Business strategy for trung nguyens tea product

39 Chapter 2: Case study of Trung Nguyen corporation on tea industry 2.1 Case study method .... With general approach, do not go deep into the details of each aspect of business action o

VIETNAM NATIONAL UNIVERSITY, HANOI

HANOI SCHOOL OF BUSINESS

Doan Duc Toan

BUSINESS STRATEGY FOR TRUNG NGUYEN’S TEA

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Table of contents

Abstract……….i

Acknowledgements……… ……….ii

List of figure……….……… ………iii

List of table……… ……… iv

INTRODUCTION 1 Necessity of the thesis 1

2 Purpose 2

3 Key research area 2

4 Methodology 3

5 Constructions of the thesis 5

6 Outline 5

Chapter 1: Literature review 1.1 Strategies 5

1.2 Matching strategy to a company’s situatition 7

1.2.1 Industry Development Stages 10 1.2.2 Firm Capability 26 1.3 Fuction strategies 39

Chapter 2: Case study of Trung Nguyen corporation on tea industry 2.1 Case study method 42

2.2 Data presentation 44

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2.2.7 Capital Investment Requirements 63 3.2.8 Trung Nguyen Company's Competitive Position 642.3 Data analysis 67

Chapter 3: Recommendation and conclusion

3.1 Successions and the action plan 79

LIST OF FIGURES

Figure 2.1 Tea Area

Figure 2.2 Area Under Cultivation

Figure 2.3 Province Growing Tea

Figure 2.4 Tea Out Put

Figure 2.5 Tea Export

LIST OF TABLES

Table 2.1 Growth Of Tea Area

Table 2.2 Growth Of Tea Area In Province Table 2.3 Growth Of Tea Output Table 2.4 Growth Of Tea Export

Table 2.5 Consumptione

Table 2.6 Comparing Price Of End Product Table 2.7 Comparing Price Of Meterial Table 2.8 Comparing Price Of Meterial Table 2.9 Comparing Price Of Meterial

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The first chapter will provide readers with an insight to the research area It will begin by briefly necessity of the thesis that will be followed by the purpose of the study and research questions, key research area, methodology using for research and outline for overall thesis.

1 NECESSITY OF THE THESIS

In recently years, The Vietnam’s economy has been changed comprehensively For

few years ago, state owned company is considered as backbone of national economy, but

now, we need to make an examination of it Appearing in strongly way private enterprise,

specially, enterprises are descended from empty hands By miraculous steps, those

enterprises have stepped up onto glorious dais, up to now, when search total process of

development of it, people only feel extremely miraculous and admire that can not talk by

word

Trung Nguyen is one of those enterprises making miraculousness To start by

empty hand, up to now, Trung Nguyen has become a very famous company When looking

back in the history of Trung Nguyen, one can see that Trung Nguyen had difficult initial

steps, without property, traditional knowledge of business With this difficult start, many

other companies would fell they began their businesses under a much better condition

The history shows that successes only come with people who try one’s best by heart and

brain By this element but is not other things, Trung Nguyen has made a success for itself

I have been lucky having internship in Trung Nguyen for few months, both

acquiring sprit and learning experience With assignment that complete graduated thesis, I

have chosen field tea, area that Trung Nguyen is newcomer

Business strategy is compared as a map that looking it, people can know which path

is both reliable and shortest to succeed Base on that, I have chosen subject: Built business

strategy for tea of Trung Nguyen With general approach, do not go deep into the details of

each aspect of business action of Trung Nguyen, expected outcome will supply more

information for Trung Nguyen about tea industry in what stage of development process

with characteristics and strategies to succeed in that environment

The purpose of this thesis is to study external and internal environment of Trung

Nguyen Company to define the optimal strategy for its tea products

Research Question:

 How to match strategy to a company's situation?

3 KEY RESEARCH AREA

The scope of this thesis is limited to:

- The tea industry in Vietnam and Trung Nguyen Corporation together with its

business strategies

- Strategic choice that such a firm could apply in its own environment

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Methodology usually refers to the general approaches to research while method

refers to techniques for gathering evidence Therefore, methodology is a theory and

analysis of how a research does or should proceed Specific method for the case study will

be described and elaborated upon later in the chapter three of the thesis

4.1 Research Purpose

A research can classify into three basic purposes exploratory, descriptive and

explanatory This study comes with descriptive and explanatory purpose more than

exploratory purposes only

4.2 Research Approach

The research approach of this study is qualitative Qualitative research approaches

have traditional been favored when the main research objective is to improve the

understanding of a phenomenon is, especially when this phenomenon is complex and

deeply embedded in its context Its many methodologies and techniques have helped

researcher get a better grasp of a variety of management situations

4.3 Research Method

Research method were used in this thesis is case study According to theory, a case

study approach should be used when how or why questions are being posed about a

contemporary set of events over which the researcher has little of any control This study is

based on research question of how character and focuses on contemporary sets of events

4.4 Data Collection Method

There are documentary sources, archival records, participant observation, and direct

observation Each of these data sources has their strengths and weaknesses Since no

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single source of data have a complete advantage over all the others and given that the data

sources are highly complementary, and the recommendation by the researchers that a good

case study may want to use as many sources as possible In this study data will be collected

from source: document, archival records, and direct observation

4.5 Data Analysis

There are two forms of analysis for the data collected in a case study: within case

analysis and cross case analysis In my study, the within case analysis will be selected

From examines raw data using many interpretations in order to find linkages

between the research object and the outcomes with reference to the original research

questions

Data reduction: The process of collecting, focusing, simplifying, abstracting, and

transforming the data The purpose is to organize the data so that final conclusions can be

drawn and verified

Data display: Taking the resumed data and displaying it in an organized, as table, diagram,

to conclusion can be more easily drawn

5 CONTRIBUTIONS OF THE THESIS

 Provision of an approach in building business strategy, which helps Trung Nguyen Corporation in guiding its business activities

 Findings of the characteristics of environment of the tea industry in Vietnam, and the position of Trung Nguyen in this industry

 Strategic analyses and recommendations in marketing, product operation, human resource and finance to improve business activities

6 OUTLINE

The thesis is divided into four chapters:

The chapter one will provide readers with an insight to the research area It will begin by

briefly necessity of the thesis that will be followed by the purpose of the study and research

questions, key research area, methodology using for research and outline for overall thesis

The chapter two is a summary of relevant theories connected to the research questions

Chapter three contains a case analysis to Trung Nguyen, including case study method,

analysis and findings of matching strategy to the firm’s company's situation

Chapter four recommendations and conclusions will be presented

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CHAPTER 1: LITTERATURE REVIEW

The chapter summaries theories connected to research questions The literature has been collected to address the research questions

1.1 STRATEGIES

 A strategy is a long term plan of action designed to achieve a particular goal Strategyapplies to many disparate fields, such as: Military strategy, Marketing strategies, Strategicmanagement, Football strategy, Game theoretical strategy, economic strategy, Neuro-linguistic

programming strategy.1

 A strategy in game theory is a sequence of activities and reactions, that fully determine

an agent’s behavior in a game or a business situation The mathematically precise description of

behavior is connected to computer programming and algorithms.2

 In general, the plan or policy for arbitrating between multiple, concurrent requests forthe use of a device Specifically in disk device drivers, the policy for scheduling multiple,

concurrent disk block-read and block-write requests.3

 A strategy is a long term plan for success, to achieve an advantage In force terms this

is the key milestones and targets for the coming year These are based upon the Governments

PPAF requirement.4

 Describes the differentiating activities an organization pursues to gain competitiveadvantage Situated at the center of the Balanced Scorecard system, all performance measures

should align with the organization's strategy Strategy

1 Taken from website: en.wikipedia.org/wiki/Strategy

2 Taken from website: en.wikipedia.org/wiki/Strategy_(game theory)

3 Taken from website: biology.ncsa.uiuc.edu/library/SGI_bookshelves/SGI_Developer/books.html

4 Taken from website: www.devon-cornwall.police.uk/v3/help/glossary.htm

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 Remains one of the most widely discussed and debated topics in the world of modern

organizations.5

 While matching in a dictionary several methods for comparing words can be used.These methods are named strategies and include exact match, regular expression match, andsounder match The available strategies depends on the server, but a special name can be used to

denote a server-default strategy.6

 A plan for the conduct of a major phase, or campaign, within a grand strategy for theoverall conflict A strategy is the basic idea of how the struggle of a specific campaign shalldevelop, and how its separate components shall be fitted together to contribute mostadvantageously to achieve its objectives Strategy operates within the scope of the grandstrategy Tactics and specific methods of action are used in smaller scale operations to

implement the strategy for a specific campaign.7

1.2 MATCHING STRATEGY TO A COMPANY’S SITUATION

According to Thompson & Strickland III (1997), the task of matching strategy to a

company's situation is complicated because of the large external and internal factors

managers have to weigh However, while the number and variety of considerations is

necessarily lengthy, the most important drivers shaping a company's strategic options

fall into two broad categories:

 The nature of industry and competitive conditions.

 The firm's own competitive capabilities, market position, and best opportunities.

5 Taken from website: www.balancedscorecard.biz/Glossary.html

6 Taken from website: www.myrkr.in-berlin.de/dictionary/using.html

7 Taken from website: www.canvasopedia.org/content/canvasopedia/dictionary.htm

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The dominant strategy-shaping industry and competitive conditions revolve around:

1) What stage in his life-cycle the industry is in (emerging, rapid growth, mature,

declining)

2) The industry's structure (fragmented versus concentrated)

3) The nature and relative strength of the five competitive forces

4) The scope of competitive rivalry (particularly whether the company's market is globally

competitive)

The pivotal company-specific considerations hinge on:

1) Whether the company is an industry leader, an up-and-coming challenger, a content

runner-up, or an also-ran struggling to survive

2) The company's particular set of strengths, weaknesses, opportunities, and threats

But even these few categories occur in too many combinations to cover here However, we

can demonstrate what the task of matching strategy to the situation involves by considering

five classic types of industry environments:

1) Competing in emerging and rapidly growing industries

2) Competing in maturing industries

3) Competing in stagnant or declining industries

4) Competing in fragmented industries

And three classic types of company situations:

1) Firms in industry leadership positions

2) Firms in runner-up positions

3) Firms that is competitively weak or crisis-ridden.

According to Miller & Dess (1998), Industry life cycle, a conceptual model that suggests

that a market evolves through the stages of introduction, growth, maturity, and decline

The industry life cycle provide a useful framework for studying business-level strategy

formulation because it provides" shorthand" for the numerous differences in strategic

situations and the behavior appropriate to each

Product life cycles and technological life cycles are well-known, important concepts that

we have attempt to build into our consideration of an overall industry life cycle

However, there are two caveats to bear in mind when considering the industry life cycle

First, the industry life cycle is not intended to be use as a short-run forecasting device

Strategists find it more useful to consider the industry life cycle as a conceptual framework

for understanding what changes might occur over time rather than when they are likely to

occur Second, industry life cycles are reversible and repeatable

1.2.1 Industry Development Stages

The following text will concentrate on characteristics and relevant strategies of four

different stages for industry Four stages are: emerging, maturing, declining fragmented

a- Competing in Emerging Industries

An emerging industry is one in the early, formative state Most company in an emerging

industry are in a start-up mode, adding people, acquiring or constructing facilities, gearing

up production, trying to broaden distribution and gain buyer acceptance (Thompson &

Strickland III, 1997)

Characteristics

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The market is new and unproven; there are many uncertainties about how it will function,

how fast it will grow, and how big it will get

Much of the technological know-how tends to be proprietary and closely guarded, having

been developed in-house by pioneering firms; some firms may file patents in an effort to

secure competitive advantage

Often, there is no consensus regarding which of several competing production technologies

will win out or which product attributes will gain the most buyer favor Until market forces

sort these things out, wide differences in product quality and performance are typical and

rivalry centers around each firm's efforts to get the market to ratify its own strategic

approach to technology, product design, marketing, and distribution

Entry barriers tend to be relatively low, even for entrepreneurial start-up companies;

well-financed, opportunity-seeking outsiders are likely to enter if the industry has promise for

explosive growth

Firms have little hard information about competitors, how fast products are gaining buyer

acceptance, and users' experiences with the product; there are no trade associations

gathering and distributing information

Since all buyers are first-time users, the marketing task is to induce initial purchase and to

overcome customer concerns about product features, performance reliability, and

conflicting claims of rival firms

Many potential buyers expect first-generation products to be rapidly improved, so they

delay purchase until technology and product design mature.firms have trouble securing

ample supplies of raw materials and components (until suppliers gear up to meet the

industry's needs)

Many companies, finding themselves short of funds to support needed R&D and get

through several lean years until the product catches on, end up merging with competitors

or being acquired by outsiders looking to invest in a growth market

Strategies

- Try to win the early race for industry leadership with risk-taking entrepreneurship and a

bold, creative strategy Broad or focused differentiation strategies keyed to product superiority

typically offer the best chance for early competitive advantage

- Push to perfect the technology, to improve product quality, and to develop attractive

performance features

- Try to capture any first-mover advantages associated with more models, better styling,

and early commitments to technologies and raw materials suppliers, experience curve effects,

and new distribution channels

- Search out new customer groups, new geographical areas to enter, and new user

applications Make it easier and cheaper for first-time buyers to try the industry's first-generation

product

- Gradually shift the advertising emphasis from building product awareness to increasing

frequency of use and creating brand loyalty

- As technological uncertainty clears and a dominant technology emerges, adopt it quickly

While there's merit in trying to pioneer the "dominant design" approach, such a strategy carries

high risk when there are many competing technologies, R&D is a costly, and rapidly moving

technological development quickly make early investments obsolete

- Use price cuts to attract the next layer of price-sensitive buyers into the market

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- Expect well-financed outsiders to move in with aggressive strategies as industry sales

start to take off and the perceived risk of investing in the industry lessens Try to prepare for the

entry of powerful competitors by forecasting (a) who the probable entrants will be (based on

present and future entry barriers) and (b) the types of strategies they are likely to employ

b- Competing in Maturing Industries

The rapid-growth environment of a young industry cannot go on forever However, the

transition to a slower-growth, maturing industry environment does not begin on an easily

predicted schedule, and the transition can be forestalled by a steady stream of technological

advances, product innovations, or other driving forces that keep rejuvenating market

demand Nonetheless, when growth rates do slacken, the transition to market maturity

usually produces fundamental changes in the industry's competitive environment

Characteristics

Slowing growth in buyer demand generates more head-to-head competition for market

share Firms that want to continue on a rapid-growth track start looking for ways to take

customers away from competitors Outbreaks of price-cutting, increased advertising, and

other aggressive tactics are common

Buyers become more sophisticated, often driving a harder bargain on repeat purchases

Since buyers have experience with the product and are familiar with competing brands,

they are better able to evaluate different brands and can use their knowledge to negotiate a

better deal with sellers

Competition often produces a greater emphasis on cost and service As sellers all begin to

offer the product attributes buyers prefer, buyer choices increasingly depend on which

seller offers the best combination of price and service

Firms have a "topping out" problem in adding production capacity Slower rates of industry

growth mean slowdowns in capacity expansion Each firm has to monitor rivals' expansion

plans and time its own capacity additions to minimize oversupply conditions in the

industry With slower industry growth, the mistake of adding too much capacity too soon

can adversely affect company profits well into the future

Product innovation and new end-use applications are harder to come by Producers find it

increasingly difficult to create new product features, find further uses for the product, and

sustain buyer excitement

International competition increases Growth-minded domestic firms start to seek out sales

opportunities in foreign markets Some companies, looking for ways to cut costs, relocate

plants to countries with lower wage rates Greater product standardization and diffusion of

technological know-how reduce entry barriers and make it possible for enterprising foreign

companies to become serious market contenders in more countries Industry leadership

passes to companies that succeed in building strong competitive positions in most of the

world's major geographic markets and in winning the biggest global market shares

Industry profitability falls temporarily or permanently Slower growth, increased

competition, more sophisticated buyers, and occasional periods of overcapacity put

pressure on industry profit margins Weaker, less-efficient firms are usually the hardest hit

Stiffening competition induces a number of mergers and acquisitions among former

competitors, drives the weakest firms out of the industry, and, in general, produces

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industry consolidation Inefficient firms and firms with weak competitive strategies can

survive in a fast-growing industry with booming sales But the intensifying competition

that accompanies industry maturity exposes competitive weakness and throws second- and

third-tier competitors into a survival-of-the-fittest contest

Strategies

competitive value during the growth stage when buyers' needs are still evolving But such

variety can become too costly as price competition stiffens and profit margins are squeezed

Maintaining too many product versions prevents firms from achieving the economies of long

production runs In addition, the prices of slow-selling versions may not cover their true costs

Pruning marginal products from the line lowers costs and permits more concentration on items

whose margins are highest and/or where the firm has a competitive advantage

can have a fourfold payoff: lower costs, better production quality, greater capability to turn out

multiple product versions, and shorter design-to-market cycles Process innovation can involve

mechanizing high-cost activities, revamping production lines to improve labor efficiency,

creating self-directed work teams, reengineering the manufacturing portion of the value chain,

and increasing use of advanced technology (robotics, computerized controls, and automatic

guided vehicles) Japanese firms have become remarkably adept at using manufacturing process

innovation to become lower cost producers of higher-quality products

- A Stronger Focus on Cost Reduction: Stiffening price competition gives firms extra

incentive to reduce unit costs Such efforts can cover a broad front: companies can push

suppliers for better prices, switch to lower-priced components, develop more economical product

designs, cut low-value activities out of the value chain, streamline distribution channels, and

reengineer internal processes

away from rivals may not be as appealing as expanding sales to existing customers Strategies to

increase purchases by existing customers can involve providing complementary items and

ancillary services, and finding more ways for customers to use the product Convenience food

stores, for example, have boosted average sales per customer by adding video rentals, automatic

bank tellers, and deli counters

distressed rivals can be acquired cheaply Bargain-priced acquisitions can help create a low-cost

position if they also present opportunities for greater operating efficiency In addition, an

acquired firm's customer base can provide expanded market coverage The most desirable

acquisitions are those that will significantly enhance the acquiring firm's competitive strength

foreign markets where attractive growth potential still exists and competitive pressures are not so

strong Several manufacturers in highly industrialized nations found international expansion

attractive because equipment no longer suitable for domestic operations could be used in plants

in less-developed foreign markets (a condition that lowered entry costs) Such possibilities arise

when (1) foreign buyers have less sophisticated needs and have

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simpler, old-fashioned, end-use applications, and (2) foreign competitors are smaller, less

formidable, and do not employ the latest production technology Strategies to expand

internationally also make sense when a domestic firm's skills, reputation, and product are

readily transferable to foreign markets Even though the U.S market for soft drinks is

mature, Coca-Cola has remained a growth company by upping its efforts to penetrate

foreign markets where soft-drink sales are expanding rapidly

c- Competing in Stagnant or Declining Industries

Many firms operate in industries where demand is growing more slowly than the economy

wide average or is even declining Although harvesting the business to obtain the greatest

cash flow, selling out, or closing down are obvious end-game strategies for uncommitted

competitors with dim long-term prospects, strong competitors may be able to achieve good

performance in a stagnant market environment Stagnant demand by itself is not enough to

make an industry unattractive Selling out may or may not be practical, and closing

operations is always a last resort

Characteristics

Businesses competing in slow-growth/declining industries have to accept the difficult

realities of an environment of continuing stagnation, and they must resign themselves to

performance targets consistent with available market opportunities Cash flow and

return-on-investment criteria are more appropriate than growth-oriented performance measures,

but sales and market share growth are by no means ruled out Strong competitors may be

able to take sales from weaker rivals, and the acquisition or exit of weaker firms creates

opportunities for the remaining companies to capture greater market share

Strategies

- Pursue a focused strategy by identifying, creating, and exploiting the growth segments

within the industry Stagnant or declining markets, like other markets, are composed of

numerous segments or niches Frequently, one or more of these segments is growing rapidly,

despite stagnation in the industry as a whole An astute competitor who is first to concentrate on

the attractive growth segments can escape stagnating sales and profits and possibly achieve

competitive advantage in the target segments

- Stress differentiation based on quality improvement and product innovation Either

enhanced quality or innovation can rejuvenate demand by creating important new growth

segments or inducing buyers to trade up Successful product innovation opens up an avenue for

competing besides meeting or beating rivals' prices Differentiation based on successful

innovation has the additional advantage of being difficult and expensive for rival firms to

imitate

Work diligently and persistently to drive costs down When increases in sales cannot be

counted on to generate increases in earnings, companies can improve profit margins and

return on investment by continuous productivity improvement and cost reduction year after

year Potential cost-saving actions include (a) outsourcing functions and activities that can

be performed more cheaply by outsiders, (b) completely redesigning internal business

processes, (c) consolidating underutilized production facilities, (d) adding more

distribution channels to ensure the unit volume needed for low-cost production, (e) closing

low-volume, high-cost distribution outlets, and (f) cutting marginally beneficial activities

out of the value chain

d- Competing in Fragmented Industries

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A number of industries are populated by hundreds, even thousands, of small and

medium-sized companies, many privately held and none with a substantial share of total industry

sales The standout competitive feature of a fragmented industry is the absence of market

leaders with king-sized market shares or widespread buyer recognition Examples of

fragmented industries include book publishing, landscaping and plant nurseries, kitchen

cabinets, oil tanker shipping, auto repair, restaurants and fast-food, public accounting,

women's dresses, metal foundries, meat packing, paperboard boxes, log homes, hotels and

motels, and furniture

Characteristics

Low entry barriers allow small firms to enter quickly and cheaply An absence of

large-scale production economies permits small companies to compete on an equal cost footing

with larger firms Buyers require relatively small quantities of customized products (as in

business forms, interior design, and advertising); because demand for any particular

product version is small, sales volumes are not adequate to support producing, distributing,

or marketing on a scale that yields advantages to a large firm

The market for the industry's product/service is local (dry cleaning, residential

construction, medical services, automotive repair), giving competitive advantage to local

businesses familiar with local buyers and local market conditions

Market demand is so large and so diverse that it takes very large numbers of firms to

accommodate buyer requirements (restaurants, energy, and apparel)

High transportation costs limit the radius a plant can economically service—as in concrete

blocks, mobile homes, milk, and gravel

Local regulations make each geographic area somewhat unique

The industry is so new that no firms have yet developed the skills and resources to

command a significant market share

Strategies

employed in restaurant and retailing businesses operating a multiple locations It involves

constructing standardized outlets in favorable locations at minimum cost and then polishing to a

science how to operate all outlets in a super efficient manner McDonald's, Home Depot, and

7-Eleven have pursued this strategy to perfection, earning excellent profits in their respective

industries

under constant pressure, companies can stress no-frills operations featuring low overhead,

high-productivity/low-cost labor, lean capital budgets, and dedicated pursuit of total operating

efficiency Successful low-cost producers in a fragmented industry can play the price-cutting

game and still earn profits above the industry average

contain opportunities to lower costs or enhance the value provided to customers Examples

include assembling components before shipment to customers, providing technical advice, or

opening regional distribution centers

styles or services, a strategy to focus on one product/service category can be very effective

Some firms in the furniture industry specialize in only one furniture type such as brass beds,

rattan and wicker, lawn and garden, or early American In auto repair, companies specialize in

transmission repair, body work, or speedy oil changes

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- Specialization by customer type: A firm can cope with the intense competition of a

fragmented industry by catering to those customers (1) who have the least bargaining leverage

(because they are small in size or purchase small amounts), (2) who are the least price sensitive,

or (3) who are interested in unique product attributes, a customized product/service, or other

"extras."

can't win a big share of total industry wide sales, it can still try to dominate a local/regional

geographic area Concentrating company efforts on a limited territory can produce greater

operating efficiency, speed delivery and customer services, promote strong brand awareness, and

permit saturation advertising, while avoiding the diseconomies of stretching operations out over

a much wider area Supermarkets, banks, and sporting goods retailers successfully operate

multiple locations within a limited geographic area

In fragmented industries, firms generally have the strategic freedom to pursue broad or

narrow market targets and low-cost or differentiation-based competitive advantages Many

different strategic approaches can exist side by side

Table 1.1: Summary of Stages for an Industry and the Corresponding Characteristics and Strategies.

Market Growth Rapid market growth from very Faster than GNP Equal or less than GNP -Absence of visible market

Products/services are unfamiliar -Low entry barriers andCompetition Slight competition; unprofitable Growth may mask success Competitive rivalry peaks absence of scale economies

Few pioneers begin to explore the of competitors as competitors try to -Market for product is local

maintain shakeout

requiredproduct rather than competition

Technology High level of technological Dominant design emerges, Small increment entail diverse it takes numerous

firms to accommodatechange and product/service emphasis placed on product innovations, many base on

buyer needs

-High transportation costs

No established dominant design As dominant design performance improvements

prevent serving large

or standard emerges, product process Emphasis on efficiency,

market areaTechnological development can become more most likely stage for

-Local regulatoryspecialized automation

requires a high level of

requirements make eachinvestment

geographic area uniqueTechnology is not fully

-Newness of industryunderstood by the creators

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Table 1.1: Summary of Stages for an Industry and the Corresponding Characteristics and Strategies.

Prices High and volatile Prices decline rapidly as Prices decline slowly as

Market will pay high price for cost fall and competition productivity allows costs to

new industry’s products/servicesEntry and exit A few pioneers begin to explore Many firms scramble to As market is saturated,

the market enter what appears to be a growth slows and shakeout

promising market beginsPromotion Target innovators and try to build Build brand awareness Tailor promotion to a

efforts awareness of product variety of market segments

Sales Low but growing volume Sale volume soars Stabilizing sale volume

Profits Negative; revenue per share is Profitable but cash flow Profits declining

low but increasing as matures may still be negativeindustry

Cash Flow Negative cash flow due to heavy Cash flow may still be Larger investment level

expenses including debt service negative may mean cash flow is

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Table 1.1: Summary of Stages for an Industry and the Corresponding Characteristics and Strategies.

-Try to win the early race for -Pruning the Product Line -Pursue a focused strategy -Construct and operateindustry leadership with risk-

-More Emphasis on by identifying, creating, ―formula‖ facilitiestaking entrepreneurship and a and exploiting the growth

Process Innovations -Become a low-costbold, creative strategy segments within the

-A Stronger Focus on Cost industry producer-Push to perfect the technology,

to improve product quality, and to -Stress differentiation

-Increasing Sales to Present via vertical integrationdevelop attractive performance based on quality

features Customers improvement and product -Specialize by product type-Try to capture any first-mover -Purchasing Rival Firms at innovation. -Specialize by customeradvantages associated with more Bargain Prices -Work diligently and type

models, better styling, and early

-Expanding Internationally persistently to drive costs -Focus on limitedcommitments to technologies and down

geographic arearaw materials suppliers,

experience curve effects, and newdistribution channels

-Search out new customer groups,new geographical areas to enter,and new user applications

-Gradually shift the advertising

into the market.

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1.2.2 Firm Capability

Depending on capability of the firm, companies could be class in to three categories:

Industry Leader, Runner up firm and Weak Business

defense is a good offense Offensive-minded leaders stress being first-movers to sustain their

competitive advantage (lower cost or differentiation) and to reinforce their reputation as the

leader A low-cost provider aggressively pursues cost reduction, and a differentiator

constantly tries new ways to set its product apart from rivals' brands The theme of a

stay-on-the-offensive strategy is relentless pursuit of continuous improvement and innovation

Striving to be first with new products, better performance features, quality enhancements,

improved customer services, or ways to cut production costs not only helps a leader avoid

complacency but it also keeps rivals on the defensive scrambling to keep up The array of

offensive options can also include initiatives to expand overall industry demand—discovering

new uses for the product, attracting new users of the product, and promoting more frequent

use In addition, a clever offensive leader stays alert for ways to make it

easier and less costly for potential customers to switch their purchases from

runner-up firms to its own products Unless a leader's market share is already so dominant

that it presents a threat of antitrust action (a market share under 60 percent is usually

"safe"), a stay-on-the-offensive strategy means trying to grow faster than the industry

as a whole and wrest market share from rivals A leader whose growth does not equal

or outpace the industry average is losing ground to competitors

harder for new firms to enter and for challengers to gain ground The goals of a strong

defense are to hold onto the present market share, strengthen current market position, and

protect whatever competitive advantage the firm has

Specific defensive actions can include:

 Attempting to raise the competitive ante for challengers and new entrants viaincreased spending for advertising, higher levels of customer service, and bigger R&D

 Keeping prices reasonable and quality attractive

 Building new capacity ahead of market demand to try to block the market

expansion potential of smaller competitors

 Investing enough to remain cost competitive and technologically progressive

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 Patenting the feasible alternative technologies.

 Signing exclusive contracts with the best suppliers and dealer distributors

 A fortify-and-defend strategy best suits firms that have already achieved industrydominance and don't wish to risk antitrust action It is also well-suited to situations where a

firm wishes to milk its present position for profits and cash flow because the industry's

prospects for growth are low or because further gains in market share do not appear profitable

enough to go after But the fortify-and-defend strategy always entails trying to grow as fast as

the market as a whole (to stave off market share slippage) and requires reinvesting enough

capital in the business to protect the leader's ability to compete

competitive muscle (ethically and fairly!) to encourage runner-up firms to be content

followers rather than aggressive challengers The leader plays competitive hardball when

smaller rivals rock the boat with price cuts or mount new market offensives that directly

threaten its position Specific responses can include quickly matching and perhaps exceeding

challengers' price cuts, using large promotional campaigns to counter challengers' moves to

gain market share, and offering better deals to the major customers of maverick firms

Leaders can also court distributors assiduously to dissuade them from carrying rivals'

products, provide salespersons with documented information about the weaknesses of an

aggressor's products, or try to fill any vacant positions in their own firms by making attractive

offers to the better executives of rivals that "get out of line." When a leader consistently meets

any moves to cut into its business with strong retaliatory tactics, it sends clear signals that

offensive attacks on the leader's position will be met head-on and probably won't pay off

However, leaders pursuing this strategic approach should choose their battles It may be more

strategically productive to assume a hands-off posture and not respond

in hardball fashion when smaller rivals attack each other's customer base in ways that

don't affect its own

b- Runner-up firms

Characteristics

Runner-up firms occupy weaker market positions than the industry leader(s) Some

runner-up firms are up-and-coming market challengers, employing offensive

strategies to gain market share and a stronger market position Others behave as

content followers, willing to coast along in their current positions because profits are

adequate Follower firms have no urgent strategic issue to confront beyond "What

kinds of strategic changes are the leaders initiating and what do we need to do to

follow along?"

A challenger firm interested in improving its market standing needs a strategy

aimed at building a competitive advantage of its own Rarely can a runner-up firm

improve its competitive position by imitating the strategies of leading firms A

cardinal rule in offensive strategy is to avoid attacking a leader head-on with an

imitative strategy, regardless of the resources and staying power an underdog may

have Moreover, if a challenger has a 5 percent market share and needs a 20 percent

share to earn attractive returns, it needs a more creative approach to competing than

just "try harder."

Strategies

Strategic options for runner-up firm’s case # 1

Where large size yields significantly lower unit costs giving large-share firms a cost

advantage, two options exist:

1) Build market share

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