The focused differentiation strategy
It would be a time consuming and even useless activity to analyse all of the factors listed in Figure 1 one by one. What would be proper is to pick those which are likely to affect the structure of an industry, sector or market (Johnson and Scholes 2002) or in other words the structural drivers of change. The analysis of the environment presented in Chapter 2 is focused on three factors only: The first reason for discussing only these factors is that in my opinion these play the role of the most important structural drivers of change for the company under consideration. The second is that they are the most relevant to the topic of my final project.
1.1.2. The Market This section of Chapter 2 will have the purpose of discussing the markets in which Solid 55 is competing at the moment. Johnson and Scholes (2002) divide the business environment in macro-environment, industry, strategic groups, organisation, market and organisational field and organize them in the following layers: Layers of the business environment Source: “Exploring Corporate Strategy – Text and Cases, 6th Edition”
It is obvious from Figure 2 that the markets in which a company is competing are much closer to it than the macro-environment
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According to Johnson and Scholes (2002) competitive strategy “is the bases on which a business unit1 might achieve competitive advantage in its market”. In other words this is a set of decisions related to prices, features of the product, additional services offered with the product, etc made in such a way that a customer segment is attracted to a company’s product and choose it instead of the competition’s products. Johnson and Scholes (2002) give an illustration on how companies may combine the set of decisions depending on the product type, environment and competition under the form of “Strategy clock”:
1.2.1. The focused differentiation strategy – Route 5 A focused differentiation strategy seeks to provide high perceived value justifying a substantial price premium, usually to a selected market segment (Johnson and Scholes, 2002).3 The discussion of this issue is important because this is the route which Solid 55 decided to follow in the beginning of its activity and is presently following. It is also important to discuss another route that the company took when decided to enter a new market with a new to it product.
1.2.2. The hybrid strategy – Route 3 According to Johnson and Scholes (2002) such a strategy “seeks simultaneously to achieve differentiation and a price lower that that of competitors”. It is claimed that such a strategy requires ability to understand what customers value the most and at the same time to have low costs which will permit the company to reinvest in sustaining differentiation. The authors describe the cases in which this type of strategy is most likely to succeed: The table shows that all the indirect methods for export are feasible (I have given my opinion on feasibility on the basis of Solid 55’s lack of experience in exporting, lack of foreign contacts and on lack of knowledge for the Swedish security door market) with low levels of risk but need low involvement and low control.
The latter in my opinion will keep the company far from its foreign market and no export experience could be gained if they are used. I think it is inappropriate to outsource the exporting activity to trading houses because most of these are huge corporations which would not be interested in small trading quantities and Solid 55 can not start with huge amounts. There might be the same problem with EMCs but even if they are smaller and are interested in smaller quantities they are not likely to concentrate fully on the ALTD. Only piggybacking is in my opinion relatively attractive because Solid 55 itself could choose the manufacturer whose network will use in order to distribute the ALTD internationally. By saying “choose” this means choosing who to negotiate with so the manager who would negotiate with the “carrier” should posses very good bargaining skills.
I considered most of the direct modes not feasible on the same principle as the indirect. At the present moment Solid 55 does not have the needed contacts in Sweden in order to set up its own sales force which to be situated there. The same reason makes agents and distributors not feasible. The method that I found appropriate given the circumstances is the home-based own sales force. The reasons for that being: ed as it would be a part of Solid 55 Relatively low risk because of no direct investment. These reasons in my opinion make the method the best for Solid 55’s starting internationalization.
The rest of the market entry methods that I did not include in the table are direct marketing, franchising, joint ventures, strategic alliances, own subsidiary, acquisition and assembly. In my opinion these are not suitable for SMEs which are just starting their export activities because of the heavy financing and substantial experience that is required for their implementation. Of course, this does not mean that these categorized as “not feasible” should be discarded at all. After the company gains some more knowledge about exporting in general and about the Swedish market in particular it might start looking for new opportunities which will give better results but at this starting point even a method which relies on periodic travels like the home based sales force is appropriate.