Strategic Management in a Global Context

Question: Describe about the Strategic Management in a Global Context. Answer: 1. Porters Five Forces Model of Airline Industry- Threats of New Entrants: Huge capital investment is required to enter the airline industry. Moreover, it also requires sophisticated knowledge and expertise in this industry, which is a limit. This implies that there is weak force of threats from the new entrants. Threats of Substitutes: There are other substitutes for transportation that can be easily obtained, like, train; ship; bus; car etc. However, the time taken and distance coverage by the airplane is a major advantage. Hence, though there is availability of substitute transport but the force is not strong. Bargaining Power of Supplier: Aircraft; Fuel and labor are the major inputs of the airline industry. All of these are affected by external environment and the power of the suppliers of this industry is immense. Bargaining Power of Buyer: The power of the buyers or fliers is moderately high, because of entry of low cost carrier and they have options to book tickets through multiple channels. Intensity of Rivalry: Airline industry faces extreme challenges as there are many airline companies and low cost carriers; those are engaged in price war. They compete with each other in terms of safety measures and services provided to the consumers. 2. Political Environment Political factor highlights security measure in manufacturing of Automobile and the features of the product. Laws and regulations around environmental measures are also stringent in United States. Economical Environment: Growth of the country; disposable income; unemployment rate are the major economical factor that affect the Automobile industry. Social Environment: Changes in buying pattern or changes in consumers preference affect the industry. Demographics also affect the choice of cars in this sector. Technological Environment: R D Activity in United States in rapidly growing and new technologies are innovating frequently. Eco-friendly technology of production and waste reduced by the vehicles, leads the industry towards more sustainability. Political Environment is the major factor that influences the automobile industry in US. The regulations are being imposed on pollution or waste generated in this industry. Moreover, the government has also imposed safety measures in the vehicles produced in this sector. This regulation will make the companies more concern about the penalties; however, over the years these restrictions are to be more stringent. 3. The firms are affected by three levels of external environments, such as, remote environment; industry environment; operating environment. The firms are affected related to the remote or broader environment through economic; social; political and technological factors. Industry environment affects the firm by barriers for the entry; power of the buyers; power of the suppliers; threat from substitute goods and competitive rivalry. The firm is related to the operating environment through customers; competitors; creditors; suppliers; government agencies; communities; activist group and labors. In the operational environment, the customer; suppliers and competitors are the major stakeholders. This is because, these stakeholders are mostly affected due to any external uncertainty affects the company. 4. When the resource endowment of the firm is similar and market needs served by the company is also similar, then it indicates that the company is Direct competitor. It also implies that identical goods are being produced and are sold in the same market. Potential entrants are often not considered while identifying the competitors. Moreover, misleading signals can often divert focus from the competitors. Another mistake is that the challenges faced by the competitors might be different from own company. Four Corners Analysis can be used to identify the direct competitors. By identifying the financials goals, organizational structure, networks of the business, marketing strategy; it can be said whether the company is direct competitors or not. 5. If the firm has sufficient capital to invest for setting up new business and it already has potential customer base, then the firm will be considered as potential entrants in the industry. If there is availability of similar kind of goods or even identical goods, then we consider that good to be substitute of the other good. If the consumers shifts to buy the same product from different company or due to price rise they substitute that good with other good, then the competing product is a substitute. 6. Environmental determinism refers that physical environment affects the social and cultural development. Especially, the climate and the terrain are major determinants. The performance of an organization also depends on environmental determinism. Strategic choice involves identification and evaluation of alternatives that leads to choice. It helps the organization to achieve their targets. There are three approach in making strategic choice, like, planned approach; enforced choice approach; Experiencebased approach and Command approach. Stakeholder approach of a business recognizes the stakeholders of the company and frames a model. In this approach, the it decided who or what really counts. The stakeholders are affected by the performance of the firm. It combines market based and resource based view. The employees; consumers; suppliers; government are major stakeholders and sometimes competitors are also counted as shareholders. Strategic Enactment is an alternate approach to the strategic choice. It provides explanations in order to make strategy from that of strategic choice. Enactment theory is a process where people achieve continuity and coordination. Enactment helps in identifying the organizational structure. Adaptation refers to the extent to which the organization adjusts and modifies according to the change in the environment of the business. 7. The resource-based view is strategic approach of competitive advantage. In order to transform a short-term competitive advantage into long term sustainability, the firm require resource. The resource-based view includes identifying potential resources and deriving strategy in order to apply them in order to create synergy. If the resources are rare; valuable; inimitable and no substitutable, then the strategy can achieve competitive advantage. 8. The strategy of Blue Ocean incorporates four principles: creating uncontested market space; making the competition irrelevant; creating and capture new demand and breaking the value-cost trade off. The Blue Ocean theory opposes Porters Five forces model that enables the business to determine how to compete best in the existing marketplace. According to the Porters five forces, they wants to compete in the challenging market, whereas, the Blue Ocean theory prefer to develop a new market for a completely new product in order to avoid the competition. Murray, the proponent of Blue Ocean encourages the company to focus less on the competitors and focus more on alternatives. Similarly, according to this theory focus should be on current consumers should be less and more emphasis should be given on potential customers. In contrast, the Porters Five forces model identifies the power of the existing supplier; buyers; competitors; threats of new entrants and substitutes; in order to handle these challenges. 9. Porters generic strategy has three strategies in order to attain competitive advantage. They are, cost leadership; differentiation and focus. Cost leadership strategy aims to attain increase profits by cutting cost of production and charge industry-level price. Through charging lower prices, the company can improve market share. The limitation of this strategy is that, new advanced technology may not be applied in the organization. This is because; advance technologies require huge investment and push the price in the upward direction. Differentiation strategy aims to make different products those are more attractive than those of the competitors are. Through RD; innovation and offering high quality product can be differentiated. The limitations of this strategy are imitation, because if other business steals the strategy or product then the consumers will also be shifted to other company. By implementing Focus strategy, the company concentrates on niche markets by understanding the dynamics of the market and the customers. The limitation of this strategy is that it is not enough to focus on a small segment as the capacity of the company will be too small to serve in the broader market. 10. SWOT Analysis of Tesco Plc. in UK Strengths Weaknesses Largest Retail Company in the world Range of Products Clubcard facility to the customers Internet shopping facility Global operations Strong brand value Depends mostly on UK and Europe market High transport cost Bad debt from credit cards Loss of brand value due to commercial income scandal in 2015 Opportunities Threats Increase in the product diversification Expanding in the international market Involving more in the financial sector Own brands of digital entertainment Dependency of customers on online shopping Strategic alliance with many companies Growing competitors in UK market and in international market Takeover of ASDA by Wal-Mart Currency fluctuation Loss of employee morale Customer intolerance of out-of-town shops 11. An organizations options for growth are listed as follows: Diversification through Product development Modernization Partnership/ Merger and Acquisitions/ Joint Venture Foreign Collaboration Expansion Example of company external growth strategy: Microsofts acquisition of Nokia Example of company internal growth strategy: Samsungs diversification (from television to Smartphone and to other home appliances). 12. When approaching the market place with a differentiation strategy based upon speed, this implies that speed of services has to be improved. In such case, the supporting activity like technology development will become primary activity. In addition to this, more labor will be required, indicating human resource management being another primary activity. To differentiate the products in terms of speed, the distribution and outbound logistic must be improved in the value chain. 13. In the stage of introduction of a product, the competitive strategy of a firm will be to promote by advertising method in order to develop a market for product. In the growth stage, the firm takes measures to build brand value and through different strategic implementation, it tries to capture major market share. In the maturity phase of the product cycle, the objective of the competitive strategy will be to attain maximum profit. In the stage of decline of the product, the firms may choose several strategies, for example, if sale of a product is declining in the market, the firm may select another market and will expand its business. In the declining stage a common strategy of the firm is to diversify its production, i.e. it will now focus on developing different items. 14. The market fails when the transaction costs are too high to persuade a company to produce goods and services in-house instead of purchasing it in the open market. By the term taper integration, it is meant that when a firm produces part of its requirement within its domain and buys rest of the things it required from the open market. When a firm does not hold 100% of the adjacent business units in the supply chain, then it is known as quasi integration. The firms themselves do not produce all goods of services required for its final production. Instead, it tries to reduce cost at different parts of production. They violate the principle of market failure in order to ensure better flow across the supply chain and better control over the operations. Thus, the company pursues taper integration and buys some of its required ingredients from outsiders 15. The functional level strategy must be consistent within the function; between function and with the generic-level strategy. This strategy helps to achieve corporate and business unit objectives by maximizing the productivity and resource. It is important that the functional strategies be reviewed periodically in order to be consistent with the business level strategy and supportive of corporate level strategy as well. One functional strategy must be consistent with the other functional strategy. It must be consistent with the capabilities in order to design higher-level strategies. The functional level strategies must also be consistent with the manufacturing; delivering of products or services as it coordinates various functional and operations. In short, it can be said that functional level strategy must help the organization to achieve its objectives on the business and corporate level. 16. Concurrent control is engagement in the current process. This incorporates the control or regulation of ongoing process. The observation or the monitoring of the system is made in real time while engaging in the process. It requires understanding specific tasks involved in the process and the relationship. The concurrent controls start with standards and all activity of the employee is evaluated against the standards. Products and services are checked and concurrent controls make sure that the highest quality goods and services are produced. The process control controls that are associated with the production and service process. it also deals with the quality of services. By implementing this control, it can be ensured whether the products are meeting specifications or not. Process control also ensures that progress and success continues at every stage of production. In the strategic management, customer survey is one of the major tools of the strategic control. It is important because; customers satisfaction provides the entrepreneurs and the marketers an idea that they can improve further and their strategy is in the right direction. It measures how well is the customers satisfaction standard. 17. Finance strategy provides capital structure and funds. Human resource strategy improves the number of hiring; reduces hiring cost. However, these are account-based measures. The measures can be manipulated. Therefore, the control cannot be implemented based on the numerical values of the companys performance. Therefore, by market-based measures are preferred by the executives to mitigate the problem of account-based measures as control. This measure is not limited to the single aspect of firm performance. 18. There are three types of concentration strategies, market penetration; product development and market development. In this strategy, the business focuses on a single product and market. This strategy enables the company to invest more resources in production and marketing in the particular area that it wants to develop. The benefit of this strategy is to create reputation within market and loyalty among the customers. However, the disadvantage of this strategy is that, the preference of the customers often changes due to innovation of technology, which makes the product obsolete. Moreover, the economic degradation might cause failure of this strategy because of focusing on single aspect. The integration facilitates the continuous alliance of different business strategies. The benefit of this strategy is to improve the overall competitiveness and productivity through its efficiency and reduce costs all over the supply chain. In addition to this, it differentiates the business from its rivals by specializing in highly competitive assets. The major disadvantage of integration strategy is that, to have enough supply for downstream operations excess upstream capacity needs to be established, which lead to hit back from the previous suppliers. Integration makes raw materials scarce; thus creating barriers to entry in the market. this limit the competition. By adopting diversification strategy, the company enters into the new market or industry by creating new product for that market. The more the business is diversified the more will be the customer base. This will lead the company to the path of fast growth. By diversifying the per unit production cost will also decrease. Hence, it increases profits and cash flow of the company. The disadvantage of this strategy is that lack of expertise in totally unrelated field of diversification. Moreover, it requires additional infrastructure; employee training that leads to increase in total cost of the company. Example of firm with concentration strategy: Cocacola Example of firm with integration strategy: Starbucks various suppliers Example of firm with diversification strategy: Samsung