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Competitive strategy b
- 1. 1 Building Competitiveness-2 Ron McFarland,Tokyo, Japan
- 2. 2 Global Strategies Regarding marketapproaches, a company can expand globally by direct export, licensing and foreign direct investment. There are advantages and disadvantages to all of them which must be studied carefully. Production Sales Office Head Office United States Europe Overall, there are two methods of extending a business to global markets. One is investing in foreign markets and building within the company. The second method is finding trusted and competent strategic partners. Ron McFarland, Tokyo, Japan
- 3. 3 Vertical Integration Strategies Rawmaterials Backward integration End user Forward integration No integration Component manufacturing Raw materials Assembly & Distribution (your business)Distribution End user Component manufacturing Raw materials Distribution End user Assembly (your business) Component manufacturing & Assembly (your business) - Vertical integration benefits: 1-Improve trust level, 2-increase communication, 3-Increase awareness of impact of others in the chain and 4-create commitment to others in the chain. All this leads to efficiencies. - Vertical integration risks: 1-Higher exit barriers, 2-Increased fixed costs, 3- Decreased flexibility, 4-Higher capital required, 5-Captive market dulls incentives, 6-Different management skills required. Ron McFarland, Tokyo, Japan
- 4. 4 New Business Entry &Capacity Expansion Strategies Benefit Risk There are two issues that must be explored when entering a new market or expanding capacity within the current market. - Future demand: Is the market underserved with your current capacity? Will the market grow in the future? How will technology change? - Competitors’ behavior: Are the competitors preparing for added capacity too? How will they respond if one company increases capacity? Risk of expanding or entering new market Value of expanding capacity or entering new market now. Ron McFarland, Tokyo, Japan
- 5. 1-Determine the size/type ofcapacity options 5 Capacity Expansion Strategies 3-Assess probable technological changes and obsolescence 2-Project future demand and costs required 5-Based on the above, determine industry supply/demand balance and the resulting costs/prices 6-Determine the cash flow from expanded capacity 7-Test analysis for consistency 8-Request third party to confirm expectations 4-Project additions by competitors based on their expectations Expansion process Conduct in several business terms to confirm trend. Ron McFarland, Tokyo, Japan
- 6. 6 Entering into NewBusinesses Quite often companies enter very large, healthy markets, but this might be a mistake. Market with underserved section Healthy, large, growing and attractive industry There are two ways to enter a new business and market. 1- Acquire a business in the industry. 2-Internally develop a new operation to enter the market. It is usually best to enter an underserved, less obvious market, where your company expertise would be very new and valuable. Ron McFarland, Tokyo, Japan
- 7. 7 Broad or narrowcompetitive scope Minor Investment In many industries & markets Major Investment In single industry & marketIndustrial scope Regional scope Market segment scope Vertical scope Many products & uses within industry/market Few products & few uses within industry/market Global, production, R & D and sales operation Single country & regional operation Development & processing in-house Heavily use outside companies & specialists Ron McFarland, Tokyo, Japan
- 8. 8 Supplier power Segment Rivals Buyer power Substitution threat New entry threat Buyer Group NOTE: Segmentsare groups with customers having similar desires and ability to buy in the same location. There are also sub-segments, distribution variations, varies service levels and others. Product variations Similar Segment Ron McFarland, Tokyo, Japan Segmenting market & evaluating competitive advantage
- 9. 9 Value Chain andCompetitive Advantage Operations & processing Outbound items & services Marketing & sales After sales support (Processing) End Users Technology Development Direct Activities Suppliers Human Resource Management Infrastructure Procurement Support Activities Inbound items & services (Shipping) (Marketing) (Service)(Receiving) Value Chain Activities Valued added, cost incurred over time and a profit margin Ron McFarland, Tokyo, Japan
- 10. 10 Generic Value Chainand Competitive Advantage Operations & processing Outbound items & services Marketing & sales After sales support Inbound items & services Direct Activities End UsersSuppliers (Processing) (Shipping) (Marketing) (Service)(Receiving) Valued added, cost incurred over time and a profit margin Supply Chain Management Information System Customer Relations Management Information System The value chain is more efficient if ……. - The goods are pulled through the chain by the end user. Less efficient if they are pushed through the chain by the suppliers. - There is detailed communication throughout the chain. - There is a high level of trust and close human relations along the value chain. Ron McFarland, Tokyo, Japan
- 11. 11 Value Chain andCompetitive Advantage Operations & processing Outbound items & services Marketing & sales After sales support (Processing) End Users Technology Development Direct Activities Suppliers Human Resource Management Infrastructure Procurement Support Activities Inbound items & services (Shipping) (Marketing) (Service)(Receiving) Overhead, fixed asset control, management expertise and information systems Valued added, cost incurred over time and a profit margin Ron McFarland, Tokyo, Japan
- 12. Customer’s Value chain Firm’sValue chain 12 Value Chain and Competitive Advantage Operations& processing Outbounditems& services Marketing& sales Aftersales support Inbounditems &services End UsersSuppliers Valued added, cost incurred over time and a profit marginOperations& processing Outbounditems& services Marketing& sales Aftersales support Inbounditems &services Ron McFarland, Tokyo, Japan
- 13. Firm’s Value chain 13 ValueChain and Competitive Advantage Operations& processing Outbounditems& services Marketing& sales Aftersales support Inbounditems &services End UsersSuppliers Valued added, cost incurred over time and a profit margin Operations& processing Outbounditems& services Marketing& sales Aftersales support Inbounditems &services Customer’s Value chain Ron McFarland, Tokyo, Japan
- 14. 14 Operations & processing Outbound items & services Marketing & sales After sales support (Processing) Technology Development Direct Activities HumanResource Management Infrastructure Procurement Support Activities Inbound items & services (Shipping) (Marketing) (Service)(Receiving) Creating competitive advantage within the value chain Unique and valuable item or service offered Very available commodity items & services inbound Uniqueness or low cost creating factors …. Products easy to learn how to use Special assortment only you can offer Convenient location Valued advice Technical support Sales and product training Exceptional delivery time Special after sales support Attractive design-image Inquiry response time Power over end users Power over suppliers Ron McFarland, Tokyo, Japan
- 15. 15 Shared functions tocreate competitive advantage Operations & processing Outbound items & services Marketing & sales After sales support Inbound items & services Company “A” Direct Activities Operations & processing Outbound items & services Marketing & sales After sales support (Processing) (Shipping) (Marketing) (Service)(Receiving) Company “B” Direct Activities (Processing) (Shipping) (Marketing)(Receiving) Inbound items & services (Service) Ron McFarland, Tokyo, Japan
- 16. 16 Shared functions tocreate competitive advantage Operations & processing Outbound items & services Marketing & sales After sales support Inbound items & services Company “A” Direct Activities Operations & processing Outbound items & services Marketing & sales After sales support (Processing) (Shipping) (Marketing) (Service)(Receiving) Company “B” Direct Activities Shared Logistics (Processing) (Shipping) (Marketing)(Receiving) Inbound items & services Shared Sales Activities/Sales Staff Shared Production Shared Service (Service) Ron McFarland, Tokyo, Japan
- 17. 17 Shared functions tocreate competitive advantage Company “B” Support Activities Technology Development Human Resource Management Infrastructure Procurement Company “A” Support Activities Technology Development Human Resource Management Infrastructure Procurement Shared buildings and facilities Shared personnel activities Shared purchasing Shared research projects Ron McFarland, Tokyo, Japan
- 18. Sharing activities ornot 18 Company “A” & “B” shared activities Company “B” separate activities Company “A” separate activities Activities good atDoubtful sharing successActivities good at Company “A” poor at Activities good at Activities poor atActivities good at Sharing Success! Strengths: It is not wise to have two organizations share activities in which both are strong and successful. Strengths/Weaknesses: It is wise to use strengths to support another’s weakness and have that organization support your areas of weakness. Or, you could pay for the use of their strengths. Value: The value of sharing coming in three forms: (1) when economies of scale get more output for the same process, (2) when there is learning of better ways to do things, (3) when there is increased utilization and reduced downtime of existing assets. Ron McFarland, Tokyo, Japan
- 19. Cost incurred alongthe value chain 19 15% of total cost 10% of total cost 10% of total cost 5% of total cost If the burden of an activity is not great, the cost of sharing must be kept very low, unless it offers strong differentiation of the product to competitors’ which will result in reduced customer price resistance. Along the value chain, where is the most cost incurred? As there will be some degree of costs incurred to share an activity, choose an activities that offers value over the total of all processes. Operations & processing Outbound items & services Marketing & sales After sales support (Processing) Technology Development Direct Activities Human Resource Management Infrastructure Procurement Support Activities Inbound items & services (Shipping) (Marketing) (Service) 2% of total cost 5% of total cost 1% of total cost 2% of total cost 50% of total cost (Receiving) Ron McFarland, Tokyo, Japan
- 20. 20 Balancing cost ofsharing with value Cost Value In considering sharing, for each activity studied, the cost of time, personnel and money must be weighed against the value achieved. In many cases the cost and resistance to change is so great that they out-weigh any benefit of working together. Cost of Coordination: Businesses must coordinate scheduling and setting priorities. It must set up and modify for joint operations. There could be added cost in time required, personnel needed and perhaps direct funds assigned. Cost of Compromise: Shared activities require modifications of current activities which may require some sacrifice for the overall good. Cost of Inflexibility: There may be added difficulties in responding to market changes and competitor moves. Also, it might be difficult to divest from a shared project. Cost incurred in sharing the activity Ron McFarland, Tokyo, Japan
- 21. 21 Sharing sales activitiesof several departments #1#2 #3#4 - Vehicle sales - Maintenance - Spare parts More efficient customer contact Cost: Salesman must learn other departments’ products and services, etc. Ron McFarland, Tokyo, Japan
- 22. 22 Sharing component saleswith different companies Patented system By sharing technology and cooperating with other companies, great benefits can be the results. Only one company is needed to sell several products. Do packaging or let customer? Ron McFarland, Tokyo, Japan
- 23. You 23 What do youlike about the product? What would you like added? What do you think is not needed? “A” feature “C” service “B” feature Deciding what to sell as standard One of several hundred users of your product Keep Delete Add Decision to offer as standard A study of the competitors’ assortment and the ability of the user to select his own specifications must be determined. Ron McFarland, Tokyo, Japan
- 24. Benefits of Competitors Areall competitors bad? 24 Competitors can increase a company’s competitive advantage. Competitors can improve current industry structure. Competitors can aid market development. Competitors can deter new entries. A good competitor is one that challenges the firm not to be complacent but maintains a stable and profitable industry equilibrium without damaging the whole industry. Ron McFarland, Tokyo, Japan
- 25. 25 Extremes of competition Healthycompetition Where there is learning, product development, personnel development, long-term strategy development and low stress working environments Fierce fighting Where there is discounting, damaging competitor moves, high stress, and an overall unattractive image No competition Where there is complacence, no stress, and no development activities Ron McFarland, Tokyo, Japan
- 26. 26 Test of agood competitor Definitely not Very much so Clear, self-perceived weaknesses: Knows areas where it is weak and accepts it, while concentrating only on its strengths. Rules of competition: Knows rules to aid in the development of the whole market and avoids behavior that would be damaging to all. Realistic Assumption: Knows the sizes of the market and does not over-invest and become threatening or under-invest and encourage new competitors. Knowledge of costs: Does not cross-subsidize product lines and sets reasonable prices that cover all costs including overhead. Creates Entry Barriers: Creates entry barriers that discourage new competitors but does not lock itself into the industry. Credible & Viable: Has sufficient resources/abilities to be a motivator to other firms in lowering cost and improving differentiation. Limits market segments: Is active in market segments it is most comfortable with. In other segments, participates at lesser degree or not at all. Ron McFarland, Tokyo, Japan
- 27. 27 Recognizing bad competitorsfor an industry 1. They will do anything they can to do damage to all their competitors and have no cooperative spirit. They go farther than just challenging competitors. They hope the competitors will feel they have no choice but to give up. 2. They consider market share a very high priority. 3. They do not consider product development a high priority and will copy when they can. 4. They do not consider long-term customer service a high priority but quick sales. 5. They poorly forecast both high and low demand, which leads to over-investment in production capacity. This often leaves them with massive excess production capacity. 6. They put little attention on training and learning. 7. They do not consider themselves a part of the entire industry and have no problems making disruptive, damaging moves. Ron McFarland, Tokyo, Japan
- 28. 28 Defending against badcompetitors Extent of differentiation & segmentation HighLow Good Competitors Bad Their goal is a large share which causes instability in the industry. It could also be costly. The goal is a modest share difference from leader and others to maintain stability in the industry. Convince the competitor that a large share in many segments is not required or profitable. If forced, compete closely in prices, but put major effort in differentiation or segmentation. Ron McFarland, Tokyo, Japan
- 29. 29 There are tacticsto discourage new competitors. 1. Keep good product assortment and quick deliveries. 2. Block access to strongest supply channels with distributor agreements. 3. Raise customer switching costs with training, joint activities and special support that others cannot match. 4. Advertise when other companies are considering entering the market. 5. Introduce new products when other companies are considering entering the market. 6. Make exclusive agreements with major suppliers. 7. Signal commitment to defend market in press, to distributors, etc. 8. Prepare funds to counter any new competitor consideration. Ron McFarland, Tokyo, Japan Action plan to defend market from new entry
- 30. 30 Challenging a leader Somequestions to ask when attaching a leader in the industry. High Returnoninvestment Market share and volume High Low Low Has the leader slipped into the middle with raising costs? Has the leader’s products lost their special differentiation? Nothing special No cost advantage 1. Are customers unhappy with the leader? 2. Has there been technical changes that influence cost and differentiation? 3. Is the leader making abnormally high profits? 4. Does the leader have problems on profit with its parent company? Ron McFarland, Tokyo, Japan
- 31. 31 BuyersSuppliers Competitors Rivalry Industrial Evolution, Changeand Uncertainty Bargaining Power of Buyers Threats of Entrants Threats of Substitutes Bargaining Power of Suppliers Company “B” Company “C” Company “A” New Entrants Substitutes Ron McFarland, Tokyo, Japan
- 32. 32 Value chain andchange influencing factors Operations & processing Outbound items & services Marketing & sales After sales support (Processing) Technology Development Direct Activities Human Resource Management Infrastructure Procurement Support Activities Inbound items & services (Shipping) (Marketing) (Service)(Receiving) Ron McFarland, Tokyo, Japan
- 33. Industrial change scenarios& possible action plans 33 First determine the factors that will influence change in the industry and develop possible scenarios. Based on market research and data gathered from questions asked in many of the slides in this presentation, here are actions that a company can take: 1. Plan for the most probable scenario and invests accordingly. 2. Invest in the best scenario for the company’s situation. 3. Hope for the best but prepare for the worst to set a maximum level of risk considering all the factors. 4. Preserve flexibility by waiting for the last possible moment before making the final decision. 5. Apply resources to try to influence the scenario that is most advantageous to the organization. Ron McFarland, Tokyo, Japan
- 34. 34 Deciding for future– Scenario Action Plan #3 Worst case scenario preparation #4 Wait & be flexibility as long as possible #5 Influence future in any way possible #1 Most probable scenario Chanceofimproving companyposition Company weakens Company strengthens High riskLow risk Risk level of action plan #2 Best scenario for company 1. Probable scenario – High risk if not well researched for details but high chance of strengthening position. 2. Best scenario – Very high risk for the company if not reading the market carefully but high chance of improving position. 3. Worst – Consider all possible crises and prepare for all better than others. 4. Waits as long as possible – Low risk, but chance of company being left behind. 5. Influence the scenario – High risk but could be profitable if successful. Also, a combination of all five can be the action plan. What is important is understanding all risks and advance planning. If a crisis comes, decisions and an action plan can be put in place with low stress. Ron McFarland, Tokyo, Japan
- 35. 35 Deciding for thefuture – Risk Analysis Low risk Many uncontrollable events could occur High risk Few uncontrollable events could occurDoes this expose the company to forces or events that are out of the company’s control? Does the company have the ability to spot problems, determine time available to solve problems, make decisions and execute what was decided? Could this project kill or severely damage the company if it fails? What is the potential damage to the potential reward? High chance of going out of business Low chance of going out of business Company does not see danger signals, make decisions or take action quickly. Company sees danger signals, make decisions and takes action quickly. High risk of losses but little profit potential from project Low risk of losses but high profit potential from project For each project proposal, ask these questions. Loss to gain risk Exposure risk Response ability risk Death line risk If after doing the above analysis for a very new product, you feel the risk is too high, consider not being the first company to introduce the product. Let someone else introduce a similar product, learn from them and introduce your version very shortly after. Ron McFarland, Tokyo, Japan
- 36. 36 Thank you Building Competitiveness Thispresentation gives many suggestions on how to expand your business. Whatever method you choose, it is vital to start with a project that is low risk, low cost and low distraction to your current operation. Then, expand gradually. Ron McFarland, Tokyo, Japan