Corporate Level and

International Strategy
Introduction

In this context, there are two central concerns:

● Strategic decisions about the scope of an organisation. Scope decisions are about
the diversity of products (and the markets for those products) and the
international or geographic diversity of the business units in a corporate portfolio.
● How is value added (or destroyed) at the corporate level as distinct from the
business level in organisations? This requires an understanding of the different
parenting roles the corporate level might play and how it might seek to manage
its portfolio of interests.
Introduction – Corporate Level Issues
The multi-business organisation
Corporate Parent

The corporate parent refers to the levels of management above that of the
business units and therefore without direct interaction with buyers and
competitors.
Product/Market Diversity

Diversification is a strategy that takes the organisation into both new

markets and products or services.
Potential Reasons for Diversification

● There may be efficiency gains from applying the organisation’s existing

resources or capabilities to new markets and products or services.
● There may also be gains from applying corporate managerial capabilities
to new markets and products and services.
● Having a diverse range of products or services can increase market
power.
Other Reasons for Diversification

● Diversify to respond to environmental change.

● Diversify in order to spread risk across a range of businesses.
● To meet the expectations of powerful stakeholders, including top
managers.
Related Diversification

Related diversification can be defined as strategy development beyond

current products and markets, but within the capabilities or value network
of the organization.
Forms of Related Diversification

● Vertical integration
● Backward integration
● Forward integration
● Horizontal integration
Vertical Integration

Vertical integration describes either backward or forward integration into

adjacent activities in the value network.
Backward Integration

Backward integration refers to development into activities concerned with

the inputs into the company’s current business (i.e. they are further back in
the value system).
Forward Integration

Forward integration refers to development into activities which are

concerned with a company’s outputs (i.e. are further forward in the value
system), such as transport, distribution, repairs and servicing.
Horizontal Integration

Horizontal integration is development into activities which are

complementary to present activities.
Related
Diversification
Issues with Related Diversification

● To ensure that the benefits of relatedness are achieved

● Sharing resources with other business units
Unrelated Diversification

Unrelated diversification is the development of products or services beyond

the current capabilities or value network.
WHY Unrelated Diversification?

● Exploiting dominant logics

● Effective in countries with underdeveloped markets.
Diversification and Performance
Exceptions: Unrelated Diversification

● Conglomerates in developing economies often perform well

● Conglomerates have tended to perform better since the early 1970s
● Conglomerates can perform well for short periods of time
INTERNATIONAL DIVERSITY AND
INTERNATIONAL STRATEGY
Reasons for International Diversity

There are many reasons for organisations to follow a strategy of

internationalisation.
● Market-based
● To build on and take advantage of strategic capabilities
● Economic benefits
Market-based
● Globalisation of markets and competition
● Follow their customers
● Bypass limitations in its home market
● Exploit differences between countries and geographical regions
○ Differences in culture
○ Administrative differences
○ Geographically specific differences
○ Specific economic factors
To build on and take advantage of
strategic capabilities
● To broaden the size of the market so as to exploit strategic capabilities
● Internationalisation of value-adding activities
● Enhance their knowledge base
Economic Benefits

● Economies of scale
● Stabilisation of earnings across markets
Market Selection and Entry
Some factors that require particular attention in comparing the attractiveness of
national markets are these:
● Macro-economic conditions
● political environment
● Infrastructure
○ existing transport and communication infrastructure
○ availability of necessary local resources
○ tariff and non-tariff barriers to trade
● cultural norms and social structures
● political and legal risks
○ Sovereign risks
○ absence of effective regulation and control
○ Security risks
Market entry mode: Exporting
Market entry mode: JVs and Alliances
Market entry mode: Licensing
Market entry mode: FDI
 Staged international expansion: firms initially use entry modes that allow
them to maximize knowledge acquisition whilst minimizing the exposure of
their assets.
Global Value Network

Global sourcing: The process of purchasing services and components from

the most appropriate suppliers around the world regardless of their location.
Different Locational Advantages

● Cost advantages
● Unique capabilities
● Characteristics of national locations
International Strategies

The global–local dilemma relates to the extent to which products and

services may be standardised across national boundaries or need to be
adapted to meet the requirements of specific national markets.
Multi-domestic Strategy

In a multi-domestic strategy most, if not all, value-adding activities are

located in individual national markets served by the organisation and
products and/or services are adapted to the unique local requirements.
Global Strategy

In a global strategy standardised products are developed and produced in

centralized locations. With a greater emphasis on exploiting economies of
scale, value-adding activities are typically concentrated in a more limited set
of locations than for multi-domestic strategies.
VALUE CREATION AND THE
CORPORATE PARENT
The Value-adding Activities

Primary role
● envisioning the overall role and expectations
● Focus
● Clarity to external stakeholders
● Clarity to business units
The Value-adding Activities

Second role of intervening

● Monitoring the performance
● Improve business-unit level performance
● Challenge and develop the strategic ambitions
● Coaching and training
● Develop the strategic capabilities
● Synergies, collaboration and coordination
The Value-adding Activities

Corporate parent may be able to offer central services and resources

● Investment
● Scale advantages
● Transferable managerial capabilities
The Value-adding Activities

Corporate parent may also have expertise

● Expertise and services
● Knowledge creation and sharing processes
● Leverage
● brokering
The Value-destroying Activities

● Create a ‘bureaucratic fog’

● Providing a financial ‘safety net’
● Diversity and size
● Focus for managerial ambition
Portfolio Manager

The portfolio manager is, in effect, a corporate parent acting as an agent on

behalf of financial markets and shareholders with a view to enhancing the
value attained from the various businesses in a more efficient or effective
way than financial markets could.
Synergy Manager

The synergy manager: a corporate parent seeking to enhance value across

business units by managing synergies across business units.
Synergy Manager

In terms of corporate parenting, the logic is that value can be enhanced

across business units in a number of ways:
● Resources or activities might be shared
● common skills or competences across businesses
Parental Developer

The parental developer: a corporate parent seeking to employ its own

competences as a parent to add value to its businesses and build parenting
skills that are appropriate for their portfolio of business units.
Public Sector Portfolio Matrix
Directional Policy Matrix

The directional policy matrix positions SBUs according to (a) how attractive
the relevant market is in which they are operating, and (b) the competitive
strength of the SBU in that market.
Indicators of SBU strength and market attractiveness
Market attractiveness/SBU strength matrix
Strategy guidelines based on the
directional policy matrix
International investment opportunities
based on the directional policy matrix
The
parenting
matrix: the
Ashridge
Portfolio
Display
Roles in an International Portfolio