Defensive and offensive strategy

Once an analyst has studied a company's strengths and weaknesses, the next question is what the company actually does with them in a fight for market share.

A defensive strategy means the company positions itself to protect what it already has, using its strengths to blunt the moves of competitors. An offensive strategy is the opposite: the company uses its strengths to go after competitors' positions instead of just guarding its own.

Neither one is automatically the right or the wrong choice. Which strategy suits a company depends on the strengths, weaknesses, opportunities and threats the wider company analysis has already uncovered.

The workbook places this choice inside company analysis, the final step of the top-down approach — after macroeconomic analysis and industry analysis have narrowed the field to promising sectors. Once a firm is identified within a promising industry, its SWOT analysis (strengths, weaknesses, opportunities, threats) feeds directly into which of the two competitive strategies it is best placed to run.

A firm on a defensive strategy positions its capabilities to deflect the effect of competitive forces already working against it in the industry. A firm on an offensive strategy instead uses its strengths to actively affect those same competitive forces, rather than simply absorbing them.

Illustrative. Sunrise Foods Ltd, a large FMCG company with an 18% market share and a strong distribution network, faces a new low-cost entrant undercutting it on price. It chooses a defensive strategy — using its distribution reach and brand loyalty to hold its existing 18% share rather than compete on price.

Its smaller rival, Nova Snacks Ltd, holds only 4% market share but has a genuine cost advantage. Nova instead runs an offensive strategy, cutting prices further and expanding distribution aggressively to try to take share directly from Sunrise, rather than protecting a position it barely has yet.

Chapter 8 (Investing in Stocks), section 8.5.3 (Company Analysis), introduces defensive and offensive strategy right after SWOT analysis and just before the chapter turns to estimating intrinsic value. Expect a scenario describing a firm's market position and competitive move, asking which of the two strategies it represents.

• Defensive here means a competitive posture, not a defence against a recession. Do not confuse it with defensive industries or counter-cyclical business, which are about how demand behaves over the business cycle, not how a firm competes.
• Neither strategy is inherently safer as an investment — the workbook frames both as legitimate options that follow from a company's own SWOT position.