BUSINESS STRATEGY

PROGRAM: BBA SECTION: A

ASSIGNMENT # 4 DISCUSS THE ALTERNATIVE STRATEGIES WITH EXAMPLES Submitted to: Mr. Ghulam Ahmad Rana Submitted by: Sohail Mazhar Moeez Saleem Umer Ashraf Shahbaz Arshad Zain fazal Ahmad Furqan Tariq Omer Sher 083805013 083805016 083805027 083805030 083805032 083805046 083805129

DATE: 30-04-12 REMARKS _______________________________________________________________________________ _______________________________________________________________________________ _______________________________________________________________________________

BUSINESS STRATEGY

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BUSINESS STRATEGY

ABSTRACT In this assignment we discuss the different alternative strategies that businesses use to efficiently and effectively survive in the business and illustrate all the strategies with two examples so that one can easily understand these strategies. Basically there are four main strategies which are integrative, intensive, diversification, defensive and then these are further divided into eleven distinctive strategies.

BUSINESS STRATEGY

Table of Contents
..................................................................................................................................5 1. INTEGRATION STRATEGIES:..................................................................................5 i. Forward Integration Strategy:............................................................................5 ii. Backward Integration Strategy:.........................................................................5 iii. Horizontal Integration Strategy:.......................................................................6 2. INTENSIVE STRATEGIES:......................................................................................6 iv. Market Penetration Strategy:...........................................................................6 v. Market Development Strategy:.........................................................................7 vi. Product Development Strategy:.......................................................................7 3. DIVERSIFICATION STRATEGIES:............................................................................8 vii. Related Diversification Strategy:.....................................................................8 viii. Un-Related Diversification Strategy................................................................8 4. DEFENSIVE STRATEGIES:.....................................................................................9 ix. Retrenchment Strategy:...................................................................................9 x. Divestiture Strategy:.........................................................................................9 xi. Liquidation Strategy:......................................................................................10 CONCLUSION............................................................................................................11 REFERENCES.............................................................................................................12

BUSINESS STRATEGY

DISCUSS THE ALTERNATIVE STRATEGIES WITH EXAMPLES 1. INTEGRATION STRATEGIES: Allow a firm to gain control over distributors, suppliers, and competitor. There are three types of integration strategies: forward, backward and horizontal. i. Forward Integration Strategy: Forward integration strategy involves gaining ownership or increased control over distribution and retailers. An effective means of implementing forward integration is franchising. Business can expand rapidly because cost and opportunities are spread among many individuals. EXAMPLES:
Nike do forward integration by establish its own retail stores in various locations. So that it can expand rapidly and also can cut the distribution cost.

American Apparel, a fashion retailer and manufacturer, controls the dyeing, finishing, designing, sewing, cutting, marketing and distribution of the company's product. The company shoots and distributes its own advertisements, often using its own employees as subjects. It also owns and operates each of its retail locations. So this means the company practices forward integration. ii. Backward Integration Strategy: Backward integration is a strategy of seeking ownership or increased control of a firms suppliers. This strategy can be especially appropriate when the firms current suppliers are unreliable, too costly or cannot meet the firms needs. EXAMPLES: Amazon.com does backward integration when it became not only a bookseller but a book publisher. As a bookseller, Amazon.com buys books from various suppliers, such as publishing companies. By becoming a publisher itself, it has integrated into its business the role of supplier and can sell books that its own publishing company publishes.

BUSINESS STRATEGY

Starbucks is best known as a chain of coffee shops. As such, it has various suppliers from which it buys coffee beans to make coffee but the Competition for high-quality beans become very high and even some competitors cannot get high quality beans. So for this Starbucks does backward integration, it bought a coffee farm in China and now it will have a bean supply and it will receive it at a reasonable price. iii. Horizontal Integration Strategy: Horizontal integration refers to a strategy of seeking ownership or increased control over a firms competitors. Mergers, acquisitions, and takeovers among competitors allow for increased economies of scale and enhanced transfer of resources and competencies. EXAMPLES: Intel do horizontal integration by making it dominated in the computer processor market, as Intel supplies chips to several different manufacturers, such as Dell, Toshiba, and HP. As Intel is main manufacturer and distributor of processors so Intel enjoys economies of scale, grater profits and control over its competitors. The GAP Inc. is a retail clothing corporation and practices horizontal integration. GAP Inc. controls three distinct companies, banana republic, Old Navy, and the GAP brand itself. Each company has stores that market clothes tailored to appeal the needs of a different group. Banana republic sells expensive clothes, the GAP sells moderately priced clothes, and Old Navy sells inexpensive clothes. By using these three different companies, GAP Inc. has been very successful at controlling a large segment of the retail clothing industry. 2. INTENSIVE STRATEGIES: Market penetration, market development and product development referred to as intensive strategies, because they require intensive effort to improve a firms competitive position with existing products. iv. Market Penetration Strategy: A market penetration strategy seeks to increase market share for present products or services in present markets, through greater marketing efforts. This strategy includes increasing the number of sales person, increasing advertising and promotion.

BUSINESS STRATEGY

EXAMPLES: Sony exercise market penetration by lowering the price of Gameboy in order to increase its sale volume and market share. Maggi noodles practice market penetration by publishing different promotional campaigns and make its availability everywhere in the market, by doing this Maggi Noodle sales increased. v. Market Development Strategy: Market development strategy involves introducing present products or services into new geographic area. Although there is no guarantee of success, in many industries, it is going to be hard to maintain a competitive edge by staying close to home. EXAMPLES: Coca-Cola exercise market development as in the past it is present in US market, but then CocaCola took their products to Russia, then the market potential for Coca-Cola increased. Sony has developed several robots for the Japanese market and now Sony is seeking to develop a market for robotics in U.S. households so this shows that Sony exercise maket development strategy. vi. Product Development Strategy: Product development is a strategy that seeks increased sales by improving or modifying present products or services. Product development strategy usually entails large research and development expenditures. EXAMPLES: Starbucks do product development by introducing new product in order to compete with companies aiming to offer consumers more health conscience drink options. By Entering the new product, Starbucks produced "Skinny Lattes" and low fat/calorie syrups.

BUSINESS STRATEGY

Apple also does market development by improving its existing product on continuous bases as it first introduce iPhone 2g, then at present apple improve its old product and introduce iPhone 4s. So apple exercises product development through improving its existing product. 3. DIVERSIFICATION STRATEGIES: Although it is very difficult to manage diverse business activities, but sometimes diversification is still appropriate and successful strategy. There are two general types of diversification strategies: related and un-related diversification. vii. Related Diversification Strategy: Adding new but related products or services is called related diversification strategy. EXAMPLES: Honda exercise related diversification by investing in the related markets as it makes cars, trucks, motorcycles, watercraft and even small aircraft. So Honda is deploying its resources to related markets and the risk in invest in related market is high. Campbell Soup Company practice related diversification by Engage in the manufacture and marketing of branded convenience food products worldwide. It has four segments U.S. Soup, Sauces, and Beverages, Baking and Snacking, International Soup, Sauces, and Beverages and North America Foodservice viii. Un-Related Diversification Strategy Adding new, unrelated products or services is called un-related diversification strategy. EXAMPLES: Textron Inc. practices unrelated diversification as it operates in diverse markets like aircraft, industrial, and finance industries worldwide. Mainly it has four 4 segments Bell helicopters plus parts and service, Cessna general aviation aircraft, Industrial auto parts, food containers, hydraulics, golf carts and Finance aircraft finance, asset-based lending, distribution finance, golf finance, and resort finance.

BUSINESS STRATEGY

General Electric is very common example who practice un-related diversification as it deploys its resources in different markets as it is present in Banking, Real Estate, Aircraft Leasing and many more industries. Virgin is another who does un-related diversification as it produces music as well has an airline. 4. DEFENSIVE STRATEGIES: Organizations also pursue defensive strategies. There are three types of defensive strategies: retrenchment, divestiture and liquidation. ix. Retrenchment Strategy: Retrenchment occurs when an organization regroups through cost and asset reduction to reverse declining sales and profits. EXAMPLES: Standard International, the company that publishes the weekly magazine about the Internet economy, practice retrenchment by cutting about 7 percent of its work force. The CEO of Standard International said that it is because of the over hiring and low efficiency. Starbucks retrench the investment from its stores portfolio in Australia because of Poor competitive position of Starbucks in Australia in 2008 and decided to invest in the US stores. x. Divestiture Strategy: Selling a division or part of an organization is called divestiture. Divestiture is often used to raise capital for further strategic acquisitions or investment. This strategy is also useful to rid unprofitable activities in a firm. EXAMPLES: Tesco in Japan practice divestiture by selling its portfolio of 129 stores in Japan after failing to build a successful presence in a highly competitive market. Weyerhaeuser, the $16 billion forest-products company has divested its operations totaling more than $9 billion and used the capital raised and the management resources released to transform

BUSINESS STRATEGY

itself from a traditional pulp-and-paper company into a leader in timber, building materials, and real estate. In the process, Weyerhaeuser has produced some of the highest returns in its sector. xi. Liquidation Strategy: Selling all of companys assets, in parts, for their tangible worth is called liquidation. It may be better to cease operating than to continue losing large sum of money. EXAMPLES: Many companies liquidated because their cost increases than their revenue some of examples are following: The companies are Taxila Engineering Ltd Peshawar; Pakistan Northern Insurance Co, Ltd, Karachi; Sterling Insurance Company Limited, Lahore; Mehran Jute Mills Limited, Karachi.

BUSINESS STRATEGY

CONCLUSION By preparing this assignment we understand, all the alternative strategies, which are used by different organizations. And by using the examples, we able to know that how organization use these strategies and in future this knowledge will help us to implement these strategies in our businesses.

BUSINESS STRATEGY

REFERENCES
http://bizcovering.com/management/business-strategies-in-action/ http://www.scribd.com/doc/53932890/Q1-BAB-5#download http://www.wikinvest.com/wiki/Vertical_integration http://www.nytimes.com/2001/01/09/business/new-examples-of-internetretrenchment.html http://www.slideshare.net/tutor2u/business-strategy-retrenchment http://hbr.org/2008/10/how-the-best-divest/ar/1 http://www.google.com.pk/url? sa=t&rct=j&q=&esrc=s&source=web&cd=3&ved=0CC0QFjAC&url=http%3A %2F%2Fwww.stephenibaraki.com%2Fcips%2Fsp%2FCIPS%2520Types%2520of %2520Strategies.doc&ei=7oqaT83OLKfh4QThlMnnDg&usg=AFQjCNGVcMzHxh KtOdPxCzQ_7WmEtZruAw&sig2=AOmKKGvFxEZSRaR257p5eA