MARK COMPONENT

10% participation
• Attendance
• Discussion

30% Simulation
• mid-term test
• Deadline: 14th and 15th session
60% final exam
PRESENTATION TOPIC

Choose a domestic or international firm, then analyze

its business strategy

Deadline for company name registration: 26/1/2024

Deadline for performance: 14th and 15th session
TEXTBOOK
REFERENCES
 INTRODUCTION TO
STRATEGIC MANAGEMENT

PhD. Nguyen Hong Van

 A BRIEF HISTORY OF STRATEGIC MANAGEMENT
1960s & early 1970s:
Corporate planning
• The beginning of strategic planning
• Enterprises set out development trends
based on analysis of the past.

Late 1970 & 1980s:

The Evolution of Strategic Emergence of strategic management
Management • At this stage, Enterprises focus on how to win
over competitors.
• The theory of competitive strategy by M.
Porter

1990s- nowadays
The quest for competitive advantage
• Along with strategic planning, businesses
focused on strategy implementation and
control
 DEFINITIONS OF STRATEGY

- Long- term direction of an organization

- Actions to achieve a long-term goals
- Resource allocation

Walt Disney: from a cartoon studio to a world entertainment brand

Vingroup: from real estate projects to sustainable ecosystem development

 DEFINITIONS OF STRATEGY

A.D. Chandler, Strategy and Structure: Chapters in the History of American Enterprise, MIT Press, 1963, p. 13
M.E. Porter, ‘What is strategy?’, Harvard Business Review, November–December 1996, p. 60
P.F. Drucker, ‘The theory of business’, Harvard Business Review, September–October 1994, pp. 95–106
H. Mintzberg, Tracking Strategies: Towards a General Theory, Oxford University Press, 2007, p. 3.
STRATEGY: CURRENT POSITIONING, FUTURE DIRECTION

STRATEGY AS POSITIONING STRATEGY AS DIRECTION

What do we want to become?

Where are we competing?
- Vision statement
- Product market scope
- Geographical scope What do we want to achieve?
- Vertical scope - Mission statement
- Performance goals
How are we competing? How will we get there?
- What is the basis of our - Strategy, tactics, plans
competitive advantage? - Priorities for capital
expenditure, R&D, marketing, etc.
- Growth modes: organic
growth, M&A, alliances

COMPETING FOR THE PREPARING FOR THE

PRESENT FUTURE
 STRATEGY

What is Strategy for?

• How to define an organisation’s purpose?
– Mission Statement
– Vision Statement
– Statement of Corporate Values
– Statement of Objectives
– Strategy Statement
VISION
• Vision is the highest desire, the highest aspiration, the most
general that an enterprise wants to achieve in the future
• The process of determining:
- How good does the business want to be?
- How good can the business be?
- How good should the business be?
FTU’S VISION STATEMENT
Đến năm 2030, Trường Đại học Ngoại thương là trường đại học tự
chủ, theo định hướng nghiên cứu, nằm trong nhóm các trường
đại học hàng đầu của khu vực. Trường bao gồm các trường trực
thuộc, các viện nghiên cứu, doanh nghiệp, trường phổ thông
chất lượng cao. Trụ sở chính của trường đặt tại Hà Nội, các phân
hiệu đặt tại Hà Nội, Quảng Ninh, thành phố Hồ Chí Minh, các
vùng kinh tế trọng điểm trong cả nước và ở nước ngoài.
VINGROUP’S VISION STATEMENT
Vingroup định hướng phát triển thành một Tập đoàn Công
nghệ - Công nghiệp - Thương mại Dịch vụ hàng đầu khu vực,
không ngừng đổi mới, sáng tạo để kiến tạo hệ sinh thái các
sản phẩm dịch vụ đẳng cấp, góp phần nâng cao chất lượng
cuộc sống của người Việt và nâng tầm vị thế của thương hiệu
Việt trên trường quốc tế.
VISION STATEMENT

”To be the largest coffee supplier in the world”

“To be the best and strongest sportswear company in

the world”

“To create the most attractive electric car of the 21st century”

“To be a destination for customers to save money,

no matter how they want to shop”
MISSION
• A statement of purpose that is of the value (tangible and
intangible) of the business providing
• Key questions:
- Why do we exist?
- What industry d o we operate in?
- What purposes do we pursue?
- What target of customers do we serve?
FTU’S MISSION STATEMENT
Sứ mệnh của trường Đại học Ngoại thương là đào tạo nhân tài và
cung cấp nguồn nhân lực chất lượng cao trong các lĩnh vực kinh
tế, kinh doanh, quản trị kinh doanh, tài chính - ngân hàng, luật,
công nghệ và ngoại ngữ; sáng tạo và chuyển giao tri thức khoa
học đáp ứng yêu cầu của sự nghiệp CNH, HĐH đất nước; phát
triển năng lực học tập, nghiên cứu khoa học của sinh viên; rèn
luyện kỹ năng làm việc và lối sống trong môi trường quốc tế hiện
đại. Trường còn là nơi phổ biến tri thức khoa học, nghề nghiệp
cho cộng đồng doanh nghiệp và xã hội, là trung tâm giao lưu
học thuật và văn hóa giữa các quốc gia và dân tộc trên thế giới
MISSION STATEMENT
“Inspire and nurture the human spirit – one person,
a cup of coffee and a neighborhood at a time

“Bring the inspiration and innovation to athletes around the world

People have body that becomes athletes”

“Accelerate the world's transition to sustainable energy

That electric car could be better, faster and more fun than
a gas-powered car”

“Save people money and help them with better living standard, serve others,
strive for excellent results, respect people and behave with integrity”
 KENNY’S (2014)
TYPOLOGY OF
FORWARD-LOOKING
STATEMENTS

Kenny, G. (2014). Your company’s purpose

is not its vision, mission, or values. Harvard
Business Review, September.
STRATEGIC MANAGEMENT
Strategic management is an organization’s process of
continuous planning, organizing, monitoring, analyzing and
controlling all that is necessary for an organization to meet its
goals and objectives in pursuit of a future direction. This includes
decisions and actions that determine the long-run performance
of an organization

“Strategic management is both an art and a science…”

STRATEGIC MANAGEMENT PROCESS: 5 STEPS
• Step 1: Identify strategic goals and objectives
• Step2: Conduct external and internal analysis (business
environment analysis)
• Step 3: Strategic choice
• Step 4: Implement strategic choice
• Step 5: Controlling, evaluating and adjusting
APPLYING STRATEGY ANALYSIS: THE STRATEGY PROCESS

See Pryce and Thompson (2017) for a detailed strategy process model
STEP 1: IDENTIFY STRATEGIC GOALS AND
OBJECTIVES
• Mission
• Vision
• Core values
• Strategic objectives
(SMART)
STEP2: CONDUCT EXTERNAL AND INTERNAL
ANALYSIS (BUSINESS ENVIRONMENT ANALYSIS)

• External environment (Opportunity and Threats)

• Internal environment (Strengths and Weaknesses)
STEP 3: STRATEGIC CHOICE

• Develop and evaluate strategic alternatives

• Select appropriate strategies – Feasibility – Acceptability -
Suitability
• Match org’s strengths to opportunities
• Correct weakness and guard against threats
STEP 4: IMPLEMENT STRATEGIC CHOICE
• Designing organizational structure
• Designing control system
– Market and output controls
– Bureaucratic controls
– Controls through organizational culture – Rewards and
incentives
• Matching strategy, structure, and control
• Fit among strategy, structure, and control
STEP 5: CONTROLLING, EVALUATING AND
ADJUSTING

• How effective the strategies have been?

• What adjustments, if any, is necessary?
STRATEGIC BUSINESS UNIT (SBU)
• A strategic business unit (also known as SBU) is a business term used to
present an independently managed entity or unit of a large company
• Those strategic business units often have their own visions, missions,
objectives, and course
• Their planning is done separately from other businesses, and their objectives
and goals are different from the parent enterprise and elemental to the
long-term performance of the business
• Being responsible for its own strategy and bottom line, a strategic business
unit can be a division, a team, or a completely separate business
• Different types of strategic business units:
- Products and services
- Location
- Customer segment
- Innovation
LEVELS OF STRATEGY
 LEVELS OF STRATEGY

Corporate Concerned with the overall scope of an Diversifying from the

strategy organisation and how value is added to organisation’s original
the constituent business units. activities into other activities
e.g. Tesla selling batteries for
home use.

Business Concerned with the way a business Market positioning, and

strategy seeks to compete successfully in its marketing and product
particular market. improvement strategies
e.g. Developing a lower cost,
volume car for Tesla.

Functional/ Concerned with how different parts of Addresses the question of

operational the organisation deliver the strategy ‘how to operate’, and
effectively in terms of managing includes strategies for human
strategy resources, processes and people. resources, finance,
operations, marketing, etc.
 CLASS EXERCISE

Group question:
1. What makes a successful strategy?
2. Give an example of a business with successful strategy that
you have known?
WHAT MAKES A SUCCESSFUL STRATEGY?

Successful strategy

EFFECTIVE IMPLEMENTATION

Long-term, Profound
Objective
simple and understanding of the
appraisal of
agreed competitive
resources
objectives environment
ANALYSIS OF BUSINESS ENVIRONMENT

Nguyen Hong Van

 BRIEF CONTENT

1. Concept of Business environment

2. External environment analysis
3. Internal environment analysis
4. SWOT analysis
BUSINESS ENVIRONMENT
Business environment is the context that covers all business
activities of enterprises in the economy. Including the total of
objective and subjective factors, mobilizing and interacting with
each other, having direct or indirect impacts on business
activities of enterprises
Company
•

Industry

Company

Micro-
economic factors
ANALYSIS OF THE EXTERNAL ENVIRONMENT:

MACRO AND INDUSTRY FACTORS

Nguyen Hong Van

 MARKET-BASED VIEW OF STRATEGY
• The external context - or external environment - refers to all aspects of
an organization which exists beyond the boundaries of its direct
control.
• A focus on the external context and its importance as a determinant
of organizational strategy is often referred to as a market-based view
(MBV) of strategy.
• It is also known as an ‘outside-in’ perspective on strategy and
organizational performance.
• The MBV has its roots in industrial economics theory, which holds that
organizational conduct in the external environment, relative to its
competitors, can create competitive advantage, and will be a key
determinant of its survival and success in the long run.
 MARKET-BASED VIEW OF STRATEGY

The business environment

External environment

Internal environment

Ecosystem interpretations of organizational external context. Based on Tsujimoto, M., Kajikawa, Y., Tomita, J., and Matsumoto, Y. (2018). A review of
the ecosystem concept towards coherent ecosystem design. Technological Forecasting and Social Change, 136, 49–58.
MACRO ENVIRONMENT ANALYSIS
 THE PESTEL FRAMEWORK
• Political: the local, national, and supra-regional political trends that shape the operating environment for the
organization. This will take into consideration how the political will of powerful individuals, political parties, campaign
groups, and local, national, and regional governments might have a direct or indirect impact on the operating
environment for the organization.
• Economic: the health and trends (often cyclical) of economic activity which have an impact on organizational
activity. This will address factors such as energy prices, interest rates, foreign exchange, national growth, etc. in the
economic settings in which the organization operates.
• Social: trends in attitudes and demographics within society at large which shape the products, services, and way of
operating of the organization. Reviewing macro-social conditions will consider how customer demands and needs
are evolving in the long term and how employee expectations and availability are shifting.
• Technological: developments in product, process, and service-enabling technologies, and the associated
possibilities and impacts on the value the organization creates and how it operates. This will consider how
technological developments in all walks of life and locations might cross over to the domain of the organization.
• Environmental: a macro-review of how the changing state of the natural environment will affect the activities of all
within an organization's ecosystem. Broadly, this will address the implications of climate change on the natural
environment and acceptable organizational practices, regulation of environmental impact (e.g. waste, emissions,
carbon footprint), and incentives and opportunities for progressive environmental practices.
• Legal: direction of travel and scheduled developments in the laws, legislation, and regulation affecting all
stakeholders in the localities in which an organization operates. By considering the current, and likely, future, formal
parameters within which an organization operates, decisions can be made about how to optimally organize activity,
and how to reconfigure products/services to exploit opportunity and avoid the costs of non-compliance presented
by the legal context
• Globalization
ECONOMIC CONDITIONS
• Economic conditions
• Economic growth rate
• Inflation rate
• Interest rate
• Exchange rate

Impact on:
• Demand level
• Supply level
SOCIAL AND CULTURAL CONDITIONS
Sociocultural environment includes norms and values that are accepted
and respected by a particular society or culture

“When in Rome, do as the Romans do”

SOCIAL AND CULTURAL CONDITIONS
Consists of:
• Concepts of ethics, aesthetics, lifestyle and occupation
• Customs, traditional practices, lifestyle
• General level of awareness and education of society
POLITICAL/ LEGAL CONDITIONS
• Politics: the Party's lines and policies, domestic and international
political environment, socio-economic development strategies and
policies  the level of impact on sectors is different

• Laws: including Government regulations, legal documents ... that

affect on the business operation and other business activities
POLITICAL/LEGAL CONDITIONS
• Political system: stable/ unstable
• Political risks
• Legal system: De/regulation
• Government incentives
• Commercial policies .
Impact on:
• Policies
• Strategies
ENVIRONMENTAL CONDITIONS
• Including: natural conditions, geographical location, climate, natural
resources
• The business strategy of the enterprise must be matched with the
following requirements:
- Prioritizing the development of natural extraction activities on the basis
of maintenance and regeneration
- Saving and using of resources efficiently, switching from non-
renewable natural materials to using artificial materials
- Promoting R&D activities to protect the environment, reduce the
impact of pollution
TECHNICAL CONDITIONS
• Technical advancements
• Technical application (production line, modern machine, …)
TECHNICAL CONDITIONS
• Impacts on:
- product quality and cost of production
- product life cycles and technology life cycles
- product demand
GLOBALIZATION
Lowering or removing barriers to
international trade and investment

Impacts on:
- Creating market expansion opportunities
- Learning management experience,
technological advancements
- Increased competition, risk
 KEY DRIVERS FOR CHANGE
• PESTEL helps to provide a list of potentially important macro-level factors
influencing strategy.
• Analysing these factors, together with their interrelationships, can
produce long and complex lists of issues. Rather than getting
overwhelmed by a multitude of details, it is necessary to identify the key
drivers for change in a particular context.
• Key drivers for change are environmental factors that are likely to have
a high impact on industries and sectors, and impact on the success or
failure of strategies within them.
• Identifying key drivers for change in an industry or sector helps managers
to focus on the PESTEL factors that are most important and which must
be addressed most urgently. Without a clear sense of the key drivers for
change, managers will not be able to take the strategic decisions that
allow for effective responses.
 APPLYING THE PESTEL FRAMEWORK

• Research the PESTEL factors. Use data to support the points, and
analyse trends using up-to-date information.
• Apply selectively – identify specific factors which impact on the
industry, market and organisation in question.
• Identify factors which are important currently but also consider
which will become more important in the next few years. Priorities
the macro trends identified based on potential future impact  key
drivers for change
• Develop organizational implications for these priority trends.
• Identify macro-level opportunities and threats. Identify options for
action in response to organizational implications.
 CLASS EXERCISE

•Please analyze the opportunities and threats from the macro and
micro environment of Vinfast when entering the Vietnamese market
INDUSTRY AND COMPETITOR ANALYSIS
 DEFINING THE INDUSTRY
• An industry is a group of firms producing products and services that are
essentially the same. For example, the automobile industry and the airline
industry.
• An industry is a group of companies offering products and/or services
that are close substitutes
• A market is a group of customers for specific products or services that are
essentially the same (e.g. the market for luxury cars in Germany).
• A sector is a broad industry group or a group of markets (e.g. the
agricultural sector, divided into industries for wheat, sugar, coffee, tea,
and so on).
• Industries can be analysed at different levels, for example, different
geographies, markets and even different product or service segments
within them(e.g. airline markets).
 DEFINING THE INDUSTRY: EXAMPLE
Drawing industry boundaries
 What industry is Ferrari in?
• The motor vehicle industry (SIC 371)?
• The automobile industry (SIC 3712)?
• The sports car industry?
• Is its industry global, regional (Europe) or national (Italy)?

 Key criterion: SUBSTITUTABILITY

– On the demand side: are buyers willing to substitute between
types of cars and across countries
– On the supply side: are manufacturers able to switch production
between types of cars and across countries

We may need to draw industry boundaries differently for different types of

decisions
INDUSTRY ANALYSIS: MODELS

• 5 forces + 1
• Strategic group
• Industry Life Cycle
 ANALYSING INDUSTRY ATTRACTIVENESS: PORTER’S FIVE FORCES FRAMEWORK

• The Five Forces framework

explains and analyses the
effect of market structure on
profitability, and therefore
attractiveness of the industry.

• It is not merely about defining

a market as attractive or not,
but rather modelling the
structure and dynamics of the
market so that you can better
understand options for
remaining and influencing in a
market, or exiting it at the
appropriate time.

Porter, M.E. (2008). The five competitive forces that shape competitive performance. Harvard Business Review, January
 FIVE FORCES: THE
STRUCTURAL DETERMINANTS
OF COMPETITION

Five Forces insights are highly

dependent on where the
market boundaries are drawn.

Apply the model at the most

appropriate level – not
necessarily the whole industry.
For example, the European low-
cost airline industry rather than
airlines globally.
BUYER
• A customer is an individual or business that purchases another
company's goods or services
• Buyers put pressures on business (by product prices, payment
terms, quality, delivery conditions ...
• Cost of production increases + customer’s satisfaction =
internal pressure increases
• Take consideration of Buyer Power
• The buyer power is strong when:
- Customers buy goods in large quantities

- Supply> demand

- Customer switching costs...

 INDUSTRY COMPETITORS
Consider the intensity of competition/level of competition within
the industry
1. Competitive structure
2. Demand (growth or decline) conditions in industry
3. Height of industry exit barriers
COMPETITIVE STRUCTURE
• Definition: Competitive structure is the distribution of the
number of enterprises with different sizes in the same industry
• Fragmented industry: consists of a large number of enterprises,
these enterprises are small and medium-sized. That operate
individually and independently of each other and in which no
enterprise plays a dominant role in the whole industry
• Consolidated industry: consists of a small number of businesses,
these enterprises are mostly large-scale, and even a single
enterprise plays a dominant role in the whole industry
COMPETITIVE STRUCTURE
DEMAND CONDITIONS IN INDUSTRY

• Reduced demand -> opportunity or threat???

• Increased demand -> opportunity or threat???
HEIGHT OF INDUSTRY EXIT BARRIERS
• Height of industry exit barriers are economic, strategic and
emotional factors which cause companies to remain in an
industry even when future profitability is questionable

• Specialized assets
• Fixed cost of exit (e.g., labor agreements)
• Strategic interrelationships
• Emotional barriers
• Government and social restrictions
POTENTIAL ENTRANTS
Link with Entry barriers: Minimum cost that enterprise has to spend
when entering industry

• Depend on:
– Economies of scales
– Brand loyalty
– Capital investment requirements
– Switching costs
– Absolute cost advantages (cheaper fund, learning curve, control
inputs) – Government policy
THREATS OF NEW ENTRANTS: LOW, WHEN?

• Small numbers of potential competitors

• Current competitors struggle to gain profit
• The prospect of industry is risky
• The growth of industry is slow & standstill
• Competitors react violently (retaliation)
SUPPLIER
• Bargaining Power of Suppliers
• Suppliers are likely to be powerful if:
- Dominated by a few firms
- Suppliers’ products have few substitutes
- Buyer is not an important customer.
- Suppliers’ product is an important input
- Suppliers’ products are differentiated
- Suppliers’ products: high switching costs

- Suppliers’ products: high switching costs. Supplier poses threat of forward

integration
SUBSTITUTES
• Products with improving price / performance tradeoffs relative
to present industry products
Threats of substitutes:
• Product price
• Functional features
• New models
• New consumption trends
COMPLEMENTORS

• Complementors:
- Companies whose products are sold with another company’s
products
- Increased supply of a complementary product accordingly
increases demand for the primary product.
• Example:
- Faster CPU chips fuel sales of personal computers
 UNDERSTANDING ECONOMIES OF SCALE AND SCOPE
• Economies of scale
• Economies of scale occur when the cost per unit of output decreases
as output increases.
• When average costs start falling as output increases, economies of
scale are occurring.
• One possible source of economies of scale is that the firm may be
able to purchase inputs at a lower cost per unit when they are
purchased in large quantities.
• Economies of scope
• Economies of scope are associated with the joint production of two
or more products.
• Achieving economies of scope can have an impact upon cost if, for
example, they permit the sharing of primary activities, such as
marketing or operations, or support activities, such as human
resources or IT functions.
 STRATEGIC GROUP ANALYSIS
• Strategic group analysis is a method which identifies direct competitors
that should be studied as part of micro-level analysis.
• A strategic group is defined as the collection of organizations adopting
broadly the same strategy to service the needs of the same group of
customers.
• Understand competition – enables focus on direct competitors within a
strategic group, rather than the whole industry.
• Analysis of strategic opportunities – helps identify attractive ‘strategic
spaces’ within an industry.
• Strategic groups can be identified by mapping the position of competitors
in an industry against two competitive criteria.
STRATEGIC GROUPS: EXAMPLE AND CHARACTERISTICS
An example of strategic group analysis Some characteristics for identifying
for the UK airline industry strategic groups
INDUSTRY LIFE CYCLE STAGE
COMPLEMENTARY METHODS OF ANALYSIS, NOT STAND ALONE
 CRITICAL SUCCESS FACTORS

• Critical success factors are those factors that are either particularly
valued by customers or which provide a significant advantage in
terms of cost.
• Critical success factors are likely to be an important source of
competitive advantage if an organisation has them (or a
disadvantage if an organisation lacks them).
• Different industries and markets will have different critical success
factors (e.g. in low-cost airlines the CSFs will be punctuality and value
for money, whereas in full-service airlines it is all about quality of
service).
IDENTIFYING CRITICAL SUCCESS FACTORS
 OPPORTUNITIES AND THREATS

The critical issue in undertaking environmental analysis is the

implications that are drawn from this understanding in
guiding strategic decisions and choices.

Identifying opportunities and threats from the external

environment is extremely valuable when formulating
strategic options and strategic choices.

Opportunities and threats form one half of the SWOT analysis

that shapes strategy.
ANALYSIS OF THE INTERNAL ENVIRONMENT:

RESOURCES AND CAPABILITIES

Nguyen Hong Van

 RESOURCE-BASED VIEW OF STRATEGY
• The resource-based view (RBV) of strategy asserts that the
competitive advantage and superior performance of an
organisation are explained by the distinctiveness of its resources and
capabilities.
• Resources and capabilities of an organisation contribute to its long-
term survival and potentially to sustained competitive advantage.
• Resources are the assets that organisations have or can call upon
(e.g. from partners or suppliers), that is ‘what we have’.
• Capabilities (sometimes referred to as competences) are the ways
those assets are used or deployed, that is ‘what we do well’
• According to RBV, it is the difference in the resource bases of
organizations – what they have, and how they use it – that is the key
to explaining organizational performance differentials over time.
Barney, J. (1991). Firm resources and sustained competitive advantage. Journal of Management, 17(1): 99–120.
 IDENTIFYING RESOURCES
RESOURCE CHARACTERISTICS INDICATORS
Financial Borrowing capacity Debt/Equity ratio
Internal funds generation Credit rating
Tangible Net cash flow
Resources
Physical Plant and equipment: Market value of fixed assets.
Size, location, technology flexibility. Scale of plants
Land and buildings Alternative uses for fixed
Raw materials assets

Technology Patent, copyrights, know how, R&D No. of patents owned

facilities Royalty income
Intangible Technical and scientific employees R&D expenditure
Resources R&D staff

Reputation Brands. Customer loyalty, company Brand equity

reputation (with suppliers, customers, Customer retention
government) Supplier loyalty

Human Resources Training, experience, adaptability, Employee qualifications,

commitment and loyalty of employees Pay rates, turnover
 STRATEGIC CAPABILITIES AND COMPETITIVE ADVANTAGE
At the center of RBV theorizing is a search for resources that comply
with a set of criteria that give the organization a possible competitive
edge.
The four key criteria by which resources and capabilities can be
assessed in terms of providing a basis for achieving sustained
competitive advantage are:

Barney, J. (1991). Firm resources and sustained competitive advantage. Journal of Management, 17(1): 99–120.
 VRIO
V – Value of resources and capabilities R – Rarity
Strategic capabilities are of value when they: • Rare capabilities are those possessed uniquely by
one organisation or only by a few others (e.g. a
• take advantage of opportunities and neutralise threats; company may have patented products, have
supremely talented people, or a powerful brand).
• provide value to customers;
• Rarity could be temporary.(e.g. Patents expire, key
• are provided at a cost that still allows an organisation to individuals can leave, or brands can be de-valued
make an acceptable return. by adverse publicity.)

I – Inimitability O – Organisational support

Inimitable capabilities are those that competitors find • A company must be suitably organised to support its
difficult and costly to imitate, to obtain, or to substitute. valuable, rare, and inimitable capabilities. This
includes appropriate processes and systems.
• Competitive advantage can be built on unique
resources but these may not always be sustainable (key
people leave, or others acquire the same systems).

• Sustained competitive advantage is more often found in

competences, and the way competences are linked
together and integrated.
 VRIO ANALYSIS: IS A RESOURCE OR CAPABILITY V, R, I, & O?
Criterion Question Resource 1 Resource 2 Resource 3 Resource 4
Valuable Does the No Yes Yes Yes
resource/capability add
value?

Rare How rare is the _ No Yes Yes

resource/capability?

Inimitable How difficult is it for _ No No Yes

competitors to imitate the
resource/capability?

Organisation Is the organisation set up to No Yes Yes Yes

exploit this
resource/capability?

   

Competitive Competitive Competitive Temporary Sustained

implications disadvantage parity competitive competitive
advantage advantage

Focus on the ‘competitive implications’ row above. A resource/capability provides a

sustained competitive advantage to the organization when it is valuable, rare, inimitable,
and is supported by the organization.

Sources: Adapted from (1) J. Barney, 2002, Gaining and Sustaining Competitive Advantage, 2nd ed. (p. 173), Upper Saddle River, NJ: Prentice Hall; (2) R. Hoskisson, M. Hitt, & R. D.
Ireland, 2004, Competing for Advantage (p. 118), Cincinnati: South-Western Cengage Learning..
 CORE COMPETENCES

Core competences are the linked set of skills, activities and resources that,
together:
• deliver customer value
• differentiate a business from its competitors
• potentially, can be extended and developed as markets change or
new opportunities arise.
However, competences that were effective in the past, can become less
relevant as industries evolve and change. Such ‘core competences’ can
become ‘core rigidities’ that inhibit change and become a weakness.

Core competences explained - https://hbr.org/video/5146717725001/the-

explainer-core-competence

Hamel, G. & Prahalad, C. K. (1990). The core competence of the corporation, Harvard Business Review, 68(3): 79–91.
 VALUE CHAIN ANALYSIS
• The value chain concept is built upon the insight that an organisation is
more than a random compilation of machinery, equipment, people and
money.
• Only if these things are arranged into systems and systematic activities, it
will be possible to produce something for which customers are willing to
pay a price.
• Value chain describes the categories of activities within an organisation,
which, together, create a product or service.
• It consists of primary activities (which are directly concerned with the
creation or delivery of a product or service), and support activities (which
help to improve the effectiveness or efficiency of primary activities).
• Porter argues that the ability to perform particular activities and to
manage the linkages between these activities is a source of competitive
advantage.
 THE VALUE CHAIN Companies seek a profit margin;
and value is created at each
stage of the value chain.
Margin = value created – cost of
E.g. planning, quality control, creating value
finance, machinery, etc.

E.g. recruitment,
training, payroll

E.g. sourcing raw materials or components

for manufacturing/assembly

E.g. Assembly E.g. advertising,

E.g. R&D, innovation line in an digital
activities by companies automobile marketing
such as Apple, Tesla, manufacturer
Google, etc, or
pharmaceutical industry
in general

Inbound and outbound logistics is a core

competence of companies like Amazon,
Many companies outsource service.
DHL, etc. Retailers such as Tesco also focus
E.g. Customer service calls diverted to
on process innovations in their distribution
outsourcing partners in countries like
network comprising hundreds of stores and
India, Philippines, etc.
warehouses.

Source: Adapted from Competitive Advantage: Creating and Sustaining Superior Performance by Michael E. Porter, 1985
SWOT - BRINGING TOGETHER INTERNAL AND EXTERNAL ANALYSIS

SWOT provides a general summary of the Strengths and

Weaknesses explored in an analysis of strategic capabilities, and
the Opportunities and Threats explored in an analysis of the
external environment.
INTERNAL ANALYSIS → STRENGTHS & WEAKNESSES
EXTERNAL ANALYSIS → OPPORTUNITIES & THREATS
SWOT should not be used as a substitute for analysis – the
information that feeds into SWOT should be derived from a
detailed analysis of the internal and external environment using
tools such VRIO, value chain, PESTEL, five forces, etc.
SWOT analysis is most useful when it is comparative – if it examines
strengths, weaknesses, opportunities, and threats relative to
competitors.
 THE TOWS ANALYSIS
• SWOT can help focus discussion on future choices and the extent to which an organisation is capable of
supporting these strategies. A useful way of doing this is to use a TOWS matrix. This builds directly on the
information in a SWOT exercise.
• TOWS creates a strategic matrix of connective elements between the external, competitive and macro
environment, and the organisation’s internal environment – resources and capabilities. Each box of the
TOWS matrix can be used to identify options that address a different combination of the internal factors
(strengths and weaknesses) and the external factors (opportunities and threats).
 STRATEGIC FIT
Strategic fit is the consistency of a firm’s strategy, first, with the firm’s external environment
and, second, with its internal environment, especially with its goals and values, and resources
and capabilities. A major reason for the decline and failure of some companies comes from
having a strategy that lacks consistency with either the internal or the external environment.

THE
ORGANISATION THE MACRO &
INDUSTRY
• Goals & ENVIRONMENT
values
STRATEGY
• Resources & •Competitors
capabilities •Customers
• Structure & •Suppliers
systems

The The
Firm-Strategy Environment-Strategy
Interface Interface
CORPORATE LEVEL STRATEGY

Nguyen Hong Van

 STRATEGIC CHOICES FOR AN ORGANIZATION

Corporate level strategy

(Parent company or HQ)

Business level strategy

(Strategic Business Units)
STRATEGIC GROWTH DIRECTIONS: CORPORATE LEVEL STRATEGY

• Business level strategy (competitive strategy) – the ways in which a

single business unit can compete in a given market space, for instance
through cost leadership or differentiation. (Session 4)
• However, organisations may choose to enter new product and market
areas. As organisations add new units and capabilities, their strategies
may no longer be solely concerned with competitive strategy in one
market space at the business level, but with choices concerning
different businesses or markets.
• Corporate strategy is about the overall scope of the organisation and
how value is added to the constituent businesses of the organisation as
a whole, i.e. configuration and coordination of its multi-market activities.
• Choices about business areas, industries, and geographies to be active
in will determine the directions an organisation might pursue for growth,
which business units to buy and dispose of, and how resources may be
allocated efficiently across multiple business activities.
 THE ROLE OF CORPORATE PARENTING
• Henry (2018) identifies four areas in which corporate parents assist strategic
business units:
1. Standalone influence: this concerns the parent company’s impact upon
the strategies and performance of each business the parent owns.
2. Linkage influence: this occurs when the parent seeks to create value by
enhancing the linkages that may be present between different business
units.
3. Functional and services influence: the parent can provide functional
leadership and cost-effective services for the businesses.
4. Corporate development activities: this involves the parent creating value
by changing the composition of its portfolio of businesses (investing and
divesting).
• ‘Scope’ of an organisation is central to corporate strategy - it is concerned
with how far an organisation should be diversified in terms of two different
dimensions: products and markets.
Henry, A. E. (2018). Understanding Strategic Management. Oxford: Oxford University Press.
 DIVERSIFICATION
• Related diversification involves expanding into products or services with
relationships to the existing business (e.g. a dairy farm expanding into
cheese and meat products)
• Unrelated (conglomerate) diversification involves diversifying into
products or services with no relationships to existing businesses (e.g. an
automobile manufacturer diversifying into hotels and hospitality)
Economies of scope in diversification derives from two types of
relatedness:
• Operational relatedness – synergies from sharing resources across
businesses (e.g. common distribution facilities, brands, joint R&D, joint
manufacturing facilities, joint supply chain/logistics)
• Strategic relatedness – synergies at the corporate level deriving from the
ability to apply managerial and parenting capabilities to different
businesses.
CORPORATE STRATEGY DIRECTIONS – ANSOFF MATRIX

Related
diversification

Unrelated
diversification

Source: Adapted from H.I. Ansoff, Corporate Strategy, Penguin, 1988, Chapter 6.
 A. MARKET PENETRATION
Market penetration implies increasing
share of current markets with the
current product range.
This strategy:
• builds on established strategic https://www.ft.com/content/bea00186-d403-11e5-8887-
capabilities; 98e7feb46f27
• means the organisation’s scope is
unchanged;
• leads to greater market share and
increased power vis-à-vis buyers and
suppliers;
• Depends on the ability to resist the
challenges with regard to existing or
new entrants who may be attracted
by the prospects for growth or
evidence of growing demand
(intensity of five forces). https://www.gov.uk/government/news/cma-blocks-
merger-between-sainsburys-and-asda
• provides greater economies of scale.
 B. PRODUCT DEVELOPMENT

Product development is where an

organisation delivers modified or
new products (or services) to
existing markets.
This strategy:
• involves varying degrees of
related diversification (in terms of
products); https://www.ft.com/video/83ab8969-1cb7-448f-812a-
8329e50574ce
• can be expensive (e.g. R&D
expenditure) and high risk
(project management risk,
product failing in the market);
• may require new resources and
strategic capabilities
 C. MARKET DEVELOPMENT
Market development involves
offering existing products to new
markets.
This strategy involves:
• new users (e.g. extending the use
of cocoa/chocolate to cosmetics
industry) https://www.ft.com/video/f81a8f5a-c7d7-4c83-bbf7-7ddfa8b695f5

• new geographies (e.g.

international markets)
• meeting the critical success
factors of the market
• new strategic capabilities (e.g. in
coordinating international
operations).
 D. CONGLOMERATE DIVERSIFICATION
• Unrelated (or conglomerate) TATA Group
diversification takes the
organisation beyond both its
existing markets and its existing
products, and radically increases
the organisation’s scope.
• Potential benefits to an acquired
business is that it gains from the
reputation of the group, and
potentially lowers financing costs.
• Potential costs arise because there
are limited ways to generate
additional value due to the
unrelated nature of strategic
https://economictimes.indiatimes.com/news/company/
business units (lack of synergy). corporate-trends/tata-sons-rejigs-businesses-into-ten-
verticals/articleshow/68248596.cms?from=mdr
CORPORATE STRATEGY IN MULTI-BUSINESS ORGANISATIONS: UNDERSTANDING
SYNERGY
• Synergy exists when the value created by business units working together exceeds
the value those units create working independently (Hitt et al. 2007). It is the
concept of the whole being greater than the sum of the parts (2+2 = 5)
• Porter (1987) distinguishes two types of synergy:
• Transferring skills – While each SBU has a separate value chain, knowledge about
how to perform the activities is transferred across the units. These synergistic
opportunities arise when SBUs have similar buyers or channels, similar value
activities like procurement, similarities in the broad configuration of the value
chain, or the same competitive strategy (low cost or differentiation). Even
though SBUs operate separately, such similarities allow the sharing of knowledge
and skills between them.
• Sharing resources and activities - Opportunities for sharing activities/functions
can be identified from a detailed comparison of the value chains of different
SBUs to determine the compatibility of similar activities and potential for
combination. Activities that are often shared across SBUs include R&D,
purchasing, distribution, and sales.
Hitt, M. A., Ireland, R. D., and Hoskisson, R. E. (2007). Strategic Management: Competitiveness and Globalisation: Concepts. 7th edn. Mason, OH:
Thomson/South-Western

Porter, M. E. (1987). From competitive advantage to corporate strategy, Harvard Business Review, May-June 1987, 2-21
 LEVELS OF DIVERSIFICATION

High 50% Moderate 70% Low 100%

METHODS FOR ENTERING
NEW BUSINESSES
 MERGERS AND ACQUISITIONS
• Mergers involve a combination or consolidation of two firms to form a
new legal entity:
• Are relatively rare
• The two firms are on a relatively equal basis

• Acquisitions involve one firm buying another either through stock

purchase, cash, or the issuance of debt
 MERGERS AND ACQUISITIONS
• Acquiring is faster than building.
• M&A allows a firm to obtain valuable resources
• M&A helps a firm develop synergy
• M&A can lead to consolidation within an industry, forcing other
players to merge.
• Corporations can also enter new market segments by way of
acquisitions.
 MERGERS AND ACQUISITIONS:
LIMITATIONS
• Takeover premiums for acquisitions are typically very high
• Competing firms can imitate advantages
• Competing firms can copy synergies
• Managers’ egos get in the way of sound business decisions
• Cultural issues may doom the intended benefits
 MERGERS AND ACQUISITIONS:
DIVESTMENT
• Divestment objectives include:
• Cutting the financial losses of a failed acquisition
• Redirecting focus on the firm’s core businesses
• Freeing up resources to spend on more attractive alternatives
• Raising cash to help fund existing businesses
 STRATEGIC ALLIANCES &
JOINT VENTURES: MOTIVES
Strategic alliances & joint ventures are cooperative relationships
with potential advantages:
• Ability to enter new markets through
• Greater financial resources
• Greater marketing expertise

• Ability to reduce manufacturing or other costs in the value chain

• Ability to develop & diffuse new technologies

 STRATEGIC ALLIANCES &
JOINT VENTURES: LIMITATIONS
Need for the proper partner:
• Partners should have complementary strengths
• Partner’s strengths should be unique
• Uniqueness should create synergies
• Synergies should be easily sustained & defended

• Partners must be compatible & willing to trust each other

 INTERNAL DEVELOPMENT
Corporate entrepreneurship & new venture development motives:
• No need to share the wealth with alliance partners
• No need to face difficulties associated with combining activities
across the value chains
• No need to merge diverse corporate cultures

Limitations:
• Time-consuming
• Need to continually develop new capabilities
GOOGLE’S CORPORATE-LEVEL STRATEGY
SONY’S CORPORATE-LEVEL STRATEGY
INTEGRATION STRATEGY
• Integration strategies are processes that businesses can use to
enhance their competitiveness, efficiency or market share by
expanding their influence into new areas. These areas can include
supply, distribution or competition. Each area requires a different
integration strategy, and there are several types that businesses can
use
• Horizontal integration
• Vertical integration
HORIZONTAL INTEGRATION

• Horizontal integration is the process of acquiring or merging with

industry competitors to achieve the competitive advantages that arise
from a large size and scope of operations
• Boeing merged with McDonnell Douglas
• Compaq acquired DEC and then itself was acquired by HP
• Work with your partners: find 3 cases of horizontal integrations in
Vietnam/ UK/the world
HORIZONTAL INTEGRATION: EXAMPLE
2011:
50,5%

2012:
53,2%
58m USD

early 2013:
24,9%
March 2013: 63,5%
21m USD

2011:
40% thức ăn gia súc Việt Pháp (proconco)
94m USD, 2 best, 10% marketshare
TOP SUCCESSFUL M&A
• BigC Việt Nam - Central Group (100%): 1,1 billion USD

• Metro Việt Nam - TCC Holdings (100%): 710 million USD. Metro - Casino France

• Fraser & Neave bought Vinamilk (5,4%): 500 triệu USD (FN belongs to TCC Holdings).

• MobiFone - AVG: 400 mliion USD

• Mirae Asset and AON BGN (UK) bought Keangnam Hanoi Landmark Tower (100%):
350 triệu USD
• Singha (Thailand) bought Masan Consumer Holding & Masan Brewery: 25% and
33.3%, total 1.100 million USD
• Keppel Land acquired Empire City (100%): 234 million USD (real estate)
• U&I Construction ( U&I, Mr Mai Hữu Tín) acquired TTF from Tân Liên Phát (no reveal) in
4.2017: Gỗ Trường Thành. Tân Liên Phát (cty con Vingroup). Gỗ Trường Thành khai
khống doanh thu liên tục trong 10 năm
TOP UNSUCCESSFUL M&A
• Dược Viễn Đông – Dược Hà tây.

• FPT – EVN Telecom

• Bibica – Lotte

• Tribeco – Kinh đô

• Deutsche Bank – HBB

• SCIC – Jetstar Pacific

• Vietinbank – Nova Scotia

• Bảo sơn – Bảo long

• Air Mekong – SkyWest (US)

• Giấy Sài Gòn – Dai O Paper – U&I Investment

 HORIZONTAL INTEGRATION

• Advantages???

• Disadvantages???
HORIZONTAL INTEGRATION
Advantages
(1) lowers the cost structure,
(2) increases product differentiation,
(3) replicates the business model,
(4) reduces rivalry within the industry, and
(5) increases bargaining power over suppliers and buyers.
HORIZONTAL INTEGRATION
Disadvantages
- very different company cultures;
- high management turnover company (hostile one);
- Overestimate the benefits
- underestimate the problems
VERTICAL INTEGRATION
• A company is expanding its operations either backward into an
industry that produces inputs for the company’s products or forward
into an industry that uses or distributes the company’s products for
strengthening their competitive position in the main industry
 VERTICAL INTEGRATION

Raw Component part

manufactu-ring Assembly Distribu-tion End-user
materials

Upstream industries Downstream industries

VERTICAL INTEGRATION
Form of vertical integration
➢ Backward integration: a company produces input for its products.
➢ Forward integration: a company uses or distributes its products

Level of vertical integration

➢ Full integration: a company produces all of a particular input needed
for its processes or disposes of all of its output through its own
operations.
➢ Taper integration: a company buys from independent suppliers in
addition to company-owned suppliers or disposes of its output through
independent outlets in addition to company-owned outlets.
VERTICAL INTEGRATION

Advantages
- Cost reduction: including production cost and trading cost.
- Protects product quality through control of input quality and
distribution and service of outputs.
- Builds entry barriers to new competitors by denying them inputs and
customers.
- Facilitates investment in efficiency-enhancing specialized assets that
solve internal mutual dependence problems.
- Improves internal scheduling (e.g., JIT inventory systems) responses to
changes in demand.
VERTICAL INTERGRATION
Disadvantages
- Cost disadvantages: the lack of an incentive for internal suppliers to
reduce their operating costs and strategic flexibility in times of
changing technology or uncertain demand.
- Management becomes more complicated
- Technological change: remaining tied to obsolescent technology.
- Aligning input and output capacities with uncertainty in market
demand is difficult for integrated companies
ALTERNATIVES TO VERTICAL INTEGRATIONS

• Short-term contract
• Strategic alliance
• Strategic outsourcing
SHORT- TERM CONTRACT
Short-term contracts & competitive bidding
• Last for a year or less to establish price and conditions.
• GM: competitive bidding

Advantages:
• Competitive price -> lower cost
Disadvantages:
• Supplier is not willing to invest to upgrade technology
• Not willing to production schedule (JIT scheme)
STRATEGIC ALLIANCES
• Long-term, cooperative relationships; both companies agree to make
specialized investments and work jointly to find ways to lower costs or
increase product quality so that they both gain from their relationship.
• Relatively stable long-term partnership
• Mutual benefit
• Avoid bureaucratic costs
Japanese car makers:
• Jointly implementing JIT inventory systems
• sharing future component-parts designs to improve quality and lower assembly
costs.
STRATEGIC OUTSOURCING
The decision to allow one or more of a company’s value-
chain activities or functions to be performed by independent
specialist companies that focus all their skills and knowledge
on just one kind of activity

• Outsourcing entire function (manufacturing)

• Outsourcing one activity (pension – HRM)
STRATEGIC OUTSOURCING
 BENEFITS AND DRAWBACKS
Benefits:
• Lower its cost structure,
• Increase product differentiation,
• Focus on the distinctive competencies
Drawbacks:
• Holdup
- become too dependent on the specialist provider of an outsourced activity and
that
the specialist will use this fact to raise prices beyond some previously agreed-on rate
• Loss of information
- A company that is not careful can lose important competitive information when it
outsources an activity.
 DIVERSIFICATION AND INTEGRATION OPTIONS
Vertical and horizontal integration
• The ‘make-or-buy’ decision leads
managers to consider the costs of a
transaction.
• Is it cheaper for an organization to
perform an activity, such as
distributing its products or
manufacturing a component of the
final product on its own, or outsource
it to another organization?
• Vertical integration describes entering
activities where the organisation is its
own supplier or customer (e.g. a car
manufacturer diversifying into tyre
manufacturing or retail dealership)
• A firm which diversifies into
complementary/related products or
services is said to be engaging in
horizontal integration (e.g. a car
manufacturer diversifying into vans)
MANAGING THE CORPORATE PORTFOLIO: THE BCG GROWTH-SHARE MATRIX

Annual real rate of market growth (%)

Earnings: low, unstable, growing Earnings: high, stable, growing
Cash flow: negative Cash flow: neutral
Strategy: analyze to determine
HIGH
Strategy: invest for growth

?
likelihood of the
business becoming
a ‘star’ or a ‘dog’

QUESTION MARK STAR

Earnings: low, unstable Earnings: high, stable

Cash flow: neutral or negative Cash flow: high, stable
LOW

Strategy: divest Strategy: milk

DOG CASH COW

LOW HIGH
Relative market share
 THE BCG MATRIX
• The BCG growth–share matrix helps companies decide which markets
and business units to invest in on the basis of two factors – industry
attractiveness measured by rate of market growth, and competitive
advantage measured by relative market share (the business unit’s market
share relative to that of its largest competitor). The quadrants of the BCG
matrix predict patterns of profits and cash flow, and indicate strategies to
be adopted.
• Low growth, high share ‘cash cows’ should be milked for cash to reinvest
in high growth, high share ‘stars’ with high future potential.
• High growth, low share ‘question marks’ should be invested in or
discarded, depending on their chances of becoming stars.
• Low share, low growth ‘dogs’ with low earning potential should be
liquidated, divested, or repositioned.
DIVERSIFICATION AND PERFORMANCE
• No consistent relationship in empirical
studies.
• Evidence of a ∩-shaped relationship:
diversification first increases profitability, then
Do diversified firms further diversification reduces profitability
outperform (increased complexity?)
specialised firms? • McKinsey identifies benefits from moderate
diversification, especially for firms that have
run out of growth opportunities.
• Question of direction of causation: does
diversification drive profitability, or vice-
versa?
• Most empirical studies show related
What type of diversification outperforms unrelated
diversification is most diversification.
profitable? – related • Related diversification offers greater
vs unrelated synergies between SBUs.
BUSINESS LEVEL STRATEGY

Nguyen Hong Van

 RECAP OF PREVIOUS SESSIONS – STRATEGIC CHOICES BASED ON INTERNAL AND EXTERNAL
ANALYSIS
• INTERNAL ANALYSIS → STRENGTHS & WEAKNESSES
• EXTERNAL ANALYSIS → OPPORTUNITIES & THREATS
• SWOT can help focus on future choices and the extent to which an organisation is capable
of supporting these strategies.
• TOWS matrix can be used to identify strategic options that address different combinations
of internal (strengths and weaknesses) and external factors (opportunities and threats).
 STRATEGIC CHOICES FOR AN ORGANISATION

Business-level strategy is Corporate-level strategy is For any of these choices,

concerned with the way a concerned with the should they be pursued
business seeks to compete overall scope of an independently by organic
successfully in its particular organisation and how
development, by acquisitions
market. value is added to the
constituent business units. or by strategic alliances with
other organisations
BUSINESS STRATEGY AND STRATEGIC BUSINESS UNITS (SBUS)
• A strategic business unit (SBU) supplies goods or services for a distinct
domain of activity.
Purpose of SBUs:
• To decentralise initiative to smaller units within the company so SBUs can
pursue their own distinct strategy.
• To allow large companies to vary their business strategies according to
the different needs of external markets.

Corporate level strategy

(Parent company or HQ)

Business level strategy

(Strategic Business Units)
COMPETITIVE STRATEGY
• Competitive strategy is a combination of different decisions
and actions to gain the competitive advantage of the
enterprise by exploiting the fundamental factors – the product,
the market and the core competence of the enterprise.
• The objective of a competitive strategy is to create a
sustainable competitive advantage, to achieve long-term and
superior profitability
• 2 factors affecting long-term profitability
• The foundation of competitive strategy: value chain
 COMPETITIVE ADVANTAGE

• Competitive advantage is the core competence of enterprises that are accepted and
appreciated, through which enterprises will create the superiority as compared to
competitors

• Source of competitive advantage:

- Do the same as the competitors but cheaper
- Differentiate from the competitors

• Select target market:

- Broad scope
- Narrow scope
 COMPETITIVE ADVANTAGE
“Competitive advantage grows out of value a firm is able to
create for its buyers that exceeds the firm's cost of creating it.
Value is what buyers are willing to pay, and superior value stems
from offering lower prices than competitors for equivalent benefits
or providing unique benefits that more than offset a higher price.
There are two basic types of competitive advantage: cost
leadership and differentiation.”
-- Michael Porter, Competitive Advantage, 1985, p.3
 PORTER’S GENERIC COMPETITIVE STRATEGIES

Source: Adapted from Competitive Advantage: Creating and Sustaining Superior Performance by Michael E. Porter. 1985
 GENERIC STRATEGIES AND COMPETITIVE SCOPE
The four generic competitive strategies:
1. Broad low-cost strategy aims to achieve the lowest overall costs in the
industry by offering similar products to rivals at better value for money for
a broad range of buyers.
2. Broad differentiation strategy seeks to differentiate the firm’s
product/service offer from that of rivals so that it will appeal to a broad
range of buyers who are willing to pay a premium price for the offering.
3a. Low-cost focus strategy concentrates on a narrowly defined target
market segment by outcompeting rivals on costs by being able to offer a
low-priced product to a customer segment whose needs may be slightly
below average.
3b. Differentiation focus strategy concentrates on a narrowly defined
target market segment who are willing to pay a premium for a
product/service that meets their specific needs better than the rival
product/service offerings.
 DRIVERS OF COST ADVANTAGE

ECONOMIES OF SCALE • Technical input-output relationships

• Specialization and division of labor

ECONOMIES OF LEARNING • Increased dexterity

• Improved organizational routines

• Process innovation
PRODUCTION TECHNIQUES • Reengineering business processes

PRODUCT DESIGN • Standardizing designs & components

• Design for manufacture

• Location advantages
INPUT COSTS • Ownership of low-cost inputs
• Non-union labour
• Bargaining power

CAPACITY UTILISATION • Ratio of fixed to variable costs

• Speed of capacity adjustment

• Motivation & culture

RESIDUAL EFFICIENCY
• Managerial efficiency
COST LEADERSHIP STRATEGY: 5 FORCES MODEL
MAJOR RISKS OF COST LEADERSHIP STRATEGY

• Dramatic technological change could take away your cost

advantage.

• Competitors may learn how to imitate Value Chain.

• Focus on efficiency could cause Cost Leader to overlook

changes in customer preferences.
ANALYSING DIFFERENTIATION: THE DEMAND SIDE

THE PRODUCT What needs What are key

does it attributes? FORMULATE
satisfy? DIFFERENTIATION
How do patterns of STRATEGY
customer
preferences link to
• Select product
By what positioning in
product attributes
criteria do relation to product
they choose? attributes
What price • Select target
THE premiums do
customer group
CUSTOMER product attributes
command? • Ensure customer/
product
What What are compatibility
motivates demographic,
them? sociological, • Evaluate costs
psychological and benefits of
drivers of customer differentiation
behavior?
 ANALYSING DIFFERENTIATION: THE SUPPLY SIDE

Sources of uniqueness:
• Product features and product performance
• Complementary services (such as credit, delivery, repair)
• Intensity of marketing activities (advertising, promotion)
• Technology embodied in design and manufacture
• Quality of purchased inputs
• Complexity of the product
• Procedures that impact the customer experience (e.g. the rigour of
quality control, service procedures, frequency of sales visits)
• Skill and experience of employees
• Location (e.g. with retail stores)
• Degree of vertical integration (allows control over inputs and
intermediate processes)
DIFFERENTIATION STRATEGY: 5 FORCES MODEL
 COMBINING GENERIC STRATEGIES – HYBRID STRATEGY
• The development of a hybrid strategy is a complex task as it involves consideration of
a tradeoff between low cost and differentiation.
• As Porter (1985) has pointed out, the risk is that once profits accumulate, successful
companies that follow the low-cost strategy will be tempted to relax their obsessive
focus on costs and efficiency.
• Similarly, successful differentiators, having achieved a position where they are able to
justify high prices based on the perceived value of their products, may be tempted to
ease off on R&D, advertising, or even lower the quality of raw material inputs to lower
their costs to maximize profits.
• Circumstances in which generic strategies can be combined –
1. Technological or managerial innovations where both cost efficiency and quality
are improved.
2. A company can create separate strategic business units each pursuing different
generic strategies and with different cost structures.
VALUE CHAIN APPROACH TO IDENTIFYING COMPETITIVE STRATEGY
Organisations use the value chain approach to identify where
cost savings or differentiation can be achieved, and thereby the
sources of competitive advantage.

Internal cost analysis

• identify the firm’s value creating processes;
• determine the portion of the total cost of the product or
service attributable to each value creating process;
• identify the cost drivers for each process;
• identify the links between processes; and
• evaluate the opportunities for achieving relative cost
advantage.

Internal differentiation analysis

• identify the customer’s value creating processes;
• evaluate differentiation strategies for enhancing customer
value; and
• determine the best sustainable differentiation strategies.
 BLUE OCEAN STRATEGY
Blue ocean strategy is the simultaneous pursuit of
differentiation and low cost to open up a new market
space and create new demand. It is about creating
and capturing uncontested market space, thereby
making the competition irrelevant. It is based on the
view that market boundaries and industry structure
are not a given, and rejects the fundamental tenet of
conventional strategy – that a trade-off exists
between cost and value.

Value innovation is created when a company’s actions favourably affect both its
cost structure and its value proposition to buyers. Cost savings are made by
eliminating and reducing the factors an industry competes on. Buyer value is
lifted by raising and creating elements the industry has never offered. Over time,
costs are reduced further as scale economies kick in due to the high sales
volumes that superior value generates.

Kim, W. C. and Mauborgne, R. (2004). Blue ocean strategy. Harvard Business Review, October, 1-9.
 BLUE OCEAN STRATEGY – FOUR ACTIONS FRAMEWORK

The Four Actions framework is used to reconstruct buyer value elements in crafting
a new value curve. To break the trade-off between differentiation and low cost in
creating a new value curve, the framework poses four key questions, shown in the
figure, to challenge an industry’s strategic logic.
EXAMPLE: VALUE CURVE (STRATEGY CANVAS) OF APPLE IPHONE

• A value curve is the graphic depiction of a company’s relative performance across its
industry’s factors of competition.
• Strategy canvas propels users to action by reorienting their focus from competitors to
alternatives and from customers to non-customers of the industry, and allows to
visualise how a blue ocean strategic move breaks away from the existing red ocean.
BLUE OCEAN STRATEGY VS TRADITIONAL COMPETITIVE STRATEGIES

Traditional Competitive Strategies:

• Cost leadership (e.g: Asda)
• Differentiation (e.g: Waitrose)
• Cost focus (e.g: Aldi) and differentiation focus (e.g: Fortnum & Mason)
Blue Ocean Strategy
• Value innovation strategy – competes in an uncontested market space
• ‘Combination Strategy’: pursue differentiation while controlling costs.
• Achieved via the delivery of features that have a highest marginal
benefit to customer needs
• Nil competitive rivalry (five forces) initially, but blue oceans may
become red oceans over time
INTERNATIONAL STRATEGY

PhD. Nguyen Hong Van

 INTERNATIONALISATION AS A GROWTH STRATEGY
• International strategy is a subset of corporate level strategy: the challenge is about
operating in multiple territories rather than multiple products or value chains. The decision
to internationalise is taken at the corporate level.
• Even a company selling a single product line, with subsidiaries in a number of different
countries, will face two main corporate strategy issues: which countries to invest in and
how to manage multiple operating units from corporate headquarters.

• Due to the interdependencies

and interconnectedness
between firms and between
countries, organisations need
to adopt a much broader
geographical perspective New geographic
even if they don’t operate (overseas) markets –
international strategy
internationally (e.g. a
domestic company may have
a supplier from another
country).
 INTERNATIONALISATION AS A GROWTH STRATEGY
• International strategy is a subset of corporate level strategy: the challenge is about
operating in multiple territories rather than multiple products or value chains. The decision
to internationalise is taken at the corporate level.
• Even a company selling a single product line, with subsidiaries in a number of different
countries, will face two main corporate strategy issues: which countries to invest in and
how to manage multiple operating units from corporate headquarters.

• Due to the interdependencies

and interconnectedness
between firms and between
countries, organisations need
to adopt a much broader
geographical perspective New geographic
even if they don’t operate (overseas) markets –
international strategy
internationally (e.g. a
domestic company may have
a supplier from another
country).
THE DYNAMICS OF INTERNATIONALISATION: PUSH AND PULL FACTORS
• At the upstream end of the
firm’s activities, it must balance
push factors arising from rising
prices of inputs in home country
that encourage it to go abroad
to seek cheaper inputs. At the
same time, these activities are
‘pulled’ abroad because there
are scale economies from
relocating these activities in
cheaper foreign locations.
• At the downstream end, closer
to the final market and the
customer, there are a variety of
push and pull factors. The home
market may be mature, and
firms need to seek new
opportunities for growth in new
and faster-growing countries
(push factor). On the other
hand, there may be barriers to
exports that encourage the firm
to relocate overseas, acting as
a pull factor.
 DRIVERS OF INTERNATIONALISATION
Converging
markets
Customer
Culture Converging
• Similar customer needs
• Global customers technologies
• Transferable marketing
Country

• Trade policies • Scale economies

• Technical standards International • Sourcing efficiencies
Government • Country-specific costs Cost
• Host government strategies
influence policies • High product advantages
development costs

• Interdependence
Cost
• Global competitors
• High exports / imports

Competition
Global
competition

Source: Adapted from Yip’s globalisation drivers. G. Yip (1989). Global strategy in a world of nations. MIT Sloan Management Review, 31(1), 29-41.
 INTERNATIONALISATION DECISIONS: WHERE TO LOCATE?
Location decisions must take account of three sets of factors:
▪ National resource conditions / location advantages: What are the key resources
which the product requires? Where are these available at low cost or at the required
expertise/skill level? What are the location advantages in a country or region?
Locations/countries often specialize in particular activities or products (e.g. luxury
watch industry in Switzerland, automobile industry in Germany, fashion design in Milan
and Paris while clothes manufacturing in low-cost Asian countries, technology firms in
Silicon Valley)
▪ Firm-specific advantages: To what extent is the company’s competitive advantage
based upon firm-specific resources and capabilities, and are these transferable?
Some resources and capabilities are location-bound, i.e. not transferable between
locations or countries (e.g. a company like Huawei has strong ties with the Chinese
government, which will provide advantages in China, but often viewed suspiciously by
many other countries).
▪ Tradability issues: Can the product be transported at economic cost? If not, or if trade
barriers exist, then production must be close to the market.
DETERMINING THE OPTIMAL LOCATION OF VALUE CHAIN ACTIVITIES
EXAMPLE: GLOBALLY DISPERSED PRODUCTION OF BOEING 787 DREAMLINER

Wing box: Mitsubishi Heavy Industries (Japan) Forward fuselage:

Wing ice protection: GKN Aerospace (UK) Centre fuselage: Kawasaki Heavy Industries (Japan)
Alenia Aeronautica (Italy) Spirit Aerosystems (USA)

Rear fuselage: Escape slides: Air

Vertical Stabiliser: Boeing Boeing South Carolina (USA) Doors & windows: Cruisers (USA)
Commercial Airplanes (USA) Zodiac Aerospace (USA)
Lavatories: PPG Aerospace (USA) Flight deck seats:
Jamco (Japan) Ipeco (UK)

Raked wing tips: Korean Airlines

Aerospace division (Korea)

Horizontal Stabiliser:
Engines: GE Engines
Alenia Aeronautica (Italy) Centre wing box: (USA), Rolls Royce (UK)
Fuji Heavy Industries
Aux. power unit: Hamilton (Japan) Engine nacelles: Goodrich (USA)
Sundstrand (USA)
Landing gear: Messier-Dowti Software: Dassault Systemes (France)
Passenger doors: (France) Navigation: Honeywell (USA)
Latécoère Aéroservices (France) Electric brakes: Messier- Pilot control system: Rockwell Colins
Cargo doors: Saab (Sweden) Bugatti (France) (USA)
Tires: Bridgestone Tires Wiring: Safran (France)
Prepreg composites: (Japan)
Toray (Japan) Final assembly: Boeing
Commercial Airplanes (USA)
 CAGE DISTANCE FRAMEWORK
• Pankaj Ghemawat emphasises that it’s not just the attractiveness of different
countries relative to each other, but that the compatibility of countries with the
internationalising firm itself, and its country of origin is what matters. This underlines
the importance of match between country and firm. For firms coming from any
particular country, some countries are more ‘distant’ – or mismatched – than
others.
• The CAGE Distance framework defines four categories of ‘distances’ that may
have an impact on cross-border interactions between countries and businesses.
• Cultural distance includes differences in religious beliefs, race/ethnicity, language, and
social norms and values. Countries can even differ in their social attitudes to the market
power of firms and income inequality, which may have implications on the economic
policies of the individual countries.
• Administrative distance covers historical and political associations between countries, and
include colonial links, free trade agreements, and the length of bilateral relationships.
• Geographic distance encompasses more than how far two countries are from each other
geographically. Other factors include a country’s physical size, within-country distances to
borders, access to ocean, topography, and even time zones.
• Economic distance includes consumer wealth and labor costs, but other factors that
impact the economic distance include differences in market size, availability of resources,
infrastructure.
 CAGE DISTANCE FRAMEWORK: SOME INDICATORS

Types of distance Cultural Administrative Geographic Economic

• Different • Institutional • Physical • Differences in

languages weaknesses distance consumer incomes
• Different • Different • Lack of • Differences in cost
ethnicities varieties of common and quality of:
Attributes causing economic border • Natural
creating lack of system • Weak resources
distance social • Local political transportation • Financial
networks instability or and resources
• Different hostility communication • Human
religions • Lack of shared links resources
• Different regional trading • Differences in • Infrastructure
social norms bloc climate • Information or
• Lack of colonial • Size of country knowledge
ties

CAGE distance indicators are used to identify and prioritise the differences between
countries that companies must address when developing cross-border strategies.
 HOW TO ENTER A FOREIGN MARKET?
Modes of overseas market entry

TRANSACTIONS (non-equity) DIRECT INVESTMENT (equity)

Exporting Licensing Joint venture Wholly owned

subsidiary
Marketing & Fully
Spot Foreign distribution integrated
sales agent / only
distributor

Long- Licensing Franchising Marketing & Fully

term patents & distribution integrated
contract other IP only

Low Resource commitment High

GLOBAL-LOCAL DILEMMA: GLOBAL INTEGRATION VS LOCAL RESPONSIVENESS
The global-local dilemma, often called global dilemma relates to the extent to which
products and services may be standardised across national boundaries or need to be
adapted to meet the requirements of specific national markets.
• Global integration: Pressures which require the production and distribution of products and
services of a homogeneous type and quality on a worldwide basis in order to maximize
economic efficiency.
• Logic of standardization

• National/local responsiveness: Pressures which require adapting to and managing different

consumer tastes in segmented country or regional markets, and responding to different
national standards and regulations imposed by sovereign governments and agencies.
• Logic of customization

• Organisations need to assess to what degree there are potential advantages of cost and
quality of global integration, and balance those pressures against the need to adapt
products and/or services to local conditions. This dilemma between global integration and
local responsiveness suggests four possible international strategies (Bartlett and Ghoshal,
1989)

Bartlett, C. A. and Ghoshal, S. (1989). Managing across Borders : The Transnational Solution. Boston: Harvard Business School Press.
INTERNATIONAL STRATEGIES
 INTERNATIONAL STRATEGIES EXPLAINED: EXPORT STRATEGY
• In an international environment where both pressures for integration and for
responsiveness are low, exploiting parent company knowledge and capabilities
through worldwide diffusion (replication) is the dominant strategic requirement.
• This strategy leverages home country capabilities, innovations, and products into
different foreign countries.
• Commonly pursued by businesses that bank on their home country’s reputation
for products (e.g. French wine, Scottish whiskey) or in the agricultural sector
where crops grow only in few locations and exported worldwide (e.g. cocoa,
coffee beans, tea, rice).
• Internet-based and technology intensive businesses may also pursue this
strategy. Companies like Google, Facebook, Uber, Deliveroo, etc centralises the
core architecture underlying its services at its headquarters and exploits it
internationally with minor adaptations for local languages.
• The downside of this approach is the limits of a home country centralised view of
the business with risks of skilled local competitors getting ahead.
 INTERNATIONAL STRATEGIES EXPLAINED: GLOBAL STRATEGY
• In ‘global strategy’ where the pressures for cross-border integration are high and
the pressures for local responsiveness are low, managers need to pay more
attention to leveraging aspects like economies of scale, product development,
global customers and global competition than to issues of local responsiveness.
• Companies that follow a global strategy are said to ‘think global, act global’.
Such an organization employs the same competitive approach regardless of the
markets where it operates.
• Maximises global integration with little or no local adaptation of products/
services. Standardised products are deemed to suit all markets and efficient production
is emphasised through economies of scale.
• Resource allocations with respect to key elements of strategy for that business
(such as plant location and investments, pricing, product development) may
have to be centralised. Geographically dispersed activities are centrally
controlled from corporate headquarters.
• Common for commodity products (e.g. cement) but also employed by
companies like Apple that sell the same products all over the world with little or
no adaptation to local markets.
INTERNATIONAL STRATEGIES EXPLAINED: MULTI-DOMESTIC STRATEGY
• Maximises local responsiveness – different product offerings for different markets.

• Key strategic choices need to be responsive to local conditions and need to be

‘managed in a decentralised mode’ - overseas subsidiaries are rather important,
as their task is to sense and exploit local opportunities.
• Each country is treated differently with considerable autonomy for each country
manager to best meet the needs of local markets and customers in that particular
country.
• The organisation becomes a collection of relatively independent units with value
chain activities adapted to specific local conditions – loosely controlled from
corporate headquarters.
• Commonly found in food and consumer product industries where local
idiosyncratic preferences are significant (e.g. FMCG companies like Unilever)
INTERNATIONAL STRATEGIES EXPLAINED: TRANSNATIONAL STRATEGY
• This ‘think global, act local’ approach is a hybrid strategy that is appropriate when there
is a relatively high need for local responsiveness, but the firm can realize benefits from a
degree of standardization.
• The value chain configuration includes an intricate combination of global integration on
some elements of strategy to increase efficiency (e.g. R&D, production), combined with
other elements that are subject to pressures for local responsiveness and adaptations
(e.g. product features, marketing).
• The best strategy to cater these mixed demands is to build a dispersed, interdependent
and specialised network of national units that provide differentiated contributions to
their specific markets. Knowledge is developed jointly and shared worldwide, guided by
a corporate headquarters that is devoted to non-hierarchical decision making.
• The subsidiaries exchange ideas regarding efficiency, business processes, customer
responsiveness and innovation across different parts of the value chain and diverse
countries worldwide. However, while it is argued that transnational strategies are
becoming increasingly necessary, many firms find it difficult to implement given its
complexity and the fundamental trade-off between integration and responsiveness.
INTERNATIONALISATION DECISION STAGES
EXPORTING

• Exporting means the production of products in the domestic market

by enterprises and the consumption of products in foreign markets
• Advantages:
- Save costs incurred if you set up a production base abroad
- Exploiting economies of scale
• Defect:
- High shipping cost
- Tariff barriers
- Unable to control marketing and distribution activities
LICENSING
• Licensing is an agreement whereby the buyer of a foreign license buys the right
to produce and trade a product similar to the one that the seller has produced
and traded in the domestic market (which market is decided by the two
parties). the deal)
• Advantages:
- The seller does not have to bear the development costs and risks when
expanding to foreign markets
- Suitable for businesses operating in the field of manufacturing and
manufacturing
• Defect:
- Do not allow enterprises to strictly control marketing activities and production
activities in foreign markets
- In case the license sale contract expires, it is vulnerable to competition by the
partner company
- Risk of being sold license of technological know-how -> Enterprises quickly lose
control
FRANCHISING
• Franchising is a business form whereby one party allows the other
party to use its brand, accompanied by providing services,
operating skills, business know-how and collecting a fee.
• Advantages:
- The franchisor does not have to bear the development costs and
risks when expanding to foreign markets
- Suitable for manufacturing businesses in the retail and service sectors
• Defect:
- Difficulty in quality management
- Brand affected
JOINT VENTURE
• Enterprises in two or more different countries that join together
to create a new business unit
• Advantages:
- Take advantage of local partners
- Share business risks and costs with partners
- When a business is politically risky, joint ventures are the only
means of entry
• Defect:
- Risk of losing control of technology to partners
- The two sides faced difficulties arising from differences in
culture and management methods
WHOLLY OWNED SUBSIDIARY
• Enterprises spend all costs to build bases in foreign countries
• There are 3 ways to do it
• Advantages:
- Operational control
- In line with the general strategic direction of enterprises
• Defect:
- High cost and risk