STRATEGIC QUOTES…
“Successful business strategy is about actively shaping the
game you play, not just playing the game you find.”
Adam Brandenburger & Barry Nalebuff
“The essence of strategy lies in creating tomorrow’s
competitive advantages faster than competitors can mimic
the ones you possess today.” Gary Hamel & C. K. Prahalad
“Competitive strategy is about being different. It means
deliberately choosing to perform activities differently or to
perform different activities than rivals to deliver a unique
mix of value.” Michael Porter
“Strategies for taking the hill won’t necessarily hold it.”
Amar Bhide
THE TOWS MATRIX
WEIHRICH 82
INTERNAL FACTORS
STRENGTHS
WEAKNESSES
---------------------------------------------
OPPORTUNITIES
EXTERNAL
FACTORS
SO STRATEGIES
WO STRATEGIES
Use Strengths to take
advantage of Opportunities
Take advantage of
Opportunities by
overcoming Weaknesses
---------------------------------------------
ST STRATEGIES
Uses Strengths to avoid
Threats
WT STRATEGIES
Minimize Weaknesses
and avoid Threats
THREATS
---------------------------------------------
HELPS US TO THINK ABOUT ALTERNATIVE STRATEGIES WE NORMALLY
WOULDN’T CONSIDER. PORTER’S COMPETITIVE STRATEGIES
PORTER’S COMPETITIVE STRATEGIES
ISSUE 1 -- SHOULD WE OFFER “SUPERIOR VALUE” BY…
A.
OFFERING A GOOD PRODUCT AT A LOW PRICE, OR
B.
OFFERING A BETTER PRODUCT THAT IS WORTH PAYING
MORE FOR?
ISSUE 2 – SHOULD WE COMPETE
A. “HEAD TO HEAD” WITH OUR MAJOR COMPETITORS, OR
B. SHOULD WE FOCUS ON A NICHE IN WHICH WE CAN
SATISFY A LESS SOUGHT-AFTER BUT STILL PROFITABLE
SEGMENT OF THE MARKET?
PORTER’S GENERIC STRATEGIES
PORTER 1990
COMPETITIVE ADVANTAGE
LOWER COST
DIFFERENTIATED
---------------------------------------------
BROAD TARGET
COMPETITIVE
SCOPE
COST
LEADERSHIP
DIFFERENTIATION
---------------------------------------------
COST
FOCUS
DIFFERENTIATION
FOCUS
NARROW TARGET
---------------------------------------------
PORTER’S GENERIC STRATEGIES
PORTER 1990
LOW-COST LEADERSHIP
Lower costs than competitors
Targeted to a broad cross-section of the market
DIFFERENTIATION
Offer buyers something different from competitors
Targeted to a broad cross-section of the market
FOCUSED LOW-COST
Lowest cost in serving a niche market
Targets a narrow market niche where buyer needs and preferences are distinctly different
from the larger market
FOCUSED DIFFERENTIATION
Offer niche buyers something customized to their needs and preferences
Targets a narrow market niche where buyer needs and preferences are distinctly different
from the larger market
LOW-COST LEADERSHIP STRATEGY
NO ONE CAN MAKE IT FOR LESS COST
STANDARDIZED PRODUCTS & SERVICES WITH LIMITED OPTIONS
GOOD VALUE FOR BUDGET PRICES
NO FRILLS OPERATING CULTURE (Lean and Mean!!!)
HIGH PRODUCTIVITY PER EMPLOYEE – THE EFFICIENCY LEADER
AGGRESSIVELY SEEKS COST-CUTTING INNOVATIONS
ACCEPTS LOW MARGINS IN RETURN HIGH VOLUME SALES
LOW-COST STRATEGIES ARE MOST SUCCESSFUL WHEN…
THE INDUSTRY PRODUCES STANDARDIZED PRODUCTS OR SERVICES
THERE AREN’T VERY MANY WAYS TO DIFFERENTIATE THE PRODUCT
MOST BUYERS USE THE PRODUCT IN SIMILAR WAYS
BUYERS INCUR LOW SWITCHING COSTS IN CHANGING SUPPLIERS
BUYERS ARE LARGE & HAVE POWER TO BARGAIN DOWN PRICES
PRICE COMPETITION IS A DOMINANT COMPETITIVE FORCE
RISKS OF A LOW-COST PRODUCER
COST ADVANTAGES TIED TO LARGE TECHNOLOGICAL INVESTMENTS MAY
BACKFIRE IF THE TECHNOLOGY SUDDENLY BECOMES OBSOLETE
TECHNOLOGICAL BREAKTHROUGHS CAN ALSO GIVE RIVALS THE CHANCE
TO ACQUIRE THE SAME COST REDUCTIONS WE ENJOY, OR TO DRIVE
COSTS EVEN LOWER THAN WE CAN PRESENTLY ACHIEVE
RIVALS MAY FIND IT EASY OR INEXPENSIVE TO IMITATE OUR FIRM’S LOWCOST METHODS. IF THERE ARE NO BARRIERS OR PROTECTIONS, OUR
COST ADVANTAGE MAY BE LOST QUICKLY
BUYER PREFERENCES AND TASTES MAY SHIFT TOWARD QUALITY,
SERVICE, PERFORMANCE, OR OTHER DIFFERENTIATING FEATURES
STRATEGIC COST ANALYSIS AND
ACTIVITY-COST CHAINS
SUPPLIER-RELATED ACTIVITIES
PRICES PAID FOR RAW MATERIALS, ENERGY, PARTS, TRANSPORTATION
MANUFACTURING- (OR PROCESS) RELATED ACTIVITIES
AGE & EFFICIENCY OF FACILITIES, ECONOMIES OF SCALE, WAGE RATES,
PRODUCTIVITY, ADMINISTRATIVE OVERHEAD, ETC.
DISTRIBUTION-RELATED ACTIVITIES
MARK UPS OF DISTRIBUTORS, RETAILERS, SALES & ADVERTISING,
TRANSPORTATION AND DISTRIBUTION, ETC.
HOW DOES YOUR FIRM’S COST POSITION COMPARE WITH YOUR RIVALS?
ANALYSIS OF ACTIVITY-COST CHAINS…
AN EXAMPLE
ACTIVITY-COST ANALYSIS
SUPPLY CHAIN COSTS
Cost of 1 ounce of RM #1
Storage & Insurance & Trans
Total Cost per ounce of RM (#1)
Ozs of RM (#1) needed per unit (20 oz)
OURS
RIVAL 1
$ .61
--$ .61
$12.20
$ .553
.025
$ .578
(20.5 oz) $ 11.849
.057
-.025
.032
.351
Cost of 1 lb of RM #2
Storage & Insurance & Trans
Total Cost – per lb of RM (#2)
Lbs of RM (#2) needed per unit (13 lbs)
$ .51
--$ .51
$ 6.63
$ .495
.025
$ .520
(13.2 lbs) $ 6.864
.015
-.025
-.01
-.234
Cost of 1 foot of RM #3
Storage & Insurance & Trans
Total Cost per foot of RM(#3)
Ft of RM (#3) needed per unit (15 ft)
$ .728
.042
$ .77
$11.55
$ .738
.025
$ .763
$11.445
-.01
.017
.007
.105
SUPPLY CHAIN COST PER UNIT
$ 30.38
$ 30.158
$ .222
(15 ft)
Diff
ANALYSIS OF ACTIVITY-COST CHAINS…
AN EXAMPLE – Contd
ACTIVITY-COST ANALYSIS
OURS
RIVAL 1
Diff
SUPPLY CHAIN COST PER UNIT
$ 30.38
$ 30.158
$ .222
MANUFACTURING & CONVERSION COSTS
Hours needed to make 1 unit
3.0 hrs
Wages/Hour
$ 9.80
Variable Labor Cost/Unit
$29.40
3.1 hrs
$10.29
$31.899
-.1 hr
- $.49
-$2.499
$16.45
$14.11
$2.34
CONVERSION COST PER UNIT
$45.85
$46.009
-$ .159
DISTRIBUTION CHAIN COSTS
Advertising Expenses/unit sold
Sales Commissions/unit sold
Transportation Charges/unit shipped
$ 4.28
$ 1.75
$ 1.10
$ 4.12
$ 2.00
$ .87
$ .16
-$ .25
$ .23
DISTRIBUTION CHAIN COST/UNIT
$ 7.13
$ 6.99
$ .14
ACTIVITY-CHAIN COST/UNIT
$83.36
$83.157
$ .203
Other Overhead Charges/Unit
STRATEGIES FOR IMPROVING RELATIVE COST
DISADVANTAGES
SUPPLIERS
RENEGOTIATE PRICES
INTEGRATE BACKWARDS
TRY LOWER-PRICED SUBSTITUTES
SEEK TRANSPORTATION SAVINGS
SAVE COSTS ELSEWHERE (Later in the chain)
MANUFACTURING/CONVERSION PROCESS
INVEST IN TECHNOLOGICAL IMPROVEMENTS
RELOCATE HIGH COST-PRODUCING ACTIVITIES
INNOVATE – REDESIGN PRODUCTS, PROCESSES, SERVICES
INITIATE INTERNAL COST-SAVING MEASURES
SAVE COSTS ELSEWHERE
DISTRIBUTION
SEEK BETTER TERMS WITH DISTRIBUTORS
INTEGRATE FORWARD
SEEK TRANSPORTATION SAVINGS
BE MORE EFFICIENT WITH ADVERTISING AND COMMISSION COSTS
SAVE COSTS ELSEWHERE (Earlier in the chain)
DIFFERENTIATION STRATEGY
NO ONE CAN BUILD IT BETTER
WE OFFER SUPERIOR QUALITY – IT’S WORTH THE EXTRA COST
WIDE BREADTH OF PRODUCTS & SERVICES TO CHOOSE FROM
FREQUENT INNOVATION IN PRODUCTS, PROCESSES, & SERVICES
CREATION OF ONE OR MORE POINTS OF DIFFERENCE
INTENSIVE ADVERTISING AND SALES EFFORTS
DIFFERENTIATION STRATEGIES ARE MOST SUCCESSFUL WHEN…
THERE ARE MANY POSSIBLE WAYS TO DIFFERENTIATE
BUYER NEEDS AND PREFERENCES ARE DIVERSE
FEW RIVALS ARE FOLLOWING A SIMILAR DIFFERENTIATION STRATEGY
THE FIRM HAS A TRUE DISTINCTIVE COMPETENCY THAT CAN’T BE COPIED
WAYS TO DIFFERENTIATE
RAW MATERIALS & COMPONENTS USED
PRODUCT QUALITY
(GARVIN 87)
PERFORMANCE (operating characteristics; ability to “do the job”)
FEATURES & VARIETY (“bells and whistles,” add-ons or supplements)
RELIABILITY (functions without maintenance)
SERVICEABILITY (easy to repair)
CONFORMANCE (how consistently it meets established standards)
DURABILITY (product life; how long it lasts before it really deteriorates)
AESTHETICS (how does it look, feel, taste, smell, etc)
PERCEIVED QUALITY (the overall reputation it has)
PRODUCTION PROCESSES USED
TRANSPORTATION, DISTRIBUTION, & DELIVERY
SERVICE DELIVERY
TECHNICAL SUPERIORITY OF PERSONNEL
SPECIAL CUSTOMER SERVICES
BENEFITS OF EMPHASIZING QUALITY
STRONG CUSTOMER LOYALTY
LESS VULNERABILITY TO PRICE WARS
CAN CHARGE A HIGHER PRICE WITHOUT LOSING CUSTOMERS
LOWER MARKETING COSTS
LOWER WARRANTY COSTS
THE VALUE GRID
HIGH
PRICE
-------------------------------------------------POOR
PREMIUM
VALUE
VALUE
AVERAGE
VALUE
LOW
ECONOMY
OUTSTANDING
VALUE
VALUE
-------------------------------------------------INFERIOR
SUPERIOR
QUALITY
RISKS OF DIFFERENTIATION
DIFFERENTIATION INCREASES COSTS – WILL BUYERS PAY FOR IT?
CAN COMPETITORS QUICKLY & EASILY COPY YOUR STRATEGY?
DIFFERENTIATION ON THE BASIS OF SOMETHING THAT DOESN’T LOWER
BUYER COSTS OR INCREASE A BUYER’S SENSE OF WELL-BEING OR
SATISFACTION
OVER-DIFFERENTIATING SO THAT THE PRICE IS TOO HIGH, OR THE
QUALITY OR SERVICE LEVELS EXCEED BUYER’S NEEDS & DESIRES
IGNORING THE NEED TO SIGNAL VALUE (ADVERTISE) AND DEPENDING ON
PRODUCT ATTRIBUTES ALONE TO ACHIEVE DIFFERENTIATION
NOT UNDERSTANDING WHAT BUYERS CONSIDER AS TRULY VALUABLE
FOCUS STRATEGY
MADE ESPECIALLY FOR YOU (CUSTOMIZED)
SPECIALIZATION FOR SEGMENTS AND NICHES UNDERSERVED OR
IGNORED BY PRIMARY COMPETITORS
PRODUCT OR SERVICE REQUIRES SPECIAL KNOWLEDGE OR
EXPERTISE TO SERVE THIS UNIQUE POPULATION
COMPETITIVE ADVANTAGE REQUIRES BEING EITHER THE LOW-COST
PRODUCER, OR THE QUALITY INNOVATOR IN THE NICHE
FOCUS STRATEGIES ARE MOST SUCCESSFUL WHEN…
THE FIRM HAS THE SKILLS & RESOURCES TO SERVE THE SEGMENT WELL
THE SEGMENT ISN’T CRUCIAL TO THE SUCCESS OF MAJOR COMPETITORS
THE SEGMENT HAS GOOD PROFIT AND GROWTH POTENTIAL
NO OTHER RIVAL IS ATTEMPTING TO STRATEGICALLY SERVE THE SEGMENT
IN THE SAME WAY
RISKS OF A FOCUS STRATEGY
THE ADVANTAGES OF A BROAD PRODUCT LINE INCREASE
NICHE BUYER PREFERENCES SHIFT TOWARD THE BROAD
MARKET – DEMAND DISAPPEARS
COMPETITORS FIND WAYS OF MATCHING THE FIRM’S SPECIAL
SKILLS , PRODUCTS AND SERVICES
ONLY ONE COST-LEADER AND ONE QUALITY INNOVATOR CAN
SURVIVE AND THRIVE IN MOST SMALL NICHES
ATTRACTIVE SEGMENTS DRAW IN NEW COMPETITORS
NEW COMPETITORS SUB-SEGMENT THE NICHE
USING OFFENSIVE STRATEGIES TO BUILD
COMPETITIVE ADVANTAGE
THREE PHASES:
BUILD-UP PERIOD
SHORT FOR NEW SERVICES
LONG FOR CAPITALLY-INTENSE TECHNOLOGIES
Ideally, an offensive move should build competitive advantage quickly, before
rivals see it and respond to it.
BENEFIT PERIOD
HOW LONG DOES IT TAKE RIVALS TO CLOSE THE COMPETITIVE GAP?
IS THERE ENOUGH TIME TO EARN BACK THE INVESTMENT MADE IN
CREATING THE ADVANTAGE?
The best strategic offensives produce BIG competitive advantages and LONG
benefit periods.
EROSION PERIOD
RESOURCEFUL, COMPETENT COMPETITORS WILL RESPOND WITH
COUNTEROFFENSIVES WHICH ERODE THE FIRM’S COMPETITIVE
ADVANTAGE
Thus, to sustain a competitive advantage, a firm must stay a step ahead of
rivals by mounting one creative offensive after another.
COMPETITION AND OFFENSIVE STRATEGIES
TWO OFFENSIVE PRINCIPLES:
1. CHALLENGING LARGER, ENTRENCHED COMPETITORS WITH AGGRESSIVE
PRICE-CUTTING IS FOOLHARDY….UNLESS YOU HAVE EITHER A COST
ADVANTAGE OR GREATER FINANCIAL STRENGTH, DON’T COMPETE HEADTO-HEAD.
2. CHALLENGING RIVALS WHERE THEY ARE LESS COMPETENT IS MORE LIKELY
TO SUCCEED THAN CHALLENGING THEM WHERE THEY ARE STRONGEST,
ESPECIALLY IF WE HAVE SIGNIFICANT ADVANTAGES IN AREAS WHERE RIVALS
ARE WEAK.
SOME COMMON OFFENSIVE TACTICS
PRICE-CUTTING
COMPARISON ADS
CREATE NEW FEATURES THAT APPEAL TO A RIVAL’S CUSTOMERS
CREATE NEW PLANT CAPACITY IN A RIVAL’S BACK YARD
CREATE NEW MODELS THAT MATCH OR MIMIC THE RIVAL’S
COMPETITIVE ADVANTAGES THAT ENHANCE AN
OFFENSIVE STRATEGY
DEVELOP A LOWER-COST PRODUCT DESIGN
MAKE PRODUCTION CHANGES THAT LOWER COSTS OR ENHANCE
DIFFERENTIATION
DEVELOP PRODUCT FEATURES THAT DELIVER SUPERIOR PERFORMANCE OR
LOWER USER COSTS
GIVE BUYERS MORE RESPONSIVE AFTER-SALE SUPPORT
PIONEER A NEW DISTRIBUTION CHANNEL
BYPASS WHOLESALE DISTRIBUTORS & SELL DIRECT TO END-USERS
DEVELOP A STRONG ADVERTISING/MARKETING EFFORT IN AN
UNDERMARKETED INDUSTRY
A strategic offense must be tied to what firm does BEST – it’s
competitive strengths and capabilities.
OFFENSIVE MARKET LOCATION TACTICS
(WHERE TO COMPETE?)
FRONTAL ASSAULT – ATTACK COMPETITOR STRENGTHS
A GOOD PRODUCT WITH A LOWER PRICE?
BETTER HAVE A TRUE COST ADVANTAGE BEFORE OFFERING A LOWER PRICE
FLANKING MANEUVER – ATTACK COMPETITOR WEAKNESSES
FIND NEGLECTED BUYERS, GAPS IN THE PRODUCT LINE, POOR SERVICE OR QUALITY
CATCH THE RIVAL BY SURPRISE WITH NO READY DEFENSE
BYPASS OR END-RUN – AVOID HEAD-ON CHALLENGES
DON’T CHALLENGE OR ATTACK EXISTING COMPETITORS
FIND THE NICHES WHERE NO FIRM HAS YET GONE…GAIN FIRST MOVER ADVANTAGES
GUERRILLA OFFENSIVES – HIT-AND-RUN APPROACH FOR SMALL CHALLENGERS
SMALL INTERMITTENT RAIDS TO TAKE ADVANTAGE OF TEMPORARY SITUATIONS
WITHDRAW FROM COMPETITION BEFORE LARGE RIVALS REACT—LIVING ON THE CRUMBS
ENCIRCLEMENT – SURROUND THE COMPETITOR WITH COMPETING PRODUCTS/SERVICES
CARRIES A MUCH BROADER PRODUCT LINE, CAN SERVE MORE MARKETS, NEEDS—ONE STOP
SIMULTANEOUSLY ATTACK ON SEVERAL FRONTS (PRODUCTS) – COMPETITOR IS OVERWHELMED
PREEMPTIVE STRIKES – MOVE FIRST TO SECURE AN ADVANTAGEOUS POSITION
EXPAND CAPACITY, CLAIM THE BEST SUPPLIERS, LOCATIONS, DISTRIBUTORS, ETC.
DISCOURAGES RIVALS FROM ATTEMPTING TO DUPLICATE
DEFENSIVE STRATEGIES
TRY TO LOWER THE RISK OF ATTACK OR LESSEN IT’S IMPACT ON YOUR FIRM
DON’T PROVIDE NEW COMPETITIVE ADVANTAGES TO YOUR FIRM, BUT THEY DO
TRY TO SUSTAIN WHATEVER PREVIOUS ADVANTAGES YOU’VE ENJOYED BY
MAKING ATTACKS AGAINST YOUR FIRM UNATTRACTIVE
THESE TACTICS REDUCE SHORT-TERM PROFITABILITY IN AN EFFORT TO
PRESERVE LONG-TERM PROFITABILITY
THREE TYPES OF DEFENSIVE TACTICS:
BLOCK OFF AVENUES OF ATTACK (RAISE BARRIERS)
INCREASE EXPECTATIONS OF RETALIATION
LOWER THE INDUCEMENT TO ATTACK
DEFENSIVE STRATEGIES – 1
FRUSTRATING YOUR RIVALS
CREATING BARRIERS
BROADEN YOUR PRODUCT LINE – TO CLOSE OFF VACANT NICHES AND GAPS
KEEP PRICES LOW ON MODELS THAT CLOSELY MATCH THE RIVAL’S OFFERINGS
SIGN EXCLUSIVE AGREEMENTS WITH DISTRIBUTORS & DEALERS TO KEEP
COMPETITORS FROM USING THEM
MAKE IT HARDER FOR BUYER TO SWITCH TO RIVAL BRANDS…
- GIVE SPECIAL PRICE & VOLUME DISCOUNTS
- USE COUPONS & SAMPLE GIVEAWAYS TO THOSE MOST PRONE TO SWITCH
- MAKE EARLY ANNOUNCEMENTS ABOUT NEW PRODUCTS AND PRICE
CHANGES TO INDUCE POTENTIAL BUYERS TO POSTPONE SWITCHING
INCREASE INVESTMENT IN SCALE ECONOMIES TO REDUCE UNIT COSTS
AVOID SUPPLIERS WHO SERVE COMPETITORS – NEGOTIATE EXCLUSIVE CONTRACTS
CONTROL ALTERNATIVE TECHNOLOGIES THROUGH PATENTING & LICENSING
LIMIT OUTSIDE ACCESS TO YOUR FACILITIES AND PERSONNEL
PURCHASE KEY LOCATIONS AND NATURAL RESOUCE RESERVES TO KEEP THEM FROM
RIVALS
CHALLENGE RIVALS’ PRODUCTS AND PRACTICES IN REGULATORY PROCEEDINGS
ENCOURAGE THE GOVERNMENT TO RAISE BARRIERS, SAFETY AND POLLUTION
STANDARDS, AND FAVORABLE TRADE POLICIES
DEFENSIVE STRATEGIES – 2
INCREASE EXPECTATIONS OF RETALIATION
DEFEND ANY EROSION OF MARKET SHARE WITH DRASTIC PRICE CUTS
ADVERTISE THAT “WE WILL NOT BE UNDERSOLD” – MATCH RIVAL PRICE OFFERS
ACCEPT PROMOTIONAL COUPONS AT FACE VALUE…OR EVEN ADD 10%, ETC.
VIGOROUSLY COUNTERATTACK ANY INTRUSION INTO YOUR MARKET
LOWER THE PROFIT INDUCEMENT FOR RIVALS TO ATTACK
KEEP THE PRICES LOW
CONSTANTLY INVEST IN COST-REDUCING TECHNOLOGIES
MAKE SURE THE RIVAL KNOWS THEY WON’T MAKE A PROFIT IF THEY ATTACK YOU
COOPERATIVE STRATEGIES
WORKING WITH YOUR RIVALS
COLLUSION -- COOPERATION TO REDUCE OUTPUT AND INCREASE PRICES
Explicit Collusion – illegal collusion, conspiring to control the market and prices
Tacit Collusion – no one actually met together and agreed to do anything illegal
TACIT COLLUSION IS MOST LIKELY WHEN:
SMALL NUMBER OF COMPETITORS
FIRMS EXPERIENCE SIMILAR COSTS
ONE FIRM TENDS TO ACT AS THE PRICE LEADER
THERE IS A COMMON INDUSTRY CULTURE THAT ACCEPTS COOPERATION
SALES ARE CHARACTERIZED BY A HIGH FREQUENCY OF SMALL ORDERS
LARGE INVENTORIES & ORDER BACKLOGS ARE THE WAY FLUCTUATIONS IN DEMAND ARE
HANDLED
THERE ARE HIGH ENTRY BARRIERS WHICH EFFECTIVELY KEEP OUT NEW COMPETITORS
“CONSCIOUS PARALLELISM” CAN BE ILLEGAL – IT REDUCES COMPETITION
STRATEGIC ALLIANCES – LEGAL COOPERATION
MUTUAL SERVICE CONSORTIA
JOINT VENTURES
LICENSING AGREEMENTS
VALUE-CHAIN PARTNERSHIPS
STRATEGIC ALLIANCES
REASONS THEY ARE FORMED:
TO OBTAIN ACCESS TO TECHNOLOGY & MANUFACTURING CAPABILITY
TO OBTAIN ACCESS TO SPECIFIC MARKETS
TO REDUCE FINANCIAL RISK
TO REDUCE POLITICAL RISK
TO LEARN NEW CAPABILITIES
A CONTINUUM OF STRATEGIC ALLIANCES
Mutual Service
Consortia
Joint Ventures
Licensing
Value-Chain
Partnerships
==================================
WEAK & DISTANT
STRONG & CLOSE
TYPES OF STRATEGIC ALLIANCES
MUTUAL SERVICES CONSORTIA
Companies pool their resources to gain a benefit that is too expensive to develop alone
Little interaction among partners – partners work together, but don’t share core competencies
A weak and distant alliance
JOINT VENTURES
Most popular alliance – used in international markets to deal with financial/political/legal risks
Creates an independent entity, with responsibilities and risks carefully defined for each party
DISADVANTAGES: loss of control, lower profits,conflict with partners, transfers of technology
Meant to be temporary – ventures have a high failure rate
LICENSING
Allows firms to use of trademarks, brand names, and to make and sell products in foreign lands
Licensee pays a fee in return for technical expertise and legal permissions
A good way to have your product distributed in a country where you don’t have a presence
Carefully manage any access to your distinctive competence, because it can easily be “stolen”
VALUE-CHAIN PARTNERSHIPS
Form a long-term relationship with a key supplier or distributor instead of just using “bids”
More quality & reliability in the chain and more profitability for the suppliers & distributors
REMEMBER, YOUR STRATEGIC ALLIES MAY BECOME YOUR COMPETITORS