga large ear rant or small firm can make some gains Wil ae * €stablished competitor and evoking some form of realist To be successful, the firm or uni Ti be patient eno! 4 r unit conducti i i : seep taal Gist nducting guerrilla warfare must tient enoul id pushi t ent 0 respond or else lose face, PYShINS the established competitor to the point that t™ it ‘OMP ei Defensive Tactics. Accord + Acc i inet is teagan defensive tactics aim to lower the probability of ofnereasing competitive advantage porseee OF Hs8en the intensity of an atack HSCOOPERATIVE STRATEGIES~ “Collusion Vv _* SMulation: Situation Analysis and Business Strategy GEE attack. Some of the moet; act to block a challenger’s logical avenues of 1. Offer a fut j MOst important, acco, i ding to Porter, are to: a Une of prod + a Points (for example, Coe gy eNe Profitable market segment to close off any entry f , ; Competitors of store snegan oe mpofablenonearbonsted beverages exp Raise structural bi aise arriers. Entry barriers RYN p . 8. e ¥ & s a likely to purchase; Increase scale economies to reduce unit costs; Foreclose altemative technologies through patenting or licensing; Limit outside access to facilities and personel ‘Tie up suppliers by obtaining exclusive contracts or purchasing key locations; Avoid suppliers that also serve competitors; and 10. Encourage the government to raise barriers, such as safety and pollution standards or Vv favorable trade policies. au Seen '= Increase expected retaliation: Ths acicis any action that increases the perceived threat of retaliation for an attack. For example, management may strongly defend any erosion of market share by drastically cuting prices or matching a challenger’ promotion through 4 policy of accepting any price-reduction coupons for a competitor's product. This coun- teats especialy important in mares that are ery importante defending cm pany or business unit. For example, when Clorox Company challenged P&G inthe detergent market with Clorox Super Detergent, PG retaliate by est mht is a : i to ws it Leh Gen a Gr a rg om dearer chare lees as a slower, but more conccitaed and aggressive response: ee A third type of defensive tactic is to reduce a chal- i Lowe: Gy ioducenas + profi inthe indus. Like Southwest Airlines, a company lites create aaa and constantly invest in cost-reducing measures. With can deliberately Pee vee is little profit incentive for a new entrant? prices kept very low, ther ithin an ‘ i Jn competitive advantage wit itive strategies and tactics to gain eng win A company 168 OE a These are not, Ee ey ait aa industry by battling By or business unit for competing succesflly Wit a A Options a 1 un come ane A company can also ust Str irms. The two general types of cl i king with 0 industry by working with other collusion and strategic alliance : os within an indy f0 reduce ouput andre . Coll oF omc law of supply and demand, Collusion may he normal economic Clin und the jirect communication < te through direct al system of signals. Expi firms cooperate Ure an inform directly case firms s, such as the onal trade associations, = jes and in a number oe ia, Competition Commisio tacit, in which 1 a most counties at ue aon illegal i Coe namin OE es = collusion is illegal in consi “Ses CCT Sek 1 PON one =a European Union. son ee Co a of India (CCD cate ion by an enter rol, and MEE se esha buse of dominant POSTION" guiring stm isition of Share include acquisition OF ogc a tio Collusion is the active coopers prices in order to get 2" be explicit, in whi ‘cooperaE> PART 3 Strategy Formul : a setivities: CCI as asked companies to ga ji-competil | CCI makes market-related discus” Sig eae in thr me es and competitors, very tisk Sin ir mectngs wi a quiry. Alteran ena. 36 the Com, the CCL can onder ot action of an enterprise in a dominan ge fered on Section ay passall any ofthe following orden or Section 4, . sep eenterschsgrzment Or SCOMEMUE ADE OF oni pricin; n Incase of suspicion. finds that any agreement rel ‘contravention of Section direction to discontinue an ii, impose penalty: iii, direct modification iv. direction to abide by such other v. pass such other order as it may Indian Government makes most explicit ¢ of agreement, x order i deem fi forts to control collusion in agri-based busines: ‘ dian wholesale grain markets are charac auch example is of wholesale grain market. In = One such example sot ind a eatively small number of buyers. Ths imbalance prog, facie epost : the otherwise transparent price formation process it ipulation of C ae eran ateepie This only due to government intervention and coniy leaves the system susceptible to collusion. : tious efforte that the extent of manipulation has been limited. The government has set up rem, lated markets where the rules of exchange are clearly spelled out. The study conducted by Banerjee and Meenakshi states that key institutional features of these grain markets are (a) say through open ascending auctions; (b) presence of “commission agents” representing both byes and sellers. The study found thatthe incentives of sellers and a subset of the large buyers wer aligned; this along with aprincipal-agent slack between millers and commission agents facilited the collusion. This in turn had huge influence on the market prices.°* Collusion can also be tacit, in which case there is no direct communication among com- peting firms. According to Bamey, tacit collusion in an industry is most likely to be success ful if (1) there are a small number of identifiable competitors, (2) costs are similar among firms, (3) one firm tends to act as the price leader, (4) there is a common industry culture tht accepts cooperation, (5) sales are characterized by a high frequency of small orders, (6 large inventories and order backlogs are normal ways of dealing with fluctuations in demand, ad (7) there are high entry barriers to keep out new competitors.’ Even tacit collusion can, however, be illegal. For example, when General Electric wanted to ease price competition in the steam turbine industry, it widely advertised its prices and pub licly committed not to sell below those prices. Customers were even told that if GE reduced ™ eer aed ee oeome a refund equal to the price reduction. GES Justice then sued both firms for engaging in “conscious ism” (ollowing each ob : een Parallelism” (following each other lead to reduce the level of competition) in order to reduce esta Juding payment of costs; and o Strategic Alliances Fea eae cate ene ttm cooperative arangement between two or more indepen Iysthveen companied te bushias unl have ae oe mutual economic gain.” Aine opular strategic alliances in ‘ “ome a fact of life in modem business: >” : ihc isa subs J Btn liance with Indian watchmaker Titan Inst customer needs in India and the Asia Pacific acs gic alliance with tech major Thomson's Technicolyr gen imation formed © facilities for DreamWorks in India; Hero ITES h; 4 a U.S. $100 million per year contact center and inbound sales for Fortune $00 Corporati alliances (including international aliFIGURE 6-6 Continuum of Strategic Alliances Many alli alliances value" A study by ce increase Ce Profitabiti per & Lybrand foe the members and have a positive effect on fi ' her growth re a hems involved in strategic alliances had im alliance, 88 Akl companies not involved inal ances. a rates Ga bility that is learned over time. Research ete ig ron Stee alliances, the more Hikely tat its reduced performance Gs Partners generates ‘tin aut however, that too much partnering iia Une." Conse oe ninishi a developing thei pte seen eng ns ching returns over time and leads to companies or Coie capabilites 2 a investments in building and a wusiness uni including: Hsiness units may form 4 strategic alliance for a number of reasons, 7 , To obtain or earn new eapabil nce in 2004 to develop new fuels Ir example, General Motors it 0 al Motors and Chrysler formed arecspecilly scale eee vin hybrid engines fort automobiles Alances ow poorly uicetasa perpen ledge or capability is based on tacit knowledge or on mote modem mantiacuaie eet study found that Firms with strategie alliances had oe i wlogies than did firms without alliances.6 : in access to specific markets: Rather th : Gries of its own in other countries, Anheuser-Busch ini Jeena Sie Of HS own in oer counties, Aneuser Busch chose tense the ht 0 brew and Ri eee wen, such as Labatt in Canada, Modelo in Mexico, and Kirin eae ae npc U . defense contractors and aircraft manufacturers selling to eae Sel reuitdby these goverment oped a perenag of be comes che) purchasing parts or obtaining sub-contractors, in that coun. TH atten achieved by forming value-chain alliances with foreign companies ypliers or as sub-contractors.% In a survey by thé i Unit, 59% of executives stated that th 8% De eons halk . heir primary reason for engagit Beg mite cma ern ae 2 3, ‘To reduce financial risk: Alliances tke less financial esoures than do a9 going it alone and ae easier to exit ecessary. For example bees the cos of devel png new large jet airplanes wee becoming 0 hig for anyone manufactures, Asrospa ule of France, British Aerospace, Construcciones Aeronéuticas of Spain, and Daienler-Benz Aerospace of Germany formed a joint consortium called Airbus Industrie asrajgn and build such plane. Using aliancss with suppliers is «popular means of out- sourcing an expensive activity. 4. Toveduce politcal isk: Forming alliances wit local partners isa good way fo oversone deficiencies in resources and capabilities when expanding into international markets. To ieee ro China while ensuring a positive relationship wih We often restrictive 7 , atin government, Maytag Corporation Formed a joint venture with the Chinese appli- ance maker, RSD. Cooperative arrangements between compan weak and distant to strong and close (See Figure 6-6. service consortia to joint ventures ‘and licensing arrangements to value and business units fall along continuum from } ‘The types of alliances range from mutual chain partnerships.” Joint Ventura, Value-Chain Mutual Semic? sf Licensing Arrangement Partnership Consortia Strong and Close Weak and Distant rategie Alliances’ from "Collaborative Aaoe “The Artof Alliances.” wun of Strategie Alans, 37 publishing Crprauen All sehs revered, 99 by the Harvard Busine § “Contin ‘SOURCE: RM, Kanter se angust 1998. Copy" Y Formation § lation: Situation Analysis and Business Strategy emE>» PART 3 Strategy Formulation nsortium is a partnership jal service CO! P of 5 Mutual Service Consortia. A eal their resources to gain a benefit that is too gyn tp ing ‘companies in similar edie savanced technology Er came esting? to develop alone, such Mteonics and Toshiba to build its next Beneration of copy * research alliance with Sony 11" chip, a microprocessor running 81 256 gigaflops—aroun chips, The result was the “cel used in desktop computers. Refem 1 - chips currently 0 ed ce apie a tee el chips were to be used By Sony in its PlaySiaigg a “supercomputer , a a \d by IBM in its super computers.”! The my, iba in its high-definition televisions, an¢ DY ‘ ual Tesh i i ay ry weak and distant alliance—appropriate for ype ‘work together but not share their core competencies, There is very litle interactog communication among the partners. erative business activity, formed by tW0 oF oy separate organizations for strategic purposes, that creates an eee — entity ang allocates ownership, operational responsibilities, and financial risks fa Tewards t0 ca member, while preserving their separate identity/autonomy.”” Along with licensing arrangements, joint ventures lie at the midpoint of the continuum and are formed to pursue opportunity that needs a capability from two or more companies or business units, such asthe technology of one and the distribution channels of another. Joint ventures are the most popular form of strategic alliance. They often occur because the companies involved do not want to or cannot legally merge permanently. Joint ventures provide a way to temporarily combine the different strengths of partners to achieve an outcome of value to all. For example, Proctor & Gamble formed a joint venture with Clorox to produce food-storage wraps. P&G brought its cling-film technology and 20 full-time employees to the venture, while Clorox contributed its bags, containers, and wraps business.” Extremely popular in international undertakings because of financial and political-legd constraints, forming joint ventures is a convenient way for corporations to work together wis out losing their independence. Around 30% to 55% of international joint ventures include three ‘or more partners.” Disadvantages of joint ventures include loss of control, lower profit, prob- ability of conflicts with partners, and the likely transfer of technological advantage to the Pa ner. Joint ventures are often meant to be temporary, especially by some companies that 13) view them v= away eee a competitive weakness until they can achieve long-term dom Hnaace fa lite ip. ee for this reason, joint ventures have a high failure rate. arch indicates, however that joint ventures tend to be more successful when both pat a Z ‘enture and are mutually dependent on each other for results. Joint Venture. A joint venture is a “coop Licensing Arrangements, A licensing arran, is jicensi : 'gement is an agreement in which the licens" firm grants rights to another firm in another country or market to produce and/or sella proda ‘The licensee pays compens: to the licensing firm in return for technical expense Licensing is aa especialy wf strategy if the trademark or brand name is well known but es not have sufficient funds to finance its enter ji Z Yum! Brands successfully used franchising and lienerae ee county steely. For exar : ing and licensing to establish its KFC, Pizza Hut. 7° £71 estat in hin nt ie ns en he wr a 2007 lone, te lone plus 852 more across six coming, is str i i s ontinents.”° This strategy Pega ahr pela ae via investment either difficult or impossie d . er, that the licensee might j ve poi that it becomes a competitor to the licensing firm. Therefers eos SO ve ees its distinctive competence, even for some short-run advantage, een Sno vane ee eee as ilve-chain partnership is strong and close allia® 's @ long-term arrangement with ee gist" + Researel ey supplier or distri for mutual advantage. Reseach suggests that suppling ten engage in tong term relationsultiple short-term contracts.7” For example, Tata "strates how a company in an emerging market ean anuFactuting comes it suppliers and distributors. TATA motors, the to businesses itl Yehices. In 1990, it aspired to move into Ge atlegically differnet" the same Standard Industrial Classification © Not chough to help it develon ye LHe company's existing resources and capabilities and distributors. The car was P a passenger car. This motivated TATA to turn to its suppliers Y avenge Ped in 31 months and the bl oaled to Re 1. 700.eroes as compared to an industr Y average of Venture, TATA outsourced 80¢b of i nots and USS, ee ta gs0 cree a Fails ofits 1,500-plus parts), from 200-0 vendors.™”.8\ Therefone rae ofthe components (1,200 able to introduce Indica : s only through its value-chain Partnerships that Tata Motors was asa smallcost leadership car in Indian markets. Be a involve uncertainty. Many issues need to be dealt with ‘Y formed, and others, which emerge later. Many problems revolve 1a alliance partners may also be its competitors, either immediately ecording to Peter Lorange, an authority in strategy, one thorny issue in any ince is how to cooperate without giving away the company or business unit's core competence: “Particularly when advanced technology is involved, it can be difficult for part- ners in an alliance to cooperate and openly share strategic know-how, but it is mandatory ifthe Joint venture is to succeed.”*? It is therefore important that a company or business unit that is interested in joining or forming a strategic alliance consider the strategic alliance success factors listed in Table 6~4 achieve success since 1983, was into m, Passenger cars. Though (SIC) code, they were i ) ill Ping close altians ae @ Have a clear strategic purpose. Integrate the alliance with each partner's strategy. Ensure that Strategic Aliance Success Factors mutual value is created for all partners. Find a fitting partner with compatible goals and complementary capabilities. formed. 1 Identify likely partnering risks and deal with them when the allince is formed fm Allocate tasks and responsibilities so that each partner can specialize in what it does best. 12 Create incentives for cooperation to minimize differences in corporate culture or organization ft 1 fe conflicts among the partners by clarifying objectives and avoiding direct competition @ Minimize s Fe fe cea ales censure that those managing it have comprehensive cross-cultural ear man resources to maintain communication and trust. Don’t allow individual egos to Exchange hu — ith long-term time horizons. The expectation of future gains ean minimize short-term c ci that any failures are counterbalanced by successes q Lee aoe aes jnformation to build trust and keep projects on target. ing process: Agree on a monitor ‘Monitor customer FesP | wi Be ‘flexible in terms of portunities. - Shan a a jeay for when ie pares Ob id service complaints. ans (e the relationst i ip in terms of environmental willingness to renegotia hip in ter jectives are achioved or the alliance is judged ‘m Agree on an exit staleBY a failure. . poe a ee {for the 21st Century,” ‘Strategy & Leadership traegie AO Li it Venture Formation: Planning and Inkpen an Sopp 337 pen am Li provide a cas SOURCE: Compiled from CONT "gi, (September/October 1998): PPT and A: = 1 mnizational Dynamics cre a al