GLOBAL STRATEGY AUD LEADERSHIP stuny cure 4. aes Product and market development Contents Preview 43 Otcties Teaching meeils Product and market options 45 The Ansof product-arket matrix Growth in easing products and martots Froduct development: New products for eisting markets “Matket development: Existing products fr new markets Unrelated diversfication (ther anproches to products and markets New product development 418 ‘Stages ofthe new product development process Linking new product development projects to strategy Intollctual property and new product development Key sucess facors for new product development New market development 425 Expanding into new customer markets Expanding nto new geogrephic makets Development of new geographic markets 427 Objectives of mart entry Marke aactiveness Market development resources Researching and selecting nw geographic markets Timing of enty Koy success factors for nw marta dovelopment ‘Accounting issues in global strategy 438 Foreign exchange risks Preparing mutipe sets of accounts Incompatible systems Varying business conduct standards Taxation of revenue Transfer pices Common modes of entry into new geographic markets 445 Exporting Lensing Franchising dont ventures Stetsi lances Mergers and acouistions Wholly owned foreign enterprises Acaufng an existing overseas business Investing in green oporatins Advantages and csedvantages of ferent enty modesGLOBAL STRATEGY AND LEADERSHIP ta ervey cue Review 458 References 459 Web sites 461 Appendix. Readings Suggested answersGLOBAL STAATEGY aup LEADERSHIP Stuer guise 6.3 Preview With our analysis complete, we turn our attention in this module to using this information to identity strategic options for growrh. In this module we begin to combine the results ot theaxternal and internal analyses Giscussed in-Modules-2-and-3)-Thereare-nuimbe of factors that must be considered by an organisation prior to determining which, if any, growth strategy to pursue. In this module we introduce the Ansoff product-market matrix as a tool for identifying strategic options. This model considers products (or services) and markets on the basis of whether they are existing or new, By using this classification, it is possible to group strategic options into four broad classifications, as follows: = Market penetration—existing products into existing markets, = Product or service expansion—new products into existing markets = Market expansion—existing products into new markets. = Diversification—new products into new markets. Such grouping of options assists in evaluating the options when making strategic choices, which will be covered in Module 5 Product development refers to the processes and actions required to expand an organisation's product or service range, Product development is an important part of the process of strategy development and implementation. The major focus of product development is to either find new ways in which the existing product can be used or new ways to meet existing customer needs, The stages and key success factors for new product development are important for an organisation which intends to expand its product or service range. Depending on the type of product development, intellectual property considerations can also be crucial to providing the organisation with a strategic advantage in the form of a patent, for example. ‘Market development refers to the processes and actions required to expand an organisation's customer base and sales of their goods and/or services. Market development is an important part of the process of strategy development and implementation. The key activities performed in market development include determining alternative ) ways to expand a market: this can be a geographical market or a customer market. There are a number of different activities required, depending upon which type of ‘market an organisation wishes to expand. A major focus of market development is potential customers and opportunities in the global marketplace. This activity involves considering those factors in light of the capabilities and strategies of the organisation, Market analysis examines the existing market in terms of potential changes to the customer base andjor the geographic market served, while market development ‘examines the ways in which potential new markets may be entered and serviced by the organisation. It is important to note that, in the contemporary business environment, the definition of market extends beyond the geographic area; online sales now account for a significant proportion of trade for many organisations, so must not be ignored in any discussion of markets. This module provides a detailed discussion of a number of ‘ways in which an organisation can enter a new market, with an emphasis on entry to new international markets.ea stuoy eur GLOBAL STRATEGY AND LEADERSHIP In considering the concepts of product and market development as tools for organisational growth, we also discuss the types of resources available to inform strategic ) choices. The impact of specific accounting issues for an organisation when it decides to enter a new market or undertake significant new product development is also examined. ‘The consideration of accounting impacts is a Key factor in assessing organisational capability, particularly in terms of the cost and resourcing implications of any desired changes, and, while some of the issues discussed may appear more operational than, strategic in nature, they are a vital part of an organisation's capabilities and thus are key in successfully implementing a growth strategy. Objectives After completing this module, you should be able to: identify strategic options for an organisation using the Ansoff matrix, including ‘options for market penetration, new product development, market expansion and diversification; = discuss issues related to new product development, including the stages of the new development process, intellectual property implications and key success factors for new product development; 1 discuss issues related to the development of new geographic and customer markets, Including key success factors for new market development; + discuss the objectives of market entry, including the market attractiveness; identify various resources for obtaining information for market development; '= evaluate the potential impacts of various accounting issues associated with, expansion into new product and geographic markets, and 1» discuss various modes of entry for expanding into new markets. Teaching materials = Readings Reading 4.1* ‘Mining for new product successes’ ‘A.J. Magrath Reading 4.2" “Wal-Mart bids Auf Wiederschen, ends nine-year grind in Germany’ M. Toy ) Reading 4.3* “Another British invasion’ D. Hazel *+ Note: This reading is not inthe printed study material, Its available via ProQuest. Please refer to the instructions in the Segment Outline for accessing readings in ProQuestGLOBAL STAATESY AND LEAD) 1 stuoy cunts Product and market options As discussed in Module 2, most growth achieved in business results from a combination of annual population growth and inflation. If a business wants to achieve greater than average growth the organisation must-do.something beyond what-the industry overall —____ is doing to generate these greater levels of growth—that Is, there must be something different in terms of the proclucts or services they sell, in their geographic or customer ‘market, or in the way services are delivered, ‘The external environment analysis discussed in Module 2, combined with the internal analysis in Module 3, provides the information for determining how to change an ‘organisation's approach to enable the desired level of growth. Itis important that an organisation has a clear understanding of its existing position, identifies Its desired position and accurately determines its ability to reach the desired position through the Implementation of strategy, taking into account any strategic capabilities it may possess. One of the better-known tools for assisting in the identification and assessment of strategic options is Ansoff’s (1957) product-market matrix, which was first published in his article ‘Strategies for diversification’ in the Harvard Business Review. The approach shown in this model facilitates the clear identification and categorisation of market and product development opportunities. ‘The representation of the Ansoff product-market matrix, as shown in Figure 4.1, provides a useful framework for considering possible alternatives and options. ‘This matrix looks at options from an organisation's perspective based on two dimensions: product focused and market focused. It is important to note that the term product may refer to a service rather than a physical item, such as an insurance policy or a home loan, as well as physical products, such as motor vehicles. The market dimension considers geographic markets (e.g. Europe or China), as well as customer markets (e.g. different types of purchasers, such as wholesalers, supermarkets and butcher stores for a meat processor) and customer groups (e.g. Internet purchasers) Figure 4.1 Strategic options: Ansoff product-market matrix classification Increasing the amount and value of | Introducing new products or services business with existing customers in. | to existing customer mares, ™ visting markets, eg increasing the | icudes adding features to existing a site oval of purchese. roduc, bundling purchases, ' repackaging and 0 on. k Divesifcation e king existing products into Movngintorew products and t completely new markets, ew mates atthe same tine. s 9 finding new martts overseas. | This canbe either related or urelted Better custome geting futher to caren activites. research and market segmentation ae needed to develop new markets