2.3 Business Strategies

A business strategy relates to each business unit or product line. It focuses on the way the business unit competes within its industry for customers. Strategic decisions concern amount of advertising, direction, and extent of research and development, product changes, new product development, equipment and facilities, and expansion of or concentration of product lines （Thompson, Gamble &Strickland, 2004）.

The most popular business strategies are developed by Michael E. Porter who develops market orienting strategies focused on competitive advantages in the market after he identifies these five forces in the market. These five forces include potential new entrants, bargaining power of buyers, bargaining power of suppliers, threats of substitute products, and rivalry among competitors. Basing on his analysis on these forces, Michael Porter develops his model of competitive strategies, which consist of cost leadership, differentiation, and focus strategies.

Differentiation strategy

Differentiation strategy involves an attempt to distinguish the firm's products and services form others in the industry. The organization may use advertising distinctive product features, exceptional service or new technology to achieve a product perceived as unique. Differentiation strategy can be profitable for customers are loyal and will pay high prices for the product （Daft, 2011）. In international markets, an international differentiation strategy generally develops in countries possessing specialized factor endowments such as a highly-skilled or highly-specialized work force, an advanced educational system, or a highly advanced communications infrastructure （Hitt, 2005）.

Low-cost leadership strategy

With a cost leadership strategy, the organization aggressively seeks efficient facilities, pursues cost reductions, and uses tight cost controls to produce products more efficiently than competitors. A low-cost strategy focus on stability and it means that organization can undercut competitors' prices and still offer comparable quality, and earn a reasonable profit （Daft, 2011）. When this strategy is applied in international markets, it needs some adaptations. An international cost leadership strategy often develops in a country with a large demand for the product. Firm operations generally are centralized in the home country and the primary goal is to achieve economies of scale. Some outsourcing of low value-added operations may occur, but high value added operations remain in the home country. Generally, products are exported from the home country （Hitt, 2005）.

Focus strategy

With a focus strategy, the organization concentrates on a specific regional market or buyer group. The organization will use either a differentiation or low-cost approach, but only for a narrow target market （Daft, 2011）. The international focus strategy is generally developed in fragmented industries where a number of small to medium-size firms target specific market niches and pursue either a cost leadership or differentiation strategy to compete in their selected niche. An integrated cost leadership or integrated differentiation strategy is adopted by firms in industries that are able to successfully utilize new flexible manufacturing systems, have access to advanced information networks, and can successfully establish total quality management systems. （Hitt, 2005）