Corporate Level Strategy
Corporate Level Issues
• Product Diversity
• Corporate Parenting Roles
• Managing the Portfolio
• International Diversity
The multi business organization
Corporate Parent
Businesses
Businesses
Businesses
Three levels of strategy
• Corporate Strategy
• Business/ Competitive Strategy
• Functional Strategy
Corporate Strategy
• An action taken to gain a competitive
advantage through the selection and
management of a mix of businesses
competing in several industries or product
markets
Corporate Strategy (contd)
• What should be the nature and values of
the enterprise in the broadest sense ?
• What businesses should we be in ?
• What structure , systems and processes
will be necessary to link the various
businesses to each other ?
• How can corporate centre add value ?
Three major components
• Growth Strategy
• Portfolio Strategy
• Corporate Parenting Strategy
Product / Market Diversity
• Diversification is a strategy that takes the
organization into both new markets and
products or service.
• Economies of Scope
• Corporate Managerial Capability
• Increase market power
• Hedge risks
Related Diversification
• Is strategy development beyond current
products and markets , but within the
capabilities or value network of the
organization
Nature and Scope of Corporate
Strategies
• Stability Strategies
• Growth Strategy
• Retrenchment Strategy
• Combination Strategy
Stability Strategy
• Decides to serve the same markets
• Pursue same objectives with incremental
improvement of functional performance
• Concentrates resources in a narrow
product market for developing competitive
advantage
When Stability Strategy
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The economy or industry is in turmoil
Environmental turbulence is minimal
Just off a period of growth
Growth ambitions modest
Industry in mature stage
Approaches to Stability
• Holding Strategy
• Stable Growth
• Harvesting Strategy
• Profit or End Game Strategy
Expansion Strategies
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When the firm has lofty growth objectives
When new opportunities are emerging
Firm is the leader
Firm has surplus resources
Diversification fulfils growth objectives
Expansion ( contd )
• Expansion through intensification –
Ansoff’s product market expansion grid
• Expansion through Integration
Ansoff’s Product Market Expansion
Grid
Markets /
Products
Current Markets New Markets
Current Product Market
Penetration
Market
Development
New Products
Diversification
Product
Development
Market Penetration
• Motivating Existing Customers to buy
more frequently
• Increase efforts to attract it’s competitions’
customers
• Targeting new customers – price
concessions , better customer service
Market Development Strategy
• Tries to achieve growth by introducing
existing products in new markets
• Can move to new geographical areas
• Can attract different market segments
Product Development Strategy
• Development of a new/ improved product
for it’s current markets
• Likely to succeed when the products have
low brand loyalty
• Carries risk with it .
Diversification
• Mergers & Acquisitions : Outright purchase
of a company by another eg Tech
Mahindra buys Satyam
• Strategic Alliance & Joint Venture :
Agreements between companies to form
collaborative partnership eg Maruti-Suzuki
• Internal Development : Organic growth
into other LOBs eg Reliance, ITC
Advantages of related
diversification
• Transferring skills, expertise, and
capabilities from one business to another
• Cob9ining the value chain
• Leveraging strong brand names
• Creating stronger capabilities
Integration
• Vertical Integration – either forward or
backward into adjacent activities in the
value network. Eg buying a car component
company by a car manufacturer is BI
whereas buying of a repair centre is FI.
• Horizontal Integration is development to
activities which are complementary to
present activities.
When to Vertically Integrate
• Are our existing suppliers / customers meeting
the needs of end customers ? Eg Nike
outsourcing production units to SA& it’s logistics
to FedEx .
• How volatile is the current situation
• Is it possible to influence the
of our upstream/ downstream businesses?
• Will Vertical Integration enhance the structural
position of the business ? eg GCI integrated
forward via www.saregama.com
Advantages of Vertical Integration
• Build Entry Barriers
• Reduce Transaction Costs
• Better control & coordination of operations
• Spread fixed costs / overheads over large
number of products/ services
Limitations of Vertical Integration
• Balancing the line
• Forcing companies to commit to
technologies / products and risk losing
flexibility
• Problem of integrating significantly
different LOB into a coherent whole
Unrelated Diversification
• Is the development of products or services
beyond the current capabilities or value
network
• Pays off by exploiting dominant logic
• Conglomerate may be effective in
countries with underdeveloped markets
Advantages of Unrelated
Diversification
• Spreading business risks
• Optimization of financial investments
• Exploiting corporate resources and
management capabilities
Forms of Diversification
• Vertical : Diversification across value chain
• Horizontal : Diversification into
complementary businesses
• Geographic : Firms expand into other
geographic areas
International Expansion
• Exporting
• Licensing
• Joint Venture
• Direct Investment
Exporting
• Marketing of domestically produced goods
in a foreign country
• Advantage – minimizes risk , ensures
speed of entry m maximizes scale using
existing resources
• Disadvantage – trade barriers and tariff
add to cost , limits access to local market
information , seen as outsider
Licensing
• Licensing permits a company in the target
country to use the property of the licensor
eg trademarks , patents , and production
techniques
• Advantage – high ROI, able to circumvent
trade barriers
• Disadvantage – lack of control over use of
assets, license period is limited
Joint Ventures
• Partners strategic goal converge but
competitive goal diverge
• Partners size, resources , market power
are small compared to the industry leaders
• Advantage – viewed as insider, potential
for learning , overcomes cultural distance
• Disadvantage – Dilution of control,
Knowledge spillovers, higher risk
Direct Investment
• It is the ownership of facilities in the target
country
• Greater knowledge of local market
• Viewed as insider
• Higher risk than other modes
• Require more resources and commitment
Reasons for international diversity
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Globalization of Markets and Competition
Suppliers follow customers
Bypass limitations in home market
Gain arbitrage on differences
Internationalizing of value added activities
International Strategy
• Multi domestic strategy- Value adding
activities are located in national individual
markets served by the organization
• Global Strategy Standardized products
exploiting economies of scale .
• Transnational : Seeks the best of both
multidomestic and global strategy
Creating value through corporate
strategy
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Reducing Risk
Maintaining growth
Balancing Cash Flows
Sharing Infrastructure
Increasing Market power
Capitalizing on core competence