CHAPTER– 2

CORPORATE LEVEL STRATEGIES

Corporate – Level Strategies (or simple, 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 and
 Managing and nurturing a portfolio of businesses.

Corporate strategies help to exercise the choice of direction that an organisation

adopts. There could be a small business firm involved in a single business or a large,
complex and diversified conglomerate with several different businesses. The corporate
strategy in both these cases would be about the basic direction of the firm as a whole. In the
case of the small firm having a single business, it could mean the adoption of courses of
action that yield better profitability for the firm. In the case of the large, multi-business firm,
the corporate strategy would also be about managing the various businesses for maximizing
their contribution to the overall corporate objectives and transferring resources from one set
of businesses to others.

Grand Strategy
An analysis based on business definition provides a set of strategic alternatives that an
organisation can consider. ‘Strategic alternative revolve around the question of whether to
continue or change the business the enterprise is currently in or improve the efficiency and
effectiveness with which the firm achieves its corporate objectives in its chosen business
sector’. According to Glueck, there are four strategic alternatives: expansion, stability,
retrenchment and any combination of these three.

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 The family tree of strategic alternatives at the corporate level
Corporate-level Strategies

Expansion Stability Retrenchment Combination

No change/ Profit Pause/ Turnaround Liquidation Joint ventures Consortia

Do nothing proceed
with caution Divestment Strategic Alliance

Concentration Integration Diversification Internationalisation Cooperation Digitalisation

Vertical Horizontal Concentric/ Conglomerate / Mergers & Joint venture Strategic

Related Unrelated Acquisition alliances

Market Marketing-related International Horizontal Pro-competitive

Penetration

Market Technology-related Multinational Vertical Non-competitive

Development
Global Concentric Competitive

Product Marketing-and Transnational Conglomerate Pre-competitive

Development technology-related

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Expansion Strategies
The corporate strategy of expansion is followed when an organisation aims at high
growth by substantially broadening the scope of one or more of its businesses in terms of their
respective customer groups, customer function and alternative technologies-singly or jointly – in
order to improve its overall performance. Expansion strategies are also often known as growth
or intensification strategies.

Major reasons for adopting Expansion Strategy

Expansion strategy is adopted because:
1. It may become imperative when the environment demands increase in pace of activity.
2. Psychologically, strategists may feel more satisfied with the prospects of growth from
expansion: chief executives may take pride in presiding over organisations perceived to
be growth-oriented.
3. Increasing size may lead to more control over the market vis-à-vis competitors.
4. Advantages from the experience curve and scale of operations may accrue.

a. Expansion through Concentration Strategies:

 It is a simple, first-level type of expansion strategy. It 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.
 Concentration Strategies are known variously as intensification, focus or specialisation
strategies.
 Concentration strategies are, in other words, the ‘stick to the knitting’ strategies.
Excellent firms tend to rely on doing what they know they are best at doing.

b. Expansion through integration:

 Integration means combining activities related to the present activity of a firm. Such a
combination may be done on the basis of the value chain. A value chain is a set of
interlinked activities performed by an organisation, right from procurement of basic raw
materials down to the marketing of finished products to the ultimate consumers.
 Integration is an expansion strategy as its adoption results in a widening of the scope of the
business definition of a firm. Integration is also a subset of diversification strategies, for it
involves doing something different from what the firm had been previously doing. Several
process-based industries such as hydrocarbons, petrochemicals, steel or textiles have
integrated firms. These firms deal with operating at one end of the value chain attempt to

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 move up or down through the process, integrating activities adjacent to their present
activities.

(1) Horizontal Integration: When an organisation takes up the same type of products at the
same level of production or marketing process, it is said to follow a strategy of horizontal
integration. A horizontal integration strategy results in a bigger size with concomitant
benefits of a stronger competitive position in the industry. It may be frequently adopted with
a view to expand geographically by buying a competitor’s business, to increase the market
share or to benefit from economies of scale. Yet, it does not take the organisation beyond its
existing business definition. It still remains in the same industry, serving the same markets
and customers through its existing products, by the means of the same technologies.
Horizontal integration is quite similar to mergers and acquisitions since these are one of the
means for integrating horizontally.

(2) Vertical Integration:

 When an organisation starts making new products that serve its own needs, vertical
integration takes place. In other words, 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.
 Vertical integration could be of two types: backward and forward integration.
(a) Backward integration means retreating to the source of raw materials. Forward
integration moves the organisation ahead, taking it nearer to the ultimate customer.
(b) Two partial vertical integration strategies are taper integration and quasi
integration.
(c) Taper integration strategies require firms to make a part of their own requirements
and to buy the rest from outsiders. Through quasi integration strategies firms
purchase most of their requirements from other firms in which they have an
ownership stake.

c. Expansion through Diversification:

 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.
 When new products are made for new markets then diversification takes place. The notion of
diversifying is therefore related to the newness of products or markets or both. By adopting
diversification, an organisation does something novel in terms of making new products or
serving new markets or doing both simultaneously.
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i. Concentric or related Diversification:
 When an organisation takes up an activity in such a manner that it is related to the existing
business definition of one or more of a firm’s businesses, either in terms of customer groups,
customers function or alternative technologies, it is concentric diversification. The
relatedness is to be seen in terms of the three dimensions of the business definition. If the
new business is in any way related to the original business in terms of the customer groups
served, customer function performed or alternative technologies employed, then it is related
or concentric diversification.
 Concentric diversification may be of three types:
(a) Marketing - related concentric diversification: A similar type of product is offered
with the help of unrelated technology.
(b) Technology - related concentric diversification: A new type of product or service is
provided with the help of related technology.
(c) Marketing – and technology – related concentric diversification: A similar type
of product or service is provided with the help of a related technology.

ii. 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 any of its businesses, either in terms of
their respective customer groups, customer functions or alternative technologies, it is
conglomerate diversification.
 Offering a new product manufactured through an unfamiliar technology – for a new set of
customers involves considerable risk. There has to be a sound rationale for taking the
risk of unrelated diversification.

5. Expansion through Cooperation:

Corporate strategies could take into account the possibility of mutual cooperation with
competitors, at the same time competing with them so that the market potential could expand.
The term ‘co-operation’ expresses the idea of simultaneous competition and cooperation
among rival firms for mutual benefit. The central point is of the complementarities among
the interests of rival firms.
Cooperative strategies could be of the following types:
i. Mergers and acquisitions (or takeovers)
ii. Joint ventures
iii. Strategic alliances

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(a) Merger and acquisitions (or takeover) strategies
 essentially involved the external approach to expansion. Basically two, or occasionally
more than two entities are involved.
 While mergers take place when the objectives of the buyer firm and the seller firm are
matched to a large extent, acquisitions or takeovers usually are based on the strong
motivation of the buyer firm to acquire.
 Take over is a common way for acquisition and may be defined as ‘the attempt (often
sprung as a surprise) of one firm to acquire ownership or control over another firm
against the wishes of the latter’s management (and perhaps some of its stockholders)’.

(b) Joint ventures - occurs when an independent firm is created by at least two other firms.
In an era of globalisation, joint ventures have proved to be an invaluable strategy for
companies looking for expansion opportunities globally.

(c) Strategic alliances- are partnerships between firms whereby their resources, capabilities
and core competencies are combined to pursue mutual interests to develop, manufacture
or distribute goods or services.

6. Expansion through Internalisation – International strategies are a type of expansion

strategies that require organisations to market their products or services beyond the domestic
or national market. For doing so, an organisation would have to assess the international
environment, evaluate its own capabilities and devise strategies to enter foreign markets.

7. Expansion through digitalization:- Digitalisation is defined as digital coding of

information and the growing productivity gains in processing and transmission it
enables. The versatility and economy of digitalisation makes information available
efficiently, widely and cheaply within and outside organisations. This has significant
implications for the strategy of the organisation. Digitalisation strategies could be
understood as the strategic alternatives before an organisation that result from the digitization
of information.

1. Computerisation:
Organisations have adopted computerisation to a considerable degree and computers have
become an integral part of the organisational asset configuration, as well as an inevitable part
of its information system. In order to computerize data, we need to first electronise it.

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2. Electronisation:
It is a term to denote progressive conversion of physical data into electronic data through
digitization.

3. Digitisation:
It is a technical term denoting the conversion of analogue electrical signals into digital
signals.

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.

Stability Strategy is adopted because:

1. It is less risky, involves less changes and people feel comfortable with things as they are.
2. The environment faced is relatively stable.
3. Expansion may be perceived as being threatening.
4. Consolidation is sought through stabilizing after a period of rapid expansion.

1. 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. This could be characterized as an absence of
strategy though in reality, it is not so. Taking no decision sometimes is a decision too!

2. Pause / Proceed-with-caution Strategy:

It is employed by organisations that wish to test the ground before moving ahead with a full-
fledged corporate strategy or organisations that have had a blistering pace of expansion and
wish to rest awhile before moving ahead. This is essential in several cases where an
intervening phase of consolidation is necessary before an organisation could embark on
further expansion strategies. The purpose is to let the strategic changes seep down the
organisational levels, let structural changes to take place and let the systems to adapt to the
new strategies.

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3. Profit Strategy:
 An organisation may assess the situation and assume that its problems are short-lived and
will go away with time. Till then, the organisation tries to sustain its profitability by artificial
measures, by adopting a profit strategy.
 The problems are ascribed to unfavourable and transient external factors such as economic
recession, government attitude, industry downturn, competitive pressures and the like. The
organisation assumes that these problems are going to remain only in the short-run and the
situation would turn favourable after some time. Till that time, it is better to lie low and
sustain profitability by whatever means possible. Obviously, such a strategy could only work
if the problems indeed are temporary. If the problems persist, then such a strategy only
deteriorates the organisation’s strategic position.

Retrenchment Strategies
The corporate strategy of retrenchment is followed when an organisation aims at
contraction of its activities through a 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.
Retrenchment attempts to ‘trim the fat’ and result in a ‘slimmer’ organisation, bereft of
unprofitable customer groups, customer functions or alternative technologies. All the situations
described above are, in fact, an over-simplification of the complex reality that an organisation
faces. In order to deal with the real-life situations, organisations have to evolve a combination of
the three strategies.

Retrenchment strategy is adopted because:

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.

1. Turnaround Strategies:
Retrenchment may be done either internally or externally. For internal retrenchment to
take place, emphasis is laid on improving internal efficiency. This usually takes the form of an
operating turnaround strategy. In contrast, a strategic turnaround is a more serious form of
external retrenchment and leads to divestment or liquidation. Turnaround strategies derive their
name from the action involved, i.e., reversing a negative trend and turning around the
organization to profitability.

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Conditions for Turnaround Strategies:
There are certain conditions or indicators which point out that a turnaround is needed if
the organisation has to survive. Some of the major danger signs are:
i. Persistent negative cash flow
ii. Negative profits
iii. Declining market share
iv. Deterioration in physical facilities
v. Over manning, high turnover of employees and low morale
vi. Uncompetitive products or services
vii. Mismanagement

2. Divestment Strategies:-
 A divestment (also called divestiture or cutback) strategy involves the sale or liquidation of a
portion of a business, or a major division, profit centre or SBU. Divestment is usually a part
of a rehabilitation or restructuring plan and is adopted when a turnaround has been attempted
but has proven to be unsuccessful. The option of a turnaround may even by ignored if it is
obvious that divestment is the only answer. Harvesting strategies, a variant of the divestment
strategies, involve a process of gradually letting a company or business wither away in a
carefully controlled and calibrated manner.
 Another term common in the Indian context is disinvestment.
 It involves the sale of government equity in public sector enterprises to another public sector
enterprise, institutional investors, mutual funds or the general public, thereby diluting the
government shareholding.

3. Liquidation Strategies:
A retrenchment strategy considered a most extreme and unattractive is the liquidation
strategy, which involves closing down an organisation and selling its assets. It is considered
as the last resort because it leads to serious consequences such as loss of employment for
workers and other employees, termination of opportunities where an organisation could
pursue any future activities and the stigma of failure.

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 businesses, with the aim of improving its performance.

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 Any combination strategy is the result of a serious attempt on the part of strategists to
take into account the variety of environmental and organisational factors that affect the process
of strategy formulation.
This can also be achieved by way of joint ventures, strategic alliances and consortia.

Combination Strategy is adopted because:

1. The organisation is large and faces complex environment.
2. The organisation is composed of different businesses, each of which lies in a different
industry, requiring a different response.

Joint ventures:
Occasionally two or more capable firms lack a necessary component for success in a
particular competitive environment. Joint ventures are commercial companies (children) created
and operated for the benefit of the co-owners (parents). These cooperative arrangements
provided both the funds needed to build the pipeline and the processing and marketing capacities
needed to profitably handle the oil flow.

Strategic Alliances:
 Strategic alliances are distinguished from joint ventures because the companies involved do
not take an equity position in one another. In many instances, strategic alliances are
partnerships that exist for a defined period during which partners contribute their skills and
expertise to a cooperative project.
 Many times, such alliances are undertaken because the partners want to learn from one
another with the intention to be able to develop in-house capabilities to supplant the partner
when the contractual arrangement between them reaches its termination date. Such
relationships are tricky since in a sense the partners are attempting to “steal” each other’s
know-how.

Types of Strategic Alliances:

1. Pro-competitive alliance (Low interaction / Low conflict)
2. Non-competitive alliances (High interaction / Low conflict)
3. Competitive alliance (High interaction / High conflict)
4. Pre-competitive alliance (Low interaction / High conflict)

1. Pro-competitive alliance (Low interaction/ .Low conflict)

These are generally inter industry, vertical value-chain relationships between
manufactures and their suppliers or distributors. Such alliances offer the benefits of vertical

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integration without firms actually investing in resources for manufacturing inputs or distributing
semifinished or finished goods. Supplier and buyer firms entering upon long-term contracts
constitute precompetitive alliances.

2. Non-competitive alliances (High interaction /Low conflict):

These are intraindustry partnerships between noncompetitive firms. Such alliances can
be entered upon by firms that operate in the same industry yet do not perceive each others as
rivals. Their areas of activity do not coincide and they are sufficiently dissimilar to prevent
feelings of competitiveness arising. Firms that have carved out distinct areas in the industry –
geographically or otherwise, adopt the non-competitive alliances.

3. Competitive alliance (High interactions / High conflict):

These are partnerships that bring two rival firms in a cooperative arrangement where
intense interaction is necessary. These alliances may be intra or inter industry. Several foreign
companies operating independently in India and also entering into a cooperative arrangement
with local rival companies for specific purposes have taken the competitive alliance route.

4. Precompetitive alliance (Low interaction / high conflict):

These partnerships bring two firms from different, often unrelated industries to work on
well-defined activities, such as, new technology development, new product development or
creating awareness about new products or ideas for acceptance among the potential customers.
Joint research and development activities and mass awareness campaigns are examples of
precompetitive alliance activities.

Consortia, Keiretsus, and Chaebols:-

1. Consortia are defined as large interlocking relationships between businesses of an industry.

In Japan such ‘consortia are known as keiretsus, in South Korea as chaebols.

2. Keiretsus A Japanese keiretsu is an undertaking involving up to 50 different firms that are

joined around a large trading company or bank and are coordinated through interlocking
directories and stock exchanges. It is designed to use industry coordination to minimize risks
of competitions, in part through cost sharing and increased economies of scale.

3. Chaebols A South Korean chaebol resembles a consortium or keiretsu except that they are
typically financed through government banking groups and largely are run by professional
managers trained by participating firms expressly for the job.
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