Corporate Policy & Strategy

Dr. Nguyễn Gia Ninh

 CHAPTER 6:
Strengthening
a Company’s
Competitive
Position - Strategic Moves,
Timing, and Scope of
Operations
 CHAPTER 6 OBJECTIVES

LO 1 Whether and when to pursue offensive or defensive

strategic moves to improve a company’s market position.
LO 2 When being a first mover or a fast follower or a late mover
is most advantageous.
LO 3 The strategic benefits and risks of expanding a company’s
horizontal scope through mergers and acquisitions.
LO 4 The advantages and disadvantages of extending the
company’s scope of operations via vertical integration.
LO 5 The conditions that favor farming out certain value chain
activities to outside parties.
LO 6 When and how strategic alliances can substitute for
horizontal mergers and acquisitions or vertical integration and
how they can facilitate outsourcing
LAUNCHING STRATEGIC OFFENSIVES TO
IMPROVE A COMPANY’S MARKET POSITION

Choosing the Basis for Competitive Attack

Strategic offensives should exploit the power of a company’s strongest competitive
assets—its most valuable resources and capabilities such as a better-known brand
name, a more efficient production or distribution system, greater technological capability,
or a superior reputation for quality.
The principal offensive strategy options include the following:
1. Offering an equally good or better product at a lower price.
2. Leapfrogging competitors by being first to market with next-generation
products
3. Pursuing continuous product innovation to draw sales and market share away
from less innovative rivals.
4. Pursuing disruptive product innovations to create new markets.
5. Adopting and improving on the good ideas of other companies (rivals or
otherwise).
6. Using hit-and-run or guerrilla warfare tactics to grab market share from
complacent or distracted rivals.
7. Launching a preemptive strike to secure an industry’s limited resources or
capture a rare opportunity.
LAUNCHING STRATEGIC OFFENSIVES TO
IMPROVE A COMPANY’S MARKET POSITION

Choosing Which Rivals to Attack

The following are the best targets for offensive
attacks:
• Market leaders that are vulnerable.
• Runner-up firms with weaknesses in areas where
the challenger is strong
• Struggling enterprises that are on the verge of
going under.
• Small local and regional firms with limited
capabilities.
LAUNCHING STRATEGIC OFFENSIVES TO
IMPROVE A COMPANY’S MARKET POSITION

Blue-Ocean Strategy—A Special Kind of Offensive

A blue-ocean strategy seeks to gain a

dramatic and durable competitive advantage

A terrific example of such blue-ocean market

space is the online auction industry
that eBay created and now dominates.

Other companies that have created blue-

ocean market spaces include Drybar in hair
blowouts, Tune Hotels in limited service
“backpacker” hotels, and Cirque du Soleil in
live entertainment.
 DEFENSIVE STRATEGIES—PROTECTING MARKET
POSITION AND COMPETITIVE ADVANTAGE

 In a competitive market, all firms are subject to offensive

challenges from rivals.
 The purposes of defensive strategies are to lower the risk of
being attacked, weaken the impact of any attack that occurs, and
induce challengers to aim their efforts at other rivals.
 DEFENSIVE STRATEGIES—PROTECTING MARKET
POSITION AND COMPETITIVE ADVANTAGE

1. Blocking the Avenues Open to Challengers

 A defender can introduce new features, add new models, or
broaden its product line to close off gaps and vacant niches to
opportunity-seeking challengers.

 It can discourage buyers from trying competitors’ brands by

lengthening warranties, making early announcements about
impending new products or price changes, offering free training
and support services, or providing coupons and
sample giveaways to buyers most prone to experiment.
 DEFENSIVE STRATEGIES—PROTECTING MARKET
POSITION AND COMPETITIVE ADVANTAGE

2. Signaling Challengers That Retaliation Is Likely

Þ to dissuade challengers from attacking at all or to divert them to

less threatening options
Þ • Publicly announcing management’s commitment to
maintaining the firm’s present market share.
• Publicly committing the company to a policy of matching
competitors’ terms or prices.
• Maintaining a war chest of cash and marketable securities.
• Making an occasional strong counterresponse to the moves of
weak competitors to enhance the firm’s image as a tough
defender.
TIMING A COMPANY’S OFFENSIVE AND DEFENSIVE STRATEGIC
MOVES

• The Potential for First-Mover Advantages

1. When pioneering helps build a firm’s reputation and creates
strong brand loyalty
2. When a first mover’s customers will thereafter face significant
switching costs
3. When property rights protections thwart rapid imitation of the
initial move.
4. When an early lead enables the first mover to move down the
learning curve ahead of rivals
5. When a first mover can set the technical standard for the
industry.
TIMING A COMPANY’S OFFENSIVE AND DEFENSIVE STRATEGIC
MOVES
• The Potential for Late-Mover Advantages or
First-Mover Disadvantages
1. When the costs of pioneering are high relative to the benefits accrued
and imitative followers can achieve similar benefits with far lower costs.
2. When an innovator’s products are somewhat primitive and do not live
up to buyer expectations
3. When rapid market evolution (due to fast-paced changes in either
technology or buyer needs) gives second movers the opening to leapfrog
a first mover’s products with more attractive next-version products.
4. When market uncertainties make it difficult to ascertain what will
eventually succeed, allowing late movers to wait until these needs are
clarified.
5. When customer loyalty to the pioneer is low and a first mover’s skills,
know-how, and actions are easily copied or even surpassed
STRENGTHENING A COMPANY’S MARKET
POSITION VIA ITS SCOPE OF OPERATIONS
STRENGTHENING A COMPANY’S MARKET
POSITION VIA ITS SCOPE OF OPERATIONS

HORIZONTAL MERGER AND ACQUISITION STRATEGIES

Mergers and acquisitions are much-used strategic
options to strengthen a company’s market position.

A merger is the combining of two or more companies

into a single corporate entity, with the newly created
company often taking on a new name.
An acquisition is a combination in which one
company, the acquirer, purchases and absorbs the
operations of another, the acquired
STRENGTHENING A COMPANY’S MARKET
POSITION VIA ITS SCOPE OF OPERATIONS

HORIZONTAL MERGER AND ACQUISITION STRATEGIES

1. Creating a more cost-efficient operation out of the

combined companies
2. Expanding a company’s geographic coverage
3. Extending the company’s business into new product
categories.
4. Gaining quick access to new technologies or other resources
and capabilities
5. Leading the convergence of industries whose boundaries
are being blurred by changing technologies and new market
opportunities.
STRENGTHENING A COMPANY’S MARKET
POSITION VIA ITS SCOPE OF OPERATIONS

HORIZONTAL MERGER AND ACQUISITION STRATEGIES

Horizontal mergers and acquisitions can strengthen a
firm’s competitiveness in five ways:
(1) by improving the efficiency of its operations,
(2) by heightening its product differentiation,
(3) by reducing market rivalry, by increasing the
company’s bargaining power over suppliers and
buyers, and
(4) by enhancing its flexibility and
dynamic capabilities.
STRENGTHENING A COMPANY’S MARKET
POSITION VIA ITS SCOPE OF OPERATIONS
HORIZONTAL MERGER AND ACQUISITION STRATEGIES
Why Mergers and Acquisitions Sometimes
Fail to Produce Anticipated Results

 Cost savings may prove smaller than expected.

 Efforts to mesh the corporate cultures can stall due to
formidable resistance from organization members.
 Key employees at the acquired company can quickly
become disenchanted and leave;
 The morale of company personnel who remain can drop to
disturbingly low levels because they disagree with newly
instituted changes.
 Differences in management styles and operating
procedures can prove hard to resolve
STRENGTHENING A COMPANY’S MARKET
POSITION VIA ITS SCOPE OF OPERATIONS

VERTICAL INTEGRATION STRATEGIES

A vertical integration strategy can expand the firm’s range of
activities backward into sources of supply and/or forward
toward end users
STRENGTHENING A COMPANY’S MARKET
POSITION VIA ITS SCOPE OF OPERATIONS

VERTICAL INTEGRATION STRATEGIES

The Advantages of a Vertical Integration Strategy

Integrating Backward to Achieve Greater Competitiveness

For backward integration to be a cost-saving and
profitable strategy, a company must be able to
(1) achieve the same scale economies as outside suppliers and
(2) match or beat suppliers’ production efficiency with no
dropoff in quality.
STRENGTHENING A COMPANY’S MARKET
POSITION VIA ITS SCOPE OF OPERATIONS

VERTICAL INTEGRATION STRATEGIES

The Advantages of a Vertical Integration Strategy

Integrating Forward to Enhance Competitiveness

Forward integration can lower costs by increasing efficiency
and bargaining power.
In addition, it can allow manufacturers to gain better access to
end users, improve market visibility, and include the end
user’s purchasing experience as a differentiating feature – like
servitisation.
STRENGTHENING A COMPANY’S MARKET
POSITION VIA ITS SCOPE OF OPERATIONS

VERTICAL INTEGRATION STRATEGIES

The Disadvantages of a Vertical Integration Strategy

 Vertical integration raises a firm’s capital investment in the

industry, thereby increasing business risk.
 Vertical integration can result in less flexibility in
accommodating shifting buyer preferences
 Integration forward or backward often calls for developing
new types of resources and capabilities
 References
Thompson, A. A., Strickland III, A. J. and Gamble,
J. E. (2010). Crafting & Executing Strategy: The
Quest for Competitive Advantage, Concepts and
Cases (17th ed.). NY: McGraw-Hill Irwin.