corporate strategy handouts

7/24/2019 Corporate Strategy Handouts

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ORPORATE STRATEGY

Report by:

Ronnie Albert T. Montero

STRATEGIC MANAGEMENTProf. Jesusa Padilla

PAMANTASAN NG LUNGSOD NG MAYNILAIntramuros, Manila

Graduate School of Engineering

CORPORATE STRATEGY

1.1 Concentration Strategies

2.1 Horizontal Integration

2.2 Vertical Integration

2.3 Vertical Integration: Benefits & Drawbacks

3.1 Diversification Strategies3.2 Levels of Diversification

3.3 Managerial Motives Underlying Diversification

3.4 Related and Unrelated Diversification


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ORPORATE STRATEGY

LEARNING OBJECTIVES

1. Name and understand the three concentrationstrategies.

2. Be able to explain horizontal and vertical integration.

3. Understand what background vertical integration is.

4. Understand what forward vertical integration is.

5. Be able to provide examples of backward and forwardvertical integration.

6. Explain the concept of diversification.

7. Be able to apply the three tests for diversification.

8. Distinguish related and unrelated diversification.

What is CORPORATE STRATEGY?

Corporate strategy deals with issues related to the portfoliomix of businesses held by a multi-businessorganization/corporation.


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ORPORATE STRATEGY

1.1 CONCENTRATION STRATEGIES

A concentration strategy involves trying to competesuccessfully within a single industry.

(1) Market penetration. Trying to gain additional share of afirmsexisting markets using existing products.

(2) Market development. Taking existing products andtrying to sell them within new markets.

(3) Product development. Creating new products to serveexisting markets.

2.1 HORIZONTAL INTEGRATION

Rather than rely on their own efforts, some firms try toexpand their presence in an industry by acquiring ormerging with one of their rivals.


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ORPORATE STRATEGY

2.2 VERTICAL INTEGRATION STRATEGIES

(1) Backward Vertical Integration. Involves a firm movingback along the value chain and entering a suppliersbusiness.

(2) Forward Vertical Integration. Involves a firm movingfurther down the value chain to enter a buyersbusiness.

1.4 VERTICAL INTEGRATION: BENEFITS &DRAWBACKS

BENEFITS DRAWBACKSReduce transportation costs if commonownership results in closer geographic

proximity.

Potentially higher costs due to lowefficiencies resulting lack of supplier

competition.

Improves supply chain coordination. Capacity balancing issues.

Provide more opportunities todifferentiate by means of increase

control over inputs.

Decreased flexibility due to previousupstream or downstream investments.

Capture upstream or downstream profitmargins.

Decreased ability to increase productvariety if significant in-house development

is required.

Increase entry barriers to potentialcompetitors.

Developing new core competencies maycompromise existing competencies.

Gain access to downstream distributionchannels that otherwise would be

inaccessible.

Increase bureaucratic costs.


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ORPORATE STRATEGY

Horizontal and Vertical Integration(example)

CARMANUFACTURE

Car Retail

BusManufacture

ComponentsManufacture

TruckManufacture

3.1 DIVERSIFICATION STRATEGIES

The entry of a firm or business unit into new lines of activity,either by processes of internal business development oracquisition, which entail changes in its administrativestructure, systems and other management processes.


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ORPORATE STRATEGY

3.1 DIVERSIFICATION STRATEGIES

Three Tests for Diversification

(1) How attractive is the industry that a firm is consideringentering?

(2) How much will it cost to enter industry?

(3) Will new unit and the firm be better off?

When to diversify?

A firm should consider diversifying when:

It can expand into businesses whose technologies andproducts complement its present business.

Its resources and capabilities can be used as valuablecompetitive assets in other businesses.

Costs can be reduced by cross-business sharing or transfer

of resources and capabilities.Transferring a strong brand name to the products of other

businesses helps drive up sales and profits of thosebusinesses.


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ORPORATE STRATEGY

3.2 LEVELS OF DIVERSIFICATION

3.3 MANAGERIAL MOTIVESUNDERLYING DIVERSIFICATION

(1) Market Power.

(2) Combination and Sharing of Resources and CoreCapabilities.

(3) Internal Capital Market.


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ORPORATE STRATEGY

3.4 RELATED DIVERSIFICATION &UNRELATED DIVERSIFICATION

(1) Related Diversification. It occurs when a firm movesinto new industry that has important similarities with thefirmsexisting industry or industries.

(2) Unrelated Diversification. It occurs when a firm entersan industry that lacks any important similarities with thefirmsexisting industry or industries.

corporate strategy handouts

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