Business level Strategy vs. Corporate level strategy

(Heigh 2000)

(Porter)

There are four concepts of corporate strategy that have been put into practice-portfolio management, restructuring, transferring skills, and sharing activities. The first two require no connections among business units; the second two depend on them.

Portfolio Management is the analysis and decision making process regarding strategic investments for a business (products) or a corporation (strategic business units). The process is aimed at determining what investment priorities should be given in the products or businesses portfolio of the firm and is also of use for brand management

In a portfolio strategy, the corporation seeks to create shareholder value in a number of ways. Acquisitions leads to increase brand awareness and market share

Corporate Level Strategy

(Porter 2008)

Wahaha local Chinese company acquired loss making small companies which helped them to produce locally, increase market share and brand awareness

Soft Drink Industry in China

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"Corporate strategy refers to the overall strategy for a diversified company. It is concerned with the mix of businesses the company should compete in, and the ways in which strategies of individual units should be coordinated and integrated."

"corporate-level strategy is concerned primarily with answering the question of what set of businesses should we be in. Consequently, scope and resource deployments among businesses are the primary components of corporate strategy"

China

Mojgan Mossadegh

Ivan David

(Hofer & Schendel 1978)

Corporate Level Strategies

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" Restructuring refers to changes in the composition of a company's set of businesses and/or financial structure. A restructuring approach to creating value in an unrelated diversified company involves the buying and selling of other companies (and their assets) in the external market".

" To work, the restructuring strategy requires a corporate management team with the insight to spot undervalued companies or positions in industries ripe for transformation unrelated diversification leads to positive corporate performance”

(Porter 1987)

Wahaha in order to lower the cost relied on its nationwide distribution network to get its new product in carbonated drinks category to rural markets.

(Rocca & Staglianò 2012)

Soft Drink Industry in China

• The ability to share activities is a potent basis for corporate strategy because sharing often enhances competitive advantage by lowering cost or raising differentiation.

• Sharing can lower costs if it achieves economies of scale, boosts the efficiency of utilization, or helps a company move more rapidly down the learning curve

SHARING ACTIVITIES

(Blees et.al, 2003)

Soft Drink Industry in China

Wahaha started as Soda Water Company in 1987 and between 1992 and 1994 Wahaha management decided to go with unrelated diversification as existence in one business is not sustainable for the company and therefore, entered children fruit drinks markets resulting in increased profits.

THANK YOU!

• Transferring skills involves knowledge of how to perform activities is transferred among the units in a company
• By transferring skills companies can lower the cost of overcoming entry barriers and gain competitive advantage

wahaha staff collected information from the market and provided feedback to headquarters, which enabled the company to adjust its sales strategy and develop new products. Further, wahaha began implementing an information system that would enable wahaha and distributors to enable information on real time and get a competitive advantage

Soft Drink Industry in China

TRANSFERRING SKILLS

Focused Strategies

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• The focuser is protected from rivals to the extent it can provide a product or service they cannot.
• The focuser has power over buyers because they cannot get the same thing from anyone else.
• The threat of new entrants is limited by customer loyalty to the focuser.
• Customer loyalty lessens the threat from substitutes.
• The focuser stays close to its customers and their changing needs.

(Bordes 2009)

Wahaha used the Focused Differentiation Strategy to target the rural market as this market was not the focus of competitor's.

Soft Drink Industry in China

(Hill 2010)

• Distinctive tastes and product characteristics may blur over time, thus reducing the defensibility of the niche.
• The risk that the underlying market niche may gradually shift more toward characteristics of the broader market.
• The firm is at a disadvantage with regard to powerful suppliers because it buys in small volume.
• Because of low volume, the firm may have higher costs than a low-cost company.

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Focused Strategies

Soft Drink in China

Using economic of scale and new technology, Wahaha reduced the costs and provided a new product with a lower price which led company to higher market share.

Integrated Strategy

Cost leadership

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Business Level Strategy

Differentiation

Differentiation

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competitive advantage

(Raynor 2007)

(Hill & Jones 2010 )

• While some research support the focus on one specific strategy (Green et al., 1993; Kim and Lim, 1988), Some have found that a hybrid of cost leadership and differentiation is most effective (Gopalakrishna & Subramanian, 2001; Svatopluk et al., 2001)
• The integrated cost leadership/ differentiation strategy involves engaging in primary value chain activities and support functions that allow a firm to simultaneously pursue low cost and differentiation. (Hitt, Ireland & Hoskisson 2012).

" Differentiators can create demand for their distinct products and charge a premium price, resulting in greater revenue and higher profitability."

"They say that the high-performing companies in different industries tend to be oriented more to customer value than to the cost “side of the profitability equation.” Such companies “tend to be driven more by close-to-the-customer attributes than by either technology or cost.”

(Porter 1980)

Business strategy is about “how an organization creates and captures value in a specific product market.”

At the business level, strategy focuses on how to compete in a particular industry or product-market segment. Thus, distinctive competences and competitive advantage are usually the most important components of strategy at this level (1978, pp. 27, 28).

Scope and Source of advantage

(Peters & Waterman 1982)

Business level Strategy vs. Corporate level strategy

" Generic strategies are useful because they characterize strategic positions at the simplest and broadest level.

Achieving competitive advantage requires a firm to make a choice about the type and scope of its competitive advantage. "

Soft Drink Industry in China

BENEF I TS

Cost Leadership

Cost leader is able to make a lower price or is able to achieve superior profitability through operating with margins greater than competitors.

A cost leadership strategy may help to remain profitable with:

• Entrants – Low cost leaders create barriers to market entry through its continuous focus on efficiency and reducing costs.
• Customers – Powerful customers that force firms to produce goods/service at lower profits may exit the market rather than earn below average profits leaving the low cost organization in a monopoly positions. Buyers then loose much of their buying power.
• Suppliers – Purchases in large quantities increase the bargaining power of the firm over suppliers
• Substitutes – Low cost leaders are more likely to lower costs to attract customers to stay with their product, invest to develop substitutes, purchase patents
• Rivalry – Competitors are likely to avoid a price war, since the low cost firm will continue to earn profits after competitors compete away their profits.

Wahaha developed the first nutritious drink for children which was a high quality drink enriched with Vitamin A and D.

(Hitt, Ireland & Hoskisson 2011)

(Barney &Hesterly 2012)

(Bordes 2009)

(Datta 2009)

• The difficulty in sustaining a price premium as a product becomes more familiar to the market.
• implementing a differentiation strategy is costly.
• Difficulty maintaining long-term distinctiveness in customers’ eyes
• Appealing product features can easily copied by rivals.
• Counterfeiting can reduce the company’s profit
• the risk of changing consumer tastes or preferences

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(Thompson & Gamble 2008)

Differentiation Strategy

(Rothaemel 2012)

(Hofer & Schendel 1987)

(Porter & Millar 2001)

"This strategy seeks to create higher value for customers than the value that competitors create, by delivering products or services with unique features while keeping cost at the same or similar levels."

" The role of the company and its product in the buyer’s value chain is the key determinant of the differentiation and new information technology can make it possible to customize the product. "

"emphasis on branding advertising, design, service, quality, and new product development."

(Grant & Robert 2008)

Cost Leadership

(Barney & Hesterly 2012)

(Wensley, 1981)

(Murray, 1988)

• A cost advantage can be easily imitated.

• Because price cuts are easy to imitate, they may not result in long-term advantage.

• It doesn’t work in narrow market, the target customers need to be industry-wide.

• It only works if the customers demanding the products, are price sensitive

• Considerable resources are needed.

• Price leadership can lead to a "cut rate" or “discount” image of the company that may be hard to overcome .

(Porter, 1980)

(Wright, 1987)

(Hoskisson, Hitt & Ireland 2014)

(Baack & Boggs 2008)

Porter (1980), maintains that achieving “a low overall cost position often requires a high relative market share or other advantages, such as favorable access to raw materials” .

As Gale (1992) suggests, market share leaders accomplish this distinction via a strategy of differentiation rather than through cost leadership.

Hambrick (1983) also argues that market share leaders tend to compete more on the basis of differentiation than low cost.

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(Hill 2010)

Why business level strategy is important?

(Hitt, Ireland & Hoskisson)

" An integrated set of actions are taken to produce goods or services that serve the needs of a particular competitive segment."

" The firm strives to serve the need of a targeted niche market segment where it has either a low-cost or differentiated competitive advantage."

• The focuser selects a specific market niche that may be based on:

• Geography
• Type of customer
• Segment of product line

• Focused company positions itself as either:

• Low-Cost
• Differentiators

(Rothaemel 2012)

(BEARD & DESS 1981)

Cost Leadership

" Cost Leadership is a strategy where "a firm sets out to become the low-cost producer in its industry." A firm with this strategy sets as a goal to create the same or similar value for customers by delivering products or services at a lower cost than competitors, enabling the firm to offer lower prices to its customers."

" The emphasis is on lower costs, not on low selling prices."

" Cost leadership requires aggressive construction of efficient-scale facilities, vigorous pursuit of cost reductions from experience, tight cost and overhead control, avoidance of marginal customer accounts, and cost minimization in areas like R&D."

( Porter 1998)

Focused Strategies

" firms can influence the five forces through their own strategies. "

Corporate-level strategy is seen as inter-industry whereas business-level strategy is operationalized as intra- industry.

( 1) corporate-level strategy, concerned with questions about what businesses to compete in

(2) business-level strategy, concerned with questions of how to compete within a particular business.

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• Barrier to Entry – Creating barriers by perceptions of uniqueness and reputation
• Supplier- Powerful suppliers are not a problem because the company is geared more toward the price it can charge than its costs.
• Buyers- Powerful buyers are not a problem because the product is distinct. So they pay more for the valuable product.
• Substitutes - creating high switching costs through differentiation and uniqueness
• Rivalry- Brand loyalty means that customers will be less sensitive to price increases, as long as the firm can satisfy the needs of its customers.

"Purpose of Business-Level (BL) Strategies is

• Two types of competitive advantage firms must choose between

– Cost (Are we LOWER than others?)

– Uniqueness (Are we DIFFERENT? How?)

• Two types of ‘competitive scope’ firms must choose between

– Broad target

– Narrow target

• These combine to yield 5 different Business Level strategies

Hill & .Jones 2012)

(Porter 1996)

Differentiation

(Hitt, Ireland, & Hoskisson 2011)