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Business Challenges and Competition

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Four themes that can be identified include:

  • Diversification
  • Business challenges and competition
  • Global integration and national differentiation.
  • Marketing strategies and market segmentation
  1. 1.            Diversification

Diversification is a form of business strategy where a company moves out of its present business specialization into a new area of specialization. It is a form of corporate strategies for companies. Diversification can either be concerned with the products sold by the company or the workforce in the company. A company can seek to increase its profits by coming up with new products, which they sell at large volumes in various markets. Diversification can occur both at the corporate level and at business unit level. At business unit level, the business is most likely to expand into a new segment of industries that the business is already in. At the corporate level, a business enters into a business that is outside the scope of the existing one. Diversification should be among the main growth strategies that a company sets.

The strategic analysis of McDonald clearly highlights the importance of Diversification. Diversification includes development of new products or markets, alliance with a complementary company, acquisition of a firm, distributing products that are manufactured by another firm or licensing of new technologies. It can either be horizontal, concentric or conglomerate. In concentric diversification, the industries have some technological similarities and, therefore, the firm is able to leverage its technological know-how to its advantage. For instance, the Samsung Corporation started as a firm specialized in agriculture, shipbuilding, chemical and textiles, but later diversified its products and started the production of electronics. In horizontal diversification, the company adds up new products that are not technologically or commercially related to the current line of production.

This strategy increases the firm’s dependence on certain market segments. In conglomerate diversification, the company comes up with new products that may be appealing to a new group of customers. The main reasons for firms adopting these strategies are first to increase profitability and the flexibility of the company and to get a good reception in markets as the company becomes large.

Despite being good, diversification can be looked at in two different dimensions of rationale. It may either be defensive or offensive. By being defensive, the company spreads the risk of the market contraction or when the current market orientation does not have further opportunities for growth. On the other hand, offensive reasons may be in order to conquer new positions and take the opportunities that promise greater profitability. Diversification can put a company on the rapid track to growth but can also lead to collapse of the company in case the strategy fails.

Recently, businesses have recognized the importance of having a diverse workforce as a one of the core business strategy that maximizes creativity, productivity and loyalty of employees while they meet the needs their clients. By branching out for a diverse workforce, companies have an access to a larger pool of candidates thereby; the company can hires the best person . Diversity of company’s workforce is also important. Companies need to realize that, in a competitive marketplace, an organization that puts peoples first regardless of their religion, race, age, gender, physical disability and sexual preference has an advantage over their competitors  because just as the workforce becomes more diverse so is the  market   (Aaker, 1988) . The diverse nature of employees makes the customers feel as if they hold a common ground with the employees serving them. Furthermore, a diverse workforce constitutes employees with different perspectives which can help in the provision of a holistic view of the market, identification of unmet needs and in identifying new opportunities.

The benefits of diversity in an organization far outweigh the cost. For instance, diversity allows for flexibility in an organization and thereby, strengthening its ability to respond to changes in demand and the business environment which are critical in ensuring that the organization remains competitive in the global economy.

Another presentation, corporate strategies clearly shows the importance of diversification. The article describes the motives that may trigger a firm to diversify. These motives include:

  • Growth- the company may want to escape from a stagnant or declining industry. This is the most powerful motive for diversification.
  • Risk spreading- diversification reduces the variation of profit flows. In case, a company has diversified its products the failure of one product may not cause the collapse of the whole company.
  • Profit- bringing together different businesses to a common ownership increases the profitability of the company.

It also present the three important test that diversification should meet- “Porter’s Three Essential Tests”. These tests include the cost of entry test, the attractiveness test and the better-off test.

Diversification should be directed towards attractive industries or towards industries which have the potential to become attractive.

  1. 2.      Business challenges and competition.

In the world today, businesses are under pressure in trying to overcome challenges of varying weights. 

The presentation External analysis: The Fundamentals present the theme of business challenges. Businesses face many challenges as they grow which may include, political challenges, economic challenges or social challenges. The presentation presents the Porter’s Five Forces of Competition which includes the threat of potential entrants, the threat of substitutes, the threat from competitors, the threat from suppliers and finally the threat from buyers. The first challenge faced by entrepreneurs is finding the right business opportunity to invest on. Another challenge faced by firms is assembling a right team of employees. The company management should make sure that the team sees the future, believe in the company’s possibilities and have a passion to make that possibility a reality. Companies should have employees who have the ability to see what other cannot see. The managers should see opportunities when other sees problems.

The presentation “A New Way of Looking at Strategy", presentsthe values that management need to have for them to effectively manage. A good management of a company should have the following values:

  • Should be able to identify a problem
  • Should see an opportunity in the problem identified.
  • Should be able to come up with a solution to the identified problem.
  • They should be able to develop the opportunity identified into a business idea.
  • They should be able to integrate the solutions they come up with into the business plan.

A company should envision and forecast its future. It must always be ahead in comparison to its competitors.

The company should also be in a position to overcome competition. Many companies see competition as a plague rather than viewing it as a good challenge. Competition is a benchmark for creativity which is the main engine for innovation and quality products. In fact, without competition there will be no innovation and without innovation, the company will remain stagnant without growth.

Recently there has emerged a new form of global competition where companies all over the world are competing to become known as the best employers in their industry. This development has profound implications, not only for businesses all over the world, but also for the society as a whole. In order for a company to gain a competitive edge over their competitors, the company must constantly keep abreast of, and improve on, their technology, this is the case with the McDonalds corporation.

The Amazon.com faces a lot of competition from other online selling companies. These competitors include: eBay, Barnes & Noble, Netflix, Apple, Wal-Mart, etc. In order to counter the competition the Amazon.com strives to offer low pricing on almost everything it sells. Furthermore, Amazon.com is known for selling “virtually everything” in contrast to its competitors who sells a limited number of products. Also, it provides a comprehensive product details and customer reviews. Through doing so, the customers prefer buying products from the Amazon dot com. In order to understand the customers’ needs all over the world, Amazon.com has been conducting and exploring strategic market for their products. Customers all over the world have become more confident with the Amazon.com through its strategies to curb competitors. 

  1. 3.      Global integration and national differentiation

Global integration refers to the international exchange of resources among multinational companies resulting from the increase in specialization and the geographic dispersion of value-added activities. The presentation “corporate strategies” show the significance of integration in the global economy. Product flow among industries is a key dimension of the resource exchange which is capable of capturing the relationships among integrated companies. Usually, global companies respond to the environmental pressures by integrating and differentiating the roles of their foreign subsidiaries.

On the other hand, differentiation refers to the extent to which company subsidiaries become specialized from other company units due to environmental complexity and competitive pressures. The presentation “Multinational Strategies” highlights the factors that may trigger a given company to differentiate its products. These factors include:

  • The differences in customer tastes and preferences
  • The difference in infrastructure and traditional practices
  • The differences in the distribution channel.
  • The demands from the host government

Firms pursue global strategies to gain competitive advantage over the others. However, some firms may benefit more from globalization in comparison to others. This is also the case for various nations where some have a comparative advantage over others. In order to create a successful global strategy, managers are required to understand the nature of global industries and the nature of dynamic global competition . There are some factors that determine an industry’s globalization potentials. These factors include:

  • The location of strategic resources
  • The differences in countries costs
  • The potentials for economies of scale
  • Availability of global customers.
  • A well coordinated marketing programme
  • Availability of transferable marketing where
  • Global competitors- many global competitors show that the industry is ready for globalization

The Samsung Corporation has differentiated its products from those of its products. The company has been able to differentiate its products through the use of new technology. There are a number of factors which have which have led the company to differentiate its products. These factors include: to curb competition, due to the rapid technological advancement and localization pressure. By differentiating its product the company has been able to demonstrate the unique aspect of its product and by so doing, it creates a sense of value. The company has reduced direct competition through differentiating its products. Its products has from completion based primarily on price to competition based on other factors such as distribution strategy, product characteristics or promotional variables.

  1. 4.      Marketing strategies and market segmentation

Market strategy matches the opportunities to the firm’s resources and its objectives. Market segmentation can be defined as the division of a given market into different groups of consumers who are homogeneous. The firms can supply specific products to specific target markets. This ensures that the customer’s needs are well catered for.

The representation Faucets: Test for Plausibility gives the strategies that a firm needs to implement to ensure it has a competitive advantage over others. For a firm to be successful, competitive advantage is needed. Even if there is no breakthrough opportunity available, the firm should try and obtain a competitive advantage to increase its profit and its chances for survival. Competitive advantage simply means that a firm has a marketing mix that the target markets sees being better than the competitors’ mix . This may be from efforts by a firm in a different area such as cost cutting, innovation or financing for a new distribution facility.

A key objective of marketing is to satisfy the needs of some specific group of customers that the firm serves. When looking at market segmentation, the companies should focus mainly on the population of the target market.

The presentation A New Way of Looking at Strategies demonstrates thekey approaches to strategic management. A global organization may use a much structured strategic management model because of its scope of operation and size.

The article “Natura: Exploring Brazilian Beauty” gives the business mode of action in measurement of the effectiveness of an organization strategy. Much emphasis is put on the importance of conducting a SWOT analysis in figuring out the internal weaknesses and strengths of a business, the external opportunities and the threats of entity in business. The strategic options should be evaluated against three key success criteria: suitability, feasibility and acceptability.

The Proctor & Gamble is known as the largest producer of consumer products in the world although it faces competition from the Colgate Palmolive, Henkel, and Unilever companies. It is segmented into Beauty, Grooming and Household Care Products. Through segmentation P&G currently owns more than 70 beauty, grooming and household care brands. P&G has been using various marketing strategies in order to remain competitive in the market. For instance, the company management knows the importance of innovation in the consumer goods sector. By being innovative, the company has been able to develop the existing products and develop new ones. The company has been able to differentiate and distinguish its product in one market segment from the products of its competitors. Its products are available in almost all market segments.   .

  • The theme that managers should have much focus on is the theme about diversification.

The importance of diversification has become a dominant stream of research in achieving strategic management. Research has found out that firms that diversify internationally perform better in comparison to those which do not diversify internationally. Firms that have more foreign investments generally have high profits. International diversification is significantly related to firms profit stability in comparison to product diversification and exportation. International diversification is considerably and positively associated with better performance. Performance of product diversification strategies mostly depends upon the extent of international involvement, hence the firms which practices diversification are better than those which do not.

International diversification is important because it is based on exploiting foreign market opportunities through internalization. New foreign operations are brought within the boundaries of a firm. Although international markets may yield new opportunities, managers should be aware that they present an increase in competitive challenges from both the international and local competitors. Also, diversification reduces risk because it allocates investments among various financial instruments and industries. It maximizes returns by investing in different areas that react differently to the same environment.

 

Question 2

  • In the article “customizing customization”, in a magazine review, a growing number of economists and management scholars have declared that “this era is over”, the era in this context refers to a period which has been characterized with mass production and mass distribution.

The idea behind the statement

The idea behind this statement is that firms adoption of customization strategies have attracted considerable attention as a model of what is expected to become a commonplace in the future. This statement seems be wrong since customization involves the modification of packaged softwares in order to meet the individual’s requirements. Customization does not lead to mass production but on the contrary, leads to less production of goods and services.

 

Why should someone assert to such an idea?

Someone can assert to such an idea because many companies all over the world are profit oriented and some may be caring less about the quality of their products. Firms wants to maximize on their output. Customization has gained much attention during the past decade. For instance, in the capital goods industry, it has always been the prevailing paradigm. In order for this idea to be improved, companies need to realize the importance of customization. Customization can be used to avoid competition and a way to justify a firm operation in the market. There has been an increased demand for customized products. Customized products are perceived as a status of symbol and increases customers’ loyalty. Customers will be much willing to pay a premium for goods and services which satisfy their unique needs.

  • The statement that Samsung Corporation has been able to maintain low-cost manufacturing in the presentation of Samsung Strategic Analysis seems to be wrong. I disagree with this statement because recently firms cost of production has been escalating steadily due to various factor such as increase in the prices of crude oil and the Samsung Corporation cannot be an exception.

The idea behind the statement

The idea behind this statement is that the Samsung Corporation has not been affected by the global inflation that the whole world is experiencing. All industries including Samsung Corporation have hiked the prices of their products due to the increase in production cost.

 

Why should someone assert to such an idea?

Someone can assert to such an idea in order to attract customers to buy their products thinking that the products are less expensive than those of their competitors. The sharp increase in the production cost can be ascribed to the rising prices of crude oil. Being the main source of power for many industries, the rise in the prices of crude oil has triggered a subsequent rise of the other products such as electronics. Companies have increased the prices of their products in order to ensure that their profit margin is not affected. Also, there has been a rise in the cost of raw materials. This idea can be improved if companies raise the salaries of their employees in proportion to the rise in the prices of their products. The companies should not exploit their customers by charging unreasonable prices of their products.

  • The statement in the McDonalds Corporation strategic analysis that some fast food restaurants offering healthier food alternatives is a threat to the industry is wrong. This is because a reputable firm like McDonalds Corporation should view competition as a primary mechanism to ensure that it remains accountable to its customers and not like a threat. Competition should be viewed as a motivating factor towards achievement of goals rather than being viewed as a threat. The existence of competitors is an indicator of paying customers. Furthermore, competition is a vital component of a free-market economy since business strives to produce the highest quality products at the lowest prices possible in order to win customers support and acceptance.

A person can assert to such an idea if he or she does not understand the importance of competition not only to companies but also to the consumers. Competition between companies provides consumers with their best desired products of high quality while they keep the prices within a certain cost range. Competition between two companies can be a benefit to the society in various ways. Competition helps to keep the prices of the products within a reasonable range, which attracts a lot of customers. Also, due to competition businesses can be driven to expand or accessorize their product line in order to attract more sales. This idea can be improved if only all firms can understand how important competition is.

 

  • The statement that one of the benefits of the mission statement in a firm is for employee identification may be incorrect in the context. Managers should realize that the firm’s impression to customers or target market determines its survival and success. The mission statement only gives the identity of the firm but not its employees. The mission statement occasionally describes the target market. Mostly when defining the mission statement much emphasis is put on the external influences such as competition, economic conditions, labor conditions, and possible government regulations. It is true that the extent of managers and employees involvement in the development of mission and vision statements can make a major difference in the success of business but the success of a business does not necessarily depend on the employees but rather the management as a whole.

 The mission statement is often thought as a recipe for success. It not only defines the organization’s accomplishments but it also provides the employees with direction in order for them to develop plans and look for available opportunities for improvement. The employees only help in implementation of the mission and vision statements. A mission statement is supposed to inspire employees so that they can be committed fully to the organization. The company uses the mission statement to outlines the acceptable behaviors to be adhered to by its employees.

Employees help in identifying the core values of the company. Therefore, it is important to encourage employees to participate in formulation of mission and vision of a company. This can be done by creating competitions inviting the employees to submit their suggestions.

  • Also, the statement that one of the pressures for cost reduction in firms is when there is persistent excess capacity and where competitors are based on low cost locations. All firms all over the world are struggling to reduce the cost of production without necessarily being pressurized by the fact that they are located at a place where the production cost is low.

Why should someone assert to such an idea?

Someone can assert to such an idea if he or she does not know the advantages and disadvantage of economies of scale. Instead of firms struggling to reduce the cost of production, they should take advantage of scale economies by mass production. It is possible for firms to produce a standard product provided that the demand of those products is greater than the cost involved in their production. Also, in order to curb the competitors who base their competitors on low cost production, a company may open operations in other countries where the labor cost minimum.

Firms should realize that cost reduction is an important factor in improving the state of the firm. Most managers and business leaders would like to reduce costs, but many of them do not use the right tactics as they do so. Many of them reduces the costs by simply reducing the number of workers without knowing the impact of such an action on the company’s operation.

  • The statement that says that in order for firms to compete effectively with their competitors they should lower the prices of their products seems to be wrong. The idea behind this statement is that for a firm to remain competitive it should sell its products at a comparatively low price than that of its competitors. Reduction of prices leads to reduction of profit; therefore, a firm should not lower its prices as a way of dealing with its competitors. A person can assert to such an idea if he or she does not take into consideration the effects of lowering prices. Rather than lowering prices, the firm can engage in non-price form of competition. The firm should try to distinguish its products or services from those of its products. Also, the firm can use other sustainable competitive advantage other than price competition where the company distinguishes its products and services from those of its competitors. These strategies may also include improving the quality and increasing the quantity of the products. This would be an effective and healthy way of competing with its competitors.

 

  • The idea that reduction in prices is an effective way to deal with competition would cause the most harm for managers competing in today’s global business environment.

Lowering prices with no change of quality of the product by one company causes the whole industry to lower its price. Price competition may cause some firms to produce low quality goods and services so that they can lower their prices like their competitors. Competition should ensure that consumers pay the lowest and most efficient price coupled with goods and services of high quality. Competition can discourage foreign investors; encourage inefficiencies and mismanagement, cause increase in unemployment, foster corruption and criminal practices also causing misallocation of scarce resources.

There are a number of factors to be considered when making a decision on the price to charge. These decisions include:

  • Organization and marketing objectives- The prices charged should be consistent with the company’s goals and objectives. This ensures that the consumers are not exploited in any way.
  • The types of pricing objectives-   This includes a satisfactory level versus profit maximization, the market share, cash flow, status Quo and survival.
  • The buyers’ perceptions- how sensitive the buyers are to price variations. Price sensitivity varies from one market segment to the others.
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