Running head: ROTHAERMEL EXERCISE 2 1
ROTHAERMEL EXERCISE 2
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Rothaermel Exercise 2
Discussion Question 6.1
What are some drawbacks and risks to a broad generic business strategy? To a focused
strategy?
The drawbacks and risks differ between the two broad generic business strategies—
differentiation and cost leadership. The risks of differentiation strategy are “compromise
imitation by competitors and changes in customer tastes” (“Strategy Train,” 2009), not
overshooting their differentiated appeal by adding features to their products that will increase the
cost for their consumers, and no matter the product they offer and its unique capabilities will not
exceed what consumers will pay. The risks of cost-leadership strategy are the new entrant
entering the market, the ability to be replaced by a substitute innovation, and powerful buyers
and suppliers. Lastly, some risked of a focus strategy includes the risk of losing the niche within
the market; due to the constant change in the market and consumers, and imitation and change to
the target market.
Discussion Question 6.4
Create examples of value chains for three firms: one using cost leadership, another using
differentiation, and a third using an integration business-level strategy.
There are two generic business strategies—differentiation and cost leadership. A
differentiation strategy “seeks to create higher value for customers than the value that
competitors create, by delivering products or services with unique features while keeping cost at
the same or similar levels” (Rothaermel, 2013, p. 142). On the other hand, cost leadership is
similar to differentiation strategy with attempting to create the same or similar value for
customers; however, they are attempting to deliver their products at a lower price than their
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competitors (Rothaermel, 2013, p. 142). The integration level is the successful combination of
both differentiation strategy and cost-leadership strategy.
Firms utilizing the cost-leadership strategy can reduce value chain. They are able to cut
cost by lowering the amount of HR personal they hire. This can be achieved by utilizing more
advance technology to do the jobs of these individuals. Some of those jobs may consist of
electronic employee evaluations, web-based trainings, and online applications. Technology can
continue to cut down cost for firms utilizing this strategy by implementing a program that can
keep track of their inventory and automatically reorder when inventory reach a certain threshold.
Firms that are implementing the differentiation strategy can reduce value chain by
implementing a process that can produce a great quality product that is reliable and stable to their
consumers in a much faster time. This particular implementation can result in a much higher
consumer satisfaction and revenue. Creating a value chain for firms that are utilizing the
integration level strategy can be done by implementing new advance technology. Implementing
more advance technology can reduce cost by offering new ways for marketing, purchasing and
manufacturing products, reaching new consumers, and handling majority of the employee
process.
Discussion Question 7.1
What strategy might the firm use to unseat Windows in this market?
Implementing new technology to a firm can be beneficial. Before a firm can implement
new technology, they must first understand the importance of the innovation. A firm might use
the paradigm shift in order to implement new technology. Ratheaermal (2013) defines the
paradigm shift as “a situation in which a new technology revolutionizes an existing industry and
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eventually establishes itself as the new standard” (p. 189).The firm can also implement the
integrated level strategy because it promotes quality and low cost.
Discussion Question 7.2
How does the industry life cycle affect business strategy?
According to Rothaermel (2013), the industry life cycle goes through four stages—
introduction, growth, maturity, and decline. There are threats and opportunities to each of the
four stages of the industry life cycle. The introduction stage focuses on R&D. This is the stage
where new products are implemented in order to attract customers. At this stage firms implement
focus groups in order to see if a product or service will work in the market and if consumers will
purchase the product or service. The growth stage is focus on how to meet the demand of their
consumers since the new product has gained acceptance in the market. In the growth stage the
focus approach will be more helpful because now firms can focus on new marketing strategies
for the product. The maturity stage promotes brand loyalty from their consumers. The product or
service is doing well on its own. At this stage the firm can implement the cost-leadership strategy
because now they want to increase their profit from the product or service. Lastly, the decline
stage can also utilize the cost-leadership strategy because at this point sales are down for the
product or service. Also, at this stage the firm can take the opportunity to re-innovate the product
or service or they can start the industry life cycle all over by coming up with a new product or
service for their consumers.
Discussion Question 7.4
Why are standards important in many industries? As standards get adapted and become
dominant, how does this process influence the competitive nature of the industry?
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A standard is an “agreed-upon solution about a common set of engineering features and
design choices; also known as dominant design” (Rothaermel, 2013, p. 175). Standards are
important in many industries because they do not want to have their consumers to have to
constantly shift ways their product is used. A great example of a standard product would be the
cell phone. They may add more features every time the release a new version of the cell phone;
however, the standard design of the cell phone is the same. You push the phone icon to make a
call using the number pad, you will push the envelope icon to access your email, and many more
standard features.
The standard approach is usually implemented in the growth stage. The standard design
will help capture a much larger market share and can occur for a long period of time. Once the
standard design is established firms move from the product innovation approach to the process
innovation approach. The process innovation approach is a “new way to produce existing
products or deliver existing services” (Rothaermel, 2013, p. 176).
Discussion Question 8.1
When Walmart decided to incorporate grocery stores into some locations and created
“super-centers,” was this a business-level strategy of differentiation or a corporate-level
strategy of diversification? Why?
The move for Walmart to incorporate grocery stores into some locations was a corporate-
level strategy of diversification. According to Rothaermel (2013), a corporate-level strategy is
“the decisions that senior management makes and the actions it takes in the quest for competitive
advantage in several industries and markets simultaneously; addresses where to compete” (p.
203). Therefore, Walmart took a corporate-level strategy of diversification in order to incorporate
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grocery stores into some locations and created “super-centers,” because it was decision made by
the senior management team of Walmart.
Discussion Question 9.1
Live Nation bough Ticketmaster in 2010. Lists some specific advantages of this acquisition
for Live Nation. Do you see any downside to the merger?
A merger occurs when two independent companies decide to become one entity
(Rothaermel, 2013, p. 238). A Horizontal integration is “the process of acquiring and merging
with competitors, leading to industry consolidation” (Rothaermel, 2013, p. 239). Some of the
advantages of Live Nation purchasing Ticketmaster are access to a new market, reduced
competition, reduced ticket cost, and increased market power. However, there is a downside to
the merger. The downside to the 2010 merger between Live Nation and Ticketmaster are reduced
flexibility, possible destruction of the two company’s reputation if the merger does not work, and
the merger can drastically shift the market of tickets sales.
Discussion Question 10.1
How might your relationship change as the MNE moves from Globalization 2.0 to
Globalization 3.0 operations?
Globalization is the “process of closer integration and exchange between different
countries and peoples worldwide, made possible by falling trade and investment barriers,
advances in telecommunications, and reductions in transportation cost” (Rothaermal, 2013, p.
271).
Globalization 2.0 occurred from 1945-2000. This particular strategy required foreign
investment. It was costly to implement this strategy in foreign markets. Globalization 3.0 started
in the 21st century. This is the current stage we are in. The implementations of technology help
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bring the world together in order to conduct business in both the United States and foreign
countries. The Globalization 3.0 gives firms access to a more diverse market; which is why
outsourcing is one of the most practiced strategies for companies.
The relationship may change as MNE moves from Globalization 2.0 to Globalization 3.0
companies are looking to lower cost. They are looking to lower manufacturing cost, labor cost,
production cost, and many other costs they have the capabilities to lower. Moreover, because
firms are looking to lower cost they will still need to produce a quality product consumers want
to purchase.
