Marketing Strategic Planning as a Source of Competitive Advantage for Mexican SMEs

Copyright by Institute of Organization and Managment in Industry ORGMASZ Vol 1(1); p. 19-26 Year 2008 10.2478/v10061-008-0003-0 Marketing Strategic Planning as a Source of Competitive Advantage for Mexican SMEs Francisco R. Rostro* Wies³aw M. Grudzewski** Introduction The importance of SMEs is undeniable in practically all the countries around the world, some important reasons are: the number of units these companies represent in the internal economies of the countries, the employment they generate, they serve several niches that aren t attractive for large firms, their participation in the national economies helps to avoid monopolies, among others. Even the well recognized importance of SMEs, these companies face important challenges for their permanence in the markets and, at least, for surviving. Challenges for SMEs are both internal and external. According to Kotler (1999), the most important external challenges for any firm are globalization and technology advances; globalization has generated important changes in the economical, social and legal/political environments and the final result of these new conditions is an important increase in the number of competitors. On the other side, new technologies have influenced customer habits, customs and buying practices. Now, consumers can check by Internet several and different options and buy the best one from the convenience of home in only few minutes (Kotler 1999). Now competition is global. The situation it s not easy for small and medium enterprises because historically these firms have presented disadvantages against large firms in terms of: finance, infrastructure, training, planning, controls in internal processes and cash flow, and Mexican SME s are not the exception. Compete under these circumstances it is practically impossible for Mexican SMEs. To achieve a relative competitiveness capacity, SMEs must deal with one of their main internal challenges: a radical change in its management model and, as a consequence, in its cultural corporate focus. From the author s vision, the main factor for corporate culture change in Mexican SMEs, in the task of reaching high competitive levels, is becoming a market focus firm. That s what this paper proposes to Mexican SMEs. Mexican SMEs: An Overview Since 1991 with NAFTA agreement, competence environment has been increasing day by day for Mexican SMEs. The reality is that a very important number of Mexican SMEs are not prepared to compete under these relative new circumstances; Mexican SMEs still operate in the same way than twenty years ago: holding a familiar management, not practicing a formal planning process and risk taking decisions is very conservative (Loyola and Guzmán 1996). In general, Mexican SMEs present an important market focus absence. Even Mexican SMEs are very important in the Mexican economical strategic development plan because they represent 95% of the total companies in the country and generate practically * Francisco R. Rostro Ph.D. student, Institute of Organization and Management in Industry ORGMASZ; Unversidad Politecnica de San Luis Potosi ** prof. dr eng. Wiesław M. Grudzewski Professor at Institute of Organization and Management in Industry ORGMASZ 19

the 50% of the employment (Anzola 2002), this sector haven t achieved its consolidation despite several governmental support programs. In figure 1, a general SWOT analysis of Mexican SMEs is presented to offer a simplified vision of their actual situation. According to Loyola (1996), Mexican SMEs owners consider that the most concerning problems for their firms are: strong competitors, population with very low purchase power level, lack of finance and investment capital, low access to technology and lack of qualified people, in that order. According to the concept of marketing evolution in figure 2 we can assume that Mexican SMEs haven t evolved to marketing phase and that they try to sell what they produce, and not offering what market demand. That s why in Mexico and even Latin America, small firms have been loosing market against foreign companies (Loyola and Guzmán, 1996). To be successful in this task, it is indispensable that SMEs establish an integral market Figure 1. A general SWOT analysis of Mexican SMEs Figure 2. The concept of marketing evolution vision, which integrates market strategies in the short and in the long terms. This market vision should consider two important axes: market needs and wishes, and an internal orientation to be sensible to environmental changes. Mexican SMEs need to establish the internal basis for implementing strategies based in an integral vision that considerate 20

diverse factors like: their competitive position, general environment analysis, competitive sources identification, an evaluation of the actual marketing activities performance, a value chain analysis, and finally a methodology for implementing the strategies generated in this process (O Donnell, Gilmore, Carson and Cummins 2002). The objective of Mexico consist in reinforcing its actual firms by supporting them in their growth strategies, and at the same time, motivate entrepreneurs for the establishment of new companies to satisfy the future employment and future market demand. Competitive advantages development for Mexican SMEs is an imperative. Competitive Advantage Creation: Mexican SMEs Case Day and Wensley (1988) argue that there is no common meaning for competitive advantage in practice or in the marketing strategy literature. However, for the purpose of this paper the following positions are considered: a) Competitive advantage results from the value a firm is capable to create to its customers. There are tree sources to create competitive advantages: cost leader, differentiation and niche strategy (Porter 1999). b) The unique position which a firm develops Vis a Vis to its competitors (Hofer and Schendel 1978). Competitive advantage creation implies a continuous and systematic strategic planning program, which includes a formal and structured methodology for collecting and diagnosis internal and external information. This is very important because in the present, it is not enough to hold the right product to the right market, nowadays, anticipate market trends and quick respond to such changes is vital (Preble and Hoffman 1988). The final objective for any firm is to offer superior value to the customers, and with this, to achieve a superior position in its industry. Different approaches have been proposed to generate competitive advantages. According to Day and Wensley (1988), superior skills and superior resources are the main drivers to create an advantage. Treacy and Wiersema (2004) propose three value disciplines to create value for gaining a competitive advantage: product leader, customer intimacy and operative excellence. Kotler (1999), identify three ways a company can deliver more value: lower prices, help customers in reducing other costs and add benefits that make the offer more attractive. Finally, Porter (1999) propose that the main strategies for competitive advantage gaining are: differentiation, niche specialization and cost leader. Certainly, there are an important number of approaches to gain competitive advantages; however, practically all of them are based in large firms, that is why is necessary for SMEs to define which approach is the most applicable to them and to define the methodology to implement the selected approach according to their circumstances. Strategic Marketing Planning as a Source for Competitive Advantage Creation for SME Marketing is the total demand management (Kotler 1999). This definition is not only short and simple to understand, but integral in reference to the wide scope of marketing along the company s performance. Marketing is one of the most, if not the most important function of any firm (Anzola 2002); without a market, a firm has no reason to exist and as a consequence, marketing mix simple doesn t exist. Vassenes (2003) identifies ten disciplines of marketing, as follows: a) Market research and competitive analysis, b) Competitive advantage, branding and image, c) Public relations, d) Advertising, e) Products and services, f) Pricing, g) Sales strategies, h) Promotion, i) Direct marketing, j) merchandising. According to Vassenes, one 21

of the disciplines of marketing is competitive advantage, at this point strategic marketing planning becomes more relevant for small organizations because a firm without a real practice of marketing concept won t identify or interpret opportunities in the market and will tend to offer attributes or benefits that the market simply doesn t appreciate. The understand marketing philosophy is vital for any firm because it supports companies in choosing the approach of competitive advantage gaining that best respond to its conditions. In the process of marketing oriented to gain advantages, two possible positions are considered in this process: competitor focus and clients focus. While several firms focuses its competitive strategies in competitors beaten, others prefer to concentrate its efforts in market deepest knowledge, detect opportunities and take advantage of them; the natural consequence will be the gaining of advantages over competitors. This approach doesn t mean not taken importance to competitor actions; certainly it is important to diagnosis competence, but not as the axe or as the final objective of the firm s strategy. Even tough, in Mexico 83% of the companies don t present a formal established marketing department and the distance in terms of cooperation between functional areas is very marked. In Mexico, marketing is seen as an area oriented to support sales department, which is the most important activity in the marketing mix. To offer a wide vision of Mexican SMEs in relation to its marketing practices, a SWOT analysis was developed in figure 3. There have been very important contributions to support SMEs in their efforts of creating competitive advantages: O Donnell et al. (2002) propose a model for competitive advantages in SMEs, in this model an internal process conformed by four phases is proposed: competitor identification, sources of advantages identification, defining positions of advantage and performance outcomes. Also, O Donnell identifies areas or positional advantages that are applicable to SMEs: product quality, customer service, innovation through differentiation, competitive pricing, cost control, tailored offering and segment focus. These results demonstrate that there are marketing areas in which SMEs can develop competitive advantages. According to Webster, Malter and Ganesan (2005), the fact that marketing does continue to play an influential role in corporate strategy in some companies, suggests that there is both an opportunity and a viable approach for building marketing competence as a source or a facilitator in the creation of competitive advantages. That is the vision of the present document. Figure 3. SWOT analysis of Mexican SMEs from the perspective of their marketing practices 22

In this research, a model is presented as a first approach to create competitive advantages based in market focus implementation in Mexican SMEs. Under this assumption, the model proposed in figure 4, attempts to drive the integration between both competitive positions (competitors focus and customer focus) through a market focus development in the firm. In the beginning, the model proposes market research as a very important source of information. Market research in this case must be focused in the external environment analysis and with this, the firm will obtain detailed information about several uncontrollable variables that impact in its performance, the next phase consist in developing a strategic market planning to identify market needs and wishes, and to identify possible competitive strategies to generate an important sensitize degree related to the importance of being a market focus firm. The next step in the model is the research of the intern environment of the firm. This factor has been included in the model because according to Carson and Gilmore (2000), it determines if the firms practice a risky, aggressive or a prudent behaviour in the industry. With the information of both external and internal environment, the strategic planning process can take place. In the planning process it will be possible to identify strengths and opportunities of the firm, to realize integration of capacities and opportunities and to evaluate or redefine the mission, vision and values of the organization. At this phase, the market focus approach initiates its construction through the generation of procedures, rules and politics that guarantee a real market focus orientation along the firm. The next phase of the model, consist in determining the segment or segments that the firm will choose as a target market. Once the segment has been selected, the firm will be capable of determining the most appropriate strategies to positioning the firm according to its value proposition and, of course, the characteristics of the segment. This phase is very important because if the firm executes it correctly, the planning efforts and the competitive strategies definition will be aligned with the target market needs. In the performance of the next phase, design of the competitive plan, the firm should identify both its possible sources of competitive advantage and the competitive position to implement, for the first case, three options are available: based in the value chain activities, based in resources or a combination. For the case of Mexican SMEs, the approach proposed by De la Fuente and Muñoz (2003), is considered the most practical and viable: the need for search for third option. In parallel to the sources of competitive advantages identification process, the firm must determine its competitive discipline. Treacy and Wiersema (2004) propose: customer intimacy, product leader and cost leader; even Treacy and Wiersema suggest that the firm must achieve excellence in one of the value disciplines and simultaneously, achieve an acceptable performance level in the other two disciplines, it is important to consider that this rules applies to large firms, that is why the line we propose in this research is that Mexican SMEs, should achieve excellence performance levels in one of the value disciplines and according to the growth the firm achieve along the time, to initiate concrete actions to improve its performance in the other disciplines. According to this assumption, the most recommendable disciplines for Mexican SMEs could be niche focus and, as a second option customer intimacy. The last phase of the model, proposes Kotler s marketing management process implementation which is presented in figure 5. The base to apply Kotler s process is the achievement of a real strategic alignment of the functional areas of the firm as a result of the strategic planning process realized in the past, and with this, the result will be the shape of a competitive advantage that will generate a high perceived value to the selected segment. Now the efforts will be concentrated in design the strategies of product, price, promotion and distribution, their implementation and control. The expected results of practicing this model in SMEs are: a) To generate a market information system within the firm, b) To implement 23

a process of market strategic planning, c) A market focus development, d) Strategic alignment of the functional areas of the firm, e) To become a learning firm, f) To consolidate the process of competitive advantage sources identification and also, a strategic definition of the value discipline(s) to implement to gain a competitive advantage, g) To implement an operative market system. The role of marketing that is proposed in this research consist in generating the necessary conditions to guarantee that all the planning and execution of the firm keep a permanent relation with the real requirements and expectative of the target market. At the en of the model, research for results and for new findings initiates the process again. The main goal is to develop a market focus within the firm as the result of a real strategic alignment to guarantee that the planning and execution processes stay in function of the market to ensure the success of the competitive advantage selected by the firm. Figure 4. Conceptual model to create competitive advantages based in strategic marketing planning for Mexican SMEs 24

Figure 5. Kotler s marketing management process Conclusions Competition between companies is growing up in many aspects like size, scope, innovation, aggressiveness. SMEs around the world and specially Mexican SMEs require a real change if they aspirate to survive and to occupy a profitable place in the industry. Competition now is overseas because of globalization and daily, every firm independently of its size, must consider that around the world are arising new ideas and projects from old and new firms that could affect its viability (Anzola 2002). This situation produces that when foreign competence arrives, SMEs are not prepared to face the new competitors and the final result is a loose of market for the SME. Marketing as a function that must be performed by the whole firm, must influence and integrate the company around its market needs. According to Kalirai (2003) the only way to be successful in this new competitive environment is driving marketing function to develop strategies oriented to position the firm over competitors. Marketing as an integrative function implies a radical change for the entire firm; in fact, the main axe is that the entire firm visualizes the customer as a strategic asset. The firm that practice marketing strategies planning under a market focus approach will develop a source of competitive advantage gaining. Bibliography 1. Anzola S., Administración de pequeñas empresas, México, DF.: Mc. Graw Hill, México 2002. 2. Carson D., Gilmore A., Marketing at the interface: Not what but how, Journal of Marketing Theory and Practice 2000, 8, 1. 3. Day G. S., Wensley R., Assessing advantages a framework for diagnosing competitive superiority, Journal of Marketing 1988, 52, 1. 4. De la Fuente M., Muñoz C., Ventaja competitiva: actividades o recursos?, Panorama Socioeconómico 2003, 26, 3. 5. Hofer C. W., Schendel D. Strategy Formulation: Analytical Concepts, USA.: St Paul, Minneapolis 1978. 6. Kalirai S., Marketers must adapt skills to a changing world, Marketing 2003, London 6, 24. 7. Kotler Ph., Kotler on marketing, The Free Press, New York 1999. 8. Loyola J. A., Guzmán A., Punto de Partida: Un Modelo Para la Competitividad del Estado de San Luís Potosí, México: Instituto Tecnológico y de Estudios Superiores de Monterrey, ITESM 1996. 9. O Donnell A., Gilmore A., Carson D., Cummins D., Competitive advantage in small to Medium- Sized enterprises, Journal of Strategic Marketing 2002, 10, 205. 10. Porter M., Competitive Advantage. Creating and Sustaining Superior Performance, The Free Press, Mexico 1999. 11. Preble J. F., Hoffman R. C., Competitive advantage through specialty franchising, The Journal of Consumer Marketing 1998, 15, 64. 25

12. Treacy M., Wiersema F., La disciplina de los líderes del mercado, Bogotá, Grupo Editorial Norma, Colombia, Bogota 2004. 13. Vassenes P., Cash is king, but marketing is everything, Journal of Financial Planning 2003, 16, 30. 14. Webster F. E., Malter A. J., Ganesan S., The Decline and Dispersion of Marketing Competence, MIT Sloan Management Review 2005, 46, 4. Summary SMEs are facing important challenges in the markets due to globalization and its consequences. An analysis of Mexican SMEs general situation is presented as well as a model how to create competitive advantage through market focus. 26