Independent Study--Competitive Strategy Chap 14,15&16 vertical integration,capacity expansion and entry into new businesses

Companies can raise their overall value as they increase ownership of processes related to their product. Usually this is considered when critical suppliers are late or raise prices. Vertical integration lessens the risk of cost increases, disruption of critical material supplies, and quality problems. The most benefit of vertical integration is the achievement of economies, or cost savings, in joint production, sales, purchasing,and control. The degree to which a firm owns its upstream suppliers and its downstream buyers is referred to as vertical integration. Because it can have a significant impact on a business unit's position in its industry with respect to cost, differentiation, and other strategic issues, the vertical scope of the firm is an important consideration in corporate strategy.
Expansion of activities downstream is referred to as forward integration--to moving higher up in the production distribution process towards the end consumer., and expansion upstream is referred to as backward integration--It is aimed at moving lower on the production process scale so that the firm is able to supply its own raw materials or basic components. As GM and Ford integrate backward vertical integration into component-parts manufacturing in the past, in actual times when these companies are looking at a number of potential global partnerships as it explores growth opportunities around the world, were mainly driven to expand their operations to compete effectively in vehicle industry, all above to add value to its value-chain production lines.
A good option in vertical integration is the taper integration-- allows you to preserve the threat of manufacturing key items yourself without full commitment to the process. You only manufacture a part of the total components needed and outsource the rest.
Capacity expansion is one of the most significant strategic decisions faced by firms. Moreover, the firm must make predictions about future demand, input costs,competitor's behavior and technology. These will be subject to uncertainty. One approach to capacity expansion in a growing market is the preemptive strategy, in which the firm seeks to lock up a major portion of the market to discourage its competitors from expanding and to deter entry. If future demand is known with certainty, for example, and a firm can build enough capacity to supply all the demand, other firms may be discouraged from building capacity. Usually a preemptive strategy requires not only investments in facilities but also in withstanding marginal or even negative short-term financial results.
There are three reasons that capacity might expand in an industry despite overcapacity. The first reason is that some geographic segments are growing faster than average. India and China, in particular, are growing faster than the average world-wide demand and will add capacity to meet local needs. Second, some industry competitors can afford to add capacity under the pricing umbrella of other competitors. This is going on today in North America. Honda is just opening a new assembly plant in Indiana. Honda is operating under the pricing umbrella set by the UAW and its big three auto plants. Third, virtually all industries see capacity expansion through what we call the “learning curve” effect. A plant in operation can become more productive each year simply by learning to do things more efficiently. This increase in productivity causes the plant capacity and, therefore, the industry capacity to increase.
An established firm can enter a new product market through acquisition or internal development. The firm is likely to use internal development to enter markets whose requirements close to the firm’s existing set of resources and capabilities, whereas the firm may turn to acquisitions to enter markets that are far from its current
resource base. The existing businesses might have developed a cost advantage over potential entrants due to their economies of scale. Incumbent firms may erect tactic barriers and cut prices if and when new suppliers enter the market. Some industries have very high start-up costs or a high ratio of fixed to variable costs. Some of these costs might be unrecoverable if an entrant opts to leave the market.

Independent Study--Competitive Strategy Chap 12&13 competitive strategy in declining industries and competition in global industries

There have always been industries in decline. Structural determinants of competition in decline. Demand declines and the characteristics of the market segments have a major influence on competition in the decline phase. The degree of uncertainty about whether demand will continue to decline is one of the most potent factors affecting end-game competition. In today’s world of little or no economic growth and rapid technological change, more and more companies are being faced with the need to cope with an end game. Demand decline occurs for several reasons, including technological advances, changes in lifestyles or tastes, and substitute products. Examples include refrigerators replacing iceboxes, calculators taking the place of slide rules, and more recently, handheld electronic organizers replacing traditional paper organizers. Expectations concerning future demand affect the competitive environment that develops. How fast an industry declines depends on how quickly companies withdraw capacity.
To stay alive in a declining industry, companies must avoid battling for market share. They also have to control costs, keep customers coming back with flawless service and improved products, and maintain employee goodwill.
Alternative strategies in decline include: A firm might consider adopting a leadership strategy if it is produces its product cost-efficiently, is clearly identified as the industry leader, or sells a well-accepted, branded product.
Firms can achieve leadership positions by building market share through competitive pricing, or they can reduce competition by acquiring their rivals’ product lines.
A niche strategy is appropriate if groups of loyal customers can be served profitably. For example, Harley-Davidson survived by not trying to be everything to everybody and instead concentrating on a niche market. It left most of the motorcycle market to the Japanese and sold high-horsepower “hogs” to a small segment of motorcycle enthusiasts—and became quite profitable in the process. Harvest manage a controlled disinvestment, taking advantage of strengths. Divest quickly this strategy is to sell a business before the value of its assets shrinks too much. Companies that do not enjoy leadership positions, cannot serve differentiated groups of customers, or cannot achieve the lowest break-even points in their industries should consider this alternative.
Look at the issue of how you can decide whether you exit a declining industry early or stay around to make profit.
To analyze competition in a global industry, it is necessary to examine industry economics and competitors in the various geographic or national markets jointly rather than individually. The environmental changes and strategic innovations of firms can trigger global competition. Firms can participate in international activities through licensing, export and foreign direct investment. The sources of global competitive advantage include: comparative advantage which is the firm has advantage to world position.

Independent Study--Competitive Strategy Chap 9,10&11 competitive strategy in fragmented,emerging and maturity

Porter (1980) introduced three generic strategies that businesses could carry out to enhance performance and outdistance competitors. Fragmented - an industry in which "no one firm has significant market share and can strongly influence industry outcomes" (Porter 1980, 191). Fragmented industries have many small competitors and have structural factors that inhibit concentration. The reasons for the fragmentation may include:1. Low barriers to entry. 2. Highly specialized market for goods and services requires extreme specialization by firms. 3. High transportation costs. 4. Lack of standardization, or lack of need for it. 5. High need for trust and local firms often inspire more trust in their customers. These firms face greater uncertainty in the market environment. The advantage small firms have over large firms in fragmented industries can be enhanced where local contact, local image, and personal service are an important part of the market environment. To overcome fragmentation, Porter suggested three strategies: Cost Leadership, Differentiation, and Focus. Become a low-cost producer; Provide more service with the sale and add value to the customer; Increase customer value via vertical integration; Specialize by product type; Specialize by customer type; Operate "bare bones/no frills" business; Focus on a limited geographic area. Examples of fragmented industries include: book publishing, restaurant industry, retailer, computer component and so on. Emerging industries are newly formed or re-formed industries that have been created by technological innovations. Some new products are so innovative. An example of emergence. First there was Radio Shack and a host of others and now HP has acquired Compac to lay claim to a 26% share of the PC manufacturing business. Automobiles are a mature industry with 3 or 4 major players each needing to maintain a 25% market share to survive and thrive.

Independent Study--Competitive Strategy Chap 7&8 Structural Analysis Within industries&Industry Evolution

In industry structural analysis, the primary task is to identify the company's key strategic dimensions because it provides an overall picture of the firm's position in the industry. Strategic dimension--specialization, brand identification, push versus pull, channel selection, product quality, technological leadership, vertical integration, cost position, service, price policy, financial leverage, relationship with parent company and relationship to host government.
We need to identify strategic groups, evaluate the profitability of each group and firm within a group.
How to identify strategic groups? First,define the industry and competitors. Second, find all the firms that compete in the industry. For example,Safeway is in Grocery industry and the competitors include The Kroger Co.,SUPERVALU Inc.and Wal-Mart Stores Inc. Then, assess the height and composition of mobility barriers. Having high mobility barriers can deter companies from entering the industry or the market. Moreover, assess the relative strength of buyers and suppliers. Also, assess the potential threat of sub products and different quality levels. Finally, evaluate the rivalry among firms within specific strategic groups, evaluate the level of direct competition for the same customer, evaluate the degree to which products are differentiate, evaluate the size and number of firms in a strategic groups and identify the extent to which strategies diverge.

For predicting the probable course of industry evolution is the familiar product life cycle. An industry passes through a number of phases or stages--introduction, growth, maturity and decline. Apple. INC., has been a very successful company by introduced new products--iPod,iTune,iPhone and iPad. First, introduce new product, penetration of the product, then, growth stop, finally, new substitute innovation product appear. there are five important external reasons why long-run industry growth changes which include particular age groups buyers, changes in the lifestyle, tastes, compare the cost and quality change in the relative position of substitutes, penetration of the new customers rather than repeat customers and product change. To promote industry growth it can enhance product differentiation, increase demand by using advertising, mew marketing channels and lower the cost of the product or government policy change. Industry structural change can be influenced by firms' strategic behavior.

Independent Study--Competitive Strategy Chap 6 Strategy Toward Buyers and Suppliers

Most of the industries sell their products or services to different buyers. These buyers have different purchasing needs and structural bargaining power. Buyers have more bargaining power when:Few buyers chasing too many goods,Buyer purchases in bulk quantities,Product is not differentiated,Buyer’s cost of switching to a competitors’ product is low,Shopping cost is low,Buyers are price sensitive,Credible Threat of integration. Moreover, Large buyers, they will have significant leverage to negotiate lower prices and other favorable terms. However, not all buyers will have the same degree of bargaining power or be as sensitive to price, quantity, or service. For instance, apparel makers face significant buyer power when selling to large retailers like Wal-Mart or department stores, but face a much more favorable situation when selling to smaller specialty shops.
Suppliers are more powerful when:Suppliers are concentrated and well organized,a few substitutes available to supplies,their product is most effective or unique,switching cost, from one suppliers to another, is high, you are not an important customer to Supplier. When suppliers have more control over supplies and its prices that segment is less attractive. It is best way to make win-win relation with suppliers. It’s good idea to have multi-sources of supply.

Independent Study--Competitive Strategy Chap 3 A framework for competitor analysis

It is an important part of strategic planning in concentrated industries competitor analysis. Competitor Analysis is an assessment of the strengths and weaknesses of competitors. Analyzing your competitors will not only help understand their strengths, but also prepare you for their next move. Understanding their strategies can be very helpful while developing your own strategies. The framework is based on four key aspects of a competitor: Future goals, assumptions, current strategy, and capabilities.
Future Goals--to provide clues on its status. Moreover, Risk tolerance, management incentives, backgrounds of the executives, the stated goals and objectives in the financial statements. In addition, any recent strategic changes by the competitor that may influence the competing business unit. A firm is building market share in a specific market, overall business, entering a new market or even just maintaining profitability. For example, Facebook is a social network which function is to reconnect with friends, meet new friends, and have conversation online. Now, Facebook is trying to add online chatting and maybe it will have professional referral function later.
Assumptions--understand about overall market. for example,trend in the market, products, and consumers.) If in the past the industry introduced a new type of product that failed, the industry executives may assume that there is no market for the product. Such assumptions are not always accurate and if incorrect may present opportunities. For instance, Netflex was successfully launched the online movie market and gain the market share from Blockbuster.
Current Strategy--understanding of a competitor's strategy. For example, annual reports will often indicate what the company’s current strategy is and how close the company is to fulfilling it. Similar information can also be obtained from press releases and analyst reports. It is necessary to look at the current use of capital and cash flow to determine what the actual strategic goal may be. In addition, the competitor’s current recruitment activity, any mergers and acquisitions and any marketing activity may indicate what its current strategy. For example, Southwest Airlines, which pursued a "no-frills, point-to-point service and which turned out to be a highly innovative, industry-changing and value-creating strategy. Another example is Microsoft acquisitions Skype to gain more customers.
Capabilities--give a firm an idea of how a competitor can achieve its strategy and objectives, and also give a firm a timeline for when it would expect competitors to pursue certain activities. An analysis of a competitor’s resources is much like a SWOT analysis,it can also help the organization to avoid the same mistakes that competitors had made.

Independent Study--Competitive Strategy Chap 4&5 market signals and competitive moves

There are two different functions of market signals:Truthful signal which indications of a competitor's motives, intentions, or goals. Bluff signal is to mislead other firms to take action or not.
The important forms of market signals include formal communication made by a competitor that either will or will not take action. For example, a firm issue bonds which indirectly indicates that it needs capital. Also,it cause price war. For example, cell phone business use cutting price on their unlimited calling plan. Airlines cutting fares. In addition, test of competitor sentiments. For example, an auto firm announce a new warranty program to see how others will react. Moreover, announcements to avoid costly simultaneous. A firm might announce expansion plans wee in advance. For instance, Apple announced the new facility will start to build. Another function of announcements can be communication with the financial community. For example, improving the reputation of the company by boosting stock price. A firm announces sales figures to misleading the competitors. Competitors discuss their own moves in public.
The fighting brand is also a form of signal. A firm can introduce a brand that has the effect. For example, Safeway has produce its own organic products with different brand names. Target also introduced a new brand called "up&up" products to compete with other competitors.
Market signals can help a firm to build a strong strategic position and have the knowledge about competitors.

Selecting the right competitive move involves finding threatening or non-threatening moves. Offensive and defensive strategies are threatening moves. Offensive strategies involve strategic moves that improve the firm's position relative to that of rival firms in the industry. Defensive strategies are those moves that reduce the ability of rival firm strategies to threaten the firm's competitive strength or organizational resources. Nonthreatening moves--the least risk if such moves can be identified. There are moves that competitors do not even notice or not be concerned about them. For example, Tiffany&Co or Cartier sell high-quality, high-priced jewelry. Target sell low-price jewelry. Therefore, Tiffany&Co or Cartier will not perceive Target as competition at all. It did not threaten their image of quality, nor did it threaten their position with jewelers.

Independent Study--Competitive Strategy Chap 2 Generic Competitive Strategies

Competitors are always there. A firm position itself for achievement and strengths of its competitive advantage. There are three generic strategies --overall cost leadership, differentiation, and focus.
The first strategy--overall cost leadership. The firm sells its products either at average industry prices to earn a profit higher than competitors or below the average industry prices to gain market share. For example, foxconn uses tight control of labor costs,minimization of operating expenses, reduction of input costs and lower distribution costs to success in the OEM industry. Another example is Wal-Mart. Wal-Mart is able to lower selling price due to the lower costs.
The second strategy--differentiation. A firm offer unique attributes such as services and quality products that are valued by customers. Possible strategies to achieve product's differentiation include brand image--Apple's ipad, iphone. maintain technology--Microsoft windows. Service--Google search engine. Quality/Value--Louis Vuitton leather products. Customers see the product as different from competing products and they like the product features, customers are willing to pay a premium for these features. Apple's products are the best example for the differentiation strategy. Apple provides unique products, high price,and not easy for competitor to copy.
The third strategy--focus. Focusing involves concentrating on a particular customer, product line, geographical area, channel of distribution, stage in the production process, or market niche. Also, meet the customer's needs. For example, Whole Food store sells organic foods, Subway sandwiches have customers select their own topping for sandwiches.
Porter's generic strategies provide a set of methods that can be used singly or in combination to create a dependable business strategy.

Independent Study--Competitive Strategy Chap 1

Attractiveness determine the competitive intensity in the industry and refers to the overall industry profitability. Different industries can sustained different levels of profitability. The more the company knows about the existing market, the more its strategy can increase its share in the market directly. Rivalry naturally develop among the company with competitors in the same market.
The five competitive forces--entry, threat of substitution, bargaining power of buyers, bargaining power of suppliers, and rivalry among current competitors. The Model provides a simple perspective for assessing and analyzing the competitive strength and position of a corporation or business organization.