Supplementing the Chosen Competitive Strategy

STRATEGIC ALLIANCES AND PARTNERSHIPS

Strategic Alliances are collaborative arrangements where two or more companies join forces to
achieve mutual beneficial strategic outcomes. The competitive attraction of alliances is in allowing
companies to bundle competencies an resources that are more valuable in a joint effort than when
kept separate.

By joining forces in components production and/or final assembly, companies may be able to realize
cost savings not achievable with their own small volumes. The best alliances are highly selective,
focusing on particular value chain activites and on obtaining a particular competitive benefit. They
tend to enable a firm to build on its strengths and to learn.

Six factors of the extent to which companies benefit from entering alliances and partnerships:
1. Picking a good partner
2. Being sensitive to cultural differences
3. Recognizing that the alliance must benefit both sides
4. Ensuring that both parties live up to their commitments
5. Structuring the decision-making process so that actions can be taken swiftly when needed
6. Managing the learning process and then adjusting the alliance agreement overtime to fit
new circumstances.

MERGER AND ACQUISITION STRATEGIES

Combining the operations of two companies, via merger or acquisition, is an attractive strategic
option for achieving operating economies, strengthening the resulting company’s competencies and
competitiveness, and opening up avenues of new market opportunity. The five strategic objectives:
1. To create a more cost-efficient operation out of the combined companies
2. To expand a company’s geographic coverage
3. To extend the company’s business into new product category
4. To gain quick access to new technologies or other resources and competitive capabilities
5. To try to invent a new industry and lead the convergence of industries whose boundaries are
being blurred by changing technologies and new market opportunities.

VERTICAL INTEGRATION STRATEGIES: OPERATING ACROSS MORE STAGES OF THE INDUSTRY VALUE
CHAIN

Vertical integration extends a firm’s competitive and operating scope within the same industry. Its
strategies can aim at full integration (participating in all stages of the industry value chain) or partial
integration (building positions in selected stages of the industry’s total value chain). It has appeal
only if it significantly strengthens a firm’s competitive position.
OUTSOURCING STRATEGIES: NARROWING THE BOUNDARIES OF THE BUSINESS
Outsourcing involves farming out certain value chain activities to outside vendors. Two major
reasons for outsourcing: (1) outsiders can often perform certain activities better or cheaper and (2)
outsourcing allows a firm to focus its entire energies on those activities at the center of its expertise
(its core competencies) and that are the most critical to its competitive and financial success.

BUSINESS STRATEGY CHOICES FOR SPECIFIC MARKET SITUATION

Different strategies should be applied to these six commonly encountered types of market
conditions:
1. Freshly emerging markets
2. Rapidly growing markets
3. Mature, slow-growth markets
4. Stagnant or declining markets
5. Turbulent market characterized by rapid-free change
6. Fragmented market comprised of a large number of relatively small sellers

TIMING STRATEGIC MOVES – TO BE AN EARLY MOVER OR A LATE MOVER

Being first to initiate a strategic move can have a high payoff when (1) pioneering helps build a firm’s
image and reputation with buyers; (2) early commitments to new technologies, new-style
components, new or emerging distribution channels, and so on can produce an absolute cost
advantage over rivals; (3) first-time customers remain strongly loyal to pioneering firms in making
repeat purchases; and (4) moving first constitutes a preemptive strike, making imitation extra hard
or unlikely. Because of first-mover advantages and disadvantages, competitive advantage can spring
from when a move is made as well as from what move is made.
A blue ocean strategy seeks to gain a dramatic and durable competitive advantage by abandoning
efforts to beat out competitors in existing markets and, instead, inventing a new industry or
distinctive market segment that renders existing competitors largely irrelevant and allows a
company to create and capture altogether new demand.

There are advantages to being an adept follower rather than a first-mover:
1. When pioneering leadership is more costly than imitating followership and only negligible
learning/experience curve benefits accrue to the leader,
2. When the products of an innovator are somewhat primitive and do not live up to buyer
expectations,
3. When demand side of the marketplace is skeptical about the benefits of a new technology or
product being pioneered by a first-mover,
4. When rapid market evolution gives fast-followers and maybe even cautious late movers the
opening to leapfrog a first-mover’s products with more attractive next version products.

Source: Thompson, Crafting and Executing Strategy, Chapter 6.