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Herbalife Nutrition Ltd.For this assignment, you will analyze this company’s (Internal) Strengths and Weaknesses.You will use the text chapters 1 through 3 as your framework for the analysis, and will incorporate information from external sources including the company and other credible sites. www.herbalife.com
strategic_management_concepts_competitiveness_and_globalization_12th_editionl__concept_____dragged_.pdf

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1
Strategic Management
and Strategic
Competitiveness
Studying this chapter should provide
you with the strategic management
knowledge needed to:
Define strategic competitiveness,
strategy, competitive advantage,
above-average returns, and the
strategic management process.
1-2
Describe the competitive landscape
and explain how globalization and
technological changes shape it.
1-3
Use the industrial organization (I/O)
model to explain how firms can
earn above-average returns.
1-4
Use the resource-based model
to explain how firms can earn
above-average returns.
1-5
Describe vision and mission and
discuss their value.
1-6
Define stakeholders and
describe their ability to influence
organizations.
1-7
Describe the work of strategic
leaders.
1-8
Explain the strategic management
process.
© RomanOkopny/Getty Images
1-1
Copyright 2017 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. WCN 02-200-203
ALIBABA: AN ONLINE COLOSSUS IN CHINA GOES GLOBAL
Alibaba Drone.PNG
China now has the world’s largest number of internet users and Alibaba is China’s largest
ecommerce company (23 percent owned by Yahoo and 36 percent owned by Japan’s
SoftBank). In 2014, when Alibaba completed its initial public offering (IPO) on the New York
Stock Exchange, it immediately became worth more than Amazon and eBay combined and
has a larger market capitalization than Walmart. Transactions of goods on Alibaba’s websites
account for more than 2 percent of China’s GDP in 2012. Comparatively, Walmart’s sales
account for 0.03 percent of U.S. GDP in 2012. Alibaba’s presence has turned China into the
world’s second largest ecommerce market after the United States. Chinese consumers
purchase products on Tmall, a consumer shopping site on Alibaba analogous to a department
store and similar to Amazon. Because of China’s vast size and underdeveloped consumer
market, it has few national mainland malls or brick and mortar department store chains.
As such, the presence of
Alibaba is stimulating
consumption that would
not otherwise take place
in China. Furthermore,
Alibaba’s presence
changed consumer
buying habits, especially
in third- and fourth-tier
(e.g., smaller and more
geographically remote)
cities because it gives
consumers access to
items that they could
not previously obtain
locally.
Taobao is another
website owned by
Alibaba and is comparable to eBay in the United States. On Taobao, Alibaba does not stock or sell its own goods
but rather provides platforms where manufacturers, resellers, and other middle-men open
online storefronts. Larger consumer branded products prefer Tmall because Alibaba’s policies
promote this site more heavily and fraudulent brands are less likely to be found on this site.
For instance, popular brands such as Prada handbags must provide evidence that they are a
licensed distributor before they are allowed to sell on Tmall. Taobao is more focused on small
sellers; it has 6 million registered sellers with a vast range in size.
Given these two websites, Alibaba is the easiest way for foreign retailers to enter the
Chinese market because it has such reach. Online sales account for 90 percent of marketplace
sales in China, compared with 24 percent for the United States in 2014. Accordingly, Alibaba
provides the easiest way to enter the Chinese market for foreign retailers due the large access
to consumers available through Alibaba’s websites. Alibaba’s websites also give smaller
Chinese manufacturers the opportunity to increase domestic sales because of Alibaba’s reach.
For example, Weighing Apparatus Group, originally a supplier of household and industrial
scales for Bed Bath & Beyond, set up a website on Taobao in 2009. In 2014, one-fifth of its
domestic sales now flow through its Taobao online storefront, allowing it to move beyond
being only a supplier for other firm’s branded products.
Alibaba through its Alipay system is working on a joint venture with Apple to provide
back-end services for the Apple Pay payment system allowing iPhone users in China to pay
for goods with Apple Pay using their Alipay accounts. This approach is fostering an improved
mobile online strategy for Alibaba. It also facilitates better service for online Apple iPhone
users who desire to browse and purchase on Alibaba websites.
Fraudulent goods can be an important strategic issue in China because of previous
product liability suits from banned or recalled goods sold to U.S. consumers.
Copyright 2017 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. WCN 02-200-203
4
As such, Alibaba is collaborating with the United States Consumer Product Safety Commission
to improve its credibility among U.S. consumers by helping to ban sale of fake and fraudulently
branded or recalled goods. This is also facilitating Alibaba’s global access strategy.
Alibaba is also moving into online media content and streaming video services. In 2014,
it announced its acquisition of ChinaVision Media, producers or co-producers of films including “Crouching Tiger, Hidden Dragon” and “Breaking the Silence.” Just as Amazon and Netflix
are producing their own media content, Alibaba is moving in this direction as well, as it
competes with other service providers such as Tencent and Baidu in web communications and
broadcasting in China. Getting its strategies right in the local domestic Chines market as well
as internationally is key to Alibaba’s success.
Sources: D. Tsuruoka, 2015, Alibaba blocks sale of unsafe goods to U.S. shoppers, Investor’s Business Daily
Daily,
www.investorsbusinessdaily.com, Jan 13; S. Cendrowski, 2014, Alibaba’s Maggie Wu and Lucy Peng: The dynamic duo
behind the IPO, Fortune, www.fortune.com, September 17; R. Flannery, 2014, China media entrepreneur’s fortune
soars on Alibaba investment, Forbes, www.forbes.com, March 12; C. Larson, 2014, In China its meet me at Tmall,
Bloomberg Businessweek
Businessweek, www.bloombergbusinessweek.com, September 11.
A
Strategic competitiveness
is achieved when a firm
successfully formulates and
implements a value creating
strategy.
A strategy is an integrated
and coordinated set of
commitments and actions
designed to exploit core
competencies and gain a
competitive advantage.
A firm has a competitive
advantage when it
implements a strategy
that creates superior value
for customers and that
competitors are unable to
duplicate or find it too costly
to try to imitate.
s we see from the Opening Case, Alibaba is highly successful because its strategy in
China has allowed it to have a massive impact in regard to online sales in a large
emerging economy. It is now seeking to grow globally and gain widespread name/brand
recognition through its 2014 IPO in New York. These attributes have enhanced its ability to compete in global online markets. Therefore, we can conclude that Alibaba has
achieved strategic competitiveness. It clearly has been able to earn above-average returns,
at least, domestically. Yet Alibaba has received its share of criticism because of its perceived contribution to the sale of fraudulent goods. However, it is addressing this issue
through its collaboration with the United States Consumer Product Safety Commission. The top management of Alibaba has used the strategic management process (see
Figure 1.1) as the foundation for the commitments, decisions, and actions they took to
pursue strategic competitiveness and above-average returns. The strategic management
process is fully explained in this book. We introduce you to this process in the next few
paragraphs.
Strategic competitiveness is achieved when a firm successfully formulates and
implements a value-creating strategy. A strategy is an integrated and coordinated set
of commitments and actions designed to exploit core competencies and gain a competitive advantage. When choosing a strategy, firms make choices among competing
alternatives as the pathway for deciding how they will pursue strategic competitiveness.
In this sense, the chosen strategy indicates what the firm will do as well as what the
firm will not do.
As explained in the Opening Case, Alibaba has been a leader in its industry as one
of the most successful facilitators of online sales in China and is now seeking to become
a successful global business. However, in doing so it must respond to its changing environment. In fact, to adapt to local environments, it sometimes makes major changes.
For example, it is coordinating with Apple Pay to improve access for the high number
iPhones that Apple is now selling in China.
A firm has a competitive advantage “when it implements a strategy that creates
superior value for customers and that its competitors are unable to duplicate or find too
costly to imitate.”1 An organization can be confident that its strategy has resulted in one
or more useful competitive advantages only after competitors’ efforts to duplicate its
strategy have ceased or failed. In addition, firms must understand that no competitive
advantage is permanent.2 The speed with which competitors are able to acquire the skills
Copyright 2017 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. WCN 02-200-203
5
Chapter 1: Strategic Management and Strategic Competitiveness
Figure 1.1 The Strategic Management Process
Analysis
Chapter 2
The External
Environment
Vision
Mission
Chapter 3
The Internal
Organization
Performance
Strategy
Strategy Formulation
Strategy Implementation
Chapter 4
Business-Level
Strategy
Chapter 5
Competitive
Rivalry and
Competitive
Dynamics
Chapter 6
CorporateLevel Strategy
Chapter 10
Corporate
Governance
Chapter 11
Organizational
Structure and
Controls
Chapter 7
Merger and
Acquisition
Strategies
Chapter 8
International
Strategy
Chapter 9
Cooperative
Strategy
Chapter 12
Strategic
Leadership
Chapter 13
Strategic
Entrepreneurship
Strategic
Competitiveness
Above-A
Above-Average
Returns
needed to duplicate the benefits of a firm’s value-creating strategy determines how long
the competitive advantage will last.3
Above-average returns are returns in excess of what an investor expects to earn
from other investments with a similar amount of risk. Risk is an investor’s uncertainty
about the economic gains or losses that will result from a particular investment. The
most successful companies learn how to effectively manage risk.4 Effectively managing
risks reduces investors’ uncertainty about the results of their investment.5 Returns are
often measured in terms of accounting figures, such as return on assets, return on equity,
or return on sales. Alternatively, returns can be measured on the basis of stock market
returns, such as monthly returns (the end-of-the-period stock price minus the beginning stock price divided by the beginning stock price, yielding a percentage return). 6
Above-average returns
are returns in excess of what
an investor expects to earn
from other investments with
a similar amount of risk
Risk is an investor’s
uncertainty about the
economic gains or losses that
will result from a particular
investment.
Copyright 2017 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. WCN 02-200-203
6
Part 1: Strategic Management Inputs
Average returns are returns
equal to those an investor
expects to earn from other
investments with a similar
amount of risk.
The strategic management
process is the full set of
commitments, decisions,
and actions required for a
firm to achieve strategic
competitiveness and earn
above-average returns.
In smaller, new venture firms, returns are sometimes measured in terms of the amount
and speed of growth (e.g., in annual sales) rather than more traditional profitability measures7 because new ventures require time to earn acceptable returns (in the form of return
on assets and so forth) on investors’ investments.8
Understanding how to exploit a competitive advantage is important for firms seeking
to earn above-average returns.9 Firms without a competitive advantage or that are not
competing in an attractive industry earn, at best, average returns. Average returns are
returns equal to those an investor expects to earn from other investments with a similar
amount of risk. In the long run, an inability to earn at least average returns results first in
decline and, eventually, failure.10 Failure occurs because investors withdraw their investments from those firms earning less-than-average returns.
As previously noted, there are no guarantees of permanent success. Companies that
are prospering must not become overconfident. Research suggests that overconfidence
can lead to excessive risk taking.11 Even considering Apple’s excellent current performance, it still must be careful not to become overconfident and continue its quest to be
the leader for its markets.
The strategic management process is the full set of commitments, decisions, and
actions required for a firm to achieve strategic competitiveness and earn above-average
returns (see Figure 1.1)12. The process involves analysis, strategy and performance (the
A-S-P model—see Figure 1.1). The firm’s first step in the process is to analyze its external environment and internal organization to determine its resources, capabilities, and
core-competencies—on which its strategy likely will be based. Alibaba has established its
dominant position because it has excelled in using this process. The strategy portion of
the model entails strategy formulation and strategy implementation.
With the information gained from external and internal analyses, the firm develops
its vision and mission and formulates one or more strategies. To implement its strategies, the firm takes actions to enact each strategy with the intent of achieving strategic
competitiveness and above-average returns ((performance). Effective strategic actions that
take place in the context of carefully integrated strategy formulation and implementation
efforts result in positive performance. This dynamic strategic management process must
be maintained as ever-changing markets and competitive structures are coordinated with
a firm’s continuously evolving strategic inputs.13
In the remaining chapters of this book, we use the strategic management process
to explain what firms do to achieve strategic competitiveness and earn above-average
returns. We demonstrate why some firms consistently achieve competitive success while
others fail to do so.14 As you will see, the reality of global competition is a critical part
of the strategic management process and significantly influences firms’ performances.15
Indeed, learning how to successfully compete in the globalized world is one of the most
significant challenges for firms competing in the current century.16
Several topics will be discussed in this chapter. First, we describe the current competitive landscape. This challenging landscape is being created primarily by the emergence
of a global economy, globalization resulting from that economy, and rapid technological changes. Next, we examine two models that firms use to gather the information
and knowledge required to choose and then effectively implement their strategies. The
insights gained from these models also serve as the foundation for forming the firm’s
vision and mission. The first model (industrial organization or I/O) suggests that the
external environment is the primary determinant of a firm’s strategic actions. According
to this model, identifying and then operating effectively in an attractive (i.e., profitable)
industry or segment of an industry are the keys to competitive success.17 The second
model (resource-based) suggests that a firm’s unique resources and capabilities are the
critical link to strategic competitiveness.18 Thus, the first model is concerned primarily
Copyright 2017 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. WCN 02-200-203
7
Chapter 1: Strategic Management and Strategic Competitiveness
with the firm’s external environment, while the second model is concerned primarily
with the firm’s internal organization. After discussing vision and mission, directionsetting statements that influence the choice and use of strategies, we describe the stakeholders that organizations serve. The degree to which stakeholders’ needs can be met
increases when firms achieve strategic competitiveness and earn above-average returns.
Closing the chapter are introductions to strategic leaders and the elements of the strategic
management process.
1-1 The Competitive Landscape
The fundamental nature of competition in many of the world’s industries is changing.
Although financial capital is no longer scarce due to the deep recession, markets are
increasingly volatile.19 Because of this, the pace of change is relentless and ever-increasing.
Even determining the boundaries of an industry has become challenging. Consider, for
example, how advances in interactive computer networks and telecommunications have
blurred the boundaries of the entertainment industry. Today, not only do cable companies
and satellite networks compete for entertainment revenue from television, but telecommunication companies are moving into the entertainment business through significant
improvements in fiber-optic lines.20 More recently, internet only streaming services have
started to compete with cable, satellite, and telecommunication offerings. “Sling TV is
part of a growing wave of offerings expected from tech, telecom and media companies in
the coming year, posing a threat to the established television business, which takes in $170
billion a year. Meanwhile, the streaming outlets of Amazon, Hulu and Netflix continue
to pour resources into developing more robust offerings. Sony, CBS, HBO and others are
starting Internet-only subscription offerings.”21 Interestingly, Netflix and other streaming
content providers such as Amazon are producing their own content; Netflix is producing
repeat series such as “House of Cards,” “Orange Is the New Black,” and “Marco Polo”.22 As
noted in the opening case, Alibaba intends to enter the entertainment business as Netflix
and other content distributors and producers enter international markets.
Other characteristics of the current competitive landscape are noteworthy.
Conventional sources of competitive advantage such as economies of scale and huge
advertising budgets are not as effective as they once were (e.g., due to social media
advertising) in terms of helping firms earn above-average returns. Moreover, the traditional managerial mind-set is unlikely to lead a firm to strategic competitiveness.
Managers must adopt a new mind-set that values flexibility, speed, innovation, integration, and the challenges that evolve from constantly changing conditions.23 The conditions of the competitive landscape result in a perilous business world, one in which
the investments that are required to compete on a global scale are enormous and the
consequences of failure are severe.24 Effective use of the strategic management process
reduces the likelihood of failure for firms as they encounter the conditions of today’s
competitive landscape.
Hypercompetition describes competition that is excessive such that it creates inherent instability and necessitates constant disruptive change for firms in the competitive
landscape.25 Hypercompetition results from the dynamics of strategic maneuvering
among global and innovative combatants.26 It is a condition of rapidly escalating competition based on price-quality positioning, competition to create new know-how and
establish first-mover advantage, and competition to protect or invade established product
or geographic markets.27 In a hypercompetitive market, firms often aggressively challenge
t …
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