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International Marketing
Definition:
Domestic Uncontrollables
• Political / Legal
o Any country has a right to restrict foreign trade when it adversely affects
the security or economy of the country
o Conversely there may be positive effects when there are changes in foreign
policy and countries are given favored treatment (MFN)
• Competition
Foreign Uncontrollables
o E.g. China – communist legal system where all the deals were done with the
state to a commercial legal system
• Level of Technology
o Technical Knowledge
o Special training
o E.g. Coke
• Cultural Forces
• Distribution
Culture
Maharaja Mac
o Few companies fir this model as customers always look for long term
commitment
o The company formulates a unique strategy for every country with which it
conducts business
• Global Marketing
o At this stage, companies treat the world, including their home market as
one
The Scottish economist Adam Smith first explained the theory of absolute
advantage in 1776. He argued that a country has an absolute advantage in
the production of a good when it can produce more of that good with a given
amount of resources than another country.
• Each country has the same amount of resources (land, labor and capital),
however the quality differs.
• Resources are transferable between the production of wheat and cloth.
• There are no trade barriers, such as tariffs between the two countries.
Wheat
(units) Cloth
(units)
Australia 30 20
China 5 25
Total output 35 45
In this example Australia produces more wheat while China can produce
more cloth.
When each country specializes in the production of the goods they have a
comparative advantage in, greater production of both goods could occur.
It is quite realistic to think that one country has an absolute advantage over
another country in the production of some goods. Finland has done this
recently by specializing in the production and distribution of Nokia
telephones.
Australia 20 10
China 5 5
Total Output 25 15
Opportunity cost
From Table 4:
From Table 5 we can see that total output has increased when countries
specialize in the production of goods and services based on comparative
advantage. As both countries are using their resources more efficiently, trade
will lead to higher standard of living than would be otherwise possible.
d. It assumes labor is the only resource for production and is mobile within
each nation but cannot be transferred.
Opportunity cost approach specifies the cost in terms of the value of the
alternatives, which have to be forgone in order to fulfill a specific act.
Thus, this theory provides the basis for international business terms of
exporting a particular product rather than other products. The previous
example suggests that it would be profitable to India to develop and export
software packages rather than textile garments to USA.
We slightly modify the previous example. For example, assume that India
earned Rs. 15 billion by exporting the same software packages to UK in 1999
rather than to USA. This theory suggests that the opportunity cost of India’s
software exports to USA in 1999 is Rs. 15 billion.
This. This theory also provides basis for international business of exporting a
product to a particular country rather to another country.
It is criticized that most of the comparative cost theories are not applicable to
developing countries. Hence, H. Myint proposed productivity theory and the
vent for surplus theory.
The productivity theory points toward indirect and direct benefits. This theory
emphasizes that the process of specialization involves adapting and
reshaping the production structure of a trading country to meet the export
demands. Countries increase productivity in order to utilize these gains of
exports. This theory encourages the developing countries to go for cash
crops, increase by enhancing the efficiency of human resources, adapting
latest technology etc.
Limitations – However, this theory has also certain limitations. They are:
International trade permits for more efficient use of capital and labour.
Hence. J.S. Mill described this theory as, “serving relic of the Mercantile
Theory.”
Equilibrium = -----------------------------------------------------
Quality of another Product exported by country B
However, economies of scale need not include all stages of production. They
may actually be important at the sub-process stage of production because
production can be considered as a series of sub-activities ranging from
design to assembly. The company can create economies of scale by
concentrating on a few sub-activities such as design and production of
certain components or assembly. Other sub-activities then take place
elsewhere, e.g. abroad. And when it comes to explaining the location of these
sub-activities, companies often resort to the concept of comparative costs (as
used by traditional theorists): labour-intensive assembly takes place where
labour is cheap, and the design takes place where there is plenty of
technological know-how.
3. Entry and Operating Decisions: Once the market selection decision has
been made, the next important task is to determine the appropriate mode of
entering the foreign market such as export, contract manufacturing, direct
manufacturing plant etc. on the basis of this decision, proper arrangements
must be made to continue the activities of marketing.
McDonald’s had to understand the same in India when they had to enter such
huge market with its burger. In 1995 / 6 India’s vegetarian market was 40%.
These vegetarians preferred that the burger should be made in a clean and
separate kitchen. Also their love for spicy food was required to be considered.
Among the non-veg. eaters, their disliking towards pork and beef among
mean eater was very well known. McDonald’s realize that they need to serve
Indians more than just burger, a burger that satisfies Indians taste.
• Coca Cola had to withdraw its 2 liters bottle from Spain market as
Spaniards were not having refrigerator having larger compartments.
• Johnson’s floor wax was doomed to failure in Japan as it made the wooden
floors very slippery and Johnson failed to take into account the custom of not
wearing shoes inside the home.
• Coca Cola when introduced in china the name sounded like “KOOKE –
KOULA” meant thirsty mouth, full of candle wax. So they had to change the
name to “KEE KOU KEELE” which meant “joyful taste and happiness.”
Even the value and beliefs associated with color vary significantly between
different cultures. Blue considered as feminine and worm in Holland, is seen
as masculine and cold in Sweden. Green is a favorite color in Muslims, but in
Malaysia, it is associated with illness. White is associated with death and
mourning in China, Korea and in some traditions in India. Although, the same
color expresses happiness and is color of wedding dress of the bride in
English country.
Such differences suggest that same marketing mix can not be used for all
markets.
2. Legal Environment:
For e.g. in Germany environmental laws mean a firm is responsible for the
retrieval and disposal of packaging waste it creates and must produce
packaging which is recyclable.
In Canada, if the information does not appear in both French and English, the
goods may be confiscated.
3. ECONOMIC ENVIRONMENT:
The economic situation varies from country to country. There are variations
in the levels of income and living standards, interpersonal distribution of
income, economic organization, occupational structure and so on. These
factors affect market conditions.
The level of development in a country and the nature of its economy will
indicate the type of products that may be marketed in it and the marketing
strategy that may be employed in it. In high income countries there is a good
market for a large variety of consumer goods. But in low-income countries
where a large segment does not have sufficient income even for their basic
necessities, the situation is quite different.
4. POLITICAL ENVIRONMENT:
5. TECHNOLOGICAL ENVIRONMENT:
New technologies create new markets and opportunities. However, every new
technology replaces an old technology. Xerography hurt carbon-paper
industry, computer hurt typewriter industry, and examples are so on. Any
international marketer, when ignored or forgot new technologies, their
business has declined. Thus, the marketer should watch the technological
environment closely. Companies that do not keep up with technological
changes, soon find their products outdated.
The United States leads the world in research and development spending.
Scientists today are researching a wide range of promising new products and
services ranging from solar energy, electric car, and cancer cures. All these
researches give a marketer an opportunity to set his products as per the
current desired standard. The challenge in each case is not only technical but
also commercial that means manufacture a product that can be afforded by
mass crowd.
Although MNC took birth in the early 1860s, it was after the Second World
War that the Multinationals have grown rapidly.
b. Umbrella Model MNC: This model is very good among others. There is a
relationship of mutual help between the Head quarter and the subsidiary.
Ideas and money flow freely.
Making money and using power is not the primary motto of the organizations.
Head quarters give full freedom to the subsidiaries. Both HQ and subsidiaries
are very strong. E.g. P & G, Price water house, KPMG etc.
Companies enter any segment and adapt the approach of Multi segments,
Multi markets, Multi products and Multi countries.
Such companies try to acquire monopoly and take over its competitors
there by reducing competition. E.g. Brooke Bond and Lipton are taken over
by HLL.
How MNCs expand their business:
2. International Franchising: the licensor not only provides the brand name
but also the raw material. E.g. McDonalds. (Syrup – pharmaceutical
companies, printed circuit boards to electronic items, essence – cold drink
companies (Pepsi gives its essence to Punjab Agro).
Successful JVs: Indo Gulf fertilizer – Birla group, Taj group of hotels with
Russian government.
3. To the host countries, the plants, equipments, and technical know how
necessary for its operations which is not available otherwise is made
available thru MNCs.
DEMERITS OF MNCs
Some of the Indian MNCs: IOC, Ranbaxy, Dr. Reddy, Wipro, Infosys, ONGC,
Hindustan Petroleum, and Bharat Petroleum.
TRADE BLOC
Along with trade barriers, there are trade blocs among the countries of the
world. These blocs offer special concessions to members of the group but
impose restrictions on the imports from the non-member countries. As a
result, these trade blocs are harmful to the growth of free international trade.
Efforts should be made to remove such trade blocs so as to have free trade
among the nations of the world. Unfortunately, efforts in this direction by
WTO are not effective.
Trade blocs are groups of countries that have established special preferential
arrangements governing trade between members. Although in some cases
the preferences-such as lower tariff duties or exemptions from quantitative
restrictions the general purpose of such arrangements is to encourage
exports by bloc members to one another-sometimes called intra-trade.
FREE TRADE AREA: In Free Trade Area all barriers to the trade of goods and
services among member countries are removed. In an ideal free trade area,
no discriminatory tariffs, quotas, subsidies o administrative impediments
would be allowed to distort trade between member countries. Each country
however, is allowed to determine its own trade policies with regard to non-
members. For e.g. there is a free trade agreement known as NAFTA (The
North American Free Trade Agreement) between three counties; USA, Canada
and Mexico.
OBJECTIVES
The ASEAN Declaration states that the aims and purposes of the Association
are:
(ii) To promote regional peace and stability through abiding respect for
justice and the rule of law in the relationship among countries in the region
and adherence to the principles of the United Nations Charter.
(iii) To maintain close cooperation with the existing international and regional
organizations with similar aims.
WORKING OF ASEAN
LAFTA was established in February 1960 under the Treaty of Montevideo. The
member countries of the association are Argentina, Brazil, Columbia, Chile,
Ecuador, Mexico, Paraguay, Peru, Uruguay, Venezuela and Bolivia.
The main objective of the association is to build up a common market for
South American countries and thereby to bring about a gradual reduction in
trade barriers among member countries. LAFTA as a trade bloc wants to
stimulate intra-Latin American trade and also to increase Latin American’s
declining share in world trade. However, LAFTA could not emerge as a
powerful economic union due to non-cooperation among the member
countries. The member countries have been competing among themselves
for promoting their exports. Political instability among the member countries
is another cause responsible for making this union weak and ineffective. Due
to lack of understanding and mutual trust, the integration among the
member countries is not effective.
In recent years, the Latin American debt crisis has eroded some of the
industrial progress that the countries had made and has forced them to rely
on primary product exports to patch up their debt. In 1989, Andean countries
made a renewed effort to revive regional co-operation with new measures.
LAFTA was replaced (renamed) by the Latin American Integration Association
(LAIA) with the signing of the Montevideo Treaty of 1980. The achievements
of LAIA are also moderate.
3. EUROPEAN UNION:
As a major center of power in the global economy, the European Union (EU) is
second only to the United States. In 2002, GDP of EU was US$ 8531 bn. This
constituted 26.6 % of the global GDP as compared to 32.5 % for the US and
12.2 % for Japan. Today after a number of Eastern European Countries joined
the EU, it is a bloc of 25 counties with a population of over 450 mn. The EU
also includes Germany, UK, France, Italy and Spain, which are respectively
3rd, 4th, 5th, 7th, and 9th largest economies in the world. Thus EU presents
an enormous export and investor market that is both mature and
sophisticated.
Objectives of the EU: Its principal goal is to promote and expand cooperation
among members states in economics, trade, social issues, foreign policies,
security, defence, and judicial matters. Another major goal of the EU is to
implement the Economic and Monetary Union, which introduced a single
currency, the Euro for the EU members.
The Single Market and Common Commercial Policy: The single market refers
to the creation of a fully integrated market within the EU, which allows for
free movement of goods, services and factors of production. The EU, in
conjunction with Member States, has a number of policies designed to assist
the functioning of the market. Some of the policies are given below:
Competition Policy: The main competition lied in energy and transport sector.
The union designed this strategy to prevent price fixing, collusion (secret
agreement), and abuse of monopoly.
Free movement of goods: A custom union covering all trade in goods was
established and a common customs tariff was adopted with respect to
countries outside the union.
Services: Any member nation has a right to provide services in other Member
States.
Free movement of persons: Any citizen of EU member state can live work in
any other EU member state
India was one of the first Asian nations to accord recognition to the European
Community in 1962. The EU is India’s largest partner and biggest source
community in 1962. The EU is India’s largest trading partner and biggest
source of FDI. It is a major contributor of developmental aid and an important
source of technology. Over the years, EU – India trade has grown from 4.4 bn
to 28.4 bn US$.
India is EU’s 17th largest supplier and 20th largest destination for exports.
India’s strength lies in its traditional exports like textiles, agriculture and
marine products, gems and jewellery, leather and electronics products.
Under the Bilateral trade between India and EU, it accounts for 26% of
India’s exports and 25% of its imports.
The International Product Life Cycle (IPLC) theory explains trade in a context
of comparative advantage, describes the diffusion process of an innovation
across national boundaries.
The life cycle begins when a developed country, having a new product to
satisfy consumer needs, wants to exploit its technological breakthrough by
selling abroad. Other advanced nations soon start up their own production
facilities and before long LDCs do the same. Efficiency shifts from developed
countries to developing nations. Finally, advanced nations, no longer cost-
effective, import products from their former customers. The advanced nation
becomes a victim of its own creation.
(1) Local Innovation None USA Few: Local Firms Initially High
(2) Overseas innovation Increasing export USA & Advanced Nations Few:
Local Firms Decline owing to economies of scale
(3) Maturity Stable export Advanced Nations & LDCs Advanced Nations Stable
(5) Reversal Increasing import USA Advanced nations & LDCs Increase owing
to comparative disadvantage
Competition in this stage comes from usually US Firms, since firms in other
countries may not have much knowledge about innovation. Production cost
tends to be decreasing at this stage because by this time the innovating firm
will normally have improved the production process. Supported by overseas
sales, aggregate production costs tend to decline further because of
increased economies of scales. A low introductory price is not necessary
because of the technological breakthrough; a low price is not desirable
because of heavy and costly marketing effort needed to educate consumers
in other countries about the new products.
Stage 4 – Worldwide imitation: This stage means tough times for the
innovating nation because of its continuous decline in exports. There is no
more new demand anywhere to cultivate. The decline will certainly affect the
US innovating firm’s economies of scale, and its production cost thus begin to
rise again. Consequently, firms in other advanced nations use their lower
prices to gain more consumer acceptance abroad at the expenses of the US
firm. As the product becomes more and more widely aware, imitation picks
up at a faster pace. Towards the end of this stage, US export declines to
nothing and any US production still remaining is basically for local
consumption.
Marketing Strategies:
For industries suffering the imitation stage or maturity stage things are likely
to get worse rather than better. Companies can understand the implications
of the IPLC and adjust marketing strategies accordingly.
I. Product Policy:
Stage – 4: In the last stage, it is not practical for the innovating firm to
maintain low price due to competitor’s cost advantage. But the firm’s above-
the-market price is feasible only if it is accompanied by top-quality product.
III Promotion Policy: Promotion and pricing are highly related in IPLC. In the
starting, the marketer must plan for a non-priced promotional strategy such
as providing technical support, or offering after-sales-service or giving
warranty for a particular period after the product is offered. The
concentration should be towards meeting consumer’s demand. Positioning is
another important point at the beginning. The marketer should try to position
the product as a high-quality product having good reputation. One thing the
company must never do is to allow its product to become a commodity item
with prices as the only buying motive as such products can easily be
duplicated by other firms. Through out four stages product differentiation, not
price is most important for protecting a company from the crowded, low-
profit market segment.
IV Place: A strong dealer network can provide the innovating firm with a good
defensive strategy. Because of its monopoly situation at the beginning, the
firm is in a good position to be able to select only the most qualified agents
and the network should be expanded further as the product becomes more
diffused. GM’s old policy of limiting its dealer from carrying several GM
brands inadvertently encouraged those dealers to start carrying imports,
there by creating alternative channel for GM which threatened the existing
channel.
Once a product is in the final stage of its life cycle, the innovating firm should
strive to become a specialist not a generalist, by concentrating its efforts in
carefully selected market segments, where it can distinguish itself from
foreign competitors. To achieve distinction in product, the innovating firm can
add product features or offer more service.
Factor Conditions
Describes the state of home demand for products and services produced in
a country. Home demand conditions influence the shaping of particular factor
conditions. They have impact on the pace and direction of innovation and
product development. According to Porter, home demand is determined by
three major characteristics: their mixture (the mix of customers needs and
wants), their scope and growth rate, and the mechanisms that transmit
domestic preferences to foreign markets. Porter states that a country can
achieve national advantages in an industry or market segment, if home
demand provides clearer and earlier signals of demand trends to domestic
suppliers than to foreign competitors. Normally,
Diffusion of innovation
This extension of the product life cycle was developed by Everett M. Rogers
in 1962 and simply looks who adopts products at the different stages of the
life cycle.
Rogers identified five types of purchasers as the product moves through its
life cycle stage. He suggested:
1. Innovator who make up 2.5% of all purchases of the product, purchase the
product at the beginning of the life cycle. They are not afraid of trying new
products that suit their lifestyle and will also pay a premium for that benefit.
3. Early Majority make up 34% of purchases and have been spurred on by the
early adopters. They wait to see if the product will be adopted by society and
will purchase only when this has happened. They early majority usually have
some status in society.
4. Late Majority make up another 34% of sales and usually purchase the
product at the late stages of majority within the life cycle.
5. Laggards make up 16% of total sales and usually purchase the product
near the end of its life. They are the ‘wait and see’ group. They wait to see if
the product will get cheaper. Usually when they purchase the product a new
version is already on the market. Some may call Laggards, bargain hunters!
CULTURAL FACTORS
1. HOFSTEDES THEORY
Power distance. The degree of inequality among people which the population
of a country considers as normal.
Individualism versus collectivism. The extent to which people feel they are
supposed to take care for, or to be cared for by themselves, their families or
organizations they belong to.
The general terms "high context" and "low context" (popularized by Edward
Hall) are used to describe broad-brush cultural differences between societies.
Low context refers to societies where people tend to have many connections
but of shorter duration or for some specific reason. In these societies, cultural
behavior and beliefs may need to be spelled out explicitly so that those
coming into the cultural environment know how to behave.
High Context
Low Context
CULTURAL DIMENSIONS:
Material culture
Language
Language reflects the nature and values of society. There may be many sub-
cultural languages like dialects which may have to be accounted for. Some
countries have two or three languages. In Zimbabwe there are three
languages - English, Shona and Ndebele with numerous dialects. In Nigeria,
some linguistic groups have engaged in hostile activities. Language can
cause communication problems - especially in the use of media or written
material. It is best to learn the language or engage someone who
understands it well.
Aesthetics
Aesthetics refer to the ideas in a culture concerning beauty and good taste as
expressed in the arts -music, art, drama and dancing and the particular
appreciation of colour and form. African music is different in form to Western
music. Aesthetic differences affect design, colours, packaging, brand names
and media messages. For example, unless explained, the brand name FAVCO
would mean nothing to Western importers, in Zimbabwe most people would
instantly recognise FAVCO as the brand of horticultural produce.
Education
Religion
Religion provides the best insight into a society's behaviour and helps answer
the question why people behave rather than how they behave.
Religion can affect marketing in a number of ways:
Also "change" may not be needed, or even wanted, and it may be better to
relate products to traditional values rather than just new ones. Many African
societies are risk averse, therefore, entrepreneurialism may not always be
relevant. Attitudes are always precursors of human behaviour and so it is
essential that research is done carefully on these.
Social organisation
Refers to the way people relate to each other, for example, extended
families, units, kinship. In some countries kinship may be a tribe and so
segmentation may have to be based on this. Other forms of groups may be
religious or political, age, caste and so on. All these groups may affect the
marketer in his planning.
There are other aspects of culture, but the above covers the main
ingredients. In one form or another these have to be taken account of when
marketing internationally.
There are a variety of ways in which organisations can enter foreign markets.
Exporting
Licensing involves little expense and involvement. The only cost is signing
the agreement and policing its implementation.
• Good way to start in foreign operations and open the door to low risk
manufacturing relationships
• Linkage of parent and receiving partner interests means both get most out
of marketing effort
Those who decide to license ought to keep the options open for extending
market participation. This can be done through joint ventures with the
licensee.
Joint ventures
• • Sharing of risk and ability to combine the local in-depth knowledge with a
foreign partner with know-how in technology or process
If the partners carefully map out in advance what they expect to achieve and
how, then many problems can be overcome.
Pricing products
Three basic factors determine the boundaries of the pricing decision - the
price floor, or minimum price, bounded by product cost, the price ceiling or
maximum price, bounded by competition and the market and the optimum
price, a function of demand and the cost of supplying the product. In
addition, in price setting cognisance must be, taken of government tax
policies, resale prices, dumping problems, transportation costs, middlemen
and so on. Whilst many agricultural products are at the mercy of the market
(price takers) others are not. These include high value added products like
ostrich, crocodile products and hardwoods, where demand outstrips supply at
present.
Transfer pricing
• • Transfer at a price derived from end market prices: very useful strategy in
which market based transfer prices and foreign sourcing are used as devices
to enter markets too small for supporting local manufacturers. This gives a
valuable foothold. Prices are required to be competitive in the international
market.
• • Transfer at an "arm's length": this is the price that would have been
reached by unrelated parties in a similar transaction. The problem is
identifying a point "arm's length" price for all products other than
commodities. Pricing at "arm's length" for differentiated products results not
in a specific price but prices, which fall in a predeterminable range.
Global pricing
Extension: The same global price. A very simple method but does not
respond to market sensitivity.
Adaptation : Different prices in different markets. The only control is setting
transfer prices within the corporate system. It prevents problems of arbitrage
when the disparities in local market prices exceed the transportation and
duty costs separating markets.
Innovation : A mix of a) and b). This takes cognisance of any unique market
factor (s) like costs, competition, income levels and local marketing strategy.
In addition it recognises the fact that headquarters price coordination is
necessary in dealing with international accounts and arbitrage and it
systematically seeks to embrace national experience.
Pricing Strategies:
Market Holding strategy: in this type of strategy, the goal is to maintain the
market share. It is used for price adjustment against competitors. Here, the
organization usually keeps a similar price with that of the competitors in the
initial stage. Such type is also required due to the price and currency
flutuations in different countries.
Cost plus pricing: There are basically two types under this heading, the
historical accounting cost method and the estimated future cost method. The
former includes direct and indirect costs and has the disadvantage of
ignoring demand and competitive position in the target market. Estimated
cost approaches are based on assumptions of production volume (depending
on process) which will be a principal factor determining costs. Again
difficulties may lie in trying to estimate production levels. In reality, costs
may be a useful starting point but should never be used as a final arbiter.
Price escalation
One major feature of international pricing is the increase on the price due to
the application of duties, increase in costs of transportation and distribution
margin increase, increase with the length of distribution channel, etc.
GENERIC STRATEGIES
A firm positions itself by leveraging its strengths. Michael Porter has argued
that a firm's strengths ultimately fall into one of two headings: cost
advantage and differentiation. By applying these strengths in either a broad
or narrow scope, three generic strategies result: cost leadership,
differentiation, and focus. These strategies are applied at the business unit
level. They are called generic strategies because they are not firm or industry
dependent. The following table illustrates Porter's generic strategies:
Cost Leadership Strategy
This generic strategy calls for being the low cost producer in an industry for a
given level of quality. The firm sells its products either at average industry
prices to earn a profit higher than that of rivals, or below the average
industry prices to gain market share. In the event of a price war, the firm can
maintain some profitability while the competition suffers losses. Even without
a price war, as the industry matures and prices decline, the firms that can
produce more cheaply will remain profitable for a longer period of time. The
cost leadership strategy usually targets a broad market.
Some of the ways that firms acquire cost advantages are by improving
process efficiencies, gaining unique access to a large source of lower cost
materials, making optimal outsourcing and vertical integration decisions, or
avoiding some costs altogether. If competing firms are unable to lower their
costs by a similar amount, the firm may be able to sustain a competitive
advantage based on cost leadership.
Firms that succeed in cost leadership often have the following internal
strengths:
Each generic strategy has its risks, including the low-cost strategy. For
example, other firms may be able to lower their costs as well. As technology
improves, the competition may be able to leapfrog the production
capabilities, thus eliminating the competitive advantage. Additionally, several
firms following a focus strategy and targeting various narrow markets may be
able to achieve an even lower cost within their segments and as a group gain
significant market share.
Differentiation Strategy
Focus Strategy
Because of their narrow market focus, firms pursuing a focus strategy have
lower volumes and therefore less bargaining power with their suppliers.
However, firms pursuing a differentiation-focused strategy may be able to
pass higher costs on to customers since close substitute products do not
exist.
Firms that succeed in a focus strategy are able to tailor a broad range of
product development strengths to a relatively narrow market segment that
they know very well.
Some risks of focus strategies include imitation and changes in the target
segments. Furthermore, it may be fairly easy for a broad-market cost leader
to adapt its product in order to compete directly. Finally, other focusers may
be able to carve out sub-segments that they can serve even better.
These generic strategies are not necessarily compatible with one another. If a
firm attempts to achieve an advantage on all fronts, in this attempt it may
achieve no advantage at all. For example, if a firm differentiates itself by
supplying very high quality products, it risks undermining that quality if it
seeks to become a cost leader. Even if the quality did not suffer, the firm
would risk projecting a confusing image. For this reason, Michael Porter
argued that to be successful over the long-term, a firm must select only one
of these three generic strategies. Otherwise, with more than one single
generic strategy the firm will be "stuck in the middle" and will not achieve a
competitive advantage.
Porter argued that firms that are able to succeed at multiple strategies often
do so by creating separate business units for each strategy. By separating
the strategies into different units having different policies and even different
cultures, a corporation is less likely to become "stuck in the middle."
However, there exists a viewpoint that a single generic strategy is not always
best because within the same product customers often seek multi-
dimensional satisfactions such as a combination of quality, style,
convenience, and price. There have been cases in which high quality
producers faithfully followed a single strategy and then suffered greatly when
another firm entered the market with a lower-quality product that better met
the overall needs of the customers.
These generic strategies each have attributes that can serve to defend
against competitive forces. The following table compares some
characteristics of the generic strategies in the context of the Porter's five
forces.