At this point, the firm's managers assess its capabilities and key success factors compared to those of its competitors. They must judge the relative current and potential competitive position of firms in that market and location - whether that be
a global position or that for a specific country r region. Like a chess game, the firm's managers need also to consider the strategic intent of competing firms and
what might be their future moves (strategies). This process enables the strategic planners to determine where the firm has distinctive competencies that will give it strategic advantage as well as what direction might lead the firm into a sustainable competitive advantage - that is, one that will not be immediately eroded by emulation. The result of this process will also help to identify potential problems that can be corrected or that may be significant enough to eliminate further consideration of certain strategies.29
This stage of strategic formulation is often called a SWOT analysis (an acronym for Strengths, Weaknesses, Opportunities and Threats), in which the firms capabilities relative to its competitors is assessed as pertinent to the opportunities and threats in the environment for those firms. F example, Philip Morris (PM) considered entry into the Commonwealth of independent States (CIS) in the early 1990s. The attraction, of course, was the newly opened market of 290 million consumers. Of these, 70 million were smokers and would provide an immediate target market for Philip Morris's cigarette brands. In addition, all 290 million would be a vast potential market for PM's Kraft and General Foods subsidiaries. The next step would be an in-depth assessment of the local and foreign competitors in the region, such as RJR Nabisco.
After its analysis, Philip Morris concluded that the Russian commonwealth presented an attractive opportunity, particularly if the firm could establish a market foothold before RJR Nabisco followed suit. In hindsight, however, Philip Morris might have done some more homework and added other threats to this matrix. After the company set up kiosks to sell packs of Marlboros to people in St. Petersburg in 1992, those booths were blown up overnight - a signal that Russian cigarette distributors didn't want any outside competitors on their turf Philip Morris subsequently got out of the distribution business. It is also worth noting, that, in September 1998, RJR withdrew all operations from Russia as a result of that country's economic problems, after investing about $520 million. The company was among many suffering major losses in Russia's economic collapse in 1998, when the inflation rate reached 84.3 percent by the end of 19992
Most companies develop their strategy around key strengths, or core competencies. Core competencies represent important corporate resources because, as Prahalad and Hamel explain, they are the “collective learning in the organization, especially how to coordinate diverse production skills and integrate multiple streams of technologies.”3' Core competencies - like Sony's capacity to miniaturize and Philips's optical-media expertise - are usually difficult for competitors to imitate and represent a major focus for strategic development at the corporate level.32 Canon, for example, has used its core competence in optics to its competitive advantage throughout its diverse businesses - cameras, copiers, and semiconductor lithographic equipment. Managers Must also assess their firm's weaknesses. A company already on shaky ground financially, for example, will not be able to consider an acquisition strategy, or perhaps any growth strategy. Of course, the subjective perceptions, motivations, capabilities, and goals of the managers involved in such diagnoses frequently cloud the decision-making process. The result is that sometimes firms embark on strategies that were contraindicated by objective information because of poor judgment by key players.
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