Larson Outputs the First Potential Essay

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e. In Spain or Italy) Larson's products will be cheaper on global markets. Under this scenario, Larson would be forced to finance its operations entirely from ongoing cash flow. It would also see a slump in the strength of the battery industry. If the industry slumps, this may bring about the oligopoly scenario from Milestone 2. At present, however, a credit crunch would simply limit the amount of R&D that Larson could conduct, and would prohibit the offshoring of production in order to cut costs. Larson would still be able to follow the core cost leadership strategy, which was always the most reasonable option on the table given the industry characteristics.

Larson is faced with an uncertain future in that each of these three different scenarios delivers slightly different characteristics with regards to the nature of competition and the opportunities that exist in the marketplace. Some of the options presented under the different scenarios are mutually exclusive -- Larson cannot build a new plant in China during a credit crunch, nor can it focus on R&D while pursuing a cost leadership strategy. What Larson needs to do is evaluate its strategy based on the most likely scenarios of the global economy and the industry conditions. In this instance, the most likely scenario is a relatively slow growth economic scenario. While markets in Asia are strong, Europe may suffer from the effects of the Greek debt crisis, which threatens to stifle recovery from the 2009 economic slowdown.

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Conditions in the United State are different, but the current monetary policy climate is oriented towards imaginary threats rather than threats that actually exist, such as lingering high unemployment. This increases the threat of a double-dip in the U.S. As such, it is unlikely that growth in the world economy will be robust over the next five years. Larson should focus on gearing up for a price war with the existing firms in the industry, in particular as growth slows and some firms drop out.

The nature of competition is expected to move from the current state of monopolistic competition to oligopoly. It is recommended that Larson get ahead of this shift and focus on a low cost strategy. While it is sexy to want to pursue a strategy based on innovation and differentiation, there is only limited evidence to support the idea that the industry wants this in battery suppliers or that Larson is capable of being a leader in innovation. The reverse is also true -- Larson may not be well-positioned to pursue a cost leadership strategy either. However, they will be able to develop this position if they can build market share. This will require the pursuit of a penetration pricing strategy, at first using some of the company's excess margin but eventually using the economies of scale that will result from the expected increase in market share......

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