Generic Strategies Business-level strategy can viewed by using a two-by-two matrix, which describes four generic business-level
strategies. The generic-strategies matrix is useful for analyzing firms that are competing in the same product-market in a relevant
geographic domain. Cost and uniqueness Low-cost strategy is where a business seeks to sell a product at or near the lowest possible price in
the firm's chosen market segment. E.g. Ryanair airline does not fly into major airports, which are expensive because of landing-right charges
and other cost of operating. The airline has no first class seats, which maintains the simplicity of the operation, speeds the boarding process
and reduces turnaround time of the airplanes. Ryanair cuts cost in every way possible, and in turn, charges its customers some of the lowest
prices in its markets. Differentiation strategy provides some aspect of a product or service that differs from that of competitors, such as higher
quality, to increase the likelihood of customers paying a premium price for the product. E.g. Airline like Germany's Lufthansa will try to provide
a higher level of service in term of scheduling, coverage of major cities, reservation service, quality of first and business class, and even more
comfortable economy class seats. To maintain this level of service, Lufthansa must also charge higher fares. Competitive scope Competitive
scope is the breadth of the market a firm will target, such as the range of customers and/or distributors sold to, and the geographic region the
firm covers. The key to understanding competitive scope is, if a firm tries to serve a broad range of customers with a i)broad range of needs,
or ii)targets a particular distributor, customer group, or geographic regions. Broad-based approach, e.g. Toyota Corporation is active in all
major vehicle markets. It produces a range of automobiles from low end Echo to the mid-range Camry (the best-selling car in US) to the high
end Lexus. Narrow Scope, e.g. gang & Olufsen focuses on high-end, home entertainment systems. The firm focuses on innovation,
incorporating the latest and best technology into its system. The firm continues to manufacture its products only in Denmark, a high-wage
country, believing that if it outsourced its manufacturing, it will not be able to provide the hands-on supervision consistent with its
differentiation strategy. Connection low cost/differentiation and competitive edge Firms may choose to pursue either a low-cost or
differentiation strategy, employing a more narrow scope, sometimes also known as a "focus strategy." With a focused strategy, a firm will try
to serve a particular type of customer, a particular distribution channel, and a geographic region, often with only one product. Narrow
positioning can be adopted with either the low-cost or the differentiation strategy. Changing business strategy Changing the business level
strategy of a firm is difficult and should be done only with full consideration of the difficulties that can arise. Business-level strategy is often
easier to change when a firm faces a difficult competitive setting. Entering International Market 1. Export The most immediate to
internationalize a firm is to directly export goods to a market outside your home country. This occurs when a firm or person contracts with a
firm that is currently focused on as home market, the foreign firm then pays to ship the given goods to its home country. It is the most typical
form of internationalization because it requires the least commitment of resources. As a firm gains International experience, the business takes
the help of a representative or dealer to handle promotion and sales in their local country. A rep often handles several firms' products that
typically do not compete with each other. In a dealership, the relationship between two firms will be closer than with the manufacturer's
representative, a dealership could be an exclusive one, only selling one firm's products. The business does not have to establish an
international sales force of its own because the representative or dealer will handle promotion and sales in their local country. 2. Alliances A
firm moves into a market in association with other firms. The parties involved have less contra than if they were to own the firm outright but
they also have less risks, because now the 2 firms share the risks. - Types of alliances: (1) Informal Alliances Help emerging markets in trying
to penetrate environments where the rule of law is still developing. Allow a firm, as it begins to enter a market, to have connections with
individuals that will advise the firm and support its efforts This typically does not even have a signed documents, but is simply a statement by
one km to another along the lines of if you help me sell my product in your market, I will help you sell yours in my market." There is little
investment, and the least control by a firm, thus informal alliances would not involve equity investment by either party . (2) Licensing A more
formal type of alliance the: gill has limited financial commitments by a firm entering an international market is a licensing agreement.
Licensing agreement is an agreement where a company outside a particular country agrees to pay a firm within the country for the right to
either manufacture or sell its product. The firm selling the right to this product typically loses the right to control various aspect of the product
when manufactured or sold by the licensee. There is an alliance between 2 firms when there is licensing, but it tends to be much less
coordinated than in a joint venture or franchise. Can have strategic value to a firm as it seeks to enter a market . (3) Joint Venture Are formal
agreements between Iwo or more firms where a new separate entity is created for the purpose of producing or distributing goods and services.
- The level of commitment and risk is considerably higher than in informal alliances. . Firms can also enter into a short-term joint venture to
learn a specific process, technology, or market from their partner. (4) Franchising A type of alliance where a contract is established between
the parent (franchisor) and the individual who actually buys the business unit (franchisee) to sell a given product or conduct business under its
trademark. A franchisor provides the franchisee with extensive direction on how to operate the business. A franchise contract commonly sets
standards for behavior by the franchisee that, it not followed, can result in the loss of the franchise. The franchisor receives an initial fee and a
continuing royalty from the franchisee. 3. Merger and Acquisitions Transaction involving two or more corporations in which orgy one
permanent corporation survives. An acquisition is the purchase of a company that is completely absorbed as a subsidiary or division of the
acquiring firm. Not mere linkages between firms which is they create permanent changes to the structure of the firms involved. The control an
acquiring firm obtains in a merger and acquisitions is far greater than in an alliance because there are no partners that must be consulted It
can act as a turnkey operation which is the firm can enter the market immediately with a ready-made operation. 4. Greenfield Ventures A firm
may choose to establish itself Ma given country without the aid of a partner. This type of venture is the most difficult to pursue, but gives a
firm the greatest control because it is able to design every detail of the business. It is difficult to build a greenfield venture because a firm
must do everything on its own. The cost of development is quite high and the venture also has greater risk since it must enter a country and
build its brand and various stakeholder relationships. The keys to success for a Greenfield venture are patience and adequate support by a
corporation. The firm will have no one else to call on for support, and the building process will take time. Thus, the firm must have the
resources and the commitment necessary to bold a business over the long term. This approach will allow a firm to have strong control over a
venture and to establish the new business to precise specification. 5. Wholly Owned Subsidiary An organization form where the parent owns
the local firm completely, typically the organization would focus only on the country in which it had entered. A firm may look to other economic
concerns in making its decision about the nations to choose from. The economic concerns : *Transportation costs -Transportation requires the
presence of an infrastructure so that a firm can ship products produced from an international facility. *Taxes and government incentives
-Government often offers not only hard assets but also concession such as tax reduction, if a firm locates in that nation. This is because
attracting a new firm will create rob opportunities for their citizen. *Labor quality -In selecting a location, a firm must understand the true
qualifications of a country's workforce and whether the labor supply will be sufficient *Organizational learning -Firms may want to locate in a
country or region from which they can learn from excellent suppliers or demanding customers. The selection of a country in which to locate is
a balancing of a firm's various concern. The difficulty in ensuring the firm makes a through and complete analysis of the tradeoffs involved and
matches them with the firm's goals. In conducting the analysis, the firms need to recognize that its bargaining power to obtain any benefits
from the government, such as training of employees or tax abatements, areal peak levels when the firm is thinking of locating there. Problem
of Small Medium Enterprise 1. Lack of capital to start a business The capital consists of land, machinery and labor. Most of the industry is
facing difficulties to raise capital from private banks because lending conditions tight and require collateral. Examples of assistance vary
between entrepreneurs chili sauce with Nestle. Indeed, government help and advice needed by SMEs . 2. Lack of IT support IT personnel are in
high demand and are often attracted to bigger companies and MNCs. It is very difficult for SMEs to attract good IT personnel. It is even more
difficult to retain them. Moreover, good IT personnel are expensive and may not be affordable by most SMEs . 3. Lack of Formal Procedure and
Discipline Most SMEs do not have formal procedure or often these are not documented. Furthermore, there is tendency for these procedures to
change frequently. This makes it difficult for third party and newcomer to understand the existing business practices and match them with the
IT process 4. Lack of human resource Implementations of some bigger scale IT project especially those that involve business process across
different departments or require large amount of initial data entries require human resource during the implementation. Some SMEs are often
in the stage of frequent fire fighting and shortage of manpower. This makes it very difficult for them to allocate time to carry out
implementation. Furthermore, there is always a conflict between getting the daily routing work going and to do the "Extra" IT implementation.
5. Lack of financial resources As a SME, financial resources are often limited. This often forces company to select a solution, which appear to
be cheap initially. However, the hidden costs will start to emerge during implementation. This sometime causes the project to be abandoned or
sometime sent the company into further financial crisis. 6. Lack of management skills As company grows, new managers are often introduced
into the company. There will also be old managers who are promoted from the rank and file. Some of these managers may not been trained in
the leadership and management skill. These uneven skill among the managers often caused conflicts during the implementation. Theory of
Comparative Advantage & Competitive Advantage Comparative Advantage David Ricardo explains why it can be beneficial for two
countries to trade, even though one of them may be able to produce all goods necessary. A country will reap gains from specializing in
products that it is best at producing and trade those products to other countries - even if one country (e.g: China) were the lowest-cost
producer of all goods. China focuses on products that it is best at producing rather than trying to produce everything so as to maximize its
comparative advantage. Heckscher-Ohlin theorem states that a country has a comparative advantage in the production of a product if the
country is relatively well endowed (gifted) with inputs that are used intensively in producing the product. (E.g: Malaysia can cultivate
agriculture, Africa can't, therefore Msia have comparative advantage) Competitive Advantage An advantage that a firm has over its
competitors, allowing it to generate greater sales or margins and/or retain more customers than its competition. There can be many types of
competitive advantages including the firm's cost structure, product offerings, distribution network and customer support. Comparative
Advantage & Competitive advantage Assume that there are industries - say software development - which both countries can pursue. In
Country A, software development costs $1Y but in Country B they can only produce it at $4Y because of the lower skill level of its workforce. In
competitive advantage, Country B is in a hopeless situation - they simply can't compete with Country A at any level, or in any industry. But
taking the principle of comparative advantage, there's a way for both countries to actually benefit. Because Country A is so much better at
software development compared to steel making, it can maximise the return on its use of resources by concentrating on software
development rather than steel making. Country 13 on the other hand can utilise what it resources it has to make steel where it has a
"comparative advantage. The countries then can trade their production of the respective goods -both countries benefit as they've utilized their
scarce resources to maximum benefit, despite Country B being relatively less efficient and less productive at everything.