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Herbalife Nutrition Ltd.For this assignment, you will analyze this companys (Internal) Strengths and Weaknesses.You will use the text chapters 1 through 3 as your framework for the analysis, and will incorporate information from external sources including the company and other credible sites. www.herbalife.com strategic_management_concepts_competitiveness_and_globalization_12th_editionl__concept_____dragged_.pdf Unformatted Attachment Preview 1 Strategic Management and Strategic Competitiveness Studying this chapter should provide you with the strategic management knowledge needed to: Define strategic competitiveness, strategy, competitive advantage, above-average returns, and the strategic management process. 1-2 Describe the competitive landscape and explain how globalization and technological changes shape it. 1-3 Use the industrial organization (I/O) model to explain how firms can earn above-average returns. 1-4 Use the resource-based model to explain how firms can earn above-average returns. 1-5 Describe vision and mission and discuss their value. 1-6 Define stakeholders and describe their ability to influence organizations. 1-7 Describe the work of strategic leaders. 1-8 Explain the strategic management process. © RomanOkopny/Getty Images 1-1 Copyright 2017 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. WCN 02-200-203 ALIBABA: AN ONLINE COLOSSUS IN CHINA GOES GLOBAL Alibaba Drone.PNG China now has the world’s largest number of internet users and Alibaba is China’s largest ecommerce company (23 percent owned by Yahoo and 36 percent owned by Japan’s SoftBank). In 2014, when Alibaba completed its initial public offering (IPO) on the New York Stock Exchange, it immediately became worth more than Amazon and eBay combined and has a larger market capitalization than Walmart. Transactions of goods on Alibaba’s websites account for more than 2 percent of China’s GDP in 2012. Comparatively, Walmart’s sales account for 0.03 percent of U.S. GDP in 2012. Alibaba’s presence has turned China into the world’s second largest ecommerce market after the United States. Chinese consumers purchase products on Tmall, a consumer shopping site on Alibaba analogous to a department store and similar to Amazon. Because of China’s vast size and underdeveloped consumer market, it has few national mainland malls or brick and mortar department store chains. As such, the presence of Alibaba is stimulating consumption that would not otherwise take place in China. Furthermore, Alibaba’s presence changed consumer buying habits, especially in third- and fourth-tier (e.g., smaller and more geographically remote) cities because it gives consumers access to items that they could not previously obtain locally. Taobao is another website owned by Alibaba and is comparable to eBay in the United States. On Taobao, Alibaba does not stock or sell its own goods but rather provides platforms where manufacturers, resellers, and other middle-men open online storefronts. Larger consumer branded products prefer Tmall because Alibaba’s policies promote this site more heavily and fraudulent brands are less likely to be found on this site. For instance, popular brands such as Prada handbags must provide evidence that they are a licensed distributor before they are allowed to sell on Tmall. Taobao is more focused on small sellers; it has 6 million registered sellers with a vast range in size. Given these two websites, Alibaba is the easiest way for foreign retailers to enter the Chinese market because it has such reach. Online sales account for 90 percent of marketplace sales in China, compared with 24 percent for the United States in 2014. Accordingly, Alibaba provides the easiest way to enter the Chinese market for foreign retailers due the large access to consumers available through Alibaba’s websites. Alibaba’s websites also give smaller Chinese manufacturers the opportunity to increase domestic sales because of Alibaba’s reach. For example, Weighing Apparatus Group, originally a supplier of household and industrial scales for Bed Bath & Beyond, set up a website on Taobao in 2009. In 2014, one-fifth of its domestic sales now flow through its Taobao online storefront, allowing it to move beyond being only a supplier for other firm’s branded products. Alibaba through its Alipay system is working on a joint venture with Apple to provide back-end services for the Apple Pay payment system allowing iPhone users in China to pay for goods with Apple Pay using their Alipay accounts. This approach is fostering an improved mobile online strategy for Alibaba. It also facilitates better service for online Apple iPhone users who desire to browse and purchase on Alibaba websites. Fraudulent goods can be an important strategic issue in China because of previous product liability suits from banned or recalled goods sold to U.S. consumers. Copyright 2017 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. WCN 02-200-203 4 As such, Alibaba is collaborating with the United States Consumer Product Safety Commission to improve its credibility among U.S. consumers by helping to ban sale of fake and fraudulently branded or recalled goods. This is also facilitating Alibaba’s global access strategy. Alibaba is also moving into online media content and streaming video services. In 2014, it announced its acquisition of ChinaVision Media, producers or co-producers of films including “Crouching Tiger, Hidden Dragon” and “Breaking the Silence.” Just as Amazon and Netflix are producing their own media content, Alibaba is moving in this direction as well, as it competes with other service providers such as Tencent and Baidu in web communications and broadcasting in China. Getting its strategies right in the local domestic Chines market as well as internationally is key to Alibaba’s success. Sources: D. Tsuruoka, 2015, Alibaba blocks sale of unsafe goods to U.S. shoppers, Investor’s Business Daily Daily, www.investorsbusinessdaily.com, Jan 13; S. Cendrowski, 2014, Alibaba’s Maggie Wu and Lucy Peng: The dynamic duo behind the IPO, Fortune, www.fortune.com, September 17; R. Flannery, 2014, China media entrepreneur’s fortune soars on Alibaba investment, Forbes, www.forbes.com, March 12; C. Larson, 2014, In China its meet me at Tmall, Bloomberg Businessweek Businessweek, www.bloombergbusinessweek.com, September 11. A Strategic competitiveness is achieved when a firm successfully formulates and implements a value creating strategy. A strategy is an integrated and coordinated set of commitments and actions designed to exploit core competencies and gain a competitive advantage. A firm has a competitive advantage when it implements a strategy that creates superior value for customers and that competitors are unable to duplicate or find it too costly to try to imitate. s we see from the Opening Case, Alibaba is highly successful because its strategy in China has allowed it to have a massive impact in regard to online sales in a large emerging economy. It is now seeking to grow globally and gain widespread name/brand recognition through its 2014 IPO in New York. These attributes have enhanced its ability to compete in global online markets. Therefore, we can conclude that Alibaba has achieved strategic competitiveness. It clearly has been able to earn above-average returns, at least, domestically. Yet Alibaba has received its share of criticism because of its perceived contribution to the sale of fraudulent goods. However, it is addressing this issue through its collaboration with the United States Consumer Product Safety Commission. The top management of Alibaba has used the strategic management process (see Figure 1.1) as the foundation for the commitments, decisions, and actions they took to pursue strategic competitiveness and above-average returns. The strategic management process is fully explained in this book. We introduce you to this process in the next few paragraphs. Strategic competitiveness is achieved when a firm successfully formulates and implements a value-creating strategy. A strategy is an integrated and coordinated set of commitments and actions designed to exploit core competencies and gain a competitive advantage. When choosing a strategy, firms make choices among competing alternatives as the pathway for deciding how they will pursue strategic competitiveness. In this sense, the chosen strategy indicates what the firm will do as well as what the firm will not do. As explained in the Opening Case, Alibaba has been a leader in its industry as one of the most successful facilitators of online sales in China and is now seeking to become a successful global business. However, in doing so it must respond to its changing environment. In fact, to adapt to local environments, it sometimes makes major changes. For example, it is coordinating with Apple Pay to improve access for the high number iPhones that Apple is now selling in China. A firm has a competitive advantage “when it implements a strategy that creates superior value for customers and that its competitors are unable to duplicate or find too costly to imitate.”1 An organization can be confident that its strategy has resulted in one or more useful competitive advantages only after competitors’ efforts to duplicate its strategy have ceased or failed. In addition, firms must understand that no competitive advantage is permanent.2 The speed with which competitors are able to acquire the skills Copyright 2017 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. WCN 02-200-203 5 Chapter 1: Strategic Management and Strategic Competitiveness Figure 1.1 The Strategic Management Process Analysis Chapter 2 The External Environment Vision Mission Chapter 3 The Internal Organization Performance Strategy Strategy Formulation Strategy Implementation Chapter 4 Business-Level Strategy Chapter 5 Competitive Rivalry and Competitive Dynamics Chapter 6 CorporateLevel Strategy Chapter 10 Corporate Governance Chapter 11 Organizational Structure and Controls Chapter 7 Merger and Acquisition Strategies Chapter 8 International Strategy Chapter 9 Cooperative Strategy Chapter 12 Strategic Leadership Chapter 13 Strategic Entrepreneurship Strategic Competitiveness Above-A Above-Average Returns needed to duplicate the benefits of a firm’s value-creating strategy determines how long the competitive advantage will last.3 Above-average returns are returns in excess of what an investor expects to earn from other investments with a similar amount of risk. Risk is an investor’s uncertainty about the economic gains or losses that will result from a particular investment. The most successful companies learn how to effectively manage risk.4 Effectively managing risks reduces investors’ uncertainty about the results of their investment.5 Returns are often measured in terms of accounting figures, such as return on assets, return on equity, or return on sales. Alternatively, returns can be measured on the basis of stock market returns, such as monthly returns (the end-of-the-period stock price minus the beginning stock price divided by the beginning stock price, yielding a percentage return). 6 Above-average returns are returns in excess of what an investor expects to earn from other investments with a similar amount of risk Risk is an investor’s uncertainty about the economic gains or losses that will result from a particular investment. Copyright 2017 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. WCN 02-200-203 6 Part 1: Strategic Management Inputs Average returns are returns equal to those an investor expects to earn from other investments with a similar amount of risk. The strategic management process is the full set of commitments, decisions, and actions required for a firm to achieve strategic competitiveness and earn above-average returns. In smaller, new venture firms, returns are sometimes measured in terms of the amount and speed of growth (e.g., in annual sales) rather than more traditional profitability measures7 because new ventures require time to earn acceptable returns (in the form of return on assets and so forth) on investors’ investments.8 Understanding how to exploit a competitive advantage is important for firms seeking to earn above-average returns.9 Firms without a competitive advantage or that are not competing in an attractive industry earn, at best, average returns. Average returns are returns equal to those an investor expects to earn from other investments with a similar amount of risk. In the long run, an inability to earn at least average returns results first in decline and, eventually, failure.10 Failure occurs because investors withdraw their investments from those firms earning less-than-average returns. As previously noted, there are no guarantees of permanent success. Companies that are prospering must not become overconfident. Research suggests that overconfidence can lead to excessive risk taking.11 Even considering Apple’s excellent current performance, it still must be careful not to become overconfident and continue its quest to be the leader for its markets. The strategic management process is the full set of commitments, decisions, and actions required for a firm to achieve strategic competitiveness and earn above-average returns (see Figure 1.1)12. The process involves analysis, strategy and performance (the A-S-P model—see Figure 1.1). The firm’s first step in the process is to analyze its external environment and internal organization to determine its resources, capabilities, and core-competencies—on which its strategy likely will be based. Alibaba has established its dominant position because it has excelled in using this process. The strategy portion of the model entails strategy formulation and strategy implementation. With the information gained from external and internal analyses, the firm develops its vision and mission and formulates one or more strategies. To implement its strategies, the firm takes actions to enact each strategy with the intent of achieving strategic competitiveness and above-average returns ((performance). Effective strategic actions that take place in the context of carefully integrated strategy formulation and implementation efforts result in positive performance. This dynamic strategic management process must be maintained as ever-changing markets and competitive structures are coordinated with a firm’s continuously evolving strategic inputs.13 In the remaining chapters of this book, we use the strategic management process to explain what firms do to achieve strategic competitiveness and earn above-average returns. We demonstrate why some firms consistently achieve competitive success while others fail to do so.14 As you will see, the reality of global competition is a critical part of the strategic management process and significantly influences firms’ performances.15 Indeed, learning how to successfully compete in the globalized world is one of the most significant challenges for firms competing in the current century.16 Several topics will be discussed in this chapter. First, we describe the current competitive landscape. This challenging landscape is being created primarily by the emergence of a global economy, globalization resulting from that economy, and rapid technological changes. Next, we examine two models that firms use to gather the information and knowledge required to choose and then effectively implement their strategies. The insights gained from these models also serve as the foundation for forming the firm’s vision and mission. The first model (industrial organization or I/O) suggests that the external environment is the primary determinant of a firm’s strategic actions. According to this model, identifying and then operating effectively in an attractive (i.e., profitable) industry or segment of an industry are the keys to competitive success.17 The second model (resource-based) suggests that a firm’s unique resources and capabilities are the critical link to strategic competitiveness.18 Thus, the first model is concerned primarily Copyright 2017 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. WCN 02-200-203 7 Chapter 1: Strategic Management and Strategic Competitiveness with the firm’s external environment, while the second model is concerned primarily with the firm’s internal organization. After discussing vision and mission, directionsetting statements that influence the choice and use of strategies, we describe the stakeholders that organizations serve. The degree to which stakeholders’ needs can be met increases when firms achieve strategic competitiveness and earn above-average returns. Closing the chapter are introductions to strategic leaders and the elements of the strategic management process. 1-1 The Competitive Landscape The fundamental nature of competition in many of the world’s industries is changing. Although financial capital is no longer scarce due to the deep recession, markets are increasingly volatile.19 Because of this, the pace of change is relentless and ever-increasing. Even determining the boundaries of an industry has become challenging. Consider, for example, how advances in interactive computer networks and telecommunications have blurred the boundaries of the entertainment industry. Today, not only do cable companies and satellite networks compete for entertainment revenue from television, but telecommunication companies are moving into the entertainment business through significant improvements in fiber-optic lines.20 More recently, internet only streaming services have started to compete with cable, satellite, and telecommunication offerings. “Sling TV is part of a growing wave of offerings expected from tech, telecom and media companies in the coming year, posing a threat to the established television business, which takes in $170 billion a year. Meanwhile, the streaming outlets of Amazon, Hulu and Netflix continue to pour resources into developing more robust offerings. Sony, CBS, HBO and others are starting Internet-only subscription offerings.”21 Interestingly, Netflix and other streaming content providers such as Amazon are producing their own content; Netflix is producing repeat series such as “House of Cards,” “Orange Is the New Black,” and “Marco Polo”.22 As noted in the opening case, Alibaba intends to enter the entertainment business as Netflix and other content distributors and producers enter international markets. Other characteristics of the current competitive landscape are noteworthy. Conventional sources of competitive advantage such as economies of scale and huge advertising budgets are not as effective as they once were (e.g., due to social media advertising) in terms of helping firms earn above-average returns. Moreover, the traditional managerial mind-set is unlikely to lead a firm to strategic competitiveness. Managers must adopt a new mind-set that values flexibility, speed, innovation, integration, and the challenges that evolve from constantly changing conditions.23 The conditions of the competitive landscape result in a perilous business world, one in which the investments that are required to compete on a global scale are enormous and the consequences of failure are severe.24 Effective use of the strategic management process reduces the likelihood of failure for firms as they encounter the conditions of today’s competitive landscape. Hypercompetition describes competition that is excessive such that it creates inherent instability and necessitates constant disruptive change for firms in the competitive landscape.25 Hypercompetition results from the dynamics of strategic maneuvering among global and innovative combatants.26 It is a condition of rapidly escalating competition based on price-quality positioning, competition to create new know-how and establish first-mover advantage, and competition to protect or invade established product or geographic markets.27 In a hypercompetitive market, firms often aggressively challenge t ... Purchase answer to see full attachment