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Macro Environment

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2/27/12

Generic Competitive Strategies - eNotes.com

Generic Competitive Strategies
Generic Competitive Strategies
Three of the most widely read books on competitive analysis in the 1980s were Michael Porter's
Competitive Strategy, Competitive Advantage, and Competitive Advantage of Nations. In his various books,
Porter developed three generic strategies that, he argues, can be used singly or in combination to create a defendable position and to outperform competitors, whether they are within an industry or across nations.
Porter states that the strategies are generic because they are applicable to a large variety of situations and contexts. The strategies are (1) overall cost leadership; (2) differentiation; and (3) focus on a particular market niche. The generic strategies provide direction for firms in designing incentive systems, control procedures, and organizational arrangements. Following is a description of this work.

OVERALL COST LEADERSHIP STRATEGY
Overall cost leadership requires firms to develop policies aimed at becoming and remaining the lowest-cost producer and/or distributor in the industry. Company strategies aimed at controlling costs include construction of efficient-scale facilities, tight control of costs and overhead, avoidance of marginal customer accounts, minimization of operating expenses, reduction of input costs, tight control of labor costs, and lower distribution costs. The low-cost leader gains competitive advantage by getting its costs of production or distribution lower than those of the other firms in its market. The strategy is especially important for firms selling unbranded commodities such as beef or steel.

Figure 1
Competitive Advantage
Through Low Cost
Leadership
Figure 1 shows the competitive advantage firms may achieve through cost leadership. C is the original cost of production. C is the new…...

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