strategic quotes… “successful business strategy is about actively shaping the game you play, not...
TRANSCRIPT
STRATEGIC QUOTES…
“Successful business strategy is about actively shaping the game you play, not just playing the game you find.” Adam Brandenburger & Barry Nalebuff
“The essence of strategy lies in creating tomorrow’s competitive advantages faster than competitors can mimic the ones you possess today.” Gary Hamel & C. K. Prahalad
“Competitive strategy is about being different. It means deliberately choosing to perform activities differently or to perform different activities than rivals to deliver a unique mix of value.” Michael Porter
“Strategies for taking the hill won’t necessarily hold it.” Amar Bhide
THE TOWS MATRIXWEIHRICH 82
INTERNAL FACTORS
STRENGTHS WEAKNESSES- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
OPPORTUNITIES SO STRATEGIES WO STRATEGIES
Use Strengths to take Take advantage of advantage of Opportunities Opportunities by
overcoming Weaknesses
EXTERNAL - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
FACTORS ST STRATEGIES WT STRATEGIES Uses Strengths to avoid Minimize Weaknesses Threats and avoid Threats
THREATS - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
HELPS US TO THINK ABOUT ALTERNATIVE STRATEGIES WE NORMALLY WOULDN’T CONSIDER. PORTER’S COMPETITIVE STRATEGIES
PORTER’S COMPETITIVE STRATEGIES
ISSUE 1 -- SHOULD WE OFFER “SUPERIOR VALUE” BY…
A. OFFERING A GOOD PRODUCT AT A LOW PRICE, OR
B. OFFERING A BETTER PRODUCT THAT IS WORTH PAYING MORE FOR?
ISSUE 2 – SHOULD WE COMPETE
A. “HEAD TO HEAD” WITH OUR MAJOR COMPETITORS, OR
B. SHOULD WE FOCUS ON A NICHE IN WHICH WE CAN SATISFY A LESS SOUGHT-AFTER BUT STILL PROFITABLE SEGMENT OF THE MARKET?
PORTER’S GENERIC STRATEGIESPORTER 1990
COMPETITIVE ADVANTAGE
LOWER COST DIFFERENTIATED- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
BROAD TARGET COST DIFFERENTIATION
LEADERSHIP
COMPETITIVE - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
SCOPE COST DIFFERENTIATION
FOCUS FOCUS
NARROW TARGET
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
PORTER’S GENERIC STRATEGIESPORTER 1990
LOW-COST LEADERSHIPLower costs than competitorsTargeted to a broad cross-section of the market
DIFFERENTIATIONOffer buyers something different from competitorsTargeted to a broad cross-section of the market
FOCUSED LOW-COSTLowest cost in serving a niche marketTargets a narrow market niche where buyer needs and preferences are distinctly different from the larger market
FOCUSED DIFFERENTIATIONOffer niche buyers something customized to their needs and preferencesTargets a narrow market niche where buyer needs and preferences are distinctly different from the larger market
LOW-COST LEADERSHIP STRATEGY
NO ONE CAN MAKE IT FOR LESS COST
STANDARDIZED PRODUCTS & SERVICES WITH LIMITED OPTIONS
GOOD VALUE FOR BUDGET PRICES
NO FRILLS OPERATING CULTURE (Lean and Mean!!!)
HIGH PRODUCTIVITY PER EMPLOYEE – THE EFFICIENCY LEADER
AGGRESSIVELY SEEKS COST-CUTTING INNOVATIONS
ACCEPTS LOW MARGINS IN RETURN HIGH VOLUME SALES
LOW-COST STRATEGIES ARE MOST SUCCESSFUL WHEN…
THE INDUSTRY PRODUCES STANDARDIZED PRODUCTS OR SERVICES
THERE AREN’T VERY MANY WAYS TO DIFFERENTIATE THE PRODUCT
MOST BUYERS USE THE PRODUCT IN SIMILAR WAYS
BUYERS INCUR LOW SWITCHING COSTS IN CHANGING SUPPLIERS
BUYERS ARE LARGE & HAVE POWER TO BARGAIN DOWN PRICES
PRICE COMPETITION IS A DOMINANT COMPETITIVE FORCE
RISKS OF A LOW-COST PRODUCER
COST ADVANTAGES TIED TO LARGE TECHNOLOGICAL INVESTMENTS MAY BACKFIRE IF THE TECHNOLOGY SUDDENLY BECOMES OBSOLETE
TECHNOLOGICAL BREAKTHROUGHS CAN ALSO GIVE RIVALS THE CHANCE TO ACQUIRE THE SAME COST REDUCTIONS WE ENJOY, OR TO DRIVE COSTS EVEN LOWER THAN WE CAN PRESENTLY ACHIEVE
RIVALS MAY FIND IT EASY OR INEXPENSIVE TO IMITATE OUR FIRM’S LOW-COST METHODS. IF THERE ARE NO BARRIERS OR PROTECTIONS, OUR COST ADVANTAGE MAY BE LOST QUICKLY
BUYER PREFERENCES AND TASTES MAY SHIFT TOWARD QUALITY, SERVICE, PERFORMANCE, OR OTHER DIFFERENTIATING FEATURES
STRATEGIC COST ANALYSIS AND ACTIVITY-COST CHAINS
SUPPLIER-RELATED ACTIVITIESPRICES PAID FOR RAW MATERIALS, ENERGY, PARTS, TRANSPORTATION
MANUFACTURING- (OR PROCESS) RELATED ACTIVITIESAGE & EFFICIENCY OF FACILITIES, ECONOMIES OF SCALE, WAGE RATES, PRODUCTIVITY, ADMINISTRATIVE OVERHEAD, ETC.
DISTRIBUTION-RELATED ACTIVITIESMARK UPS OF DISTRIBUTORS, RETAILERS, SALES & ADVERTISING, TRANSPORTATION AND DISTRIBUTION, ETC.
HOW DOES YOUR FIRM’S COST POSITION COMPARE WITH YOUR RIVALS?
ANALYSIS OF ACTIVITY-COST CHAINS…AN EXAMPLE
ACTIVITY-COST ANALYSIS OURS RIVAL 1 Diff
SUPPLY CHAIN COSTS
Cost of 1 ounce of RM #1 $ .61 $ .553 .057
Storage & Insurance & Trans --- .025 -.025
Total Cost per ounce of RM (#1) $ .61 $ .578 .032
Ozs of RM (#1) needed per unit (20 oz) $12.20 (20.5 oz) $ 11.849 .351
Cost of 1 lb of RM #2 $ .51 $ .495 .015
Storage & Insurance & Trans --- .025 -.025
Total Cost – per lb of RM (#2) $ .51 $ .520 -.01
Lbs of RM (#2) needed per unit (13 lbs) $ 6.63 (13.2 lbs) $ 6.864 -.234
Cost of 1 foot of RM #3 $ .728 $ .738 -.01
Storage & Insurance & Trans .042 .025 .017
Total Cost per foot of RM(#3) $ .77 $ .763 .007
Ft of RM (#3) needed per unit (15 ft) $11.55 (15 ft) $11.445 .105
SUPPLY CHAIN COST PER UNIT $ 30.38 $ 30.158 $ .222
ANALYSIS OF ACTIVITY-COST CHAINS…AN EXAMPLE – Contd
ACTIVITY-COST ANALYSIS OURS RIVAL 1 Diff
SUPPLY CHAIN COST PER UNIT $ 30.38 $ 30.158 $ .222
MANUFACTURING & CONVERSION COSTS
Hours needed to make 1 unit 3.0 hrs 3.1 hrs -.1 hr
Wages/Hour $ 9.80 $10.29 - $.49
Variable Labor Cost/Unit $29.40 $31.899 -$2.499
Other Overhead Charges/Unit $16.45 $14.11 $2.34
CONVERSION COST PER UNIT $45.85 $46.009 -$ .159
DISTRIBUTION CHAIN COSTS
Advertising Expenses/unit sold $ 4.28 $ 4.12 $ .16
Sales Commissions/unit sold $ 1.75 $ 2.00 -$ .25
Transportation Charges/unit shipped $ 1.10 $ .87 $ .23
DISTRIBUTION CHAIN COST/UNIT $ 7.13 $ 6.99 $ .14
ACTIVITY-CHAIN COST/UNIT $83.36 $83.157 $ .203
STRATEGIES FOR IMPROVING RELATIVE COST DISADVANTAGES
SUPPLIERS
RENEGOTIATE PRICES
INTEGRATE BACKWARDS
TRY LOWER-PRICED SUBSTITUTES
SEEK TRANSPORTATION SAVINGS
SAVE COSTS ELSEWHERE (Later in the chain)
MANUFACTURING/CONVERSION PROCESS
INVEST IN TECHNOLOGICAL IMPROVEMENTS
RELOCATE HIGH COST-PRODUCING ACTIVITIES
INNOVATE – REDESIGN PRODUCTS, PROCESSES, SERVICES
INITIATE INTERNAL COST-SAVING MEASURES
SAVE COSTS ELSEWHERE
DISTRIBUTION
SEEK BETTER TERMS WITH DISTRIBUTORS
INTEGRATE FORWARD
SEEK TRANSPORTATION SAVINGS
BE MORE EFFICIENT WITH ADVERTISING AND COMMISSION COSTS
SAVE COSTS ELSEWHERE (Earlier in the chain)
DIFFERENTIATION STRATEGY
NO ONE CAN BUILD IT BETTER
WE OFFER SUPERIOR QUALITY – IT’S WORTH THE EXTRA COST
WIDE BREADTH OF PRODUCTS & SERVICES TO CHOOSE FROM
FREQUENT INNOVATION IN PRODUCTS, PROCESSES, & SERVICES
CREATION OF ONE OR MORE POINTS OF DIFFERENCE
INTENSIVE ADVERTISING AND SALES EFFORTS
DIFFERENTIATION STRATEGIES ARE MOST SUCCESSFUL WHEN…
THERE ARE MANY POSSIBLE WAYS TO DIFFERENTIATE
BUYER NEEDS AND PREFERENCES ARE DIVERSE
FEW RIVALS ARE FOLLOWING A SIMILAR DIFFERENTIATION STRATEGY
THE FIRM HAS A TRUE DISTINCTIVE COMPETENCY THAT CAN’T BE COPIED
WAYS TO DIFFERENTIATE
RAW MATERIALS & COMPONENTS USED
PRODUCT QUALITY (GARVIN 87)
PERFORMANCE (operating characteristics; ability to “do the job”)FEATURES & VARIETY (“bells and whistles,” add-ons or supplements)RELIABILITY (functions without maintenance)SERVICEABILITY (easy to repair)CONFORMANCE (how consistently it meets established standards)DURABILITY (product life; how long it lasts before it really deteriorates)AESTHETICS (how does it look, feel, taste, smell, etc)PERCEIVED QUALITY (the overall reputation it has)
PRODUCTION PROCESSES USED
TRANSPORTATION, DISTRIBUTION, & DELIVERY
SERVICE DELIVERY
TECHNICAL SUPERIORITY OF PERSONNEL
SPECIAL CUSTOMER SERVICES
BENEFITS OF EMPHASIZING QUALITY
STRONG CUSTOMER LOYALTYLESS VULNERABILITY TO PRICE WARSCAN CHARGE A HIGHER PRICE WITHOUT LOSING CUSTOMERSLOWER MARKETING COSTSLOWER WARRANTY COSTS
THE VALUE GRID
HIGH - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
POOR PREMIUM VALUE VALUE
PRICE AVERAGE
VALUE
ECONOMY OUTSTANDING VALUE VALUE
LOW - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
INFERIOR SUPERIOR
QUALITY
RISKS OF DIFFERENTIATION
DIFFERENTIATION INCREASES COSTS – WILL BUYERS PAY FOR IT?
CAN COMPETITORS QUICKLY & EASILY COPY YOUR STRATEGY?
DIFFERENTIATION ON THE BASIS OF SOMETHING THAT DOESN’T LOWER BUYER COSTS OR INCREASE A BUYER’S SENSE OF WELL-BEING OR SATISFACTION
OVER-DIFFERENTIATING SO THAT THE PRICE IS TOO HIGH, OR THE QUALITY OR SERVICE LEVELS EXCEED BUYER’S NEEDS & DESIRES
IGNORING THE NEED TO SIGNAL VALUE (ADVERTISE) AND DEPENDING ON PRODUCT ATTRIBUTES ALONE TO ACHIEVE DIFFERENTIATION
NOT UNDERSTANDING WHAT BUYERS CONSIDER AS TRULY VALUABLE
FOCUS STRATEGY
MADE ESPECIALLY FOR YOU (CUSTOMIZED)
SPECIALIZATION FOR SEGMENTS AND NICHES UNDERSERVED OR IGNORED BY PRIMARY COMPETITORS
PRODUCT OR SERVICE REQUIRES SPECIAL KNOWLEDGE OR EXPERTISE TO SERVE THIS UNIQUE POPULATION
COMPETITIVE ADVANTAGE REQUIRES BEING EITHER THE LOW-COST PRODUCER, OR THE QUALITY INNOVATOR IN THE NICHE
FOCUS STRATEGIES ARE MOST SUCCESSFUL WHEN…
THE FIRM HAS THE SKILLS & RESOURCES TO SERVE THE SEGMENT WELL
THE SEGMENT ISN’T CRUCIAL TO THE SUCCESS OF MAJOR COMPETITORS
THE SEGMENT HAS GOOD PROFIT AND GROWTH POTENTIAL
NO OTHER RIVAL IS ATTEMPTING TO STRATEGICALLY SERVE THE SEGMENT IN THE SAME WAY
RISKS OF A FOCUS STRATEGY
THE ADVANTAGES OF A BROAD PRODUCT LINE INCREASE
NICHE BUYER PREFERENCES SHIFT TOWARD THE BROAD MARKET – DEMAND DISAPPEARS
COMPETITORS FIND WAYS OF MATCHING THE FIRM’S SPECIAL SKILLS , PRODUCTS AND SERVICES
ONLY ONE COST-LEADER AND ONE QUALITY INNOVATOR CAN SURVIVE AND THRIVE IN MOST SMALL NICHES
ATTRACTIVE SEGMENTS DRAW IN NEW COMPETITORS
NEW COMPETITORS SUB-SEGMENT THE NICHE
USING OFFENSIVE STRATEGIES TO BUILD COMPETITIVE ADVANTAGE
THREE PHASES:BUILD-UP PERIOD
SHORT FOR NEW SERVICESLONG FOR CAPITALLY-INTENSE TECHNOLOGIES
Ideally, an offensive move should build competitive advantage quickly, before rivals see it and respond to it.
BENEFIT PERIODHOW LONG DOES IT TAKE RIVALS TO CLOSE THE COMPETITIVE GAP?IS THERE ENOUGH TIME TO EARN BACK THE INVESTMENT MADE IN CREATING THE ADVANTAGE?
The best strategic offensives produce BIG competitive advantages and LONG benefit periods.
EROSION PERIODRESOURCEFUL, COMPETENT COMPETITORS WILL RESPOND WITH COUNTEROFFENSIVES WHICH ERODE THE FIRM’S COMPETITIVE ADVANTAGE
Thus, to sustain a competitive advantage, a firm must stay a step ahead of rivals by mounting one creative offensive after another.
COMPETITION AND OFFENSIVE STRATEGIES
TWO OFFENSIVE PRINCIPLES:
1. CHALLENGING LARGER, ENTRENCHED COMPETITORS WITH AGGRESSIVE PRICE-CUTTING IS FOOLHARDY….UNLESS YOU HAVE EITHER A COST ADVANTAGE OR GREATER FINANCIAL STRENGTH, DON’T COMPETE HEAD-TO-HEAD.
2. CHALLENGING RIVALS WHERE THEY ARE LESS COMPETENT IS MORE LIKELY TO SUCCEED THAN CHALLENGING THEM WHERE THEY ARE STRONGEST, ESPECIALLY IF WE HAVE SIGNIFICANT ADVANTAGES IN AREAS WHERE RIVALS ARE WEAK.
SOME COMMON OFFENSIVE TACTICS
PRICE-CUTTING
COMPARISON ADS
CREATE NEW FEATURES THAT APPEAL TO A RIVAL’S CUSTOMERS
CREATE NEW PLANT CAPACITY IN A RIVAL’S BACK YARD
CREATE NEW MODELS THAT MATCH OR MIMIC THE RIVAL’S
COMPETITIVE ADVANTAGES THAT ENHANCE AN OFFENSIVE STRATEGY
DEVELOP A LOWER-COST PRODUCT DESIGN
MAKE PRODUCTION CHANGES THAT LOWER COSTS OR ENHANCE DIFFERENTIATION
DEVELOP PRODUCT FEATURES THAT DELIVER SUPERIOR PERFORMANCE OR LOWER USER COSTS
GIVE BUYERS MORE RESPONSIVE AFTER-SALE SUPPORT
PIONEER A NEW DISTRIBUTION CHANNEL
BYPASS WHOLESALE DISTRIBUTORS & SELL DIRECT TO END-USERS
DEVELOP A STRONG ADVERTISING/MARKETING EFFORT IN AN UNDERMARKETED INDUSTRY
A strategic offense must be tied to what firm does BEST – it’s competitive strengths and capabilities.
OFFENSIVE MARKET LOCATION TACTICS(WHERE TO COMPETE?)
FRONTAL ASSAULT – ATTACK COMPETITOR STRENGTHSA GOOD PRODUCT WITH A LOWER PRICE?
BETTER HAVE A TRUE COST ADVANTAGE BEFORE OFFERING A LOWER PRICE
FLANKING MANEUVER – ATTACK COMPETITOR WEAKNESSESFIND NEGLECTED BUYERS, GAPS IN THE PRODUCT LINE, POOR SERVICE OR QUALITY
CATCH THE RIVAL BY SURPRISE WITH NO READY DEFENSE
BYPASS OR END-RUN – AVOID HEAD-ON CHALLENGESDON’T CHALLENGE OR ATTACK EXISTING COMPETITORS
FIND THE NICHES WHERE NO FIRM HAS YET GONE…GAIN FIRST MOVER ADVANTAGES
GUERRILLA OFFENSIVES – HIT-AND-RUN APPROACH FOR SMALL CHALLENGERSSMALL INTERMITTENT RAIDS TO TAKE ADVANTAGE OF TEMPORARY SITUATIONS
WITHDRAW FROM COMPETITION BEFORE LARGE RIVALS REACT—LIVING ON THE CRUMBS
ENCIRCLEMENT – SURROUND THE COMPETITOR WITH COMPETING PRODUCTS/SERVICESCARRIES A MUCH BROADER PRODUCT LINE, CAN SERVE MORE MARKETS, NEEDS—ONE STOP
SIMULTANEOUSLY ATTACK ON SEVERAL FRONTS (PRODUCTS) – COMPETITOR IS OVERWHELMED
PREEMPTIVE STRIKES – MOVE FIRST TO SECURE AN ADVANTAGEOUS POSITIONEXPAND CAPACITY, CLAIM THE BEST SUPPLIERS, LOCATIONS, DISTRIBUTORS, ETC.
DISCOURAGES RIVALS FROM ATTEMPTING TO DUPLICATE
DEFENSIVE STRATEGIES
TRY TO LOWER THE RISK OF ATTACK OR LESSEN IT’S IMPACT ON YOUR FIRM
DON’T PROVIDE NEW COMPETITIVE ADVANTAGES TO YOUR FIRM, BUT THEY DO TRY TO SUSTAIN WHATEVER PREVIOUS ADVANTAGES YOU’VE ENJOYED BY MAKING ATTACKS AGAINST YOUR FIRM UNATTRACTIVE
THESE TACTICS REDUCE SHORT-TERM PROFITABILITY IN AN EFFORT TO PRESERVE LONG-TERM PROFITABILITY
THREE TYPES OF DEFENSIVE TACTICS:
BLOCK OFF AVENUES OF ATTACK (RAISE BARRIERS)
INCREASE EXPECTATIONS OF RETALIATION
LOWER THE INDUCEMENT TO ATTACK
DEFENSIVE STRATEGIES – 1FRUSTRATING YOUR RIVALS
CREATING BARRIERS
BROADEN YOUR PRODUCT LINE – TO CLOSE OFF VACANT NICHES AND GAPS KEEP PRICES LOW ON MODELS THAT CLOSELY MATCH THE RIVAL’S OFFERINGSSIGN EXCLUSIVE AGREEMENTS WITH DISTRIBUTORS & DEALERS TO KEEP
COMPETITORS FROM USING THEMMAKE IT HARDER FOR BUYER TO SWITCH TO RIVAL BRANDS…
- GIVE SPECIAL PRICE & VOLUME DISCOUNTS- USE COUPONS & SAMPLE GIVEAWAYS TO THOSE MOST PRONE TO SWITCH- MAKE EARLY ANNOUNCEMENTS ABOUT NEW PRODUCTS AND PRICE
CHANGES TO INDUCE POTENTIAL BUYERS TO POSTPONE SWITCHINGINCREASE INVESTMENT IN SCALE ECONOMIES TO REDUCE UNIT COSTSAVOID SUPPLIERS WHO SERVE COMPETITORS – NEGOTIATE EXCLUSIVE CONTRACTSCONTROL ALTERNATIVE TECHNOLOGIES THROUGH PATENTING & LICENSINGLIMIT OUTSIDE ACCESS TO YOUR FACILITIES AND PERSONNELPURCHASE KEY LOCATIONS AND NATURAL RESOUCE RESERVES TO KEEP THEM
FROM RIVALSCHALLENGE RIVALS’ PRODUCTS AND PRACTICES IN REGULATORY PROCEEDINGSENCOURAGE THE GOVERNMENT TO RAISE BARRIERS, SAFETY AND POLLUTION
STANDARDS, AND FAVORABLE TRADE POLICIES
DEFENSIVE STRATEGIES – 2
INCREASE EXPECTATIONS OF RETALIATION
DEFEND ANY EROSION OF MARKET SHARE WITH DRASTIC PRICE CUTS
ADVERTISE THAT “WE WILL NOT BE UNDERSOLD” – MATCH RIVAL PRICE OFFERS
ACCEPT PROMOTIONAL COUPONS AT FACE VALUE…OR EVEN ADD 10%, ETC.
VIGOROUSLY COUNTERATTACK ANY INTRUSION INTO YOUR MARKET
LOWER THE PROFIT INDUCEMENT FOR RIVALS TO ATTACK
KEEP THE PRICES LOW
CONSTANTLY INVEST IN COST-REDUCING TECHNOLOGIES
MAKE SURE THE RIVAL KNOWS THEY WON’T MAKE A PROFIT IF THEY ATTACK YOU
COOPERATIVE STRATEGIESWORKING WITH YOUR RIVALS
COLLUSION -- COOPERATION TO REDUCE OUTPUT AND INCREASE PRICES
Explicit Collusion – illegal collusion, conspiring to control the market and pricesTacit Collusion – no one actually met together and agreed to do anything illegal
TACIT COLLUSION IS MOST LIKELY WHEN:SMALL NUMBER OF COMPETITORSFIRMS EXPERIENCE SIMILAR COSTSONE FIRM TENDS TO ACT AS THE PRICE LEADERTHERE IS A COMMON INDUSTRY CULTURE THAT ACCEPTS COOPERATIONSALES ARE CHARACTERIZED BY A HIGH FREQUENCY OF SMALL ORDERSLARGE INVENTORIES & ORDER BACKLOGS ARE THE WAY FLUCTUATIONS IN DEMAND ARE HANDLEDTHERE ARE HIGH ENTRY BARRIERS WHICH EFFECTIVELY KEEP OUT NEW COMPETITORS
“CONSCIOUS PARALLELISM” CAN BE ILLEGAL – IT REDUCES COMPETITION
STRATEGIC ALLIANCES – LEGAL COOPERATION
MUTUAL SERVICE CONSORTIAJOINT VENTURESLICENSING AGREEMENTSVALUE-CHAIN PARTNERSHIPS
STRATEGIC ALLIANCES
REASONS THEY ARE FORMED:
TO OBTAIN ACCESS TO TECHNOLOGY & MANUFACTURING CAPABILITY
TO OBTAIN ACCESS TO SPECIFIC MARKETS
TO REDUCE FINANCIAL RISK
TO REDUCE POLITICAL RISK
TO LEARN NEW CAPABILITIES
A CONTINUUM OF STRATEGIC ALLIANCES
Mutual Service Joint Ventures Value-Chain
Consortia Licensing Partnerships
= = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = =WEAK & DISTANT STRONG & CLOSE
TYPES OF STRATEGIC ALLIANCES
MUTUAL SERVICES CONSORTIACompanies pool their resources to gain a benefit that is too expensive to develop aloneLittle interaction among partners – partners work together, but don’t share core competenciesA weak and distant alliance
JOINT VENTURESMost popular alliance – used in international markets to deal with financial/political/legal risksCreates an independent entity, with responsibilities and risks carefully defined for each partyDISADVANTAGES: loss of control, lower profits,conflict with partners, transfers of technologyMeant to be temporary – ventures have a high failure rate
LICENSINGAllows firms to use of trademarks, brand names, and to make and sell products in foreign landsLicensee pays a fee in return for technical expertise and legal permissionsA good way to have your product distributed in a country where you don’t have a presenceCarefully manage any access to your distinctive competence, because it can easily be “stolen”
VALUE-CHAIN PARTNERSHIPSForm a long-term relationship with a key supplier or distributor instead of just using “bids”More quality & reliability in the chain and more profitability for the suppliers & distributors
REMEMBER, YOUR STRATEGIC ALLIES MAY BECOME YOUR COMPETITORS