Achieving Superior Financial Performance in China: Differentiation, Cost Leadership, or Both?

Topics: Economics, Marketing, Investment Pages: 3 (944 words) Published: April 23, 2011
'Achieving Superior Financial Performance in China: Differentiation, Cost Leadership, or Both?' • Cost-leadership, Differentiation and Dual strategy introduction: In emerging economies firms have to have appropriate marketing strategies to be succesful. Theoretically all three types (cost-leadership, differentiation and these two combined as a dual strategy) are appealing in their own way but nevertheless theories and surveys do not tell which one is the most suitable for such a huge emerging ecomony as China. • Moderating Effect of Domesticity and Concentration The impact of a cost-leadership strategy on financial performance is greater for domestic firms than for foreign firms. Domestic Chinese firms that undertake cost-leadership gain relatively higher margins than foreign companies. Possessing more knowledge about local business enables them to operate effectively at a lower cost for higher profits. For foreign firms cost-leadership is less effective because of firms' comparative cost disadvantage while operating in emerging economies (i.e. China). Although, foreign companies may achieve greater financial performance than domestic firms when they use a differentiation or dual strategy. Market concentration refers to the extent to which a large share of market sales is accounted by a small number of competitors - reflects to oligopolistic nature and competitive behaviour of the market. A cost-leadership and dual strategy have a weaker influence on financial performance when the level of market concentration is low rather than high. Differentiation strategy has a stronger influence. • Generic Strategies and Financial Performance Companies following a cost-leadership strategy strive to standard, high-volume product, which also has a competitive price. An emphasis on a cost-leadership strategy is more likely to create superior financial performance for firms operating in emerging economies, such as China. A differentiation strategy distinguishes company from its...
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