STRATEGIC MANAGEMENT (20MBA25)

MODULE 4
STRATEGY FORMULATION

Business Strategies
Focused Low Cost and Focused Differentiation, Corporate Strategies Growth Strategies
(Internal Growth, External Growth, Integration, Diversification, Mergers, Strategic
-Change, Profit and Proceed With
Caution), Retrenchment Strategies (Turnaround, Divestment and Liquation), International
Business Level Strategies. Case Study on Strategic Formulation.

INTRODUCTION
Increasingly important to firm success, strategy is concerned with making choices among two
or more alternatives. When choosing a strategy, the firm decides to pursue one course of action

external environment as well as the nature and quality of its internal resources, capabilities,
and core competencies.
The fundamental objective of using any type of strategy is to gain strategic competitiveness
and earn above-average returns. Strategies are purposeful, precede the taking of actions to

An
capabilities, and competencies so that it will be properly aligned with its external environment.
d mission along with the
actions taken to achieve them. Information about a host of variables including markets,
customers, technology, worldwide finance, and the changing world economy must be collected
and analyzed to properly form and use strategies.
TYPES OF STRATEGIES
Business level strategies- 5 Generic Strategies
Corporate level strategies- Growth Strategies, Stability Strategies, Retrenchment
Strategies
International strategies- International business level strategies, International
corporate level strategies

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BUSINESS LEVEL STRATEGIES

A business-level strategy is an integrated and coordinated set of commitments and actions the
firm uses to gain a competitive advantage by exploiting core competencies in specific product
markets. This means that business-level strategy indicates the choices the firm has made about
how it intends to compete in individual product markets. The purpose of a business-level
those of its competitors. To
position itself differently from competitors, a firm must decide whether it intends to perform
activities differently or to perform different activities.

PORTER S GENERIC STRATEGIES

Porter's generic strategies describe how a company pursues competitive advantage across its
chosen market scope. There are three/four generic strategies, either lower cost, differentiated,
or focus. A company chooses to pursue one of two types of competitive advantage, either via

lower costs than its competition or by differentiating itself along dimensions valued by
customers to command a higher price. A company also chooses one of two types of scope,
either focus (offering its products to selected segments of the market) or industry-wide, offering
its product across many market segments. The generic strategy reflects the choices made
regarding both the type of competitive advantage and the scope.

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COST LEADERSHIP STRATEGY/LOW COST STRATEGY

The cost leadership strategy is an integrated set of actions taken to produce goods or services
with features that are acceptable to customers at the lowest cost, relative to that of competitors.
The firm using the cost leadership strategy targets a broad customer segment or group.
Cost leaders concentrate on finding ways to lower their costs relative to those of their
competitors by constantly rethinking how to complete their primary and support activities to
reduce costs still further while maintaining competitive levels of differentiation. Effective use
of the cost leadership strategy allows a firm to earn above-average returns in spite of the
presence of strong competitive forces.
Porter points out that cost leadership requires:
Aggressive construction of efficient scale facilities
Vigorous pursuit of cost reduction from experience
Tight cost and overhead control
Avoidance of marginal customer accounts
Cost minimization in areas like R&D, Service, Sales force, Advertising and so on.

DIFFERENTIATION STRATEGY
The differentiation strategy is an integrated set of actions taken to produce goods or services
(at an acceptable cost) that customers perceive as being different in ways that are important to
et customers

from those produced and marketed by competitors. Through the differentiation strategy, the
firm produces non-standardized products for customers who value differentiated features more
than they value low cost.
According to porter, differentiation is possible fron the following factors:
Product features
Product performance
Complementary services
Intensity of marketing activities
Manufacturing and design technology
The quality of purchased inputs
Procedures for checking each activity
The skill and experience of employees
location

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FOCUS STRATEGIES
Firms choose a focus strategy when they intend to use their core competencies to serve the
needs of a particular industry segment or niche to the exclusion of others.
Examples of specific market segments that can be targeted by a focus strategy include
1. A particular buyer group (e.g., youths or senior citizens),
2. A different segment of a product line (e.g., products for professional painters or those
for -it- or
3. A different geographic market (e.g., the East or the West in the United States).
The focus strategy is an integrated set of actions taken to produce goods or services that serve
the needs of a particular competitive segment.
Firms can create value for customers in specific and unique market segments by using the
Focused cost leadership strategy or the focused differentiation strategy.
With its focus strategy, firms must be able to complete various primary and support activities
in a competitively superior manner to develop and sustain a competitive advantage and earn
above-average returns.
The activities required to use the focused cost leadership strategy are virtually identical to those
of the industry-wide cost leadership strategy and activities required to use the focused
differentiation strategy are largely identical to those of the industry-wide differentiation
strategy.
Similarly, the manner in which each of the two focus strategies allows a firm to deal
successfully with the five competitive forces parallels those of the two broad strategies.
The only difference is in the competitive scope, from an industry-wide market to a narrow
industry segment.

INTEGRATED COST LEADERSHIP/DIFFERENTIATION STRATEGY (BEST

COST STRATEGY)
A best-cost strategy relies on offering customers better value for money by focusing both on
low cost and upscale difference. The ultimate goal of the best-cost strategy is to
keep costs and prices lower than other providers of similar products with comparable quality
and features.
Firms that successfully use the integrated cost leadership/differentiation strategy have learned
to quickly adapt to new technologies and rapid changes in their external environments.
Flexibility is required for firms to complete primary and support activities in ways that allow
them to produce somewhat differentiated products at relatively low costs.

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Flexible manufacturing systems, information networks, and total quality management systems
are three sources of flexibility that are particularly useful for firms trying to balance the
objectives of continuous cost reductions and continuous enhancements to sources of
differentiation as called for by the integrated strategy.

Comparison of the Generic Strategies

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CORPORATE LEVEL STRATEGIES

Corporate-Level Strategy refers to the top approach or game plan for
administering and directing the entire concern.
environment and internal capabilities. It also called as Grand Strategy.
It reflects the combination and pattern of business moves, actions and hidden goals, in the
strategic interest of the concern, considering various business divisions, product lines, customer
groups, technologies and so forth.
A corporate-level strategy specifies actions a firm takes to gain a competitive advantage by
selecting and managing a group of different businesses competing in different product markets.
Corporate-level strategies help companies select new strategic positions positions that are
expected to increase

TYPES OF CORPORATE LEVEL STRATEGIES

EXPANSION STRATEGY
Also called a growth strategy, wherein the business is re-evaluated so as to extend
the capacity and scope of business and considerably increasing the overall investment in the
business.
In the expansion strategy, the enterprise looks for considerable growth, either from the existing
business or product market or by entering a new business, which may or may not be related to
the business.
Financially sound, bold and adventurous managements vote for growth strategies.
Basically, it encompasses diversification, merger and acquisitions, strategic alliance, etc.
Growth strategies may be classified into two categories:
Internal growth strategies- are those in which a firm plans to grow on its own, without the
support of others.
External growth strategies- are those in which a firm plans to grow by combining with others.

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INTERNAL GROWTH STRATEGIES:

Some popular internal growth strategies are described below:
(1) Market Penetration:
Market penetration is a growth strategy, in which a firm tries to seek a higher volume of sales
of present products by penetrating (or getting deeper), into existing markets through devices
like the following:
1. Aggressive advertising and other sales promotion techniques.
2. Encouraging new uses of the old product e.g. use of coffee during summer season by way
of cold coffee or coffee-shake.
3. Coming out with exchange offers e.g. exchange of old scooters or TV for new ones at a
discount etc.
(2) Market Development:
This growth strategy, as the name implies, aims at increasing sales of existing products through
l market development, i.e. exploring new markets for products. For example, many
companies have achieved remarkable growth by entering into foreign markets; pushing their
products I by changing size, packaging, and brand name etc.
Market development may be tried by a company I within the same country also e.g. sale of
electronic goods like transistors etc. in rural areas.
(3) Product Development:
Product development as a growth strategy implies developing new and improved products for
sale in existing markets; so that people who have otherwise become indifferent to the old
product with passage of time get attracted to the new product because of the charisma
associated with the phenomenon of newness.
Examples: introduction of Babool and Promise toothpastes by Balsara Hygiene Products Ltd.;
introduction of Colgate Super Shakti by Colgate-Palmolive (India) Ltd. etc.
(4) Diversification:
Diversification is quite an important growth strategy. As growth entails risk, diversification, as
a growth strategy, implies developing a wider range of products to diffuse risk or to reduce risk
associated with growth. The fundamental philosophy of diversification is presumably
contained in an old English proverb which suggests that one should not keep all
one basket.

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Major dimensions of diversification growth strategy are as follows:

(a) Internal horizontal diversification:
Under this type of diversification, new products whether related or unrelated to the present
business line are developed by the business enterprise on its own. For example, Raymon
Woolen Mills have added new product, cement to their existing line of woolen textiles.
Similarly, Godrej added refrigerators and later on detergents to their original product lines of
steel safes and locks.
(b) Vertical diversification:
Vertical diversification maybe backward or forward. In backward vertical diversification,
the aim of a firm is to move backwards in the production process so that it is able to produce
its own raw-materials/basic components. For example, a TV manufacturer may start producing
picture tubes, built-in-voltage stabilizers and other similar components.
In forward vertical diversification, the aim of a firm is to move forward towards distribution
process so as to reach the final consumer. For example, many textile mills like Mafatlal,
Reliance, Raymond etc. have set up their own retail distribution systems.
(c) Concentric diversification:
In case of market related concentric diversification, new product/service is sold through
existing distribution system. For example, addition of lease-financing for buying cars to the
existing hire-purchase business is market related concentric diversification.
In technology related concentric diversification, new products are provided by using
technologies similar to the present product line. For example, Food Specialties Ltdh as added
to the existing them.
(d) Conglomerate diversification:
This growths strategy involves addition of dissimilar new products to the existing line of
business. DCM Ltd. is a good example of conglomerate diversification. There has been an
addition of a wide range of products such as fertilizers, sugar, chemicals, rayon, trucks etc. to
their basic line of textiles. ITC, Godrej, Kirloskars etc. are other examples of conglomerate
diversification.
Advantages of Diversification Growth Strategy:
Following are some advantages of diversification, as an internal growth strategy:
(i) Diversification enables a company to make better use of its resources like managerial
personnel, technology, marketing network, research facilities etc. As such, diversification may
lead to cost reduction and profit-maximization.

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(ii) Diversification helps to minimize risk associated with growth. For example, loss in one line
may be made good through profits in some other lines.
(iii) Diversification adds to the competitive strength of a company because of more products,
greater resources, wider distribution network etc.
(iv) Diversification acts as shock-absorber for a company, in phases of business cycle. For
instance, if there is depression in one product line; the firm may survive if there is good business
in other lines of production.
(v) Diversification adds to the goodwill of a firm; because of its brand name associated with a
variety of product items.
Limitations of Diversification Growth Strategy:
Following are major drawbacks of the policy of diversification, as an internal growth strategy:
(i) Huge funds are needed to cope with the requirements of diversification strategy. As such
only big firms can think of diversification.
(ii) Diversification creates problems of co-ordination among lines of diversified production.
Failure to ensure effective co-ordination, may lead to substantial reduction in the advantages
planned for diversification strategy.
(iii) New products, new technologies etc. may become a challenging task to handle for
management and staff of the organisation. The organisation may find problems in adapting to
the new growth pattern.
(5) Modernisation:
Modernisation involves replacing worn-out and obsolete machines etc. by modern machines

quality, cost reduction etc. Modernisation is a growth strategy in the sense that it helps to
achieve more and qualitative production at lower costs; thus helping to increase sales and
profits for the enterprise.
Advantages of Modernisation:
Following are important advantages of modernisation, as a growth strategy:
(i) Modernisation results in lesser cost of production and consequently higher profits for the
company.
(ii) Modernisation leads to qualitative production; attracting quality-conscious consumers. It
helps to increase sales of the company.

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(iii) Modernisation helps to improve long-run competitive position of the enterprise. It may help
the enterprise in developing strategies of product differentiation and beating powerful forces
of competition.
(iv) Modernisation gives a new looks to the enterprise and its functioning; thus adding to its
goodwill in the market.
Limitations of Modernisation:
Following are some limitations of modernisation, as a growth strategy:
(i) Modernisation requires huge capital investment; which is a serious problem for enterprises
facing financial crunch.
(ii) Existing management and staff may not be competent to understand, introduce and
implement new technology.
(iii) Organisational restructuring might be a major problem to introduce and successfully
implement new technology.
(6) Integration
It provides the business an option to have control over various processes like competitors,
suppliers, or distributors.
(a)Vertical integration:
Vertical Integration is the degree to which a firm owns its upstream suppliers and its
downstream buyers. It increases business activity by moving forward or backward on the
industry supply chain and it may also be achieved through external growth in the form of joint
venture or acquisition.
(b)Horizontal integration:
Horizontal integration is the addition of other business activities of same level of value chain.
Horizontal integration is an approach where a company acquires, mergers or takes over another
company in the same industry value chain. The main objective of horizontal integration is to
grow the company in size, increase product differentiation, achieve economies of scale,
decrease competition or enter new markets.

EXTERNAL GROWTH STRATEGIES:

Some popular external growth strategies are described below:
(1) Joint Ventures:
Joint venture is a growth strategy in which two or more companies, establish a new enterprise
(or organisation) by participating in the equity capital of the new organisation and by agreeing

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to participate in its management in an agreed manner.

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A firm or a company may have a joint venture with another company of the same country or a
foreign country. Some examples of joint ventures: Tata Iron and Steel Co. joined hands with
IPICOL of Orissa to form IPITATA Sponge Iron Ltd; Hindustan Computers Ltd. and Hewlett
Packard of USA formed a joint venture named HCL-HP Ltd; Tungabhadra Industries Ltd. of
India and Yamaha Motor Company Ltd. of Japan formed a joint-venture Birla Yamaha Ltd.
etc.
Advantages of Joint Ventures:
As a growth strategy, joint-venture provides the following advantages:
(i) In case joint venture involves a foreign partner, the problem of foreign exchange is solved
to a great extent; if the foreign partner brings latest machines etc. from the other country.
(ii) Through joint venture approach, risk of business is shared among partners. In fact, high risk
involved in a new project can be reduced considerably by mutual sharing of such risk.
(iii) The foreign partner in a joint venture can provide advanced technology, not available
within the country
(iv) Joint venture of companies, within the same country, helps to reduce competition.
(v) Joint venture strategy provides opportunity to small firms to become big through joining
with others and add to their prospects of survival.
(vi) In joint-venture, the managerial competence of co-venturers is integrated towards better
managerial efficiency.
Limitations of Joint Ventures:
Some important limitations of joint ventures are as follows:
(i) Problems arise in matter of agreement on equity participation; as both partners to a joint
venture may desire to have majority of stake in joint venture.
(ii) Differences in the culture of countries which co-venturers belong to may create problems
of achieving mutual understanding; and may lead to conflicts.
(iii) Lack of co-ordination among thinking and actions of co-venturers may affect successful
functioning of the joint venture. For example, co-venturers may not agree on common
objectives of the joint venture or the composition of the board of directors.
(2) Mergers:
Merger, as a growth strategy, implies combination (or integration) of two or more companies
into one. Merger may take place with a co-operative approach or it may take place with a hostile
approach. In the latter case, a merger is known as a takeover.

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Specially in the Indian conditions, industrialists Vijaya Mallaya, R.P. Goenka and Manu
Chabria are described as -
Mergers are of the following four types:
(a) Horizontal Mergers:
In this type of merger, different business units which have been competing with one another in
the same business line join together and form a combination. The Indian Jute Mills Association,
the Indian Paper Mill Association and Associated Cement Companies (ACC) are some
popular examples of horizontal merger.
Advantages of Horizontal Merger:
(i) Horizontal merger eliminates cut-throat competition among units, which are engaged in the
same business line.
(ii) It helps to secure economies of large scale operation; and thereby, reduces cost per unit of
output.
(iii) It can avail of external economies in respect of transport, insurance, banking services etc.
(iv) It increases competitive power of the group and provides synergistic effect.
Limitations of Horizontal Merger:
(i) This type of merger does not assure the supply of raw materials.
(ii) It has a tendency to acquire monopolistic power in the market; and thereby, increasing
prices and exploiting consumers.
(iii) It carries with itself, a danger of over-capitalisation.
(iv) The merger may earn abnormal profits, tempting the government to levy more taxes.
(b) Vertical Mergers:
Vertical merger arises as a result of integration of those units which are engaged in different
stages of production of product. It is also known as sequence or process merger. Vertical
merger may be backward or forward. When manufacturers at successive stages of production
integrate backwards up to the source of raw materials; it is known as backward merger.
On the other hand, when manufacturing units combine with business units which distribute
their product; it is known as forward integration or merger.
Backward merger is adopted to have a control over sources of raw-materials; while forward
merger aims at attaining control over channels of distribution eliminating profits.
Examples:
A textile unit takes over cotton ginning and yarn spinning units to get smooth supply of raw
materials. It is a case of backward merger. A textile company manufacturing various kinds of

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cloth takes over wholesalers and retailers engaged in marketing its product. It is a case of
forward merger.
Advantages of vertical merger:
(These advantages are common to both backward and forward mergers).
(i) Various processes of production can be arranged in a continuous sequence; as they are under
common control.
(ii) There is saving in management costs because of common administrative control.
(iii)Vertical merger facilitates research in production processes because of integration of
processes.
Limitations of vertical merger:
(These limitations are also common).
(i) It is difficult to bring about effective co-ordination among activities of dissimilar business
units.
(ii) Vertical merger, because of large size, may lead to inflexibility. The merger or combination
may find it difficult to adapt to changes in production or marketing technologies.
(iii) Even a slight dislocation at any stage of production may throw the entire enterprise out of
gear.
(c) Concentric Merger:
(Concentric means having the same centre) Concentric merger takes place when companies
which are similar either in terms of technology or marketing system, combine with each other
i.e. combining units do production with the same technology or use the same distribution
channels.
(d) Conglomerate Merger:
(Conglomerate means a larger company that is formed by joining together different firms).
When two or more unrelated or dissimilar firms combine together; it is known as a
conglomerate merger. It implies dissimilar products or services under common control. When
e.g. a footwear company combines with a cement company or a ready-made garment
manufacturer etc.; a conglomerate merger comes into existence.
(3) Strategic alliances:
A strategic alliance is a form of affiliation that involves a mutual sharing of resources or
partnering to improve efficiency. In strategic alliances, the focus is on sharing of resources
rather than seeking chang
focus. Merger: In merger two firms agree to move ahead and exist as a single new company.

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Merger can be merger of equals, both companies are of equal sizes, large company merge with
smaller one voluntary process and consent of both companies.
(4) Acquisition:
Acquisition is a deal when one company takes over another company and buyer becomes sole
proprietor.

ANSOFF S MATRIX

The Ansoff Matrix, also called the Product/Market Expansion Grid, is a tool used by firms to
analyze and plan their strategies for growth. The matrix shows four strategies that can be used
to help a firm grow and also analyzes the risk associated with each strategy.

The four strategies of the Ansoff Matrix are:

1. Market Penetration: This focuses on increasing sales of existing products to an

existing market.
The market penetration strategy can be executed in a number of ways:
Decreasing prices to attract new customers
Increasing promotion and distribution efforts
Acquiring a competitor in the same marketplace

2. Product Development: Focuses on introducing new products to an existing market.

This strategy, too, may be implemented in a number of ways:
Investing in R&D to develop new products to cater to the existing market
Acquiring a product and merging resources to create a new product that
better meets the need of the existing market

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Forming strategic partnerships with other firms to gain access to each

distribution channels or brand

3. Market Development: This strategy focuses on entering a new market using existing
products.
The market development strategy may involve one of the following approaches:
Catering to a different customer segment
Entering into a new domestic market (expanding regionally)
Entering into a foreign market (expanding internationally)

4. Diversification: Focuses on entering a new market with the introduction of new

products.
There are two types of diversification a firm can employ:
Related diversification: There are potential synergies to be realized between the
existing business and the new product/market.
For example, a leather shoe producer that starts a line of leather wallets or accessories
is pursuing a related diversification strategy.
Unrelated diversification: There are no potential synergies to be realized between the
existing business and the new product/market.
For example, a leather shoe producer that starts manufacturing phones is pursuing an
unrelated diversification strategy.
Of the four strategies, market penetration is the least risky, while diversification is the riskiest.
How to Use the Tool ?
Step 1: Analyze Your Options
Step 2: Manage Risks
Step 3: Choose the Best Option

STABILITY STRATEGY
The Stability Strategy is adopted when the organization attempts to maintain its current
position and focuses only on the incremental improvement by merely changing one or more of
its business operations in the perspective of customer groups, customer functions and
technology alternatives, either individually or collectively.
Generally, the stability strategy is adopted by the firms that are risk averse, usually the small
scale businesses or if the market conditions are not favorable, and the firm is satisfied with its

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performance, then it will not make any significant changes in its business operations. Also, the
firms, which are slow and reluctant to change finds the stability strategy safe and do not look
for any other options.
TYPES OF STABILITY STRATEGIES

No Change Strategy
Stability strategy means that you decide that you going to do anything new and you keep

choose not to decide is a strategy.

It usually happens when you can predict the external environment and the business is running
smoothly, and then the management would like to continue its present state.

new products anytime soon. Therefore, a wise strategy to follow under such circumstances.
Profit Strategy

external environment is unfavorable to the company and has an unpredictable element in it.
Like declining industry, government regulations, economic recession, market competition, etc.
why it becomes difficult for businesses to maintain their profitability.
It follows the assumption that the change is temporary and the old phase would come back
again. The company would try to maintain its profitability by increasing productivity, cutting
costs, increasing prices, decreasing investment, controlling investment, etc. Such measures
would help the company to maintain profitability in short term.
Pause Strategy
Pause strategy is when a company has had rapid growth, and now it wants to have some rest
before implementing the growth strategy again. In other words, a business takes cautious steps
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-term strategy. A company takes some

time for the efficiency of the production processes and then exploits the upcoming
opportunities.
Sustainable Growth Strategy
A business uses this strategy when the external environment is unpredictable and unfavorable.

through a recession.
Modest Growth Strategy
A modest growth strategy is when a business wants to achieve the same target that it had last
year. For instance, a company had a sales growth of 5% last year, and now the company wants

resources.
Advantages of Stability Strategy
Regular Work. The goals and objectives of the market are for the stable market
condition, and the employees have to perform their routine tasks. However, the focus
of the management is to improve the overall performance of the company.
No External Analysis. Management in the stability strategy put much focus on
the external environmental analysis of market factors. The company focuses on the
market growth of the current product.
Low Risk.

plan to expand its risky operations.

Satisfaction. Most importantly, the reason companies choose stability strategy is
because it gives them the satisfaction of their performance. They just perform daily
about
growth.
Disadvantages of Stability Strategy
No Increase in output. Since the company performs regular tasks with putting much

change the outcome.

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No Innovation. As we know that stability strategy means performing the same tasks
without making any change. Innovation, on the other hand, brings changes that would
require investment which the focus of the strategy.
Not for Long Term. Businesses and companies follow a stability strategy to take a
break in the short term so that they could plan for the future. It could work in the short
term, but the companies would run into losses if applied in the long term.
Not for Big companies. A stability strategy is only suitable for SMEs. Big companies
deal with a lot of products and services, and product innovation is necessary for them.

RETRENCHMENT STRATEGY
Retrenchment strategy is a process through which you cut down all of those products and

the market where your business

results in reduction of the number of employees, and sale of assets associated with discontinued
product or service line.
At other times, it involves restructuring of debt through bankruptcy proceedings; and in most
extreme cases, liquidation of the firm.
TYPES OF RETRENCHMENT STRATEGIES
Turnaround Strategy
Turnaround strategy is a tool/measure that minimizes the negative trends that impact the
performance. It also goes by the name of management measure that could transform
the sick business into a healthy position.
The measure also reverses the negative trends like decreasing market share, increasing material
cost, lower sales, widening debt-equity ratio, less profitability, working capital issues, negative
cash flows, and many other problems. The way businesses follow this strategy; varies from
situation to situation.
Divestment Strategy
A large company that has attained many assets, departments, and product divisions analyzes
various divisions and profitability. Whether contributing to the

them loose.
In other words, divestment strategy means the sale of a portion of your business, asset, and
division. Companies apply divestment strategy when turnaround strategy has already failed.

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Liquidation Strategy
Liquidation strategy is the extreme level in the retrenchment strategy where you permanently
shut down the business and sell all of your assets. Liquidation is the final option of the problems
of any business because it has serious outcomes. It results in the form of saying no to every
potential opportunity and firing all the employees.
Small businesses usually liquidate. Large companies like suppliers, creditors, trade unions,
financial institutions, liquidate.
Advantages of Retrenchment Strategy
i. Cost-Efficient
ii. Improved Performance
Disadvantages of Retrenchment Strategy
i. Losing Good Employees

INTERNATIONAL STRATEGIES
Firms choose to use one or both of two basic types of international strategies: business-level
international strategy and corporate-level international strategy. At the business level, firms
follow generic strategies: cost leadership, differentiation, focused cost leadership, focused
differentiation, or integrated cost leadership/differentiation. There are three corporate-level
international strategies: multidomestic, global, or transnational (a combination of
multidomestic and global). To create competitive advantage, each strategy must realize a core
competence based on difficult-to-duplicate resources and capabilities. Firms expect to create
value through the implementation of a business-level strategy and a corporate-level strategy.

INTERNATIONAL BUSINESS-LEVEL STRATEGY

Each business must develop a competitive strategy focused on its own domestic market.
International business-level strategies have some unique features. In an international business-
level strategy, the home country of operation is often the most important source of competitive
advantage. The resources and capabilities established in the home country frequently allow the
firm to pursue the strategy into markets located in other countries. However, research indicates
that as a firm continues its growth into multiple international locations, the country of origin is
less important for competitive advantage.

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 STRATEGIC MANAGEMENT (20MBA25)

, illustrated in the Figure, describes the factors contributing to the

advantage of firms in a dominant global industry and associated with a specific home country
or regional environment.
The first dimension factors of production. This dimension refers to the
inputs necessary to compete in any industry labor, land, natural resources, capital, and
infrastructure (such as transportation, postal, and communication systems).
The second dimension demand conditions, is characterized by the nature

size of a market segment can produce the demand necessary to create scale efficient facilities.
Related and supporting industries are the third dimension
become the leader in the shoe industry because of related and supporting industries; a well-
established leather-processing industry provides the leather needed to construct shoes and
related products. Also, many people travel to Italy to purchase leather goods, providing support
in distribution.
Firm strategy, structure, and rivalry make up the final country dimension and also foster
the growth of certain industries. The dimension of strategy, structure, and rivalry among firms
varies greatly from nation to nation. Because of the excellent technical training system in
Germany, there is a strong emphasis on methodical product and process improvements. In
Japan, unusual cooperative and competitive systems have facilitated the cross-functional
management of complex assembly operations.

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 STRATEGIC MANAGEMENT (20MBA25)

INTERNATIONAL CORPORATE-LEVEL STRATEGY

The international business-level strategies are based at least partially on the type of
international corporate-level strategy the firm has chosen. Some corporate strategies give
individual country units the authority to develop their own business-level strategies; other
corporate strategies dictate the business-
products and sharing of resources across countries.
International corporate- oth
product and geographic diversification. International corporate-level strategy is required when
the firm operates in multiple industries and multiple countries or regions. The headquarters unit
guides the strategy, although business or country-level managers can have substantial strategic
input, depending on the type of international corporate level strategy followed. The three
international corporate-level strategies are multidomestic, global, and transnational, as shown
in Figure.

A multidomestic strategy is an international strategy in which strategic and operating

decisions are decentralized to the strategic business unit in each country so as to allow that unit
to tailor products to the local market.
A global strategy is an international strategy through which the firm offers standardized
products across country markets, with competitive strategy being dictated by the home office.
A transnational strategy is an international strategy through which the firm seeks to achieve
both global efficiency and local responsiveness.

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