CHAPTER 5 BUSINESS LEVEL STRATEGY JEBAT AUTO

a. Explain a way in which Jebat Auto can enhance its cost leadership position in its
operations, which is one of its value chain activities.

Jebat auto can enhance its cost leadership in its operation by having car mass produce. When
the cars are mass-produced, JA could produce large numbers of output, this would enable JA
to reduce the cost per car produce. When the car go through the assembly line, the operators
would be more efficient which would lead to faster production resulting in more cars being
produced. The more the cars produced by JA, the lower cost per unit as it would achieve and
enjoy the economies of scale and this would enhance its cost leadership position. Economies of
scale are the cost advantages a company obtain to increase the level of production, the scale of
operation, size & output since the cost per unit would be decreasing with increasing sales as fixed
cost are now spread across product or service department thereby this would result in a lower
unit cost. Reduction of direct & indirect cost. JA can obtain the level of cost leader by keeping
both direct & indirect costs to a bare minimum. This is achieved by offering a high volume of
standardized products limiting customization & personalization service and offering basic
products without any room for unnecessary or extra activities that do not add value to the overall
quality of the product. Control over supplies to ensure low cost. If the company can practice
backward integration, it should ensure that they build a good/solid relationship with the suppliers
to ensure that they would get a lower cost or good price. The co may try to minimize the cost as
lower as they can. The reduction of supplies cost could be achieved by bulk buying as the co may
get a special discount. A good relationship with the supplier, working with vendors help to keep
the inventory low since a good relationship with will lead to the co to not keeping/retain stocks, as
the company will be given priority when they need the inventory/raw materials

b. Discuss the advantages of the overall cost leadership business-level strategy vis-a-
vis the following basic competitive forces to Jebat Auto:

i. Intensity of rivalry among the automakers in the local automobile industry

Intensity examines how intense the current competition in the marketplace. This is determined by
the number of existing competitors & what each competitor can do. The rivalry is high when there
a lot of competitors that are roughly equal in size and power when the industry is growing slowly
and when consumers can easily switch to a competitor's products. When rivalry is high,
competitors are likely to actively engage in advertising & price war which would hurt a business
bottom line. In addition, the rivalry would be more intense when barriers to exit high and forcing
the company to remain in the industry even though the profit margin is declining and these barriers
to exit therefore for example be long term loan agreement & high fixed cost.

When Jebat Auto shift to the overall cost leadership, the other automaker also finding ways to
differentiate their product from the market to win the customer's heart. Several existing market
players also plan to manufacture a low-cost vehicle to increase affordability by the customer,
therefore, the rivalry among the automaker become very intense since they want to attract the
same customer before JA develop brand loyalty. Due to that, the competitive in vehicle auto
market, customers have very little brand loyalty. A moderate price cut could easily swing the
customer away from other competing brands. Jebat Auto with overall cost leadership business-
level strategy would achieve above-average returns despite strong competition from other
automakers in the local automobile industry. This will protect JA against rivalry from competitors
since it enjoys a lower cost per unit. JA with low-cost tactic will allow them to earn a return even
if the other automaker would threaten them through intense rivalry since they are practicing the
lower cost strategy that indirectly JA have to strengthen their low-cost position to make sure that
their sustainability in the industry would be taken care or maintained.

ii. Bargaining power of buyers

This force analyzes what extend the customer are able to put the company under pressure which
also affects the customer's sensitivity to price changes. Customers have a lot of power when there
are not many of them and when the customer has many alternatives to buy from. Moreover, it
should be easy for the customer to switch from one company to another. Buying power is low
when customers purchase products in a small amount and act independently when the seller's
product is very different from any of its competitors. For example, if customers act independently,
the bargaining power is low. The internet has allowed the customer to become more informed
and therefore more empowered that lead customer to easily compare prices online and get all the
information about a variety of the cars & get access to offer from companies instantly and
companies can take measure to reduce buyer power by implementing the loyalty program or by
differentiating the product & services.

When Jebat Auto shift to overall cost leadership, it also protected against buyer with strong
bargaining power eventhough there are many automaker to choose from because JA now running
at a low cost. With low cost, JA can offer better prices to their buyers therefore the buyer would
not switch to another competitor. The buyer can exert the bargaining power drive down the price
offered by JA only to the level at the most efficient low cost competitor. JA would not have to feel
pressure by the buyers no matter how strong their bargaining power because JA has a low-cost
strategy meaning that JA's price should be lower than competitors in the market

c. Discuss three (3) potential pitfalls Jebat Auto must avoid in striving to attain the overall
cost leadership business-level strategy.

● Too much focus on one or a few value-chain activities. JA must not focus too much
on one or a few value chain activities but JA needs to pay attention to all the activities in
the value chain. For example, when JA focuses only on the operation, it tends to ignore
the marketing strategy or service strategy which something that needs to be avoided. JA
should explore all the value chain activities including the relationship among them as
candidates for cost reductions.

● The strategy is imitated too easily. JA needs to make sure that its low-cost strategy is
not imitated too easily. The low cost value creating activities are easy to imitate. Once the
strategy is imitated, JA may lose its advantages as the overall cost leader and would be
threatened by imitators when they become the competitors. JA needs to have a low-cost
 strategy that actually difficult for the competitors to imitate looking at how JA wants to have
a unique and valuable strategy in order for them to be hard for a competitor to imitate.

● A lack of parity on differentiation. JA must ensure that cost leadership strategy does
not lack parity on differentiation. The co must ensure that they should have few differences
and uniqueness in order for them to not to lack parity on differentiation and cannot only
focus on reducing cost in producing the car. JA needs to achieve the cost leadership
advantages and generate above-average performance where this would lead JA to obtain
a level of parity on the differentiation