TEST 1: MKT646

Instructions:
Answer ALL questions
Due date 30th Nov 2014 (Hard Copy hand it in class)
Total Mark = 20 marks

QUESTION 1
PERODUA was the market leader in Malaysia Automotive Industry with 40% market
share; followed by PROTON with 25% and TOYOTA maintained its third place at 20%
a) To compete effectively, automotive industries must determine their competitive
positioning strategy that is most suitable with objectives. Discuss the three (3)
generic competitive strategies as suggested by M.E. Porter.
(10 marks)
b) With specific examples, suggest three (3) strategies that PERODUA can
implement in order to protect or defend its position.
(10 marks)

arahan:
Jawab SEMUA soalan
Oleh kerana tarikh 30 Nov 2014 (Salinan Cetak - tangan dalam kelas)
Jumlah Mark = 20 markah

SOALAN 1
PERODUA adalah peneraju pasaran dalam Industri Automotif Malaysia dengan 40%
bahagian pasaran; diikuti oleh PROTON dengan 25% dan TOYOTA mengekalkan tempat
ketiga pada 20%
a) Untuk bersaing dengan berkesan, industri automotif perlu menentukan strategi
kedudukan daya saing mereka yang paling sesuai dengan objektif. Bincangkan tiga (3)
strategi kompetitif generik seperti yang dicadangkan oleh ME Porter.
(10 markah)
b) Dengan contoh-contoh khusus, mencadangkan tiga (3) strategi yang boleh
melaksanakan PERODUA untuk melindungi atau mempertahankan kedudukannya.
(10 markah)

Business Strategy: The Three Generic

Strategies

A strategy of a business can be reduced to one of three generic strategies. These strategies
are cost leadership, differentiation, and focus.1,2,3 The three types were discovered by the
Harvard professor Michael Porter and many works that discuss strategy refer back to his
two books. This article examines each of the three generic strategies.

Cost Leadership Strategy

Cost Leadership is a strategy where "a firm sets out to become the low-cost producer in
its industry."2 A firm with this strategy sets as a goal to produce or provide a service for a
lower operating cost than the competitors. This enables the firm to sell goods or services
at the same selling price as the competitors and make a larger profit. Also, the firm could
lower the selling price to under bid the competitors and still make a profit. The emphasis
is on lower costs, not on low selling prices. "Cost leadership requires aggressive
construction of efficient-scale facilities, vigorous pursuit of cost reductions from
experience, tight cost and overhead control, avoidance of marginal customer accounts,
and cost minimization in areas like R&D..."1
Porter further states that this strategy "requires that a firm the the cost leader, not one of
several firms vying for this position."2 The only way this strategy works is if the firm is
the best. This is because the firm that is number one at cost reduction, can at any time
reduce its selling price down below the other firms' operating cost. The number one firm
can still make a profit (although slight) while forcing the other firms to match selling
price and take a loss or keep the selling price higher. This is a huge advantage to the
lowest operating cost firm.

Differentiation Strategy

The second generic business strategy is differentiation: being different than every other
firm. Grant states this is an "emphasis on branding advertising, design, service, quality,
and new product development."3 The firm adopting this strategy seeks to be unique in the
industry. This uniqueness must be a feature for which customers will pay a premium
price. This differentiation does not have to be anything outlandish. It can be as simple as
the best customer service in the industry. Differentiation can also be speed in filling
orders. The point of differentiation only has to be something that customers will be
willing to pay a larger selling price than that of the cost leader.
Differentiation can lead to profitability. However, it does not lead to market share. As
Porter states, differentiation creates a perception of exclusivity which is incompatible
with a high market share.1 Thus, a firm with a differentiation strategy can focus on
customer loyalty instead of attempting to create a large market share.

Focus Strategy
The focus strategy ignores most of a product or service market and focuses upon a
particular niche. The niche could be "a particular buyer group, segment of the product
line, or geographic market."1 For example in the automobile industry there are companies
that specialize in selling vehicles for disabled people. These firms do not compete with
the dealerships because these firms have a special vehicle the dealerships do not carry in
inventory. The focus is to serve a very special group of customers.
As with the differentiation strategy, this also implies market share will be limited. Porter
states, "Focus necessarily involves a trade-off between profitability and sales volume."1
However, if a firm adopts the focus strategy, the firm must ensure the market segment
that is being served is absolutely different than the main market. If the segment is not
different, then the focus strategy will not succeed.2

Summary and Caution

This article has discussed the three generic strategies that firms can have for a product or
service. A firm picking one of these has a good chance of being profitable. However,
many firms are what Porter describes as "stuck in the middle."1 A firm stuck in the middle
is "almost guaranteed low profitability"1, "possesses no competitive advantage"2, and are
susceptible to having market share destroyed by those firms with a competitive
advantage.2 Thus, it is extremely important for a firm to wisely choose a business strategy
and implement that strategy well.