Market-driven strategies for competitive advantage
by David W. Cravens, Shannon H. Shipp
Effective organizational communication: a competitive advantage
Market-Driven Strategies for Competitive Advantage
Complacency is a forerunner to disaster in the turbulent marketplace. Automobile industry experts were skeptical about Honda’s plan to enter the European-dominated luxury import segment of the car market. Attracted by the higher profit margins and growth opportunities of the luxury import segment, Honda’s management positioned Acura as an all-new market entry with an exciting design offering high-quality performance. Two years after its 1986 entry into the U.S. market, Acura gained first place in sales and customer satisfaction ahead of BMW, Mercedes Benz, Volvo, and Audi.
Grab your own Telstra 1300 Number and enable your callers to contact you.
Attempting to duplicate the success of the Acura, Toyota introduced the Lexus in the U.S. in 1989 and Nissan introduced the Infiniti, also targeted to the luxury auto segment, in 1990. While it is too early to judge the success of Toyota’s and Nissan’s entries, initial reviews from Car and Driver magazine compared Lexus and Infiniti favorably to German automobiles costing twice as much (comparing manufacturers’ suggested retail prices). The Japanese have an impressive success record for planning and implementing market-driven strategies for competitive advantage.
Unprecedented global competition is only one force driving executives to alter their business and marketing strategies to improve competitive advantage. The marketplace is becoming increasingly dynamic, influenced by massive demographic and socioeconomic shifts in the population base. These changes are accompanied by dramatic compression in the length of time for competitive reaction to be felt and changes in consumer behavior to be incorporated into product design. In response to these market changes, executives are drastically altering their business and marketing strategies. Strategic actions may include downsizing, repositioning, market niching, altering the business portfolio, and strategic alliances between companies. These actions pervade many industries. For example, over one-half of the Fortune 500 companies restructured during the 1980s.
Designing effective business and marketing strategies is essential in coping with a turbulent global business environment. Our objective is to identify global competitive challenges and describe means by which executives may respond to those challenges as they position their firms to compete successfully in the 1990s. The global competitive challenges include demographic changes, turbulent global markets, cooperative links between government and private enterprise in many countries, and response time compression. These forces are examined to highlight the nature and scope of their influence on business strategies. The primary means managers have to cope with the dynamic business arena is to become more market driven. To become more market driven, executives must identify rapidly changing customer needs and wants, determine the impact of these changes on customer satisfaction, increase the rate of product/service innovation in business strategies, and focus on developing strategies for competitive advantage.
GLOBAL COMPETITIVE CHALLENGES
These global competitive challenges emerge from discussions with business executives in various industries, comparisons of successful and unsuccessful companies, and a review of published materials that examine contemporary strategic issues. There is a high level of agreement across these sources concerning the importance of the global competitive challenges that follow.
Demographic Change
A driving force in the U.S. consumer markets today is the baby boom generation moving through the different stages of the life cycle. This large segment of the population will start reaching age 65 in 2010. The U.S. population will grow by 41 million people to more than 282 million in 2010. Population age group changes from 1986 to 2010 are shown in Figure 1. Several demographic trends are occurring in the population, thereby creating market turbulence:
* Much of the population increase will be due to immigration, which will accelerate the internationalization of the U.S.;
* Convenience will be a key focus of the food business as the country moves into the next century;
* The older and more ethnic society will challenge companies to create new products and services;
* Health care for the elderly will offer enormous potential for businesses;
* Service-related industries will continue to expand as the baby boomers seek convenience and avoid housekeeping tasks;
* Luxury travel will expand, with nearly half of U.S. households earning over $35,000 by the year 2000.
Emerging Global Markets
It is becoming increasingly difficult to compete only within the boundaries of a single nation. Indeed, the quest for global domination is underway in a variety of product markets including automobiles, tires, kitchen appliances, computers, and electronics. New markets are emerging, existing markets are changing, and businesses are altering their competitive roles. Two regions of particular interest to many companies throughout the world are Southeast Asia and Europe.
Southeast Asian countries, such as Malaysia and Thailand, offer important market opportunities and also pose competitive threats. The Southeast Asian region has a population of 200 million people. Thailand is the most promising market in the group. The country’s economy is growing rapidly. Investment in Thailand by foreign companies in 1988 increased 200 percent from the previous year. Trade with the U.S. grew 35 percent. Thai companies represent an increasingly important market for U.S. products. For example, Thai Airways International purchased 80 jet engines from Pratt and Whitney, a U.S.-based manufacturer, for $500 million in 1989.
The unification of Europe in 1992 creates another global challenge for American, Asian, and European companies. Pressures imposed by the elimination of trade barriers among the 12 EC countries require drastic alterations of business and marketing strategies of the organizations competing in the unified market. Deciding if an outside business should find a European Community partner is an example of the many strategy questions facing U.S. managers. Competing in this huge market will require different business and marketing strategies. Trade protection may cause outside suppliers to lose their existing positions in the market. Nations within the trade group are moving rapidly to gain market leadership. For example, France’s Thomson, the state-controlled electronics group, is moving swiftly to gain market leadership in television and defense electronics, challenging Philips, the Dutch electronics giant, and other firms, including U.S. and Japanese companies.
Competing globally is both different and more demanding than competing domestically. Often the risks are greater due to pressures from various uncontrollable forces. The violent changes that occurred in mainland China in mid-1989 illustrate how government influences the business environment. In only a few days China’s potential as a supplier and purchaser of goods and services was threatened. Some Asian experts estimate that several years may pass before relationships and trade with China return to normal.
Recognizing the global business challenge is important for two reasons. First, a promising opportunity for growth is available for companies that have the skills and resources to compete beyond their domestic markets. Second, maintaining a competitive position in the domestic market requires perceptive understanding of key competitors in the global marketplace. Few, if any, domestic markets are immune to foreign competition.
Despite the reality of a global marketplace, there are clear indications that U.S. managers do not recognize the global challenge confronting them. A 1989 survey of 1,500 managers (Solomon 1989) found that only 35 percent of Americans thought “experience outside the headquarters country” was very important, compared with 74 percent of foreign counterparts. Only 18 percent of American managers called the 1992 unification of Europe “substantial,” compared with 34 percent of Latins, 52 percent of Japanese, and 55 percent of Europeans. The researchers conducting the study observed that it showed a broad “parochialism” expected in 1980 but surprising in 1989.
source