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Generic strategies are prescriptions about what the content of a firm’s strategy should be. Some offer a very limited choice of options, while others proffer a list of practices that are purported to lead to superior performance.
Porter’s generic strategies are well derived from a series of established theory of structure of industries like firm strategy and profit performance. Porter’s ‘Five Forces’ approaches to industry analysis addresses ‘where to compete’. Selecting a particular generic strategy determines that how the firm can gain and retain advantage.
According to Porter, companies must mainly focus on having a superior comparable performance regarding competitors in the same industry, and describe that the competitive advantage is to have a profitability level greater than the industries on the long run. Porter also describes the cost leadership and differentiation as two major types of competitive advantages a company can have, mainly depending on the sources to which it is based on. (The Ashridge journal 2007)
Generic Strategies: Porter’s business strategy proposition as “ways of
To start to aboard the Porter’s proposal, its important for the company to frame its limits on the business strategy and understanding it as a strategy within an individual business, managed as a business unit, with a portfolio of a series of related products, that are involved into a bigger and wider portfolio but those are independent on a business unit.
The fact is that a business strategy will bring differences in all the areas of a
business, creating though the necessity of a whole independent configuration
between market needs and a company’s resources, so an independent strategic proposition clarifies that it doesn’t impact dramatically to the performance of neither other business units nor the whole company.
Further, the specification on Porter’s model of generic strategies is to be as for a business strategy that allows to predict that the main focus on this proposition will be to answer mainly to competitive advantages and synergy creation more than to bother with resources allocation. Mainly business strategies involves goals associated with products and markets for a specific business unit, as well as it leads the path for further activities which will be done for a company in the mentioned specific sector.
Porter proposed two theories, that are the strategic goal and the strategic advantage, Goal refers to the way in which a company wants to developes its activities being one segment or the broad market. Strategic advantage refers to the manner in which the company will be performing the best results in the market,it can be achieved either by highly differentiated products and services or by low costs.
Generic Strategies proposed by Porter are:
Cost Leadership Strategy
Cost leadership strategy are always calls for being the lowest cost producer industry for a given level of quality. This type of firm sells its products either at average industry prices to earn a higher profit than that of rivalaries or below the average industry prices so as to gain market share. In the happening of a price war ,the firm has the potential to maintain some profitability while the competition has to go through losses. Even without the incident of price war, as the industry matures and the prices decline, the firms which has the strength of producing more cheaply will remain profitable for a longer period of time. Usally the broad market are mainly targeted by cost leadership..
This generic strategy mainly calls for the development of products and services which offers unique attributes and are valued by customers and these customers perceive to be better than or different from the products of the other competitors. The value added by the uniqueness of this type of products allow the firm to charge a premium price for it.The firm expects that the higher price will eventually cover the extra costs incurred in introducing that unique product. Due to the product’s unique features, if in any case the suppliers increase their prices,the firm will be able to pass along the costs to its customers.
This generic strategy mainly focuses on narrow segment and within that segment only it attempts to achieve either differentiation or cost advantage. The main agenda is that the needs of the customers can be better serviced by focusing entirely into it. A firm following this generic strategy often enjoys a high degree of discourages the other firms from competing directly. (Porter n.d.)
Generic Strategies of AIRTEL
Indian Telecom Industry – Airtel is one of the fastest growing markets in the world in terms of subscribed additions – 19.35 mlln in 3 mnths. Further it is expected to reach upto total subscribe about 500 mlln by 2010, the annual growth rate of the telecom customer are – 47 % (2007-08) ,it is the fastest Growing Sector – 22 percent (2002-07),2nd Largest Market, it charges Lowest tariff of the world.
Wireless customer – 315.3 Mn
Wireline customer – 38.4 Mn
Tele -density – 30.6
Bharti- Airtel -it is the largest player with a current presence of 23 Circles
PORTER’S GENERIC COMPETITIVE STRATEGIES
Cost Leadership Strategy – Airtel gains this generic strategy in an industry when its cost of operation is lower than its competitors. It has gain leadership by managing its processes and resources efficiently and effectively. By bringing cutting down its operational costs, It has offer its products and services to its customers at lowest prices. It has also earn high profits either through the profit margins are greater or the number of sales has been increased.
Differentiation Strategy- Airtel implemented this strategy mainly in order to possess sufficient skills and abilities to create uniqueness in the product as compare to that of its competitors based on few attributes which allows the customer to obtain or to accept the product as different from that of its competitors. Firms adopting the differentiation strategy has successfully are able to access to the advanced and modern scientific research, and a high labour force, effectively by or through customer communication strategy, etc.
The telecome company Airtel is offering free EPABX with free leased lines which means ,no connectivity charges .So the Airtel is providing the latest EPABX to its customers which is costing to them approxly Rs 50,000. Further company is providing the services like- Best customer care service provider, well managed call centers service especially in local or native and different languages,most important it is providing good services even in the remote areas, its emphasis based on “barriers breaks when people speaks”, and later new initiatives like engine search on Airtel live and downloads etc
Focus Strategy- A firm which is pursuing this strategy tends to serve a particular segment instead of serving it to the entire market. This type of segment may be for the special group of customers, specific geographic area or a particular product or a service line. The customers will also be loyal to the company and therefore the entry of a new competitor into that area becomes quiet difficult. Airtel is mainly focusing on the customers who is having more than Rs10000 monthly landline billing.
The Company’s strategy for Telecom business is to mainly focuses on the cities with high revenue potential. The services offering in this segment includes supply and implementing of fixed-line telephones providing local, national and international long distance connectivity and broadband Internets access with the help of DSL. (report on airtel and its strategies n.d.)
The generic strategies proposed by Michael Porter as those are contextualized in
the Competitive Strategy are not useful to describe a company’s strategy due to new challenges that this process brought to the economy, the markets and the companies, such as the importance of the internal management in a company far from economies of scale in the production area, which is not included in the Porter’s scheme as a key to a sustainable strategy.
Companies have designed more complex abilities to lead markets as local resources allow local performance. Networks are designed to potentiate individual competencies, to support customers worldwide.
The advance made on the analysis of Michael Porter’s generic strategies in the
current business environment are a critic new point of view that consider this ideas not valid in the short term in globalization.
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