Sector Matrix

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Strategic Management

The question is:
1 Using an extended example critically discuss the view that a ‘sector matrix’ gives a better strategic understanding of product markets than the concepts of ‘product’ or ‘commodity’ chains.

Introduction
Sector matrix analysis is a relative new concept which provides a different insight into the traditional production value chain system. It looks into the two demand and supply side relationship by building the consumers’ demand in terms of complementary and competing needs, and consolidating the supply through corporate surplus from different activities in a demand matrix. While Gereffi’s theory on global commodity chain concept (1996) has constructed supply in simple linear ways and demand as a form of reverse relations within the production/distribution chain, this may not be sufficient to engage the increasing complex production cycles in today’s modern world. Sector matrix analysis approach looks into de-link the production process and divides the demand and supply relationship into two areas, but share the same product and service consumption. By using the automobile industry as an example, sector matrix analysis is able to better demonstrate the advantages over the traditional value chain analysis. Product or Commodity chains concepts

In many countries, Gross domestic product (GDP) is an indicator commonly used to measure the market value of all officially recognized final goods and services produced within a country in a given period of time. And often, GDP per capita is often considered an indicator of a country's standard of living. The old economical production has always been closely linked to the traditional concept of an economic activity as a ‘product’ or ‘commodity’ chain which leads to a finished product. Michael Porter (1985) stated that “a value chain is a chain of activities that a firm operating in a specific industry performs in order to deliver a valuable product or service for the market.” An industry value-chain is a physical representation of the various processes involved in producing goods (and services), starting with raw materials and ending with the delivered product. Products pass through the various activities of a chain in an orderly manner, and at each activity the product gains some value. Chain of activities gives the product more added value than sum of the individual activities' values. This can be illustrated by using the activity of a diamond cutter as an example. The cutting and polishing activities may have no significant values on their own, yet it adds much of the value to the end product of a polished well cut diamond. The whole value chain processes with the addition of documentation, assessment and certification to the production make up the different grades of a diamond, which in turn, can command different prices in the consumers markets. Over the past few decades, the value chain framework is often used as a powerful management analysis tool for strategic planning. This value-chain concept has been widened beyond individual companies to whole supply chains and distribution networks. The delivery of a mix of products and services to the end users will require different economic factors managing its own value chain. This industry wide synchronized interactions of the local value chains create an extended value chain, in a global scale. Porter terms this larger interconnected system of value chains the "value system". A value system includes the value chains of a firm's supplier (and their suppliers all the way back), the firm itself, the firm distribution channels, and the firm's buyers (and presumably extended to the buyers of their products, and so on). For example, an automobile factory might require its parts suppliers to be located near its assembly plant to minimize the cost of transportation. This allows it to bypass the intermediaries creating new business models, or create improvements in its value system. From...
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