This is the second part of a 2-part presentation. Just like the first part, it offers suggestions to help a declining company survive, even if it is in a declining industry. You might find what I call a good competitor and bad competitor interesting with the attitudes as to what is correct and not correct behavior in the US Presidential election (slides 24-28). Armed with knowing which your competitors are, you can plan your strategies. Also, looking at your supply chain, exploring where you should find partners is interesting. I hope they get you thinking.

1. 1
Building Competitiveness-2
Ron McFarland, Tokyo, Japan

2. 2
Global Strategies
Regarding market approaches, 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
Raw materials
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 of capacity
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 New Businesses
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 narrow competitive 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: Segments are 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 and Competitive 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 Chain and 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 and Competitive 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’s Value 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
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 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
Human Resource 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 to create 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 to create 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 to create 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 or not
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 along the 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 of sharing 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 activities of 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 sales with 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 you like 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
Are all
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
Healthy competition
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 a good 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 competitors for 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 bad competitors
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 tactics to 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
Some questions 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, Change and 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 and change 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 the future – 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
This presentation 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