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June 27, 2026 — Cleaned Transcript

So one more minute to sign in. Hey. Yeah, so anyone who feels that they didn't do well in the quiz, they can get the capybara for one remark. Everyone who's in the room, jack in. Okay, let's go. Question number one: 154 people.

Which company invented the modern QR code in 1994? And in fact, they made the patent public so anybody could use it on purpose, which is why we all use it now. Very impressive thing. It's a very simple thing, but a really powerful tool that everybody uses. So next time. Most people thought NEC, interesting. Any season — American company, right? Oh, Japanese actually. So they're all Japanese companies. Let's see who's John. Very nice. Good, good. Oh, exactly 1,000 points.

Next question. Which company typically applies for and receives the most US patents in a single year: IBM, Apple, Samsung Electronics, or Intel? Really interesting, right? Something like 500 patents they receive every year for technology. It usually swaps between Samsung and IBM, but Samsung has been getting more patents in the last few years. Let's see who got that the fastest. Oh, pink jumping ahead. But John still keeping in second place.

Next question. Which country consumes the most Coca-Cola per person? Per head. That's Mexico, by the way. Per person, Mexico consumes about 200 liters of Coca-Cola, which is about 700 cans per person per year. In terms of actual volume, the US: 40 billion liters of Coca-Cola a year, but it's a bigger population. I was also quite interested by that. Think, are you still ahead? Oh, Max. There's a bit of a race going.

And the final question. Which country invented instant noodles? This should be easy, right? Thailand. Yes. In 1954, they discovered a way to flash-dry noodles so they could package them. So in third place, Chat. Okay, nice. Very good on the podium. Oh, second place. Very good. And the winner is Max. There you are, Max. Can you hand this over to him, please? Thank you very much. Congratulations. Okay, sorry, I just need to hide this thing. There we go. Okay. Thanks, Jerry. All good.

So I told you about the change in the assignment, right? I've summarized — you have all of this. I just wanted to make sure. This is the new version, the summarized version of what you need to do for the presentation. And that's what you'll be doing as a group assignment.

So yesterday, we started talking about the five generic strategies and the different ways that organizations can engage within the competitive environment. Any thoughts or questions from yesterday?

Student: Yesterday you mentioned that Peninsula had a pet-friendly policy, right? Has that policy been implemented across the industry? It has become like —

Professor: Yes, so they were one of the first ones to do it, and they did it as the best. But I think Marcus was saying that they haven't done it as well recently, and many other hotels have taken that on as well.

Student: Yeah, it may not be as valuable anymore.

Professor: Yeah. That's a good point. Things can lose value over time.

So how do you strengthen your competitive position? Well, it depends on where you are in relation to your competition. One of the things to remember about all of this analysis is this is generally done in comparison to your peers and your competitors. And you've got to decide as a company: who are you competing against? What is your market? You remember Porter's Five Forces? You have to identify who your rivals are. In some instances, we may think our only competitors are the people in this area. Or if we sell instant noodles in Thailand, then our only competitors are other people that sell instant noodles in Thailand. But you may compare nationally, you may even want to compare globally. Sometimes it's useful to compare globally with people that are competing against you to check where you are in terms of strategic implementation, financial strength, and position.

If you are in a good position or a not-so-good position, the likelihood is that there are people that are going to want to come and take your market. If your business is doing well, other people will see that and say, "Oh, I should be in that business too." So how do you defend against people trying to take over your business? Or if you see a good business option and want to go in, how do you go into a market where there are other people? That's what we mean by offensive and defensive strategies.

But before you do anything, the first thing you need to ask is: do I need to act? Can I just keep going with my strategy and not have to worry about new entrants coming in? If not, then I don't need to worry. I can keep following my strategic imperative. If I do need to act — do I need to act offensively or defensively? Do I need to fight against people trying to take my market share, or do I want to go in and take market share from someone else?

Then you ask, once you decide what to do in a market: do I need to be a first mover like Netflix, or do I need to be a fast follower or a late mover? Should I come second or should I be tenth? You need to answer certain questions about when you should be in there, because markets vary depending on their maturity.

On top of that, there are other ways you can increase strategic power. You can buy other companies or merge with them. You can integrate forward or backwards — that could include mergers and acquisitions, but it's a very specific type of acquisition: growing backwards through the supply chain or forwards through the value chain. You can outsource stuff — get rid of certain parts of your work and focus. Jeff Bezos says only focus on the things that make your beer taste better. If you're a brewery, don't be focusing on bottling or logistics. Focus on what makes your beer taste good. The thing that your customers come to you for, that's what you need to be focusing on. You can outsource other things or you can become partners with different companies. I'm going to ask you a little bit later — hopefully we have enough time — to actually try and look for strategic alliances in this room.

Strategic defense options. The purpose of defensive strategies, even if you're not being attacked, is to lower the risk of being attacked by other firms. Jack, you work in a law firm, right? A Chinese law firm that came in? So this is the thing — there were a lot of Thai law firms, but once people started seeing the attractiveness of the legal industry here, a lot of international companies started coming in. In your case it was different because you were here to represent a certain group of clients that weren't represented. But many international law firms were coming in, buying up these small law firms and incorporating them into more global brands. So if you want to keep independent, you have to try and make sure they don't want to take you over. You need to find ways to weaken the impact of someone trying to take over your market share when it does occur, and you need to influence people to aim for other parties rather than yourself.

These are what you call preventative measures. In Thailand, you don't get a lot of car break-ins. On the street, people don't just smash a window and take your radio. In South Africa, it's a very common occurrence, so people put alarms on their cars and gear locks and all sorts of things. But if someone really wanted to steal your car, they could. The point of putting in those alarms is to make it more difficult to steal your car than to steal other people's cars, so they'll leave yours alone and go somewhere else. That's what we mean by influencing challengers to aim their efforts at other rivals — they refocus away from you so you can keep doing your business. There's an old joke: if you and your friend are in the savannah and a lion sees you, you don't have to run faster than the lion. You just have to run faster than your friend. That's what it means to redirect efforts.

So how do you do that? You can create new features in your product. You can manage your pricing options. You can increase surrounding features like support, warranties, promotions. You could give better financing and so on. Toyota knew that there was a big EV push coming in. They don't necessarily believe that EV is the way to go — Toyota and Honda especially are not big proponents of EV vehicles — but they needed to provide that as an alternative so people could stay with them if they wanted to move to EV. They had to do something to deter EV entrants from going to other places and to prevent people like BYD and Great Wall Motors from taking their market share that they had worked so hard to maintain.

And you can signal retaliation. How do you signal retaliation? Many places say: if you shop online and find this product for a better price, we will match that price. They're not saying we'll give you that discount — only if you find something cheaper, they'll give you that discount. They'll make it worth your while to stay with them. Or if you look at Alphabet or Apple — think about the amount of money they have in cash sitting and waiting that they can put into marketing or taking market share or buying companies. Anyone trying to attack them, they're pretty well protected. So that's really about defense. There are not a huge number of options for defense, so you have to think very carefully about who the players are, who's coming in to get you, and how you can fight them.

More interesting is this idea of how you go out there and grow your business. These are the strategic attack options: moving into markets where there are already mature players who are doing well. How do you work against them?

Building your own competitive advantage. Huawei — think about the amount of money they invested in 5G technology. There are political issues because now they've been banned from certain countries and governments, but their investment in 5G technology has helped them grow their market rapidly over a period of 10 to 15 years that they wouldn't have had otherwise.

Applying resources where rivals are least able to defend themselves. When Xiaomi started selling mobile phones, they kept their prices low by selling online only. How do Samsung and Apple fight against that? They can't, because they're not going to get rid of their retail stores. They're not going to cut off their distribution partners. They have built a system, so it's very difficult for them to fight Xiaomi. You fight your enemy where he is weakest. Xiaomi went for the value-conscious smartphone users in emerging markets and used a business model that was difficult for the bigger players to copy.

Employing the element of surprise as opposed to doing what rivals expect and are prepared for. TikTok — when it came out, their plan was always to be a social media player, but they didn't focus on personal networks like everyone else had, like Facebook and Instagram, which showed you stuff your connections are interested in. If your friend looked at something, they put that in your feed. Whereas TikTok used a completely different algorithm — they looked at what everyone was watching and where they saw something growing slightly, they pushed that. So it was much easier for people to become viral on TikTok because you didn't need a big network. If a few people were interested in your stuff, it would start showing up in other people's feeds and grow rapidly. They used a very different methodology from how other social networking sites tried to do it, which is why they managed to get 1.6 billion users in just a few years.

Overwhelming actions to overpower rivals. Does anyone here work for Shopee or Lazada?

Student: Sue from Lazada.

Student: Lou from Lazada.

Professor: Okay. So you both come from Lazada but at different times. That's a long time ago. Lazada was the biggest, the only real big player in e-commerce in Thailand. So how did Shopee come and take over that market? They invested a huge amount of money on aggressive subsidies, but the big thing they did was focus on mobile-only design because they realized that more and more people were starting to shop on mobile rather than their computers. Lazada was a bit slow to follow up on that — partly because of the structure and partly because once Alibaba took it over, there were integration issues and all of that stuff. Lazada is now significantly behind Shopee in terms of e-commerce sales. So Shopee overpowered their rivals with swift and decisive action.

Avoid challenging your competitor where they are strongest. Remember that you may not always get immediate results — sometimes these things take time — and be prepared for them to counter-respond. Because they may just counter-respond and start cutting prices. This is the thing to remember: counter-responses, especially in volume markets, are often to do with pricing rather than features, because that's the easiest thing to do. And then what you end up with is a price war — everybody fighting to get the lowest price possible and then everybody suffers. You've got to be aware that if you come in and try to undercut your competitors with a lower price, you may end up getting pushed out of the market. It caused real problems — the company went under and the government had to take over. It happened to Thai Airways as well. But they managed to push out most of the low-cost providers, and now there's only one that competes with the big airlines. So you've got to watch out for price wars.

There are different things you can do to strategically attack in a marketplace. You can offer an equally good or better product at a lower price, like the low-cost airlines did. We've spoken about Ryanair and how you can fly for almost nothing — same function and utility, which is flying from point A to point B, but without all the features, so they can cut their prices.

You can leapfrog competitors by being first to market. Samsung created the whole segment called "phablet" — a phone big enough to be used as a tablet with a pen. They beat a lot of their competitors in that market. I think that's gone out of fashion now, but they managed to take over a huge chunk of the market before Apple offered large-screen iPhones. At that point, these phones had 40 to 50% bigger screens than Apple had, and they had the pen, which Apple never did.

Continuous product innovation, like Dyson — think about all their innovations in vacuuming and in fans and so on.

Pursuing disruptive product innovations to create new markets. Netflix said: we're not going to have physical stores, we're going to send DVDs by mail when they started. And they were the first players in streaming that did it really well because they could see the weak signals of broadband getting stronger and people being more interested in watching stuff at home.

Hit-and-run tactics like Shopee did.

Launching a preemptive strike to secure an advantageous position. Android was offered free to phone makers. Now, what other operating system is there for phones apart from iOS or Android? I can't think of any. Microsoft Windows had their own, but that was terrible. Huawei has their own operating system as well.

Student: Yeah, that's because of all the investment they've put in. But that's only for their phones.

Professor: Right. So Android managed to take a huge segment of that market and they control a lot of the operating systems of most other phones.

I'm going through this quickly, but you're welcome to stop me for questions.

However, you've also got to decide when you are going to enter a market or when you are going to fight back — not just how. Timing is important. You need to know when to make a strategic move as well as what to do.

Moving first is no guarantee of success or competitive advantage. This is the thing most people don't realize. Most people seem to think: if I'm the first person in the market, I will get the most market share, I will have a monopoly. It doesn't always work. Market structure, market factors affect whether that works or not. You've got to decide whether the market you're trying to enter allows you to do that. You can be the first restaurant on Mount Everest, but if people have no way to get to you and there's no road there, there are no customers. You don't have the infrastructure.

The risks of moving first: you can get a monopoly, but the danger is that someone else might be able to come and take your market share and take advantage of all the work you have done in that field.

When did your companies enter the market? Any of you first movers in any way? Like you invented a technology nobody else was using?

Student (Marcus): That's our pitch. We opened the first grand hotel 160 years ago in Europe. The first grand hotel.

Professor: Where?

Student: In London. The Langham London.

Professor: The Langham London. Okay. So that was seen as the first grand hotel — premium luxury. But you could do that because London had the capacity and the economy to support that.

Anyone else?

Student: Manarom Hospital is the first — the only mental health hospital focused in Thailand.

Professor: Wow. And there's a huge need for that. Amazing. And it's still — when was it set up?

Student: Not long ago, like 10 to 15, less than 20 years ago.

Professor: Okay. Because there hasn't been a focus on mental health for a long time in Thailand. You go to the temple and talk to the monk and it should be okay. But we know there are lots of mental health issues.

Student: Or the fortune teller to tell you what to do.

Professor: Yes, the fortune teller.

Student: Going to market can be a strategic move also. I used to work for corporate distribution of action cameras. Instead of selling to extreme sports, we tried to sell action cameras to travelers, just regular travelers. So we created a new market — same product, new market. We did the same as first movement.

Professor: Well, that's more creating a blue ocean type of industry. And market share. But yes, you would be the first mover in that. Blue ocean players are creating new markets, so they would be seen as first movers in a space. With the same product, it can still work if you're finding a whole new market for it. It's like Ozempic. Ozempic was not created for weight loss — it was created for diabetes, I believe. But when they discovered that people were losing weight, what did they do? They reformulated it, made the active ingredient a little less to make it safer, and rebranded it as Wegovy. And now they're the first pill for weight loss that actually has passed FDA — it's not like taking amphetamines to lose weight. So they've created a whole new industry there.

What do you guys think of Ozempic and Wegovy? Good thing or a bad thing?

Student: I think it's like many things — like a kitchen knife, you can kill someone with a knife, you can cook for someone. You can't blame the tool. It's just the tool.

Professor: Do you feel the same way about AI?

Student: Yes. And also, many of my medicines are also drugs.

Professor: Yeah. And you know, it was only in the late thirties that Coca-Cola removed cocaine from its recipe.

So there are advantages to being a first mover. If you're the company that brings something into a market, you may create strong reputation and brand loyalty, like Red Bull. It went global as an energy drink focused on extreme sports and really took over the market. These days, when people think of energy drinks in certain areas, it's really just Red Bull. Even in the entertainment industry, nightclubs and so on — you ask for Red Bull, not any other thing.

First movers' customers will thereafter face significant switching costs. This is a big one. Look at SAP, which does back-office systems for corporates — finance modules, HR modules, and so on. Once you have bought into them, it is almost impossible for their clients to leave because all their data is embedded in that system. So if you're a first mover, you can create that lock-in.

If you have IP that nobody else can copy, then you can be a first mover because you've invented something, created something, and you have a patent over it.

Sometimes an early lead gives you a good learning curve, like Toyota. When they started, they built a system that allows them to manufacture cars in a highly efficient and error-free way. Because they have had decades and decades of doing it, it is very difficult for other companies to copy that. Even when they set up a joint factory with Ford in the US for 12 years, Toyota eventually left and Ford could not keep up the process. They didn't have the cultural mindset to do what Toyota was showing them. It was all told to them — it wasn't a secret — but they still couldn't do it.

Sometimes you can set the industry standards. For many years in computing, Intel was the name for computer chips — every computer had an Intel Inside, if you remember. Their X86 chip architecture was the standard for all computers at the time.

Amazon was a first mover in the e-commerce space — first online bookstore, but the first platform to sell multiple things online and focus on logistics, delivery, and supply chain for quick delivery of a whole range of products.

Coca-Cola: first player in the soda cola market. eBay: first online auction platform.

Sometimes what happens is because you are known for that thing, your brand name becomes the name for that product. Like, "Can I have a Kleenex?" "I want to eat Mama" — not "I want to eat instant noodles." You can become so dominant that the whole product category is associated with you.

Does anyone have that?

Student: Fab.

Professor: Someone else said that as well. For me, I don't even think about Fab. Because there's Surf and another one — Powell? That's the one I use. So I don't even think about Fab. But when you think about soap, you think about Fab. Sunlight for dishwashing liquid — there are so many different brands, but everyone says, "Can I get some Sunlight?" It's amazing if you can have that much brand power.

Mr. Shake — this was the first player in Thailand for bubble tea.

So it depends. If you are in a market where cost is key, then you can lose market share. But if people are willing to pay a small premium because your brand is well known, then it builds your strength rather than loses it.

Can you think of an example where a brand might lose market share?

Student: People still ask for Pentagon, but they might buy something else. You still have a little bit of an advantage because people are asking for your product, so people will stock your product.

Professor: Xerox is another great example. They did the whole copier and printer stuff, and now mostly Japanese companies are in. In fact, Xerox invented so many things.

Student: It's a crane car, but Thai people call it "Lot Ho" here. Is that a brand?

Professor: Yes. Okay. That was the first in Thailand, so we started calling it "Lot Ho." I think somewhere in Scandinavia — I need to Google it. Interesting, right? There is power in having this brand, but you have to protect your market share as well. That's a great point.

But it is not always the case that the first player wins market share. Sometimes being a late mover helps you because the first mover does all the hard work of the research and the infrastructure, and you can swoop in and just charge less because it costs you much less to produce.

Generic medications — after the patent is over, generic medications cost a tenth as much because they don't have to do the research. Now, most of the research that's done for most medications comes from taxpayer money, from universities and so on. But the pharmaceutical companies will tell you it's their money they've spent. They've probably spent 20% of the actual research funds that went into it. But the generic companies don't have to do that — they can just produce the same thing at almost no cost.

The example I wanted to give: in Indonesia in the eighties or early nineties, Nestle decided there was a big market for nutritionally fortified children's biscuits — you know, with extra vitamins and nutrients. So they spent a lot of money researching, branding, and so on. They came into the market, had their product, and then within three months there were five Chinese copies on the shelves at half the price. And they basically lost that market. So being first doesn't always help.

If customer loyalty is low, like with Kleenex — you'll ask for Kleenex, but you'll take anything as long as it's a tissue. Customer loyalty is low and it takes a while to build up these skills. So you've got to decide which is better. These are first movers in their areas: Atari doesn't exist anymore. Nintendo came afterwards into the gaming market but basically took over the whole market from Atari. Does anyone remember the Newton? It was an Apple PDA, personal digital assistant. It was quite expensive and wasn't that good. A couple of years later, Palm Pilot came out and took over most of the market. I used to have one of these — anyone else? We're all older — this was way before smartphones. You had to have a different device for your diary and calendar and everything.

Craigslist was where you used to go if you wanted to find accommodation or partners or stuff, but Airbnb took over that whole chunk of the booking-other-people's-homes business. Uber was the first player in ride sharing, but Grab took over their whole market here. They couldn't even get into China because DiDi and several other players had that market locked in before Uber could really get a grasp of it. So being a late mover is not necessarily a bad thing.

The question you need to ask is: does market takeoff depend on complementary products or services that are not yet available? Think about if you are a high-performance car company and you want to come into a country like Namibia in Southern Africa. You may be the first player there, but if the roads don't help you move your car, if there are no good performance roads, then you can't sell your car. You have to be part of the process of building up that infrastructure. You could see this especially in mobile phones. When mobile phones first came out, they had to build significant infrastructure — cell towers, all of that stuff had to be built everywhere. So the first player had to build all that infrastructure before they could go into the market. The other players could come in and governments would usually force them to lease out their infrastructure to other players, who could then take over while building their own.

Is new infrastructure needed before buyer demand can surge? Think about the Segway — that little scooter thing with two wheels. Why didn't it take off? It seemed like a nice thing. But there were no structures in place. You couldn't drive it on the road because it wasn't a licensed vehicle. You drive it on the pavement, you're bashing into people walking. There wasn't the right infrastructure — no lanes, no parking, no regulation.

Will buyers need to learn new skills or adopt new behaviors? Like Google Glass — it became a problem because people were not used to this idea that you could be recorded without your knowledge wherever people were going. And that's happening now with the Ray-Ban Meta glasses.

Will buyers encounter high switching costs in moving to the newly introduced product or service? Betamax came out a little bit after VHS as a format for video cassettes. It was smaller and considered significantly higher quality. But VHS decided to open the market to anyone to produce VHS — it was a consortium of about four or five companies. Sony decided to keep the patent on Betamax. By the time VHS had flooded the market, it was too difficult for Sony to take over much market share because everybody already had VHS recorders. You would have to buy a new Betamax recorder to play a Betamax camera or whatever. It was very difficult for them to get people to adopt.

Are there influential competitors in a position to delay or derail the efforts of a first mover? Look at Netscape — the first internet gateway. It was a really simple, really nice tool. But Microsoft came in and said, we're going to bundle Microsoft Internet Explorer with all our products for free. So how could Netscape make any money? Because everybody was already using Microsoft Office or Microsoft products, and they would use Internet Explorer. Although — does anybody use what's right now? Edge. Microsoft Edge. Does anyone use Microsoft Edge?

Student: No.

Student: My company forced me to use it.

Professor: Your company forces you to use it. Right. Otherwise you would use Chrome, Safari, Firefox, or Mozilla. How do you say that — Mozilla or Mozilla? Mozilla. Okay. That sounds like Godzilla, right? That's why I say Mozilla.

So you have to decide, and you need to understand that different products and services take different amounts of time to penetrate a market. Some things happen quickly, some things happen slowly. If you look at the landline telephone, invented in the late 1800s — actually you look at how many people adopted it. It went down because of the Great Depression, then slowly started rising. It took a long time before it hit 90% of the US market. Compare that to the cell phone, which started out and got up there in about 15 years — a rapid shift of uptake.

My favorite one is the air conditioner, invented by accident around 1946-47. It was invented because the New York Times or the New York Post — one of these big newspaper houses in New York — was struggling because in New York in summer, it's very humid. Because of the humidity, they were struggling to get the ink to stick on the paper. The ink was smudging and leaking. So they asked an engineer to come in and find a way to reduce the humidity in the air. What he did was get some copper piping, put in some noble gas, xenon, and it worked. It reduced the humidity from the air. And what they found a few weeks later was that everyone in the whole building was coming and having lunch in the printing room because it was the coolest place in the building. So the guy patented it and started selling it. Within four or five years, there were a few companies selling air conditioning equipment. Within a few years, from 1945, 50-60% of people had air conditioning in the US, and by the 2000s it was almost 100%. Chunks of the US, especially in the Southwest, would be too hot for people to live in if it wasn't for air conditioning. Also now people design houses and buildings with air conditioning in mind rather than building for the environment, which is a significant problem. These days the US uses more electricity on air conditioning than Africa uses for everything — just on air conditioning. So think how much energy is being used.

If you look at US smartphone penetration from when RIM — BlackBerry — had about 2 million subscriptions in '05, to the iPhone launch, to Android, all the way through to 99%. But more interesting than this is: how many phones a company has sold — basically market share. Starting in 1994, this only goes up to 2017, but it's really interesting. We start with two players: Motorola, which in 1994 had sold 10 million units, and Nokia, which had sold 7 million units. Then let's see what happens. Nokia starts taking over quite quickly. Motorola disappears slowly. Ericsson came in. Samsung in 2000 was there. Siemens had its own phone. LG — a little yellow thing coming in around 2000.

2007: Apple. That little one at the bottom is Apple with the iPhone, the yellow one. Nokia is still at the top. Now watch from 2011. By 2015, Apple and Samsung — now, but below Apple and Samsung, look at who's there. Four Chinese companies in the top six that didn't exist when cell phones came out. They were late movers by far, but they managed to take significant market share. If you add up the four Chinese companies now, they are pretty close to Samsung and more than Apple.

So it becomes a question of when do you move? When is the most useful time for you to move into a market? When you're trying to attack market players, you can attack vulnerable market leaders, attack runner-up firms who are not as strong, attack companies who are struggling — local or regional players — or you can use a blue ocean strategy. When we come back from the break, we will talk about the blue ocean strategy and I'll give you some work to do — a strategy canvas.

Student: So how does the first mover stay competitive in the long run?

Professor: What I would say is you need to follow a defensive strategy. You need to figure out what are the things you are not doing now that you will need to do in order to prevent newcomers from taking your market share. For example, if you are iPhone — you're selling this phone, trying to maintain your market share, and you see these new players, Vivo and OPPO, coming along. You've got to think: what arenas, what aspects, what features would these guys be able to use to take market share from us that we're not providing? Then you've got to provide those things, but you've also got to manage your price so that you don't start a price war that pushes people out of the market. Basically you've got to defend your position. But it's not easy because there are multiple different ways that players can come in. Even if you can maintain your first mover status for many years, it won't last forever, because everything eventually becomes commoditized. So that's the challenge. If you want to remain first, you've got to try and ensure that your product or service doesn't become commoditized. Which is very difficult because with technology happening all the time, it's very difficult to do that. And you've got to make constant defensive moves against new players.

Okay. Great. Have a break. I'll see you in half an hour.

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Okay. So before we go into blue ocean strategy, which is about finding new markets and new ways of doing things, we are going to look at the four ways of strengthening your position, whether you're being attacked or not. They all have their advantages and disadvantages. As Ty always says: it depends. How you do it and whether you do it or not.

The first way of building up your capability and your strength is by merging with another business or acquiring it. The logic behind that is: while it may be quite costly upfront, you can do things quickly because there's a company that's already working. You can buy it and continue working with that product or service. So it's faster than organic growth. You can expand into new product categories. For example, if you are selling sauces and you want to move into spreads, you can either start a new factory that makes spreads or you can buy a company that makes spreads. There's a very good example in the Kraft-Heinz merger: Kraft was doing spreads, Heinz was doing sauces. They combined, and now they do significantly more product lines.

You can gain quick access to new technologies. You can lead the convergence of industries where boundaries are being blurred by changing technologies. Think about the tech industry and the automotive industry — they seem like two very separate businesses with very separate business models. However, if you look at self-driving or automated driving, that is the convergence of the two. Companies like Tesla don't just build cars. They invest a lot of money into AI to ensure their self-driving works. Now, they haven't made it work yet, but that's the idea — to try and incorporate two industries which are starting to combine or merge or blur.

You can create more cost-efficient operations or expand the company's geographic coverage. Bank of America grew big by buying lots of small regional banks in the US. Central Group — anyone here from Central Group?

Student: Ah, there we go.

Professor: So do you know how Central Group expands geographically? They acquire department stores in Europe, in Vietnam, in Malaysia. Do you know what the first one was they bought? I'm not sure whether it was between Renaissance or La Rinascente. La Rinascente was the first one in Rome. They bought La Rinascente in Rome. They bought Illum in Denmark, I think. They bought KaDeWe in Berlin, Germany. They bought Globus in Switzerland. So they expanded their footprint by buying businesses that were already running and successful and brought them into their portfolio. And they didn't necessarily change anything about those businesses — they brought all that revenue into the same portfolio.

There are some companies that will buy a business and then restructure it to fit with the way they do things. There was a company which probably most of you haven't heard of, but at one point was the second biggest beer company in the world: South African Breweries, SAB. Started in South Africa, but they eventually bought so many companies, including Miller in the US, which was the second biggest beer in the US. They bought several breweries in China and became the second biggest player globally. Eventually they were bought out by another beverage company. What they did was buy the company, send in South African management to run the company and the breweries the way they knew how, because they felt that was the most efficient way to do it. Whereas Central will allow each company to do their own thing.

Tata is another example of a company that buys multiple different businesses or brands in the same arena and then lets them run by themselves. Some of the brands Tata bought were Land Rover — Land Rovers and Range Rovers and so on. They bought Jaguar, but they didn't say, "Oh, this is Tata Jaguar." They just said, "This is Jaguar." And they let them run on their own.

So you've got to decide what the best approach is when you merge and acquire. Cisco, between 2000 and 2011, bought 97 different companies so they could absorb their tech and incorporate it into the work they did.

News Corp — does anyone know News Corp? Publishing company, news media company. Basically considered the culprit for the serious political divisions in the US and the UK. They own Fox News. They started off as newspapers in the UK, run by Rupert Murdoch, who's Australian. If any of you watch Succession, there's a documentary about the Murdoch family on Netflix. The first thing they say is Succession is basically a blueprint for how their family works. Fox News, Fox Sports, FX, 20th Century Fox, and all the newspapers — they bought all of those and manage them as a conglomerate under their brands. You can grow very quickly if you have cash by buying all of these other companies.

Coca-Cola was the biggest player in cola and soda. But they saw the trend of moving towards more health-conscious living and drinking less soda. So they bought Minute Maid to add orange juice to their portfolio. Then they bought Hi-C, which was vitamin-enriched drinks. Then they bought Odwalla, which was fruit juices. And they bought Vitamin Water — a whole bunch of other brands. They didn't create them. They've created their own brands in water and so on. I can't remember what their water brand is called. It starts with an N, I think. There was a little bit of a scandal at some point because in the UK, it was found that all they were doing was filling their bottled water from the taps in Scotland. So it was public water they were just putting in bottles and selling.

So there are advantages. You can rapidly scale. You can have access to brands, IP, distribution, economies of scope in terms of different types of products. You can remove competitive threats. When Facebook bought Instagram, it wasn't just because they thought they'd like it as part of their portfolio. They saw Instagram as a threat to their own business, so they bought it. Remember, there were some congressional hearings where Mark Zuckerberg's emails were released, and when he was talking to his lawyer, it was pretty clear they were worried about the competitive power of Instagram. They bought WhatsApp because it was a much better product than Messenger. Does anyone use Facebook Messenger? Sometimes when someone sends you a message on Facebook, but generally it's WhatsApp or Line or something else. So they bought WhatsApp to manage their competitive threats.

There are also financial engineering opportunities, which means you may want to locate your headquarters somewhere else for tax purposes. Or if you think about the purchase of Twitter by Elon Musk — it lost 40% of its value, but then he did share swaps with SpaceX and Tesla. All these things got mixed up, and shareholders seemed happy enough with getting those shares because they thought those companies were going up rather than Twitter.

The disadvantages are overpayment, distraction from your core business, regulatory scrutiny. But really the two biggest issues are: 70% of M&As fail to achieve their stated targets of value, synergy, and growth. 70%! So before you buy a company, you've got to think very carefully about what the benefits might be to you.

If you look at M&A failures: eBay was the biggest online auction website and they bought Skype. Now, why would an auction website buy a communications app? Well, they thought, if we have the communications channel, people will buy our stuff because then they can communicate through our app as well, and they'd be more likely to buy stuff. But the tools did not enhance their liquidity or their economics. And at the time there was no monetization. Eventually they sold it off and Microsoft bought it. Even Microsoft has not managed to make it really monetizable.

AOL bought Time Warner. It was the weirdest thing when it was announced that AOL, a company of about 500 people or less, bought Time Warner, a long-lived traditional media empire of about 30,000 people. How did that happen? Well, because of the dot-com boom, suddenly AOL's market cap was huge and they used that as leverage to buy Time Warner. When they got in there, they had no idea how to run a company like that, because it was very different from running a tech startup. Eventually that failed, and AOL's valuation collapsed after the dot-com crash. Because of such different approaches to doing business, they could not make it work. They split up and AOL was dropped after a while.

Pfizer wanted to buy Allergan. Allergan is health and medical-related. But actually the reason Pfizer wanted to buy Allergan was: Pfizer is an American company headquartered in the US and they didn't want to pay US corporate tax. Allergan was listed in Ireland where there's almost no corporate tax. So they basically wanted to buy it and set their headquarters there. President Obama's government rejected the chance for them to do it. So they couldn't.

Unilever and Kraft Heinz. Kraft Heinz was already a big food company selling sauces and spreads. But that Kraft Heinz merger was led by Warren Buffett and 3G Capital, Alexander Behring. 3G is a Brazilian venture capital firm. They went to Unilever because they thought Unilever is a very big company, very wealthy, but also very slow and very fat in terms of process. So they thought: we can buy it, slash costs, and through cost-cutting bring in profits for the shareholders, which was the VC company. They weren't really thinking about growing the business. They were thinking about extracting value from a company that already existed by slashing costs. But the CEO at the time, Paul Polman, who was very focused on making Unilever a company focused on sustainability, renewability, and being a good employer — he did not want that. So when Alexander Behring went to him in London, he rejected the offer. But then they made a hostile bid.

[Video clip transcript: News report about Kraft Heinz's hostile bid for Unilever. Kraft Heinz, born out of an acquisition put together by Brazilian private equity giant 3G and Warren Buffett, tried to combine itself with Unilever. Unilever owns Dove, Axe, Hellmann's, Ben & Jerry's, and others. Unilever rejected the proposal but Kraft looked forward to reaching an agreement. The key issue: big food and household products companies have struggled with changing consumer tastes, the move toward healthier eating, and slowdown in emerging markets, which account for 60% of Unilever sales. 3G's playbook: buy, cut costs, boost profit, often include job cuts. Under British law, Kraft had until March 17 to announce a firm intention or walk away. Some speculated they only wanted the food side, not personal care.]

The CEO called the board together and said to them, we need to do something about this now before they make the hostile bid public. And they went public with the fact that Kraft Heinz had come to them and said, we are not taking an offer. So they were already on the front foot when this happened. Eventually the deal did not happen. Kraft Heinz lost that deal. But it was largely because Unilever did not feel there was a good cultural fit with Kraft Heinz.

So when you're building or buying companies, one of the things you can do which can be very powerful is to vertically integrate. Each of you is part of a value chain. Some of you may own the whole value chain, but most of us are usually in one part of it — from sourcing or extraction of raw materials, through to processing, manufacturing, production, distribution, marketing, sales. All of that stuff is part of one value chain. Most companies take one part of it. If you're a shop that sells food, you don't farm the food yourself — you just make the food and sell it. But there are other pieces of the value chain. Maybe if you want to make sure you're getting the best fresh produce in your restaurant, maybe you start your own farm.

Can you think of a company in Thailand that does that? A restaurant that owns its own farms?

Student: Ohkajhu, right?

Professor: Yeah. So they own a bigger chunk of the value chain than most restaurants.

The opportunities are: integrating backwards to increase control of the inputs to your product; integrating forward — meaning you are a manufacturer, but then you go into the sales side of things. So you move forward. Backwards is towards the source of materials. Forwards is towards the end consumer. That's the line. Integrating forward to enhance control of channels. You can do cost control. You can quality-assure. You have supply chain security. You should have faster innovation cycles because you manage all of it. You can capture more margin because you own the whole value chain. So it's control over dependency on other players.

If you think about Apple: recently, over the last few years, they've started producing their own chips, designing their own chips. They don't use Intel chips anymore. Now they're on M4, the fourth version of the chips they've created themselves. And also, a longer time ago than that, they moved forward in the value chain by creating their own retail presence rather than just selling at other stores.

Tesla moved backward, realizing that in EV car production, one of the biggest factors in cost and saleability was battery and battery life. So they invested in battery development, I believe in Mexico. And they also did direct-to-consumer sales, removing the dealer margin and controlling prices.

Target, a department store, moved backwards into the value chain by partnering with different organizations and brands to produce their own private label product. The last time I was in Target was 10 or 15 years ago, and at that time you could buy bedding and duvets partnered with Issey Miyake or some other designer — purely at Target. They also partnered with Madonna to produce cosmetics. So they created their own brand products in key categories like home and apparel. They integrated between merchandising, supply chain, and the retail footprint.

Ecco — does anyone own Ecco shoes? Anyone heard of Ecco?

Student: You do. What do you think of Ecco shoes? Good for golfing?

Professor: So Ecco is very much a best-cost provider. It's high quality, not as high a price as luxury shoes — not like a pair of Gucci loafers. But they also have a lifetime warranty, I believe — you can take it back and get it repaired, like Patagonia. But the interesting thing about Ecco: it's a Danish company. They own the whole value chain, from the farm that breeds the cows to the shops that sell their shoes. Now, why would a shoe company want to own the farms and own the cattle? They can control the leather. Most leather comes from cows, but most cows are produced for the beef. The leather is a secondary by-product. Whereas for Ecco, while they do sell the beef, they make sure the leather is maintained really well. They get much better quality leather than they would if they were sourcing from another party.

In fact, Ecco used to produce something like 80-90% of its shoes in Thailand, up in Ayutthaya. I went to the factory just after the floods, and the CEO then was saying: it's very sad for us that we are going to have to move some of our production from Thailand — not because of the floods, but because they felt the government was not doing what it promised to prevent future floods. They hadn't done anything to manage any further floods. So they thought, it could very easily happen again, and then we'll be in the same situation. We lost machinery. We lost stock. We lost everything. So now they produce a portion of their shoes in Indonesia. They process three and a half thousand raw hides a day — equaling a million cows per year. For your shoes. But also for some good steaks, I guess.

Another company well known for owning most of the supply chain is Zara.

[Video clip transcript: Coverage of Zara's supply chain and distribution. The key is distributing across all of Europe efficiently. All stores receive new products with the same frequency regardless of location. Stores, which know their customers best, pass orders to the distribution center as needed. They tailor their product range to customer profile. New merchandise is delivered quickly by truck or aircraft for more far-flung destinations.]

So what do you think the advantage is to them of owning this whole value chain? Because it's expensive, right? Every part of the value chain. What's the benefit? Who are their competitors?

Student: H&M, one of the biggest competitors. Uniqlo. Shein — not so much, I would say. I think Shein is a lower level product. But Mango.

Professor: Gap, Old Navy, Banana Republic. Does Banana Republic still exist? I used to love their stuff, but only in the US, I think. There used to be a Banana Republic store here in Emquartier for a while, but it's disappeared.

So the big advantage of owning the value chain is that not only does it allow them to be faster and more streamlined, which saves costs — it allows them much faster turnover. H&M, when it orders clothes, what does it do? It goes to the fashion shows in Paris and Milan. It looks at what the fast fashion is and produces its own brands, then sends that order to Bangladesh to be produced. But they have to send that order six months in advance because there are so many other people in a queue waiting for this stuff. So if they want their stuff for summer, they have to send it the winter before. It takes a six-month lead time. And once they've ordered it and bought it, that's it. If it doesn't sell, they have to get rid of it.

Whereas Zara, that owns the whole supply chain — they have their own seamstresses and places where they make the clothes. They make the clothes, they ship them, they sell them. In fact, they microchip all of their clothes in the store, meaning their store managers every week can feed back to head office: this is what's selling, this is what's not selling. They can get rid of the stuff that's not selling. And they can produce it in small enough lots that they don't need to discard and destroy a lot of their product. They can turn over within a two-week period. They can keep turning over, which means they very rarely have to discount their products. If you go to H&M, you'll probably see more sales than you do at Zara. So that's a huge advantage they have. And that's because Inditex owns that whole supply chain.

But there are problems. Sometimes if you try and do everything, you end up doing everything badly. Kingfisher started off as a beer, and the guy — he was one of the richest people in India at some point — started an airline. But then he integrated: he bought ground handling, aircraft ownership, in-flight services, acquired a low-cost carrier to try and expand. And it completely fell apart because they couldn't manage it properly. The capital intensity exceeded the industry margins and they tried to fit incompatible business models together. You can't have a premium airline and a low-cost airline trying to work the same routes and make money from both of them. So they failed.

So it's not always easy to vertically integrate. You have to know which aspects of the value chain are worthwhile having. Advantages: capturing more margin, et cetera. Disadvantages: risk of internal efficiency. Because when you own the whole supply chain, it takes different skills and experience to run a retail store than it does to run a factory, than it does to run a textile company. You have to have all of those skills and manage them effectively. So this is the challenge.

OUTSOURCING

So if you don't want to vertically integrate, what you want to do to save costs or cut costs is to outsource stuff that's not so important to you. That's the opposite of vertical integration. Outsourcing means: listen, there's a lot of stuff that doesn't make my beer taste better. It needs to be done, but I don't need to do it. So I can outsource it.

Google outsources its hardware manufacturing. It does the software, but it doesn't make the phones — the Pixel phone — by itself. It focuses very much on the software side. The physical assets that use their products are produced by other partners. Alibaba: asset-light marketplace. But also when Alibaba was first setting up, they didn't use their own tech people in China to produce the platform. They went to Silicon Valley, hired the best people to do it, and outsourced it. And they managed the platform afterwards.

Slack — does anyone use Slack in their companies? Slack was a really interesting business because it didn't start off as a communications tool. It started off as a gaming company. They created the communications tool so they could communicate internally. Then they saw the game was going nowhere, so they refocused on this and sold it. But they used third-party cloud. They outsourced all their non-core operations.

These days you can outsource a lot of your stuff. You can outsource marketing. You can outsource HR and recruitment. You can outsource manufacturing. You can outsource retail. You can outsource any part of the business you want and keep what you think is most important for your business.

But you may lose some of the skills that you really need to differentiate. And you also lose direct control of what's happening. You may risk your IP being stolen. There are many tech companies that have this great idea for software — they outsource it to India or to China for software development, and by the time they're ready to go to market, there are three other Chinese companies doing the same thing. Your stuff is gone.

And you become dependent on other companies, which means you need to integrate closer. So where's the line between outsourcing and just keeping it internal? The Queensland government outsourced their payroll system to IBM, and it was so bad that the whole government couldn't get paid for months. IBM was banned from bidding for government contracts for about five years. EDS, same thing with legacy IT systems and the US Navy.

But the most telling example: did anyone attend the 2012 London Olympics? They had hired G4S — everybody knows G4S, security company. G4S was so underprepared that the British government eventually had to get the military involved to manage security because G4S couldn't do it. They failed to deliver the contracted number of trained security staff. They could not deliver what they promised, which caused a serious problem.

So you can outsource, you can vertically integrate, or you can do something in between — make a partnership or an alliance between companies. A strategic alliance is a formal agreement between two or more separate companies in which they agree to work together towards a strategically relevant objective. A joint venture is an alliance where two or more companies create a company that they have joint ownership in — a separate entity that they all have ownership in. It's a mutually owned business. It's durable because it's a legal entity, but it's harder to walk away.

Microsoft created a legal entity with NBC to launch an online digital news platform, but eventually Microsoft pulled out and NBC bought it from them. Think about DaimlerChrysler — a German company and an American company. Tried to create a global auto house, but eventually Daimler ended up selling Chrysler at a significant loss.

But there are successful joint ventures. Sony Ericsson. Dow Corning, which produces a lot of different materials, especially in the glass arena. GM had a very good joint venture with SAIC to manufacture and sell GM vehicles in China. Nestlé and Coca-Cola — marketing ready-to-drink teas and coffees globally. The Nestlé little cans that you get — when I first moved here, I used to drink like three a day. Mainly just a little bit of caffeine and sugar, so not the best thing for you. But that was a joint venture between Nestlé and Coca-Cola.

By the way, does anyone know what happened to Nestlé in Thailand? I remember last year or the year before there was an issue with the family that owned the Nestlé license here, and Nestlé wanted to pull out or do something. What happened?

Student: The Nescafé?

Professor: Yeah, the Nescafé, right? What happened? Did they sort it out? Because I still see it in the marketplace now. It'd be quite curious to know. I don't know exactly what happened — I think it happened behind closed doors. But you can still get Nestlé and Nescafé coffee here, so they must have sorted it out.

You can form partnerships that aren't joint ventures — just agree to follow a strategic goal. Spotify and Uber — Spotify partnered with Uber so passengers can play their own Spotify playlists in an Uber car. McDonald's and Coca-Cola. American Express and Airbnb. GoPro and Red Bull, both in extreme sports. Star Alliance — multiple airlines joining together to provide loyalty benefits. Nike Plus, which was the Apple Watch and Nike — tracking your health with sensors on your shoes as well, how much you're walking, what you're doing and so on. Although that ended up being a problem for the US military in Afghanistan. All of this information can get uploaded to a website that shows your health and you can go and check it. But it's publicly available. People started seeing running tracks of people running somewhere in the middle of the Afghan desert. And that's how they discovered an American military base there that nobody knew about, because all the soldiers had these Apple Watches with Nike in them. Which was not very good for national security.

There are also strategic alliances that combine many different groups — governments, pharmaceutical companies, World Bank — with the specific aim of eradicating certain childhood diseases, like polio. I don't know if any of you are members of Rotary International. You should join — I'm a member. And one of the things Rotary has done is focused very much on eradicating polio, and it's managed to do it in 90% of countries. But recently there was an outbreak in New York of polio because nobody wants to take vaccines — there are so many anti-vaccine people. So that's a problem.

An alliance becomes strategic when it serves these purposes: you try to achieve a specific business objective, block a competitive threat, help remedy an important resource deficiency or competitive weakness. Tesla buying a battery company in Mexico means they could vertically integrate, or they could form a strategic partnership if they didn't want to buy that company. Or it helps open up new market opportunities. A lot of telecom companies in Africa that come out of South Africa build up partnerships with local providers in different countries in Africa so they can gain entry. They don't necessarily buy the company, but they provide resources, expertise, and tech, and they manage the market together.

You have to pick a good partner. You have to be sensitive to cultural differences. You have to ensure that both parties live up to their commitments and so on. So it's not always easy.

This is a little summary of what works well, what control you have, how quickly you can work depending on the different type of partnership, and how much it costs. The highest cost type of partnership is vertical integration, because you're spending money buying other companies or building capacity in those areas. Outsourcing is much lower because you're paying a subscription fee or a service fee. And you can see the risk types are different. Mergers and acquisitions: the risk is, can you actually integrate? Vertical integration: can you integrate the operations effectively enough to gain value? Outsourcing: you're dependent on your partners. Partnerships: are you sure your goals are aligned properly? Those become the issues.

I was going to ask you to do this, but I won't ask you to do this now because I'd like you to do something else for me in terms of blue ocean strategies. But how much do you know about the business of your classmates? Not very well, I assume. You're still new here. Hopefully over the year you will get to know what everyone does. I would encourage you to try and find out if there are people here that you might be able to form strategic alliances with. If you own a manufacturing company that produces lemonade or whatever, and there are people here in construction that may need lemonade — that may be an opportunity to partner. So think about it because I think it can be quite fun.

Student: How about regulation? What kind of regulation between M&A and partnership and — from Thailand?

Professor: So it depends on the country, it depends on the type of markets, and it depends on the companies. For example, regulations prevented Pfizer from acquiring Allergan. And if you are two big players, there may be issues about anti-monopoly that would prevent you from partnering, buying, merging, or acquiring. But if you are not so big in a market that you may cause problems in terms of competitiveness, then there are very few countries that prevent you from buying another company. You can do it.

But I think the regulations are most relevant to mergers and acquisitions. Vertical integration: you can do it. Even if you're not allowed to buy a competitor company that has another part of the value chain, you can always build your own and they can't stop you from doing that — because you're just building your own part of the value chain. Outsourcing: I don't think there are any issues legally. So I would say the biggest risk is under mergers and acquisitions.

Student: Okay. Thank you.

Okay. Blue ocean strategies. We all know the terms blue ocean and red ocean, right? Red ocean is all the businesses that exist today — they are defined by competition, by price, by market share, by commoditization, and so on. But blue oceans are the industries or markets that are still new, that haven't been taken advantage of. These are where the opportunity lies. This is where you can innovate. You can differentiate your focus. You can create new demand. You can find a new market for the same products — like Ozempic and Wegovy — or you can create a whole new market.

Most blue oceans are created from red ocean companies that expand industry boundaries. In red oceans, you're basically trying to defend your current position. Whereas in blue ocean, you're trying to create and pursue new opportunities.

Think about blue ocean ideas. At one point, the only home entertainment was the radio, and then the TV came along. At one point, the main transportation was horses, and then cars came along. If you wanted to listen to music, you had a gramophone, and eventually you got the iPod, and now everything is on your phone. At one point, the best medication was sticking leeches to your skin to suck your blood — until we got the pharmaceutical industry and penicillin was discovered. At one point, if you wanted to get fit and follow classes, the gym was the place to go. But these days you can bring the gym into your own house with products like Peloton — you buy the product and you can sign up and subscribe for classes. You have your trainer in your house with you in a class.

Education: if you think about it, the way we teach here today has been going on for hundreds of years. But these days, you can learn almost anything you want online. If you want to do a course in computer science from Harvard, you can go to edX and sign up and do it for free. It's amazing. And if you want to see great educators, I would recommend the guy who does CS50 at Harvard, David Malan — one of the best educators I've seen. He's my role model. That's the sort of way I would like to teach.

Etsy is one of the examples in the Blue Ocean book. Before Etsy, e-commerce was for commoditized products — things you can buy and sell everywhere: books, electronics, etc. Etsy came in and said: can we use this sort of platform to create a marketplace for handmade goods? So they created a whole new market for handmade goods in the e-commerce area, connecting artists and craftspeople with buyers who wanted unique, one-off products. It's worked very well for them. I think they're struggling now because there is so much competition and there have been issues with scams. But for many years, they were the only place — if you wanted to buy stuff online from an artist in America or Norway and you were living in Thailand, you could go to Etsy, buy from them, and be safe.

Plant-based meats: a whole new market. It's a weird sort of market, because if you're vegetarian, why do you want your food to taste like meat? You've never eaten meat. You want to eat meat but you don't want to eat meat. If you're vegetarian, you shouldn't want it to taste like meat — you want to taste what it tastes like. But anyway, it's an amazing — but I don't think the market is doing so well right now. How many of you eat plant-based meats?

Student: Thailand is not really a market for it.

Professor: The company lost 99% of stock value. It's lost a lot of its value. But there are other players in the market as well. This is where being a first mover didn't help them — they invested a lot in this, but other players came along later on and could leverage off the research they'd done and the work they'd done in popularizing this idea.

There are places you can go, things you can do that haven't been thought of before. The only way to beat the competition is to stop trying to beat the competition and create a whole new market. When we talk about blue ocean, we are talking about value innovation. You want to have good cost, but you want to innovate the value you provide to your customer — something they don't currently have.

Think about the iPhone. Before the iPhone, there were music players. Microsoft had Zune — did anyone ever see Zune? It was an MP3 player, came before the iPod. But as always with Apple: second mover, but better in design. So the iPod did well. But before the iPhone came out, who would have thought: you can have music on your phone, don't need to carry two devices. You can have a music player on your phone. So a whole new segment of what it was to be a phone was created when they created the iPhone.

The main case study people always talk about is Cirque du Soleil. Has anyone been to see Cirque du Soleil? Beautiful. Amazing. Has anyone been to a traditional circus?

Student: Yeah, so you've been to both. What's the difference? Cirque du Soleil doesn't have animals. Just performers — 100% performers.

Professor: Right. So this is where we start talking about the four things you need to do when creating blue ocean products, services, or markets. Cirque du Soleil eliminated some of the things people didn't like about circuses — animals, because people were worried about animal abuse. They increased the use of human performers, skilled performers like gymnasts and trapeze artists. They reduced the effort to go to an outdoor area and reduced the hassle of going to a circus. And they increased the theatrical experience — they created a storyline and a narrative, and they merged the idea of circus with theatre, creating a whole new market. They really don't have competition even now. They have several different Cirque du Soleil troupes that travel around — one has a residency in Las Vegas, and the others travel around the world. I don't think they've ever come to Thailand, but you can watch Cirque du Soleil in Europe or other places.

What Casella Wines saw was that in the US market, people drank beer or spirits and pre-packaged cocktails — alcopops like Smirnoff Ice. People buy those because it's easy to drink — they don't have to think about it. They weren't buying wine because they thought: you need to be sophisticated. You need to understand what the smell of the wine tells you, the age of the wine, the terroir, and this and that and the other thing. So people don't bother. Most people would not bother buying wine because they think it's too sophisticated for their palate. So what Casella did was create a wine that broke out of this red ocean of wines where everybody was competing on prestige, value, age — all of those things. They created a wine that would appeal to beer drinkers — a wine you don't need to think about, that you can just buy and drink like you would drink a beer. Simpler taste, smooth taste, no aging, no prestige. They eliminated all the factors the wine industry had long competed on.

This is the thing I'm going to ask you to do in a few minutes. What are the things that wine sells itself on? What are the factors that wine competes on? Image, aging, complexity, prestige, a diverse portfolio. They don't bother so much with "easy to drink." Most wines don't think, "Oh, we should be an easy to drink wine." And Casella went in the complete opposite direction. They dropped image, aging, complexity, prestige, and pushed this idea of fun to drink, easily accessible. They counter-positioned themselves and therefore appealed to a market that didn't exist for wine previously.

The thing to remember with price: traditional wines, like Quails' Gate and Mission Hill, didn't focus on price as a selling factor. They could price it whatever they wanted and people would buy because of all those other factors. Whereas Yellow Tail decided price was a factor — they charged much less for the wine because it's easy to make, it's not fancy, it's not aged. So it's basically like buying a bottle of something that costs the same price as a six-pack of beer, rather than four times the price. That's why price is ranked higher for them — they focused on price.

If you look at this different ranking system, you can see the difference between cable TV and Netflix. Cable TV was high on commercials, news programs, live sports, but it needed a lot of tech support and the installation process was complex. What you couldn't do was choose the movie you wanted to watch because it was scheduled — you could watch it when it was showing. You had to watch it on a TV because the cable was attached to your TV. You didn't have the ability to binge-watch a season. And you didn't have the ability to sign into your account and watch from anywhere. Those were things the cable industry did not have.

What Netflix did was defocus on all of that — no commercials, no news programs, no live sports. They kept their price lower. No tech support needed. No complexity of installation — you just sign in, log in, and download the app. But what you can do: you could have a huge movie selection, parental content filtering, children's accounts, watch on multiple devices, view full seasons, and watch from anywhere. You can see they approached the idea of entertainment in a completely different way, and that's what allowed them to create a blue ocean for their product.

So the four things you need to think about when you're trying to move into a blue ocean, in whatever industry you are:

Which factors that the industry takes for granted should be eliminated? Like Cirque du Soleil eliminated animals.

Which should be reduced? Cirque du Soleil reduced the variety of the different show performers.

Which should be raised above the industry standard? They raised the experience of going to a theater rather than a circus.

And what should be created that the industry has never offered? They created a narrative and a storyline which hadn't existed in circuses before — to tell a story through their performance.

If you look at airlines: the average airline, like American Airlines: price, meals, lounges, seating choices, hub connectivity, friendly service, speed. These are the things they focus on. What Southwest Airlines did: our price is going to be lower. We're not going to offer meals. We're not going to offer lounges. We're not going to offer seating choices. We have one hub, which is Dallas-Fort Worth. But what we're going to do is go all out on friendly service and speed. On the routes they fly, their flight time is between 10 and 20% shorter than other airlines. They fly faster — using a little bit more fuel. But you can imagine if you're a business person and you want to travel somewhere and get there as quickly as possible, maybe you'll take Southwest. And it's cheaper. They lowered their costs on all of these other things and invested more on speed and service.

Now, if you want to go from one place to the next, you could always use a car. A car doesn't do any of those things. But what it does is: there's another factor — you can depart whenever you like. Is that something you can offer? For example, if you can only get to someplace by flights, maybe you want to invest in a railway service that gets you there. Think about what the Channel Tunnel did for transportation between the UK and Europe. Previously, you could take a ferry — take your car and take a ferry, a bit of a hassle but relatively cheap, go whenever you want, take the next ferry. Or you could fly — London to Paris, about an hour or hour and a half flight. But then you have to get to the airport an hour or two early, get to Charles de Gaulle airport, and then get into the center of town. If you take the Eurostar, it takes three and a half hours — but from the center of London to the center of Paris. You can see it's a different mode of offering the same service: getting from place A to place B.

So when you're doing a strategy canvas, the first thing you have to do is identify: what are the factors that a business competes on? Not what the customer gets, but what is it that the company offers? Does it compete on price? Does it compete on marketing? Does it compete on features? Which features does it compete on? What are the competing factors in that industry?

What makes a strong factor is something that is comparable and measurable across competitors and is visible to customers. Rather than just saying "service" and "innovation," you want to talk about delivery speed. You want to talk about specific types of customization. Brand prestige, whatever it is.

You can plot the traditional curve, as you saw in the others, listing all the factors. And that traditional curve you get on a strategy canvas — that is the red ocean. That's what the red ocean does.