Types of Strategies

and Business
Ethics

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THE NATURE OF LONG-TERM
OBJECTIVES
► Objectives should be:
► quantitative,
measurable, realistic,
understandable, challenging, hierarchical,
obtainable, and congruent among organizational
units

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THE NATURE OF LONG-TERM
OBJECTIVES
► Objectives
► provide direction
► allow synergy (??)

► aid in evaluation

► establish priorities

► reduce uncertainty

► minimize conflicts (??)

► aid in both the allocation of resources and the

design of jobs
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TYPES OF STRATEGIES

► Most organizations simultaneously pursue a

combination of two or more strategies, but a
combination strategy can be exceptionally risky
if carried too far.
► No organization can afford to pursue all the
strategies that might benefit the firm.
► Difficult decisions must be made and priorities
must be established.
Eg: Sears and Wal Mart

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INTEGRATION STRATEGIES

► Forward integration
► involves gaining ownership or increased control
over distributors or retailers
► Backward integration
► strategy of seeking ownership or increased control
of a firm’s suppliers
► Horizontal integration
►a strategy of seeking ownership of or increased
control over a firm’s competitors

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INTENSIVE STRATEGIES
► Market penetration strategy
► seeks to increase market share for present products or
services in present markets through greater marketing
efforts (Eg: Hatsun Curd)
► Market development
► involves introducing present products or services into
new geographic areas (Eg: Road cleaning machines)
► Product development strategy
► seeks increased sales by improving or modifying present
products or services (Eg: Version Improvements, MS
Swift Makeover)

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DIVERSIFICATION STRATEGIES

► Related diversification
► valuechains possess competitively valuable
cross-business strategic fits (Eg: Havells offering
shavers)

► Unrelated diversification
► value chains are so dissimilar that no
competitively valuable cross-business
relationships exist (Shoe to clothes manufaturing)

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DEFENSIVE STRATEGIES
► Retrenchment
► occurs when an organization regroups through cost and
asset reduction to reverse declining sales and profits
► also called a turnaround or reorganizational strategy

► designed to fortify an organization’s basic distinctive

competence
Eg: Nokia closing its operations from Europe in order to
fight in market.

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DEFENSIVE STRATEGIES

► Divestiture
► Selling a division or part of an organization
► often used to raise capital for further strategic
acquisitions or investments
Eg: IBM selling laptops business to Lenovo

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DEFENSIVE STRATEGIES

► Liquidation
► selling all of a company’s assets, in parts, for
their tangible worth
► can be an emotionally difficult strategy

Eg: HMT, Khaithan Closing down

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PORTER’S FIVE GENERIC STRATEGIES

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STRATEGY IN THE GLOBAL ENVIRONMENT

► Reduce Costs (??)

► Improve the supply chain (Eg: Walmart)

► Provide better goods and services (??)

► Understand markets

► Learn to improve operations

► Attract and retain global talent (Sony)

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MEANS FOR ACHIEVING STRATEGIES

► Cooperation Among Competitors

► Joint Venture/Partnering

► Merger/Acquisition

► Private-Equity Acquisitions

► First Mover Advantages

► Outsourcing/Reshoring

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STRATEGY IN THE GLOBAL ENVIRONMENT

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TESCO’S INTERNATIONAL EXPANSION -
DISCUSSION

► TESCO decided to move korea for encashing

opportunities. But Korea also was nightmare
for Walmart and Carrefour retailers. They
couldn’t continue and finally had to exit

► How can TESCO enter the Korean market and

get accepted?

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Copyright ©2015 Pearson Education, Inc 1-17
CASELET FIREHOUSE
► Advertising costs money, which many businesses find themselves short of
these days. But forgoing ad spending in favor of better profits can be a
mistake. Experts say that in a slump, one of the best things you can do is
adopt or increase your advertising strategy to attract customers. During a
recession, this is especially true, as other businesses may be cutting back
on their ad spending, making your voice even more prominent to customers.
After seven years of growth, building from 30 to 300 locations, Firehouse
Subs' growth fizzled, and company leaders realized they had to do
something about it. So they returned local advertising fees collected from
franchisees, not to put in their pockets, but to take hold of their own local
marketing. Sales fell even more.
► What would be your recommendation for firehouse to get more profits?

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HOW THIS WAS SOLVED?
► Instead, Firehouse reclaimed their local marketing fee,
and then gave franchisees the option to take part in a
new marketing campaign, requiring them to pay
double for local marketing, but in return, becoming
part of an $8 million advertising campaign poised for
success. Experts commend Firehouse for having the
courage to ask franchisees for more money where it
was needed, even when times were tough.

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INCREASING PROFITABILITY AND PROFIT
GROWTH THROUGH GLOBAL EXPANSION
► Expanding the market by leveraging products
► Taking goods or services developed at home and selling them internationally (Eg: M 800)
► Utilizing the distinctive competencies that underline the production and marketing (RR)

► Cost economies from global volume

► Economies of scale from additional sales volume
► Lower unit costs and spreading of fixed costs (Produce bulk)

► Location economies
► Economic benefits from performing a value creation activity in the optimal location (Car – US)
► Leveraging the skills of global subsidiaries
► Applying these skills to other operations within firm’s global network

Must also consider transportation costs, trade

barriers, as well as the political and economic risks.

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PRESSURES FOR COST REDUCTIONS AND
LOCAL RESPONSIVENESS
Figure 8.2

The best strategy for a

company to pursue may
depend on the kinds of
pressures it must cope
with:
• Cost Reductions or
• Local Responsiveness

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PRESSURES FOR COST REDUCTIONS
Pressures for cost reductions are greatest in
industries producing commodity-type products
where price is the main competitive weapon:
► Where differentiation on non-price factors is difficult
► Where competitors are based in low-cost location
► Where consumers are powerful and face low switching
costs
► Where there is persistent excess capacity
► The liberalization of the world trade and investment
environment

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PRESSURES FOR LOCAL RESPONSIVENESS
The greatest pressures for local responsiveness
arise from: ► Differences in customer
tastes and preferences
► Differences in infrastructure
and traditional practices
► Differences in distribution
channels
► Host government demands

Dealing with these contradictory pressures is a difficult strategic

challenge, primarily because being locally responsive tends to raise
costs.

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CHOOSING A GLOBAL STRATEGY
 Standard Globalization Strategy
►Reaping the cost reductions that come from economies of scale and
location economies
►Business model based on pursuing a low-cost strategy on a global
scale
Makes the most sense when there are strong pressures for cost reduction and
the demand for local responsiveness is minimal

 Localization Strategy
►Customizing the company’s goods or services so that thy provide a
good match to tastes and preferences in different national markets
Most appropriate when there are substantial differences across nations with
regard to consumer tastes and preferences and where cost pressures are not
too intense

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CHOOSING A GLOBAL STRATEGY
 Transnational Strategy (Coca cola)
► Difficult to pursue due to its conflicting demands
► Business model that simultaneously:
►Achieves low costs » Differentiates across markets
►Fosters a flow of skills between subsidiaries
Building an organization capable of supporting a transnational strategy is a complex
and challenging task.

 International Strategy (Nestle)

► Multinational companies that sell products that serve universal needs
(minimal need to differentiate) and do not face significant competitors (low
cost pressure).
In most international companies the head office retains tight control over marketing and
product strategy.

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BASIC ENTRY DECISIONS
1. Which overseas markets to enter
► Assessment of long-run profit potential
► A function of the size of the market, purchasing power of consumers, the likely
future purchasing power of consumers
► Balancing the benefits, costs, and risks associate with doing
business in a country
► A function of economic development and political stability
2. Timing of entry
► First-mover advantages: preempt and build share
► First-mover disadvantages: pioneering costs
3. Scale of Entry and Strategic Commitments
► Entering on a large scale is a major strategic commitment
► With long term impacts that may be difficult to reverse
► Benefits and drawbacks of small-scale entry

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THE CHOICE OF ENTRY MODE
When and how to enter a new national market raise the
question of how to determine the best mode or vehicle for
entry. The optimal one depends on the company’s strategy:
1. Exporting
Most manufacturing companies begin their global expansion as exporters and
later switch to one of the other modes.
2. Licensing
A foreign licensee buys the rights to produce a company’s product for a
negotiated fee; licensee puts up most of the overseas capital.
3. Franchising
Franchising is a specialized form of licensing. The franchiser not only sells
intangible property, but also insists that franchisee agrees to follow strict rules
as to how it does business.
4. Joint Ventures
Typically a 50/50 venture – a favored mode for entering a new market
5. Wholly-Owned Subsidiaries
Parent company owns 100% of subsidiary’s stock – setup or acquire

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GLOBAL STRATEGIC ALLIANCES (HP AND
DISNEY, HP AND BOEING)
Global Strategic Alliances are cooperative agreements between companies
from different countries that are actual or potential competitors. They range from
short-term contractual cooperative arrangements to formal joint ventures with equity
participation.
► Advantages
► Facilitate entry into a foreign market
► Share fixed costs and associated risks
► Bring together complementary skills and assets
► Set technological standards for its industry
► Disadvantages
► Give competitors a low-cost route to gain new technology
and market access
Some alliances benefit the company.
Beware, alliances can end up giving away technology and market access
with very little gained in return.

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MAKING STRATEGIC ALLIANCES WORK
The failure rate for international strategic alliances is quite high. Success
seems to be a function of three main factors:

1. Partner selection – A good partner:

• Helps the company achieve strategic goals
• Shares the firm’s vision for the purpose of the alliance
• Is unlikely to try to exploit the alliance to its own ends
 Conduct research on potential partners
2. Alliance structure
• Risk of giving too much away is at an acceptable level
• Guard against opportunism by partner in alliance agreement
3. Manner in which alliance is managed (Cisco and
Motorola)
• Sensitivity to cultural differences
• Build relationship capital through interpersonal relationships
Successful partners view the alliance as an opportunity to learn rather than purely
as a cost- or risk-sharing device.

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MERGERS AND ACQUISITIONS (STAPLES AND
OFFICE DEPOT)
► Mergers and acquisitions (M&A) is a general
term that refers to the consolidation of
companies or assets through various types of
financial transactions. M&A can include a
number of different transactions, such
as mergers, acquisitions, consolidations,
tender offers, purchase of assets and
management acquisitions.

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KEY REASONS WHY MANY MERGERS
AND ACQUISITIONS FAIL

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POTENTIAL BENEFITS OF MERGING
WITH OR ACQUIRING ANOTHER FIRM

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CHANGE MANAGEMENT

► Change management is a systematic approach

to dealing with the transition or transformation
of an organization's goals, processes or
technologies. The purpose of change
management is to implement strategies for
effecting change, controlling change and
helping people to adapt to change.
► Eg: Hoverbike

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CHANGE MANAGEMENT STYLES AND ROLES

Styles
► 1. Education

► 2.Collaboration/participation

► 3.Intervention

► 4. Direction

► 5. Coercion /evict

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Roles in managing change
► Change Agent: A change agent is the individual
or group that effects strategic change in an
organization
► Strategic leadership : Someone at the top
sharing the purpose or vision for the future.

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TURNAROUND STRATEGY

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► Definition: According to Dictionary of Marketing by
P.H.Collin “Turnaround Strategy means making the
company profitable again.”
► Meaning: turnaround Strategy is strategy to convert a
loss making unit into a profitable one.
► Basically to improve declining sales, market share,
profit effected due to internal and/or external factors

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► Essentials
Communication
► Good communication can make the TA more effective, it should be quick
clear & complete.
Availability of resources.
► An effective TA requires cash for working capital & fixed assets, skilled
human resource to handle new technical job.
Leadership
► A leader must be dynamic & creative person to effectively perform the TA,
must be committed & dedicated to management.
EG: Fortis, Marvel, Lego

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Long term approach
► The approach of TA shouldn’t be only for short term but for a
long term impact.
Review of the situation
► Having a review of internal & external situation, knowing
SWOT helps in TA.
Support from various parties
► To make a TA effective support from employees, suppliers,
shareholders, dealer, government, financial institution.

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BUSINESS ETHICS

► Business ethics
► principles
of conduct within organizations that
guide decision-making and behavior.

Eg; Walmart lobbying

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SEVEN PRINCIPLES OF ADMIRABLE
BUSINESS ETHICS

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CODE OF BUSINESS ETHICS

► Toensure that the code of ethics is read,

understood, believed, and remembered,
periodic ethics workshops are needed to
sensitize people to workplace circumstances
in which ethics issues may arise

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 ETHICAL DILEMMA
► Tony, a data analyst for a major casino, is working after normal
business hours to finish an important project. He realizes that he is
missing data that had been sent to his coworker Robert. Tony had
inadvertently observed Robert typing his password several days
ago and decides to log into Robert’s computer and resend the data
to himself. Upon doing so, Tony sees an open email regarding
gambling bets Robert placed over the last several days with a local
sports book. All employees of the casino are forbidden to engage
in gambling activities to avoid any hint of conflict of interest. Tony
knows he should report this but would have to admit to violating
the company’s information technology regulations by logging into
Robert’s computer. If he warns Robert to stop his betting, he would
also have to reveal the source of his information.
► What does Tony do in this situation?

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JOURNALISM/ADVERTISING
► Your newspaper has published a report on a national
study, which concluded that bottled water has virtually
no health advantages over the tap water in more cities,
including yours. The study included comments from local
health storeowners and water distributors challenging
the study. The AquaPure Bottled Water Company,
advertising account worth over $75,000. a year, has
threatened to pull its account with your newspaper
unless you run another story of equal prominence,
focusing on the benefits of bottled water.
► What do you do?

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AN ETHICS CULTURE

► Whistle-blowing
► refers to policies that require employees to report
any unethical violations they discover or see in
the firm
► 5 Whistle Blowers in India Who Died Fighting Against Corruption
► Manjunath Shanmugam (1978-2005)
► Satyendra Dubey (1973-2003)
► Satish Shetty (1970-2010)
► Narendra Kumar (1979-2012)
► Lalit Mehta (1972-2008)

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AN ETHICS CULTURE

► Ethicstraining programs should include

messages from the CEO or owner of the
business emphasizing ethical business
practices, the development and discussion of
codes of ethics, and procedures for
discussing and reporting unethical behavior

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BRIBES

► Bribery
► the offering, giving, receiving, or soliciting of any
item of value to influence the actions of an official
or other person in discharge of a public or legal
duty
► is a crime in most countries of the world,
including the United States

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WORKPLACE ROMANCE
► Workplace romance can be detrimental to
morale and productivity
► favoritism complaints can arise
► confidentiality of records can be breached
► reduced quality and quantity of work
► personal arguments can lead to work arguments
► whispering secrets can lead to tensions
► sexual harassment charges may ensue
► conflicts of interest could arise

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SOCIAL RESPONSIBILITY

► Ralph
Nader proclaims that organizations have
tremendous social obligations.

► MiltonFriedman asserts that organizations

have no obligation to do any more for society
than is legally required.

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SOCIAL POLICY

► Social policy
► concerns what responsibilities the firm has to
employees, consumers, environmentalists,
minorities, communities, shareholders, and other
groups

► Firms should strive to engage in social

activities that have economic benefits

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ENVIRONMENTAL SUSTAINABILITY

► Employees, consumers, governments, and

society are especially resentful of firms that
harm rather than protect the natural
environment
► Conversely people today are especially
appreciative of firms that conduct operations in
a way that mends, conserves, and preserves
the natural environment

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LACK OF STANDARDS CHANGING

► Uniform standards defining environmentally

responsible company actions are rapidly being
incorporated into our legal landscape
► It has become more and more difficult for firms
to make “green” claims when their actions are
not substantive, comprehensive, or even true

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