1. INDIRECT STRATEGIES FOR COMPETITING IN
CURRENT MARKET WITH CURRENT PRODUCT SITUATION
Market
New (Foreign) Current (Local)
Product
NewCurrent
The conventional strategy for competing in current market and current product
situation is to reduce price, and this is called market penetration, which is a term
commonly used with reference to Ansoff’s Matrix. And the firm has to be
competing on low cost leadership (LCL) as described by Michael Porter 3
Generic Strategies. The long run average cost (LRAC) has to go down for the
firm to enjoy internal economies of scale (IES) so that the cost stays under the
reduced price. There lies the dilemma, and the firm has to find ways of increasing
production as indicated by Path A, B, and C before its production can enjoy IES.
Path A The firm diversifies away from a congested market to a new market
(foreign country) with a new product. However, the core product
should remain and even simplified and enjoys IES, and innovation
of the product should be modularized (here, product design in vital).
Path B The firm adopts third degree price discrimination that makes the
new (innovated) product less elastic than the current product
(highly elastic) through achieving product differentiation by
exploiting the total product concept to serve a different market
segment. Average cost of core product should also enjoy IES.
Path C The firm simply exports increased the output to a foreign country,
and this export quantity comes from the increased production which
has resulted in IES. As result, the firm achieves LCL competitive
advantage.
Path A
Path B
Path C