● The company operates in different geographical markets. In case such markets differ because of nature and intensity of the competition, it is advisable to carry out in depth analyses for each of them.
● The business unit(s) targets different distribution channels (e.g., the company sells its products through both its proprietary website and a network of retail stores)
● Hybrid situations that mix the cases above.
2.2.2 Definition of the Competitive Strategies
The definition of the competitive strategies expected to implemented by the company over the business plan horizon is certainly a key aspect.
If the company operates in different sectors, the competitive strategies should be prepared both at the overall company level and at any single business unit level.
Competitive Strategies at Company Level
The definition of competitive strategies at the company level should include the following aspects:
● The sectors in which the company is expected to operate in. This element impacts on:
● Shutting down or divesting business units
● Planning the entry in new segments/sectors (if appropriate via extraordinary corporate transactions such as M&A or joint ventures)
● The legal structure to adopt. Some possible choices are:
● Comprehensive unique legal entity embedding all the operations regardless of the nature of the businesses
● Creation of a holding with coordination and headquarters functions; such parent company would own (entirely or partially) subsidiaries running the different business the company operates in
● Mixed structure where the parent company runs some operating activities and runs other activities via legally independent subsidiaries and
● The best way to get and structure financing. Companies may decide, for example, to finance their growth by going public listing their shares on a stock exchange, opening their capital and raising primary proceeds that will be invested to carry out the growth plans. In the case of large corporations, there might be an “internal capital market” that provides financing for new business/projects via cash pooling arrangements with the subsidiaries. In general, companies can choose from these alternatives:
● Render the legal subsidiaries financially autonomous from the parent company, with the consequence that each subsidiary is free to arrange and procure autonomous financing on the private and public markets in the way it prefers.
● Manage the raising of financing at holding level, redistributing it through the group entities by means of intragroup loans.
● Use a mix of the two above.
● The tax strategy at corporate level. For instance:
● Assessment of the opportunity to consolidate the fiscal incomes generated by the different legal subsidiaries.
● Definition of the transfer pricing policies (this is the most common choice of multinational corporations).
● The investment and management strategy of the corporate intangible assets. For instance, the intangible assets could be:
● Controlled by the single legal entities that have developed or bought it.
● Concentrated in a unique legal entity created ad-hoc to develop, maintain, and protect the overall company intangible assets stock in the best possible way. The other legal entities of the group can use the intangible assets legally owned by the above entity by means of license agreements.
● The role of the corporate structure.
Exhibit 2.1 shows the structure of Alfa, a company controlling subsidiaries operating in the three following business sectors:
● IT and media solutions: high-tech services for the sharing and broadcasting of events
● Post-production and animation: digital content and graphical effects production for the cinema, television, and media advertising markets
● Events media technology: planning and realization services for arts and exposition events
Exhibit 2.1 Competitive strategy at corporate level
Exhibit 2.1 shows the strategies of Alfa Inc. management for the main businesses of the company.
Competitive Strategies at the Single Business Unit Level
The main competitive strategies that can translated in business plan objectives consist of decisions regarding:
● The geographical markets where to sell company's products.
● The geographical markets to establish directly owned operations versus creating partnerships with independent local players.
● The competitive positioning to follow in the chosen market(s). As such, it is necessary to identify with precision:
● Clients' needs to address
● Type of reference client
● Product/service to be offered
● Price policy
● The distribution channel(s) to use.
● The nature of the business activity the company operates into. In this respect, the management may deem it necessary to implement the following measures:
● Supply chain integration at the top/at the bottom of the chain. In other words, the company could decide to internalize and manage directly some activities or steps previously outsourced to suppliers, distributors, agents, and others.
● Outsource some activities previously internalized in the company processes.
● The places in which to physically operate. Management could take these measures:
● Start delocalization process, with the consequence that a portion of the activities is transferred to other production sites.
● Develop new manufacturing plants/production sites.
● Shut down some previously operating manufacturing plants/production sites.
Exhibits 2.2 and 2.3 show the competitive strategy studied by Alfa management with respect to, in particular, the “IT and media solutions” sector.
Exhibit 2.2 Competitive strategy at the single business activity level (the Alfa case, 1st part)
Exhibit 2.3 Competitive strategy at the single business activity level (the Alfa case, 2nd part)
2.2.3 Definition of the Actions Needed to Implement the Competitive Strategy
Once having defined the competitive strategies both at company and at single business activities level, it is then needed to focus on the actions needed in practice to implement them. For instance, let's hypothesize that the company management has opted to implement an internationalization strategy. In this case, the business plan will very likely envisage the opening of new branches, manufacturing plants, and so on in loco in those markets identified for the expansion. As a second example, let's assume the management has decided, in particular, to implement a cost-cutting program aimed at increasing the company profitability. In this example, the business plan could envisage, inter alia:
● Specific actions aimed at cutting labor costs (personnel cutting, delocalization of the production activity, etc.)
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