CORPORATE STRATEGY

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CORPORATE STRATEGY AND COMPETITIVE ADVANTAGES
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ISSUES TO BE COVERED GRAND STRATEGIES STABILITY
GROWTH ANSOFFS MATRIX INTEGRATION HORIZON
TAL VERTICAL DIVERSIFICATION CONCENTRIC(RE
LATED) HORIZONTAL CONGLOMERATE(UNRELATED)
INTERNATIONAL EXPANSION MERGERS AND
ACQUISITIONS STRATEGIC ALLIANCES RETRENCHMENT
( TURNAROUND) C0MBINATION
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A Small Lighting Companys curent Definition of
Its Business Domain
Customer Needs
Air conditioning Ventilating
Heating Lighting
Customer Groups
Television studios homes
Factories
Offices
Candles Light bulb
Fluorescent
Alternative Technologies
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• Business Strategy Planning (Eight Steps)
• Define a business mission
• Conduct an external environment analysis
  (opportunities/threats) (SWOT)
• Conduct an internal environment analysis
  (strengths/weaknesses)(SWOT/continued)
• Formulate goals
• Formulate strategY
• Formulate programs
• Implement
• Get feedback and control

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• STABILITY STRATEGIES
• TO CONTINUE WITH THE EXISTING BUSINESS STRATEGIC
• PLAN AS SHOWN EARLER.IT IS APPROPRIATE IF
• ENVIRONMENTAL TURMOIL IS AT MINIMAL AND THE FIRM
  
• DOES NOT SEE ANY THREAT.
• FIRM IS HAPPY WITH SMALL INCREMENTAL GROWTH AND
  NOT
• SEEKING TO INVEST HEAVILY IN EXPANSION
• EITHER OF INDUSTRY OR ECONOMY IS IN TURMOIL
• FIRM HAS JUST GONE FOR HEAVY EXPANSION AND
• NEED TO CONSOLIDATE BEFORE NEXT ROUND OF
  EXPANSION.
• INDUSTRY IS IN MATURE STAGE WITH FEW OR NO GROWTH
• PROSPECT AND THE FIRM IS IN A COMFORTABLE
  POSITION.

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CORPORATE NEW-BUSINESS PLAN
Sales

Desired sales Strategic planning gap Projected
sales
Diversification growth integrative
growth Intensive growth
Time (years)
0 5
10
Major Classes of Growth Opportunities ------------
--------------------------------------------------
--------------------------------------------------
-------- Intensive Integrative Diversificatio
n Growth Growth Growth ----------------------
--------------------------------------------------
------------------------------------------------
Market Penetration
Backward integration Concentric
diversification Market development Forward
integration Horizontal diversificaiton
Product development Horizontal integration
Conglomerate diversification
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• Growth Strategies
• There are three major growth strategies
• Intensive growth (market penetration, market
  development, product development)
• Diversification growth (concentric, horizontal,
  conglomerate)
• Integrative growth (backward, forward,
  horizontal)

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Three Intensive Growth Strategies
New Products
Current Products
1. Market Penetration Strategy
3. Product development Strategy
Current Markets
New Markets
2. Market development strategy
(Diversification strategy)
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Ansoffs Product-Market Expansion Grid
Existing Products
New Products
3. Product Development
1. Market Penetration
Existing Markets
4. Diversification
2. Market Development
New Markets
Intensive growth Market penetration market
development
product development Intensive is the first of
three growth strategies diversification is the
second integrative is the third
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• The Intensive Growth Strategy
• uses Ansoffs product/market matrix to define one
  of four alternative strategies
• Market penetration (existing markets existing
  products)
• Market development (new markets existing
  products)
• Product development (existing markets new
  products)
• Diversification (new markets new products)
  (Represents the 2nd strategy)

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MARKET PENETRATION MOTIVATING THE EXISTING
CUSTOMERS TO BUY ITS PRODUCT MORE FREQUENTLY
AND IN LARGE QUANTITIES. INCREASING ITS
EFFORTS TO ATTRACT ITS COMPETITORS
CUSTOMERS. TARGETING NEW CUSTOMERS IN ITS
EXISTING MARKETS. MARKET DEVELOPMENT
STRATEGIES ADDING ON NEW SEGMENTS ADDING
ON NEW GEOGRAPHICAL TERRITORIES
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PRODUCT DEVELOPMENT STRATEGY
COMPANY CAN EXPAND SALES THROUGH DEVELOPING NEW
PRODUCTS COMPANY CAN CREATE DIFFERENT OR
IMPROVED VERSIONS OF THE CURRENT PRODUCTS. THE
COMPANY CAN MAKE NECESSARY CHANGES IN ITS
EXISTING PRODUCTS TO SUIT THE DIFFERENT LIKES
OR DISLIKES OF THE CUSTOMERS.
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PRINCIPAL FACTORS THAT DETERMINE PRODUCTS
SUCCESS

• UNDERSTANDING OF THE CUSTOMER AND THE MARKET
  PLACE
• THE CREATION, MAKE, AND MARKET FUNCTIONS ARE WELL
  COORDINATED AND INTERFACED.
• THE PRODUCT PROVIDES A HIGH CONTRIBUTION MARGIN
  TO THE FIRM.
• THE NEW PRODUCT BENEFITS FROM THE EXISTING
  TECHNOLOGICAL AND MARKETING STRENGTHS
• THE RD PROCESS IS WELL PLANNED AND COORDINATED.
• THE PRODUCT IS AN EARLY MARKET ENTRANT
  (PREFERABLE)

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• Integrative Growth Strategy
• means growing by integration though
• Vertical integration (forward and/or backward) in
  the distribution system.
• Horizontal integration (acquire competitive
  companies).
• INTERNATIONAL EXPANSION

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Integration Growth Strategies
VERTICAL INTEGRATION
Toward the Source of Supply
Backward
HORIZONTAL INTEGRATION
Similar Businesses Acquired
Forward
Toward the Customer
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• FACTORS CONDUCIVE FOR VERTICAL INTEGRATION
• TAXES AND REGULATIONS ON MARKET TRANSACTIONS
• OBSTACLES TO THE FORMULATION AND MONITORING OF
• CONTRACTS.
• SIMILARITY BETWEEN THE VERTICALLY RELATED
  ACTIVITIES.
• SUFFICIENT LARGE PRODUCTION QUANTITIES.
• RELUCTANCE OF THE OTHER FIRMS TO MAKE INVESTMENTS
• FOR THE REQUIRED QUANTITIES.

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• FACTORS GOING AGAINST VERTICAL INTEGRATION
• QUANTITY REQUIRED IS LESS THAN THE MINIMUM
  EFFICIENT
• SCALE REQUIRED BY THAT INDUSTRY.
• 2. PRODUCT IS WIDELY AVAILABLE COMMODITY.
• 3. CORE COMPETENCIES BETWEEN THE INDUSTRIES ARE
  VARIED.
• 4. VERTICALLY ADJACENT ACTIVITIES ARE VERY VARIED
• MANUFACTURING V/S RETAILING.
• 5. ADDITION OF NEW ACTIVITY MAY PUT YOU IN
  COMPETITION
• WITH ANOTHER PLAYER WITH WHICH IT NEEDS TO
  COOPERATE.

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• REASONS FOR INTEGRATION
• TO REDUCE TRANSPORTATION COSTS IF COMMON
• OWNERSHIP RESULTS IN CLOSER GEOGRAPHIC
• PROXIMITY.
• IMPROVE SUPPLY CHAIN COORDINATION.
• CAPTURE UPSTREAM/DOWNSTREAM PROFIT MARGINS.
• INCREASE ENTRY BARRIERS TO POTENTIAL COMPETITORS
• GAIN ACCESS TO CHANNELS
• FACILITATE INVESTMENT IN HIGHLY SPECIALISED
  ASSETS
• IN WHICH COMPETITORS MAY BE RELUCTANT.,

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• DOWNSIDE RISKS OF INTEGRATION
• DIFFICULTY OF INTEGRATING EFFICIENTLY
• INCORRECT EVALUATION OF TARGET FIRMS VALUE
  CHAIN.
• OVERESTIMATION THE POTENTIAL OF SYNERGIES
• CREATING A COMBINATION TOO LARGE TO MANAGE.
• HUGE FINANCIAL BURDEN
• CAPACITY BALANCING ISSUES.
• DECREASED FLEXIBILITY DUE TO UPSTREAM OR
  DOWNSTREAM
• INVESTMENTS.
• DEVELOPING NEW COMPETENCIES MAY COMPROMISE
• EXISTING COMPETENCIES.

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EFFECTIVE ALTERNATIVES TO VERTICAL
INTEGRATION LONG TERM EXPLICIT
CONTRACTS FRANCHISE AGREEMENTS JOINT
VENTURES CO-LOCATION OF FACILITIES IMPLICIT
CONTRACTS (RELYING ON FIRMS REPUTATION)
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BENEFITS OF HORIZONTAL INTEGRATION ECONOMIES OF
SCOPE THROUGH SYNERGIES ECONOMIES OF SCALE BY
SELLING MORE INCREASED BRAGAINING POWERS
BOTHWAYS DUE TO SIZE REDUCTION IN COST OF GLOBAL
OPERATIONS THROUGH SUBSIDIARY DEVELOPMENTS SYNERG
Y ACHIEVED BY USING THE SAME BRAND NAME
TO PROMOTE MULTIPLE PRODUCTS.
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METHODS OF INTERNATIONAL EXPANSION EXPORTING LIC
ENSING JOINT VENTURES DIRECT INVESTMENTS
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• Diversification Growth Strategy
• means growing through opportunities outside of
  present businesses
• Seek new products that have technological and/or
  marketing synergies with existing product lines.
• Search for new products that will appeal to
  current customers.
• Seek new businesses that have no relationship to
  the companys current technology, products, or
  markets.

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RELATED DIVERSIFICATION (CONCENTRIC) DIVERSIFICAT
ION IN WHICH THE EXISTING AND NEW LINES OF
BUSINESS SHARE AND GAIN SPECIAL ADVANTAGES
FROM COMMONALITIES SUCH AS TECHNOLOGY CUSTOMER
S DISTRIBUTION LOCATION PRODUCT OR
MANUFACTURING SIMILARITIES GOVERNMENT ACCESS.
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• THE FIRM IS SAID TO HAVE PURSUED CONCENTRIC
• DIVERSIFICATION STRATEGY WHEN IT ENTERS INTO NEW
• PRODUCT OR SERVICE AREA BELONGING TO DIFFERENT
• INDUSTRY CATEGORIES BUT THE NEW PRODUCT OR
• SERVICE IS SIMILAR TO THE EXISTING ONE WITH
  RESPECT
• TO TECHNOLOGY OR PRODUCTION OR MARKETING
• CHANNELS OR CUSTOMERS.
• IT MAY BE DONE IN TWO WAYS
• INTERNAL DEVELOPMENT THROUGH PRODUCT AND MARKET
  EXPANSION UTILISING THE EXISTING RESOURCES AND
  CAPABILITIES OR
• THROUGH EXTERNAL ACQUISITIONS OPERATING IN THE
  SAME MARKET.

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MARKET RELATED CONCENTRIC DIVERSIFICATION
ADDITION OF LEASE FINANCING ACTIVITY
TECHNOLOGY RELATED CONCENTRIC DIVERSIFICATION
APPLYING SIMILAR TECHNOLOGY TO MANUFACTURE NEW
PRODUCTS E.G MAGGI EXPANDING INTO KETCHUPS AND
SAUCES. CUSTOMER RELATED CONCENTRIC
DIVERSIFICATION ANY KIND OF APPROPRIATE CROSS
SELLING EXERCISE.
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UNRELATED DIVERSIFICATION ( CONGLOMERATE) GENERAL
LY FIRM INTRODUCES NEW PRODUCTS USING DIFFERENT
TECHNOLOGIES IN NEW MARKETS. THE REASONS FOR
CONSIDERING THIS ALTERNATIVE ARE PRIMARILY TO
SEEK MORE ATTRACTIVE OPPORTUNITIES FOR GROWTH ,
SPREAD THE RISK ACROSS DIFFERENT INDUSTRIES, AND
/OR TO EXIT AN EXISTING LINE OF
BUSINESS. GUJARAT NARMADA VALLEY FERTILIZERS LTD
HAD DIVERSIFIED FROM FERTILIZERS TO PERSONAL
TRANSPORT, CHEMICALS AND ELECTRONIC INDUSTRY
BPL INTO POWER GENERATORS,CEMENT, STEEL AND
AGRICULTURAL INPUTS WIPRO IN VEGETABLE
OILS, MEDICAL EQUIPMENT, HYDRAULIC SYSTEMS,
CONSUMER PRODUCTS, LIGHTING, FINANCIAL SERVICES
ELSE THAN HARDWARE AND SOFTWARES.
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• RATIONALE FOR DIVERSIFICATION
• ECONOMIES OF SCALE AND SCOPE (SYNERGY)
• WIDEN MARKET BASE AND ENHANCE MARKET POWER.
• PROFIT STABILITY
• IMPROVE FINANCIAL PERFORMANCE
• GROWTH
• COUNTER COMPETITIVE THREAT EXTERNAL
  DIVERSIFICATION
• THROUGH MERGER REDUCES THE INTENSITY OF
  COMPETITION.
• ACCESS TO LATEST TECHNOLOGY
• REGULATORY FACTORS

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POSSIBLE SOURCES OF INTERRELATIONSHIPS IN
HORIZONTAL STRATEGY TANGIBLE INTERRELATIONSHIPS
PROCUREMENT INTERRELATIONSHIPS COMMON PURCHASED
INPUTS JOINT PROCUREMENTS TECHNOLOGICAL
INTERRELATIONSHIPS COMMON PRODUCT TECHNOLOGY
JOINT TECH DEVELOPMENT COMMON PROCESS TECHNOLOGY
JOINT INTERFACE DESIGN COMMON TECHNOLOGY IN
OTHER VALUE ACTIVITIES ONE PRODUCT INCORPORATED
INTO OTHERS (HYBRID) INTERFACE AMONG PRODUCTS
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INFRASTRUCTURAL INTERRELATIONSHIPS

• COMMON FIRMS INFRASTRUCTURE NEEDS SHARED CAP
  RAISING
• COMMON CAPITAL SHARED CASH UTILISATION
• SHARED ACCOUNTING
• SHARED LEGAL DEPARTMENT
• SHARED GOVT REGULATION
• SHARED HIRING AND HIRING AND TRAINING
• PRODUCTION AND MARKETING INTERRELATIONSHIPS

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PRODUCTION INTERRELATIONSHIPS COMMON SOURCE OF
RAW MATERIAL SHARED INBOUND LOGISTICS SIMILAR
FABRICATION PROCESS SHARED COMPONENT
FABRICATION SIMILAR ASSEMBLY PROCESS SHARED
ASSEMBLY FACILITIES SIMILAR TESTING/QC PROCEDURE
SHARED QC FACILITIES COMMON FACTORY SUPPORT
NEEDS SHARED FACTORY INDIRECT
ACTIVITIES SHARED SITE INFRASTRUCTURE
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MARKET INTERRELATIONSHIPS

• COMMON BUYER SHARED BRAND NAME
• COMMON CHANNEL CROSS SELLING
• COMMON GEOGRAPHIC MARKET BUNDLED/PACKAGED
  SELLING
• CROSS SUBSIDIZATION OF COMPLEMENTARY
• PRODUCTS
• SHARED MARKETING DEPARTMENTS
• SHARED SALES FORCE
• SHARED DISTRIBUTION SYSTEM
• SHARED ORDER PROCESSING SYSTEM
• SHARED SERVICE/REPAIR SYSTEM
• SHARED CHANNEL FINANCING SYSTEM

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INTANGIBLE INTERRELATIONSHIPS
SAME GENERIC STRATEGY SAME TYPE OF BUYER (NOT
THE SAME BUYER) SIMILAR CONFIGURATION OF THE
VALUE CHAIN (MANY DISPERSED SITES OF MINERAL
EXTRACTION AND PROCESSING) SIMILAR IMPORTANT
VALUE ACTIVITIES (ACCESS TO GOVT)
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• ALTERNATIVE ROUTES TO DIVERSIFICATION
• MERGERS AND ACQUISITIONS
• STRATEGIC PARTNERING
• JOINT VENTURES
• LONG TERM CONTRACTS
• STRATEGIC ALLIANCES

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MERGER AND ACQUISITIONS DIFFERENT FORMS
HORIZONTAL MERGER COMPETING IN SIMILAR
BUSINESSES IN SAME MARKETS
VERTICAL MERGER A SORT OF VERTICAL
INTEGRATION MARKET-EXTENSION MERGER SELLING
SAME PRODUCTS IN DIFFERENT MARKETS
PRODUCT-EXTENSION MERGER SELLING
DIFFERENT BUT RELATED PRODUCTS IN
SAME MARKET
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MERGER AND ACQUISITIONS EXAMPLES DIFFERENT FORMS
HORIZONTAL MERGER COMPETING IN SIMILAR
BUSINESSES IN SAME MARKETS HLL
AND TOMCO VERTICAL MERGER A SORT OF VERTICAL
INTEGRATION MARKET-EXTENSION MERGER SELLING
SAME PRODUCTS IN DIFFERENT MARKETS
KWALITY-WALLS PRODUCT-EXTENSION MERGER
SELLING DIFFERENT BUT RELATED
PRODUCTS IN SAME MARKET PG AND
GILLETE
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• STRATEGIES BEHIND MA
• REDUCE COMPETITION
• COST EFFICIENCY
• AVOID BEING A TAKEOVER TARGET
• IMPROVE EARNINGS AND REDUCE SALES VARIABILITY
• MARKET AND PRODUCT LINE ISSUES MODERN FOOD BY HLL
• ACQUIRE RESOURCES
• SYNERGY
• TAX SAVINGS
• CASHING OUT

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POSSIBLE REASONS FOR FAILURE OF MA INTEGRATION
DIFFICULTIES FAULTY ASSUMPTIONS FAILURE TO
CARRY OUT EFFECTIVE DUE-DILLIGENCE INORDINATE
INCREASE IN DEBT TOO MUCH DIVERSIFICATION PROBLE
MS IN MAKING MA WORK CORPORATE
CULTURE STRENGTH OF MIDDLE LEVEL MANAGEMENT
AND FRONTLINE PEOPLE.
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ATTRIBUTES LEADING TO SUCCESFUL MA ARE ACQUIRED
FIRM HAS ASSETS OR RESOURCES THAT
ARE COMPLIMENTARY TO THE ACQUIRING FIRMS CORE
BUSINESS. ACQUISITION IS FRIENDLY ACQUIRING
FIRM SELECTS TARGET FIRMS AND CONDUCTS NEGOTIATION
CAREFULLY AND METHODICALLY. ACQUIRING FIRM HAS
ADEQUATE CASH AND FAVORABLE DEBT POSITION. MERGED
FIRMS MAINTAINS LOW TO MODERATE DEBT
POSITION ACQUIRING FIRM HAS EXPERIENEC WITH
CHANGE IS FLEXIBLE. ACQUIRING FIRM IS STRONG
IN RD AND INNOVATION.
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TWO IMPORTANT STRATEGIC TERMINOLOGIES IN
MA POISON PILL WHEN A HOSTILE SUITOR TRIES
TO CAPTURE A COMPANY THEN IT GRANTS ITS
SHAREHOLDER TO BUY THE ADDITIONAL STOCK AT A
HEFTY DISCOUNT EXCLUDING THE ACQUIRER AND
THUS DILUTES HIS SHARE. WHITE KNIGHT THE
MANAGEMENT MAY SEEK OUT A POTENTIAL
ACQUIRER OR WHITE KNIGHT. IT WILL OFFER AN
EQUAL OR HIGH PRICE THAN
THE HOSTILE BIDDER.