One of the greatest tools of use for a firm is being aware of it's position within an industry. When a company is knowledgeable of where it stands, it can more accurately assess its strengths and weaknesses and what is, or has the potential to be, it's competitive advantage. Michael Porter, believed that the basis for this advantage falls under 3 base strategies of Cost leadership, Differentiation and Focus. With the use of his generic strategy model, a firm, understanding where its competitive advantage lies, can then formulate and implement an effective business strategy geared towards the sustainability of this advantage.
The 3 bases, formed 5 generic strategies : Cost Leadership, strongly speaks towards the production of a lower price product. It appeals to consumers because of low cost. Type 1 strategy is Cost Leadership : low cost, that offers the product at the lowest price available on the market. Type 2 is best value, that offers the lowest price for value available on the market. A firm seeking to become a cost leader then, is attempting to gain a competitive advantage by producing at the lowest cost. For example, the automobile sector, in formulating a strategy must attempt to cut costs at every step of their value chain, whether it is using word of mouth over advertisements or engaging in vertical integration strategies in an attempt to control costs. They must improve the efficiencies of their processes and because of its low cost nature, be prepared to be highly leveraged, if necessary, to maintain its position. Malaysia's car makers Perodua and Proton are examples of cost leaders, but also of how this position is used to formulate strategy. The rival low cost maker, Perodua, entered the market and lowered prices further in retaliation and assumed market control, but then because of limitation of supplies and new government regulation Proton once more overtook Perodua. Thus the cost leader must constantly stay aware of the 5 forces, and it...
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