Business Strategy and Alliances - Essay Example

The SWOT analysis indicates how the firm can use these forces for sustainable competitive advantage. The five forces are the entry of competitors, the threat of substitutes, the bargaining power of buyers, the bargaining power of suppliers, and rivalry amongst the current players in the field.

            New entrants have to consider government rules and regulations, although most of the time they enjoy certain benefits like tax holidays for a specified period. The SWOT analysis of these five forces helps them to identify the capital investment and the whether the costs would justify the right amount of turnover. Brand extension strategy keeps the marketing costs low and the chances of success are high. Vodafone, the UK-based mobile phone company decided to enter the US market, and they made a very strategic move. To keep the market penetration cost low, they acquired the US firm AirTouch at an investment of £112bn. They had studied the bargaining powers of the buyers. Acquisition of an existing firm immediately gave them all the customers without having to make a fresh start. The market penetration period reduces and prevents the number of competitors in the market. Entry barriers like government licenses are also overcome. 

            While these five forces help in studying the competition, buyers, suppliers, and general market trend, it has limitations. Porter’s five forces model does not indicate whether an industry could be attractive because certain companies are in it. Besides, the environment changes very rapidly and it may not be possible to change the strategy as fast by using the five forces model. Most importantly, by using this model, one may concentrate on an existing market but a new market may have better prospects.

            Corporate value creation/Value chain analysis

            The Value Chain framework of Michael Porter is a model that helps to analyze specific activities through which firms can create value and competitive advantage. He believed that a firm would be successful only to the extent that it contributes to the industry's value chain.  Thus, the management has to look at its operations from the customer’s point of view. Every operation should be valued in terms of what value it adds as far as the customer is concerned.

            The primary activity in value-adding includes inbound logistics, operations (production), outbound logistics, sales and marketing, and service (maintenance). Support activities include procurement, human resource development, and technology infrastructure. The value chain framework is a powerful analysis tool for strategic planning. A firm can maximize value creation by minimizing costs. This can be done either by reducing the cost of individual value chain activities or by reconfiguring the value chain.

            As an integral part of their corporate strategy and value-creation in their industry, DHL (an international air express service, that ensures the rapid delivery of documents and shipments by airplane) is developing a Global Environmental Management System (GEMS), which would help in managing the environmental aspects of their facilities and operations. It would also prevent negative environmental impacts by reducing emissions from their aircraft, reducing noise pollution, minimizing waste, and increasing recycling. 

The concept of value creation extends beyond an individual organization. It applies to the entire supply chain network and distributors. Analyzing and managing the entire value chain also gives the firm a competitive advantage. Industry-wide synchronization of the local value chains creates an extended value chain, which sometimes becomes global in extent. This is known as the “value system", which includes the value chains of a firm's supplier, the firm itself, the firm distribution channels, and the firm's buyers.

Strategic Alliances

A strategic alliance is one of the ways of forming a partnership. It is a mutually beneficial long-term business relationship. The combined effect of the strengths and capabilities of each partner helps maximize profits and increase investments. The combined effort helps the firms to better address the market need. It is based on mutual trust and the boundaries between the firms vanish as they join hands.

A strategic alliance involves four steps – strategy development, partner assessment, contract negotiation, and alliance operation. Both parties need to understand what they expect from the other and how they will measure and recognize success. Any strategic alliance requires not just clearance from the board members but active participation at that level. Individually the alliance partners may be of different sizes but once an alliance has been made, they must have an equal standing. Both must understand each other’s strengths and jointly bring innovation to their industry. For the alliance to be successful, they must understand each other’s business process. Alliances give greater flexibility, and innovative ideas, reduce costs, pool expertise, and risks shared, and develop capability.

DHL made a very strategic alliance (50/50) with SINOTRANS of China. China was a developing economy in 1986. Sinotrans had unrivaled local knowledge in the China foreign trade transport market while DHL was the leader in the global air express industry. Today DHL-Sinotrans has developed the largest air express services network in China covering 318 cities, with 56 joint ventures and close to 150 locations and 6,000 highly qualified employees.

Thus, it is evident that alliances multiply strength. Market penetration is faster. In the case of overseas ventures, it has greater significance because the firm is not aware of the industry and government regulations.