The concept of strategy, competitive strategy

The word “strategy” comes from the Greek strategos, “the art of the general.” The military origin of the term should come as no surprise. It was strategos that allowed Alexander the Great to conquer the world [10 p.257].

In the military, this concept also means “plan to defeat the enemy”, “the art of military management”. For the first time the term “strategy” was used in relation to production, business by Alfred Chandler Jr. in the book “Strategy and Structure” in 1962 [17 p.15].

The strategy is a detailed, comprehensive integrated plan designed to ensure that the organization’s mission and objectives are met.

The strategy is mostly formulated and developed by senior management, but its implementation involves the participation of all levels of management. A strategic plan should be developed from the perspective of the entire corporation, rather than from the perspective of a particular individual. In personal enterprises, the founder of the enterprise can afford the relative luxury of combining personal plans with the strategy of the organization. But in most firms with a wide ownership of shares, this luxury may not be.

The strategic plan should be supported by extensive research and evidence. To compete effectively in today’s business world, a firm must constantly collect and analyze vast amounts of information about the industry, market, competition, and other factors.

The strategic plan gives the firm certainty, individuality, which allows it to attract certain types of employees, and, at the same time, not to attract other types of employees. Finally, strategic plans should be designed not only to remain coherent over long periods of time, but also to be flexible enough to modify and reorient them if necessary. The overall strategic plan should be considered as a program that guides the activities of the firm over a long period of time, realizing that the conflict and constantly changing business and social environment makes constant adjustments inevitable [10 pp.257–258].

The concept of “competitive strategy” is often considered as identical to the concepts of “competition policy”, “business strategy”. In many large corporations and even small firms, senior managers tend to be constantly engaged in strategic planning, but the implementation of the strategy involves the participation of all levels of management. Strategic planning is a certain action and decision designed to develop a firm’s strategy that contributes to the implementation of its goals. Strategic planning involves determining the mission of the company, analyzing its external environment and internal capabilities, determining current and future goals, the main means of solving them. The mission of the company is the main goal, the motto that determines its image. The main goals may be: obtaining long-term profits, increasing or maintaining market share, penetrating a new market, increasing productivity, expanding the range of products, etc.

Goals should be specific, quantifiable, achievable, consistent.

Thus, the company’s strategy is a comprehensive activity plan that implements its mission and goals and is focused on improving long-term efficiency, since there is a relationship between the choice of strategy and the success of the company in the market.

To correctly determine the strategy, the firm must conduct an analysis that involves the assessment of several groups of environmental factors that affect the firm. The main among these groups of factors are:

economic factors (inflation rate, employment rate in the country, exchange rate, etc.); political factors (regulatory documents of local bodies, government, the danger of using antimonopoly laws, the possibility of obtaining government loans, etc.); market factors (ease of market penetration, life cycles of goods, distribution of income of the population, level of competition in the industry, etc.); technological factors (success of technologies in the external environment); international factors (changes in markets, government policies in different countries, exchange rates, etc. for firms that operate in the international market); competition factors (analysis of future goals of competitors, assessment of the current strategy of competitors, study of strengths and weaknesses of competitors, etc.); factors of social behavior (expectations of various social groups, society’s attitude to entrepreneurship, consumer protection movements, etc.) [7 p.270-273]. Competition strategy is a set of techniques and initiatives aimed at attracting and satisfying customers, confronting competitors and strengthening a position in the market.

The goal of the competitive strategy is to achieve superiority over competitors in the offer of goods and services. Simply put, it is to outperform competitors in providing consumers with demanded goods and services and thereby gain a competitive advantage and market leadership. The core of the company’s competitive strategy is the internal activity of providing a higher consumer value than that of competitors. In addition, the competitive strategy includes offensive and defensive actions, the allocation and redistribution of resources to maintain long-term competitive opportunities and an advantageous competitive position, as well as tactical actions taken when market conditions change.

Companies around the world are trying to develop extraordinary competition strategies. Since the company’s competitive actions are developed taking into account the peculiarities of its position in the market and the general situation in the industry, there are countless options and nuances of competitive strategies – competitive strategies as many as competitors. However, in general, it can be said that the differences in competitive strategies are determined by two factors: the goals that the company pursues in the market, and the basis of competitive advantage – low costs or differentiation [15 p.167].

At its core, the strategy is a set of rules for decision-making, which guide the firm and its employees in their activities. It is designed to provide the company with a balance and a general direction of growth. At the same time, strategy is a concept that is difficult to grasp and to a certain extent abstract. Its development usually does not immediately bring the company any benefit or benefit.

What should be the strategy of the company depends on the current and future competitive position it occupies, the capabilities of the company and the conditions of the surrounding external competitive environment.

Among the elements of the external environment can be called buyers, competitors, intermediaries (transport, sales, cake), financial institutions (banks, insurance companies), advertising agencies, organizations that study public opinion, etc. In addition, this includes legal, cultural and moral norms, the general economic and political situation, scientific and technological achievements. This part of the environment is not manageable by the firm and is uncontrollable. The other part, which is subject to the management of the firm, is the controlled or internal environment and includes the organizational structure of the firm, as well as those processes that occur in it (production, development of new products, sales, etc.). In this regard, the competitive strategy should ensure that the firm’s capabilities are aligned with the market situation. At the same time, the enterprise should not only be flexible (from the point of view of timely adaptation to changing environmental conditions), but also be able to actively influence these conditions.

Thus, the competitive strategy of the firm ensures the transition from the current competitive position to the desired future competitive position [17 pp.15-16].

Many competitive strategies are due to the multifaceted aspects that a firm has to deal with when changing or defending its competitive position. At the same time, there are four main directions of the competitive strategy:

development and construction; maintenance and retention; protection; refusal [21 p.97].

The development and construction, for example, was adhered to by duPont. After fifteen years of development, it received the first synthetic fiber – nylon, immediately built several large factories and launched a wide advertising campaign (it is important to note that never before has this campaign produced consumer products that could be advertised). The efforts of the DuPont campaign were crowned with great success – it managed to create an industry for the production of new products, which are now called plastic materials.

Maintenance and retention was characteristic of the “Ninemite Cartel” founded by Alfred Nobel after his invention of dynamite. This cartel held a leading position in the world until the First World War and even a little longer, that is, after Nobel’s patents lost their force. The cartel achieved this by lowering prices whenever demand increased by 10-20%. By this time, it was possible to reimburse the costs of capital investments necessary for the production of additional products. It is for this reason that potential competitors had no desire to build new factories for the production of dynamite.

Protection often has to be done by mature enterprises. An example is the Xerox campaign, which until the mid-1980s rested on its laurels, although no business can thrive for a long time at the expense of old successes. Japanese firms have entered into competition with Xerox by offering inexpensive and affordable copying equipment for small offices. As a result of the campaign, Xerox had to “defend itself”, spreading the scope of its attention not only to large, but also to small users, as well as to switch to mandatory provision of after-sales services to them.

Rejection means a strategy of gradual departure against the background of a reorientation of buyers to other goods. For example, in the machine-building complex of the world in recent years, electronics has been growing at a faster pace, general engineering has been growing moderately, while the share of transport engineering is decreasing. The leading machine-building region of the world in terms of production scale is North America, which is known for the production of heavy-duty computers, aircraft, rocket and space technology, other types of weapons, moves the production of agricultural machinery and simple equipment to developing countries. In addition, the production of ships in Western and Central Europe was curtailed, and South Korea, on the contrary, increased their production and came out on top in the world, ahead of the former leader – Japan. Major manufacturers of ships were Brazil, Argentina, Mexico, China, Taiwan. Developed countries are gradually curtailing the production of consumer electronics, switching to its import from newly industrialized countries. Thus, in the United States, the production of electronic equipment for industrial purposes is several times higher than the production of household electronic equipment, which is now imported in large quantities [17 pp.16–18].

There are many approaches to characterizing competitive strategies and many classifications of competitive strategies. The authors of a number of approaches draw attention to the change in attitude to strategy in connection with the new paradigm of competition. “Positioning, one of the main components of the strategy, is recognized as too static in comparison with modern market dynamics and technological changes. According to the new beliefs, competitors can quickly take any position in the market, and their competitive advantage, at best, will be temporary. However, these statements are quite dangerous, – notes M. Porter, – they are rather half-truths, as a result of which they push more and more companies on the path of destructive competition” [13 p.49]. With the help of operational efficiency (performing similar activities better than those of competitors), many companies have successfully competed in recent decades. But it is becoming increasingly difficult to maintain a leading position. Competitors successfully adopt innovations in management, technology and marketing. Refusal to develop a strategy, replacing it with operational efficiency leads to competitive convergence (competitors are becoming more and more similar, and none is able to win). It’s a destructive path. With the connivance of management, operational efficiency is gradually replacing strategy.

The consequences of this policy are: competition in which no one wins; static or declining prices and pressure on costs, which in many cases jeopardizes the company’s ability to invest in the business long-term [13 p.55]. Even the most successful operational activities cannot replace strategy, do not provide a stable competitive position. The firm’s strategy, according to Porter, is to create a unique and advantageous position of the firm, providing for a certain set of activities. If there was an ideal position, there would be no need for a strategy. Every firm would strive to occupy it. The essence of the strategy is to find such a set of activities that would distinguish this company from competitors. The strategy makes the company different from others and allows it to maintain a relatively stable competitive position [2 pp.88-90].