CORPORATE STRATEGY

 Corporate strategy
 the choice of direction of the firm as a whole and the management of its business or product portfolio and concerns
 includes decisions regarding the flow of financial and other resources to and from a company’s product lines and business
units
 addresses three key issues facing the corporation:
 Directional strategy
 the firm’s overall orientation toward growth, stability or retrenchment (orientation toward growth)
 Portfolio analysis
 industries or markets in which the firm competes through its products and business units (coordination of cash flow among units)
 Parenting strategy
 the manner in which management coordinates activities and transfers resources and cultivates capabilities among product lines and
business units (the building of corporate synergies through resource sharing and development)

DIRECTIONAL STRATEGY
 Directional Strategy is composed of three general orientations (sometimes called grand strategies)
 Growth strategies
 expand the company’s activities
 Stability strategies
 make no change to the company’s current activities
 Retrenchment strategies
 reduce the company’s level of activities

GROWTH STRATEGY
 Merger
 a transaction involving two or more corporations in which stock is exchanged but in which only one corporation survives (
A + B = A/B )
Acquisition
 100% purchase of another company
 usually occur between firms of different sizes and can be either friendly or hostile. Hostile acquisitions are often called
takeovers

2 Basic Growth Strategies:

1. CONCENTRATION STRATEGIES
 Vertical growth
 achieved by taking over a function previously provided by a supplier or distributor
 can be achieved either internally by expanding current operations or externally through acquisitions
 this results to vertical integration

 Vertical integration
 the degree to which a firm operates vertically in multiple locations on an industry’s value chain from extracting raw
materials to manufacturing to retailing

 Backward integration
 assuming a function previously provided by a supplier
 going backward on an industry’s value chain
 Forward integration
 assuming a function previously provided by a distributor
 going forward on an industry’s value chain

 Transaction cost economies

 Proposes that vertical integration is more efficient than contracting for goods and services in the marketplace
when the transaction costs of buying on the open market become too great

 Vertical Integration Continuum

 Harrigan proposes that a company’s degree of vertical integration can range from total ownership of the value chain needed to
make and sell a product to no ownership at all.
 Full integration
- a firm internally makes 100% of its key supplies and completely controls its distributors
 Taper integration
 - also called concurrent sourcing
- a firm internally produces less than half of its own requirements and buys the rest from outside suppliers
 Quasi-integration
- a company does not make any of its key supplies but purchases most of its requirements from outside suppliers that are under
its partial control
- backward quasi-integration
 Long-term contracts
- agreements between two firms to provide agreed-upon goods and services to each other for a specific period of time
- must be an exclusive contract (specifies that the supplier or distributor cannot have a similar relationship with a competitive
firm) to prove that supplier or distributor is really a captive company (most of its business with the contracted firm and is
formally tied to the other company through a long-term contract)

 Horizontal growth
 can achieved by expansion of operations into other geographic locations and/or increasing the range of products and services offered
to current markets
 results to horizontal integration

 Horizontal integration
 the degree to which a firm operates in multiple geographic locations at the same point on an industry’s value chain
 most popular options for international entry are as follows:
• Exporting: A good way to minimize risk and experiment with a specific product
• Licensing: the licensing firm grants rights to another firm in the host country to produce and/or sell a product. The licensee pays compensation to
the licensing firm in return for technical expertise
• Franchising: the franchiser grants rights to another company to open a retail store using the franchiser’s name and operating system. In exchange,
the franchisee pays the franchiser a percentage of its sales as a royalty
• Joint Venture: Forming a joint venture between a foreign corporation and a domestic company is the most popular strategy used to enter a new
country. Companies often form joint ventures to combine the resources and expertise needed to develop new products or technologies
• Acquisitions: quick way to move into an international area is through acquisitions—purchasing another company already operating in that area
• Green-Field Development: happens if a company doesn’t want to purchase another company’s problems along with its assets. Under this,
company build its own manufacturing plant and distribution system. It is far more complicated and expensive operation than acquisition, but it
allows a company more freedom in designing the plant, choosing suppliers, and hiring a workforce
• Production Sharing: Coined by Peter Drucker which means the process of combining the higher labor skills and technology available in developed
countries with the lower-cost labor available in developing countries. Often called outsourcing.
• Turn-Key Operations: typically contracts for the construction of operating facilities in exchange for a fee. The facilities are transferred to the host
country or firm when they are complete.
• BOT (Build, Operate, Transfer) Concept: variation of the turnkey operation. Instead of turning the facility (usually a power plant or toll road)
over to the host country when completed, the company operates the facility for a fixed period of time during which it earns back its investment plus
a profit. It then turns the facility over to the government at little or no cost to the host country
• Management Contracts: offer a means through which a corporation can use some of its personnel to assist a firm in a host country for a
specified fee and period of time