Question 1. What are the generic strategies as identified by Michael porter?
Answer:
Introduction: Michael porter originally identified three types of competitive strategies. That can be applied in any business organization.
Michael porter identified three strategies for business organization these three are as follows
1. Cost leadership
2. Differentiation
3. Focus strategy
Conclusion: These three types of strategy can be applied in any business organization irrespective of size and nature of products because of their susceptibility to common use by all business enterprise they are leveled as generic strategy.
Question 2. Explain the meaning of low cost strategy?
Answer:
Introduction:- when a company adopts the strategy of selling its products at a price lower than its competitors this strategy known as low cost strategy.
Meanings of low cost strategy: Low cost leadership strategy is known as low cost provider strategy; cost leadership strategy or simply low cost strategy. A company strategy intends to become the overall low cost provider in the industry in which the company operates its business. A company strategy of selling its products at a lower price than its competitors is known as low cost strategy.
Conclusion: The strategic target of this strategy is a board section of the market where the company offers economical prices. The company emphasizes on cost reduction without reducing quality.
Question 3. Discuss the benefits of low cost strategy to the business organization?
Answer:
Introduction: A business organization may derive various benefits from low cost strategy. To better maintenance an organization pursuing a low cost strategy followings are the benefits :-
1. Overcoming threats from the competitors : Because of its cost advantages a company can protect itself from the business attacks of the competitors .If competitors enter into market with low cost the company can even further cut down its prices.
2. Effective dealing with powerful suppliers:- when suppliers are in few in number as well as powerful they may try to increase prices of raw materials . The company with a low cost strategy can endure such price increases.
3. Facing powerful buyers effectively:- Powerful big buyers may dictate prices of a company products. A company that follows a cost leadership is less affected by such action of buyers.
4. Encountering threats from substitute products:- A low cost leader is able to overcome threats from substitute products. Low cost leadership helps the company retain its market share.
5. Overcoming threats from the entry of potential competitors:- A company with a low cost strategy can discourage other potential investors to come to the market.
Conclusion: - These are the benefits to business organization to pursue a low cost strategy. Every business organization wants to get these benefits from low cost strategy.
Question 4. Discuss the market situations favorable for low cost strategy?
Answer: - A low cost provider strategy works best under the following situations;-
1. When the brand differences from company to company are minor, and at the same time the products are standardized and readily available.
2. When the market is composed of a large number of price sensitive buyers who wants to buy products at lowest possible rate.
3. When there are few ways to achieve product differentiation it means that it’s difficult to differentiate the company products from those of competitors due to nature of products. In such a situation they will go for the lowest price.
4. When switching costs from the company buyers brand to competitors brand are low or zero ten they are likely to opt for lower price.
5. When there are a large number of buyers with significant bargaining power.
6. When price competitors among the sellers / suppliers are very tough then the low cost helps.
7. When the company is in a position to use the lower cost edge to attract price sensitive buyers in great enough numbers to influence total profits.
Question 5. When does a low cost strategy fail?
Answer: -
Introduction:- low cost strategy has some shortcomings or pitfalls. Managers need to take care of this pitfalls so that they can undertake appropriate measures to be successful with this strategy.The shortcomings are as follows:-
1. It may be invite aggressive price cutting by competitors. It may lead to price war that may lead to power profitability.
2. A low cost product does not contain enough attributes to be attractive to prospective buyers then the strategy may fail.
3. Cost advantages may not sustain if competitors can easily imitate the strategy when the competitors are able to copy the cost advantages low cost strategy will fail.
4. The low cost strategy may become ineffective when ther are technological breakthroughs by the competitors in the industry.
Conclusion:- low cost is not always appealing to buyers the ways to achieve cost advantages need to be difficult for others to copy.
Question 6 . Define differentiations strategy?
Answer :-
Introduction: - Differentiation strategy is concerned with product differentiation. It refers to making a company product different from the similar products of the competitors. Although there can be differentiation in services too.
As marketing terminology differentiation means making a product different from the similar products of the competitors. According to Philip kotler, differentiation is the act of designing a set of meaningful differences to distinguish the company offerings from competitor’s offerings. A differentiated product is unique by itself. A product can be differentiated on the basis of its form, shape , quality, durability , reliability, reparability , style design or some other features of the product. A product would become differentiated from that of the competitors if its form (Size, shape or physical structure) is changed.
The goal of differentiation strategy is to achieve a competitive advantage by offerings product customers that is considered as unique in some important ways. The differences made in the product must be of value to customers. A product with differentiated features can command premium prices.
A differentiation strategy may be either ‘board, or, focused. A board differentiation strategy is adopted by a company to be unique in ways that are valuable to a wide range of customers.
Conclusion: A differentiation strategy is called a focused differentiation strategy when the differentiator company goes for segmenting its market into several small segments and then offers a product designed for each market segment. Coca cola follows a broad differentiation strategy in that it offers normal bottled cola can cola, and diet-cola for different segments.
Question 7. What are the different ways for achieving product differentiation?
Answer:-
Introduction:- There are various types of differentiation themes. These themes provide the ways to achieve differentiation. A company can pursue differentiation on the basis of these themes. Hill and jones suggested several ways to achieve differentiation in a company’s products.
Ways of achieve product differentiation ----
1. Differences in quality: A company may differentiate its product simply by incressing quality and reliability. Otobi in furniture and Aziz pipes in PVC products have sometimes followed differentiation strategy based on quality.
2. Innovation:- For highly technologically complex products innovation is an important source for differentiation. Computers, stereos, television sets and refrigerators require differentiation based on new innovated features. When products include innovated/valuable features, customers agree to pay for it.
3. Responsiveness to customers:- a company may differentiate a product based on responsive necessary to customers. When this becomes the basis for differentiation, the company offers comprehensive after-sales services including repair. This sort of differentiation is highly workable in the case of products which require frequent after-sales services.
4. Responding to customers psychological desires:- an important source of product differentiation is a company response to the psychological desires of customers. Customers may desire to have a special status or unique prestige from using a product.
5. Wide choice of customers: - Differentiation of a product may be done by making available items of any kind in the same product line instantly to customers as per their demand.
Conclusion:- It is thus obvious that based on the nature/use of the product and the nature of the target customers, products can be differentiated along various themes.
Question 8. Make a list of the themes for the differentiation of various products?
Answer :
Themes of differentiate various products are as follows :-
- Unique taste
- Multiple features
- Wide selection/one stop shopping
- Special features
- Superior services
- Prestige and distinctiveness
- Product reliability
- Full range of services
- Availability of spare parts
- Complete line of products
Question 9. A product can be differentiated in different ways also the themes are not same for all types of products. Discuss at least five themes for differentiation of five different types of products?
Answer :- The themes for differentiation of different product are as follows :-
- Unique taste Food products such as bread, drink, juice, chocolates etc
- Multiple features Automobiles such as BMW and Mercedes –Benz, and soft ware such as Microsoft office 2000,
- Wide selection/one stop shopping Retail chain shops such Agora and Meena Bazaar, and online bookstore such as Amazon.com
- Special features transparent ball pen or transparent soap or halal soap.
- Superior services Overnight delivery of packets by a courier service company.
- Prestige and distinctiveness 56-inchies television set or Sony home theater, Rolex watch.
Question 10.Discuss the issues that need to be addressed for achieving sustainability of differentiation strategy?
Answer:-
Introduction: - Sustainability of differentiation strategy is an important issue for a company.
If a product differentiation cannot be sustained, the company may incur huge losses.This necessities conducting of consumer survey to determine the needs and preferences of buyers.
A company needs to follow the following issues to achieve sustainability.
1. The company must try to adopt those differentiation approaches that would be hard or expensive for the competitors to copy. However, strong competitors might be able to clone any features of a product over a period of time.
2. Differentiation has to be linked to core competencies , unique competitive capabilities and superior management of value chain activities The basis for a company products differentiation would be sustainable if the competitors cannot readily match their competencies with those of the company.
3. A company may ensure sustainability of differentiation when it can base its differentiation on new product innovation, technological superiority, quality, reliability, unique competitive capabilities and superior as well as comprehensive customer service. This issue is very important because it would be tough for the competitors to easily copy these differencing attributes.
4. The differentiation attributes must be of value to customers. A particular differencing attribute may seem to the company very valuable and appealing but if it is viewed by customers as having no or little value, the differentiation strategy will never sustain.
Conclusion:- Based on the survey results, the company should undertake initiatives to incorporate unique attributes in its products.
Question 11. State the shortcomings of differentiation strategy?
Answer:- The common shortcomings and mistakes in pursuing differentiation strategy include:-
1. Attributes with little value:- While differentiating a product the company may fail to adequately consider the buyers perspective in terms of value of the attributes is of little value to them.
2. Easy to copy:- differentiation strategy will fail if the competitors can quickly copy or imitate the differentiated features. In that case buyers will find no differences among the products of competitors.
3. Inability to benefit buyers:- Differentiation does not work when buyers perceive that it could not reduce their cost or increase their well-being.
4. Over differentiation:- over differentiation occurs in a product when differentiation leads to much higher price than the competitors, or differentiation causes product quality to exceed buyers needs.
5. Failure to understand buyers: - Differentiation obviously fails if the company cannot understand what buyers consider as of value. Every differentiation must be done based on buyer’s viewpoint- not the view point of company.
6. Buyers satisfaction with basic product:- when buyers are satisfied with a basic product, differentiation strategy may fail. Because buyers don’t like to have any extra attributes in the products that will increase.
Conclusion: - It thus appears that differentiation strategy may not always work. It is difficult to give any guarantee that differentiation of a product would result in competitive advantage in the market. Success depends on careful analysis of buyer’s needs and their perceptions.
Question 12.Clarify the meaning of market –niche strategy or focus strategy?
Answer:-
Focus strategy concerns itself with the identification of a niche-market and launching a unique product or service in that market. A niche market is a narrow segment of a total market. Niche can be identified on the basis of certain issues. (a) Particular buyer group (b) Geographic uniqueness (3) special product attributes that appeal only to niche members (d) a particular product line.
After identifying the niche market a company can decide to enter into one or more of the niches with its products. When the products decide to lunches its products in the niche market its strategy is also known as niche strategy. Since the focus of the company is on a niche market. It becomes a focus strategy. Focus strategy involves offering the niche customers a product customized to their taste and requirements. It is directed towards serving the needs of a limited customer group.
According to Hitt, Ireland and Hoskinsson, a niche strategy /focus strategy is an integrated set of actions designed to produce or deliver goods and services that serve the needs of a particular competitive segment.
Conclusion:- A company usually follows focus strategy when it is able to serve a narrow piece of the market better than competitors.
Q13. What are the common requirements for successful implementation of focus strategy?
Ans: A company requires unique skills, capabilities and resources for successful implementation of focus strategy. Some of these are:
· Manager’s ability to explore a well-defined but narrow market segment.
· Clear identification of competitors who serve a market broader than the niche market but are unable of disinterested to serve the niche for some reasons.
· Firm’s ability to provide adequate capital.
· Designing and maintaining a low-cost distribution system, with strong cooperation from the channel members.
· Strong marketing ability and creative flair.
Favorable Market Situations for Focus Strategy
A focus strategy does not work well in all situations. it becomes an attractive strategic option usually in the following situations.
01. Consumer’s distinctive preferences: Focus strategy is especially effective when consumers have distinctive preferences and the competitors are not offering products to satisfy those preferences.
02. Competitors apathy: If competitors are not trying to specialize in the same target niche market, a company’s focus strategy is likely to be effective.
03. Profitable niche: The focus strategy is expected to be highly workable when the market-niche is big enough to be profitable. Very small niche may not bring enough profit for the marketers.
04. High growth potential: Market niche becomes attractive when its growth potential is high. In order to be profitable, the market-niche must be able to offer good growth potential.
05. Availability of different niches in the industry: When an industry has different niches/market segments, the marketer can pick up the attractive niche (s) based on its strengths.
06. Inability or unwillingness of competitors to serve niche market: The competitors who sell their products in many segments of the market may find it costly to operate in a need for specialized products. In such a situation, the focus marketer ( market-focuser) may do well with customized products. Also, market leaders may not like to enter into a niche market as they do not consider it important to be a niche marketer for their business success.
07. No risk of segment overcrowding: A company may find it useful to follow a focus strategy if rival companies avoid specializing in the same segment. This attitude of rivals reduces the risk of overcrowding in the niche market. Overcrowding occurs when many producers operate in a narrow market segment. Few players in the market-niche always reduce competitive risk.
08. Focuser’s competitive ability: To be successful with focus strategy to a large extent depends on the ability of the focuser-company to compete effectively in the market. Effective competition is possible when the company has enough resources, capabilities and market image.
09. Company’s farsightedness: To be successful with focus strategy, the focuser-company must have the farsightedness to pick up those niches that match with its specialized competencies and capabilities as well as attractive by all standards.
Q14. What are they different types of focus strategy? Discuss the risks associated with focus strategy?
Ans: A company can pursue a focus strategy either with a low-cost approach or a differentiation approach. There can, thus can, thus, be two
Types of focus strategy.
a) Focuses Low-Cost Strategy
b) Focused Differentiation Strategy
c) Favorable Market Situations for Focus Strategy
d) Risks Associated with Focused Strategy
Risks Associated with Focused Strategy
Several risks are associated with a focus strategy. These risks originate mainly from more appealing products by rivals, shifting of product-preferences of customers, and high attractiveness of the niche –market. Managers should have a clear idea about these risks so that they can consider them before deciding on the adoption of niche strategy.
01. Risk from more appealing products: If the competitors come up with such products that are more attractive to the customers. There is then a risk of losing the market. Example includes MUM (bottled drinking water) of partex Group. Many rivals have gone out of the market because of the appealing attributes of MUM.
02. Shifting of customers’ preferences: Another risk emanates from the possibilities of shifting customer’s preferences and needs for a particular product in the niche-market. Over time, customers’ preferences may change or they may need a product with different attributes. Such a situation may allure other producers to enter the niche-market. This would intensify competition in the niche-market.
03. High attractiveness of the niche-market: The third risk may come from the niche itself. The niche-market may become so highly attractive that the rivals would jump into the segment and finally it may be flooded with so many competitors. Thus, niche-market profits will slide down. This happened in the garments sector in Bangladesh in 1980s and in accounting software in 1990s.
04. Universality of customers needs: Another risk that the needs of focused customers in the niche-market may become similar to those of customers in a market as a whole. If this happens, the advantages of focus strategy may be reduced of eliminated.
05. Price-war: It may invite aggressive price cutting by competitors, which may eventually lead to price-war that may lead to low profitability.
06. Withering cost advantages: Cost advantages of the company may not sustain for a long period of time if the competitors can copy them easily. So, the ways to achieve cost advantage must be difficult for others to copy.
07. Fear of low attractiveness: If low-cost product does not contain enough attributes to be attractive to prospective buyers, the strategy may fail. Low price is not always appealing to buyers. Attractiveness may be lost if the product is feature-poor or quality-deficient.
Q15. What do you mean by best-cost strategy?
Ans: Best-Cost Provider Strategy Defined
As a concept best-cost means high quality and low price of a This term is used to indicate a situation where the company to achieve lowest cost relative to the competitors who offer simpler products and simultaneously tries to improve quality. Best-cost provider strategy is often called best-cost strategy’, which we would use frequently in this book. Best-cost strategy is the strategy of increasing quality of products while reducing costs. This strategy is applied to give customers’ reducing costs. This strategy is applied to give customers more value for the money.’’ It is achieved by satisfying customers’ expectations on key attributes of products. At the same time, prices are charged lower than that of the competitors. By following the best-cost strategy, the company attempts to attract the value-conscious buyers’ (those buyers who want superior product with lower price)
Best-cost strategy is a hybrid. It balances a strategic emphasis on low-cost against a strategic emphasis on differentiation. It is considered as the most powerful competitive strategy of all. It presupposes relentlessly striving to become a lower-and-lower cost provider of higher-and-higher caliber product.’ Toyota Company of Japan followed best-cost strategy for its Lexus cars to beat Mercedes-Benz and BMW cars.
Q16. What are the preconditions for a company to be successful as a best-cost provider?
Ans: Preconditions for Becoming a Best-Cost Provider
It is easy to say to be a best-cost provider, but it is really a tough job to really become a best-cost provider in the marketplace. In order to be successful, the company must have the following resources and capabilities to simultaneously lower costs and improve quality:
· It must have the resources and competitive capabilities to achieve high quality at a lower cost than the competitors.
· It must be able to incorporate appealing (attractive) features at a lower cost than competitors (such good as-to-excellent product performance or quality).
· It must provide good-to-excellent customer service at a lower cost than competitors.
Q17. What are the preconditions for a company to be successful as a best-cost provider?
Ans: Market Situations Where Best-Cost Strategy Works Best :
A number of factors affect the successful implementation of best-cost strategy. These market-related factors need to be attended properly by the marketers. We present here some of the most dominant market-related issue or market situation where best-cost strategy is likely to work best.
· Buyer diversity: Best-cost strategy will work very well in a market where product definition becomes the norm because of buyer diversity, and also a substantial number of buyers are sensitive to price and quality.
· Positioning advantage: A company with best-cost strategy can position itself near the middle of the market- with a medium-quality product at a below-average price, or with a very good product at a medium price. Many buyers may prefer mid-range products. They avoid cheap, basic products of low-cost producers. They also avoid expensive products of top quality.
· Resources and capabilities: Best-cost strategy will work best when the company has the resources, know-how and capabilities to incorporate upscale product attributes at lower cost. This strategy is ill advised if the resources and capabilities do not permit the company to manage costs down and product caliber up.
Q18. Discuss the strategic advantages and disadvantages to vertical integration ?
Ans: Strategic Advantages of Vertical Integration :
Companies involve themselves in vertical integration basically for gaining competitive position in the market. Vertical integration becomes attractive when it can strengthen a company’s competitive position. Either profit-wise or strategy-wise, vertical integration is likely to be a flop if it fails to produce sufficient cost savings and / or substantially improve company’s technological and competitive strengths. Let us discuss the strategic advantages of vertical integration first for backward integration and then for forward integration.
Q19. Why do some companies follow backward integration strategy?
Ans: A firm can accomplish backward integration by starting its own operations in the production of raw materials or components, or by acquiring a firm already performing the same activities. When the suppliers of a firm are unreliable, or when purchasing from suppliers is too costly, or when the suppliers cannot meet the needs of the firm, it is wise to go for backward integration. More specifically, backward integration for a firm may be suitable when16
· The firm’s present suppliers are especially expensive, or unreliable or incapable of meeting the needs.
· The number of suppliers is small.
· The firm is competing in an industry that is growing rapidly.
· The firm has the resources to manage the new business of supplying its own raw materials.
· Advantages of stable prices are particularly important.
· The firm needs to acquire a needed resource quickly.
Q20. What are your arguments in favor of forward integration strategy for a company that produces perishable products?
Ans: Advantages of Forward Integration
a. The main sprit of forward integration is to enhance a company’s competitiveness.
b. A company achieves greater control over distribution of products. It may at least partially. Lose control over distribution when products are sold through intermediaries.
c. A company can increase sales by avoiding dealers wholesalers, and retailers who may not wholeheartedly push the sales of the company’s products. These intermediaries may be more interested to sell the products of the competitors who offer commissions.
d. When a company integrates forward and directly sells products to end-users, it con reduces distribution costs and even lower selling prices.
e. Because of lower distribution costs, the company can produce a relative cost advantage over certain competitors.
Strategic Disadvantages of Vertical Integration
1. It increases business risk because of diversification and more investments in the other stages of business activities.
2. It may block scare financial resources in some value chain activities of the industry and thus prevents the firm from investing in otherwise profitable ventures.
3. As the vertically integrated firms have the tendency to jealously protect their present investment in the backward and forward activities they slow down investing in research and development.
4. Even if there is cope to procure materials at cheaper cost from outside vendors, vertically integrated firms cannot avail of this opportunity. Because they have already locked themselves into in-house activities.
5. As the vertically integrated firms becomes less flexible due to reliance on in-house activities and own sources of supply, they may eventually face problems in responding to buyer demand for a variety of products.
6. When a firm goes for forward or backward integration or both, they require different skills and capabilities to manage the integrated business activities. Fulfillment of this requirement is always costly and may not finally be worthwhile.
7. Backward integration into production of components and parts may reduce the flexibility of a firm in its manufacturing activity. In technologically sophisticated industries (such as computers) outsourcing component production is often cheaper than producing by a firm itself.
Q21. What do you mean by unbundling strategy? Has it any relationship with outsourcing strategy?
Ans: Unbundling Strategy : When vertical integration does not pay, a company may decide to abandon the strategy of vertical integration and adopt the strategy of de-integration. That is, the company withdraws from the backward or forward integration. It stops selling directly to consumers through own stores. This action of de-integration is know as unbundling strategy. According to Thompson and Strickland, a number of US companies over the past decade have found vertical integration so competitively burdensome that they have adopted vertical de-integration or unbundling strategies.
Q22. What is outsourcing strategy? State the instances that make outsourcing a good strategic sense.
Ans: Outsourcing Strategy
Outsourcing strategy refers to a strategy of procuring raw materials or parts and components from suppliers or having any value chain activities performed by outsiders. When a firm adopts outsourcing strategy, it relies on outside vendors to supply products, support services or functional activities. A firm may outsource production, assembling, marketing, delivery, accounting and finance, warehousing or any other function o other business firms who can do them cost-effectively or better than the firm itself. Many software companies in Bangladesh are using outsourcing strategy in security-guard services. 3M Corp. has outsourced its manifesting operations to a Singapore-based company. Many American firms have outsourced their computer operations to IBM.
The Instances That Make Outsourcing a Good Strategic Sense
Outsourcing strategy is useful under the following circumstances:
ü When an activity can be performed better or more cheaply by outside specialists.
ü When the firm intends to give more concentration on the core business
ü When the activity is not crucial to the firm’s ability to achieve sustainable competitive advantage. For example, because of relatively less crucial importance of them, maintenance activities, cleaning activities, accounting, data processing and some other administrative support activities can be safely and cheaply outsourced.
ü When it reduces the firm’s risk exposure to changing technology and changing buyer preferences.
ü When the firm adopts a policy of providing better customer services.
ü When it allows a company to concentrate on its core business and do what it does best.
Q23. When does a company adopt growth strategy?
Ans: Growth Strategy
A company may adopt a growth strategy when it wants to expand its market and thereby improve profitability. Usually this strategy is undertaken when a company has enough resources to expand business and is capable to manage the new complicacies and risks involves with expansion.
Vehicles for Implementing Growth Strategy
Growth strategy can be implemented in various ways. It can usually be implemented through :
ð Internal Growth (using own resources)
ð Acquisition (one company purchases assets of another company and absorbs them into its own operations)
ð Merger ( two or more companies combine into one company)
ð Joint Ventures (Two or more organizations pool their resources for a given project or business product, on temporary or permanent basis)
ð Horizontal Integration (Adding one more businesses that produce similar products, usually buying another organization in the same business)
Question 24. What are the reasons for the formation of strategic alliances?
Ans- Major reasons for the formation of strategic alliance within the national boundary:
1. To substantially improve competitiveness.
2.To collaborate on technology or development of a new product.
3.To acquire altogether new competencies.
4.To improve supply chain efficiency
5.To gain economics of scale in production and distribution
Major reasons for the formation of strategic alliance outside the national boundary:
1.To build a market presence in the foreign markets.
2.To assemble more diverse skills, resources, technological expertise and competitive capabilities than a company can assemble alone.
3.To acquire valuable resources/capabilities through alliances that a company could not otherwise obtain on its own.
4.To gain `inside technology’ about unfamiliar markets and cultures in foreign countries.
Question 25. Discuss the major reasons for the failure of strategic alliances?
Ans- Major Reasons for the failure of strategic alliances are as follow:
1. Inability of the partners to work together.
2. Failure or delay in responding and adapting to changes in the internal and external environment.
3. Lack of willingness on the part of the partners to renegotiate the terms and conditions of alliances.\
4. Failure of he partners to value the skills and resources each partner brings to the alliances.
5. Rivalry between partners in the marketplace.
6. Inability of the partners to ensure win-win outcomes from the co-operative agreements.
Question 26. what do you mean by joint venture? Discuss the situations that are suitable for joint venture more business?
Ans-A joint venture refers to a new organization established by two or more organization.\it is an agreement where two or more films capital in a venture.
Situation suitable for joint venture
The following situations are suitable for joint venture:
1. All the situations suitable for strategic partnerships.
2. A business activity where pursuing an opportunity is complex or risky, a joint venture is a good way to undertake that opportunity,
3. A situation where pursuing an opportunity requires unique competencies. when a firm does not have s
4. where entry to a foreign market needs local foreign partner. The difficulty in entry may arise from restrictions by the government or local culture and socio-political situations.
Question 27. What are the difficulties that may arise when two or more firms form joint venture?
Ans- the difficulties that may arise when two or more firms form joint venture are as follow:
1. Complications arise in dividing the share of control between the partners. The partners in joint venture may have controversies over the role each would play in the organization.
2. The partner companies run the risk of giving technical know how away to their counterparts.
3. Conflict over how to run the joint venture can tear it apart and result in business failure,
4. In case of international joint venture, conflicts may arise over the use of local resources, local technology, local employees, compliance with local standard and policies, export volume, use of intellectual property and technology etc.
5. Disputes may stem when foreign partners start neglecting the local partner after the foreign partner has overcome the difficulties.
6. Local partners may start own business by seeding their relationship with joint venture.
7. The joint venture firm may begin to compete more with one of the partners than the other.
8. Problems may arise when the sponsoring firms do not provide support to the joint venture equally.
9. Although the partnering companies may not have problems, they may face problems due to complaints from the customers about poorer service or about issues,
Question 28. Discuss the purposes of both merger and acquisition strategies?
Ans- The purposes of merger and acquisition are primarily similar.They can-
* Dramatically strengthen a company`s market position.
* Open new opportunities for competitive advantages.
* Fill resource gaps and allow the new company to do things which the prior companies could not do alone.
* Combine the skills and competitive capabilities of the merged companies.
* Achieve wider geographical coverage and greater financial resources.
* Add production capacity and expand into new areas; and/or
* Censure considerable cost-saving through combining operations of a number of companies.
Question 29. Distinguish between merger and acquisition?
Ans-Difference between merger and acquisition are given below:
1) Merger takes a place when two or more organizations merge together and their operations are absorbed by a new organization.
2) Merger can take place among organizations within the same country or among organizations across the national borders.
3) In the business world, a merger is a combination of two or more companies. When combined together, a new company is created.
4) Their assets and liabilities are combined. Merger can take place among organizations within the same country or among organizations across the national borders.
Acquisition-
1) Acquisition is a strategy through which one firm buys a controlling or 100 percent interest in another firm.
2) An acquisition occurs when one company purchases another company.
3) It is an strategy through which one firm buys a controlling or 100 percent in another firm by making the acquired firm a subsidiary business within its portfolio.
4) The acquired company’s legal identity is lost. The acquirer company remains independent and operates its business as it is.
Question 30. What are the reasons for which the need for cooperative strategies has been heightened in the recent years?
Ans- In the recent years, the need for cooperative strategies has been heightened because of the following:
1. Intensified competition in the domestic market.
2. Opening up of a vast market in different parts of the world.
3. Advances in telecommunication and information technology.
4. Development of transportation across the world by roads, air and sea.
5. Globalization of business.
6. Trade liberation in many countries since the emergence of the world trade organization(WTO).
Question 31. ‘cooperative strategies are prevalent in those industries where there are rapid changes in technology, business environment and customer needs.’ Explain the significance of this statement with an example of a relevant industry in bangladesh.
Ans- ‘cooperative strategies are prevalent in those industries where there are rapid changes in technology, business environment and customer needs.’ An example of such an industry is computer industry. The computer components and software are produced by a number of companies. Producers are mostly different for microprocessors, motherboards, monitors, disk drives, memory chips, keyboards, mouse, sound cards, multimedia components etc, Thus, there is a need for close collaboration among the producers of all these diverse products.
Question 32. Explain the significance of harvest strategy. When should a company follow harvest strategy?
Answer:-
When future growth appears doubtful or not cost-effective, companies want to 'harvest' as much they can from the product. It limits additional investment and expenses and maximizes short-term profit and cash flow. When a company adopts harvest strategy, it deliberately sacrifices its market position in return for near-term cash flows or current profitability. The intention of the company in such a strategy is to earn immediate cash from, the existing business and use the cash in other more profitable business activities. Usually, a diversified company having various lines of businesses deploys harvest strategy (also known as endgame strategy, or asset reduction strategy) for non-core business units in weak competitive positions.
Question 33. What are the preconditions for success wilh offensive strategy?
Answer:-
In order to be successful with offensive strategies a company must ensure that it has been able to -
Win customer acceptance of its product with a reasonably short period of time (if it is not a highly innovative or first-time-in-the-world product).
Accumulate requisite resources and capabilities for deployment;
Discourage the competitors through offensive actions to launch counter-offensives;
Come up with follow-on offensive and defensive moves one after another to protect its market position.
Question 34. What is meant by defensive strategy? What kind of strategies can be considered as defensive strategies?"
Answer:-
A defensive strategy consists of a company's actions directed for protecting its competitive advantage. A company pursues defensive strategies to protect competitive 'advantage through protecting existing market share. Companies usually follow defensive strategies primarily to 'lower the risk of being attacked' and influence the competitors lo aim their efforts at other competitors.
A company's defensive strategies may include:
· Offering dealers/distributors special discount or better financing terms just to discourage them not to carry competitors' production.
· Entering into agreement with dealers/distributors to work as the company’s exclusive dealers/distributors.
· Extending the warranty period or offering free training to the customers to discourage them from buying competitors' products.
· Making sustainable arrangement for delivery of spare parts or after-sales service faster than the competitors.
· Making early announcement about launching a new product so that potential customers postpone buying from competitors.
· Introducing new features of products or new version or new model and enter into niche markets, which would create obstacles to competitors to enter the niches.
Question 35. What are the first-mover advantages and late-mover disadvantages?
Answer:-
Several advantages emerge when a firm takes a strategic move as the first-mover- The first-mover becomes the pioneer. Pioneering helps the firm to:
build reputation in the marketplace;
attract buyers to the products and the firm;
gain new knowledge of the industry's key success factors
comprehend the critical issues in the market
Produce an absolute cost advantage over the competitors because of its early commitments to supplies of raw materials, new technologies and distribution channels'
create a pool of loyal customers who are likely to repeat purchasers of products of the firm; and
discourage potential new entrants to refrain from entering into the marks through creation of strong entry barriers.
Question 36. What are the first-mover disadvantages?
Answer:-
Making a first-move has mixed blessings. It may be very risky to initiate a strategic move first. The following are some of the disadvantages of first-mover strategy (these are advantages of being late-mover):
It is highly costly to become the first-mover, because the firm has to create demand in the market for the product and so it needs to spend huge amount of money for promotion.
It may invite serious adverse effects on operations of the firm if the industry is such that there are frequent changes in technology (such as in the software industry or in the telecommunications industry). In such a situation, the late-movers gain the advantage of using latest technology.
The late-movers can copy/imitate the technical-how easily and eventually may be able to oust the first-mover from the market.
The late-movers may become so powerful because of their ability to bypass the first-mover in developing skills and technology that they can snatch-away the customers of the first-mover.
Question 37. What do you mean by unbundling strategy? Has it any relationship with outsourcing strategy?
Answer:-
The company withdraws from the backward or forward integration. It stops producing parts and components or stops selling directly to consumers through own stores. This action of de-integration is known as unbundling strategy. According to Thompson and Strickland, a number of US companies over the past decade have found vertical integration so competitively burdensome that they have adopted vertical de-integration or unbundling strategies.
Question 38. What is outsourcing strategy? State the instances that make outsourcing a good strategic sense.
Answer:-
Outsourcing strategy refers to a strategy of procuring raw materials or parts and components from suppliers or having any value chain activities performed by outsiders. When a firm adopts outsourcing strategy, it relies on outside vendors to supply products, support services pr functional activities. A firm may outsource production, assembling, marketing, delivery, accounting and finance, warehousing or any other function to other business firms who can do them cost-effectively or better than the firm itself.
The Instances That Make Outsourcing a Good Strategic Sense Outsourcing strategy is useful under the following circumstances;
· When an activity can be performed better or more cheaply by outside specialists.
· When the firm intends to give more concentration on the core business.
· When the activity is not crucial to the firm's ability to achieve sustainable competitive advantage. For example, because of relatively less crucial importance of them, maintenance activities, cleaning activities, accounting, data processing and some other administrative support activities can be safely and cheaply outsourced.
· When it reduces the firm's risk exposure to changing technology and changing buyer preferences.
· When the firm adopts a policy of providing better customer services.
· When it allows a company to concentrate on its core business and do what it does best.
Question 39. When does a company adopt growth strategy?
Answer:-
A company may adopt a growth strategy when it wants to expand its market and thereby improve profitability. Usually this strategy is undertaken when a company has enough resources to expand business and is capable to manage the new complicacies and risks involved with expansion.
Question 40. Growth strategies can be implemented in various ways? What are those ways? Discuss.
Answer:-
Growth strategy can be implemented in various ways. It can usually be implemented through:
· Internal Growth: (using own-re sources)
· Acquisition: (one company purchases assets of (another company and absorbs them into its own operations)
· Merger: (two or more companies combine into one company)
· Joint Ventures: (Two or more organizations pool their resources for .a given project or business product, on temporary or permanent basis)
· Horizontal Integration: (Adding one or more businesses that produce similar products, usually buying another organization in the same business)
Introduction: Michael porter originally identified three types of competitive strategies. That can be applied in any business organization.
Michael porter identified three strategies for business organization these three are as follows
1. Cost leadership
2. Differentiation
3. Focus strategy
Conclusion: These three types of strategy can be applied in any business organization irrespective of size and nature of products because of their susceptibility to common use by all business enterprise they are leveled as generic strategy.
Question 2. Explain the meaning of low cost strategy?
Answer:
Introduction:- when a company adopts the strategy of selling its products at a price lower than its competitors this strategy known as low cost strategy.
Meanings of low cost strategy: Low cost leadership strategy is known as low cost provider strategy; cost leadership strategy or simply low cost strategy. A company strategy intends to become the overall low cost provider in the industry in which the company operates its business. A company strategy of selling its products at a lower price than its competitors is known as low cost strategy.
Conclusion: The strategic target of this strategy is a board section of the market where the company offers economical prices. The company emphasizes on cost reduction without reducing quality.
Question 3. Discuss the benefits of low cost strategy to the business organization?
Answer:
Introduction: A business organization may derive various benefits from low cost strategy. To better maintenance an organization pursuing a low cost strategy followings are the benefits :-
1. Overcoming threats from the competitors : Because of its cost advantages a company can protect itself from the business attacks of the competitors .If competitors enter into market with low cost the company can even further cut down its prices.
2. Effective dealing with powerful suppliers:- when suppliers are in few in number as well as powerful they may try to increase prices of raw materials . The company with a low cost strategy can endure such price increases.
3. Facing powerful buyers effectively:- Powerful big buyers may dictate prices of a company products. A company that follows a cost leadership is less affected by such action of buyers.
4. Encountering threats from substitute products:- A low cost leader is able to overcome threats from substitute products. Low cost leadership helps the company retain its market share.
5. Overcoming threats from the entry of potential competitors:- A company with a low cost strategy can discourage other potential investors to come to the market.
Conclusion: - These are the benefits to business organization to pursue a low cost strategy. Every business organization wants to get these benefits from low cost strategy.
Question 4. Discuss the market situations favorable for low cost strategy?
Answer: - A low cost provider strategy works best under the following situations;-
1. When the brand differences from company to company are minor, and at the same time the products are standardized and readily available.
2. When the market is composed of a large number of price sensitive buyers who wants to buy products at lowest possible rate.
3. When there are few ways to achieve product differentiation it means that it’s difficult to differentiate the company products from those of competitors due to nature of products. In such a situation they will go for the lowest price.
4. When switching costs from the company buyers brand to competitors brand are low or zero ten they are likely to opt for lower price.
5. When there are a large number of buyers with significant bargaining power.
6. When price competitors among the sellers / suppliers are very tough then the low cost helps.
7. When the company is in a position to use the lower cost edge to attract price sensitive buyers in great enough numbers to influence total profits.
Question 5. When does a low cost strategy fail?
Answer: -
Introduction:- low cost strategy has some shortcomings or pitfalls. Managers need to take care of this pitfalls so that they can undertake appropriate measures to be successful with this strategy.The shortcomings are as follows:-
1. It may be invite aggressive price cutting by competitors. It may lead to price war that may lead to power profitability.
2. A low cost product does not contain enough attributes to be attractive to prospective buyers then the strategy may fail.
3. Cost advantages may not sustain if competitors can easily imitate the strategy when the competitors are able to copy the cost advantages low cost strategy will fail.
4. The low cost strategy may become ineffective when ther are technological breakthroughs by the competitors in the industry.
Conclusion:- low cost is not always appealing to buyers the ways to achieve cost advantages need to be difficult for others to copy.
Question 6 . Define differentiations strategy?
Answer :-
Introduction: - Differentiation strategy is concerned with product differentiation. It refers to making a company product different from the similar products of the competitors. Although there can be differentiation in services too.
As marketing terminology differentiation means making a product different from the similar products of the competitors. According to Philip kotler, differentiation is the act of designing a set of meaningful differences to distinguish the company offerings from competitor’s offerings. A differentiated product is unique by itself. A product can be differentiated on the basis of its form, shape , quality, durability , reliability, reparability , style design or some other features of the product. A product would become differentiated from that of the competitors if its form (Size, shape or physical structure) is changed.
The goal of differentiation strategy is to achieve a competitive advantage by offerings product customers that is considered as unique in some important ways. The differences made in the product must be of value to customers. A product with differentiated features can command premium prices.
A differentiation strategy may be either ‘board, or, focused. A board differentiation strategy is adopted by a company to be unique in ways that are valuable to a wide range of customers.
Conclusion: A differentiation strategy is called a focused differentiation strategy when the differentiator company goes for segmenting its market into several small segments and then offers a product designed for each market segment. Coca cola follows a broad differentiation strategy in that it offers normal bottled cola can cola, and diet-cola for different segments.
Question 7. What are the different ways for achieving product differentiation?
Answer:-
Introduction:- There are various types of differentiation themes. These themes provide the ways to achieve differentiation. A company can pursue differentiation on the basis of these themes. Hill and jones suggested several ways to achieve differentiation in a company’s products.
Ways of achieve product differentiation ----
1. Differences in quality: A company may differentiate its product simply by incressing quality and reliability. Otobi in furniture and Aziz pipes in PVC products have sometimes followed differentiation strategy based on quality.
2. Innovation:- For highly technologically complex products innovation is an important source for differentiation. Computers, stereos, television sets and refrigerators require differentiation based on new innovated features. When products include innovated/valuable features, customers agree to pay for it.
3. Responsiveness to customers:- a company may differentiate a product based on responsive necessary to customers. When this becomes the basis for differentiation, the company offers comprehensive after-sales services including repair. This sort of differentiation is highly workable in the case of products which require frequent after-sales services.
4. Responding to customers psychological desires:- an important source of product differentiation is a company response to the psychological desires of customers. Customers may desire to have a special status or unique prestige from using a product.
5. Wide choice of customers: - Differentiation of a product may be done by making available items of any kind in the same product line instantly to customers as per their demand.
Conclusion:- It is thus obvious that based on the nature/use of the product and the nature of the target customers, products can be differentiated along various themes.
Question 8. Make a list of the themes for the differentiation of various products?
Answer :
Themes of differentiate various products are as follows :-
- Unique taste
- Multiple features
- Wide selection/one stop shopping
- Special features
- Superior services
- Prestige and distinctiveness
- Product reliability
- Full range of services
- Availability of spare parts
- Complete line of products
Question 9. A product can be differentiated in different ways also the themes are not same for all types of products. Discuss at least five themes for differentiation of five different types of products?
Answer :- The themes for differentiation of different product are as follows :-
- Unique taste Food products such as bread, drink, juice, chocolates etc
- Multiple features Automobiles such as BMW and Mercedes –Benz, and soft ware such as Microsoft office 2000,
- Wide selection/one stop shopping Retail chain shops such Agora and Meena Bazaar, and online bookstore such as Amazon.com
- Special features transparent ball pen or transparent soap or halal soap.
- Superior services Overnight delivery of packets by a courier service company.
- Prestige and distinctiveness 56-inchies television set or Sony home theater, Rolex watch.
Question 10.Discuss the issues that need to be addressed for achieving sustainability of differentiation strategy?
Answer:-
Introduction: - Sustainability of differentiation strategy is an important issue for a company.
If a product differentiation cannot be sustained, the company may incur huge losses.This necessities conducting of consumer survey to determine the needs and preferences of buyers.
A company needs to follow the following issues to achieve sustainability.
1. The company must try to adopt those differentiation approaches that would be hard or expensive for the competitors to copy. However, strong competitors might be able to clone any features of a product over a period of time.
2. Differentiation has to be linked to core competencies , unique competitive capabilities and superior management of value chain activities The basis for a company products differentiation would be sustainable if the competitors cannot readily match their competencies with those of the company.
3. A company may ensure sustainability of differentiation when it can base its differentiation on new product innovation, technological superiority, quality, reliability, unique competitive capabilities and superior as well as comprehensive customer service. This issue is very important because it would be tough for the competitors to easily copy these differencing attributes.
4. The differentiation attributes must be of value to customers. A particular differencing attribute may seem to the company very valuable and appealing but if it is viewed by customers as having no or little value, the differentiation strategy will never sustain.
Conclusion:- Based on the survey results, the company should undertake initiatives to incorporate unique attributes in its products.
Question 11. State the shortcomings of differentiation strategy?
Answer:- The common shortcomings and mistakes in pursuing differentiation strategy include:-
1. Attributes with little value:- While differentiating a product the company may fail to adequately consider the buyers perspective in terms of value of the attributes is of little value to them.
2. Easy to copy:- differentiation strategy will fail if the competitors can quickly copy or imitate the differentiated features. In that case buyers will find no differences among the products of competitors.
3. Inability to benefit buyers:- Differentiation does not work when buyers perceive that it could not reduce their cost or increase their well-being.
4. Over differentiation:- over differentiation occurs in a product when differentiation leads to much higher price than the competitors, or differentiation causes product quality to exceed buyers needs.
5. Failure to understand buyers: - Differentiation obviously fails if the company cannot understand what buyers consider as of value. Every differentiation must be done based on buyer’s viewpoint- not the view point of company.
6. Buyers satisfaction with basic product:- when buyers are satisfied with a basic product, differentiation strategy may fail. Because buyers don’t like to have any extra attributes in the products that will increase.
Conclusion: - It thus appears that differentiation strategy may not always work. It is difficult to give any guarantee that differentiation of a product would result in competitive advantage in the market. Success depends on careful analysis of buyer’s needs and their perceptions.
Question 12.Clarify the meaning of market –niche strategy or focus strategy?
Answer:-
Focus strategy concerns itself with the identification of a niche-market and launching a unique product or service in that market. A niche market is a narrow segment of a total market. Niche can be identified on the basis of certain issues. (a) Particular buyer group (b) Geographic uniqueness (3) special product attributes that appeal only to niche members (d) a particular product line.
After identifying the niche market a company can decide to enter into one or more of the niches with its products. When the products decide to lunches its products in the niche market its strategy is also known as niche strategy. Since the focus of the company is on a niche market. It becomes a focus strategy. Focus strategy involves offering the niche customers a product customized to their taste and requirements. It is directed towards serving the needs of a limited customer group.
According to Hitt, Ireland and Hoskinsson, a niche strategy /focus strategy is an integrated set of actions designed to produce or deliver goods and services that serve the needs of a particular competitive segment.
Conclusion:- A company usually follows focus strategy when it is able to serve a narrow piece of the market better than competitors.
Q13. What are the common requirements for successful implementation of focus strategy?
Ans: A company requires unique skills, capabilities and resources for successful implementation of focus strategy. Some of these are:
· Manager’s ability to explore a well-defined but narrow market segment.
· Clear identification of competitors who serve a market broader than the niche market but are unable of disinterested to serve the niche for some reasons.
· Firm’s ability to provide adequate capital.
· Designing and maintaining a low-cost distribution system, with strong cooperation from the channel members.
· Strong marketing ability and creative flair.
Favorable Market Situations for Focus Strategy
A focus strategy does not work well in all situations. it becomes an attractive strategic option usually in the following situations.
01. Consumer’s distinctive preferences: Focus strategy is especially effective when consumers have distinctive preferences and the competitors are not offering products to satisfy those preferences.
02. Competitors apathy: If competitors are not trying to specialize in the same target niche market, a company’s focus strategy is likely to be effective.
03. Profitable niche: The focus strategy is expected to be highly workable when the market-niche is big enough to be profitable. Very small niche may not bring enough profit for the marketers.
04. High growth potential: Market niche becomes attractive when its growth potential is high. In order to be profitable, the market-niche must be able to offer good growth potential.
05. Availability of different niches in the industry: When an industry has different niches/market segments, the marketer can pick up the attractive niche (s) based on its strengths.
06. Inability or unwillingness of competitors to serve niche market: The competitors who sell their products in many segments of the market may find it costly to operate in a need for specialized products. In such a situation, the focus marketer ( market-focuser) may do well with customized products. Also, market leaders may not like to enter into a niche market as they do not consider it important to be a niche marketer for their business success.
07. No risk of segment overcrowding: A company may find it useful to follow a focus strategy if rival companies avoid specializing in the same segment. This attitude of rivals reduces the risk of overcrowding in the niche market. Overcrowding occurs when many producers operate in a narrow market segment. Few players in the market-niche always reduce competitive risk.
08. Focuser’s competitive ability: To be successful with focus strategy to a large extent depends on the ability of the focuser-company to compete effectively in the market. Effective competition is possible when the company has enough resources, capabilities and market image.
09. Company’s farsightedness: To be successful with focus strategy, the focuser-company must have the farsightedness to pick up those niches that match with its specialized competencies and capabilities as well as attractive by all standards.
Q14. What are they different types of focus strategy? Discuss the risks associated with focus strategy?
Ans: A company can pursue a focus strategy either with a low-cost approach or a differentiation approach. There can, thus can, thus, be two
Types of focus strategy.
a) Focuses Low-Cost Strategy
b) Focused Differentiation Strategy
c) Favorable Market Situations for Focus Strategy
d) Risks Associated with Focused Strategy
Risks Associated with Focused Strategy
Several risks are associated with a focus strategy. These risks originate mainly from more appealing products by rivals, shifting of product-preferences of customers, and high attractiveness of the niche –market. Managers should have a clear idea about these risks so that they can consider them before deciding on the adoption of niche strategy.
01. Risk from more appealing products: If the competitors come up with such products that are more attractive to the customers. There is then a risk of losing the market. Example includes MUM (bottled drinking water) of partex Group. Many rivals have gone out of the market because of the appealing attributes of MUM.
02. Shifting of customers’ preferences: Another risk emanates from the possibilities of shifting customer’s preferences and needs for a particular product in the niche-market. Over time, customers’ preferences may change or they may need a product with different attributes. Such a situation may allure other producers to enter the niche-market. This would intensify competition in the niche-market.
03. High attractiveness of the niche-market: The third risk may come from the niche itself. The niche-market may become so highly attractive that the rivals would jump into the segment and finally it may be flooded with so many competitors. Thus, niche-market profits will slide down. This happened in the garments sector in Bangladesh in 1980s and in accounting software in 1990s.
04. Universality of customers needs: Another risk that the needs of focused customers in the niche-market may become similar to those of customers in a market as a whole. If this happens, the advantages of focus strategy may be reduced of eliminated.
05. Price-war: It may invite aggressive price cutting by competitors, which may eventually lead to price-war that may lead to low profitability.
06. Withering cost advantages: Cost advantages of the company may not sustain for a long period of time if the competitors can copy them easily. So, the ways to achieve cost advantage must be difficult for others to copy.
07. Fear of low attractiveness: If low-cost product does not contain enough attributes to be attractive to prospective buyers, the strategy may fail. Low price is not always appealing to buyers. Attractiveness may be lost if the product is feature-poor or quality-deficient.
Q15. What do you mean by best-cost strategy?
Ans: Best-Cost Provider Strategy Defined
As a concept best-cost means high quality and low price of a This term is used to indicate a situation where the company to achieve lowest cost relative to the competitors who offer simpler products and simultaneously tries to improve quality. Best-cost provider strategy is often called best-cost strategy’, which we would use frequently in this book. Best-cost strategy is the strategy of increasing quality of products while reducing costs. This strategy is applied to give customers’ reducing costs. This strategy is applied to give customers more value for the money.’’ It is achieved by satisfying customers’ expectations on key attributes of products. At the same time, prices are charged lower than that of the competitors. By following the best-cost strategy, the company attempts to attract the value-conscious buyers’ (those buyers who want superior product with lower price)
Best-cost strategy is a hybrid. It balances a strategic emphasis on low-cost against a strategic emphasis on differentiation. It is considered as the most powerful competitive strategy of all. It presupposes relentlessly striving to become a lower-and-lower cost provider of higher-and-higher caliber product.’ Toyota Company of Japan followed best-cost strategy for its Lexus cars to beat Mercedes-Benz and BMW cars.
Q16. What are the preconditions for a company to be successful as a best-cost provider?
Ans: Preconditions for Becoming a Best-Cost Provider
It is easy to say to be a best-cost provider, but it is really a tough job to really become a best-cost provider in the marketplace. In order to be successful, the company must have the following resources and capabilities to simultaneously lower costs and improve quality:
· It must have the resources and competitive capabilities to achieve high quality at a lower cost than the competitors.
· It must be able to incorporate appealing (attractive) features at a lower cost than competitors (such good as-to-excellent product performance or quality).
· It must provide good-to-excellent customer service at a lower cost than competitors.
Q17. What are the preconditions for a company to be successful as a best-cost provider?
Ans: Market Situations Where Best-Cost Strategy Works Best :
A number of factors affect the successful implementation of best-cost strategy. These market-related factors need to be attended properly by the marketers. We present here some of the most dominant market-related issue or market situation where best-cost strategy is likely to work best.
· Buyer diversity: Best-cost strategy will work very well in a market where product definition becomes the norm because of buyer diversity, and also a substantial number of buyers are sensitive to price and quality.
· Positioning advantage: A company with best-cost strategy can position itself near the middle of the market- with a medium-quality product at a below-average price, or with a very good product at a medium price. Many buyers may prefer mid-range products. They avoid cheap, basic products of low-cost producers. They also avoid expensive products of top quality.
· Resources and capabilities: Best-cost strategy will work best when the company has the resources, know-how and capabilities to incorporate upscale product attributes at lower cost. This strategy is ill advised if the resources and capabilities do not permit the company to manage costs down and product caliber up.
Q18. Discuss the strategic advantages and disadvantages to vertical integration ?
Ans: Strategic Advantages of Vertical Integration :
Companies involve themselves in vertical integration basically for gaining competitive position in the market. Vertical integration becomes attractive when it can strengthen a company’s competitive position. Either profit-wise or strategy-wise, vertical integration is likely to be a flop if it fails to produce sufficient cost savings and / or substantially improve company’s technological and competitive strengths. Let us discuss the strategic advantages of vertical integration first for backward integration and then for forward integration.
Q19. Why do some companies follow backward integration strategy?
Ans: A firm can accomplish backward integration by starting its own operations in the production of raw materials or components, or by acquiring a firm already performing the same activities. When the suppliers of a firm are unreliable, or when purchasing from suppliers is too costly, or when the suppliers cannot meet the needs of the firm, it is wise to go for backward integration. More specifically, backward integration for a firm may be suitable when16
· The firm’s present suppliers are especially expensive, or unreliable or incapable of meeting the needs.
· The number of suppliers is small.
· The firm is competing in an industry that is growing rapidly.
· The firm has the resources to manage the new business of supplying its own raw materials.
· Advantages of stable prices are particularly important.
· The firm needs to acquire a needed resource quickly.
Q20. What are your arguments in favor of forward integration strategy for a company that produces perishable products?
Ans: Advantages of Forward Integration
a. The main sprit of forward integration is to enhance a company’s competitiveness.
b. A company achieves greater control over distribution of products. It may at least partially. Lose control over distribution when products are sold through intermediaries.
c. A company can increase sales by avoiding dealers wholesalers, and retailers who may not wholeheartedly push the sales of the company’s products. These intermediaries may be more interested to sell the products of the competitors who offer commissions.
d. When a company integrates forward and directly sells products to end-users, it con reduces distribution costs and even lower selling prices.
e. Because of lower distribution costs, the company can produce a relative cost advantage over certain competitors.
Strategic Disadvantages of Vertical Integration
1. It increases business risk because of diversification and more investments in the other stages of business activities.
2. It may block scare financial resources in some value chain activities of the industry and thus prevents the firm from investing in otherwise profitable ventures.
3. As the vertically integrated firms have the tendency to jealously protect their present investment in the backward and forward activities they slow down investing in research and development.
4. Even if there is cope to procure materials at cheaper cost from outside vendors, vertically integrated firms cannot avail of this opportunity. Because they have already locked themselves into in-house activities.
5. As the vertically integrated firms becomes less flexible due to reliance on in-house activities and own sources of supply, they may eventually face problems in responding to buyer demand for a variety of products.
6. When a firm goes for forward or backward integration or both, they require different skills and capabilities to manage the integrated business activities. Fulfillment of this requirement is always costly and may not finally be worthwhile.
7. Backward integration into production of components and parts may reduce the flexibility of a firm in its manufacturing activity. In technologically sophisticated industries (such as computers) outsourcing component production is often cheaper than producing by a firm itself.
Q21. What do you mean by unbundling strategy? Has it any relationship with outsourcing strategy?
Ans: Unbundling Strategy : When vertical integration does not pay, a company may decide to abandon the strategy of vertical integration and adopt the strategy of de-integration. That is, the company withdraws from the backward or forward integration. It stops selling directly to consumers through own stores. This action of de-integration is know as unbundling strategy. According to Thompson and Strickland, a number of US companies over the past decade have found vertical integration so competitively burdensome that they have adopted vertical de-integration or unbundling strategies.
Q22. What is outsourcing strategy? State the instances that make outsourcing a good strategic sense.
Ans: Outsourcing Strategy
Outsourcing strategy refers to a strategy of procuring raw materials or parts and components from suppliers or having any value chain activities performed by outsiders. When a firm adopts outsourcing strategy, it relies on outside vendors to supply products, support services or functional activities. A firm may outsource production, assembling, marketing, delivery, accounting and finance, warehousing or any other function o other business firms who can do them cost-effectively or better than the firm itself. Many software companies in Bangladesh are using outsourcing strategy in security-guard services. 3M Corp. has outsourced its manifesting operations to a Singapore-based company. Many American firms have outsourced their computer operations to IBM.
The Instances That Make Outsourcing a Good Strategic Sense
Outsourcing strategy is useful under the following circumstances:
ü When an activity can be performed better or more cheaply by outside specialists.
ü When the firm intends to give more concentration on the core business
ü When the activity is not crucial to the firm’s ability to achieve sustainable competitive advantage. For example, because of relatively less crucial importance of them, maintenance activities, cleaning activities, accounting, data processing and some other administrative support activities can be safely and cheaply outsourced.
ü When it reduces the firm’s risk exposure to changing technology and changing buyer preferences.
ü When the firm adopts a policy of providing better customer services.
ü When it allows a company to concentrate on its core business and do what it does best.
Q23. When does a company adopt growth strategy?
Ans: Growth Strategy
A company may adopt a growth strategy when it wants to expand its market and thereby improve profitability. Usually this strategy is undertaken when a company has enough resources to expand business and is capable to manage the new complicacies and risks involves with expansion.
Vehicles for Implementing Growth Strategy
Growth strategy can be implemented in various ways. It can usually be implemented through :
ð Internal Growth (using own resources)
ð Acquisition (one company purchases assets of another company and absorbs them into its own operations)
ð Merger ( two or more companies combine into one company)
ð Joint Ventures (Two or more organizations pool their resources for a given project or business product, on temporary or permanent basis)
ð Horizontal Integration (Adding one more businesses that produce similar products, usually buying another organization in the same business)
Question 24. What are the reasons for the formation of strategic alliances?
Ans- Major reasons for the formation of strategic alliance within the national boundary:
1. To substantially improve competitiveness.
2.To collaborate on technology or development of a new product.
3.To acquire altogether new competencies.
4.To improve supply chain efficiency
5.To gain economics of scale in production and distribution
Major reasons for the formation of strategic alliance outside the national boundary:
1.To build a market presence in the foreign markets.
2.To assemble more diverse skills, resources, technological expertise and competitive capabilities than a company can assemble alone.
3.To acquire valuable resources/capabilities through alliances that a company could not otherwise obtain on its own.
4.To gain `inside technology’ about unfamiliar markets and cultures in foreign countries.
Question 25. Discuss the major reasons for the failure of strategic alliances?
Ans- Major Reasons for the failure of strategic alliances are as follow:
1. Inability of the partners to work together.
2. Failure or delay in responding and adapting to changes in the internal and external environment.
3. Lack of willingness on the part of the partners to renegotiate the terms and conditions of alliances.\
4. Failure of he partners to value the skills and resources each partner brings to the alliances.
5. Rivalry between partners in the marketplace.
6. Inability of the partners to ensure win-win outcomes from the co-operative agreements.
Question 26. what do you mean by joint venture? Discuss the situations that are suitable for joint venture more business?
Ans-A joint venture refers to a new organization established by two or more organization.\it is an agreement where two or more films capital in a venture.
Situation suitable for joint venture
The following situations are suitable for joint venture:
1. All the situations suitable for strategic partnerships.
2. A business activity where pursuing an opportunity is complex or risky, a joint venture is a good way to undertake that opportunity,
3. A situation where pursuing an opportunity requires unique competencies. when a firm does not have s
4. where entry to a foreign market needs local foreign partner. The difficulty in entry may arise from restrictions by the government or local culture and socio-political situations.
Question 27. What are the difficulties that may arise when two or more firms form joint venture?
Ans- the difficulties that may arise when two or more firms form joint venture are as follow:
1. Complications arise in dividing the share of control between the partners. The partners in joint venture may have controversies over the role each would play in the organization.
2. The partner companies run the risk of giving technical know how away to their counterparts.
3. Conflict over how to run the joint venture can tear it apart and result in business failure,
4. In case of international joint venture, conflicts may arise over the use of local resources, local technology, local employees, compliance with local standard and policies, export volume, use of intellectual property and technology etc.
5. Disputes may stem when foreign partners start neglecting the local partner after the foreign partner has overcome the difficulties.
6. Local partners may start own business by seeding their relationship with joint venture.
7. The joint venture firm may begin to compete more with one of the partners than the other.
8. Problems may arise when the sponsoring firms do not provide support to the joint venture equally.
9. Although the partnering companies may not have problems, they may face problems due to complaints from the customers about poorer service or about issues,
Question 28. Discuss the purposes of both merger and acquisition strategies?
Ans- The purposes of merger and acquisition are primarily similar.They can-
* Dramatically strengthen a company`s market position.
* Open new opportunities for competitive advantages.
* Fill resource gaps and allow the new company to do things which the prior companies could not do alone.
* Combine the skills and competitive capabilities of the merged companies.
* Achieve wider geographical coverage and greater financial resources.
* Add production capacity and expand into new areas; and/or
* Censure considerable cost-saving through combining operations of a number of companies.
Question 29. Distinguish between merger and acquisition?
Ans-Difference between merger and acquisition are given below:
1) Merger takes a place when two or more organizations merge together and their operations are absorbed by a new organization.
2) Merger can take place among organizations within the same country or among organizations across the national borders.
3) In the business world, a merger is a combination of two or more companies. When combined together, a new company is created.
4) Their assets and liabilities are combined. Merger can take place among organizations within the same country or among organizations across the national borders.
Acquisition-
1) Acquisition is a strategy through which one firm buys a controlling or 100 percent interest in another firm.
2) An acquisition occurs when one company purchases another company.
3) It is an strategy through which one firm buys a controlling or 100 percent in another firm by making the acquired firm a subsidiary business within its portfolio.
4) The acquired company’s legal identity is lost. The acquirer company remains independent and operates its business as it is.
Question 30. What are the reasons for which the need for cooperative strategies has been heightened in the recent years?
Ans- In the recent years, the need for cooperative strategies has been heightened because of the following:
1. Intensified competition in the domestic market.
2. Opening up of a vast market in different parts of the world.
3. Advances in telecommunication and information technology.
4. Development of transportation across the world by roads, air and sea.
5. Globalization of business.
6. Trade liberation in many countries since the emergence of the world trade organization(WTO).
Question 31. ‘cooperative strategies are prevalent in those industries where there are rapid changes in technology, business environment and customer needs.’ Explain the significance of this statement with an example of a relevant industry in bangladesh.
Ans- ‘cooperative strategies are prevalent in those industries where there are rapid changes in technology, business environment and customer needs.’ An example of such an industry is computer industry. The computer components and software are produced by a number of companies. Producers are mostly different for microprocessors, motherboards, monitors, disk drives, memory chips, keyboards, mouse, sound cards, multimedia components etc, Thus, there is a need for close collaboration among the producers of all these diverse products.
Question 32. Explain the significance of harvest strategy. When should a company follow harvest strategy?
Answer:-
When future growth appears doubtful or not cost-effective, companies want to 'harvest' as much they can from the product. It limits additional investment and expenses and maximizes short-term profit and cash flow. When a company adopts harvest strategy, it deliberately sacrifices its market position in return for near-term cash flows or current profitability. The intention of the company in such a strategy is to earn immediate cash from, the existing business and use the cash in other more profitable business activities. Usually, a diversified company having various lines of businesses deploys harvest strategy (also known as endgame strategy, or asset reduction strategy) for non-core business units in weak competitive positions.
Question 33. What are the preconditions for success wilh offensive strategy?
Answer:-
In order to be successful with offensive strategies a company must ensure that it has been able to -
Win customer acceptance of its product with a reasonably short period of time (if it is not a highly innovative or first-time-in-the-world product).
Accumulate requisite resources and capabilities for deployment;
Discourage the competitors through offensive actions to launch counter-offensives;
Come up with follow-on offensive and defensive moves one after another to protect its market position.
Question 34. What is meant by defensive strategy? What kind of strategies can be considered as defensive strategies?"
Answer:-
A defensive strategy consists of a company's actions directed for protecting its competitive advantage. A company pursues defensive strategies to protect competitive 'advantage through protecting existing market share. Companies usually follow defensive strategies primarily to 'lower the risk of being attacked' and influence the competitors lo aim their efforts at other competitors.
A company's defensive strategies may include:
· Offering dealers/distributors special discount or better financing terms just to discourage them not to carry competitors' production.
· Entering into agreement with dealers/distributors to work as the company’s exclusive dealers/distributors.
· Extending the warranty period or offering free training to the customers to discourage them from buying competitors' products.
· Making sustainable arrangement for delivery of spare parts or after-sales service faster than the competitors.
· Making early announcement about launching a new product so that potential customers postpone buying from competitors.
· Introducing new features of products or new version or new model and enter into niche markets, which would create obstacles to competitors to enter the niches.
Question 35. What are the first-mover advantages and late-mover disadvantages?
Answer:-
Several advantages emerge when a firm takes a strategic move as the first-mover- The first-mover becomes the pioneer. Pioneering helps the firm to:
build reputation in the marketplace;
attract buyers to the products and the firm;
gain new knowledge of the industry's key success factors
comprehend the critical issues in the market
Produce an absolute cost advantage over the competitors because of its early commitments to supplies of raw materials, new technologies and distribution channels'
create a pool of loyal customers who are likely to repeat purchasers of products of the firm; and
discourage potential new entrants to refrain from entering into the marks through creation of strong entry barriers.
Question 36. What are the first-mover disadvantages?
Answer:-
Making a first-move has mixed blessings. It may be very risky to initiate a strategic move first. The following are some of the disadvantages of first-mover strategy (these are advantages of being late-mover):
It is highly costly to become the first-mover, because the firm has to create demand in the market for the product and so it needs to spend huge amount of money for promotion.
It may invite serious adverse effects on operations of the firm if the industry is such that there are frequent changes in technology (such as in the software industry or in the telecommunications industry). In such a situation, the late-movers gain the advantage of using latest technology.
The late-movers can copy/imitate the technical-how easily and eventually may be able to oust the first-mover from the market.
The late-movers may become so powerful because of their ability to bypass the first-mover in developing skills and technology that they can snatch-away the customers of the first-mover.
Question 37. What do you mean by unbundling strategy? Has it any relationship with outsourcing strategy?
Answer:-
The company withdraws from the backward or forward integration. It stops producing parts and components or stops selling directly to consumers through own stores. This action of de-integration is known as unbundling strategy. According to Thompson and Strickland, a number of US companies over the past decade have found vertical integration so competitively burdensome that they have adopted vertical de-integration or unbundling strategies.
Question 38. What is outsourcing strategy? State the instances that make outsourcing a good strategic sense.
Answer:-
Outsourcing strategy refers to a strategy of procuring raw materials or parts and components from suppliers or having any value chain activities performed by outsiders. When a firm adopts outsourcing strategy, it relies on outside vendors to supply products, support services pr functional activities. A firm may outsource production, assembling, marketing, delivery, accounting and finance, warehousing or any other function to other business firms who can do them cost-effectively or better than the firm itself.
The Instances That Make Outsourcing a Good Strategic Sense Outsourcing strategy is useful under the following circumstances;
· When an activity can be performed better or more cheaply by outside specialists.
· When the firm intends to give more concentration on the core business.
· When the activity is not crucial to the firm's ability to achieve sustainable competitive advantage. For example, because of relatively less crucial importance of them, maintenance activities, cleaning activities, accounting, data processing and some other administrative support activities can be safely and cheaply outsourced.
· When it reduces the firm's risk exposure to changing technology and changing buyer preferences.
· When the firm adopts a policy of providing better customer services.
· When it allows a company to concentrate on its core business and do what it does best.
Question 39. When does a company adopt growth strategy?
Answer:-
A company may adopt a growth strategy when it wants to expand its market and thereby improve profitability. Usually this strategy is undertaken when a company has enough resources to expand business and is capable to manage the new complicacies and risks involved with expansion.
Question 40. Growth strategies can be implemented in various ways? What are those ways? Discuss.
Answer:-
Growth strategy can be implemented in various ways. It can usually be implemented through:
· Internal Growth: (using own-re sources)
· Acquisition: (one company purchases assets of (another company and absorbs them into its own operations)
· Merger: (two or more companies combine into one company)
· Joint Ventures: (Two or more organizations pool their resources for .a given project or business product, on temporary or permanent basis)
· Horizontal Integration: (Adding one or more businesses that produce similar products, usually buying another organization in the same business)
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