Competitive Business Strategies PDF

III. COMPETITIVE BUSINESS STRATEGIES never stop daring III. COMPETITIVE BUSINESS STRATEGIES Introduction Within a corporation, each business activity can also have its own competitive strategy. According to Mr. Porter, the goal of competitive strategy is to build sustainable compet...

III. COMPETITIVE BUSINESS STRATEGIES never stop daring III. COMPETITIVE BUSINESS STRATEGIES Introduction Within a corporation, each business activity can also have its own competitive strategy. According to Mr. Porter, the goal of competitive strategy is to build sustainable competitive advantage and to secure a good position on the market. This competitive advantage can be built: On a lower costs than competitors And/or on a differentiation of its value proposition. The competitive scope can be Broad (industry wide) To a specifgic segment or niche 40 III. COMPETITIVE BUSINESS STRATEGIES Introduction – Porter’s generic business strategies SOURCE OF COMPETITIVE ADVANTAGE COSTS DIFFERENTIATION SCOPE OF COMPETITIVE ADVANTAGE ENTIRE MARKET A SPECIFIC NICHE 41 III. COMPETITIVE BUSINESS STRATEGIES A. Cost leadership It consists of offering a quality offer comparable to its competitors at costs significantly lower than them. This allows either: Pass on lower costs to prices Maintain prices to increase margins Or combine the two 42 III. COMPETITIVE BUSINESS STRATEGIES A. Cost leadership There are two principal sources of cost leadership : A volume strategy: produce as much as possible to offer competitive prices and gain market share (economy of scale, critical size, experience effect). An efficiency strategy: improve the mode of production (produce better ) in order to optimize the quality-price ratio of products. Low cost access to technologies / resources Superior design/production processes 43 III. COMPETITIVE BUSINESS STRATEGIES A. Cost leadership Cost-leadership involves becoming the lowest-cost organisation There is only ONE cost leader ! 44 III. COMPETITIVE BUSINESS STRATEGIES Introduction – Porter’s generic business strategies SOURCE OF COMPETITIVE ADVANTAGE COSTS DIFFERENTIATION SCOPE OF COMPETITIVE ADVANTAGE ENTIRE OVERALL COST LEADERSHIP MARKET WALMART McDONALDS LECLERC A COST FOCUS SPECIFIC NICHE RALLY’S (US Hamburger chain with limited menu and only drive service) 45 III. COMPETITIVE BUSINESS STRATEGIES B. Differentiation The company proposes an offer adapted to the customer but differentiated from that of the competition. We distinguish : Upward differentiation strategies Enhancing a product or service to increase its perceived quality, add features, or position it in a more premium segment. Superior Quality & Exclusivity. Downward differentiation strategies. modifying a product or service to make it more affordable or accessible to a broader market segment. This strategy often includes simplifying the product, reducing features, or lowering the price to attract cost-conscious consumers 46 III. COMPETITIVE BUSINESS STRATEGIES Introduction – Porter’s generic business strategies SOURCE OF COMPETITIVE ADVANTAGE COSTS DIFFERENTIATION SCOPE OF COMPETITIVE ADVANTAGE ENTIRE BROAD COST LEADERSHIP BROAD DIFFERENTIATION MARKET WALMART LOUIS VUITTON McDONALDS CHANEL LECLERC A COST FOCUS DIFFERENTIATION FOCUS SPECIFIC NICHE RALLY’S (US Hamburger CURVES (Chain of fitness chain with limited menu clubs exclusively designed and only drive service) for women) 47 IV. DEVELOPMENT STRATEGIES never stop daring IV. DEVELOPMENT STRATEGIES In order to ensure its development and sustainability , the company must choose a growth strategy. Several possibilities are then available to the company: o Internal (organic) growth o External growth o Joint growth o Internationalization 49 IV. DEVELOPMENT STRATEGIES A. Internal growth (organic growth) It corresponds to the development of the company through the mobilization of its internal resources: its know-how, its skills, its financial resources, etc. Ex: Acquisition of machines, new premises, recruitment of new members, development of new technologies. 50 IV. DEVELOPMENT STRATEGIES A. Internal growth (organic growth) Accentuates the specialization of the Promotes an increase in market share. company and therefore its vulnerability. Allows you to preserve the independence of Requires significant resources: internal the company : THE manager remains the growth weighs heavily on equity. main actor in the growth of his company (no dilution of power, nor upheaval of the Implementation deadlines and adaptation structure). (investments, staff training): internal growth sometimes causes a long response The evolution of the structure is gradual, time compared to the market (time that which facilitates the acceptance of change competition can use to thwart the and provides security for staff ( job security, company's efforts). promotion). 51 IV. DEVELOPMENT STRATEGIES B. External growth It consists of taking total or partial control of another company in order to develop: new know-how, new markets, etc. It can be done in several ways: Merger: two companies combine to form one. Companies A and B legally disappear and a new company C is created. Ex: Assedic and ANPE merged to create Pôle Emploi. Acquisition: one company takes control of another, leading to its disappearance. A acquires B to become A. Company B legally disappears. Ex: Mittal acquired Arcelor. Equity investment: a company buys part of the capital of another (minimum 10%). 52 IV. DEVELOPMENT STRATEGIES B. External growth There are different forms of a merger/acquisition: Horizontal merger/acquisition: merger/acquisition of directly competing companies and/or operating in the same field of activity. Objective: reach critical size and increase its market power. Ex: Lafarge-Holcim (2014). → falls under EU horizontal merger guidelines ! Vertical merger/acquisition: company merges/acquires with upstream and/or downstream of the sector. Objective: overcome entry barriers and control costs. Ex: In 2017, EDF bought Areva's nuclear reactor business. 53 IV. DEVELOPMENT STRATEGIES B. External growth Concentric merger/acquisition: bringing together companies from different sectors but with synergies (technological, commercial). Ex: In 2014, Numéricâble bought SFR mobile to form the Altice France group. Conglomerate merger/acquisition: bringing together companies whose businesses are completely different in order to diversify risks. Ex: The Bolloré group, whose historical activity is carbon paper, took control of Havas Média France in 2007 (communication). 54 IV. DEVELOPMENT STRATEGIES B. External growth At the financial level, the partners must agree on the value of the companies and the conditions of the merger. In France we distinguish : Offre Publique d’Achat (OPA) (Public Tender Offer) : The absorbing company publicly addresses the shareholders of the absorbed company to offer them the repurchase of a specific quantity of securities at a price generally higher than the quotation. Offre Publique d’Échange (OPE) (Public Exchange Offer) : in this context, the shares are exchanged with shares of the absorbing company. 55 IV. DEVELOPMENT STRATEGIES B. External growth When the managers agree the public offer is friendly ; otherwise it becomes hostile. However, the reaction of shareholders remains uncertain (opportunities/threats). Share prices of the acquired company (target) often rise; but the share price of the acquiring company may potentially fall (risk integration, dilutionof shareholder equity,…= 56 IV. DEVELOPMENT STRATEGIES B. External growth development of the company. Loss of independence and control over capital. Synergies linked to the merger of complementary companies. High purchasing cost. The profits do not always match the investment (overestimation of gains Possibility of circumventing barriers to and potential synergies). entry in certain markets. Appropriation of skills and/or patents. Difficulty integrating the purchased company (post-merger integration) (organizational Promotes reaching critical size. difficulty , social conflicts, change in power Reduction of competition. relations, questioning of the corporate culture, Risk diversification. etc.). 57 IV. DEVELOPMENT STRATEGIES C. Joint growth It consists of the company cooperating with one or more other companies, while remaining legally independent. Each of the companies commits part of its resources to carry out a common project. This collaboration can be done between companies: Competitors = Alliance or non-competing = Partnership. 58 IV. DEVELOPMENT STRATEGIES C. Joint growth Scale alliance Competing companies Access alliance = Collusive alliance ALLIANCES Complementary alliance 59 IV. DEVELOPMENT STRATEGIES C. Joint growth 1) Scale alliances: Scale alliances are partnerships formed to achieve economies of scale. The primary goal is to increase the volume of production or service delivery, which can reduce costs per unit and enhance efficiency. Example : Toyota and Subaru have collaborated on the development of shared platforms and components to benefit from economies of scale in manufacturing. 60 IV. DEVELOPMENT STRATEGIES C. Joint growth 2) Access alliances: Access alliances are partnerships aimed at gaining access to new markets, technologies, or resources that a company would otherwise find difficult to reach on its own. Example : Pfizer might partner with a local company in a country where it lacks distribution networks to enter that market. 61 IV. DEVELOPMENT STRATEGIES C. Joint growth 3) Collusive alliances: collaboration between firms to coordinate their actions in a way that reduces competition, often to the detriment of consumers. These alliances can involve anti-competitive practices. Example : The global air cargo price-fixing scandal, where major airlines were found to have colluded to fix prices for air cargo services, leading to legal actions and fines from regulatory authorities. 62 IV. DEVELOPMENT STRATEGIES C. Joint growth 4) Complementary alliances: partnerships between firms that have complementary resources, capabilities, or products. These alliances aim to create synergies where the combined resources produce a greater value than the individual efforts. Example : Microsoft and Intel have historically partnered to ensure compatibility between Intel’s processors and Microsoft’s operating systems, enhancing the performance and appeal of their combined products. 63 IV. DEVELOPMENT STRATEGIES C. Joint growth Subcontracting Non-competing companies Concession, License, = Franchise Joint venture (Joint Venture) PARTNERSHIPS or GIE (Economic Interest Group) 64 IV. DEVELOPMENT STRATEGIES C. Joint growth 1) Subcontracting: a company (the principal) entrusts part or all of its production to another company. This business strategy can take two forms: Specialty subcontracting : the subcontractor is responsible for part of the production, in particular that requiring particular technology or know-how (better quality for low manufacturing costs). Capacity subcontracting : in the event of high demand, a company entrusts excess production to a partner instead of making a costly investment. 65 IV. DEVELOPMENT STRATEGIES C. Joint growth 2) Franchise/concession Franchise: contract by which an independent company (franchisee) benefits from the brand, know-how and assistance of another (franchisor) in return for a fee (severance pay + part of the turnover generated). Concession: contract which links a supplier to a merchant, involving the reservation of products , in exchange for certain obligations (sales quotas, participation in various promotional actions). 66 IV. DEVELOPMENT STRATEGIES C. Joint growth 3) Joint venture / EIG The joint venture: is formed by two or more companies, sometimes of different nationalities, which create a joint subsidiary. The Economic Interest Group (EIG): is an agreement established between two or more companies, aimed at grouping resources into a new legal entity with a view to carrying out joint activities. 67 IV. DEVELOPMENT STRATEGIES C. Joint growth Size effect. Confidentiality difficult to protect by allying with a competitor. Sharing skills and knowledge. Pooling of different costs. An alliance can hide a takeover Risk pooling. strategy on the part of the partner. Access to markets by bypassing entry barriers. A power imbalance between partners The development or access to can negatively impact relationships technologies. with a dominant partner. 68 IV. DEVELOPMENT STRATEGIES D. Internationalization Internationalization is often carried out in parallel with growth strategies in the company's domestic market. It is often carried out in stages to achieve multinationalization. Entry into international markets can be done in lany ways 69 IV. DEVELOPMENT STRATEGIES D. Internationalization 1) Export : the company sells its products abroad but continues to produce in its country of origin (Ex: Wine). Direct export Indirect export (via an intermediary: exporting agent) Associated export (group of exporters ) Benefits Challenges - Low resource commitment - No benefits from being local - Low risk - Dependence on others - Fast - Transport costs - Control of production & sales - Slow reaction to changes in customer demands 70 IV. DEVELOPMENT STRATEGIES D. Internationalization 2) Contractual internationalization : consists of penetrating a foreign market by establishing contracts with local players (license, franchise, joint venture). This practice is common in countries with high political risk or those that do not allow foreign direct investment (India, China). Benefits Challenges - Limited financial risk - Hard to find partner - Shared risks - Managing relationships - May be required - Potential loss of control (sales) - Local know-how - Imitation is possible risk 71  IV. DEVELOPMENT STRATEGIES D. Internationalization 3) Direct internationalization : consists of opening subsidiaries abroad to produce directly in the targeted market (FDI = Foreign Direct Investment). Ex: The Renault group has a factory in Curitiba in Brazil, a factory in Morocco… Benefits Challenges - Total control - Substantial investment - Global coordination - High commitment to host country - Potential access to state aid - Hard to predict costs or preferential tax treatment - If done via M&A – some potential post-merger M&A risks 72 IV. DEVELOPMENT STRATEGIES D. Internationalization Access to new markets, new outlets for Increased political, economic and financial production. risks. Circumvention of protectionist barriers. Difficulty adapting products to different markets. Proximity to raw materials. Management difficulty and organizational complexity. Access to new resources in capital and men. Advantageous taxation. Foreign exchange risk (appreciation or depreciation of the host country's currency). More flexible regulations. Risks related to property protection. Lower labor costs… 73 CONCLUSION Businesses can follow multiple strategies at the same time. Strategic decisions will depend on the importance of financial, human and material resources to be devoted to the development methods chosen. 74