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Chapter 6: Strengthening a Company's Competitive Position: FINAL EXAM REVIEW

Terms in this set (18)

what are mergers and/or acquisitions? how do they contribute to enhancing a company's position? - what is the tool/definition?
Merger:

•Is the combining of two or more firms into a single corporate entity that often takes on a new name.

Acquisition:

•Is a combination in which one firm, the acquirer, purchases and absorbs the operations of another firm, the acquired.

Mergers and acquisitions are much-used strategic options to strengthen a company's market position.
what are mergers and/or acquisitions? how do they contribute to enhancing a company's position? - why do we use it
any of 5 objectives:

1. creating a more cost-efficient operation of the combined companies.

2. expanding a company's geographic coverage.

3. Extending the company's business into new product categories

4. Gaining quick access to new technologies or other resources and capabilities.

5. leading the convergence of industries whose boundaries are being blurred by changing technologies and new market opportunities.
what are mergers and/or acquisitions? how do they contribute to enhancing a company's position? - give an example
- greater financial strength for both companies involved.
- greater economic power can lead to higher market share, more influence over customers, and reduced competitive threat.

Example: Merger of Disney and Pixar

- benefited both companies
- Disney got the innovative ideas in the animation studio & technology pixar had.
-pixar gained monetary support from Disney (put them in a better position in the market against their key rivals).
What are the purpose of defensive and offensive strategy? - what is the tool
offensive:
- actively trying to pursue changes within the industry
-stay ahead of the competition
- achieve a competitive advantage

defensive:
- lower the firm's risk of being attacked.
-weaken the impact of an attack that does occur.
- Influence challenges to aim their efforts at other rivals.
What are the purpose of defensive and offensive strategy? - why do we use it
Offensive: sometimes a company's best strategic option is to seize initiative, go on atack, and launch a strategic offensive to improve its market position.

Defensive: can help a company protect their competitive advantage. (action to block challengers or actions to signal the likelihood of strong retaliation).
What are the purpose of defensive and offensive strategy? give 2 examples of each
Offensive: Apple - face recognition, apple watch,
- use their best and most powerful resources and capabilities to attack rivals (apple has great design)

Offensive: blackberry decided not to do smartphones anymore but teamed up with another company to do driverless software -- key to future. (autonomous driving).

Defensive:
-- pricing war in which company commits to matching or beating a competitor on price.

- offering better service or warranties that speak to having better products

Defensive:
- Heinz and French's
French's mustard made french's ketchup, and then heinz decided to make mustard and relish.

- adding more features to keep ahead of competitor

-increasing advertising and marketing more to raise awareness of improved products or service.
Identify and briefly explain what is meant by each of the following terms - what is the tool?
first-mover advantage:
first-mover disadvantage (or late-mover advantage):
first-mover advantage:

if the market responds well to its initial move, the pioneer = benefit from a monopoly position -
developing the brand reputation, developing the product, setting the rules, laying the foundation (blackberry)

first-mover disadvantage: the risk of products being copied or improved upon by the competition. - greater risks and greater development costs than firms that move later.

(or late-mover advantage): costs of pioneering are high relative to the benefits accrued & company can imitate and have the same benefits, for a lot cheaper.
Identify and briefly explain what is meant by each of the following terms - why do we use it
first-mover advantage:
first-mover disadvantage (or late-mover advantage):
first-mover advantage: could recover investment costs and make an attractive profit & gain a great competitive advantage.

first-mover disadvantage: Worth taking the risk of possibly becoming the monopoly in the industry -- could be worth all the disadvantages?

(or late-mover advantage): sometimes it is better to sit and wait to see what competitors do so you can grow and adapt on their ideas to perform even better.
Identify and briefly explain what is meant by each of the following terms - give an example of each
first-mover advantage:
first-mover disadvantage (or late-mover advantage):
First mover advantage: A company that is the first to establish itself in a given market or industry.

- The first mover can help build a firm's reputation and create strong brand loyalty, and can set the standards for the industry. The first mover will have a lead against rivals, because they will have an early lead on the learning curve.

Ex: Amazon was a successful first mover. They were able to provide customers with products and delivering products straight to their door.

First mover disadvantage/Late mover advantage:- It can be costly to be a first mover, so being a late mover would be an advantage in this case, because they would have the know-how and can learn from the first mover's mistakes.

Being a first mover can be a disadvantage because there may not be a strong customer base, or customer loyalty.

An advantage of a late mover is that they will be able to develop the first movers products to make it more attractive to customers. Also when the first movers products do not live up to the customers expectations, the late mover can take note of this and develop the product that the customers are demanding for.

Late mover example: Apple, they were first originally known for music devices, and slowly entered into the mobile industry with the introduction of the iPhone. They were able to learn from rivals and create a phone that customers wanted.
Identify and briefly explain what is meant by each of the following terms - what is the tool?

partnerships:
vertical integration strategy:
Outsourcing strategy:
Strategic alliances:
partnerships: consists of two or more people who combine their resources to form a business and agree to share risks, profits and losses.

vertical integration strategy: •Can expand the firm's range of activities backward into its sources of supply or forward toward end users of its products.

Outsourcing strategy: Outsourcing involves contracting out certain value chain activities that are normally performed in-house to outside vendors. (customer service calls, payroll, manufacturing, human resource services).

Strategic alliances: A formal agreement between two or more separate companies in which they agree to work cooperatively toward some common objective.
Identify and briefly explain what is meant by each of the following terms - why do we use it?

partnerships:
vertical integration strategy:
Outsourcing strategy:
Strategic alliances:
partnerships:

a way to gain benefits offered by vertical integration, outsourcing, and horizontal mergers and acquisitions, while minimizing the associated problems.

- offer flexibility if a firm's resource requirements or goals change over time.
-reduce the need to be independent and self-sufficient when strengthening the firm's competitive position.

vertical integration strategy:
- add materially to a firm's technological capabilities.
- strengthen the firm's competitive position.
- boos the firm's profitability

Outsourcing strategy:
- cost savings
- Improve the company's focus.
- Liberate inner sources for new purposes.
- Increase efficiency for some time-consuming functions - that the company may lack resources for.
- Use external resources as much as possible.

Strategic alliances:

- minimize the problems associated w vertical integration, outsourcing, and mergers and acquisitions.
- •Expedite development of promising new technologies or products.
•Help overcome deficits in technical and manufacturing expertise.
•Bring together the personnel and expertise needed to create new skill sets and capabilities.
•Improve supply chain efficiency.
•Help partners allocate venture risk sharing.
•Allow firms to gain economies of scale.
•Provide new market access for partners.
Identify and briefly explain what is meant by each of the following terms - give an example of each

partnerships:
vertical integration strategy:
Outsourcing strategy:
Strategic alliances:
Strategic Alliance: A formal agreement between two or more separate companies in which they agree to work cooperatively towards some common objective.

Ex: Starbucks and Barnes and Noble

Vertical integration strategy: A firm that performs value chain activities along more than one stage of an industry's value chain system

- Can expand the firms range of activities forward toward the end user, or backward into the sources of supply.

Ex: Tiffany & Co. began sourcing, cutting and polishing its own diamonds, it integrated backward along the supply chain.

And Mining giant De Beers Group integrated forward when they entered the diamond retailing business.

Outsourcing Strategy: involves contracting out certain value chain activities to outside vendors.

Ex: Airplane parts (different manufacturers provide different elements to the plane)

Partnership example: Gpro and Redbull

instead, both have established themselves as lifestyle brands -- in particular, a lifestyle that's action-packed, adventurous, fearless, and usually pretty extreme. These shared values make them a perfect pairing for co-branding campaigns, especially those surrounding action sports.
Identify and briefly explain what is meant by each of the following terms - what is the tool?
horizontal scope
vertical scope
scope of the firm
horizontal scope: The range product and service segments that a firm serves within its focal market

vertical scope: the extent to which the firm's internal activities encompass the range of activities that make up an industry's entire value chain system, from raw-material production to final sales and service activities.

scope of the firm: refers to the range of activities that the firm performs internally, the breadth of its product and service offerings, the extent of its geographic market presence, and its mix of businesses.
Identify and briefly explain what is meant by each of the following terms - why do we use it
horizontal scope
vertical scope
scope of the firm
horizontal scope: -- good for mergers and acquisitions

It is important because it can grow the company in size, increase product differentiation, achieve economies of scale, reduce competition, or help the company access new markets.

vertical scope:

Vertical integration helps a company to manage and control various aspects of the production, distribution, and sales processes.

The goal of vertical integration is typically to increase sales, eliminate costs, and improve profits by improving business operations.

scope of the firm: these decisions determine where the boundaries of a firm lie and the degree to which the operations within those boundaries chohere.

also have a lot to do w the direction and extent of a business's growth -- corporate level strategy
Identify and briefly explain what is meant by each of the following terms - give an example of each
horizontal scope
vertical scope
scope of the firm
Horizontal Scope: The range of product and service segments that a firm serves within its focused market.

Ex: Facebook acquiring Instagram to expand its strengthen its position in the social media industry by increasing market share, product line and to reduce competition.

Vertical Scope: The extent to which a firm's internal activities encompass the range of activities that makeup an industry's entire value chain system, form raw material production to final sales and services

Ex: Target, is able to be a grocery store and able to produce their own line of clothing as well. They own the manufacturing, control the distribution and the retailer as well.

Scope of the firm: Refers to the range of activities that the firm performs internally, the breadth of its product and service offerings, the extent of its geographic market presence, and its mix of businesses- focus on which activities a firm will perform internally and which will not.

Ex should Panera Bread company produce the fresh dough that its company owned and franchised bakery-cafes use in making baguettes, pastries, bagels and other types of bread, or should it obtain its dough from outside suppliers?
there are a number of offensive strategy options for improving market positions using cost based and blue ocean strategies - define the terms
Cost-based: the business decision to base the price of a product on the costs of production rather than external factors such as competition or the economic environment.

Ex: Walmart work to become the low-cost producers in their industries. By constantly reducing costs wherever possible, these companies are able to set lower prices.

Blue-Ocean:

- It is a specialized offensive strategy, where the industry has not yet taken shape.

- Open up a new market space and create demand.

- Offers growth in revenues and profits by discovering or investing new industry segments that create altogether new demand

How it can be operationalized (Blue-ocean)

- It can create and capture new demand
- Make competition irrelevant
- Align the whole system of a company's activities in pursuit of differentiation and low cost

Blue-ocean example:
- Etsy -- provides a marketplace for crafters, artists and collectors to sell their handmade creations, vintage goods (at least 20 years old), and both handmade and non-handmade crafting supplies.
...
Blue-ocean strategy: a market space where the industry has not yet taken shape, with no rivals and wide-open long-term growth and profit potential for a firm that can create demand for new types of products.
...
Blue-ocean strategy: offers growth in revenues and profits by discovering or inventing new industry segments that create altogether new demand.
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