GROUP 1.

Industry life cycle model

A useful tool for analysing the effects of industry revolution on competitive forces (Factors that influence the
competitive position of the company in an industry or market e.g bargaining power of buyers and suppliers, threat new entrant,
rivalry among existing company).

Five sequential stages

Start-up: Industry is just beginning to develop. Growth at this stage is slow due to factors such as:

 Buyers unfamiliarity with the industry products

 Highly prices due to poor economies scale and

 Poorly developed distribution channels

Marketing strategies is use in this stage:

 Rapid skimming- launching the product at high price and high promotional level

 Rapid penetration- launching the product at a low price with significant promotion

 Slow penetration- launching the product at a low price and minimal promotion

Growth Stage: In this stage, demand is expanding rapidly and the industry’s product takes off because

 Customer have become familiar with the product

 Prices falls because experience and economic scale have been attained

 And , distribution channels have develop

 Improving product quality

 Enter new market segment

 Keep pricing as high as is reasonable to keep demand and profit high

 Adding new product features or support service to grow your market segment.

Industry shakeout: Explosive growth cannot be maintained indefinitely. Sooner or later rate of growth slows, demand approaches
saturation levels and most of the demand is limited.

 Arrow Aggressive

Mature stage: The Market stabilizes as demand levels the industry is now dominated by a few large competitors.

 Market Modification

 Product Modification
Decline stage: Demand for industry product declines competition increases, failing competitors either exit the market or are
acquired by rival firms.

 Fin another use for the product

 Reduce promotional expenditure on the products

 Reduce the number of distribution outlets that sell them

 Maintain the product and wait for competitor to withdraw from the market first.

GROUP 2 . What is Environmental Analysis -

Environmental analysis is a strategic tool it is a process to identify all the external and internal elements which can
affect the organization’s performance

In external environmental analysis then entrepreneur evaluates various factors to determine opportunities, threats,
,reactions, neglects, investigations for his/her enterprise and adjust his strategies and objectives.

6 methods of external environmental analysis

-To collect information-This method of external environment analysis if very important and useful, without it, no entrepreneur can
either make his existence nor he may develop

*verbal information- means that information and knowledge which an executive obtains from hearing from someone, this
information maybe formal or informal- Broadcasting, By employees, From outside of enterprise or through lectures and seminars.
However It lacks writer proof and is short term

*Written Information- means that information which is obtain in written from any person, institution, government and international
government Information published by central and state government such as external trade, finance and economic surveys and
information that provided by various governments

-In infiltrating and spying (espionage) – is an important method for external environmental analysis, by this method, important
information may be collected.(this method which the high-level executives gather knowledge about the secrets of other
entrepreneurs (this method answers the questions how human relations are cordial between the employer and the employees,
who supplies the machinery of competitive institutions and in what term and conditions, why the costumer of competitive
institutions are satisfied

-Forecasting- Forecasting is also a methods to obtain information for external environmental analysis and this is a formal process
to estimate the future events, the forecasts make the advance assessment of possible events to have safeguards against the
future risk (To obtain information like general economic forecast, institutional forecast, competition policy using observation
methods, survey method, brainstorming, induction and deduction, time series analysis and arithmetic analysis
-Market Survey- This method of external environmental analysis in which entrepreneur makes effort to know the new trends and
challenges developing towards the commodity or service so that he may take suitable decisions to meet the liking requirements
of the consumers

-Environmental threats and opportunity profile (ETOP)- this is a method in which various factors of the environment are analyzed
and evaluated

-Strength, Weakness, Opportunity and Threats Analysis (Swot)- This method is used to understand the internal and external
environment of entrepreneurship, potential strength potential weakness potential opportunity and potential threats

Our market is facing changes every day, many things develop overtime. Businesses are greatly influence by their environment.
There are many strategic tools that a firm can use but some are more common, the most used detailed analysis of the
environment is the PESTLE analysis

PESTLE analysis- This is a bird’s eye view of the business conduct

P- Political Factors- government policies, taxes laws and tariff, stability of government, entry mode regulations

E-Economic Factors- Foreign Exchange rate, T he inflation rate, interest rate,

S- Social Factors- Cultural implications, gender and connected demographics, Social lifestyles, Educational levels

T- Technological factors- New discoveries, rate of technological advance, innovation

L- Legal factors – Product regulations, employment regulations, health and safety regulations

E- Environmental factors- Geographic location, climate and weather, waste disposal laws, energy consumption regulation

1. Understand all environmental factors before moving to next step

2. Collect all the relevant information

3. Identify the opportunities for your organizations

4. Recognize the threats your company faces

5. The final step is to take action

COMPETETIVE ENVIRONMENTAL ANAYLSIS

Competitive environmental analysis- In business being good is not good enough unless it comes from your costumers and
is supported by sales and market growth (sustainability.

1. Industry analysis

2. Competitive analysis

3. Competitor analysis

Industry analysis- In analyzing the industry and market sector, we are interested in answering two questions. What are the
major trends affecting the growth of the industry in the future? In summary, will this industry grow faster or slower than average?

Porter’s Five Competitive Forces – This model was develop by Michael E. Porter in 1980s
 Potential entrants

Industry competitors

Rivalry among existing

Suppliers firms Buyers

Substitutes
GROUP 3

Assessing the Internal Environment: Value Chain Analysis

I. Introduction

Why do some companies’ profit margins exceed their competitors? How does
one company garner a competitive advantage against its peers? The answers to
these questions may be found in value chain analysis. (Zucchi,
Investopedia, 2018)

The competitive environment for organizations of all shapes and sizes - and in
all industry verticals - is more challenging than ever before. Technological
advancements have enabled businesses to design and build more quickly, sell
across multiple channels, react instantly to changing demands, and cut costs simply
by outsourcing an activity. To achieve competitive advantage, an organization
ultimately delivers more value at an equal or lower cost. Value chain analysis is the
method for determining the critical path to enhance customer value while reducing
costs.

Since the mid-1980s, Michael Porter’s value chain analysis (i.e., his original five
forces value chain model) has been a useful tool for numerous companies to develop
and sustain breakthrough competitive advantages. Today, there is some concern that
as new technology changes how a society does business and how a consumer
relates to goods and services, Porter’s 30-year-old conception of value chain
analysis will not remain relevant and useful.

A value chain refers to the activities that take place within a company in order to
deliver a valuable product to market. The value chain system was first described in
Tableau Economique, written in the 18th century by the French economist Francois
Quesnay. Many experts since have expanded on this source, as well as Porter’s
massively influential model, including Robert M. Grant (contemporary strategy
analysis) and Wassily Leontief (the input-output model). However, the value chain
analysis pioneered and illustrated by Michael Porter in his groundbreaking book,
Competitive Advantage remains an indispensable methodology. Having evolved and
adapted over the years, companies and industry specialists continue to successfully
implement Porter’s value chain analysis. The practice is now also a vital part of
societal global initiatives. According to Angel Gurria, OECD Secretary-General,
―International trade and investment have undergone accelerated changes with the
emergence of global value chains.‖ A global value chain involves the coordination of
activities, people, and processes across geographies.
 Smartsheet.com (2020). Everything you Need to Know About Value Chain
Anlysis. Retrieved from:
https://www.smartsheet.com/everything-you-need-to-know-about-value-ch ain-analysis

II. Review of SWOT Analysis; SWOT vs. VCA

The value chain, created by Michael Porter, is a business management concept

that includes nine activities that work together to provide value to customers. When a
company implements a value chain, it possesses a greater ability to generate profits.
SWOT is a strategic planning method in business that allows a company to identify
and analyze its strengths, weaknesses, opportunities and threats. SWOT analysis
allows companies to evaluate internal and external factors and develop effective
marketing plans. The value chain deals with several departments in a company,
while SWOT is primarily analyzed by the marketing department.

Johnson, R. (2020). What Are the Differences Between a Value Chain and
SWOT?. Small Business Chronicle. Retrieved from:
https://smallbusiness.chron.com/differences-between-value-chain-swot-26 032.html.

The Relationship Between SWOT and Value Chain

In many cases, the SWOT method is an inadequate analysis of the internal

business environment. Simply stating strengths and weakness gives a brief
explanation of what the company does best and where there’s room for
improvement, but the SWOT leaves out many of the details of the company’s
operations. The value chain fills in some of the internal analysis gaps that SWOT
leaves. Conversely, value chain analysis virtually ignores the external environment
by examining only the needs and desires of customers. In many ways, SWOT
analysis and the value chain give a more complete picture of the business
environment when used together.

Combined Analysis
 The value chain and SWOT can be combined in different ways. The value chain
analyses the business’s internal environment so it can be used in place of the
strengths and weakness portion of the SWOT. Most often, the value chain is used in
conjunction with SWOT, creating a comprehensive business analysis that
incorporates both internal and external evaluation. Business managers can take
elements of the value chain and apply the elements of opportunities and trends part
of the SWOT analysis.

Frenz, R. (2020). How to Identify the Relationship Between SWOT & Value
Chain. Small Business Chronicle. Retrieved from:
https://smallbusiness.chron.com/identify-relationship-between-swot-valuechain-
31780.html

III. Words Associated with the Discussion of VCA

• Value chain- represents the internal activities a firm engages in when

transforming inputs into outputs.
• Value- the amount buyers are willing to pay for what a firm provides them and
measured by total revenue- a reflection of the price a firm’s product commands and
the quality it can sell.
• Profitability- measured by the extent that the value it receives exceeds the total
production costs which is a key concept used in analyzing a firms competitive
position.
• Maximum Benefit- can be derived from the analysis if a firm views the concept in
its broadest context and disregard the boundaries of the organization- that is
consider the more encompassing value chain including suppliers, customers, and
alliance partner.
• Thorough Understanding Required- as how value is created within and the other
organization that are involved on the overall supply chain or distribution channel in
which the firm participates.
 Competitive advantage - is what sets your business apart from competitors. And to
develop an advantage, you'll need a clear idea of your target market, the benefit
your product provides to the target market, and a solid understanding of your
competitors and their offerings.

IV. Definition

Value chain analysis is the process of looking at the activities that go into
changing the inputs for a product or service into an output that is valued by the
customer. (Zucchi, Investopedia, 2018)
 Value chain analysis focuses on analyzing the internal activities of a business in
an effort to understand costs, locate the activities that add the most value, and
differentiate from the competition.

Companies conduct value-chain analysis by looking at every production step

required to create a product and identifying ways to increase the efficiency of the
chain.

According to Jurevicius of SMI, Value chain analysis is a strategy tool used to

analyze internal firm activities. Its goal is to recognize, which activities are the most
valuable (i.e. are the source of cost or differentiation advantage) to the firm and
which ones could be improved to provide competitive advantage.

Value chain analysis (VCA) refers to the process whereby a firm determines the
costs associated with organizational activities from purchasing raw materials to
manufacturing product(s) to marketing those products. VCA aims to identify where
low-cost advantages or disadvantages exist anywhere along the value chain from
raw material to customer service activities. VCA can enable a firm to better identify its
own strengths and weaknesses, especially as compared to competitors value chain
analyses and their own data examined over time.

Fred, David. (2011). Strategic Management: Concepts and Cases -13th Edition. Value
Chain Analysis. pp. 109-110

V. Value Chain vs. Supply Chain

There’s a temptation to use ―value chain‖ and ―supply chain‖

interchangeably, but there is a difference in the concepts that is significant. The
supply chain model – which came first – focuses on activities that get raw materials
and subassemblies into a manufacturing operation smoothly and economically. The
value chain notion has a different focus and a larger scope. A supply chain is simply
a transfer of a commodity from one stakeholder to another in a chained manner. The
value chain is the value addition at different stages of transfer. In different stages of
value chain, different stakeholders add value to the product to increase the end
product value. In other words, a value-chain analysis looks at every step from raw
materials to the eventual end-user – right down to disposing of the packaging after
use. The goal is to deliver maximum value to the end user for the least possible total
cost. That makes supply-chain management a subset of the value chain analysis.
International Crops Research Institute for the Semi-Arid Tropics (ICRISAT)
Reddy Amarender A. (2013) Training Manual on Value Chain Analysis of Dryland Agricultural
Commodities, International Crops Research Institute for the Semi-Arid Tropics
(ICRISAT), p.4. Retrieved from:
https://www.cisl.cam.ac.uk/education/graduate-study/pgcerts/pdfs/Value_Chai
n_Definitions.pdf

Surbhi, S. (2018). Difference Between Supply Chain and Value Chain. Key differences.
Retrieved from:
https://keydifferences.com/difference-between-supply-chain-and-value-chain.h tml

Comment of Expert:
Dr. Marco Perona from Università degli Studi di Brescia, March 2015

“To my understanding any „value chain‟ is also a „supply chain‟ and vice-versa. I cannot
think of a supply chain dscnnected from a value chain, and the reverse is also true. So,
they ought to be the same thing.

What differs is the point of view. Value chain is viewed from the customer side, so the
relevant aspect is the value-for-money that it can provide customers with.

On the other side supply chain emphasizes the supplier point of view, so it is about
material and information flows, costs, service level, etc.”
VI. The Two Competitive Advantage Strategies

When a firm takes into account its value chain, it needs to consider its value proposition,
or what sets it apart from its competitors. Value chain analysis is designed to improve profits
by creating a product or service that is so superior that customers are willing to pay more than
the cost to develop it.

But improving a value chain for the sake of improvement should not be the end goal.
Instead, a company should decide why it wants to improve its value chain in the context of its
competitive advantage to differentiate itself among its peers. (Zucchi, 2018)

Value chain analysis is a strategy tool used to analyze internal firm activities. Its goal is to
recognize, which activities are the most valuable (i.e. are the source of cost or differentiation
advantage) to the firm and which ones could be improved to provide competitive advantage. In
other words, by looking into internal activities, the analysis reveals where a firm’s competitive
advantages or disadvantages are. The firm that competes through differentiation advantage
will try to perform its activities better than competitors would do. If it competes through cost
advantage, it will try to perform internal activities at lower costs than competitors would do.
When a company is capable of producing goods at lower costs than the market price or to
provide superior products, it earns profits. (Jurevicius, 2013)

Two Competitive Advantage Strategies:

Two common competitive advantage strategies include low cost provider or

specialization/differentiation of product or service.

Low-cost provider – value chain analysis focuses on costs and how a company can reduce
those costs. The goal of a cost leadership strategy is to become the lowest-cost provider in
your industry or market. Companies who excel with a low-cost strategy have extreme
operational efficiency and use low-cost materials and resources to reduce the overall price of
their product or service.

Specialization – value chain analysis focuses on the activities that create a unique product or
differentiation in service.

With a differentiation strategy, the competitive advantage is gained by offering a unique or

highly specialized product or service. The business needs to dedicate time and resources to
innovation, research, and development. A successful differentiation strategy allows the
business to set a premium price for its product or service.

VCA is done differently when a firm competes on differentiation rather than costs. This is
because the source of differentiation advantage comes from creating superior products,
 adding more features and satisfying varying customer needs, which results in higher cost
structure.

Zucchi, K. (2018). Value Chain Analysis Introduction. Investopedia. Retrieved from:

https://www.investopedia.com/articles/investing/111014/basics-value-chain-analy sis.asp

Jurevicius, O. (2013). Value Chain Analysis. Strategic Management Insight.

Retrieved from:
https://strategicmanagementinsight.com/tools/value-chain-analysis.html

VII. Advantages and Disadvantages of Value Chain Analysis

Value Chain Analysis Advantages

• Gain Competitive Edge: Porter’s value chain analysis provides an advantage for
competitive analysis compare to the other businesses.
• Higher Profitability: When the company reduces the cost of a product or creates product
differentiation, it can increase its profit margin and sales.
• Improves Customer Relationship: With better and improved products or services, the
organization can strengthen its relationship with its customers associates.

Value Chain Analysis Disadvantages

• Only Limited to Manufacturing Business Units: Porter’s value chain was found suitable
only for the manufacturing and production industries and less appropriate for other
business organizations.
• Involves Excessive Time and Efforts: A value chain involves various activities. Therefore,
analyzing and planning for each of these activities consumes a lot of time and efforts of
the managers.
• Requires Expertise: The concept of the value chain is easily coherent by people. But, its
application requires a lot of analytical skill and expertise.

Source: (https://theinvestorsbook.com/porters-value-chain.html#Importance)
 VIII. Introduction of the Internal Firm Activities

Primary Activities

Sequential activities of the value chain that refer to the physical creation of the
product or service. The primary activities of Michael Porter's value chain are inbound
logistics, operations, outbound logistics, marketing and sales, and service. The goal
of the five sets of activities is to create value that exceeds the cost of conducting that
activity, therefore generating a higher profit.

Secondary Activities

Activities of the value chain that either add value by themselves or add value
through important relationships with both primary activities and other support
activities, including procurement, technology development, human resource
management, and general administration.

Source:
(https://www.investopedia.com/ask/answers/050115/what-are-primary-activities-mich ael-porters-
value-chain.asp)
VALUE CHAIN ANALYSIS MODEL/DIAGRAM
INFO:

M. Porter introduced the generic value chain model in 1985. Value chain represents all the
internal activities a firm engages in to produce goods and services. VC is formed of primary
activities that add value to the final product directly and support activities that add value.

Source:
(indirectly.https://strategicmanagementinsight.com/tools/value-chain-analysis.html) Porter breaks the Value Chain
Analysis into Five Primary Activities: Inbound Logistics, Operations, Outbound Logistics, Marketing and sales and
Services. The goal of these primary activities is to create value that exceeds the cost of conducting the activity,
therefore generating higher profit.

8.1 Primary Activities

1. Inbound Logistics

Includes the receiving, warehousing and inventory control of a company’s raw materials.
It also covers all relationship between the suppliers.This will be the responsible for handling
and storing raw materials that will be needed to create the product.

2. Operations

Operation is a course of action of converting raw materials into a finished product or

services, or simply changing inputs into outputs.(It includes adding labels, branding)

3. Outbound Logistics

This is the stage where in the final product will be distributed to the customers.This
includes the delivery of the product, storage, and distribution or handling of the finished
product.

4. Marketing and Sales

Strategies to enhance visibility and target appropriate costumers. This is a activities that
help to convince a costumer to purchase a company's product or service.

5. Service

This include activities to maintain product and enhance consumer experience.

8.2 Support Activities

1. Procurement
Refers to the function of purchasing inputs used in the firms value chain, not the
purchased inputs themselves

2. Technology development-
Relates to really anything in regards to inventions or innovations. Development is
essentially the process that takes a product or idea from a hypothesis to a usable
product. Technology development relates to its products and its features to support
value chain.

3. Human resources
Is the strategic approach to the effective management of people in a company or
organization such that they help their business gain a competitive advantage. They are
assigned in recruiting, hiring, developing and compensation of all types of personnel.

4. General administration
Consists of number of activities, including general management, planning, finance,
accounting, legal, government affairs, quality management, and information systems

IX. Skills of Effective Administrators

1. Technical skill

For our context, technical skill refers to having comprehension of and expertise in a
certain activity; in particular, its processes, procedures, methods and/or techniques. Technical
skill requires specialized knowledge, analytical capability and application of specific technique
and tools unique to a particular discipline, for instance coding/programming and DBA services.
Technical skill is the most concrete of the three, and the easiest to prove for recruitment
purposes. It is therefore the most sought-after by a large number of employers. Many on the
on-job trainings are intended to develop one’s technical skill.

2. Human skill

For this discussion, again, human skill refers to an administrator’s ability to work efficiently
and effectively within a team, and to foster cooperation within the team of which he is in
charge. The skillful individual in this area is aware of his assumptions, beliefs and attitudes
towards individuals or groups, and can leverage these to improve his/her performance. He/she
can effectively communicate with others in every context, and has discernment concerning
other people’s beliefs, perceptions, viewpoints and/or mannerisms which differ from his own.
 3. Conceptual skill

Finally, conceptual skill refers to the ability to visualize the enterprise in its entirety,
including cognizance of how various organizational functions depend on one another and how
changes in any part affect other parts of the organization. Conceptualization extends further to
company relations vis-à-vis the community, the industry, and the nation and its political,
economic and social forces. An administrator must be able to understand the significance of
these elements and act in such a way as to improve the welfare of the company amid the push
and pull of various forces acting differently. This is especially important for decision-making.

X. Interrelationship Among Value Chain Activities Within and Across Organization

Interrelationships Among Value Chain Activities Interrelationships: Strategic exchange

relationships between value-chain activities involve exchange of resources, such as information,
people, technology, or money that contribute to the success of the firm.

-It is not the activities, but the fit or misfit

(Value Chain Analysis/VCA - is a process where a firm identifies its primary and support
activities that add value to its final product and then analyze these activities to reduce cost or
increase differentiation. Value Chain - represents the internal activities a firm engages in when
transforming inputs or outputs.)

Managers must not ignore the importance of IAVCA and its among activities within the firm

Relationships among activities within the firm and with other stakeholder such as customers and
suppliers or other organization (e.g., customers and suppliers) Resource-based view of the firm:

perspective that firms’ competitive advantages are due to their endowment of strategic
resources that are valuable, rare, costly to imitate, and costly to substitute.

Two perspectives:

– The internal analysis of phenomena within a company

– An external analysis of the industry and its competitive environment

Types of resources:

A) Tangible resources
Organizational assets that are relatively easy to identify, including physical assets, financial
resources, organizational resources, and technological resources.
B) Intangible resources
Organizational assets that are difficult to identify and account for and are typically embedded in
unique routines and practices, including human resources, innovation resources, and reputation
resources.

C) Organizational capabilities
The competencies and skills that a firm employs to transform inputs into outputs. Strategic
resources (i.e., firm resources, organizational resources)

XI. Implementing and Using Value Chain Analysis

Porter’s generic strategies — so named because they can be administered to products or

services in all industries — act as a starting point, not an absolute, step-by-step guide. However,
Porter’s generic model identifies three general steps in value chain analysis: the initial evaluation of
tasks, the location of areas of cross-functionality, and the discovery of dynamic areas of
opportunity. For extensive strategies and actionable guidance to support or begin a process of
value chain management, consult Michael Porter's book, Competitive Advantage.

For example, approaches that focus on discovering cost advantages and disadvantages include:

1. Identifying primary and supporting activities

2. Rating the importance of each activity in providing value to the product or service
3. Identifying the cost drivers that cause a change in the activity cost
4. Identifying linkages and dependencies
5. Identifying cost reduction and value improvement opportunities

Approaches with a focus on finding differentiation include:

1. Identifying activities that create value for your customers

2. Identifying differentiation activities that improve customer value
3. Identifying the best opportunity for differentiation

Source: https://www.coursehero.com/file/p6nan9c5/Administration-unlike-the-other-support-a ctivities-

typically-supports-the/
GROUP 4. Business Level Strategy
A business-level strategy can help your organization achieve a competitive advantage in a marketplace. It is concerned
with a firm’s position in an industry relative to competitors and to the five forces of a competition.

Customers are the foundation or essence of an organization’s business-level strategy. They are the ones WHO will be
served, WHAT needs have to be met, and HOW does needs will be satisfied are determined by the senior management.

WHO are the customers?

Demographic, geographic, lifestyle choices (tastes and values), personality traits, consumption patterns (usage rate and brand
loyalty), industry characteristics, and organization size.

WHAT are the goods and/or services that potential customers need?

Knowing one’s customer is very important in obtaining and sustaining a competitive advantage. Being able to successfully
predict and satisfy future customers’ needs is important.

HOW to satisfy customers needs?

Organizations must determine how to bundle resources and capabilities to form core competencies and then use these
core competencies to satisfy customer needs by implementing value-crating strategies.

In short, business-level strategy describes opportunities to provide value to customers and gain competitive advantage
in individual business areas. This is contrast to corporate level strategy, which is primarily concerned in defining the strategic
direction of the entire organization. Business-level strategy is concern on “How” an organization should compete, whereas
corporate-level strategy is concern in “What” business organization should compete.

There are three (3) types of business-level strategies that are used to help organizations establish a competitive advantage over
industry rivals. Firms may also choose to compete across a broad market or a narrow market.

Broad Market serves a diverse market.

Narrow Market focusing on a niche market.

First type is the COST LEADERSHIP. It is where the organizations compete for a wide customer based on price. Price
is based on internal efficiency in order to have a margin that will sustain above average returns and cost to the customer so that
customers will purchase your product or services. Works well when product or services is standardized, can have a generic
goods that are acceptable to many customers, and can offer the lowest price.

Continuous efforts to lower cost relative to competitors is necessary in order to successfully be a cost leader. This can
include: building state of art efficient facilities (may make it costly for competition to imitate), maintain tight control over production
and overhead costs, minimize cost of sales, R & D and service offering a product at lower price than competitors is the most
straightforward way in which businesses compete for customers.

PORTER’S 5 FORCES MODEL

A cost leadership strategy may help to remain profitable even with: rivalry, new entrants, supplier’s power, substitute
products, and buyer’s power.

RIVALRY – Competitors are likely to avoid a price war, since the low-cost firm will continue to earn profits after competitor’s
compete away their profits.
CUSTOMERS – Powerful customers that force firms to produce goods/service at lower profits may exit the market rather than
earn below average profits leaving the low-cost organization in a monopoly position. Buyers, then loose much of their buying
power.

SUPPLIERS – Cost leaders are able to absorb greater price increases before it must raise price to customers.

ENTRANTS – Low cost leadership create barriers to market entry through its continuous focus on efficiency and reducing costs.

SUBSTITUTES – Low cost leaders are more likely to lower cost to entice customers to stay with their products, invest to develop
substitutes, purchase patterns.

HOW TO OBTAIN COST ADVANTAGE?

 Determine and control cost

 Reconfigure the value chain as needed

 Modernize your marketing effort

 Use efficient time strategies

 Harness virtual technology

 Narrow your focus

 Make the most out of your space

 Maximize employees’ skills

 Focus on quality

RISK

 Technology

 Imitations

 Tunnel vision

 Reduce product innovation

 Encourages low quality of products

BENEFITS

 Provides better profit

 Increase market shares

 Improves business sustainability

 Reduces competition
Second type, the DIFFERENTIATION STRATEGY. Value is provided to costumers through unique features and characteristics
of an organization’s product rather than by the lowest price. This is done through high quality, features, high customer service,
rapid product, innovation, advanced technological features, image management and etc.

Create value by:

 Lowering buyer’s cost – higher quality means less breakdowns, quicker response to problems.

 Raising buyer’s performance – buyer may improve performance, have higher level of enjoyment.

 Sustainability – creating barriers by perceptions of uniqueness and reputation, creating high switching cost through
differentiation and uniqueness.

 Superior quality

 Customer service

 Design

RISK

 Uniqueness

 Imitations

 Loss of value

PORTER’S 5 FORCES MODEL

Effective differentiators can remain profitable even when the five forces appear unattractive

 RIVALRY – Brand loyalty means that customers will be less sensitive to price increases, as long as the firm can satisfy
the needs of its customer.

 SUPPLIERS – Because differentiators change a premium price, they can more afford to absorb higher costs and
customers are willing to pay extra too.

 ENTRANTS – Loyalty provides a difficult barrier to overcome.

 SUBSTITUTES - Brand loyalty and uniqueness prevent customers from switching to alternative.

 BUYERS - Powerful buyers have limited scope to force price reductions because they can’t get what you offer
elsewhere.

The third type is, FOCUS STRATEGY. It is a strategy that seeks to serve the needs of a particular customer segment (narrow
market). This can either be Focused Low Cost Leadership or Focus Differentiation.
Focused Low-Cost Leadership – Organizations not only compete on price, but also select a small segment of the market to
provide goods and services to. In addition to reducing cost, businesses may choose to further focus their efforts by targeting only
one subset of the market. For example, a tool manufacturer choosing to focus only on the professional trade-person market.

Common mechanisms to adopt a focused cost leadership strategy include:

 Focusing on serving a small group of customers

 By understanding the needs of your smaller target market, you can uniquely cut costs to serve the needs of that
market.

Focused Differentiation – organizations not only compete based on differentiation, but also select a small segment of the market
to provide goods and services.

Common mechanisms to focused differentiation include:

 Select a profitable narrow subset of the market.

 Focus on areas where competition is weakest.

 Focus on a segment where product substitution is difficult.

BENEFITS OF FOCUS STRATEGY

Companies that uses focused strategies may be able to serve the smaller segment better than competitors who have a wider
base of customers. By serving a segment that was previously poorly segmented, an organization has a unique capability to serve
niches.

RISK OF USING FOCUS STRATEGY

 Maybe out focused by competitors (even smaller segment)

 Segment may become of interest to broad market firms.

 Competitors might subdivide your niche into smaller niches

GROUP 5. International Strategy
 International strategy is a business plan or strategy created by a company to do its business in international markets.
An international strategy requires analyzing the international market, studying resources, defining goals, understanding
market dynamics & develop offerings. International strategy for an company looking to grow is a continuous process.

5 Forms of International Business

 International business refers to any business activities conducted across national boundaries. There are number of
ways to internationalizing the business. Business can choose among these five basic activities to start.

1) Importing & Exporting

Imports: a good or service brought into one country from another.

Exports: a good or service produced in one country then get marketed to other country.

Import-export is the most fundamental and the largest international business activity, and it is often the first choice when the
businesses decide to expand abroad as it is the easiest way to enter the market with a small outlay of capital.

2) Licensing

Licensing is one of other ways to expand the business internationally. Licensing is the arrangement between a firm, called
licensor, allows another one to use its intellectual property such as brand name, copy right, patent, technology, trademark and so
on for a specific period of time. The licensor gets benefits in term of the royalty. The company may choose to sell the products
under the licensing when the domestic production costs are too high, strict government regulations, or the company wants to sell
and produce standardized products everywhere.

3) Franchising

Franchising is closely related to licensing. Franchising is a parent company (franchiser) gives right to another company
(franchisee) to do business using the franchiser’s name and products in a prescribed manner. Franchising is different from the
licensing in terms of the franchisees have to follow much stricter guidelines. Moreover, licensing is more about the manufacturers
while franchising is more popular with restaurants, hotels, and rental services. For example, McDonald, KFC, Pizza Hut and so
on.

4) Strategic partnerships & Joint venture

A strategic partnership or alliance is a positive aspect of the cooperation of two or more companies in different countries are
joined together for mutual gain. A joint venture is a special type of strategic alliance, where the partners across globe collectively
found a company to product goods and services. The cooperation between the companies allow them to share the production
cost, technologies, development, and sales networks. The resources will be pooled to mutual advantages and put the companies
in win-win situations. For example, Motorola and Toshiba joined a strategic partnership to develop manufacturing processes for
microprocessors.

5) Foreign Direct Investment (FDI)

Foreign direct investment is a company’s physical investment such as into the building and facilities in the foreign country,
and acts as a domestic business with a full scale of activity. Companies practice FDI to get benefits from cheaper labor costs, tax
exemptions, and other privileges in that foreign country. The host country will get benefits by the introduction of new products,
services, technologies and managerial skills. Also, FDI helps facilitate progressive internal policy reforms of the host country,
and enhance the economic situation. For example, Intel, which is United States based company, has made the FDI in many
countries in Southeast Asian.

TYPES OF INTERNATIONAL STRATEGY

 International

Using an international strategy means focusing on exporting products and services to foreign markets, or conversely,
importing goods and resources from other countries for domestic use. Companies that employ such strategy are often
headquartered exclusively in their country of origin, allowing them to circumvent the need to invest in staff and facilities overseas.
Businesses that follow these strategies often include small local manufacturers that export key resources to larger companies in
neighboring countries. However, this model is not without significant business challenges, like legally establishing local sales and
administrative offices in major cities internationally; managing global logistics involving the import, export, and manufacture of
products; and ensuring compliance with foreign manufacturing and trade regulations.

Despite its relative challenges, the international strategy may be the most common, because on average, it requires the
least amount of overhead. Companies striving to expand internationally may try a combination of strategies to see which works
the best for them in terms of logistics and profits. For example, a company may start off using the international strategy—
exporting its products overseas as a way to test the international market—and gauge how successfully its products sell.
Subsequently, the company may need to adjust its strategy and create a multi-domestic platform through which it can
manufacture and sell its goods more efficiently.

 Multi-domestic

In order for a business to adopt a multi-domestic business strategy, it must invest in establishing its presence in a foreign
market and tailor its products or services to the local customer base. As opposed to marketing foreign products to customers
who may not initially recognize or understand them, companies modify their offerings and reposition their marketing strategies to
engage with foreign customs, cultural traits, and traditions. Multi-domestic businesses often keep their company headquarters in
their country of origin, but they usually establish overseas headquarters, called subsidiaries, which are better equipped to offer
foreign consumers region-specific versions of their products and services. These companies also frequently lease buildings
abroad to serve as sales offices, manufacturing facilities or storage for housing service operations.

Multi-domestic strategies are largely adopted by food and beverage companies. For example, the Kraft Heinz Company
makes a specialized version of its ketchup for customers in India—featuring a different blend of spices—to help match the
nation’s culinary preferences. However, these adjustments are often expensive and can incur a certain level of financial risk
when launching unproven products in a new market. As such, companies usually only utilize this expansion strategy in a limited
number of countries.

 Global

In an effort to expand their customer base and sell products in more foreign markets, companies following a global strategy
leverage economies of scale as much as possible to boost their reach and revenue. Global companies attempt to homogenize
their products and services in order to minimize costs and reach as broad an international audience as possible. These
companies tend to maintain a central office or headquarters, usually in their country of origin, while also establishing dozens of
operations in countries all over the world.
 Even when keeping essential aspects of their goods and services intact, companies adhering to the global strategy typically
have to make some practical small-scale adjustments in order to break into international markets. For example, software
companies need to adjust the language used in their products, while fast-food companies may add, remove or change the name
of certain menu items in order to better suit local markets while keeping their core items and global message intact.

 Transnational

The transnational business strategy is one of the most intricate methods that businesses can employ when expanding
internationally, and can be seen as a combination of the global and multi-domestic strategies. While this strategy keeps a
business’s headquarters and core technologies in its country of origin, it also allows a company to establish full-scale operations
in foreign markets. The decision-making, production, and sales responsibilities are evenly distributed to individual facilities in
these different markets, allowing companies to have separate marketing, research and development departments aimed at
responding to the needs of the local consumers.

A company that employs this strategy has the challenge of identifying the best management tactics for achieving positive
economies of scale and increased efficiency. Having many inter-organizational entities collaborating in dozens of foreign markets
requires a significant startup investment. Costs are driven by foreign legal and regulatory concerns, hiring new employees and
buying or renting offices and production spaces. Therefore, this strategy is more complex than others because pressures to
reduce costs are combined with establishing value-added activities to optimize adjustments that are necessary to gain leverage
and be competitive in each local market. Given these challenges, larger corporations—such as General Electric and Toyota—
typically employ a transnational strategy as they are able to invest in research and development in foreign markets, as well as
establish production, manufacturing, sales and marketing divisions in these regions.

IMPORTANCE OF INTERNATIONAL STRATEGY

 Importance of crossing national boundaries to do business:

1) New Revenue Potential

2) The ability to help more people

3) Greater access to talent

4) Learning a new cultures

5) Exposure to Foreign Investment Opportunities

6) Improving your company's reputation

7) Diversifying company markets

 Barriers:

1) Obstacle course

2) Worth the Gamble

3) Seamless Sales

4) Outside the Box