CORPORATE LEVEL STRATEGIES

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 Learning Objectives

• Explain the basic types of corporate strategies.

• Describe how organisations employ concentration strategies.
• Compare and contrast horizontal and vertical integration strategies.
• Demonstrate understanding of related and unrelated diversification
strategies.
• Discuss the various aspects of internationalisation strategies.
• Explain the types of retrenchment strategies.
• Discuss the rationale for corporate restructuring and its
implementation in Indian context.

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 Corporate Strategies
• Corporate strategies are basically about decisions related to:
– allocating resources among the different businesses of a firm;
– transferring resources from one set of businesses to others;
– managing and nurturing a portfolio of businesses; and
– creating value across businesses in the portfolio.
• Corporate strategies help to exercise the choice of direction that an
organisation adopts. It could be a small business firm involved in a single
business or a large diversified conglomerate with several businesses.
• Strategic alternatives suggest either to continue or change the business the
enterprise is currently in or improve the efficiency and effectiveness with
which the firm achieves its objectives in its chosen business sector
• According to Glueck, there are four strategic alternatives: stability,
expansion, retrenchment, and any combination of these three.
W. F. Glueck and L. R. Jauch, Business Policy and Strategic Management, 4th ed. (New York: McGraw-Hill, 1984):.209.

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 Stability Strategies
• The corporate strategy of stability is adopted by an organisation
when it attempts at incremental improvement of its performance by
marginally changing one or more of its businesses in terms of their
respective customer groups, customer functions, and alternative
technologies - either singly or collectively.
The major reasons for adopting stability strategy are as given below.
– It is less risky, involves less changes and people feel comfortable with things as
they are.
– The environment faced is relatively stable.
– Expansion may be perceived as being threatening.
– Consolidation is sought through stabilising after a period of rapid expansion.

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 Types of Stability Strategies
Stability strategies could be of three types:
(1) no-change; (2) profit and (3) pause / proceed with caution strategies
No-change strategy: As the term indicates, this stability strategy is a conscious
decision to do nothing new i.e. to continue with the present business definition.

Profit strategy: The organisation tries to sustain its profitability by such

measures during facing short term difficulties by adopting a profit strategy.
Pause/proceed-with-caution strategy: It is employed by organisations that
wish to test the ground before moving ahead with a new corporate strategy.

The essence of stability strategies is, therefore, not doing anything but
sustaining moderate growth in line with the existing trends.
J. D. Hunger and T. L. Wheelen, Strategic Management (Reading, Mass.: Addison-Wesley 1999): 143 – 144.

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 Expansion Strategies

When an organisation aims at high growth by substantially broadening the

scope of one or more of its businesses in term of their respective customer
groups, customer functions, and alternative technologies, singly or jointly,
in order to improve its overall performance.

The major reasons for adopting expansion strategies are:

• It may become imperative when environment demands increase in
• pace of activity
• Increasing size may lead to more control over the market vis-à-vis
competitors and
• Advantages from the experience curve and scale of operations may accrue.

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 Expansion Strategies
There are four types of expansion strategies:
• concentration
• integration
• diversification
• internationalisation.

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 Retrenchment Strategies

Retrenchment is followed when an organisation aims at contraction of its

activities through substantial reduction or elimination of the scope of one or
more of its businesses in terms of their respective customer groups, customer
functions, or alternative technologies - either singly or jointly –in order to
improve its overall performance.

The major reasons for adopting retrenchment strategies are:

(1) The management no longer wishes to remain in business either partly or
wholly due to continuous losses and the organisation becoming unviable.
(2) The environment faced is threatening.
(3) Stability can be ensured by reallocation of resources from unprofitable to
profitable businesses.

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 Retrenchment Strategies

The three types of retrenchment strategies are:

• Turnaround
Simply, turnaround strategy is backing out or
retreating from the decision wrongly made earlier
and transforming from a loss making company to a
profit making company.
• Divestment
• Liquidation
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 Combination Strategies
• The combination strategy is followed when an organisation adopts a
mixture of stability, expansion, and retrenchment strategies either at
the same time in its different businesses or at different times in one
of its business with the aim of improving its performance.
• Combination strategies (referred to as mixed or hybrid strategies) are
a mixture of stability, expansion or retrenchment strategies applied
either simultaneously (at the same time in different businesses) or
sequentially (at different times in the same business).
The major reasons for adopting combination strategy are:
• The organisation is large and faces complex environment.
• The organisation is composed of different businesses, each of which
lies in a different industry requiring a different response.

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 Concentration Strategies

• Concentration strategies involves converging resources in one or more of a

firm's businesses in terms of their respective customer needs, customer
functions, or alternative technologies - either singly or jointly - in such a
manner that expansion results.
• It is immediately apparent that concentration strategies would apply to
situations where the firm finds expansion worthwhile. For instance, the
industries that a firm belongs to should possess a high potential for growth
and be sufficiently attractive for concentration to take place. Internally, the
firm should be strong enough to sustain expansion.
• For expansion, concentration is often the first-preference strategy for a firm
for the simple reason that it would like doing more of what it is already doing.
A firm that is familiar with an industry would naturally like to invest more in
known businesses rather than unknown ones.

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Ansoff’s Product-Market Matrix

PRODUCT
PRESENT NEW

MARKET

MARKET PRODUCT
PRESENT PENETRATION DEVELOPMENT

MARKET DIVERSIFICATION
NEW DEVELOPMENT

Source: Adapted from H. I. Ansoff: “Strategies for Diversification,” in Harvard Business Review, 5 (1957): 113-124.

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 Concentration Strategies

• The product-market matrix provides us three types of

concentration strategies:
– Market penetration involves selling more products to the same market: a firm
may attempt focussing intensely on existing markets with present products
using a market penetration type of concentration.
– Market development involves selling same products to new markets: it may try
attracting new users for existing products resulting in a market development
type of concentration.
– Product development involves selling new products to same markets: it may
introduce newer products in existing markets by concentration on product
development.

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Concentration Strategies – Advantages
• Concentration involves minimal organisational changes so it is less
threatening and less problematic: the managers of a firm are more familiar
and comfortable with present businesses.
• It enables the firm to master one or a few businesses and enable it to
specialise by gaining an in-depth knowledge of these businesses.
• Intense focussing of resources on a few businesses may also create
conditions for the firm to develop a competitive advantage.
• Systems and processes within the firm are developed in such a way that
people are familiar with them.
• Decision making process is under less strain as there is high level of
predictability. Past experience is valuable as it is replicable.

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Concentration Strategies – Limitations

• Concentration strategies are heavily dependent on the industry. If an industry

goes into a recession, the concentrated firm in it finds it too difficult to
withdraw from it. If an industry become too crowded with competitors its
attractiveness decreases for existing players.
• Factors such as product obsolescence, fickleness of markets, and emergence
of newer technologies are threats to concentrated firms.
• Concentration strategies may create organisational inertia; managers may not
be able to sustain interest and find working less challenging.
• Concentration strategies may lead to cash flow problems. For expansion
through concentration large cash inflows are required for building up assets
while the businesses are growing. But when these businesses mature, firms
often face a cash surplus with little scope for investing in the present
businesses.

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 Integration Strategies

• Integration means expanding through combining businesses or activities

related to the present business or activity of a firm. This can be done in two
ways, either by horizontal integration or vertical integration.
• Horizontal integration: When an organisation takes up similar type of
products at the same level of production or marketing process keeping it at
the same stage of the value chain it results in horizontal integration.
Benefits: Horizontal integration leads to economies of scale, economies of scope,
increased market power, increased product differentiation, replicating a successful
business model and reduction in industry rivalry .
Limitations: Horizontal integration increases size but it may attract the provisions of
monopolies, restrictive trade practices act or anti-trust laws.
Just like computer hardware and software are two entirely different products, economies
of scope do not arise out of horizontal integration.

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Ansoff's Matrix for Diversification
Strategies
---------------------------------------------------------------------------------------------------------------------
New products
---------------------------------------------------------------------------------------------------------------------
Related technology Unrelated technology
---------------------------------------------------------------------------------------------------------------------
New functions
---------------------------------------------------------------------------------------------------------------------
Firm its own customer Vertical integration
---------------------------------------------------------------------------------------------------------------------
Same type of product Horizontal diversification
---------------------------------------------------------------------------------------------------------------------
Similar type of product Marketing and Marketing related
technology-related concentric
diversification diversification
---------------------------------------------------------------------------------------------------------------------
New type of product Technology-related Conglomerate
concentric diversification diversification
---------------------------------------------------------------------------------------------------------------------

Source: Adapted from H.I. Ansoff, Corporate Strategy (New York: McGraw-Hill, 1965): 132

© Azhar Kazmi & Adela Kazmi, 2015 17

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 Vertical Integration

• Any new activity undertaken with the purpose of either supplying inputs
(such as raw materials) or serving as a customer for outputs (such as
marketing of firm's product) is vertical integration. It is of two types:
backward integration and forward integration.
• Backward integration means retreating to the source of raw materials.
• Forward integration is moving the organisation to the ultimate customer / end user.
– Benefits adopting vertical integration gives greater control over value chain, greater
control over market coverage, streamlined manufacturing processes, opportunities to
differentiate products, enhancing learning across processes and cross-functional
experience, raising the entry barriers for potential competitors and savings in
transportation costs etc.
– Limitations in using vertical integration strategies extensively are increased costs, either
excess capacity or under-utilisation of resources, technological obsolescence, increased
exit barriers, loss of strategic flexibility etc.

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Integration Strategies Based on Value
Chain System in Textile Industry
PRESENT
Backward POSITION Forward
Integration OF FIRM Integration

Hydrocarbons Petrochemicals Filament

extrusion

Domestic/
Spinning Processing Garments Export markets

Agriculture / Cotton, wool, and Ginning

sericulture silk
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 Vertical Integration- Advantages
Major advantages of adopting vertical integration:
• Greater control over value chain resulting in economies of scale and scope
and improving supply chain coordination
• Greater control over market coverage leading to a bigger customer base
• More streamlined manufacturing processes with shorter production cycles
• More opportunities to differentiate products by means of better control of
inputs
• Enhancing learning across processes and cross-functional experience
• Raising the entry barriers for potential competitors
• Savings in transportation costs due to proximity of value chain partners

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 Vertical Integration- Disadvantages

• Increased costs of coordinating integration over multiple stages of value

chain
• Potential for either excess capacity or under-utilisation of resources because
of uneven productivity across different value chain activities
• Technological obsolescence due to relying on outside manufacturers
• Loss of strategic flexibility owing to dependence on outsiders
• Increased mobility and exit barriers
• Tight coupling to poor performing business units owing to dependence
• Lack of information and feedback from suppliers and distributors

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 Diversification Strategies
• Diversification involves a substantial change in business definition - singly
or jointly - in terms of customer functions, customer groups, or alternative
technologies of one or more of a firm's businesses.
• The two basic strategic alternatives : related and unrelated diversification.
Ansoff’s refers to it as concentric and conglomerate diversification
respectively:
– Concentric or Related Diversification: When an organisation takes up an activity related
to the existing business definition of one or more of a firm's businesses either in terms of
customer groups, customers functions or alternative technologies, it is concentric or
related diversification.
– Conglomerate or Unrelated diversification: When an organisation adopts a strategy
which requires taking up those activities which are unrelated to the existing business
definition of one or more of its businesses either in terms of their respective customer
groups, customer functions or alternative technologies, it is conglomerate diversification.

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 Reasons for Diversification
There are many reasons why organisations adopt diversification strategies. In
general, the three basic and important reasons are:
1. Diversification strategies are adopted to minimise risk by spreading it over
several businesses.
2. Diversification may be used to capitalise on its capabilities and business
model so as to maximise organisational strength or minimise weaknesses.
3. Diversification may be the only way out if growth in existing businesses is
blocked due to environmental and regulatory factors.
Related and unrelated diversification strategies each have their own specific
reasons for adoption:
1. Reasons for concentric or related diversification can be deduced from the
concept of synergy.
2. Reasons for conglomerate or unrelated diversification is spreading risk over
different, unrelated businesses.

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 Major Reasons for Concentric
Diversification
The major reasons why organisations adopt concentric diversification are:
• Realising financial synergies in terms of transaction cost savings and tax savings
• Realising marketing synergies by increased market power (e.g. offering a complete
range of products) and multipoint market contact with the distribution channel
partners (e.g. using the same retailing outlets) and customers (e.g. users of a range
of complementary products)
• Realising operational synergies through economies of scale i.e. increasing size of
operations and economies of scope i.e. using a common base of resources and
capabilities for operating varied, but related, businesses
• Realising personnel synergies through utilising human resources with common skill
sets and competencies for another business
• Realising informational synergies by using common sources of information,
databases and information networks
• Realising managerial synergies by managing a set of related businesses requiring a
common set of administrative skills and experience

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 Major Reasons for Conglomerate
Diversification
The major reasons why organisations adopt conglomerate diversification are:
• Spreading business risks by investing in different industries
• Maximising returns by investing in profitable businesses and selling out
unprofitable ones
• Leveraging competencies in corporate restructuring by turning around loss making
companies
• Stabilising returns by avoiding economic upswings and downswings through having
stakes in different industries
• Taking advantage of emerging opportunities afforded by expanding economy and
encouraging government policies
• Migrating from businesses under threat from the business environment
• Exercising of personal choice by industrialists and managers to create industrial
empires by owning businesses in diverse sectors

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 Risks of Diversification
• Diversification, especially unrelated, is a complex strategy to formulate and
implement. It demands a very high level of managerial, operational and financial
competence to be successful.
• Diversification demand a wide variety of skills. Different businesses operating in
diverse industries would require dissimilar sets of skills to manage successfully.
• Diversification results in decreasing commitment to a single or few businesses and
diverting it to several of them at the same time. This phenomenon may result in a
situation where businesses that need more attention get less and the ones needing
little get more. Imbalance of commitment does not help to realise the many benefits
of diversification such as maximising returns.
• Diversification often does not result in the promised rewards. Experience around the
world shows that it is easy to be lured by the glamour of diversification and not
being able to reap the benefits of synergies and strategic advantage ultimately.
• Diversification increases the administrative costs of managing, integrating, and
controlling a wide portfolio of businesses and this can often offset the savings .

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 Diversification Strategies in the Indian
Context
• There is a divergent and interesting view of what strategy could be better for
companies in the developing countries such as India.
• A research study of 72 large public and private sector companies in India by a group
of researchers at IIM Ahmadabad highlighted the pattern of diversification in the
Indian industry during the period 1960-75, had this to say as mentioned below:
• The larger enterprises in the India industry in both the private and public sectors are
much diversified. Private sector companies have typically diversified into unrelated
areas while public enterprises have diversified into related ones.
• Governmental regulation plays a greater role in diversification strategies than the
interplay of market forces.
• Private sector companies have followed diversification strategies in response to the
needs of regulatory mechanisms such as industrial policy resolutions, the IDR Act,
MRTP Act, FERA, etc. Public enterprises have adopted diversification in response
to the public policy of national self-sufficiency and import substitution.
S. Chaudhary, K. Kumar, C. K. Prahalad and S. Vathsala, "Patterns of diversification in larger Indian enterprises," in Vikalpa, 7, no. 1 (January 1982): 23-39.

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 Internationalisation Strategies
• International strategies are expansion strategies that require organisations to market
their products or services beyond the domestic or national market.
• The two trends of lowering of trade and investment barriers between nations and the
easing of regulations governing trade and investment have led to intensification of
globalisation of production and markets.
Porter’s model of competitive advantage of nations has four diamond factors:
• Factor conditions The special factors or inputs of production such as natural
resources, raw materials, labour, etc. that a nation is especially endowed with.
• Demand conditions The nature and size of the buyer's needs in the domestic market
such as sophisticated and demanding buyers and large markets in the nation.
• Related and supporting industries The existence of related and supporting industries
to the ones in which a nation excels such as resourceful local suppliers.
• Firm strategy, structure, and rivalry The conditions in the nation determining how
firms are created, organised, and managed, and the nature of domestic competition.
G. M. Meier, The International Environment of Business (New York: Oxford University Press, 1998): 4 - 14.
P. Dicken, Global Shift (New York: Guildord Press, 1992 )

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 The Porter’s Diamond of National
Competitive Advantage
Government

Firm strategy,
structure, and
rivalry

Factor conditions Demand conditions

Related and
supporting
industries

Serendipity

Source: Adapted from M.E. Porter, “The competitive advantage of nations,” Harvard Business Review, (March- April
1990): 77.

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 Types of International Strategies
Two sets of factors for a firm's decision to adopt international strategies:

• Cost pressures denote the demand on a firm to minimise its unit costs. By
doing so, the firm tries to derive full benefits from economies of scale and
location economies. Ideally, the firm seeks a single low-cost location,
producing globally standardised products and marketing it widely around
the world to achieve economies of scale. Typically, cost pressures are high
in industries that make products, having commodity characteristics, such as
chemicals, petroleum or steel. These products serve universal needs.
• Pressures for local responsiveness makes a firm tailor its strategies to
respond to national-level differences in terms of variables like customer
preferences and tastes, government policies, or business practices. In doing
so, the firm customises its products and services to the requirements of the
individual country-market it is serving like cars, clothes, food, insurance etc.

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 Types of International Strategies
Bartlett and Ghoshal mention four types of international strategies:
• Firms adopt an international strategy when they create value by transferring
products and services to foreign markets where these products and services are not
available.
• Firms adopt a multi domestic strategy when they try to achieve a high level of local
responsiveness by customising their products and services according to the local
conditions present in the countries they operate in.
• Firms adopt a global strategy when they rely on a low-cost approach based on
reaping the benefits of experience-curve effects and location economies and
offering standardised products and services across different countries.
• Firms adopt a transnational strategy when they adopt a combined approach of low-
cost and high local responsiveness simultaneously for their products and services.

C. A. Bartlett & S. Ghoshal, Managing Across Borders (Boston, MA: Harvard Business School Press, 1989)

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Four Types of International Strategies

Global Transnational

Pressures for cost reduction

strategy strategy

nternational Multidomestic
strategy strategy

Pressures for local responsiveness

Based on C.A. Bartlett and S. Ghoshal, Managing Across Borders (Boston, M.A.: Harvard Business School Press, 1989)

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Strategy Options for Local Companies in
Competing Against Global Companies

INDUSTRY PRESSURES TO GLOBALISE

Dodge rivals by shifting Contend on a global
High to a new business level
model or market niche

Defend by using home- Transfer company

field advantages expertise to cross-
Low border markets

Tailored for Transferable to

RESOURCES AND COMPETITIVE CAPABILITES

Source: Adapted from N. Dawar and T. Frost, “Competing with Giants: Survival strategies for Local Companies in Emerging
Markets,” Harvard Business Review, 77, no.1 (Mar-Apr 1999): 122.
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 International Entry Modes
Root presents a three-part classification of entry modes under which we could place the
different entry modes mentioned by various authors.
• Export entry modes: Under these modes, the firm produces in the home country
and markets in the overseas markets.
(1) Direct exports (2) Indirect exports

• Contractual entry modes: These modes are non-equity associations between an

international company and a company or any other legal entity in the overseas
markets.
(1) Licensing (2) Franchising (3) Contractual arrangements

• Investment entry modes: These modes involve ownership of production units in the
overseas market in a form of equity investment or direct foreign investment.
(1) Joint venture and strategic alliances
(2) Independent ventures or wholly-owned subsidiaries
F. R. Root, Entry Strategies for International Markets (Lanham, Maryland: Lexington Books, 1987).

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 Born Global Firms

• Business organisation that, from or near their founding, seek superior

international performance from the application of knowledge-based
resources to the sale of outputs in multiple countries.
• The born-global firms tend to be smaller firms formed by proactive
entrepreneurs. This phenomenon is quite common among Indian
expatriates. Typically, the born-global firms offer products and services
that involve substantial value added, often due to significant processes or
technology breakthroughs.
• The born-global firm owner adopts a global focus from the outset and
embarks on rapid and dedicated internationalization.

G. A. Knight and S. T. Cavusgil, “Innovation, organizational capabilities, and the born-global firm,” Journal of International Business Studies 35
(2004): 124-141.

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 Strategic Decisions in Internationalisation
There are three strategic decisions related to international entry modes:

• Which international markets to enter? An analysis of the benefits, costs, and risk of
market entry and profiling of countries by assigning them ranking in terms of their
attractiveness and long-term profit potential. It might be organic or happen stance.
• Timing of entry into international markets : The first-mover advantages of an early
entry of registering presence by building brand name, build up demand, sales
revenue, and market share, and create entry barriers for other companies but the
disadvantages might involve greater risks, and incurring pioneering costs.
• Scale of entry into international markets :Small-scale entry has the advantages of
testing the waters before the final plunge is taken and the possibility of reversal of
strategic decision if the entry turns out to be unprofitable. Large-scale entry has the
advantages of impacting the local competition significantly in favour of the
company .
C. W. L. Hill and G. R. Jones, Strategic Management Theory (Boston, MA: Houghton Mifflin, 2007): 285.

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 Advantages of Expansion through
Internationalisation
Some of the major advantages of international strategies are:
• Realising economies of scale By expanding sales volume through international
expansion, firms can realise cost economies from economies of scale.
• Realising economies of scope Firms develop valuable competencies and skills when
they operate in home markets and implement particular business models.
• Expansion and extension of markets Economies of scale and scope enable firms to
expand their markets from local to global markets.
• Realising location economies This advantage can be utilised by firms to produce at
lower cost or to use their low-cost advantage to provide differentiation or do both.
 Access to resources overseas By expanding internationally, firms gain access to
resources overseas that they do not get when they operate in domestic markets only.
Such resources can be natural, financial or human resources.
• The advantages of internationalisation, however, can only be achieved by assuming
a certain number of additional costs - infrastructure costs, but also informational
costs barely visible at a superficial level.

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 Disadvantages of Expansion through
Internationalisation
The disadvantages of international strategies lie in factors such as:

• Higher risks International expansion often entails a higher risk as compared to a

situation where a firm only operates domestically. These risks are related to
uncertainty in economic and political environments in host countries.
• Difficulty in managing cultural diversity International firms face challenges of
managing cultural diversity within and outside.
 High bureaucratic costs Operating internationally requires extensive coordination
between home office and foreign operations and subsidiaries. These result in higher
bureaucratic costs of coordination and communication.
• Higher distribution costs When a firm operates internationally but manufactures
only locally it may experience higher distribution costs.
 Trade barriers Despite liberalisation of trade between countries, substantial trade
barriers in the form of tariffs, pricing restrictions, differing standards or local
content requirements exist.

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 Regionalisation Strategies
• The advantages of regionalisation lie in the geographic proximity, cultural
homogeneity, ease of movement and transportation of goods and people. Besides
these, cost savings from regional standardization, pooling of resources, better
understanding of local market conditions, and the presence of complementarities
among various aspects of business may also result.
• The economic and industrial advantages of regionalisation spill over into political
arena and the reverse also happens when political understanding leads to greater
economic and industrial cooperation among geographically contiguous nations.
• Globalisation is a myth.
• Regionalization can be considered as an expression of semi-globalization. Semi-
globalization implies that we observe neither extreme geographical fragmentation
of the world in national markets nor complete integration across the globe.
• Five regionalisation strategies as per P. Ghemawat (2005) are:
(i) home base, (ii) portfolio, (iii) hub, (iv) platform, and (v) mandate strategies.
A.M. Rugman, The End of Globalization (London: Random House / New York: Amacom-McGraw-Hill, 2000).
P. Ghemawat, “Regional Strategies for Global Leadership,” Harvard Business Review 83, no.12 (2005): 98-112.
P. Ghemawat, “Semi-globalization and international business strategy,” Journal of International Business Studies 34, no. 2 (2003): 138-152

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Strategies for the Bottom-of-the-Pyramid
The phrase ‘bottom-of-the-pyramid” was used by the American president Franklin
Roosevelt

The tactics suggested to implement the BoP idea into practice depends on making
products and services affordable to poor people. These tactics could be several such
as:
– Asking for easy payments in instalments (e.g. increasing sales in rural and semi-urban areas of TVs,
cell phones, two-wheelers, or low-cost houses)
– Dramatic cost-cutting (e.g. some products and services in India cost a fraction of what they cost in the
U.S. such as medical services)
– Offering products in small packages (e.g. shampoo sachets instead of bottles)
– Charging prices by pay-by-use (e.g. paying a small amount at a cyber café to use computer and access
Internet instead of buying a computer and installing an Internet connection)
– Direct distribution by avoiding costly marketing intermediaries (e.g. buying agricultural produce
directly from farmers as ITC does through its e-choupals.)

S.S.A. Aiyar, “Misfortune at bottom of pyramid,” The Economic Times, October 25, 2006

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Strategies for Indian Companies Competing
with Global Companies
There are four strategy options for local companies in emerging
markets:
1. Using home-field advantages: a good strategy option is to concentrate on
the advantages enjoyed in the home market, cater to customers who prefer a
local touch, and accept the loss of customers attracted to global brands.

2. Transferring the company’s expertise to cross-border markets Emerging

economy markets often have companies that possess strengths and
capabilities suitable for competing in other country markets.

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 Strategies for Indian Companies
Competing with Global Companies
3. Shifting to a new business model or market niche When pressures to
globalize are strong, any of these three sub-options make more sense:
a. Shift the business to a value chain where the firm’s resources provide
competitive advantage
b. Enter into a joint venture with a globally competitive partner
c. Sell out to a global entrant into the home market who considers the
company would be a good entry vehicle
4. Contending on a global level If a local company in an emerging market has
transferable resources and capabilities, it can launch successful initiatives
to meet the pressures for globalization head on and start to compete on a
global level itself.

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 Strategies of the Indian MNCs

Despite bottlenecks and hindrances, there are external and

internal triggers that have acted in unison to push or pull
Indian firms to adopt international strategies.
– The forces of globalisation and internationalisation have impacted the
government policies to change and, as a consequence, there is an
increasing awareness of the need to adopt international corporate- and
business-level strategies.
– The nature and intensity of domestic competition has changed in recent
years making several industries highly competitive and consider
international strategies.

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 Strategies of the Indian MNCs

– Business houses realised the limits of expansion within national

markets and the constraints that government policy placed on national-
level expansion. These constraints left no scope for expansion and so
they adopted international strategies.
– The presence of extensive diasporas-based networks of Indians around
the world.
– The unleashing of the entrepreneurial spirit among the Indian
industrialists on the positive side and the herd mentality among them on
the negative side might have collectively contributed to the increasing
adoption of international strategies including media hype associated
with the perception of ‘India advantage’ abroad.

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 Retrenchment Strategies

• Retrenchment is followed when an organisation substantially reduces the

scope of its activities. These steps result in different kinds of strategies.
• The first set of factors leading to decline is external to the organisation.
– Some of the major external factors leading to decline could be emergence of new
organisational forms, new dominant technologies, new business models, demand
saturation, changing customer needs and preferences or emergence of substitute products.
• The second set of factors leading to decline is internal to the organisation.
– Some of the major internal factors leading to decline could be ineffective top
management, inappropriate strategies, continual resistance to externally-imposed change,
poor quality of functional management, wrong organisation design and inappropriate
structure, excess assets and high costs or ineffective sales and marketing.

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 Types of Retrenchment Strategies
• An effective monitoring and control system can signal the
impending danger and the malaise can be checked by a vigilant
management.
– If the organisation chooses to focus on ways and means to reverse the
process of decline, it adopts a turnaround strategy.
– If it cuts off the loss-making units, divisions or SBUs, curtails its
product line, or reduces the functions performed, it adopts a divestment
(or divestiture) strategy.
– If none of these actions work, then it may choose to abandon the
activities totally, resulting in a liquidation strategy.

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 Turnaround Strategies
Turnaround strategies derive their name from the action
involved, i.e. reversing a negative trend and turning around the
organisation to profitability.

Conditions for turnaround strategies: Persistent negative

cash flow and profits, declining market share, deterioration in
physical facilities, mismanagement etc.

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 Types of Turnaround Actions

Types of turnaround actions:

Pursuing cost efficiencies Undertaking asset retrenchment

Focusing on core activities Building for the future
Initiating cultural change Reinvigorating leadership within
organization

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 Managing Turnaround

Managing turnaround : There are three ways in which

turnarounds can be handled:
• The existing chief executive and management team handles the entire
turnaround strategy with the advisory support of a specialist external
consultant.
• In another situation, the existing team withdraws temporarily and an
executive consultant or turnaround specialist is employed to do the job.
• The last method involves replacement of the existing team, specially the
chief executive, or merging the sick organisation with a healthy one.
G. A. Mirchandani, "Turning a business around,” Business India, Mar.7-20, 1988, 110-111.

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 Divestment Strategies
• Divestment (also called divestiture or cutback) strategy
involves the sale or liquidation of a portion of business, or a
major division, profit centre or SBU.
• Reasons for divestment : Divestment may be adopted due to various
reasons:
– A business that had been acquired proves to be a mismatch and cannot be
integrated.
– Persistent negative cash flows from a particular business is creating financial
issues.
– Severity of competition and the inability of an organisation to cope with it
– Upgradation or selling off a part of business is required if the business is to
survive.
– Divestment may be part of a merger plan executed with another organisation.

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 Divestment Strategies

• Approaches to divestment: A part of the company is divested by spinning it

off as a financially and managerially independent company, with the parent
company retaining partial ownership or not. Alternatively, the firm may sell
a unit outright.

• Decision to divest : The decision to divest is a painful one for the

management as it amounts to admitting a failure. This is the reason why
many organisations fail to divest even though the strategic alternative is
apparent.
P. Mehra, “A Board in the Sick Bay,” Business Standard, June 10-11, 2000, 6.

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 Liquidation Strategies
Liquidation is the ‘last resort’ strategy when the organisation cannot be
turned around or it cannot be divested as there are no buyers. It is a
retrenchment strategy that is considered the most extreme and unattractive
is liquidation strategy, which involves closing down an organisation and
selling its assets.

Planned liquidation: Liquidation strategy may be unpleasant as a strategic

alternative but when a ‘dead business is worth more than alive’, it is a good
proposition. When liquidation is evident (though it is difficult to say
exactly when) an abandonment plan is desirable. Planned liquidation would
involve a systematic plan to reap the maximum benefits for the
organisation and its shareholders through the process of liquidation.

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 Corporate Restructuring
At the micro level, restructuring has three connotations: (1) corporate- or business-
level (2) restructuring, (3) financial restructuring and (4) organisational
restructuring.
• Corporate-or business-level restructuring: means changes in the composition of an
organisation‘s set of businesses in order to create a more profitable enterprise.
• Financial restructuring: deals with changes in the equity pattern, equity holdings
and cross-holding pattern, debt servicing schedule, and similar such issues.
• Organisational restructuring: may involve several types of managerial actions. i.e.
changes in the structure of the organisation, reducing hierarchies, reducing the
employees or downsizing, redesignating positions, and altering reporting
relationships.
• Rationale for restructuring: restructuring is needed to change the ways of doing
business and the reason to realign the organisation to changing environmental
realities.

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The Family Tree of Strategic Alternatives
at the Corporate-level
CORPORATE-LEVEL STRATEGIES

STABILITY EXPANSION RETRENCHMENT COMBINATION

No-change/ Profit Pause / Turnaround Divestment Liquidation Simultaneous Sequential Simultaneous

Do-nothing Proceed & sequential
with caution

Concentration Integration Diversification Internationalisation

Vertical Horizontal Related / Unrelated /

Concentric Conglomerate
International

Market Marketing-related
Multidomestic
penetration

Market
development Technology- Global
related

Product Marketing- and Transnational

development technology related

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