It is an example which can be used as a free study to four or five managers, with prices as mentioned at the end of page 2.

My advice is to go, first through the whole two pages red rectangulars content, then go through the references which will take not less than 2 months, if properly investigated, by staff.

Part I Introduction and Overview

Chapter 1
What Is Strategy and Why Is It Important?

Core Concepts

• A company's strategy consists of the competitive moves and business approaches that managers employ to grow the business, stake out a market position, attract and please customers, compete successfully, conduct operations, and achieve targeted objectives.
• Changing circumstances and ongoing management efforts to improve the strategy cause a company's strategy to evolve over time—a condition that makes the task of crafting a strategy a work in progress, not a one-time event.
• A strategy cannot be considered ethical just because it involves actions that are legal. To meet the standard of being ethical, a strategy must entail actions that can pass moral scrutiny and that are aboveboard in the sense of not being shady or unconscionable, injurious to others, or unnecessarily harmful to the environment.
• A company's business model deals with how and why the revenues and costs flowing from its strategy will result in attractive profits and return on investment. Without the ability to deliver profitability, the strategy is not viable and the survival of the business is in doubt.
• A strategic vision describes the route a company intends to take in developing and strengthening its business. It paints a picture of a company's destination and provides a rational for going there.
• An effectively communicated vision is a valuable management tool for enlisting the commitment of company personnel to actions that get the company moving in the intended direction.
• A company's values are the beliefs, business principles, and practices that guide the conduct of its business, the pursuit of its strategic vision, and the behavior of company personnel.
• Objectives are an organization's performance targets — the results and outcomes it wants to achieve. They function as yardsticks for tracking an organization's performance and progress.
• Financial objectives relate to the financial performance targets management has established for the organization to achieve. Strategic objectives relate to target outcomes that indicate a company is strengthening its market standing, competitive vitality, and future business prospects.
• A company exhibits strategic intent when it relentlessly pursues an ambitious strategic objective and concentrates its full resources and competitive actions on achieving that objective.
• Every company manager has a strategy-making, strategy-implementing role - it is flawed thinking to look upon the tasks of managing strategy as something only high-level managers do is flawed thinking
• A company's strategy is at full power only when its many pieces are united.
• A company's strategic plan lays out its future direction, performance targets, and strategy. A company's vision, objectives, strategy, and approach to strategy execution are never final; managing strategy is an ongoing process, not a start-stop event.
• Excellent execution of an excellent strategy is the best test of managerial excellence — and the most reliable recipe for winning in the marketplace.

Key Points 

The tasks of crafting and executing company strategies are the heart and soul of managing a business enterprise and winning in the marketplace. A company's strategy consists of the competitive moves and business approaches that management is using to grow the business, stake out a market position, attract and please customers, compete successfully, conduct operations, and achieve organizational objectives. The central thrust of a company's strategy is undertaking moves to build and strengthen the company's long-term competitive position and financial performance and, ideally, gain a competitive advantage over rivals that then becomes a company's ticket to above-average profitability. A company's strategy typically evolves and re-forms over time, emerging from a blend of (1) proactive and purposeful actions on the part of company managers and (2) as-needed reactions to unanticipated developments and fresh market conditions.

Closely related to the concept of strategy is the concept of a company's business model. A company's business model is management's story line for how and why the company's product offerings and competitive approaches will generate a revenue stream and have an associated cost structure that produces attractive earnings and return on investment; in effect, a company's business model sets forth the economic logic for answering the question "How do we intend to make money in this business, given our current strategy?"

The managerial process of crafting and executing a company's strategy consists of five interrelated and integrated phases:

1. Developing a strategic vision of where the company needs to head and what its future product-customer-market-technology focus should be. This managerial step provides long term direction, infuses the organization with a sense of purposeful action, and communicates to stakeholders what management's aspirations for the company are.
2. Setting objectives and using the targeted results and outcomes as yardsticks for measuring the company's performance and progress. Objectives need to spell out how much of what kind of performance by when, and they need to require a significant amount of organizational stretch. A balanced-scorecard approach for measuring company performance entails setting both financial objectives and strategicobjectives. Judging how well a company is doing by its financial performance is not enough, because financial outcomes are "lagging indicators" that reflect the impacts of past decisions and organizational activities. But the "lead indicators" of a company's future financial performance are its current achievement of strategic targets that indicate a company is strengthening its marketing standing, competitive vitality, and future business prospects.
3. Crafting a strategy to achieve the objectives and move the company along the strategic course that management has charted. Crafting strategy is concerned principally with forming responses to changes under way in the external environment, devising competitive moves and market approaches aimed at producing sustainable competitive advantage, building competitively valuable competencies and capabilities, and uniting the strategic actions initiated in various parts of the company. The more wide ranging a company's operations, the more that strategy making is a collaborative team effort involving managers (and sometimes key employees) down through the whole organizational hierarchy; the overall strategy that emerges in such companies is really a collection of strategic actions and business approaches initiated partly by senior company executives, partly by the heads of major business divisions, partly by functional-area managers, and partly by operating managers on the frontlines. The tests of a winning strategy are how well matched it is to the company's external and internal situations, whether it is producing sustainable competitive advantage, and whether it is boosting company performance.
4. Implementing and executing the chosen strategy efficiently and effectively. Managing the implementation and execution of strategy is an operations-oriented, make-things-happen activity aimed at shaping the performance of core business activities in a strategy-supportive manner. Converting a company's strategy into actions and results tests a manager's ability to direct organizational change, motivate people with a reward and incentive compensation system tied to good strategy execution and the achievement of target outcomes, build and strengthen company competencies and competitive capabilities, create a strategy-supportive work climate, and deliver the desired results. The quality of a company's operational excellence in executing the chosen strategy is a major driver of how well the company ultimately performs.
5. Evaluating performance and initiating corrective adjustments in vision, long-term direction, objectives, strategy, or execution in light of actual experience, changing conditions, new ideas, and new opportunities. This phase of the strategy management process is the trigger point for deciding whether to continue or change the company's vision, objectives, strategy, and/or strategy execution methods. Sometimes simply fine-tuning the strategic plan and continuing with efforts to improve strategy execution suffices. At other times, major overhauls are required. Developing a strategic vision and mission, setting objectives, and crafting a strategy are the basic direction-setting tasks that together constitute a strategic plan for coping with industry and competitive conditions, the actions of rivals, and the challenges and issues that stand as obstacles to the company's success.

Boards of directors have a duty to shareholders to play a vigilant supervisory role in a company's strategy-making, strategy-executing process. They are obligated to (1) critically appraise and ultimately approve strategic action plans, (2) evaluate the strategic leadership skills of the CEO and others in line to succeed the incumbent CEO, (3) institute a compensation plan for top executives that rewards them for actions and results that serve stakeholder interests, most especially those of shareholders, and (4) ensure that the company issues accurate financial reports and has adequate financial controls. Boards of directors that are not aggressive and forceful in fulfilling these responsibilities undermine the fabric of effective corporate governance. Crafting and executing strategy are core management functions. Whether a company wins or loses in the marketplace is directly attributable to the caliber with which it performs the five tasks that constitute the strategy-making, strategy-executing process.

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Part II Core Concepts and Analytical Tools

Chapter 2
Analyzing a Company's External Environment

Core Concepts

• Competitive jockeying among industry rivals is ever changing as fresh offensive and defensive moves are initiated and rivals emphasize first one mix of competitive weapons and tactics then another.
• The threat of entry is stronger when entry barriers are low, when there is a sizable pool of entry candidates, when industry growth is rapid and potentials are high, and when incumbent firms are unable or unwilling to vigorously contest a newcomer's entry.
• The stronger the forces of competition, the harder it becomes for industry members to earn attractive profits.
• A company's strategy is increasingly effective the more it provides some insulation from competitive pressures and shifts the competitive battle in the company's favor.
• Industry conditions change because important forces are driving industry participants (competitors, customers, or suppliers) to alter their actions; the driving forces in an industry are the major underlying causes of changing industry and competitive conditions — some driving forces originate from within a company's immediate industry and competitive environment.
• Strategic group mapping is a technique for displaying the different market or competitive positions that rival firms occupy in the industry.
• A strategic group is a cluster of firms in an industry rivals that have similar competitive approaches and market positions.
• Driving forces and competitive pressures do not affect all strategic groups evenly. Profit prospects vary from group to group based on the relative attractiveness of their market positions.
• Good scouting reports on rivals provide a valuable assist in anticipating what moves rivals are likely to make next and outmaneuvering them in the marketplace.
• Managers who fail to study competitors closely risk being caught napping by the new strategic moves of rivals.
• Key success factors are the product attributes, competencies, competitive capabilities, and market achievements with the greatest impact on future competitive success in the market place
• A sound strategy incorporates the intent to stack up well on all of the industry's key success factors and to excel on one or two KSFs.
• The degree to which an industry is attractive or unattractive is not the same for all industry participants and all entrants — the opportunities an industry presents depends heavily on whether a company has the resource strengths and competitive capabilities to capture them.
   

Key Points

Thinking strategically about a company's external situation involves probing for answers to the following seven questions:

1. What are the industry's strategy-shaping economic features? Industries differ significantly on such factors as market size and growth rate, the geographic scope of competitive rivalry, the number and relative sizes of both buyers and sellers, the ease of entry and exit, the extent of vertical integration, how fast basic technology is changing, the extent of scale economies and learning-curve effects, the degree of product standardization or differentiation, and overall profitability. In addition to setting the stage for the analysis to come, identifying an industry's economic features also promotes understanding of the kinds of strategic moves that industry members are likely to employ.
2. What kinds of competitive forces are industry members facing, and how strong iseach force? The strength of competition is a composite of five forces: the rivalry among competing sellers, the presence of attractive substitutes, the potential for new entry, the competitive pressures stemming from supplier bargaining power and supplier-seller collaboration, and the competitive pressures stemming from buyer bargaining power and seller-buyer collaboration. These five forces have to be examined one by one to identify the specific competitive pressures they each comprise and to decide whether these pressures constitute a strong or weak competitive force. The next step in competition analysis is to evaluate the collective strength of the five forces and determine whether the state of competition is conducive to good profitability. Working through the five-forces model step by step not only aids strategy makers in assessing whether the intensity of competition allows good profitability but also promotes sound strategic thinking about how to better match company strategy to the specific competitive character of the marketplace. Effectively matching a company's strategy to the particular competitive pressures and competitive conditions that exist has two aspects: (a) pursuing avenues that shield the firm from as many of the prevailing competitive pressures as possible, and (b) initiating actions calculated to produce sustainable competitive advantage, thereby shifting competition in the company's favor, putting added competitive pressure on rivals, and perhaps even defining the business model for the industry.
3. What forces are driving changes in the industry, and what impact will these changes have on competitive intensity and industry profitability? Industry and competitive conditions change because forces are in motion that create incentives or pressures for change. The first phase is to identify the forces that are driving change in the industry; the most common driving forces include the Internet and Internet technology applications, globalization of competition in the industry, changes in the long-term industry growth rate, changes in buyer composition, product innovation, entry or exit of major firms, changes in cost and efficiency, changing buyer preferences for standardized versus differentiated products or services, regulatory influences and government policy changes, changing societal and lifestyle factors, and reductions in uncertainty and business risk. The second phase of driving-forces analysis is to determine whether the driving forces, taken together, are acting to make the industry environment more or less attractive. Are the driving forces causing demand for the industry's product to increase or decrease? Are the driving forces acting to make competition more or less intense? Will the driving forces lead to higher or lower industry profitability?
4. What market positions do industry rivals occupy—who is strongly positioned and who is not? Strategic group mapping is a valuable tool for understanding the similarities, differences, strengths, and weaknesses inherent in the market positions of rival companies. Rivals in the same or nearby strategic groups are close competitors, whereas companies in distant strategic groups usually pose little or no immediate threat. The lesson of strategic group mapping is that some positions on the map are more favorable than others. The profit potential of different strategic groups varies due to strengths and weaknesses in each group's market position. Often, industry driving forces and competitive pressures favor some strategic groups and hurt others.
5. What strategic moves are rivals likely to make next? This analytical step involves identifying competitors' strategies, deciding which rivals are likely to be strong contenders and which are likely to be weak, evaluating rivals' competitive options, and predicting their next moves. Scouting competitors well enough to anticipate their actions can help a company prepare effective countermoves (perhaps even beating a rival to the punch) and allows managers to take rivals' probable actions into account in designing their own company's best course of action. Managers who fail to study competitors risk being caught unprepared by the strategic moves of rivals.

    

6. What are the key factors for competitive success? An industry's key success factors (KSFs) are the particular strategy elements, product attributes, competitive capabilities, and business outcomes that spell the difference between being a strong competitor and being a weak competitor—and sometimes between profit and loss. KSFs by their very nature are so important to competitive success that all firms in the industry must pay close attention to them or risk becoming an industry alsoran. Correctly diagnosing an industry's KSFs raises a company's chances of crafting a sound strategy. The goal of company strategists should be to design a strategy aimed at stacking up well on all of the industry KSFs and trying to be distinctively better than rivals on one (or possibly two) of the KSFs. Indeed, using the industry's KSFs as cornerstones for the company's strategy and trying to gain sustainable competitive advantage by excelling at one particular KSF is a fruitful competitive strategy approach.
7. Does the outlook for the industry present the company with sufficiently attractive prospects for profitability? The answer to this question is a major driver of company strategy. An assessment that the industry and competitive environment is fundamentally attractive typically suggests employing a strategy calculated to build a stronger competitive position in the business, expanding sales efforts, and investing in additional facilities and equipment as needed. If the industry is relatively unattractive, outsiders considering entry may decide against it and look elsewhere for opportunities, weak companies in the industry may merge with or be acquired by a rival, and strong companies may restrict further investments and employ cost-reduction strategies or product innovation strategies to boost long term competitiveness and protect their profitability. On occasion, an industry that is unattractive overall is still very attractive to a favorably situated company with the skills and resources to take business away from weaker rivals.

A competently conducted industry and competitive analysis generally tells a clear, easily understood story about the company's external environment. Different analysts can have different judgments about competitive intensity, the impacts of driving forces, how industry conditions will evolve, how good the outlook is for industry profitability, and the degree to which the industry environment offers the company an attractive business opportunity. However, while no method can guarantee a single conclusive diagnosis about the state of industry and competitive conditions and an industry's future outlook, this doesn't justify shortcutting hard-nosed strategic analysis and relying instead on opinion and casual observation. Managers become better strategists when they know what questions to pose and what tools to use. This is why this chapter has concentrated on suggesting the right questions to ask, explaining concepts and analytical approaches, and indicating the kinds of things to look for. There's no substitute for staying on the cutting edge of what's happening in the industry—anything less weakens managers' ability to craft strategies that are well matched to the industry and competitive situation.

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Chapter 3
Analyzing a Company's Resources and Competitive Position

Core Concepts
 

• The stronger a company's financial performance and market position, the more likely it has a well-conceived, well-executed strategy.
• SWOT analysis is a simple but powerful tool for sizing up a company's resource capabilities and deficiencies, its market opportunities, and the external threats to its future well-being.
• A company is better positioned to succeed if it has a competitively valuable complement of resources at its command.
• A competence is an activity that a company has learned to perform well, core competence is a competitively important activity that a company performs better than other internal activities; a distinctive competence is a competitively important activity that a company performs better than its rivals—it thus represents competitively superior resource strength.
• The importance of a distinctive competence to strategy-making rests with:
• Winning in the marketplace becomes more certain when a company has appropriate and ample resources with which to compete and especially when it has strengths and capabilities with competitive advantage potential.
• A company's resource strengths represent competitive assets; its resource weaknesses represent competitive liabilities.
• A company is well advised to pass on a particular market opportunity unless it has or can acquire the resources to capture it.
• Simply making lists of a company's strengths, weaknesses, opportunities, and threats is not enough; the payoff from SWOT analysis comes from the conclusions about a company's situation and the implications for a strategy improvement that flow from the four lists.
• The higher a company's costs are above those of close rivals, the more competitively vulnerable it becomes.
• A company's value chain identifies the primary activities that create customer value and the related support activities.
• A company's cost competitiveness depends not only on the costs of internally performed activities (its own value chain) but also on costs in the value chain of its suppliers and forward channel allies.
• Benchmarking has proved to be a potent tool for learning which companies are best at performing particular activities and then using their techniques or best practices to improve the cost and effectiveness of a company's own internal activities.
• Benchmarking the costs of company activities against rivals provides hard evidence of whether a company is cost competitive.
• Performing value chain activities in ways that give a company the capabilities to outmatch rivals is a source of competitive advantage.
• A weighted competitive strength analysis is conceptually stronger than an unweighted analysis because of the inherent weakness in assuming that all the strength measures are equally important
• High competitive strength ratings signal a strong competitive position and possession of competitive advantage; low ratings signal a weak position and competitive disadvantage.
• Zeroing in on the strategic issues a company faces and compiling a "worry list" of problems and roadblocks creates a strategic agenda of problems that merit prompt managerial attention.
• A good strategy must contain ways to deal with all the strategic issues and obstacles that stand in the way of the company's financial and competitive success in the years ahead.
   

Key Points

There are five key questions to consider in analyzing a company's particular competitive circumstances and its competitive position vis-á-vis key rivals:

1. How well is the present strategy working? This involves evaluating the strategy from a qualitative standpoint (completeness, internal consistency, rationale, and suitability to the situation) and also from a quantitative standpoint (the strategic and financial results the strategy is producing). The stronger a company's current overall performance, the less likely the need for radical strategy changes. The weaker a company's performance and/or the faster the changes in its external situation (which can be gleaned from industry and competitive analysis), the more its current strategy must be questioned.
2. What are the company's resource strengths and weaknesses and its external opportunities and threats? A SWOT analysis provides an overview of a firm's situation and is an essential component of crafting a strategy tightly matched to the company's situation. The two most important parts of SWOT analysis are (1) drawing conclusions about what story the compilation of strengths, weaknesses, opportunities, and threats tells about the company's overall situation and (2) acting on those conclusions to better match the company's strategy to its resource strengths and market opportunities to correct the important weaknesses and defend against external threats. A company's resource strengths, competencies, and competitive capabilities are strategically relevant because they are the most logical and appealing building blocks for strategy; resource weaknesses are important because they may represent vulnerabilities that need correction. External opportunities and threats come into play because a good strategy necessarily aims at capturing a company's most attractive opportunities and at defending against threats to its well-being.
3. Are the company's prices and costs competitive? One telling sign of whether a company's situation is strong or precarious is whether its prices and costs are competitive with those of industry rivals. Value chain analysis and benchmarking are essential tools in determining whether the company is performing particular functions and activities cost-effectively, learning whether its costs are in line with competitors, and deciding which internal activities and business processes need to be scrutinized for improvement. Value chain analysis teaches that how competently a company manages its value chain activities relative to rivals is a key to building valuable competencies and competitive capabilities and then leveraging them into sustainable competitive advantage.
4. Is the company competitively stronger or weaker than key rivals? The key appraisals here involve how the company matches up against key rivals on industry key success factors and other chief determinants of competitive success and whether and why the company has a competitive advantage or disadvantage. Quantitative competitive strength assessments, using the method presented in Table 3.4, indicate where a company is competitively strong and weak and provide insight into the company's ability to defend or enhance its market position. As a rule a company's competitive strategy should be built around its competitive strengths and should aim at shoring up areas where it is competitively vulnerable. Also, the areas where company strengths match up against competitor weaknesses represent the best potential for new offensive initiatives.
5. What strategic issues and problems merit front-burner managerial attention? This analytical step zeros in on the strategic issues and problems that stand in the way of the company's success. It involves using the results of both industry and competitive analysis and company situation analysis to identify a "worry list" of issues to be resolved for the company to be financially and competitively successful in the years ahead.

Good company situation analysis, like good industry and competitive analysis, isa valuable precondition for good strategy making. A competently done evaluation of a company's resource capabilities and competitive strengths exposes strong and weak points in the present strategy and how attractive or unattractive the company's competitive position is and why. Managers need such understanding to craft a strategy that is well suited to the company's competitive circumstances.

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Part III Crafting the Strategy

Chapter 4
Crafting a Strategy: The Quest for Competitive Advantage

Core Concepts
 

• The objective of competitive strategy is to knock the socks off rival companies by doing a better job of providing what buyers are looking for.
• A low-cost leader's basis for competitive advantage is lower overall costs than competitors. Successful low-cost leaders are exceptionally good at finding ways to drive costs out of their businesses.
• Outperforming rivals in controlling the factors that drive costs is a very demanding managerial exercise.
• Success in achieving a low-cost edge over rivals comes from exploring avenues for cost reduction and pressing for continuous cost reductions across all aspects of the company's value chain year after year.
• A low cost provider is in the best position to win the business of price-sensitive buyers, set the floor on market price, and still earn a profit.
• A low-cost provider's product offering must always contain enough attributes to be attractive to prospective buyers — low price, by itself, is not always appealing to buyers.
• The essence of a broad differentiation strategy is to be unique in ways that are valuable to a wide range of customers.
• Easy to copy differentiating features cannot produce sustainable competitive advantage.
• A differentiator's basis for competitive advantage is either a product/service offering whose attributes differ significantly from the offering of rivals or a set of capabilities for delivering customer value that rivals do not have.
• Any differentiating feature that works well tends to draw imitators.
• Even though a focuser may be small, it still may have substantial, competitive strength be cause of the attractiveness of its product offering and its strong expertise and capabilities in meeting the needs and expectations of niche members.
• Strategic alliances are collaborative arrangements where two or more companies join forces to achieve mutually beneficial strategic outcomes.
• The best alliances are highly selective, focusing on particular value chain activities and on obtaining a particular competitive benefit. They tend to enable a firm to build on its strengths and to learn.
• The competitive attraction of alliances is in allowing companies to bundle competences and resources that are more valuable in a joint effort than when kept separate.
• A vertical integration strategy has appeal only if it significantly strengthens a firm's competitive position.
• Outsourcing involves farming out certain value chain activities to outside vendors.
• A company should generally not perform any value chain activity internally that can be performed more efficiently or effectively by its outside business partners — the chief exception is when a particular activity is strategically crucial and internal control over the activity is deemed essential.
• It takes successful offensive strategies to build competitive advantage—good defensive strategies can help protect competitive advantage but rarely are the basis for creating it.
• It is just as important to discern when to fortify a company's present market position with defensive actions, as it is to seize the initiative and launch strategic offensives.
• There are many ways to throw obstacles in the path of challengers.
• Companies today must wrestle with the strategic issue of how to use their Web sites in positioning themselves in the marketplace — whether to use the Web sites just to disseminate product information or whether to operate an e-store to sell direct to online shoppers.
• 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.
   

Key Points

A company competing in a particular industry or market has a varied menu of strategy options for seeking and securing a competitive advantage (see Figure 4.1). The first and foremost strategic choice is which of the five basic competitive strategies to employ— overall low-cost, broad differentiation, best-cost, focused low-cost, or focused differentiation. A strategy of trying to be the industry's low-cost provider works well in situations where:

1. The industry's product is essentially the same from seller to seller (brand differences are minor).
2. Many buyers are price-sensitive and shop for the lowest price.
3. There are only a few ways to achieve product differentiation that have much value to buyers.
4. Most buyers use the product in the same way and thus have common user requirements.
5. Buyers' costs in switching from one seller or brand to another are low or even zero.
6. Buyers are large and have significant power to negotiate pricing terms.

To achieve a low-cost advantage, a company must become more skilled than rivals in controlling the cost drivers and/or it must find innovative ways to eliminate or bypass cost-producing activities. Successful low-cost providers usually achieve their cost advantages by imaginatively and persistently ferreting out cost savings throughout the value chain. They are good at finding ways to drive costs out of their businesses year after year after year.

Differentiation strategies seek to produce a competitive edge by incorporating attributes and features into a company's product/service offering that rivals don't have. Anything a firm can do to create buyer value represents a potential basis for differentiation. Successful differentiation is usually keyed to lowering the buyer's cost of using the item, raising the performance the buyer gets, or boosting a buyer's psychological satisfaction. To be sustainable, differentiation usually has to be linked to unique internal expertise, core competencies, and resources that translate into capabilities rivals can't easily match. Differentiation tied just to unique features seldom is lasting because resourceful competitors are adept at cloning, improving on, or finding substitutes for almost any feature that appeals to buyers.

Best-cost provider strategies combine a strategic emphasis on low cost with a strategic emphasis on more-than-minimal quality, service, features, or performance. The aim is to create competitive advantage by giving buyers more value for the money; this is done by matching close rivals on key quality/service/features/performance attributes and beating them on the costs of incorporating such attributes into the product or service. To be successful with a best-cost provider strategy, a company must be able to incorporate upscale product or service attributes at a lower cost than rivals. Sustaining a best-cost provider strategy generally means having the capability to simultaneously manage unit costs down and product/service caliber up.

A focused strategy delivers competitive advantage either by achieving lower costs in serving the target market niche or by developing an ability to offer niche buyers something different from rival competitors. A focused strategy based on either low cost or differentiation becomes increasingly attractive as more of the following conditions are met:

1. The target market niche is big enough to be profitable and offers good growth potential.
2. Industry leaders do not see that having a presence in the niche is crucial to their own success—in which case focusers can often escape battling head-to-head against some of the industry's biggest and strongest competitors.
3. It is costly or difficult for multi-segment competitors to put capabilities in place to meet the specialized needs of the target market niche and at the same time satisfy the expectations of their mainstream customers.
4. The industry has many different niches and segments, thereby allowing a focuser to pick a competitively attractive niche suited to its resource strengths and capabilities. Also, with more niches there is more room for focusers to avoid each other in competing for the same customers.
5. Few, if any, other rivals are attempting to specialize in the same target segment— a condition that reduces the risk of segment overcrowding.
6. The focuser can compete effectively against challengers based on the capabilities and resources it has to serve the targeted niche and the customer goodwill it may have built up.

Once a company has decided which of the five basic competitive strategies to employ in its quest for competitive advantage, then it must decide whether to supplement its choice of a basic competitive strategy approach with strategic actions relating to alliances and collaborative partnerships, mergers and acquisitions, integration forward or backward, outsourcing of certain value chain activities, offensive and defensive moves, and the use of the Internet in selling directly to end users, as shown in Figure 4.1. Many companies are using strategic alliances and collaborative partnerships to help them in the race to build a global market presence and in the technology race. Even large and financially strong companies have concluded that simultaneously running both races requires more diverse and expansive skills, resources, technological expertise, and competitive capabilities than they can assemble and manage alone. Strategic alliances are an attractive, flexible, and often cost-effective means by which companies can gain access to missing technology, expertise, and business capabilities. The competitive attraction of alliances is to bundle competencies and resources that are more valuable in a joint effort than they are when kept separate. Competitive advantage emerges when a company acquires valuable resources and capabilities through alliances that it could not otherwise obtain on its own and that give it an edge over rivals. Mergers and acquisitions are another attractive strategic option for strengthening a firm's competitiveness. Companies racing for global market leadership frequently make acquisitions to build a market presence in countries where they currently do not compete. Similarly, companies racing to establish attractive positions in the industries of the future merge or make acquisitions to close gaps in resources or technology, build important technological capabilities, and move into position to launch next-wave products and services. When the operations of two companies are combined via merger or acquisition, the new company's competitiveness can be enhanced in any of several ways—lower costs, stronger technological skills, more or better competitive capabilities, a more attractive lineup of products and services, wider geographic coverage, and/or greater financial resources with which to invest in R&D, add capacity, or expand into new areas.

Vertically integrating forward or backward makes strategic sense only if it strengthens a company's position via either cost reduction or creation of a differentiation- based advantage. Otherwise, the drawbacks of vertical integration (increased investment, greater business risk, increased vulnerability to technological changes, capacity-matching problems, and less flexibility in making product changes) outweigh the advantages (enhanced technological capabilities, better product quality or customer service, and greater scale economies). Collaborative partnerships with suppliers and/or distribution allies often permit a company to achieve the advantages of vertical integration without encountering the drawbacks.

Outsourcing pieces of the value chain formerly performed in-house can enhance a company's competitiveness whenever (1) an activity can be performed better or more cheaply by outside specialists; (2) the activity is not crucial to the firm's ability to achieve sustainable competitive advantage and won't hollow out its core competencies, capabilities, or technical know-how; (3) it reduces the company's risk exposure to changing technology and/or changing buyer preferences; (4) it streamlines company operations in ways that improve organizational flexibility, cut cycle time, speed decision making, and reduce coordination costs; and/or (5) it allows a company to concentrate on its core business and do what it does best. In many situations outsourcing is a superior strategic alternative to vertical integration. Companies have a number of offensive strategy options for improving their market positions and trying to secure a competitive advantage: offering an equal or better product at a lower price, leapfrogging competitors by being the first to adopt next-generation technologies or the first to introduce next-generation products, attacking competitors' weaknesses, going after less contested or unoccupied market territory, using hit-and-run tactics to steal sales away from unsuspecting rivals, and launching preemptive strikes.

Defensive strategies to protect a company's position usually take the form of making moves that put obstacles in the path of would-be challengers and fortify the company's present position while undertaking actions to dissuade rivals from even trying to attack (by signaling that the resulting battle will be more costly to the challenger than it is worth).

One of the most pertinent strategic issues that companies face is how to use the Internet in positioning the company in the marketplace—whether to use the Internet as only a means of disseminating product information (with traditional distribution channel partners making all sales to end users), as a secondary or minor channel, as one of several important distribution channels, as the company's primary distribution channel, or as the company's exclusive channel for accessing customers. Once all the higher-level strategic choices have been made, company managers can turn to the task of crafting functional and operating-level strategies to flesh out the details of the company's overall business and competitive strategy. The timing of strategic moves also has relevance in the quest for competitive advantage. Because of the competitive importance that is sometimes associated with when a strategic move is made, company managers are obligated to carefully consider the advantages or disadvantages that attach to being a first-mover versus a fast-follower versus a wait-and-see late-mover. At the end of the day, though, the proper objective of a first-mover is that of being the first competitor to put together the precise combination of features, customer value, and sound revenue/cost/profit economics that puts it ahead of the pack in capturing an attractive market opportunity. Sometimes the company that first unlocks a profitable market opportunity is the first-mover and sometimes it is not— but the company that comes up with the key is surely the smart mover.

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Chapter 5
Competing in Foreign Markets

Core Concepts

• Companies with manufacturing facilities in a particular country are more cost competitive in exporting goods to world markets when the local currency is weak; their competitiveness erodes when the Brazilian real grows stronger relative to the currencies of the countries where the locally made goods are being sold.
• Fluctuating exchange rates pose significant risks to a company's competitiveness in foreign markets. Exporters win when the currency of the country where goods are being manufactured grows weaker and they lose when the currency grows stronger. Domestic companies under pressure from lower-cost imports are benefited when their government's currency grows weaker in relation to the countries where the imported goods are being made.
• Multicountry competition exists when competition in one national market is not closely connected to competition in another national market — there is no global or world market, just a collection of self-contained country markets.
• Global competition exists when competitive conditions across national markets are linked strongly enough to form a true international market and when leading competitors compete head to head in many different countries.
• Companies that compete multinationally can pursue competitive advantage in world markets by locating their value chain activities in whatever nations prove most advantageous.
• Companies with large, protected profit sanctuaries have competitive advantage over companies that do not have a protected sanctuary. Companies with multiple profit sanctuaries have a competitive advantage over companies with a single sanctuary.
• Cross-market subsidization — supporting competitive offensives in one market with resources and profits diverted from operations in other markets — is a powerful competitive weapon.
• Strategic alliances can help companies in globally competitive industries strengthen their competitive positions while still preserving their independence.
• Strategic alliances are more effective in helping establish a beachhead of new opportunity in world markets than in achieving and sustaining global leadership.
• Profitability in emerging country markets rarely comes quickly or easily — new entrants have to be very sensitive to local conditions, be willing to invest in developing the market for their products over the long term, and be patient in earning a profit.
   

Key Points

Most issues in competitive strategy that apply to domestic companies apply also to companies that compete internationally. But there are four strategic issues unique to competing across national boundaries:

1. Whether to customize the company's offerings in each different country market to match the tastes and preferences of local buyers or offer a mostly standardized product worldwide.
2. Whether to employ essentially the same basic competitive strategy in all countries or modify the strategy country by country to fit the specific market conditions and competitive circumstances the company encounters.
3. Where to locate the company's production facilities, distribution centers, and customer service operations so as to realize the greatest locational advantages.
4. Whether and how to efficiently transfer the company's resource strengths and capabilities from one country to another in an effort to secure competitive advantage.

Companies opt to expand outside their domestic market for any of four major reasons: to gain access to new customers for their products or services, to achieve lower costs and become more competitive on price, to leverage their core competencies, and to spread their business risk across a wider market base. A company is an international or multinational competitor when it competes in several foreign markets; it is a global competitor when it has or is pursuing a market presence in virtually all of the world's major countries.

The strategies a company uses to compete in foreign markets have to be situation-driven— cultural, demographic, and market conditions vary significantly from country to country. One of the biggest concerns of competing in foreign markets is whether to customize the company's offerings to cater to the tastes and preferences of local buyers in all or most different country markets or whether to offer a mostly standardized product worldwide. While being responsive to local tastes makes a company's products more appealing to local buyers, customizing a company's products country by country may have the effect of raising production and distribution costs due to the greater variety of designs and components, shorter production runs, and the complications of added inventory handling and distribution logistics. In contrast, greater standardization of the company's product offering enhances the capture of scale economies and learning- and experience-curve effects, contributing to the achievement of a low-cost advantage. The tension between the market pressures to customize and the competitive pressures to lower costs is one of the big strategic issues that participants in foreign markets have to resolve.

Multi-country competition exists when competition in one national market is independent of competition in another national market—there is no "international market," just a collection of self-contained country markets. Global competition exists when competitive conditions across national markets are linked strongly enough to form a true world market and when leading competitors compete head-to-head in many different countries.

In posturing to compete in foreign markets, a company has three basic options: (1) a think-local, act-local approach to crafting a strategy, (2) a think-global, act-global approach to crafting a strategy, and (3) a combination think-global, act-local approach. A think-local, act-local, or multi-country, strategy is appropriate for industries where multi-country competition dominates; a localized approach to strategy making calls for a company to vary its product offering and competitive approach from country to country in order to accommodate differing buyer preferences and market conditions. A think-global, act-global approach (or global strategy) works best in markets that are globally competitive or beginning to globalize; global strategies involve employing the same basic competitive approach (low-cost, differentiation, best-cost, focused) in all country markets and marketing essentially the same products under the same brand names in all countries where the company operates. A think-global, act-local approach can be used when it is feasible for a company to employ essentially the same basic competitive strategy in all markets but still customize its product offering and some aspect of its operations to fit local market circumstances. Other strategy options for competing in world markets include maintaining a national (one-country) production base and exporting goods to foreign markets, licensing foreign firms to use the company's technology or produce and distribute the company's products, employing a franchising strategy, and using strategic alliances or other collaborative partnerships to enter a foreign market or strengthen a firm's competitiveness in world markets.

The number of global strategic alliances, joint ventures, and other collaborative arrangements has exploded in recent years. Cooperative arrangements with foreign partners have strategic appeal from several angles: gaining wider access to attractive country markets, allowing capture of economies of scale in production and/or marketing, filling gaps in technical expertise and/or knowledge of local markets, saving on costs by sharing distribution facilities and dealer networks, helping gain agreement on important technical standards, and helping combat the impact of alliances that rivals have formed. Cross-border strategic alliances are fast reshaping competition in world markets, pitting one group of allied global companies against other groups of allied global companies.

There are three ways in which a firm can gain competitive advantage (or offset domestic disadvantages) in global markets. One way involves locating various value chain activities among nations in a manner that lowers costs or achieves greater product differentiation. A second way involves efficient and effective transfer of competitively valuable competencies and capabilities from its domestic markets to foreign markets. A third way draws on a multinational or global competitor's ability to deepen or broaden its resource strengths and capabilities and to coordinate its dispersed activities in ways that a domestic-only competitor cannot.

Profit sanctuaries are country markets in which a company derives substantial profits because of its strong or protected market position. They are valuable competitive assets, providing the financial strength to support competitive offensives in one market with resources and profits diverted from operations in other markets, and aid a company's race for global market leadership. Companies with large, protected profit sanctuaries have a competitive advantage over companies that don't have a protected sanctuary. Companies with multiple profit sanctuaries have a competitive advantage over companies with a single sanctuary. The cross-market subsidization capabilities provided by multiple profit sanctuaries gives a global or international competitor a powerful offensive weapon.

Companies racing for global leadership have to consider competing in emerging markets like China, India, Brazil, Indonesia, and Mexico—countries where the business risks are considerable but the opportunities for growth are huge. To succeed in these markets, it is usually necessary to attract buyers with bargain prices as well as better products—an approach that can entail a radical departure from the strategy used in other parts of the world. Moreover, building a market for the company's products in these markets is likely to be a long-term process, involving the investment of sizable sums to alter buying habits and tastes and reeducate consumers. Profitability is unlikely to come quickly or easily.

The outlook for local companies in emerging markets wishing to survive against the entry of global giants is by no means grim. The optimal strategic approach hinges on whether a firm's competitive assets are suitable only for the home market or can be transferred abroad and on whether industry pressures to move toward global competition are strong or weak. Local companies can compete against global newcomers by (1) defending on the basis of home-field advantages, (2) transferring their expertise to cross-border markets, (3) dodging large rivals by shifting to a new business model or market niche, or (4) launching initiatives to compete on a global level themselves.

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