Beyond Competitive Strategy

Other Important Strategy Choices

Fig. 6.1: A Companys Menu of Strategy Options

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Strategic Alliances and Collaborative Partnerships

strategic alliances or collaborative partnerships :
WHERE two or more companies join forces to achieve common beneficial strategic outcomes Toyota has long term partnership with its suppliers of part IBM and Microsft have over 15000 alliances In the PC industry, alliances are useful
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Alliances Can Enhance a Firms Competitiveness

Alliances and partnerships can help

companies to cope with two demanding competitive challenges: market presence in many different national markets

1.Racing against rivals to build a

2.Racing against rivals to grab

opportunities on the first in terms of advancing technology company lower its costs and/or gain access to needed expertise and capabilities
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Collaborative arrangements can help a

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Recent alliances in India

Private sector insurer Aviva Life Insurance

has entered into a nation-wide strategic alliance with India Post, which will help the insurance firm to gather its premium of policies through post offices Reliance Communications signs strategic alliance with GetJar to create Indias largest and free mobile Apps Store The world's leading mobile communications company, NTT DOCOMO, recently entered into a strategic alliance with Tata Teleservices Limited and Tata Sons Limited
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Why Are Strategic Alliances Formed?

To collaborate on technology development or

new product development expertise

To fill gaps in technical or manufacturing

To acquire new competencies

To improve supply chain efficiency To gain economies of scale in

production and/or marketing

marketing agreements

To acquire or improve market access via joint

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Why Alliances Fail

Ability of an alliance to endure depends on
How well partners work together

Success of partners in responding

and adapting to changing conditions Willingness of partners to renegotiate the bargain

Reasons for alliance failure
Diverging objectives and priorities of partners Inability of partners to work well together Changing conditions rendering purpose of alliance obsolete Emergence of more attractive technological paths Marketplace rivalry between one or more allies

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Merger and Acquisition Strategies

Merger Combination and pooling of equals, with

newly created firm often taking on a new name Acquisition One firm, the acquirer, purchases and absorbs operations of another, the acquired Merger-acquisition
Much-used strategic option Especially suited for situations where

alliances do not provide a firm with needed capabilities or cost-reducing opportunities Ownership allows for tightly integrated operations, creating more control and autonomy than alliances
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Objectives of Mergers and Acquisitions

To search a way for acquiring firm to gain more market share

and create a more efficient operation

To expand a firms geographic coverage

To extend a firms business into new product

categories or international markets

To gain quick access to new technologies To invent a new industry and lead the convergence of

industries whose boundaries are blurred by changing technologies and new market opportunities

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 Tata Steel acquired Corus Group plc. The acquisition deal

amounted to $12,000 million HPCL acquired Kenya Petroleum Refinery Ltd.. The deal amounted to $500 million Daewoo Electronics Corp. by Videocon involved transaction of $729 million important merger was that between Centurion Bank and Bank of Punjab. Worth $82.1 million (Rs. 3.6 billion in Indian currency), this merger led to the creation of the Centurion Bank of Punjab with 235 branches in different regions of

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 Vodafone took over Hutchison-Essar in India

LIC acquires 10% stake in Andhra Bank Tata Motors acquired Jaguar and Land Rover brands from Ford

Motor in March 2008. The deal amounted to $2.3 billion. India's financial industry saw the merging of two prominent banks - HDFC Bank and Centurion Bank of Punjab. The deal took place in February 2008 for $2.4 billion. Indian pharma industry registered its first biggest in 2008 M&A deal through the acquisition of Japanese pharmaceutical company Daiichi Sankyo by Indian major Ranbaxy for $4.5 billion
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Pitfalls of Mergers and Acquisitions

Combining operations may result in
Resistance from rank-and-file employees Hard-to-resolve conflicts in management styles and corporate

cultures
Tough problems of integration Greater-than-anticipated difficulties in
Achieving expected cost-savings Sharing of expertise Achieving enhanced competitive capabilities

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Vertical Integration Strategies

Extend a firms competitive scope within

same industry
Backward into sources of supply Forward toward end-users of final product

Can aim at either full or partial integration(participating

at all stages of industry)

e.g paint manufacturer.

Activities, Costs, & Margins of Suppliers

Internally Performed Activities, Costs, & Margins

Activities, Costs, & Margins of Forward Channel Allies & Strategic Partners

Buyer/User Value Chains

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Backward integration merits

Saves the cost when the volume needed is big enough

(Scale of economies) When the quality and efficiency can be matched Likely to reduce cost when supplier is having higher margin If the skills and technology can be easily matched Helpful to decrease dependency on supplier

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Forward integration merits

To gain better access to end users

and better market visibility To compensate for undependable distribution channels which undermine steady operations To offset the lack of a broad product line, a firm may sell directly to end users To bypass regular distribution channels in favor of direct sales and Internet retailing which may
Lower distribution costs Produce a relative cost advantage over rivals Enable lower selling prices to end users

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Disadvantages
Increases firms capital investment
Increase risk factor Difficult to adopt the newer technology

Difficult to provide variety of product

Difficult to match capacity in terms of production Difficult to match skills and capabilities at all level

It isnt profitable as it sounds

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Outsourcing Strategies
Concept
Outsourcing involves withdrawing from certain value chain activities and relying on outsiders to supply needed products, support services, or functional activities
Internally Performed Activities

Suppliers

Functional Activities

Support Services
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Distributors or Retailers
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Advantages
An activity can be performed more cheaply by outside

performer An activity can be performed better ( auto carmaker CD) It reduces the companys risk exposure to changing technology and buyer preference It allows company to concentrate on strengthening its core things

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Pitfalls of Outsourcing
One of the most crucial facts of life is that no third person or

company can understand the product better than the owner. In spite of their best efforts, they may not be able to help business owners reach their goals The potential for a communication gap is said to be one of the demerits of outsourcing When confidential data is outsourced, it raises the question of data protection Your outsourcing company will not be driven by the same standards and mission that drives your company
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Offensive and Defensive Strategies

Offensive Strategies
Used to build new or stronger market position and/or create competitive advantage

Defensive Strategies
Used to protect competitive advantage (rarely used to create advantage)

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Attacking Competitor Strengths

Objectives
Whittle away at a rivals

competitive advantage
Gain market share by out-matching

strengths of weaker rivals

Challenging strong competitors with a lower price is foolhardy unless the aggressor has a cost advantage or advantage of greater financial strength!
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Options for Attacking a Competitors Strengths

Offer equally good product at a lower price

Develop low-cost edge, then use it to under-price rivals

jumping into next-generation technologies Add appealing new features Run comparison ads Construct new plant capacity in rivals market strongholds Offer a wider product line Develop better customer service capabilities
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Defensive strategies
Blocking the avenues open to challengers
Number of obstacles that an be put in the path of challengers Using alternative technology to reduce the threat of rivals in terms of technology Introducing new Models, broaden its product line, to close off the gaps vacant for

rivals Can go for lower price and better quality Discouraging the rivals by providing long warranty period, faster delivery, free training, Defender can give higher discounts to dealers and distributors

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