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0 1Summary of Chapter

20. A corporate strategy should enable a company, or one or more of its business units, to perform one or more of the value creation functions at a lower cost or in a way that allows for differentiation and a premium price. 30. Horizontal integration can be understood as a way of trying to increase the profitability of a company by (a reducing costs, (b increasing the value of the company!s products through differentiation, (c replicating the business model, (d managing rivalry within the industry to reduce the ris" of price warfare, and (e increasing bargaining power over suppliers and buyers. #0. $here are two drawbac"s associated with horizontal integration% the numerous pitfalls associated with mergers and ac&uisitions and the fact that the strategy can bring a company into direct conflict with antitrust authorities. '0. (ertical integration can enable a company to achieve a competitive advantage by helping build barriers to entry, facilitating investments in specialized assets, protecting product &uality, and helping to improve scheduling between ad)acent stages in the value chain. *0. $he disadvantages of vertical integration include increasing bureaucratic costs if a company!s internal or in+house supplier becomes inefficient and a lac" of fle,ibility when technology is changing fast or demand is uncertain. -0. .ntering into a long+term contract can enable a company to realize many of the benefits associated with vertical integration without having to bear the same level of bureaucratic costs. However, to avoid the ris"s associated with becoming too dependent on its partner, it needs to see" a credible commitment from its partner or establish a mutual hostage+ta"ing situation.

/0. $he strategic outsourcing of noncore value creation activities may allow a company to lower its costs, better differentiate its products, and ma"e better use of scarce resources, while also enabling it to respond rapidly to changing mar"et conditions. However, strategic outsourcing may have a detrimental effect if the company outsources important value creation activities or becomes too dependent on the "ey suppliers of those activities.