Strategy development Essay Example

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    Business
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  • Level:
    Undergraduate
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Strategy Development

Lecturer

Strategy Development

Strategy development involves outlining organizations broad aspirations as well as the concrete goals. The purpose of the concrete goals is to measure the progress in developing strategy for the business. In addition, strategy development also involves determining the potential field available to the organisation. In this case, an organisation asks determines the place (where) and chooses where to play as well as not to play. Where to play the strategy is very important because such factors as competition, supply and demand, and market saturation, potential of market growth and future prospects of the organisation are considered. This is because these factors influence the strategy development and the organisation as a whole and therefore they must be taken in to account. In the place to play or implement the strategy, the organisation must determine how it will win against the competitors (Ghemawat 2013). 

This report uses Pankaj Ghemawat’s well-known “AAA Triangle” framework to describe three generic approaches used by car industry in global value creation. This report will discuss the Peugeot car in the china market. The Pankaj Ghemawat’s well-known “AAA Triangle” frameworks are adaptation, aggregation and arbitrage. Globalisation requires an organisation to make strategic course and decision about each of the components of the market and business model.

Adaptation

This is creating global value chain by way of changing one or several elements of Peugeots cars to the market. The purpose of this is to meet customer expectation, their requirements and preferences. This is the mostly used strategy by the company. The Chinese market is known to have very strong taste of their own culture and they are very conservative. The company uses this as a strategy to deliver cars that meet their preferences and requirements. To keep in touch with the market and to avoid westernizing the cars very much, this strategy is essential and unavoidable. It requires innovation and design and this two adaptation strategies has been the company’s mainstream in the Chinese market. The pricing of the cars in china is also different and specific to the market; it is not influenced by external forces of issues from the international market like in other markets (Gui 2010).

The company uses design to reduce the costs of adaptation and innovation to improve on the existing adaptation. This has been very significant to the company as far as the china market is concerned. The innovation strategy has cross cutting effects to the company. Peugeot Company characterises innovation as improving the effectiveness of adaptation efforts it puts forward. This helps the company to reduce the geographic distance as it cuts the costs of transportation and this helps it to expand (Ghemawat 2007). Instead of manufacturing the cars in France and shipping them to china, the company has set manufacturing plants in china which are fully independent. The production plants serve the Asian markets as well. This has been central to the company’s growth and increase in market share in the Asian market. The design strategy also helps the company in reducing costs instead of variation. The company exercises design flexibilities, this helps the company to overcome supply differences. It helps the company to manufacture cars according to the needs and preferences of the market (Ghemawat 2013). Essentially, the adaptation strategy helps the company to manufacture cars that are affordable to all market segments from the cheapest to the highest.

Aggregation

This is about creating economies of scope or scale as a way of dealing with market differences. The objective of the Peugeot car is to exploit some similarities among the various geographies. The company chooses this field instead of adapting to differences. But stopping short of complete standardisation, this destroys the concurrent adaptation strategies adopted by the company. The best way to identify approaches of introducing economies of scope and scale in the global market and business model without compromising the existing local responsiveness is getting to blend the strategy with the business and market responsiveness in the local market. The Peugeot Company has used this strategy to great deal. As such, it has enjoyed the benefits of aggregation. It combines the local and its own strategies and this enables it to have economies of scale and scope as well (Ghemawat 2007).

The company has been adopting the regional method to globalizing the business, it has done this effectively. This is the most widely used aggregation strategy by companies manufacturing and selling cars around the world, Peugeot is not an exception to application of the approach. It is easy to identify advantages and benefits befalling the company because of using this strategy. It has not only helped the company to develop strategy but also to create global value creation (Ghemawat 2007).

Arbitrage

This is the third generation strategy for creation of global advantage. This involves exploiting differences instead of bridging to them or adapting to them. This defines the regional global strategy of Peugeot Company. By using this strategy, the company purchases low in one market (probably in low cost markets) and then it sells them high in other markets (the emerging and dominant markets). Although the company contracts outsourcing as well as offshoring, it does not give all the strategy and abilities but it keeps controlling stake such that it is able to influence the markets. Offshoring and outsourcing are the current equivalents; the company has used them though with a lot of care to avoid giving aware crucial company information to the competitors. The china market is a low cost market and therefore Peugeot buys from the china market and sells in other markets. The company has set a very large manufacturing and assembling plants in china, it serves as the company’s headquarters for the company’s operations in the Asian market (Gui 2010).

This has improved the company’s bargaining power with the suppliers as well as the local authorities. This reduces the supply chain, market and other non-market risks considerably. The company has developed a centre for sharing and creating knowledge in the china market. This explains the size and importance of the market to the Peugeot Company. Another factor that has been very favourable to the company related to Peugeot Company is the cultural arbitrage. The French cultural has had very big influence because it has always been an international success factor for the French products. Peugeot cars are from France. The company has enjoyed and benefit from the cultural arbitrage from France. In addition, the company has also benefited from administrative advantage. It has taken advantage of the administrative arbitrage to venture the china market. The political, legal and institutional arbitrage in china creates opportunities for the company as they favour the company. The company, through its strong bargaining power, forges for opportunities and therefore this helps in global value creation (de Kluyver 2010).

Essentially, all these arbitrage strategies used by the company to create value are economic. This means that they do not directly exploit the administrative and cultural differences. Instead, it focuses on leveraging differences in capital and cost of labour, this also includes variations knowledge.

Recommendations

Pankaj Ghemawat’s well-known “AAA Triangle” framework has helped and aided Peugeot car manufacturer to penetrate the different market segments in the Chinese market. The company has in deed not used to its capacity; the company is in apposition to benefit more from the application of these approaches to develop strategy for value creation in the Chinese market and the global market as well. The researcher recommends that Peugeot Company to apply more of the “AAA Triangle” framework, this would enable the company in global value creation (Ghemawat & Hout 2008).

Conclusion

Strategy development cannot be effective or helpful if it cannot help an organisation to compete with the competitors. The essence of this strategy development is to help the company to have a competitive edge over its competitors. The “AAA Triangle” framework has helped the company to realise its capabilities it has and which are necessary to create and maintain a winning formula in the global market. Lastly, the company has determined the management systems that are necessary to operate in order to create and maintain the organizations key capabilities. Pankaj Ghemawat’s well-known “AAA Triangle” framework has provided the company with differentiated strategy in global value creation and, hence, competitive edge.

References

De Kluyver, C. (2010). Fundamentals of global strategy: a business model approach. Business Expert Press.

Ghemawat, P. (2007). Redefining global strategy. Boston: Harvard Business School Publishing.

Ghemawat, P. (2013). Redefining global strategy: Crossing borders in a world where differences still matter. Harvard Business Press.

Ghemawat, P., & Hout, T. (2008). Tomorrow’s global giants? Not the usual suspects. Harvard Business Review86(11), 80-88.

Gui, L. (2010). Reshaping the boundaries of the firm: Global value chains and lead firm strategies. Progress In International Business Research5, 29-55.