Cost Leadership as a Business and Stock Investment Strategy

Since the craft of strategy is so nebulous, it helps to think in terms of generic options.

Cost leadership leads to a whole slew of strategies. Business managers and stock investors can deploy cost leadership with equal facility and efficacy.

Vertical integration is a major plank of a cost leadership strategy.

Here is an example of extreme vertical integration:

http://www.wockhardt.com/mainpage.php

The Group does everything from research to generics. It sells fast food and insulin as well. It spans health care all the way from pharmaceuticals to hospitals. It sells cheap and generates cash at the same time.

Cost leadership can be risky. It can be confused with penetrative pricing, exposing stocks to uncontrollable inflation. Here is an example of such muddled thinking:

http://www.telegraphindia.com/1080607/jsp/business/story_9377523.jsp

Cost leadership is also confused with regulatory largess. You enter a low-margin business segment because cronies keep the competition at bay. However, the tide can turn against you. Take a look at:

http://www.moneycontrol.com/india/news/buzzingstocks/relianceenergy/relianceenergyplunges51/market/stocks/article/320719

There is no dearth of reasons for cost leadership strategies to fail.

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with your views on this matter.

Tomorrow's post will consider some measures to make cost leadership work.