MindMap Gallery Strategic Choices for the 2022 Notes on Corporate Strategy and Risk Management
In 2022, we will focus on the strategic choices of "Corporate Strategy and Risk Management". The knowledge points include overall strategy (corporate-level strategy), business unit strategy (competitive strategy), national business strategy, and functional strategy.
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This is a mind map about bacteria, and its main contents include: overview, morphology, types, structure, reproduction, distribution, application, and expansion. The summary is comprehensive and meticulous, suitable as review materials.
This is a mind map about plant asexual reproduction, and its main contents include: concept, spore reproduction, vegetative reproduction, tissue culture, and buds. The summary is comprehensive and meticulous, suitable as review materials.
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Strategic Choice
overall strategy (Corporate level strategy)
development strategy
integrated strategy
vertical integration strategy (upstream and downstream)
Forward integration (downstream)
Strategies to gain ownership of or increase control over distributors or retailers
motivation or advantage
By controlling sales channels and processes, it helps enterprises control and master the market, enhance sensitivity to changes in consumer demand, and improve the market adaptability and competitiveness of enterprise products.
Main applicable conditions
The industry has great growth potential
Have the funds, human resources, etc. needed for forward integration
Existing sales costs are high or reliability is poor, making it difficult to meet the company's sales needs.
Higher profit margins in sales
Backward integration (upstream)
It is widely used in the automobile and steel industries
Strategies to gain ownership of or increase control over suppliers
motivation or advantage
It is helpful for enterprises to effectively control the cost, quality and supply reliability of key raw materials and other inputs, and ensure the steady progress of enterprise production and operation activities.
Main applicable conditions
The industry has great growth potential
Have the funds, human resources, etc. required for backward integration
Existing supply costs are high or reliability is poor, making it difficult to meet enterprise needs
Fewer suppliers and more demand-side competitors
Higher profit margins in the supply chain
Stable product prices are very important to enterprises, and backward integration is conducive to controlling raw material costs to stabilize product prices.
Main risks
不熟悉新业务领域所带来的风险
纵向一体化,尤其是后向一体化,一般投资数额较大且资产专用性较强, 增加了退出成本
horizontal integration strategy (peer)
The strategy of enterprise expansion towards the same stage of the industrial value chain
purpose or motivation
Achieve economies of scale to gain competitive advantage
Main applicable conditions
The industry has great growth potential
Have the funds, human resources, etc. required for horizontal integration
Competition in the industry is fierce
The industry has significant economies of scale
Horizontal integration complies with anti-monopoly laws and regulations and can gain a certain monopoly position in local areas
intensive strategy
market penetration
Existing products and existing markets
"Stand your ground", emphasizing the development of a single product, trying to gain greater market share through stronger marketing methods
main method
Expand market share
Suitable for overall growing markets
Develop niche markets
Ideal for businesses that are smaller compared to competitors
maintain market share
Suitable for market downturns
The ease of application depends on the nature of the market and the market position of competitors; In addition, the experience curve effect makes it difficult for companies to penetrate into mature markets.
Mainly applicable to (condition)
Long: When the entire market is growing, companies that want to increase market share can achieve their goals faster.
Determination: When a company decides to limit its interests to existing products or market areas, even if the market decline does not allow for a decline in sales
Go: Other companies have left the market for various reasons
Big: The company has a strong market position and can leverage experience and capabilities to gain strong and unique competitive advantages.
Low: The strategy corresponds to lower risk, higher involvement of senior managers, and requires less investment.
Market Development
Existing products and new markets
The main direction
Open up other regional markets and market segments
reason
The nature of the production process for existing products makes it difficult to switch to the production of entirely new products
Existing market or market segment is saturated
Market development is often combined with product improvement
Mainly applicable to (condition)
There is an untapped or undersaturated market
Access to new, reliable, economical and high-quality sales channels
Have the capital and human resources required to expand operations
There is excess production capacity
Very successful in existing business areas
The main business belongs to an industry that is rapidly globalizing
product development
Create demand. Not only the development of completely new products, but also minor changes and upgrades to existing products, etc.
New products and existing markets
Developing new products through technological improvement and development can extend the product life cycle, improve product differentiation, and meet new market demands.
reason
Leverage your company’s understanding of the market
Find new opportunities from shortcomings in existing product portfolio
Maintain a leading position relative to competitors
Enable companies to continue to maintain a solid position in existing markets
Mainly applicable to (condition)
Products have high market credibility and customer satisfaction
Have strong research and development capabilities
The industry is a high-tech industry that is suitable for innovation and rapid development.
The industry is in a stage of rapid growth
Major competitors offer higher quality products at similar prices
Diversification Strategy
Enter areas that are different from existing products and markets
Classification
related diversification
Concentric Diversity
The enterprise has a strong competitive advantage in the industry or market, and it is appropriate to use it when the growth or attractiveness of the industry or market is gradually declining.
Utilize the technology, channels, capabilities, skills and other advantages of original products
unrelated diversification
centrifugal diversification
It is more applicable when the current industry or market is unattractive and the company does not have strong capabilities and skills to switch to related products or markets.
Financially consider balancing cash flow or obtaining new profit growth points to avoid industry or market development risks.
reason
Not up to standard: Unable to achieve goals by continuing to operate in existing products or markets
Capital Excess: Capital retained from previous successful operations exceeds capital required for current financial expansion
High profits: A diversification strategy means higher profits than expansion in existing products or markets
advantage
spread risk
Easier access to capital markets
Find new growth points
Leveraging underutilized resources
Use surplus funds
Receive funds or other financial benefits
It is important to use your existing image and reputation to enter another industry or market
risk
Risks from original operating industries
Weakened funding, distracted management
overall market risk
The dispersion of resources under the impact of macro forces has increased risks.
Industry entry risk
Inject resources, learn knowledge, train personnel, build brands, competitors’ response strategies
Industry exit risk
Well-designed business exit channels can effectively reduce diversified business risks, such as registering an independent entity to assume limited liability
Internal business integration risks
Diversified operations, conflicts between multiple goals and limited corporate resources
main method
External development (mergers and acquisitions)
type
The industries in which both parties to the merger and acquisition are located
horizontal merger
vertical merger
Forward M&A
backward merger
Diversified M&A
The attitude of the acquired party
Friendly mergers and acquisitions
hostile takeover (Hostile merger)
Identity of the acquiring party
Industrial capital mergers and acquisitions
Generally, non-financial companies are the acquirers, with the purpose of sharing the industrial profits of the target company.
Financial capital mergers and acquisitions
Generally carried out by investment banks or non-bank financial institutions, financial capital is a kind of parasitic capital. It does not seek industrial profits as its primary purpose, but buys low and sells high to obtain investment profits, which is risky.
M&A funding sources
LBO
The main source of funds comes from external liabilities
non-leveraged buyout
The main funds come from own funds
Different motivations for new construction
Avoid entry barriers, enter quickly, seize market opportunities, and avoid various risks
Gain synergy
Overcome negative externalities of enterprises, reduce competition, and enhance control over the market
reason of failure
poor decision making
Overestimating the potential economic benefits of mergers and acquisitions
Paying exorbitant M&A fees
Increase the financial burden on enterprises and face efficiency challenges from the beginning
After merger and acquisition, enterprise integration cannot be carried out well.
The integration of corporate culture is the most basic, core and difficult task
Cross-border mergers and acquisitions face political risks
Avoiding political risks has become the primary issue that enterprises need to pay attention to in their international operations.
Precautions
Strengthen risk assessment and improve dynamic monitoring and early warning systems
Adopt flexible international investment strategies to build a solid foundation for risk control
Implement corporate localization strategies to reduce conflicts and frictions
Internal development (new construction)
The main strategic development methods of enterprises that design or manufacture products with high technology
motivation
No suitable acquisition target exists
Maintain a unified management style and corporate culture
Provide career development opportunities for managers
Low price, no goodwill
Hidden or unpredictable losses that often arise from mergers and acquisitions are less likely to occur
lower risk
The process of developing new products enables companies to gain a deep understanding of the market and products
May be the only reasonable way to achieve true technological innovation
Can be carried out in a planned manner, easy to obtain financial support from corporate resources, and costs can be spread over time
Cost growth is slow
shortcoming
Corresponding motivations for mergers and acquisitions
Entry into new markets can involve very high barriers
When the market is developing very fast, internal development will appear too slow
No access to other companies’ knowledge and systems
Lack of economies of scale or experience curve effects from the start
Adding competitors to the market may intensify competition within a certain market
Application conditions
The industry is in an unbalanced situation and structural barriers have not yet been fully established. It is generally an emerging industry.
The behavioral barriers of existing companies in the industry are easily restricted
The enterprise has the ability to overcome structural and behavioral barriers, or the cost of overcoming them is less than the benefits after entry
Demonstrated ability to overcome barriers to entry
There is a strong correlation between the assets, skills, and distribution channels of the company's existing business and its new business areas.
When a company enters a new field, it has the unique ability to influence its industry structure and make it work for itself.
Developed countries’ monopoly advantages over cross-border investments in developing countries
After an enterprise enters a new field, it is conducive to the development of the enterprise's existing business content.
Strategic Alliance
Basic Features
From the perspective of economic organization form, strategic alliance is an "intermediate organization" between enterprises and the market.
From the perspective of corporate relationships, the parties forming a strategic alliance are an equal joint partnership formed through prior agreement based on resource sharing, mutual advantage, mutual trust, and mutual independence.
Performance of collaborative relationships
equality of dealings
The long-term nature of the partnership
complementarity of overall interests
Openness of organizational form
From the perspective of corporate behavior, alliance is a strategic cooperative behavior
motivation
Promote technological innovation
Especially the development of high-tech
Avoid business risks
Expand the density and speed of information transmission
Avoid or reduce competition
The idea of co-opetition: replacing competition with cooperation
Realize resource complementation
Resource sharing, complementary advantages
Open up new markets
Diversification of business scope and expansion of business areas
Mergers and acquisitions are also possible
Reduce coordination costs
No integration is required, especially for large target companies, strategic alliances are most suitable
Main types
Equity participation
Joint venture
most common type
Mutual shareholding investment
Advantages: Expand the financial strength of the company, enhance trust and responsibility, and be conducive to long-term cooperation Disadvantages: poor flexibility
contractual bond
functional protocol
More essential characteristics of strategic alliance (coordination and tacit understanding)
asset-free strategic alliance
most common form
Technology Exchange Agreement
Cooperative research and development agreement
Production Marketing Agreement
Industrial Coordination Agreement
Advantages: operational flexibility, autonomy, economic benefits Disadvantages: poor control over the alliance, loose organization lacking stability and long-term interests, insufficient communication among members, low organizational efficiency
Control
Enter into an agreement
Some basic contents that need to be clarified
Strictly define the goals of the alliance
Carefully design alliance structure
Accurately assess invested assets
Specify liability for breach of contract and dissolution clauses
Establish an alliance of cooperation and trust
Oriented to maximize the interests of both parties and trust each other
Trust can reduce the cost of supervision between alliance partners, greatly improve the possibility of alliance success, and is the most effective means to influence and control the behavior of alliance partners. Trust can become a valuable, scarce, difficult-to-imitate and difficult-to-substitute strategic resource for an enterprise
stabilization strategy (Maintain strategy)
There is no need to change the purpose and goals, just concentrate resources on the original business scope and products to increase competitive advantage
Applicable to
Forecasts of the environment during the strategic period have not changed much, but companies that have been quite successful in the early stages
risk
When there are major changes in the external environment, there will be an imbalance and you will be in trouble.
It can make enterprises weaken their risk awareness, even form a corporate culture of fearing and avoiding risks, and reduce their sensitivity and adaptability to risks.
contraction strategy (retreat strategy)
reason
active cause
Meet the needs of corporate strategic reorganization
passive cause
External environmental reasons
Macroeconomic situation, industrial cycle, technology, policy, social values, fashion, etc., market saturation, intensified competition, etc.
Internal environmental reasons
Sluggish mechanisms, wrong decisions, and poor management cause the company or a certain business of the company to lose its competitive advantage.
Way
austerity and concentration strategies
Mechanism change
Finance and Financial Strategy
cost cutting strategy
Focus on short-term benefits and take remedial measures to stop profit decline
Turn to strategy
Reposition or adapt existing products and services
Adjust marketing strategy
Involving changes in business direction or business strategy
abandon strategy
Franchise
Subcontract
sell out
management leveraged buyout
Split into shares/split
Involving changes in the property rights of the enterprise or its subsidiaries
difficulty
Judgment of enterprise or business conditions
Judgment Checklist
The later stage of life of the product and its future profitability and development trends
Current market conditions and opportunities to regain competitive advantage
Is it worth giving up part of the business and investing in other businesses?
Which one is more cost-effective: closing or maintaining a small profit, especially whether the exit barriers are large and costly?
The role and synergistic advantages of the part of the business to be abandoned in the enterprise
Opportunities to meet existing customer needs with other products and services
How to use the freed resources
Tangible and intangible benefits brought about by enterprises reducing the degree of decentralized operations
Find the right buyer
exit barriers
Degree of specificity of fixed assets
exit cost
internal strategic connections
emotional disorder
government and social constraints
business unit strategy (competitive strategy)
basic competitive strategy
Cost leadership strategy
Sustainable cost leadership to gain lasting competitive advantage
Advantage
five forces model
create barriers to entry
low cost
Threats from potential entrants
Enhance bargaining power
Upstream and downstream
Bargaining power of suppliers and customers
Reduce the threat of substitutes
Cost-effectiveness
Threat of substitutes
Stay ahead of the competition
low price
Competition within the industry
Implementation conditions
market outlook
The product has high price elasticity and there are a large number of price-sensitive users in the market.
Buyers pay less attention to brands and use them the same way
The industry is full of standardized products, making it difficult to differentiate.
Price competition is the main means of market competition, and consumers’ switching costs are low
Resources and Capabilities (Pathways)
Equip corresponding production facilities in industries with significant economies of scale to achieve economies of scale
Reduce costs of various factors
Improve productivity
unit factor output
Improve production capacity utilization
Fixed costs allocated per unit of product
Improve product process design
Good quality and low price
Choose the appropriate trading organization form
Should we internalize production or rely on market acquisition?
Focus on gathering
risk
3C model (company-competitor-customer)
Changes in technology wipe out past investments and accumulated experience used to reduce costs.
New entrants or followers in the industry achieve the same or even lower product costs by imitating or investing in higher-tech facilities.
The market demand changes, from focusing on price to focusing on the brand image of the product, turning the original advantages into disadvantages
Differentiation Strategy
Advantage
create barriers to entry
Due to product features, customer loyalty is very high
Enhance bargaining power
Higher marginal revenue, lower total cost, dealing with suppliers Buyers have no choice and are less price sensitive, thus weakening their bargaining power
Defend against the threat of substitutes
Improve performance and thus cost-effectiveness
Reduce customer sensitivity
Highly loyal and therefore not price sensitive
Implementation conditions
market outlook
Products can be fully differentiated and recognized by customers
Customer needs are diverse
The industry in which the company operates is experiencing rapid technological changes, and innovation has become the focus of competition.
resources and capabilities
Have strong R&D capabilities and product design capabilities
Have strong marketing capabilities
Have an incentive system, management system and a good creative culture to motivate employees to be creative
Have the ability to improve the quality of a certain business as a whole, establish product image, maintain advanced technology and establish and improve distribution channels
risk
Cost is too high
Market demand changes
Competitors' imitation and attacks narrow or even divert established differences
centralization strategy
Targeting a specific purchase of the entire market, market segments or regional markets, generally used by small and medium-sized enterprises
Classification
Focused cost leadership strategy
Focus on differentiation strategy
Advantage
The advantages of cost leadership and differentiation against the five competitive forces can be reflected in the concentration strategy.
Centralization avoids direct competition on a large scale, so for small and medium-sized enterprises with insufficient strength, it can enhance their relative competitive advantages; for large enterprises, it avoids direct conflicts and puts enterprises in a buffer zone of competition.
Implementation conditions
There are differences in demand among all buyers
The target market is relatively attractive in terms of market capacity, growth rate, profitability, competition intensity, etc.
No other competitor in the target market adopts a similar strategy
Enterprise resources and capabilities are limited, making it difficult to achieve cost leadership or differentiation in the entire industry, and can only select individual market segments.
risk
Risks caused by narrow target market
The small market cannot support the necessary production scale, resulting in high cost risks
Demand differences among buyer groups become smaller
Entry and competition of competitors
Comprehensive Analysis—Strategy Clock
成本领先战略
低价低值战略(途径1):低价低值战略是一种很有生命力的战略,尤其是在面对收入水平较低的消费群体。途径1可以看成是一种集中成本领先战略。
低价战略(途径2):企业寻求成本领先战略时常用的典型途径,即在降低价格的同时,努力保持产品或服务的质量不变。
差异化战略
高值战略(途径4):广泛使用的战略,即以相同或略高于竞争者的价格向顾客提供高于竞争对手的顾客认可价值。
高价高值战略(途径5):以特别高的价格为顾客提供更高的认可价值。面对高收入消费者群体时很有效,因为产品或服务的价格本身也是消费者经济实力的象征。是一种集中差异化战略。
混合战略
为顾客提供更高的认可价值的同时,获得成本优势:
提供高质量产品的公司会增加市场份额,而这又会因规模经济而降低平均成本。其结果是,公司可同时在该产业取得高质量和低成本的定位。
生产高质量产品的经验累积和降低成本的速度比低质量产品快。因经验曲线而降低平均成本。
注重提高生产效率可以在高质量产品的生产过程中降低成本。
失败战略
途径6提高价格,但不提供更高的认可价值。
途径7比途径6更危险,降低顾客认可价值,提高价格。除非企业处于垄断的地位,否则不可能维持这样的战略。
途径8保持价格不变降低顾客认可的价值,是一种危险的战略,虽然它有隐蔽性,短期内不被顾客察觉,但不能持久,因为有竞争对手提供的优质产品作为参照,顾客终究会辨别出产品的优劣。
Competitive strategies for small and medium-sized enterprises
Scattered industries
Reasons for industry fragmentation
Low barriers to entry or existing barriers to exit
Diverse market demands lead to high product differentiation
There are no economies of scale or it is difficult to achieve economies of scale
The basic economic characteristics of the industry itself
other
Government policies and local regulations restricting the concentration of certain industries
There are also companies in the new industry that have acquired sufficient skills and capabilities to occupy important market shares.
Strategic choices for fragmented industries
Overcome fragmentation—gain cost advantages
Develop into a large enterprise
Franchise or franchise
Technological innovation to create economies of scale
Discover industry trends early
Increase product added value—increase product differentiation
There is little potential to increase differentiation within the product or service itself, so an effective strategy is to increase its added value
Specialization—goal agglomeration
Specialization by product type or product segment
Customer Type Specialization
Geographic area specialization
strategic trap
Avoid seeking dominance
Determined by the characteristics of the industrial structure, unless it can be fundamentally changed
Maintain strict strategic constraints
The competitive structure of fragmented industries requires concentration and abandonment
Avoid over-centralization
The essence of competition in fragmented industries is flexibility
Understand competitors' strategic objectives and overhead costs
The actual situation of the opponent
Avoid overreacting to new products
Large investments are difficult to recoup
Emerging industry
Common features of internal structure
The basic characteristic of emerging industries is that there are no rules for the game
technical uncertainty
strategic uncertainty
Costs change rapidly
Learning curve quickly reduces initial high costs
Budding businesses and start-ups
A budding enterprise refers to a newly established enterprise
Incentives to set up a separate business
In an environment of rapid development and opportunities, equity investment is more attractive than being a working-class person
Due to the fluidity of technology and strategy, employees are better equipped to implement newer ideas, while the original enterprise may not be able to implement them due to excessive switching costs.
first time buyer
The central activity of marketing is to select customer targets and induce initial purchase behavior
Development Barriers and Opportunities
five forces model
Barriers (suppliers, buyers, substitutes)
Difficulties in selecting, acquiring and applying proprietary technology
upstream software
Inadequacy of raw materials, parts, capital and other supplies
upstream hardware
Customer confusion and wait-and-see
downstream
Reaction of the substituted product
Lack of courage and ability to take risks
Opportunities (barriers to entry. Competition within the industry)
Entry costs and competitive costs are much lower
Strategic Choice
Shape industrial structure
Correctly Treat the Externalities of Industrial Development
Balancing industry advocacy and one’s own narrow interests
Pay attention to changes in industrial opportunities and obstacles, and take the initiative in industrial development
Choose the right time and field to enter
proper early entry
The image and reputation of a company are intuitively important to customers
Customer loyalty is important
The learning curve in industry is important
Early cooperative relationships with raw material supply and distribution channels are crucial to industry development (upstream and downstream)
Dangerous early entry
The market segments that compete in the early stages are different from those in mature markets and will face higher switching costs.
The cost of opening up a market is high, and the benefits cannot be exclusive to the enterprise
Technological changes make early investments obsolete, and late entrants profit by having the latest products and processes
blue ocean strategy
Blue ocean strategy is by no means limited to the scope of business unit strategy (or competitive strategy), but also involves the scope of corporate strategy.
connotation
Value innovation—the cornerstone of blue ocean strategy
Key differences from Red Ocean strategy
Avoid competition and expand non-competitive market space
Create and capture new needs
Break the law of interchange between value and cost, pursue differentiation and low cost at the same time, and integrate corporate behavior into a system
At the same time, we aim to achieve a leap in customer value and the company's own value.
Establish principles
Rebuilding market boundaries (reducing search risk)
6 path frame
Focus on the big picture rather than numbers (reduces planning risk)
Beyond small steps to improve value
Exceed existing needs (reduce scale risk)
Examining strong commonalities among “non-customers” to align needs
Follow a sound strategic sequence (reduce business model risk)
Utility, price, cost, order of acceptance
Implementation principles
Overcome key organizational barriers (reduce organizational risk)
Build execution into strategy (reduce management risk)
Fundamental rules for reconstructing market boundaries
Examine alternative industries
Across strategic groups
Redefining industry buyer groups
Look at complementary products or services
Reset customer functional or emotional appeals
Participate in shaping external trends across time
functional strategy
Better allocate internal resources to serve strategies at all levels and improve organizational efficiency
marketing strategy
The core is STP marketing: market segmentation → target market selection → market positioning → design of marketing mix (4P)
market segmentation
consumer market segmentation
Geographic segmentation
population segmentation
psychographic segmentation
Psychological variables such as lifestyle and personality
behavioral segmentation
Product-related behavioral variables such as purchase timing, benefits pursued, degree of loyalty, attitude towards the product, usage rate, etc.
Industrial market segmentation
Buyers in the industrial market are industrial and commercial service companies
User's industry category
Different industries have different requirements for the same product
User scale
User's geographical location
buying behavior factors
Target market selection
Strategy
undifferentiated marketing strategy
The entire market is the target market
advantage
Economies of scale, low cost
shortcoming
Poor adaptability. After the product enters the mature stage, the competition method is single and the risk is high.
centralized marketing strategy
Target one or several submarkets with similar nature
Advantages: Concentrate the use of limited resources, implement specialized production and sales, save marketing costs, and increase product and corporate visibility.
Disadvantages: Too much dependence on a single and narrow target market. Once there is a change, there is little room for maneuver and high risks. Strong competitors will be seriously affected when they enter.
Differentiated marketing strategy
According to the needs of different market segments, we design and produce different products and formulate different marketing mix strategies.
Advantages: Expand sales volume, enhance competitiveness, and have strong corporate adaptability
Disadvantages: Due to the production of small batches and multiple varieties, a higher level of operation and management is required, and various costs and expenses increase, which may reduce economic benefits.
Factors to consider when choosing
market similarity
When the market demand is very similar, it is appropriate to adopt an undifferentiated marketing strategy; otherwise, it is appropriate to adopt a differentiated or centralized marketing strategy.
product homogeneity
Homogeneous products adopt undifferentiated marketing strategies, while products with greater differences adopt differentiated or centralized marketing strategies.
Enterprise strength
If the strength is very strong and has the ability to cover all markets, it can be undifferentiated or differentiated. If the strength is limited, it can be centralized.
Product life cycle stages
During the introduction period, it is appropriate to use no differentiation. After entering the growth and maturity stages, it is appropriate to adopt differentiation to establish characteristics, expand the market, stimulate new demand, and extend the product life cycle.
competitor strategy
Competitors have no differentiation, so use differentiation to compete with them; competitors have adopted differentiation, and you can consider adopting differentiation or centralization based on further segmentation.
Market positioning
The product has certain characteristics, adapts to certain needs and preferences of the target market, and shapes the product's unique image and appropriate position in the minds of target consumers.
Initial positioning, innovative positioning
Relocation situation
Entering a strong competitor, causing product sales and market share to decline
Customers’ consumption concepts and preferences change
Products are gradually entering a period of decline
Strategy
Seize the opportunity: Strategies to seize or fill market gaps
Dividing the world equally: Market positioning strategies to coexist and confront competitors
premise
There is still large unmet demand in the market, enough to absorb new entrants.
The product has its own characteristics and is comparable to competing products
benefit
Can imitate competing products and sell your own brand
Save R&D costs
Save promotion costs and reduce the risk of unmarketability
Replace: Market positioning strategies that replace competitors
Design marketing mix
4P: Product, Price, Distribution Place, Promotion Promotion
Product Strategy
product mix strategy
Product portfolio width (product categories), length (product items), depth and relevance
type
Expand product portfolio
Reduce product portfolio
product extension
Extend upward: low grade → high grade
Extend downward: high-end → low-end
Two-way extension: low-range ← mid-range → high-end
Brand and Trademark Strategy
single brand name
Advantages: Simplified go-to-market process, no need to build brand recognition for new products
Each product has a different brand name
Suitable for different positioning or the market is highly segmented
private label
Retailers sell private label products to build customer loyalty to them
product development strategy
Price Strategy
Basic pricing method
cost oriented pricing
cost plus pricing
break-even pricing
target profit pricing
variable cost pricing
demand-based pricing
Competition Oriented Pricing
prevailing price pricing
sealed bid pricing
Main pricing strategies (price adjustment strategy)
psychological pricing strategies
Mantissa pricing, integer pricing, prestige pricing, solicitation pricing
Product portfolio pricing strategy
Series product pricing, by-product pricing, related product pricing, bundled pricing, etc.
Discounts and discount strategies
Cash discounts, quantity discounts, transaction discounts, seasonal discounts, promotional discounts, etc.
Geographical Spread Strategy
Origin price, destination delivery price, unified delivery price, zone transportation price, subsidized freight pricing, etc.
New product pricing strategy
penetration pricing
Seize the market at low prices, sacrificing short-term profits for long-term profits
skimming pricing
High prices are gradually reduced, aiming to obtain higher unit profits in the initial stage of the product life cycle
Satisfied with pricing strategy
A moderate pricing strategy between the above two, aiming to achieve price acceptance and a profit for the company at the same time
Distribution strategy
direct distribution
indirect distribution
exclusive distribution
selective distribution
intensive distribution
P192 [Table 3-6] Advantages, disadvantages, scope of application
The network environment is divided into online and offline
promotion strategy
Promotional mix components
advertising promotion
Business promotion
Non-media means: trial products, discounts, gifts, etc.
public relations
personal selling
Promotional mix strategy
push strategy
Manufacturers' marketing activities (personal selling, transaction promotion) are mostly carried out for channel members, motivating them to purchase and then sell to final consumers.
pull strategy
Marketing activities (advertising and consumer promotion) conducted directly by the manufacturer to target the final consumer and motivate them to purchase
push-pull strategy
research and development strategy
R&D type
Product Research—New Product Development
It is the main source of competitive advantage and a key link in the corporate strategic guarantee system for implementing differentiation strategies.
process research
Source of motivation for R&D
demand pull
technology push
The strategic role of R&D
basic competitive strategy
Product innovation is the source of product differentiation
Process innovation allows companies to adopt cost leadership strategies or differentiation strategies
Value Chain
R&D is a supporting activity that strengthens the value chain
Ansoff Matrix (intensive strategy)
R&D supports four strategic quadrants
Product Lifecycle
R&D will accelerate the decline of existing products, so R&D is needed to provide companies with alternative products.
R&D positioning
Become a company that introduces new technology products to the market
Become an innovative imitator of successful products
Become a low-cost producer of successful products
Become an imitator of low-cost producers of successful products
R&D Policy (Learn About)
Considerations
Enhance product or process improvements
Strengthening the foundation of applied research
Develop intelligent technology or manual processes
Become an R&D leader or follower
Invest high, moderate or low amounts of money in R&D
Do R&D in-house or outsource it?
Leveraging the research power of universities or private industry
Management establishes policies to encourage innovative ideas
Financial support must be given to innovation
Enable employees to work in an environment where innovative ideas can be generated
Management actively encourages employees and customers to come up with new ideas
Form a development team and establish relevant management organizations
Recruit employees with innovative skills
Have dedicated managers responsible for obtaining information related to innovative ideas
Strategic plans help achieve innovation goals and reward employees who successfully achieve them
Production operations strategy
Main factors involved (horizontal examination)
batch
type
demand changes
If demand varies due to season and time, capacity utilization issues may arise.
visibility
The extent to which production and operation processes are visible to customers
Stages involved (longitudinal examination)
Determine production and operation goals
Translate business strategy or marketing strategy into production operations strategy, i.e. determine how work will be done concretely
Evaluate the company's current operating performance by comparing its performance with competitors
Develop strategies based on gap analysis
Execute strategies and continuously review, improve, and refine them by responding to changes in the environment
content
Product (service) selection
Influencing factors
market conditions
Internal production and operation conditions of the enterprise
financial conditions
Differences in work goals among various departments of the enterprise
Make or buy options
homemade options
Completely homemade
Self-made in the assembly stage, that is, "outsourcing and self-made"
Production and operation mode selection
Two of the typical
Many varieties, small batches
High volume, low cost
Supply chain and distribution network selection
supply chain
Efficient supply chain - common products, low cost
Agile supply chain - personalized demand products
Distribution network
Manufacturer's inventory plus direct shipping
Manufacturer's inventory, direct shipping and in-transit consolidation
Distributor inventory plus carrier delivery
Distributor inventory added to door payment
Manufacturer or distributor inventory plus customer pickup
Retailer inventory plus customer pickup
Competitive focus
The main factor affecting competitiveness is TQCF, which is also the central task of the production operation system.
T: delivery time
Fast delivery - secure your order
Delivery on time - customer satisfaction
Q:Quality
Comprehensive quality, including the quality of the product itself and the quality of the production process
C: Cost
F: Manufacturing Flexibility
It refers to the rapid and low-cost adaptation to market demand in production and organization when faced with market opportunities, reflecting the ability of the enterprise's production and operation system to respond to the external environment.
Key flexibility includes product quality flexibility, new product development and production flexibility, product portfolio flexibility, etc.
Production process planning
Factory size, factory location, product design, equipment selection, type of tools, inventory size, inventory control, quality control, cost control, use of standards, work specialization, employee training, equipment and resource utilization, transportation and packaging, technology innovation
Capacity planning
Ways to increase productivity:
Introducing new technologies, equipment and materials
Increase the number of employees or machines
Increase the number of shifts or add additional production equipment
type
lead strategy
Offensive strategy to increase production capacity based on expectations
hysteresis strategy
A relatively conservative strategy, increasing production capacity only after full capacity or overproduction.
matching strategy
A relatively stable strategy, a small increase in production capacity to respond to changes in market demand
Ways to balance capacity with demand
Resource-to-order production
Order→Resource→Production
Order production
Resources→Order→Production
Inventory production
Resources→Production→Order
Procurement strategy
Supply strategy
Few or single source strategy
advantage
Strong relationships between companies and suppliers
Confidentiality of corporate information
Increase the purchase quantity to generate economies of scale and enjoy price concessions
Deeper supplier relationships provide access to high-quality supplies
shortcoming
Enhanced bargaining power of suppliers
Supply disruption risk
Multi-source, low-volume strategy
advantage
stable supply
Gain more knowledge and skills
The bargaining power of enterprises is enhanced
shortcoming
The relationship between enterprises and suppliers is not stable and the level of mutual trust is low.
It is not conducive to generating economies of scale and cannot enjoy price concessions.
It is not conducive for enterprises to obtain supplies with continuously improved quality and performance.
Balanced supply strategy
Seek a more balanced point between the above two strategies, which not only obtains the benefits of concentrating a few sources of supply, but also makes full use of the advantages of multiple sources of supply.
Influencing factors
Number of suppliers in the market
Supplier’s scale and strength, operating conditions, reputation, product or service prices, transaction conditions, etc.
The enterprise's requirements or attitude towards the price, quality, quantity, delivery time, related services, etc. of supplies
Comparison of bargaining power between enterprises and suppliers
Trading straregy
market trading strategies
Applicable conditions
The technical content of the supplies is relatively low or the production technology is relatively mature.
Supplies are not important in the production and sale of the product
No after-sales service required
The supplier’s market is relatively mature
Large number of suppliers
Competition is fierce
short term cooperation strategy
Applicable conditions
Products face rapidly changing market opportunities and flexible customer needs.
The supply of supplies is highly adaptable
Some supplies have higher technical content
Short-term benefits
functional alliance strategy
Applicable conditions
Supplies play an important role in the production and operation of products
Enterprises have relatively large demand for supplies
The production technology of the supplies is mature and highly substitutable.
Suppliers have strong production capabilities and the ability to achieve economies of scale
Innovative alliance strategies
We often cooperate with suppliers from the time the concept of a new product is proposed, proceed simultaneously, and fit in with each other.
long term benefits
Procurement model
Traditional procurement model
MRP procurement model
production oriented
JIT procurement model
Just-in-time procurement
VMI Procurement Model
Vendor Managed Enterprise Inventory
Digital procurement model
Intelligent management of the entire procurement process
HR strategy
human resource planing
content
overall plan
business plan
supply and demand balancing strategy
Total supply and demand are balanced but the structure does not match
Internal relocation of personnel: promotion, transfer, demotion, etc.
Targeted and specialized training for existing personnel
Carry out personnel replacement: cleaning and replenishment
supply exceeds demand
Expand business scale or develop new growth points
Permanent layoffs or layoffs of employees
Encourage employees to retire early
Recruitment freeze
Shorten employee working hours, implement job sharing or reduce wages, etc.
Training redundant employees
Supply is less than demand
Hire people from outside
Improve the efficiency of existing employees
extended working hours
Reduce employee turnover rate
outsourcing of certain operations
Human resources acquisition
Achieved through employee recruitment
recruit
channel
external recruitment
source
Schools, competitors, other companies, the unemployed, senior citizens, veterans, freelancers, etc.
method
Advertising recruitment, out-of-town recruitment, recruitment through employment agencies, recommendation recruitment, etc.
internal recruitment
source
Subordinate—promotion
Same level—Job swap or rotation
Superior - demoted
method
Job Announcement Act
Archival Recording Act
P208 [Table 3-7] Comparison of advantages and disadvantages
Selection and recruitment
Human resource acquisition strategy P209 that matches the basic competitive strategy [Table 3-8]
Companies with a cost leadership strategy tend to pay more attention to employee recruitment costs when recruiting employees, especially general and auxiliary employees, who are highly substitutable and often use external recruitment and human resources outsourcing. During selection, resumes, interviews and paper-and-pencil tests are commonly used to reduce costs.
Companies with a differentiation strategy may adopt a more rigorous strategy;
Enterprises with a centralized strategy place more emphasis on the speed of recruitment and use cognitive ability tests and personality tests to quickly identify employees who are qualified for the job.
Human resources training and development
process
Training needs analysis
Training plan design
Training implementation
On the job training
Off-the-job training
Training effectiveness evaluation
level
reaction layer
Impressions of the training
result layer
performance improvements
learning layer
Mastery of training content
behavioral layer
Changes in work behavior after training
standard
The effect of training
Training efficiency
type
Training objects
New employee training
On-the-job employee training
Grassroots employee training
Mid-level employee training
Senior staff training
training form
On the job training
Off-the-job training
Nature of training
impartial training
transformative training
training content
knowledge training
skills training
attitudinal training
Align with competitive strategy
Cost leadership strategy, limited range of knowledge and skills, self-established corporate university or regular training to improve
Differentiation strategy, emphasizing differences, extensive knowledge, skills and creativity, delivering external novel information, purchasing skills or utilizing external training institutions for training
Centralization strategy, knowledge in specialized areas is more urgent, application of knowledge and skills is moderate, use on-the-job training or external training, develop skills yourself or buy skills
HR performance evaluation
performance plan
content
Employees’ performance target system (including performance goals, indicators and standards) and performance appraisal cycle during the appraisal cycle;
In order to achieve the ultimate goal, the work that employees should do and the measures they should take during the performance appraisal cycle;
Planning and guidance for performance monitoring, performance appraisal and performance feedback phases.
tool
Key Performance Indicator Method (KPI)
Balanced Scorecard (BSC)
management by objectives
performance monitoring
formal communication
informal communication
performance appraisal
Assessment objects: organizations, departments, employees
Assessment content: work ability, work attitude, work performance
Assessment subjects: superiors, colleagues, subordinates, employees themselves and customers
Assessment methods: comparative method, scale method and descriptive method
performance feedback
Alignment with basic competitive strategy
Cost leadership strategy emphasizes result orientation and aims to control costs. The scope of evaluation is narrow, the source of information is single, and the superior is the main examiner.
Differentiation strategy, which emphasizes the production of distinctive products, has a wide range of evaluations and rich information, and is mainly used for employee development and quality improvement.
Centralization strategy tends to be a combination of the two
Human resources salary incentives
Salary composition and fairness principles
Salary composition
basic salary
variable pay
indirect compensation
Various benefits
three levels of fairness
external fairness
different companies
internal fairness
Same company, different positions
individual fairness
Same company, same position
pay level strategy
leading strategy
matching strategy
procrastination strategy
hybrid strategy
Compensation composition strategy
Basic salary attracts and retains personnel
Variable pay attracts and motivates people
Indirect Compensation Retained Personnel
Consider the proportion of the three in total compensation
Alignment with competitive strategy
Cost leadership strategy, external fairness, use of fixed salary (basic salary), emphasis on centralization, and top-level decision-making
Differentiation strategy, emphasizing internal fairness, making greater use of variable pay (variable pay), and authorizing middle-level or subsidiaries to make decisions
Centralized strategy, emphasizing internal fairness, using fixed and variable compensation together, unifying delegation and decentralization, and adopting different ways of decision-making based on the market and company capabilities
financial strategy
concept
establish
raise funds
Financing
internal financing
Equity Financing (Equity Financing)
debt financing
loan
short-term loan
long term loan
lease
Asset Sales Financing
Financing capacity limitations
Difficulties faced by debt financing
Difficulties faced by dividend payments
Financing costs
Capital asset pricing model (CAPM) estimates the cost of equity capital
The cost of equity capital is equal to the risk-free capital cost plus the enterprise's risk premium, which can be calculated as the sum of the risk-free interest rate and the enterprise's risk premium.
Risk-free rate to estimate cost of equity capital
First get the interest rate value of the risk-free bond, then consider the risk of the company and add a few percentage points.
long term debt cost of capital
It is equal to the weighted average of various long-term debt interest expenses and then deducts the effect of interest deducting income tax.
Weighted Average Cost of Capital (WACC)
WACC = (cost of long-term debt × total long-term debt + cost of equity capital × total equity) / total capital
capital institutions
Capital structure is the ratio of equity capital to debt capital. The ultimate goal of analyzing capital costs is to make the optimal capital structure decision for the enterprise.
dividend distribution strategy
Factors that determine dividend distribution
The need to retain profits for future use
Legal requirements for distribution of profits
Dividend constraints in debt contracts
financial leverage of a business
The level of liquidity of the business
The need to repay debt soon
The signaling effect of dividends to shareholders and the overall financial market
Dividend policy in practice
fixed dividend policy
Pay fixed or steadily growing dividends every year
Establish a good company image. Provide investors with predictable cash flow. Falling earnings may also lead to difficulties in paying dividends.
Fixed dividend payout rate policy
Investors cannot predict cash flows; If earnings fall or losses occur, problems arise.
zero dividend policy
growing phase
residual dividend policy
growing phase
choose
Financial strategy selection based on product life cycle
Financial strategies at different stages
Introduction period
The stage with the highest operational risks. The financial risk is likely to be low, so equity financing is most suitable.
For equity capital financing, since companies operating products in the introduction period have meager profits, low returns, or even losses, venture investors play a large role in it.
Retained earnings are the only source of funds for many companies and require a large amount of accumulation. It is appropriate to adopt a dividend distribution strategy of no distribution or less distribution of profits. If distribution is necessary, the main consideration should be given to the form of stock dividends.
growth period
Business risks are reduced and competitive strategies focus on marketing activities to increase market share and expand sales.
Continue to use equity financing. Initial venture capitalists are eager to realize capital gains that will enable them to launch new business ventures, and new equity investors are identified.
The most attractive source of funding is usually from public offerings of stock.
mature stage
Sales are large and relatively stable, and profits are relatively reasonable. The risk is reduced again. The business risk lies in whether this stage of stable maturity can be maintained and whether the business can maintain its strong market value.
The operating risk is relatively low, it can bear medium financial risks, start using debt, adopt a relatively aggressive financing strategy, and have a relatively high debt ratio.
It has strong dividend payment capabilities, a stable high dividend policy, an increased dividend payout rate, and mainly cash dividends.
Recession
Business risk is lower than in previous stages of maturity. The main risk now is how long companies can survive in the industry.
To maintain a high debt ratio, there is no need to adjust the radical capital structure.
High cash dividend payments.
Matching financial risks and operational risks
The size of operating risks is determined by specific business strategies, and the size of financial risks is determined by capital structure. Together, they determine the total risk of the enterprise.
High operational risk and high financial risk
Has a high overall risk.
In line with the requirements of venture investors, they only need to invest a small amount of equity capital to start risk-taking activities.
Failure to meet creditor requirements. Therefore, in fact, this combination will not be realized because the creditor cannot be found.
High operating risk and low financial risk
Moderate overall risk
A realistic mix that meets the expectations of both shareholders and creditors.
It is worth noting that equity financing is high risk for investors, but low risk for enterprises.
A combination of low operating risk and high financial risk
Moderate overall risk
It is a realistic combination that can meet the expectations of shareholders and creditors at the same time.
Low operating risk and low financial risk
Has a very low overall risk
For creditors, an ideal capital structure allows them to provide loans with confidence.
It is difficult for equity investors to agree. Its return on invested capital and financial leverage are both low, and its natural return on equity is not high.
The bigger problem is that companies with this kind of capital structure are ideal acquisition targets, and most successful acquisitions target such companies. Therefore, the combination of low operating risk and low financial risk does not meet the expectations of equity investors and is an unrealistic combination.
To sum up, the reverse matching of operating risks and financial risks is a strategic principle in formulating capital structure. Different development stages of products or enterprises have different operating risks, and enterprises should adopt different financial strategies.
Financial strategy choices based on value creation or growth rate
Main factors affecting value creation
market value added
Factors affecting market value added
return on invested capital
capital cost
weighted average cost of capital
An increase in capital costs will reduce market value added
growth rate
Its level cannot determine whether the company creates value, but it can determine whether the company needs to raise funds.
Sales growth rate, financing needs and value creation
cash shortage
Sales growth rate>Sustainable growth rate
Growing rapidly
Create value
Try to raise funds
diminished value
Increase sustainable growth rate
cash surplus
Sales growth rate<sustainable growth rate
Slow growth
Create value
Using cash to increase shareholder value growth
diminished value
Return money to shareholders
cash balance
Sales growth rate = sustainable growth rate
balanced growth
Theoretical state, balance does not exist in reality
Value creation and growth rate matrix
Financial strategy options for value-added cash shortages
If rapid growth is temporary, borrowing should be used to raise the required funds;
If rapid growth is long-term, there are two ways to solve the funding problem:
Improving the sustainable growth rate, including improving operating efficiency (increasing profit margins and turnover rates) and changing financial policies (stopping dividend payments, increasing borrowings), to bring it closer to the sales growth rate;
Increase equity capital (issue additional shares, acquire "cash cow" (mature) companies) to provide the funds needed for growth.
Financial strategy options for value-added cash surplus
The preferred strategy is to use remaining cash to accelerate growth.
internal investment
Acquisition of related businesses
If there is still cash left after accelerating growth and no further investment opportunities can be found, the excess money should be returned to shareholders.
increase dividend payments
Buy back shares
Financial strategy options for impaired cash surplus
The preferred strategy is to improve return on invested capital
Improve after-tax operating profit margin
Expand scale, increase prices, control costs
Improve operating asset turnover rate
Reduce capital occupation such as accounts receivable and inventory
While improving the return on invested capital, if the debt ratio is inappropriate, it can be adjusted appropriately to reduce the average cost of capital.
If a business cannot improve its return on invested capital or reduce its cost of capital, it should be sold.
Financial strategy options for loss-impairing cash shortages
radical reorganization
If low profitability is a problem unique to the company and it feels capable of reversing the loss in value, it can choose "complete restructuring"; otherwise, it should choose to sell.
sell
If low profitability is caused by a decline in the entire industry, the financial strategy that should be chosen is "sell as soon as possible" to reduce losses.
international business strategy
Motives for international business operations of enterprises
seek market
Market demand
seeking efficiency
Go abroad to find places with the lowest cost of production factors for direct investment to gain efficiency advantages.
seek resources
Natural resources are essential to the economic development of any country.
Seek ready assets
The main motivation for enterprises from developing countries to invest in developed countries is to actively acquire the monopoly advantages of enterprises in developed countries, such as brands, advanced technology and management experience, capital, economies of scale and other ready-made assets.
The main methods of international business
Export trade
Target market selection
Target market regional path
Traditional method (continuous method)
Find similar countries first
New method (discontinuous method)
Arriving in developed countries first and occupying the world's largest market
Target customer positioning in host country market segments
Choosing Distribution Channels and Export Marketing
Characteristics of distribution channels
International distribution channels are more complex than domestic ones and involve more intermediate links
International distribution channels generally cost more than domestic ones
Exporters sometimes have to sell to overseas markets through different distribution channels than the domestic market
International distribution channels often provide companies with overseas market information, including how well products are selling in the market and why.
Export trade pricing
Pricing Strategy
Pricing is on the high side in order to obtain greater returns than the domestic market
Set prices that are close to the revenue levels in overseas markets and domestic markets
The price is low in the short term, even if the income is low or even losses are incurred
As long as profits can be increased after offsetting variable costs, the price should be set at a price that can sell products in excess of domestic market demand.
Foreign Direct Investment
Advantages compared to export methods
Shortening the production and sales distance and reducing transportation costs;
Local cheap production factors can be used to reduce manufacturing costs;
Ability to obtain timely feedback on local market and product information so that production can be adjusted according to market demand
It enables enterprises to circumvent various trade and non-trade barriers of the host country government and sometimes enjoy certain preferential treatment provided by the host country.
shortcoming
It requires a large investment of capital, management and other resources, which means greater risks and less flexibility.
Way
Wholly owned subsidiary (or sole proprietorship)
advantage
Managers have total control; escape conflict
defect
It consumes a lot of money; without the cooperation and participation of enterprises in the host country, it is difficult to obtain support from local policies and various operating resources, and the ability to avoid political risks is less than that of joint ventures.
joint venture
motivation
Strengthen existing business, introduce existing products into foreign markets, introduce foreign products into the domestic market, and operate a new business
advantage
Reduce capital investment, make up for the lack of experience, and help attract and utilize the resources of the host country
shortcoming
Differences in goals of joint venture parties; cultural differences
non-equity form
Non-equity forms include contract manufacturing, service outsourcing, contract farming, franchising, licensing, management contracts and other types of contractual relationships through which multinational corporations coordinate their activities in global value chains and influence the management of host country companies, and do not does not own its shares.
Non-equity forms are often seen as a middle way between foreign direct investment and trade.
International operations of enterprises in global value chains
The theory and concept of global value chain
International division of labor within products
The international division of labor has developed from the international division of labor between industries and the international division of labor within industries to the international division of labor within products.
The international division of labor within a product reflects that different production links of a specific product are produced professionally in different countries, forming a production organization method of transnational production.
Features
Product production is broken down into multiple processes
Production takes place in two or more countries
At least one country uses the imported product to produce and exports products that use the imported product
Global production network
The global production network is a term used in the 1980s to describe the mutual influence and mutual promotion relationships formed between multinational enterprises using foreign direct investment, international trade, non-equity arrangements and other methods to participate in the international division of labor within products.
global value chain
A global multinational enterprise network organization that connects production, sales, recycling and other processes to realize the value of goods or services on a global scale, involving everything from the collection and transportation of raw materials, the production and distribution of semi-finished products and finished products, to final consumption and recycling. process. It includes the organization of all participants and activities such as production and sales and the distribution of value and profits, and supports the capabilities and efficiency of the organization through automated business processes and links with suppliers, partners and customers." The definition emphasizes the different countries Interactions and games among the value chain links of enterprises (regions) in global business activities.
Enterprise international operations and global value chain construction
The role of enterprises in global value chains
Leading companies
Has core advantages
first grade supplier
Has non-core advantages
Other tier suppliers
contract manufacturer
[Tip] First-tier suppliers are not necessarily upstream of leading companies. Anyone who directly corresponds to leading companies, whether on the supply side or the demand side, is called a first-tier supplier. Contract manufacturers are at the same level as first-tier suppliers, but in global value chains, first-tier suppliers are only affiliated with one global value chain, while contract manufacturers correspond to multiple global value chains.
The division of labor model of the global value chain
The division of labor in the global value chain can be realized through three basic ways of corporate international operations. The first is direct investment; the second is trade; and the third is non-equity methods. There are three modes of division of labor in non-equity mode - capture type, modular type and related type. Based on the previous two types, the division of labor model of the global value chain can be divided into the following five types:
Bureaucratic value chain
Also called a bureaucratic value chain. When the production specifications of the product are not easy to code (that is, it is not easy to summarize and organize), the product structure is very complex, and there is a lack of highly competitive suppliers, the division of labor model that leading companies are most likely to adopt is through foreign direct investment, mergers and acquisitions, or the establishment of new suitable suppliers. business and set up product manufacturing centers within the company. In a bureaucratic value chain, leading companies must effectively coordinate and integrate the complex production activities and transactions of subsidiaries and branches. Leading companies are often required to build "headquarters functions" such as human resources, finance and operations management to manage their businesses.
market value chain
If product specification coding is easy, product structure is simple, and leading companies have the ability to obtain services from or serve completely independent companies scattered in various countries (regions), a market-type division of labor model will emerge. This division of labor model is suitable for standardized products, and leading companies only need simple coordination capabilities to complete transactions.
Captive value chain
When the complexity of product specifications and structures is high, in order to reduce the transaction complexity that is unavoidable in the internal division of labor model, leading companies will seek to "lock in" some suppliers with weak core capabilities, thus creating a captive division of labor. model. In this model, leading companies provide clear, documented instructions to suppliers and provide technical support when necessary. Suppliers also need to be under the clear control of leading companies in order to produce products that meet complex specifications. In this division of labor model, the cost for suppliers to switch to other types of value chains or other leading companies is very high and they choose to stay in the existing value chain, that is, they are "captured." Leading companies take control.
Modular value chain
Emerged from the growing ability to encode specifications for complex products. When the product structure has modular characteristics, it can be standardized, thereby reducing the difficulty of information encoding, and suppliers also have the ability to supply. The connections between codified knowledge provide buyers with the advantages of speed, flexibility, and low cost of investment. However, the flow of information between enterprises is much higher than normal market transactions. The modular division of labor model can minimize the coordination costs of the global value chain and facilitate the selection and replacement of suppliers. This management model is widely used in the electronics industry. The combination of very powerful first-tier suppliers, contract manufacturers and standardization of product specifications means that leading companies are able to obtain customized products without having to engage in complex transactions with suppliers.
Relevant value chain
If product specifications are difficult to code, transactions are complex and suppliers have strong capabilities, a related division of labor model will emerge. Since buyers and sellers must transfer knowledge that is difficult to codify, and more competitive suppliers can provide competitive auxiliary functions to leading companies, interdependence may arise between the two, and both parties may be punished for breach of contract. The mechanism is also easy to work. Complex and difficult-to-describe information exchange is often achieved through high-frequency face-to-face communication or highly clear controls, which makes the cost of switching to other types of value chains or other enterprises very high.
Global value chain and enterprise upgrading in developing countries
Enterprise upgrade type (from easy to difficult)
It is generally believed that enterprise upgrades follow a step-by-step development process from process upgrades to product upgrades, then to function upgrades, and finally to value chain upgrades.
Process upgrade
Improve production technology and enhance production organization and management efficiency
product upgrade
Improve product design and enhance product competitiveness
Function upgrade
Occupy higher value-added links in the value chain
Value chain upgrade
Upgrading by entering a value chain with higher technical or capital barriers or gaining a higher status to improve profitability and competitiveness
Global value chain division of labor model and enterprise upgrading
In a bureaucratic value chain, process upgrades and product upgrades can occur quickly, while functional upgrades and value chain upgrades are more difficult to occur.
In a captured value chain, the "captured" enterprises realize process upgrades and product upgrades, but functional upgrades and value chain upgrades are difficult to occur.
In a connected value chain, process upgrades and product upgrades can be completed in a short time with the assistance of leading companies. Functional upgrades and value chain upgrades are relatively difficult.
Modular suppliers' early process upgrades and product upgrades were relatively slow. But it is possible to develop functional and value chain upgrades and eventually become a leader in the new value chain.
Similar to modular suppliers, market-based suppliers have relatively slow early process upgrades and product upgrades. Once a supply relationship with a leading enterprise is formed, it can also combine the technological spillover of the leading enterprise with its own independent core capabilities to achieve functional upgrades and value chain upgrades.
The ultimate goal of enterprises in developing countries is to occupy a high-end position in the value chain or establish an independent value chain. Enterprises should choose appropriate division of labor models to participate in the global value chain based on their own capabilities and different stages of industrial development, and focus on division of labor and cooperation, and strive to absorb the ready-made assets of leading enterprises, while strengthening independent innovation, cultivating core competitiveness, and ultimately achieving from From process upgrade to value chain upgrade.
Types of strategies for international operations
[Tip] The "local" in local independence and adaptability refers to the local area where the subsidiary is located. Globalization strategy: a new term in globalization for "cost leadership strategy" in business unit strategy. Multi-country localization strategy: a new term in globalization for the "differentiation strategy" in business unit strategy. Transnational strategy: a new term in globalization for "hybrid strategy" in business unit strategy.
international strategy
International strategy refers to initiatives by companies to transfer their valuable products and skills to foreign markets to create value. Most companies adopt international strategies to transfer competitive products developed in their home countries to overseas markets to create value.
In this case, companies often leave product development functions in the home country and establish manufacturing and marketing functions in the host country. In most international companies, the corporate headquarters generally strictly controls the decision-making power of product and market strategies.
This strategy is not appropriate when local markets require product changes. Repeat construction.
Multi-country localization strategy
In order to meet the market needs of the host country, companies can adopt a multi-country localization strategy. This strategy is also to transfer the products and skills developed in one's own country to foreign markets, and to engage in production and business activities in important national markets.
The cost structure is high and experience curve benefits and location benefits cannot be obtained.
When there is a strong demand in the local market to provide products and services based on local needs (similar to a differentiation strategy) and reduce costs, companies should adopt a multi-country localization strategy. However, due to the repeated construction and high cost structure of such strategic production facilities, it is not suitable in industries with high cost pressure. At the same time, if it is too localized, it may get out of control.
Characteristics: loose organization, high degree of decentralization, unchanged core, local products (differentiation strategy), quick response (the loosest management).
globalization strategy
The globalization strategy is to promote standardized products and services to markets around the world, and to concentrate production and operation activities in more favorable countries, thereby forming an experience curve and economies of scale to obtain high profits.
To implement a cost leadership strategy.
This strategy is inappropriate in markets that require products with local characteristics.
Characteristics: Centralization, global layout, product standardization, implementation of cost leadership strategy, slow response, difficult management (the most stubborn).
transnational strategy
Transnational strategy is to form experience-based cost-effectiveness and location-effectiveness in the context of fierce global competition, transfer the core competitiveness of enterprises, and pay attention to the needs of local markets.
The relationship between the parent company and its subsidiaries, and between its subsidiaries and its subsidiaries, is two-way; not only does the parent company provide products and technologies to its subsidiaries, but its subsidiaries can also provide products and technologies to the parent company and other subsidiaries.
Enterprises adopting this strategy can use the effect of the experience curve to form location benefits, meet the needs of the local market, and achieve global learning effects.
Transnational strategy is by far considered the best strategic option for multinational corporations. This strategy fully takes into account the needs of the host country, while also ensuring the realization of the core goals and skills of the multinational company. It mainly achieves the combination of assets, resources and capabilities through three decisions: ① which resources and capabilities should be concentrated and operated in the home country, ② which resources can be concentrated and operated outside the home country, and ③ which resources should be dispersed in a certain region. Transnational strategy attempts to take into account the three strategic needs of global efficiency, national responsiveness and global learning effects.
In practice, it is difficult to determine the balance point between regional adaptability and globalization efficiency needs, and the optimal balance is subjective and often changes. Due to the difficulty of effective implementation, transnational strategy is often seen as an ideal rather than a realistic form. However, with the rapid development of digital technology characterized by personalization, intelligence, and connectivity, transnational strategy has become a possible realistic choice for multinational enterprises.
Characteristics: Central leadership, global layout, local products, quick response, internal communication (compromise).
Corporate strategy for emerging markets
Emerging markets refer to developing countries with huge market development potential. Here we focus on elaborating on the strategic choices of local companies in emerging markets in the face of global competition.
Allocate resources according to industry characteristics
Understand the different pressures faced by different industries
Assess the company's own advantageous resources
Most local firms in emerging markets possess resources that give them a competitive advantage in their home markets. For example, it has a local sales network, has long-term and close contacts with government officials, and has specialty products that meet the preferences of local consumers. Not only that, certain advantages of local companies may also become a sharp edge for expansion into other markets. For example, the country’s cheap raw materials, expertise, etc.
Strategic choices for local companies
defender
If an enterprise faces less pressure from globalization and its advantageous resources are only suitable for its domestic market, it needs to concentrate on protecting its existing market share from being encroached upon by multinational competitors. The strategic positioning is to use the advantages of the domestic market for defense.
Strategy: Use local advantages to defend
(1) Focus on customers who like domestic products and ignore those customers who advocate international brands. (2) Frequently adjust products and services to meet the special or even unique needs of customers. (3) Strengthen the construction and management of distribution networks to alleviate the competitive pressure of foreign competitors.
When facing challenges from multinational competitors, you should pay attention to: (1) Don’t try to win all customers. (2) Don’t blindly imitate the strategies of multinational competitors.
expander
If an enterprise faces little pressure from globalization and its own advantageous resources can be transplanted overseas, then the enterprise can extend its successful experience in the local market to a number of foreign markets. Its strategic positioning is to transfer the company's experience to surrounding markets.
Strategy: Extend local advantages overseas
Not only can it increase corporate income, but it can also promote economies of scale and gain valuable international business experience.
When extending local advantages overseas, you should pay attention to looking for markets that are similar to your home market in terms of consumer preferences, geographical relationships, distribution channels or government regulations to make the most effective use of your own resources. For example, expatriates are more likely to accept products produced in their own country.
Dodger
If the pressure of globalization is high, companies will face greater challenges. If an enterprise's advantageous resources can only play a role locally, the enterprise must reorganize certain links in its value chain around the still valuable local resources to avoid the impact of foreign competitors and maintain the independence of the enterprise. Its strategic positioning is to avoid competition by moving to new businesses or niche markets.
Strategy: Avoid the impact of multinational companies
(1) Establish joint ventures and cooperative enterprises with multinational competitors. (2) Sell the business to a multinational competitor. (3) Redefine its core business and avoid direct competition with multinational competitors. (4) Focus on market segments based on its own local advantages and shift its business focus to certain links in the value chain. (5) Produce products that are complementary to those of multinational competitors, or transform them into products that suit local tastes. The "dodger" strategy is probably the most difficult of the four strategies to implement because it requires major surgery.
counterbalancer
If the pressure of globalization is strong and enterprises' advantageous resources can be transferred to other markets, enterprises may compete head-on with multinational companies from developed countries on a global scale. Its strategic positioning is to launch an offensive through global competition.
Strategy: Confrontation on a Global Scale
(1) Don’t stick to cost competition, but measure your own strength against the leading companies in the industry. (2) Find a market that is clearly positioned and easy to defend. (3) Find a suitable breakthrough in a globalized industry. (4) Learn to obtain resources from developed countries to overcome their own lack of skills and capital.