What Are the Advantages and Disadvantages of Competitive Rivalry - Assignment Example

Discussion Question applying your understanding of strategic management explain how business-level and corporate-level strategies are best used to gain a competitive advantage and earn above-average returns. A company can gain above-average gains through a competitive advantage won by successful implementation of one or more of any generic competitive strategies, or business level strategies. Alternately, a company can pursue a mix of generic and business level strategies like game theory, based upon competitive tactics of rivals, investment strategy depending upon availability of tangible and intangible resources, market conditions, and developing a strategy after studying the rival tactics through game theory analysis. Game theory analyses the past and present behaviour of companies locked in competitive struggle within one competition zone. A study of Porter’s five forces can reveal important insights into the corporate and business level strategies that need to be followed to gain competitive advantage. Continuous improving aimed at higher customer satisfaction by creation of more value in the product, leads to above average returns. 2. What are the advantages and disadvantages of competitive rivalry? How can a company use competitive rivalry to its advantage? Provide clear examples. Competitive rivalry allows companies to do a comparative analysis of their strategies, study the customer needs, the level of customer satisfaction level achieved, and the remoulding the strategy to and higher growth. Strategic group analysis reveals the strategies adopted by competitors through grouping of competitors following similar tactics. An example of competitive rivalry followed by the US automobile groups, with the Japanese cars through the decades of 70s and 80s, helped them adopt cost differentiation by learning their lessons through competition analysis. An backward analysis of company’s own strategy is extremely successful in adopting a meaning ful strategy leading to an advantage. Pepsi and Coke have been engaged in a competitive rivalry by targeting cost and differentiation focus. However, not all companies succeed in the intensive competition. Due to faulty planning, companies get ‘stuck in the middle’ when faulty strategic implementation leads to unviable proposition. Profits don’t match the investments, which results in shake outs and decline of industry. Case Study — Whole Foods Market: 2005 Will There Be Enough Organic Food to Satisfy the Growing Demand? Read the case study and prepare a 2-3 page document discussing the following questions: 1. Which of the general environment segments are most relevant to Whole Foods Market? What are the main opportunities and threats affecting the company? Both macro and micro-level environmental factors affect the Whole Foods Market. The general environment dimensions in which the company operates are social, political, technological, scientific, political, international and national. The main opportunity for Whole Foods is its vision to provide wholesome natural foods with minimum use of chemicals for preservatives. Whole Foods promotes organic eatables. Since competition in this segment is less, the company can make use of leadership and spread all over the world. The main threat faced by Whole Foods is that the commodities it deals in are, perishable and, difficult to cultivate. 2. In which industry does Whole Foods Market compete? Whole Foods Market competes in natural and organic food retail industry. Besides, foods it also sells consumer non-durables. 3. Apply Porter’s Five Forces Model of Competition to the natural and organic foods industry. Is this an attractive industry in which to compete? Applying Five Forces Model to the natural and organic foods we come across the following facts: (i) The risk of entry by competitors: The risk of competition is extremely low as organic foods are extremely difficult to produce, and have low unit yields. They involve intensive agriculture with higher cost and not many cultivators take up organic food production. Since no chemicals are to be used, preservation, processing; it makes storage and long distance hauling is difficult making it all the more difficult. Organic foods provide a challenging business proposal and have few takers in the markets due to their high costs. (ii) The intensity of rivalry: Though fast food market caters to premium segment market with high product differentiation but its higher prohibitive cost reduces the number of players. However, given the rising trends in international for nutritious and safe organic foods creates a gap between demand and supply. The demand is more than supply thus decreasing the intensity of rivalry. (iii) The bargaining powers of buyers: The bargaining powers of buyers are low and they have to pay than the market prices for ordinary foods. This factor makes it sway in favour of the organic food business (iv)The bargaining power of suppliers is higher as producers of organic foods and their vendors are unable to meet the demand. Organic food cultivation is highly specialised food thus decreasing the number of players involved in the supply chain and value chain. (v)Closeness of substitutes: The industry, however, remains impregnable to substitute products. The overall analysis provides an attractive picture of the industry. 4. What factors are critical to the success of Whole Foods Market? The factors critical to the success of Whole Foods Market are: (i) Maintenance of supply chains quality food products. (ii) Competition shouldn’t increase. (iii) Regulatory norms on international food trade should be removed. (iv) Subsidy from the government to the producer should be added in the value chain thus increasing the customer value. The money generated thus, should be extended downwards to keep the morale of low end cultivator and producer high. (v) Formation of cooperative markets. (vi) Generation of awareness in the customer for quality foods. 5. What are Whole Foods Market’s tangible and intangible resources? Which of these will be critical in developing capabilities and core competencies? Tangible resources of Whole Food Market are 265 stores in North America, efficient supply chains that give feed to these stores, an efficient workforce of 41500, committed suppliers, and Fortune 100 listing as a best company to work for, Capital investments, Confidence of investors. Intangible assets: A satisfied customer base, soaring demand for natural foods, support from community and government, an impeccable reputation, community welfare programmes, promotion of environmental concerns, fair trade and treatment and working for animal rights. Committed supplier base, supply chains, good HRM, capital, customer base, employee dedication, and consumer awareness are more important of the tangible and intangible resources. 6. Complete a SWOT Analysis for Whole Foods. SWOT Analysis consists of Strengths, Weaknesses, Opportunities and Threats. Strengths: Whole Foods Market enjoys a place of prominence in North America and UK, two premium markets of natural foods. The items traded by the company are endorsed as usable and fit by governments of the countries, it operates in. The product list is quite large and contains some non-food items. The company has good supplier base, good customer base and is supported by efficient supply chains. Weaknesses: Natural food industry is fraught with inherent weakness. It is difficult to produce natural foods involving specialised training, higher costs and lower yields. Without preservatives natural foods can’t be stored for long. Natural food farming is not practices all over the market place but is restricted to a few places. There is a lack of awareness for natural foods in the consumers. Research and development and scientific enquiry aims at developing conventional and chemical-oriented food production so all the R&D work is done by corporations themselves or by non-profit environmental agencies in isolation. Opportunities: The increasing movement for sustainable practices in agriculture, development, health and lifestyle are promoting the use of natural and organic food products. There are not big players in this field; large corporations are really not into this business. There is a high product differentiation, thus giving a competitive advantage to Whole Food Market. Threats: The commercial viability of natural foods is low, thus discouraging production. International trade regulations hamper the growth of Whole Food Market especially in the developing countries. In case big players like Wal-mart enter the field, chains like Whole Foods can be wiped off. 7. How can Whole Foods Market meet its aggressive growth targets ($10 billion in revenues with 300+ stores by 2010)? Include the following: a. How should Whole Foods Market deal with anticipated shortages of natural and organic products in the future? b. How will mainstream acceptance of natural and organic products affect Whole Foods Market? In order to meet the high turnover targets, Whole Food Products will have to adopt a comprehensive plan, aiming for higher production volumes, value addition in the supply chain, increase in the number of stores, introduce innovative practices in inventory control and expand into Asia, Africa, Europe and South America. a. The anticipated shortages can be overcome by making farmers, cultivators and producers adopt natural means for farm production. This can be done in concert with environmental groups, non-profit organisations and use the Research and Development results of organisations located anywhere in the world. Whole Food Market should share its revenue with such organisations that promote and encourage natural and sustainable farming. More number of producers should be informed about the ecological hazards of chemical use, and make them develop and adopt natural practices. Venture capitalists can be involved in the initiative. Through insurances and bonds the farmer’s value should be ensured. The shelf life of items should be increased and a efforts be made to diversify the product portfolio of Whole Food Market. b. The adoption of natural products by the mainstream will lead to unprecedented rise in demand. The demand for these food products will go up thus depleting the supplier’s warehouses. There will be quicker turnarounds but it will also result in increase of natural food practices. The governmental agencies will give more focus and energy to natural food sectors thus sending the industry in an upward spiral growth part. Part B Discussion Question 1. Explain the differences between mergers, acquisitions, and takeovers. How do you determine which one to use when attempting to gain a competitive advantage over others in your field? Mergers occurs when two or more companies that are equal in financial status, command over market and other business determinants decide to merge with each other to create a single business entity. Mergers require pooling in, and sharing of intangible and tangible resources. It is a strategic amalgamation of equals. One of the famous is that of Nissan and Renault, two automobile companies. Acquisition is said to occur when one company uses its stocks, resources, capital, assets debt, or cash to purchase the other. Acquisitions can be in part of full. Acquisition often takes place when the stakeholders may lose confidence with ways prevalent in a company and decide to sell it of a to a stronger business unit. However, management and the Board may decide to sell off a profit making company also. Acquisition is made of a private company. An example of acquisition is the taking over of Hotmail by Microsoft. Takeover is quite similar to acquisition except for the fact that here the company bought is a publicly listed company. The shares listed on the stock-exchanges are bought by a company. It is often characterised as hostile and non-hostile take over. Mergers often take place when two or smaller companies decide to pool in their strength to resist the onslaught of a powerful company. Mergers also take place when two companies have strong presence in two different regions or product lines and they this as cost-effective way to expansion and diversification thus leading to gain of competitive advantage. A merger is effected when two companies are equal in strength and they are willing to pool in their resources. When the shares of a publicly traded company are available at a lesser prices and in bulk, a company be taken over and its resources, infrastructure, and assets can be used for gaining competitive advantage. Acquisition generally occurs when the acquired companies is very low in financial and market health to the other. It willingly gives up its control and destiny to a larger and a significant company. In this way, the acquired company tries to gain a competitive advantage through the resources, brand, and financial strength of the stronger company. 2. What are the reasons a company would use a restructuring strategy, and what are the common ways restructuring occurs? Restructuring basically involves making structural changes in the character of the company to streamline its operations, make it cost-effective or attune it to changing technologies and market needs. Restructuring a company may involve changing the hierarchy, doing away with bureaucracy, and reducing the number of levels in the corporate structure. Restructuring may change the roles of anyone from Chairman to the employee. Companies also restructure by shutting of less profitable units, streamlining the product portfolio or staging an exit from a business area. Restructuring can also be part of the Reengineering process. Restructuring can also divesting some of the company’s resources or right-sizing its work force to optimum levels. Case Study —News Corp in 2005: Consolidating the DirecTV Acquisition 1. Analyze various aspects of the general environment. Which general environment dimensions are most relevant in this case? Why? Has this changed over the years? The most general environment changes that have affected News Corp are political, economic and technological. The globalisation has changed media preferences of people and changed the regulatory environment especially in the developing world has opened up new frontiers. The boom in the economy has brought more money into the business. The globalisation has brought the world closer and people are more interested in global news stories. Internet and the satellite communication has revolutionised broadcasting and introduced new concepts like web casting and pod casting. However, these changes have also brought in new players into the picture. 2. In which industry does DirecTV compete? DirecTV competes in the digital audio and video satellite broadcasting. Direc TV has a strong presence in the US with a subscription base of 11 million households. . 3. What are the dominant industry characteristics? Dominant characteristics of the industry are high competition, high revenue turnaround, constant innovation and expansion, intense lobbying to secure international broadcasting rights, and provide more convenient, cost-effective viewing to the audience. The industry is checked by strong government regulation and needs support of the cable service providers. The broadcasting companies need to have a reputation for providing quality content of all genres and all age groups. 4. Apply Porter’s Five Forces Model to the industry. Is this an attractive industry? (i)The risk of entry by competitors: The satellite digital broadcasting medium remains highly prone to entry by competitors. However, the entry is rarely sustained by quality, entertaining content. (ii) Intensity: Intensity of rivalry is very high. The satellite broadcasting has national and international conglomerates vying for their share of audience. (iii) The broadcasting medium is not dominated by the bargaining power of the buyers. Though the presence of a large number of companies do give the customer an option to subscribe to a particular channel or not. (iv) The bargaining power of supplier is not too high as most to the broadcasting companies rely on in-house generation of content. The companies also buy outside products, but the proliferation of entertainment, infotainment, media, film industry and studios reduce power of suppliers. (v) Risk of substitutes: There is no apparent risk of substitutes to broadcasting except for webcasting. On the whole the industry projects an attractive picture. 5. What factors are critical for success of this firm given the competitive environment? The factors that are required for success in broadcasting include a high visibility over larger masses of population, sound rapport with cable operators and digital signal controllers, intensive political lobbying, wooing businesses for commercial advertisements, and high and credible quality of content. The competitive environment requires entrepreneurial approach. 6. What are the available tangible and intangible resources? Which of these will be most critical in developing capabilities and core competencies? Tangible resources of New Corp include profitable assets, publications, and stations, broadcasting services, high degree of professionalism, strategic-alliances, infrastructure, and strong web presence. The intangible assets include Rupert Murdoch’s visionary leadership, credibility, and strong brand presence. 7. What are the unique internal resources and capabilities of News Corp that played a prominent role in Murdoch’s decision to acquire DirecTV? Strong presence of DirecTV in the US, Central and Latin America, ownership of a large number of smaller networks, its direct satellite reach to a large number of audience, broadcast rights for movies, music and entertaining shows gravitated Rupert Murdoch’s 8. What was the rivalry like between News Corp and its competitor(s) during the acquisition of DirecTV? Since News Corp already had a 34 percent stake in the DirecTV, Rupert Murdoch couldn’t afford it to be controlled by others. The rivalry was more of control of the corporation holdings to attain a dominant position in its management. 9. What feature of the external environment does News Corp use to fend off its rivals? News Corp used economic, political and technological dimensions to fend off its rivals. 10. How does News Corp integrate the newly acquired DirecTV into its global strategy? Direc TV after becoming a part of News Corp acquired a global dimension. More money was pumped in to control the South American operations and its unique content broadcast globally. 11. At the conclusion of the case, what factors inhibit News Corp’s strategy from delivering its full potential? News Corps lack of funds and support from venture capitalists stop it from working to full potential. Since Rupert Murdoch is in favour of its being operated as a family business News Corp remains limited in scope. News Corp restricts itself only to the media activities and regulatory control by different countries stops its growth. Read More