Type of

Current Business Example and

Strategy

Brief Analysis of Strategy Used

(a) Forward
integration

Company : Zara
Zara, a Spanish clothing and accessory company, has more than 1,000
outlets worldwide was opened in 1975. Zara has resisted the industry
wide trend towards transferring fast fashion production to low cost
countries. Its most unusual strategy was its policy of zero advertising;
the company preferred to invest a percentage of revenues in opening
new stores instead.
The secret to their success is vertical integration from design to
manufacture to retail. Unlike companies like Gap and H&M that
purchase their clothes from suppliers, Zara makes most of its own
whereby 60% of its goods are made in house. This helps the company
manage its inventory with extreme efficiency. It also allows the
company to respond to seasonal and fashion changes very quickly.
While Gap and H&M may take up to nine months to introduce a new
line of clothing, Zara can do it in two to three weeks. The firm can
respond quickly to any market contingency which cutting the times
consume, be faster, effective and efficient. The strategy implemented
by Zara also shows a big advantage to the company as it helps in
cutting their cost because they do not outsource any channel and avoid
conflicts emerge from different channels.
Zara manage all design, warehousing, logistics and distribution
functions by themselves, instead of relying to outside partners. The
company has been able to achieve excellent financial status due to its
core competencies that provide the chain with a competitive advantage
over traditional retailers in the industry. Zara is a chain that has
developed a successful diverse method of doing business in the fashion
industry. By working through the whole value chain is very vertically
integrated and highly capita intensive.

Vertical integration has become a distinctive feature of Zaras business

model, which allowed the company to successfully develop a strong
merchandising strategy. This rapid product turnover strategy has led the
company to create a climate of scarcity and opportunity as well as a
fast-fashion system. By owning its in-house production, they are able to
be flexible in variety, amount, and frequency of the new styles they
produce. This strategy purposely creates a rapid product turnover since
its runs are limited and inventories are strictly controlled.
As a conclusion, we can summarize that Zara has more control over the
way the product is presented, at what prices it is sold in the market and
significantly has ability to control costs throughout the distribution
process and to optimize resource utilization. Besides, they are solely to
increase advantages over competition by gaining direct access to
customer in a highly competitive market before its manufacturing
competitors do.
(b) Backward
integration

Company : Oriental Weavers

Established in 1980 by Mr. Mohamed Farid Khamis, a leading Egyptian
entrepreneur and industrialist Oriental Weavers (OW) is one of the
most recognized brands in the machine woven rug and carpet industry
today where the company has grown under his leadership to become
the largest and fastest-growing machine made rug and carpet
manufacturer in the world. OW is the acknowledged leader in design,
quality and innovation within the industry. OW is vertically (backward)
integrated thus providing the company with the advantage of
manipulating and producing fine fibers, and manufacturing the worlds
most innovative rugs and carpets. Most of OWs raw materials are
produced within its subsidiaries, allowing it to pass on the advantages
of complete vertical integration to all its customers.
Oriental Weavers has a unique business model that allows it to achieve
consistent, sustainable growth. The company is a global, low-cost
producer using efficiency, technology and geography to deliver superior

margins. At the same time, full integration backward and forward

smoothed and optimizes costs, allowing economies of scale and scope.
A flexible production capacity allows quick responses to market
conditions while production across all price points fully penetrates
markets. Finally, the Groups global experience and presence ensures
unmatched global market intelligence. Oriental Weavers is focused on
Organic Growth, expanding our Global Footprint, enhancing our Local
Dominance,

ensuring

Diversification,

and

furthering

Vertical

Integration.
OWs Vertical Integration strategy embraces the complete carpet care
and rug manufacturing process, from spinning and dyeing yarn to
locally producing the polypropylene granules used in making synthetic
fibers and blends thus guaranteeing quality and value for every rug.
This cornerstone of OWs strategy, in particular, allows for greater cost
reductions and complete control over the manufacturing process.
The company embarked its strategy of backward integration in 1983
with the establishment of 10th of Ramadan Spinning Company, to
satisfy OWs wool fiber requirements. Egyptian Fibers Company
(EFCO) and Oriental Weavers Fibers (OWF) were established in 1987
and 1993 respectively, securing OWs supply of polypropylene fibers.
Moreover, EFCO exports a portion of its production to Arab and
European countries. By doing that, OW can gain sole access to the
scarce resource (product & raw material) which would represent a
strong barrier to the potential competitors.

(c) Market
penetration

Company : Honda
Market penetration is focusing on selling your existing products or
services into existing markets to gain a higher market share. This can be
achieved in many ways such as maintaining or increasing the market
share of current products, securing dominance of growth markets,

restructuring a mature market by driving out competitors, do price

adjustments, increase promotion, create more distribution channels and
increasing usage by existing customers.
Honda started at the lower end of the market, with small motorcycles in
Britain and US. Hondas cautious moves to penetrate the lower end of
the market were not distinguished by their quality or even design. They
were cheap solution to meet the basic transportation needs of the
population. For example, Hondas lightweight motorcycles were aimed
at people needing to travel in short distances, whereas the competitors
were primarily concerned to satisfy expectations of motorcycle
enthusiasts using much larger and more sophisticated machines. In Thai
market, low-priced models were introduced to regain sales volume after
the Asian financial crisis in 1997. This strategy cause quick diffusion
and adoption of the product in the market. It was spread out into the
market and purchased by the customers quickly due to the prices are
cheap enough but offer similar quality to competitors product. As
Hondas position consolidated and as sales volumes grew, cash were
generated. High product turnover for a distributor due to fast sales help
to create distributors enthusiasm for your product.
After that, Honda began to pay special attention to product quality and
to move into expensive designs. Honda continuously utilized a market
penetration pricing strategy which has allowed them to attract a large
number of buyers and maintain a large market share. This strategy
enables Honda to gain a competitive advantage since the large amount
of customer provides economies of scale that lowers their cost and
allows them to set a more competitive price point. Honda launched the
Wave in response to the quick growth of Chinese motorcycles in the
Vietnamese market. This product launch enabled Honda to recover and
transform itself to be competitive even in a market in which volume
was important. Implementation of this strategy takes advantage of low
prices to increase product demand and market share. While the demand
is increasing, the organization save money on product creation costs

due to the greater volume of production.

Honda business and marketing objective is to enlarge their consumer
base. They offering better prices than their competitors, luring out their
customers becomes easier than previously expected. Other than that,
the strategy brings cost advantage when their business development
went the way as predicted. Low price offered able to guarantee
customers base growth and Honda can increase the quantity of the
product ordered from the supplier which will result in higher profits
gained from low prices.

(d) Market
development

Company : Starbucks
Starbucks is best known as a chain of coffee shops. As such, it has
various suppliers and inputs -- it buys coffee beans to make coffee as
well as customized mugs and products to sell in its stores. Starbucks
has been extremely successful to date. It has been able to transcend
different demographics in order to capture huge market share while at
the same time changing the way that customers view coffee. It has been
able to change a regular cup of coffee to an experience beyond the
coffee itself. In order to do this, and do this well, Starbucks has pursued
many different strategic actions.
Market development strategy has been used by Starbucks to increase
the market share of products that are currently offered. It is due to
saturated home market which may lead to self-cannibalization and
reaching the brand maturity stage in U.S. One of the best ways to
increase market share is to move from domestic to internationalization.
In 1995, due to the saturation od the United State market, Starbucks
started to expand their business to overseas. Global companies that plan
for expansion usually seek out attractive countries with such
opportunities.
In a bid to increase its worldwide presence, Starbucks has opened a

range of stores and operates in over 50 countries with more than 16,000
coffee shops. Starbucks has sought to expand the methods of delivering
its products outside of the traditional coffee shop. It has opened
licensed retail locations inside of grocery stores and formed alliances
with SYSCO, PepsiCo., U.S. Foodservice, and Kraft Foods to distribute
products to grocery stores and other food retailers.
Starbucks expand internationally primarily through local joint-ventures,
to whom it licenses is format, as opposed to a pure licensing strategy
actually gives them some type of safety. The company began by
entering into joint ventures with local businessmen in over 50 countries
such as Japan, China, New Zealand, Philippines, Malaysia, Taiwan and
Thailand.
Starbucks strategy was also to license a reputable and capable local
company with retailing know-how in the target host country to develop
and operate new Starbucks stores. They had rather license to a holding
company that already has money to support the expansion and
experience with selling food or coffee that granting a license to an
individual that may not have any knowledge of the business. Joint
venture allows them to grow Starbucks without having to spend too
much money, pretty much like franchising.

(e) Product
development

Company : Mc Donalds
McDonalds is a brand that sells a variety of food through retail outlets.
Target is a brand that sells many product items in its retail stores. Part
of the success enjoyed by McDonalds is from their product
development strategy which refer to the modification of the brand, in
particular, the positioning of the brand. Since McDonalds has become
international company, it has created several products to meet consumer
demand in the local markets. For example, in Atlantic Canada, they
have developed the McLobster, their version of local lobster roll
sandwich while in Netherland, they have developed the McKroket, a

burger featuring a typically Dutch kroket. This strategy is to ensure that

their menu is fit with local customers tastes. This is the one of the key
to success, where they focus on developments that meet genuine
customer needs, rather than developing exciting technical features that
customers do not needed.
McDonalds creating new offerings for existing markets through
product innovation, product augmentation and product line extension.
For product innovation, they develop totally new offering such as new
menu on different festive celebrated in Malaysia. Meanwhile, through
product line extension, they broaden the existing line of offerings by
adding different sizes, forms and flavors. We can see that product
augmentation been done when they enhanced the value to the
customers of existing offerings by offering their menu in greater size.
There was a case study where Business Week chronicled the millions
McDonalds was pouring into experiments for new products for US
market in 1991. In 1998, they listed the flops for a few experiment
menus such as carrot sticks, fried chicken, Pizza, Pasta, Fajitas,
McLean Deluxe and etc. However, the last successful product is
Chicken McNugget.
McDonalds attempted to change its brand identity on the evaluative
dimension of healthy food. To do that, they changed their menu enough
that you could say that the product had changed. Historically,
McDonalds had a diffuse innovation process. An individual franchisee
might develop and launch a new food item. If the food item caught on,
the idea might spread to other markets. This process produced some big
winners, such as the Egg McMuffin breakfast sandwich, the Big Mac
and kid-friendly Happy Meals.
Later, McDonalds has sharpened its strategy. It has set clear success
criteria where new products must taste good, be inexpensive and be
easy to prepare. Customers provide feedback throughout the process,
increasing the odds that McDonalds launches winning products. The

company also brought in Dan Coudreaut, a chef who trained in the

Culinary Institute of America, to rapidly experiment with new ideas at
McDonalds test kitchen.
McDonalds approach helps to ensure that it introduces product that
have a strong chance of resonating with customers and generating
attractive returns. It does not do the company much good if it creates an
idea that is not scalable. For an example, one idea for a salad with
shrimp was nixed because, if successful, they could deplete the nations
shrimp supply.
Some menus undergo an improvement process to meet customer
demands. By doing so, McDonalds improve the performance of their
existing products, helps their sales team win business from competitors
that cannot match the new level of performance and increase revenue or
profit. Besides, they set the targets for quality improvement in their
product development which contributes to increase the sales.
(f) Related
Company : Apple
diversification
A company is diversified when it consist of two or more business units.
And successful when it resulted in added long-term economic value for
shareholders. Apple has dominated the portable media industry since
the introduction of the iPod.

Since then, Apple has introduced many

new products such as the iPhone, MacBook, and the iPad; all which are
sold throughout the globe. Apple has used close-related diversification
strategies as their corporate strategy.
For 20 years starting on 1976, Apple had low level diversification
where their concentration was on computer related industry. This
strategy put the company at risk due to intense competition. Starting
1997 onwards, they start to jump from moderate to high diversification
corporate strategy by introducing variety of new product and
technology from time to time. This strategy provides better risk control
to Apple through no longer being reliant on a single market. And

spreading the risk avoiding all eggs in one basket.

In 2001, Apple which was historically known for its software and
computer technology diversified into the digital music market with the
launch of the revolutionary portable mp3 player - the iPod and later the
iTunes Music store. Apple has had clear economies of scope due to the
high degree of integration between personal computing products and
personal entertainment. The economics of scope gained from such
strategy has reduced Apples operating costs, which in turns contributes
to both higher margins and more affordable prices to customers. More
importantly, diversification has restored the troubled companys image
and market share.
Apples related diversification has helped the company learn more
about what consumers are looking for in todays evolving technological
era. Apples diversification has proved that Apple is capable of creating
innovative high quality and well design devices that impress consumers
and facilitates every day and work life.

Apples iTunes, iPods, and

iPad diversification success has boosted sales of the Mac computers

because of the close integration between the products. Ultimately, this
integration creates a bundle of products that are easily managed
because they are all virtually running the same operating system.
iPad is one of the most popular products of Apple with a recent launch
of 7.85-inch model of 4th generation range. Apple hasnt deviated from
its policy of diversification; neither its a unique step to introduce
diverse tablet offers. This effort is Apples policy to frustrate opponents
who want to see the companys demise. Apple has the history of
diversifying a product once it hits the market.
Apple has introduced new phones to the iPhone range like iPhone 5,
iPhone 4S, iPhone 4 (all could be unlocked by unlock iPhone 4
software). Although, these devices apparently look similar, but in actual
these are quite different. In 2007, everyone was astonished to see Apple
launching a phone. After that, Apple keep on introducing new and

innovative products with updates at frequent intervals. Meanwhile, iPod

remained Apples most popular gadget unless the company introduced
iPod Mini and iPod Nano. iMac has changed the trend for PC users and
became computer. Another innovation was iBook laptop, to diversify
the range of Smartphones. In the range of MacBook Pro, Apple
introduced MacBook and MacBook Air.

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