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					                   STRATEGIC QUOTES…

“Successful business strategy is about actively shaping the
  game you play, not just playing the game you find.”
   Adam Brandenburger & Barry Nalebuff


“The essence of strategy lies in creating tomorrow’s
  competitive advantages faster than competitors can mimic
  the ones you possess today.” Gary Hamel & C. K. Prahalad

“Competitive strategy is about being different. It means
  deliberately choosing to perform activities differently or to
  perform different activities than rivals to deliver a unique
  mix of value.” Michael Porter

“Strategies for taking the hill won’t necessarily hold it.”
Amar Bhide
                  THE TOWS MATRIX
                           WEIHRICH 82


                             INTERNAL FACTORS

                      STRENGTHS                    WEAKNESSES
                      ---------------------------------------------
  OPPORTUNITIES         SO STRATEGIES              WO STRATEGIES
                      Use Strengths to take        Take advantage of
                      advantage of Opportunities   Opportunities by
                                                   overcoming Weaknesses
EXTERNAL              ---------------------------------------------
FACTORS                 ST STRATEGIES              WT STRATEGIES
                      Uses Strengths to avoid      Minimize Weaknesses
                      Threats                      and avoid Threats
       THREATS
                      ---------------------------------------------

HELPS US TO THINK ABOUT ALTERNATIVE STRATEGIES WE NORMALLY
  WOULDN’T CONSIDER. PORTER’S COMPETITIVE STRATEGIES
     PORTER’S COMPETITIVE STRATEGIES

ISSUE 1 -- SHOULD WE OFFER “SUPERIOR VALUE” BY…

A.   OFFERING A GOOD PRODUCT AT A LOW PRICE, OR

B.   OFFERING A BETTER PRODUCT THAT IS WORTH
     PAYING MORE FOR?

ISSUE 2 – SHOULD WE COMPETE

A. “HEAD TO HEAD” WITH OUR MAJOR COMPETITORS, OR

B. SHOULD WE FOCUS ON A NICHE IN WHICH WE CAN
     SATISFY A LESS SOUGHT-AFTER BUT STILL PROFITABLE
     SEGMENT OF THE MARKET?
       PORTER’S GENERIC STRATEGIES
                       PORTER 1990



                          COMPETITIVE ADVANTAGE

                  LOWER COST                DIFFERENTIATED
                  ---------------------------------------------
  BROAD TARGET     COST                     DIFFERENTIATION
                   LEADERSHIP
COMPETITIVE       ---------------------------------------------

SCOPE              COST                     DIFFERENTIATION
                   FOCUS                          FOCUS
  NARROW TARGET
                  ---------------------------------------------
            PORTER’S GENERIC STRATEGIES
                                      PORTER 1990



LOW-COST LEADERSHIP
  Lower costs than competitors
  Targeted to a broad cross-section of the market

DIFFERENTIATION
  Offer buyers something different from competitors
  Targeted to a broad cross-section of the market

FOCUSED LOW-COST
  Lowest cost in serving a niche market
  Targets a narrow market niche where buyer needs and preferences are distinctly different
  from the larger market

FOCUSED DIFFERENTIATION
  Offer niche buyers something customized to their needs and preferences
  Targets a narrow market niche where buyer needs and preferences are distinctly different
  from the larger market
       LOW-COST LEADERSHIP STRATEGY

NO ONE CAN MAKE IT FOR LESS COST
STANDARDIZED PRODUCTS & SERVICES WITH LIMITED OPTIONS
GOOD VALUE FOR BUDGET PRICES
NO FRILLS OPERATING CULTURE (Lean and Mean!!!)
HIGH PRODUCTIVITY PER EMPLOYEE – THE EFFICIENCY LEADER
AGGRESSIVELY SEEKS COST-CUTTING INNOVATIONS
ACCEPTS LOW MARGINS IN RETURN HIGH VOLUME SALES

LOW-COST STRATEGIES ARE MOST SUCCESSFUL WHEN…
THE INDUSTRY PRODUCES STANDARDIZED PRODUCTS OR SERVICES
THERE AREN’T VERY MANY WAYS TO DIFFERENTIATE THE PRODUCT
MOST BUYERS USE THE PRODUCT IN SIMILAR WAYS
BUYERS INCUR LOW SWITCHING COSTS IN CHANGING SUPPLIERS
BUYERS ARE LARGE & HAVE POWER TO BARGAIN DOWN PRICES
PRICE COMPETITION IS A DOMINANT COMPETITIVE FORCE
        RISKS OF A LOW-COST PRODUCER


COST ADVANTAGES TIED TO LARGE TECHNOLOGICAL INVESTMENTS MAY
  BACKFIRE IF THE TECHNOLOGY SUDDENLY BECOMES OBSOLETE

TECHNOLOGICAL BREAKTHROUGHS CAN ALSO GIVE RIVALS THE
  CHANCE TO ACQUIRE THE SAME COST REDUCTIONS WE ENJOY, OR TO
  DRIVE COSTS EVEN LOWER THAN WE CAN PRESENTLY ACHIEVE

RIVALS MAY FIND IT EASY OR INEXPENSIVE TO IMITATE OUR FIRM’S LOW-
   COST METHODS. IF THERE ARE NO BARRIERS OR PROTECTIONS, OUR
   COST ADVANTAGE MAY BE LOST QUICKLY

BUYER PREFERENCES AND TASTES MAY SHIFT TOWARD QUALITY,
  SERVICE, PERFORMANCE, OR OTHER DIFFERENTIATING FEATURES
         STRATEGIC COST ANALYSIS AND
            ACTIVITY-COST CHAINS


SUPPLIER-RELATED ACTIVITIES
  PRICES PAID FOR RAW MATERIALS, ENERGY, PARTS, TRANSPORTATION


MANUFACTURING- (OR PROCESS) RELATED ACTIVITIES
  AGE & EFFICIENCY OF FACILITIES, ECONOMIES OF SCALE, WAGE RATES,
  PRODUCTIVITY, ADMINISTRATIVE OVERHEAD, ETC.


DISTRIBUTION-RELATED ACTIVITIES
  MARK UPS OF DISTRIBUTORS, RETAILERS, SALES & ADVERTISING,
  TRANSPORTATION AND DISTRIBUTION, ETC.


HOW DOES YOUR FIRM’S COST POSITION COMPARE WITH YOUR RIVALS?
              ANALYSIS OF ACTIVITY-COST CHAINS…
                         AN EXAMPLE
ACTIVITY-COST ANALYSIS                    OURS                RIVAL 1    Diff
SUPPLY CHAIN COSTS
    Cost of 1 ounce of RM #1              $ .61               $ .553      .057
    Storage & Insurance & Trans              ---                 .025    -.025
    Total Cost per ounce of RM (#1)       $ .61               $ .578      .032
Ozs of RM (#1) needed per unit (20 oz)    $12.20    (20.5 oz) $ 11.849     .351

    Cost of 1 lb of RM #2                 $ .51                $ .495     .015
    Storage & Insurance & Trans              ---                 .025    -.025
    Total Cost – per lb of RM (#2)        $ .51                $ .520    -.01
Lbs of RM (#2) needed per unit (13 lbs)   $ 6.63    (13.2 lbs) $ 6.864   -.234

    Cost of 1 foot of RM #3               $ .728              $ .738     -.01
    Storage & Insurance & Trans             .042                 .025     .017
    Total Cost per foot of RM(#3)         $ .77               $ .763      .007
Ft of RM (#3) needed per unit   (15 ft)   $11.55    (15 ft)   $11.445     .105

SUPPLY CHAIN COST PER UNIT                $ 30.38             $ 30.158   $ .222
             ANALYSIS OF ACTIVITY-COST CHAINS…
                     AN EXAMPLE – Contd
ACTIVITY-COST ANALYSIS                   OURS      RIVAL 1    Diff

SUPPLY CHAIN COST PER UNIT               $ 30.38   $ 30.158   $ .222

MANUFACTURING & CONVERSION COSTS
  Hours needed to make 1 unit 3.0 hrs              3.1 hrs    -.1 hr
  Wages/Hour                  $ 9.80               $10.29     - $.49
  Variable Labor Cost/Unit    $29.40               $31.899    -$2.499

   Other Overhead Charges/Unit           $16.45    $14.11     $2.34

CONVERSION COST PER UNIT                 $45.85    $46.009    -$ .159

DISTRIBUTION CHAIN COSTS
   Advertising Expenses/unit sold        $ 4.28    $ 4.12      $ .16
   Sales Commissions/unit sold           $ 1.75    $ 2.00     -$ .25
   Transportation Charges/unit shipped   $ 1.10    $ .87       $ .23

DISTRIBUTION CHAIN COST/UNIT             $ 7.13    $ 6.99     $ .14


ACTIVITY-CHAIN COST/UNIT                 $83.36    $83.157    $ .203
       STRATEGIES FOR IMPROVING RELATIVE COST
                   DISADVANTAGES
SUPPLIERS
   RENEGOTIATE PRICES
   INTEGRATE BACKWARDS
   TRY LOWER-PRICED SUBSTITUTES
   SEEK TRANSPORTATION SAVINGS
   SAVE COSTS ELSEWHERE (Later in the chain)

MANUFACTURING/CONVERSION PROCESS
  INVEST IN TECHNOLOGICAL IMPROVEMENTS
  RELOCATE HIGH COST-PRODUCING ACTIVITIES
  INNOVATE – REDESIGN PRODUCTS, PROCESSES, SERVICES
  INITIATE INTERNAL COST-SAVING MEASURES
  SAVE COSTS ELSEWHERE

DISTRIBUTION
   SEEK BETTER TERMS WITH DISTRIBUTORS
   INTEGRATE FORWARD
   SEEK TRANSPORTATION SAVINGS
   BE MORE EFFICIENT WITH ADVERTISING AND COMMISSION COSTS
   SAVE COSTS ELSEWHERE (Earlier in the chain)
           DIFFERENTIATION STRATEGY

NO ONE CAN BUILD IT BETTER
WE OFFER SUPERIOR QUALITY – IT’S WORTH THE EXTRA COST
WIDE BREADTH OF PRODUCTS & SERVICES TO CHOOSE FROM
FREQUENT INNOVATION IN PRODUCTS, PROCESSES, & SERVICES
CREATION OF ONE OR MORE POINTS OF DIFFERENCE
INTENSIVE ADVERTISING AND SALES EFFORTS

DIFFERENTIATION STRATEGIES ARE MOST SUCCESSFUL WHEN…
THERE ARE MANY POSSIBLE WAYS TO DIFFERENTIATE
BUYER NEEDS AND PREFERENCES ARE DIVERSE
FEW RIVALS ARE FOLLOWING A SIMILAR DIFFERENTIATION STRATEGY
THE FIRM HAS A TRUE DISTINCTIVE COMPETENCY THAT CAN’T BE COPIED
                 WAYS TO DIFFERENTIATE

RAW MATERIALS & COMPONENTS USED
PRODUCT QUALITY           (GARVIN 87)
  PERFORMANCE (operating characteristics; ability to “do the job”)
  FEATURES & VARIETY (“bells and whistles,” add-ons or supplements)
  RELIABILITY (functions without maintenance)
  SERVICEABILITY (easy to repair)
  CONFORMANCE (how consistently it meets established standards)
  DURABILITY (product life; how long it lasts before it really deteriorates)
  AESTHETICS (how does it look, feel, taste, smell, etc)
  PERCEIVED QUALITY (the overall reputation it has)

PRODUCTION PROCESSES USED
TRANSPORTATION, DISTRIBUTION, & DELIVERY
SERVICE DELIVERY
TECHNICAL SUPERIORITY OF PERSONNEL
SPECIAL CUSTOMER SERVICES
     BENEFITS OF EMPHASIZING QUALITY

STRONG CUSTOMER LOYALTY
LESS VULNERABILITY TO PRICE WARS
CAN CHARGE A HIGHER PRICE WITHOUT LOSING CUSTOMERS
LOWER MARKETING COSTS
LOWER WARRANTY COSTS

THE VALUE GRID
              HIGH   --------------------------------------------------
                        POOR                             PREMIUM
                        VALUE                            VALUE


      PRICE                           AVERAGE
                                      VALUE

                        ECONOMY                          OUTSTANDING
                        VALUE                            VALUE
              LOW    --------------------------------------------------
                       INFERIOR                              SUPERIOR
                                      QUALITY
            RISKS OF DIFFERENTIATION

DIFFERENTIATION INCREASES COSTS – WILL BUYERS PAY FOR IT?

CAN COMPETITORS QUICKLY & EASILY COPY YOUR STRATEGY?

DIFFERENTIATION ON THE BASIS OF SOMETHING THAT DOESN’T LOWER
   BUYER COSTS OR INCREASE A BUYER’S SENSE OF WELL-BEING OR
   SATISFACTION

OVER-DIFFERENTIATING SO THAT THE PRICE IS TOO HIGH, OR THE
  QUALITY OR SERVICE LEVELS EXCEED BUYER’S NEEDS & DESIRES

IGNORING THE NEED TO SIGNAL VALUE (ADVERTISE) AND DEPENDING ON
   PRODUCT ATTRIBUTES ALONE TO ACHIEVE DIFFERENTIATION

NOT UNDERSTANDING WHAT BUYERS CONSIDER AS TRULY VALUABLE
                   FOCUS STRATEGY

MADE ESPECIALLY FOR YOU (CUSTOMIZED)

SPECIALIZATION FOR SEGMENTS AND NICHES UNDERSERVED OR
   IGNORED BY PRIMARY COMPETITORS

PRODUCT OR SERVICE REQUIRES SPECIAL KNOWLEDGE OR
  EXPERTISE TO SERVE THIS UNIQUE POPULATION

COMPETITIVE ADVANTAGE REQUIRES BEING EITHER THE LOW-
  COST PRODUCER, OR THE QUALITY INNOVATOR IN THE NICHE


FOCUS STRATEGIES ARE MOST SUCCESSFUL WHEN…
THE FIRM HAS THE SKILLS & RESOURCES TO SERVE THE SEGMENT WELL

THE SEGMENT ISN’T CRUCIAL TO THE SUCCESS OF MAJOR COMPETITORS

THE SEGMENT HAS GOOD PROFIT AND GROWTH POTENTIAL

NO OTHER RIVAL IS ATTEMPTING TO STRATEGICALLY SERVE THE SEGMENT
  IN THE SAME WAY
         RISKS OF A FOCUS STRATEGY

THE ADVANTAGES OF A BROAD PRODUCT LINE INCREASE

NICHE BUYER PREFERENCES SHIFT TOWARD THE BROAD
  MARKET – DEMAND DISAPPEARS

COMPETITORS FIND WAYS OF MATCHING THE FIRM’S SPECIAL
  SKILLS , PRODUCTS AND SERVICES

ONLY ONE COST-LEADER AND ONE QUALITY INNOVATOR CAN
  SURVIVE AND THRIVE IN MOST SMALL NICHES

ATTRACTIVE SEGMENTS DRAW IN NEW COMPETITORS

NEW COMPETITORS SUB-SEGMENT THE NICHE
         USING OFFENSIVE STRATEGIES TO BUILD
               COMPETITIVE ADVANTAGE

                                    THREE PHASES:
BUILD-UP PERIOD
   SHORT FOR NEW SERVICES
   LONG FOR CAPITALLY-INTENSE TECHNOLOGIES
Ideally, an offensive move should build competitive advantage quickly, before
   rivals see it and respond to it.
BENEFIT PERIOD
   HOW LONG DOES IT TAKE RIVALS TO CLOSE THE COMPETITIVE GAP?
   IS THERE ENOUGH TIME TO EARN BACK THE INVESTMENT MADE IN
   CREATING THE ADVANTAGE?
The best strategic offensives produce BIG competitive advantages and LONG
   benefit periods.
EROSION PERIOD
   RESOURCEFUL, COMPETENT COMPETITORS WILL RESPOND WITH
   COUNTEROFFENSIVES WHICH ERODE THE FIRM’S COMPETITIVE
   ADVANTAGE
Thus, to sustain a competitive advantage, a firm must stay a step ahead of
   rivals by mounting one creative offensive after another.
      COMPETITION AND OFFENSIVE STRATEGIES

TWO OFFENSIVE PRINCIPLES:
1. CHALLENGING LARGER, ENTRENCHED COMPETITORS WITH AGGRESSIVE
   PRICE-CUTTING IS FOOLHARDY….UNLESS YOU HAVE EITHER A COST
   ADVANTAGE OR GREATER FINANCIAL STRENGTH, DON’T COMPETE HEAD-
   TO-HEAD.

2. CHALLENGING RIVALS WHERE THEY ARE LESS COMPETENT IS MORE LIKELY
   TO SUCCEED THAN CHALLENGING THEM WHERE THEY ARE STRONGEST,
   ESPECIALLY IF WE HAVE SIGNIFICANT ADVANTAGES IN AREAS WHERE
   RIVALS ARE WEAK.


SOME COMMON OFFENSIVE TACTICS
  PRICE-CUTTING
  COMPARISON ADS
  CREATE NEW FEATURES THAT APPEAL TO A RIVAL’S CUSTOMERS
  CREATE NEW PLANT CAPACITY IN A RIVAL’S BACK YARD
  CREATE NEW MODELS THAT MATCH OR MIMIC THE RIVAL’S
   COMPETITIVE ADVANTAGES THAT ENHANCE AN
             OFFENSIVE STRATEGY
DEVELOP A LOWER-COST PRODUCT DESIGN

MAKE PRODUCTION CHANGES THAT LOWER COSTS OR ENHANCE
  DIFFERENTIATION

DEVELOP PRODUCT FEATURES THAT DELIVER SUPERIOR PERFORMANCE OR
  LOWER USER COSTS

GIVE BUYERS MORE RESPONSIVE AFTER-SALE SUPPORT

PIONEER A NEW DISTRIBUTION CHANNEL

BYPASS WHOLESALE DISTRIBUTORS & SELL DIRECT TO END-USERS

DEVELOP A STRONG ADVERTISING/MARKETING EFFORT IN AN
  UNDERMARKETED INDUSTRY


A strategic offense must be tied to what firm does BEST – it’s
   competitive strengths and capabilities.
            OFFENSIVE MARKET LOCATION TACTICS
                               (WHERE TO COMPETE?)

FRONTAL ASSAULT – ATTACK COMPETITOR STRENGTHS
   A GOOD PRODUCT WITH A LOWER PRICE?
   BETTER HAVE A TRUE COST ADVANTAGE BEFORE OFFERING A LOWER PRICE


FLANKING MANEUVER – ATTACK COMPETITOR WEAKNESSES
   FIND NEGLECTED BUYERS, GAPS IN THE PRODUCT LINE, POOR SERVICE OR QUALITY
   CATCH THE RIVAL BY SURPRISE WITH NO READY DEFENSE


BYPASS OR END-RUN – AVOID HEAD-ON CHALLENGES
   DON’T CHALLENGE OR ATTACK EXISTING COMPETITORS
   FIND THE NICHES WHERE NO FIRM HAS YET GONE…GAIN FIRST MOVER ADVANTAGES


GUERRILLA OFFENSIVES – HIT-AND-RUN APPROACH FOR SMALL CHALLENGERS
   SMALL INTERMITTENT RAIDS TO TAKE ADVANTAGE OF TEMPORARY SITUATIONS
   WITHDRAW FROM COMPETITION BEFORE LARGE RIVALS REACT—LIVING ON THE CRUMBS


ENCIRCLEMENT – SURROUND THE COMPETITOR WITH COMPETING PRODUCTS/SERVICES
   CARRIES A MUCH BROADER PRODUCT LINE, CAN SERVE MORE MARKETS, NEEDS—ONE STOP
   SIMULTANEOUSLY ATTACK ON SEVERAL FRONTS (PRODUCTS) – COMPETITOR IS OVERWHELMED


PREEMPTIVE STRIKES – MOVE FIRST TO SECURE AN ADVANTAGEOUS POSITION
   EXPAND CAPACITY, CLAIM THE BEST SUPPLIERS, LOCATIONS, DISTRIBUTORS, ETC.
   DISCOURAGES RIVALS FROM ATTEMPTING TO DUPLICATE
                   DEFENSIVE STRATEGIES


TRY TO LOWER THE RISK OF ATTACK OR LESSEN IT’S IMPACT ON YOUR FIRM

DON’T PROVIDE NEW COMPETITIVE ADVANTAGES TO YOUR FIRM, BUT THEY DO
  TRY TO SUSTAIN WHATEVER PREVIOUS ADVANTAGES YOU’VE ENJOYED BY
  MAKING ATTACKS AGAINST YOUR FIRM UNATTRACTIVE

THESE TACTICS REDUCE SHORT-TERM PROFITABILITY IN AN EFFORT TO
  PRESERVE LONG-TERM PROFITABILITY


THREE TYPES OF DEFENSIVE TACTICS:

BLOCK OFF AVENUES OF ATTACK (RAISE BARRIERS)

INCREASE EXPECTATIONS OF RETALIATION

LOWER THE INDUCEMENT TO ATTACK
                  DEFENSIVE STRATEGIES – 1
                     FRUSTRATING YOUR RIVALS

CREATING BARRIERS
BROADEN YOUR PRODUCT LINE – TO CLOSE OFF VACANT NICHES AND GAPS
KEEP PRICES LOW ON MODELS THAT CLOSELY MATCH THE RIVAL’S OFFERINGS
SIGN EXCLUSIVE AGREEMENTS WITH DISTRIBUTORS & DEALERS TO KEEP
   COMPETITORS FROM USING THEM
MAKE IT HARDER FOR BUYER TO SWITCH TO RIVAL BRANDS…
   - GIVE SPECIAL PRICE & VOLUME DISCOUNTS
   - USE COUPONS & SAMPLE GIVEAWAYS TO THOSE MOST PRONE TO SWITCH
   - MAKE EARLY ANNOUNCEMENTS ABOUT NEW PRODUCTS AND PRICE
         CHANGES TO INDUCE POTENTIAL BUYERS TO POSTPONE SWITCHING
INCREASE INVESTMENT IN SCALE ECONOMIES TO REDUCE UNIT COSTS
AVOID SUPPLIERS WHO SERVE COMPETITORS – NEGOTIATE EXCLUSIVE CONTRACTS
CONTROL ALTERNATIVE TECHNOLOGIES THROUGH PATENTING & LICENSING
LIMIT OUTSIDE ACCESS TO YOUR FACILITIES AND PERSONNEL
PURCHASE KEY LOCATIONS AND NATURAL RESOUCE RESERVES TO KEEP THEM
   FROM RIVALS
CHALLENGE RIVALS’ PRODUCTS AND PRACTICES IN REGULATORY PROCEEDINGS
ENCOURAGE THE GOVERNMENT TO RAISE BARRIERS, SAFETY AND POLLUTION
   STANDARDS, AND FAVORABLE TRADE POLICIES
                  DEFENSIVE STRATEGIES – 2


INCREASE EXPECTATIONS OF RETALIATION

DEFEND ANY EROSION OF MARKET SHARE WITH DRASTIC PRICE CUTS

ADVERTISE THAT “WE WILL NOT BE UNDERSOLD” – MATCH RIVAL PRICE OFFERS

ACCEPT PROMOTIONAL COUPONS AT FACE VALUE…OR EVEN ADD 10%, ETC.

VIGOROUSLY COUNTERATTACK ANY INTRUSION INTO YOUR MARKET


LOWER THE PROFIT INDUCEMENT FOR RIVALS TO ATTACK

KEEP THE PRICES LOW

CONSTANTLY INVEST IN COST-REDUCING TECHNOLOGIES

MAKE SURE THE RIVAL KNOWS THEY WON’T MAKE A PROFIT IF THEY ATTACK YOU
                      COOPERATIVE STRATEGIES
                                   WORKING WITH YOUR RIVALS


COLLUSION -- COOPERATION TO REDUCE OUTPUT AND INCREASE PRICES
Explicit Collusion – illegal collusion, conspiring to control the market and prices
Tacit Collusion – no one actually met together and agreed to do anything illegal
TACIT COLLUSION IS MOST LIKELY WHEN:
   SMALL NUMBER OF COMPETITORS
   FIRMS EXPERIENCE SIMILAR COSTS
   ONE FIRM TENDS TO ACT AS THE PRICE LEADER
   THERE IS A COMMON INDUSTRY CULTURE THAT ACCEPTS COOPERATION
   SALES ARE CHARACTERIZED BY A HIGH FREQUENCY OF SMALL ORDERS
   LARGE INVENTORIES & ORDER BACKLOGS ARE THE WAY FLUCTUATIONS IN DEMAND ARE
   HANDLED
   THERE ARE HIGH ENTRY BARRIERS WHICH EFFECTIVELY KEEP OUT NEW COMPETITORS

“CONSCIOUS PARALLELISM” CAN BE ILLEGAL – IT REDUCES COMPETITION

STRATEGIC ALLIANCES – LEGAL COOPERATION

    MUTUAL SERVICE CONSORTIA
    JOINT VENTURES
    LICENSING AGREEMENTS
    VALUE-CHAIN PARTNERSHIPS
                     STRATEGIC ALLIANCES

REASONS THEY ARE FORMED:

   TO OBTAIN ACCESS TO TECHNOLOGY & MANUFACTURING CAPABILITY

   TO OBTAIN ACCESS TO SPECIFIC MARKETS

   TO REDUCE FINANCIAL RISK

   TO REDUCE POLITICAL RISK

   TO LEARN NEW CAPABILITIES



                 A CONTINUUM OF STRATEGIC ALLIANCES

Mutual Service                   Joint Ventures                Value-Chain
Consortia                        Licensing                     Partnerships

==================================
WEAK & DISTANT                                         STRONG & CLOSE
             TYPES OF STRATEGIC ALLIANCES

MUTUAL SERVICES CONSORTIA
  Companies pool their resources to gain a benefit that is too expensive to develop alone
  Little interaction among partners – partners work together, but don’t share core competencies
  A weak and distant alliance
JOINT VENTURES
  Most popular alliance – used in international markets to deal with financial/political/legal risks
  Creates an independent entity, with responsibilities and risks carefully defined for each party
  DISADVANTAGES: loss of control, lower profits,conflict with partners, transfers of technology
  Meant to be temporary – ventures have a high failure rate
LICENSING
  Allows firms to use of trademarks, brand names, and to make and sell products in foreign lands
  Licensee pays a fee in return for technical expertise and legal permissions
  A good way to have your product distributed in a country where you don’t have a presence
  Carefully manage any access to your distinctive competence, because it can easily be “stolen”
VALUE-CHAIN PARTNERSHIPS
  Form a long-term relationship with a key supplier or distributor instead of just using “bids”
  More quality & reliability in the chain and more profitability for the suppliers & distributors

REMEMBER, YOUR STRATEGIC ALLIES MAY BECOME YOUR COMPETITORS

				
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