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What determines a firm’s competitiveness? Business strategy

What determines a firm’s competitiveness? Business strategy How to compete – looks at how a firm competes within an industry or market. Also known as competitive strategy Corporate strategy Where to compete – defines the scope of the firm in terms of The industry it is in

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What determines a firm’s competitiveness? Business strategy

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  1. What determines a firm’s competitiveness? • Business strategy • How to compete – looks at how a firm competes within an industry or market. Also known as competitive strategy • Corporate strategy • Where to compete – defines the scope of the firm in terms of • The industry it is in • The customer groups it targets • The countries and localities in which it operates • The vertical range of activities it undertakes

  2. Business Strategy Sources of competitive advantage: • External • Examples include: changing customer demand, changing prices, technological change • How a firm takes advantage of changes in its external environment depends on its ability to anticipate the changes and the speed by which it can react to the changes • Internal • Firms can create competitive advantage through innovation of productsand processes • Examples include: creating new industries, new customer segments

  3. Two ways firms create competitive advantage: • Cost leadership • Broadly defined as supplying the same product or service at a lower cost • Characteristics: • Existence of economies of scale and scope • Efficient production • Simpler product design • Lower input costs • Low-cost distribution • Little R&D or brand advertising • Tight cost control system

  4. Two ways firms create competitive advantage: • Differentiation • Broadly defined as supplying a unique product or service at a cost lower than the price premium customers are willing to pay • Characteristics: • Superior product quality • Superior product variety • Superior customer service • More flexible delivery • Investment in brand image • Investment in R&D and advertising

  5. Corporate Strategy • Product scope • Many different products in many different industries – the tools of competitive strategy analysis above can be used to analyze how the firm can compete in each industry • Geographical scope • The firm sells (or produces, or both) its products in many different countries. • Vertical scope • Backward – the firm produces its own components or other inputs • Forward – the firm takes over activities previously undertaken by its customers

  6. Sources: • Palepu and Healy, Business Analysis and Valuation Using Financial Statements, 4th ed. • Grant, Contemporary Strategy Analysis, 7th ed.

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