Blue Ocean
Due to the rapid development of logistic, communication tools, the world has become ‘smaller and ‘flatter than ever. Instead of competing with the local firms, nowadays companies would have to compete in the global environment. The entry and trade barriers for most of the market have been eliminated due to the regulations and the growth of technology. Here, the concept of ‘Blue Oceans comes into place.
We can imagine a market universe consisted of two sorts of oceans: Red oceans and blue Oceans. Red oceans represent all the existed industries and market nowadays. In the red oceans, industry boundaries and standard are well defined and accepted, the formation and situation of the market can be understand and work out easily. The accelerated technological advances and the trend toward globalization have substantially improved industrial productivity and have enabled suppliers to produce an array of products and services, which lead to the supply exceeds demand. Due to the removal of trade barriers between nations and regions, the information on products and prices become more globally available. As a result, markets for monopoly and niche also start to disappear.
The level of competition is high since competitors and outsiders have the ability and knowledge of entering the market. Here, companies try to outperform their rivals to gain an increased market share of existing customers. As the number of players in the market increased, so as the market demand is saturated, the prospects for profits and growth are reduced. To further obtain the market share, firms will have to reduce their price and provide more value added services to customers which eventually lead to a fall in profit. All this implies that the business environment in which most strategy and management approaches of the twentieth century evolved is increasingly disappearing, which raises the importance of creating blue oceans.
In contrast, blue oceans are defined by untapped market share, creating demand, and the opportunity and potential for high profit growth. Blue oceans can be created beyond existing industry boundaries or from within red oceans by expanding existing industry boundaries. In theory, competition is irrelevant in blue oceans since the rules of the game are waiting to be set.
The concept of blue oceans strategy is to avoid supplying exceed demand in industries and competing for a share of contracting markets, but to sense new profit and explore new growth opportunities. Since there is little practical guidance and frameworks to create and manage blue oceans, the blue oceans strategy sometimes seems to be too risky for managers to pursue.
To provide proof and support to the blue ocean strategy, a study of the business launches of 108 companies is conducted regarding their revenues and profits. The study shows that companies launch and aim to create blue oceans generates