UNIVERSITY OF PORTHARCOURT,SCHOOL OF GRADUATE STUDIESFACULTY OF MANAGEMENTASSIGNMENT ON STRATEGIC BEHAVIOUR OF SURVIVING FIRMS IN NIGER DELTABYKANU OGECHI ANTHONIAG2016/MSC/MGT/FT/015COURSE TITLE: STRATEGY & STRUCTURECOURSE CODE: MGT. 801.2LECTURER: DR EKETUABSTRACTThis study focused on strategic behaviour of surviving firms in Niger delta. It was identified that there are two major strategic behaviour of a surviving firm, it could be non-cooperative behaviour which is a competitive behaviour for gaining competitive advantage, and it could also be cooperative behaviour which is used to gain comparative advantage and intensive strategies. However, there are generic strategies firms could implement for survival, amongst these strategies are growth or expansion strategy, stability strategy, combination strategy, and retrenchment strategy.
Any of these strategies could be adopted depending on the nature of environment they operate. Firms and managers in the Niger Delta should take note of these behaviours, identify which would suit the environment they exist and implement them.INTRODUCTIONFirm are entities that strive to survive in a volatile, uncertain, complex, ambiguous, relative and competitive environment.
They face competitors, government, consumers, suppliers etc. in their operation. However, they must compete with their rivals in the same industry in order to attract, and retain their customers, maintain or increase their market position. Firms also, rather than compete, cooperate to achieve a mutual interest.
Hence they strategies on how it is to be done. The word strategy has a number of definitions. Strategies, according to Bourgeois (1980), are the means by which the management of a company sets goals and pursues them through the alignment of the organizational resources with the environments opportunities and threats. According to Porter (1986), strategy is associated with the positioning of the company in the environment it is part of, with the aim of achieving a favorable position.
In the concept developed by Ohmae (1991), strategy is the way through which the company tries to distinguish itself from the competition in a positive manner, using its relatively strong points to meet customer needs better. Strategic behavior includes actions to influence rivals to act cooperatively so as to raise joint profits, as well as non-cooperative actions to raise the firm’s profits at the expense of rivals. Various types of collusion are examples of cooperative strategic behavior. Examples of non-cooperative strategic behavior include pre-emption of facilities, price and non-price predation and creation of artificial barriers to entry. LITERATURE REVIEW2.
1. CONCEPTUAL REVIEWSource: field survey, November 2017.A conceptual framework is a diagram showing the relationships among variables.
The independent variable is the strategic behavior, while the dependent behavior is firms survival. In order for a firm to survive, it must have certain strategies put in place. Strategy can be defined as a way in which an organization tries to distinguish itself from its competitors.
There are numerous strategic behaviors, however I studied two, i.e. the grand strategy and the generic strategy by Michael porter. A firm can be said to be surviving if it have a large number of sales, profits, market share, interest rate, etc. these strategies help a firm survive in a dynamic/ stable, simple/complex environment.
For instance, in order for a firm to survive in a complex environment, a firm can expand its business by concentrating on its particular product, however if a firm diversify unrelated to its product, it could cause more harm than good.2.2. EMPIRICAL REVIEWThere exist a lot of literature on strategic behaviour however, there few literatures that studied strategic behaviour of surviving firms.In a study conducted by Moreno, R. (2005), based on the ideas of Jovanovics theory (1982), to analyse the impact of the main strategies determining the competitive behaviour of firms on their survival rate.
It considered those strategies related both to product and price differentiation. Firstly, several non-parametric tests for equality of survival functions are computed to check the diversity of survival rates across different competitive characteristics of firms. Secondly, a duration model based on a hazard rate model is estimated to study the impact of the main competitive strategies on firm survival.
Its result showed that several aspects on the competitive advantage of the firms play an import role in the likelihood of firm survival. Jerome, R., & Anna, T. (2014), examined the strategic behaviour of levered firms in a non-competitive and in a competitive environment. They found that regulation induces firms to increase their leverage; and that this has a double negative effect: first it reduces firms ability to invest during the regulated period, and second, it reduces the competitively of firms when deregulation takes place.
Upon deregulation large and small levered firms adopt remarkably different strategies. Whereas small firms charge higher prices to increase margins at the expense of future market shares, large firms prey on their rivals by acquiring exiting firms and reducing prices to increase their market shares. Murat, K.
, (2008), in his article sought to find out main strategy that helps some of companies to get them success in competitive world. Present day we face many demands from the global, unpredictable and challenging business world. For surviving we must achieve productivity while building new and responsive work providing all the workers opportunities for both high performance and high quality of work life. With theoretical analysis also have tackled global banking industry as a case in order to understand empiric world.2.
3. DISCUSSION2.3.1. STRATEGIC BEHAVIOURStrategic behaviour refers to actions which a firm takes to improve its competitive position relative to actual and potential rivals, in order to gain a permanent commercial advantage, thereby increasing its long-run profits.
Carlton and Perloff (1994) refer to actions to influence the market environment and so increase profits; while Martin (1993) refers to investment of resources for the purpose of limiting rivals choices. Strategic behavior is a conscious behavior arising among a small number of competitors or players, in a situation where all are aware of their conflicting interests and interdependence of their decisions. Strategic behavior refers to actions taken by firms which aim to influence the market environment in which they compete (Cabral, L.
2010). From this definition, strategic behavior involves long-run actions and decisions such as production capacity, research and development (R), investment, location, advertising, product differentiation. 2.3.2.
CORPORATE STRATEGY This is the choice of direction for a firm as a whole and the management of its business or product portfolio (Rumelt, et al. 1994). It deals with how resources are allocated to and from the various companys business unit. There are 3 major cooperate strategies, they include: growth strategy, stability strategy and retrenchment strategies.
They are also called the grand strategyGROWTH STRATEGYThe aim of this strategy is to achieve profit, assists and sales growth.Companies in expanding industry grow in order to survive. A company can grow both internally and externally. They can grow internally by expanding their operations both globally and domestically, and externally through mergers and acquisition, and strategic alliance.
this strategy offers opportunities for advancement, promotion, and interesting jobs. There are two basic growth strategies, which are concentration and diversificationCONCENTRATIONHere, companies concentrate their resources on one or more of its businesses. The two basic concentration strategies are vertical growth and horizontal growth.Vertical Growth: the firm takes over the activities previously provided by a supplier and/or by a distributor. The company expands by supplying and distributing its own product to consumers. With this strategy, a company can gain competitive advantage, reduce cost, gain control over a scarce resources, guarantee quality of a key input, etc.
Vertical growth leads to vertical integration.Horizontal Growth: a firm expands by going across its present geographical locations to other locations, and/or by increasing the currents markets products and services. Research shows that firms that grow horizontally by broadening their product lines have high survival rate (Dowell, G. 2006). It results in horizontal integrationsDIVERSIFICATIONDiversification is used when a firms industry reaches its maturity stage, and most of the surviving firms have reached the limit of growth using growth strategies.
The two basic diversification strategies are concentric and conglomerateConcentric (Related) Diversification: this is used when a firm is the market leader, i.e. it has a strong competitive position. The firms focuses on its distinctive competence, and grow. The firm attempts to secure strategic fit in a new industry (llinich, A & Zeithaml, C. 2005).
Conglomerate (Unrelated) Diversification: this is used in an unattractive industry, and when the firm doesnt have capability that could be easily transferred to related products or services in other industries, so they diversify to unrelated products. STABILITY STRATEGIESThis is used when a company wants to continue to do its activities without making any change. This is used when a firms environment is stable and predictable (Inkpen, A.
, & Choudhury, N. 1995). Some of these strategies are pause/proceed with caution, no-change, and profit strategy.
Pause/Proceed with Caution Strategy: It is an attempt by the firm to rest before continuing another corporate strategy, in order to make improvements.No-Change Strategy: its a decision to do nothing new. The business environment is relatively stable giving the firm opportunity to continue in its current course, making only small adjustments for inflation in its objectives.
There are few new entrants, little or no threat and opportunity as well as strength and weaknessProfit Strategy: this is a strategy where the company act as though its problems are only temporary. It is an attempt to temporarily support profits when a companys sales are declining. It helps the firm get through temporary difficulty. Its a top managements passive, short term, and often self-serving response to a difficult situation RETRENCHMENT STRATEGYA company uses this strategy when it perceives itself to be behaving below its expectations, when its objectives arent met. There are several retrenchment strategy which include turnaround strategy, captive company strategy, bankruptcy, and liquidationTurnaround Strategy: it deals with improving operational efficiency.
Its appropriate when a companys problems are pervasive. It has two phases. Contraction phase and Consolidation phase.Captive Company Strategy: it involves giving up independence in exchange for security. The company in this situation faces poor sales and increasing losses unless it takes some action. Management offers to be a captive company to one of its larger customers to guarantee the companys survival with a long-term contracts.
With this strategy, the company can some of its functional activities.Sells-Out/ Divestment Strategy: it involves selling the entire company to another firm, with the assumption that another firm will have the necessary resources and determination to return the company to profitability.Bankruptcy/Liquidation Strategy: Bankruptcy involves giving up management of the firm to the courts in return for some settlement of the corporations obligations.
Top management hopes that once court decides the claims on the company, the company will be stronger and better able to compete in an attractive industry. Liquidation is the termination of the firm. COMBINATION STRATEGYCombination strategy is a strategy that joins two or more strategies in order to improve organizational performance. For example, combining diversification and retrenchment.
It is eclectic in nature. It is also adopted if there are plans to use several grand strategies at different future time.The combination strategy is the best for a firm whose divisions perform unevenly or do not have the same future potential2.3.
3. MICHAEL PORTERS GENERIC STRATEGIESMichael Porter identified three generic competitive strategies for surviving in a particular industry. They include Cost Leadership, Differentiation, and Focus.
COST LEADERSHIPThis is a situation where an organization strives to achieve the lowest cost in its industry or produce products for a broad customer base. The main goal is to have the lowest cost in the industry. This can be used when the customers of a business are price conscious. There are certain situation a firm should concentrate on a particular product and standardize it. Such situation include;When price competition among rival sellers is especially vigorousWhen the products of rival sellers are essentially identical and suppliers are readily availableWhen buyers incur low costs in switching their purchases from one seller to another and less customer loyaltyWhen most buyers use the product in the same wayWhen buyers are large and have significant power to bargain down pricesDIFFERENTIATIONWhen the competitive advantage of an organization lies in special features incorporated into the product or service which is demanded by customers who are willing to pay for it, then the strategy adopted is the differentiation strategy.
The organization competes by providing unique products with features that customers value, perceive as different and are willing to pay premium price for. This strategy can be usedWhen customers are quality consciousWhen market is too large to be catered for by few organizationWhen buyer needs and preferences and uses are diverseWhen few rival firms are following a similar differentiation approachWhen technological change is fast paced and competition revolves around rapidly evolving products featuresWhen the nature of the product is such that the brand loyalty is possible to generate and sustainFor this situation, dont standardize the produce, go for diversificationFOCUSThis is used when an organization pursues either a cost or differentiation advantage but in a limited customer group or segment. It is also known as niche strategies.
It can be segmented based on geographical location, product line, and customer type. This can be used whenThe target market niche is large, profitable and growingIndustry leaders do not consider the niche to be crucial to their own successWhen industry leaders consider it too costly or difficult to meet the specialized needs of the target niche while taking care of the main streamThe organization has necessary skills and expensive to solve the market niche segment.. CONCLUSION AND IMPLICATIONStrategic behavior are the behavior of firms in relation to competition etc. the firm has to identify the type of environment in which it operates before applying these strategies. It should use stability or concentration strategy if the environment is stable, but when the environment is dynamic, it is necessary to use growth strategy.
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