Jamia Millia Islamia

Centre for Management Studies

ASSIGNMENT

SUBJECT:
Business Policy & Strategic Management
Prof. Sunayana

SUBMITTED BY:
TAHA AZAM
20MIB064

COURSE:
M.B.A – International Business
Semester 3
2020-2022
 Strategies

Vertical Integration
Vertical integration is a strategy that allows a company to streamline its
operations by taking direct ownership of various stages of its production
process rather than relying on external contractors or suppliers.

Forward Integration
A company that decides on forward integration expands by gaining control of the
distribution process and sale of its finished products.
A clothing manufacturer can sell its finished products to a middleman, who then sells them
in smaller batches to individual retailers. Or, the manufacturer can open its own stores. The
company will bring in more money per product, assuming it can operate its retail arm
efficiently.
For instance, EA sports manufacturers and designs video games. It is in the middle of the
supply chain, so forward vertical integration would occur if it was to purchase a retailer such
as Target or GameStop.
Part of the reason forward vertical integration is not common is because the companies at
the end of the supply chain are usually very condensed. By contrast, there are thousands of
suppliers that could only dream of integrating upwards. For instance, thousands of cocoa
bean farmers supply Mondelez. Yet there is no way a small farming business in Columbia
could afford to purchase or merge with Mondelez.

Backward Integration
A company that chooses backward integration moves the ownership control of its products
to a point earlier in the supply chain or the production process.
Amazon.com, Inc. started as an online retailer of books that it purchased from established
publishers. It still does that, but it also has become a publisher. The company eventually
branched out into thousands of branded products. Then it introduced its own private label,
Amazon Basics, to sell many of them directly to consumers.
For instance, Ikea is dependent on manufacturers of wood. When it integrates with the
manufacturer, we see backward vertical integration.
 Horizontal Integration
This is quite simply a combination of both backward and forwards integration. For instance,
balanced integration would be where a company mergers’ with both a company that is
before it in the supply chain, as well as one that is after.
Therefore, balanced integration involves two transactions – one downstream, and another
upstream. For example, Hershey relies on cocoa bean suppliers to provide it with its raw
materials – it also relies on distributors such as Walmart and Target to sells its products.
An example of balanced integration would be if Hershey’s were to acquire both its coca
bean suppliers AND a distributor such as Target. Obviously, this is a very rare type of
integration that infrequently occurs – mainly due to the cost, but also due to potential legal
disputes that may arise due to monopoly control of the vertical supply chain.

Intensive Strategy
These strategies are implemented when a company wants to expand its market
reach or its product lines. Such strategies require intensive efforts so as to
improve the competitive position of the company with the existing or new
products. While implementing such strategies, Companies basically wants to
expand their scale of operations. Thus, if a firm enters a new market, develops
a new product or develops its own capabilities, then the firm is undertaking
intensive strategies. These strategies help in enhancing the efficiency and
effectiveness of the existing as well as the new products by adding value to
these products and therefore increasing sales and revenues of the firm.

Market Penetration
Market penetration strategy is used to increase the market share for the existing products
or services in the existing markets. This strategy requires intensive and focused efforts for
increasing the market share. This strategy can be used alone or in combination with other
strategies. This strategy enhances the market share by implementing the innovative and
efficient strategies so as to make the existing product more successful and attractive.
It includes offering wide sales promotion items, increasing the number of sales persons,
rising advertising expenditures, or extensive publicity efforts. It carries very low risk;
therefore, it is the most-preferred Intensive strategy.
Example: Apple is implementing this strategy of market penetration as one of the important
strategies for gaining growth. It focuses on selling more of its current products in the
existing markets to gain larger market share.
For instance, Apple uses this intensive strategy by selling more of its iPads and iPhones in its
current target markets. Apple applies this strategy by adding more authorized seller into its
current markets which helps in penetrating in the markets where Apple has not gained a
significant position.
Under this strategy, Apple is also promoting its products through various webpages and
websites and media outlets, thus helps in broadly capturing the market by encouraging
more people to buy Apple products. This intensive strategy of covering more customers in
the current markets enables apple to reach at large number of market segments.

Market Development
Market development strategy involves introducing the existing products and services into
the new markets. It is a two-step process. It starts with the market segmentation.
Segment is a small section of the overall market and one need to identify the market
segment which is worth pursuing with the help of market research.
Once the market segment is known, then next step is of developing a promotional strategy
to penetrate in the market. It is somewhere similar to market penetration but in market
development more focus is given to establishing presence in the new markets.
Example:
Apple implements the strategy of Market development as one of the intensive strategies for
growth. It includes creating new markets for the existing products. Apple implements this
strategy of market development similar to market penetration where it authorizes the new
sellers in the markets where Apple has not made its presence yet. Therefore, apple focuses
on this strategy only in the developing markets.
It also focuses on this strategy by developing new products like Apple Watch which is
completely a new product line for the Apple and thus has made its presence in the smart
watch segment. This strategy helps in expanding the market reach of the company by
offering new and unique products through market development.

Product Development
Product development strategy includes improving or modifying the existing products so as
to increase the sale of the existing products and services. In simple terms, this strategy deals
with improving the quality of the products and therefore, increasing the sales and revenues
of the products. The quality of the existing products can be improved by modifying the
existing products. This strategy includes intensive research and development costs.
Example: Apple focuses on the product development as one of the main intensive strategies
for the growth of its market. It offers attractive and innovative products in the existing
markets to increase its market share and performance. Apple focuses on this strategy
through innovation in its research and development processes. It considers innovation as
one of the most important growth strategies which is also specified in their mission and
vision statement.
For instance, Apple is continuously doing innovations in them iPhone, Apple Watch and
iPad. Moreover, Apple is also developing new innovative products for its mobile market.
These new and innovative products help apple to generate more revenues, thus leading to
growth of the Apple.

Diversification Strategy
Firms using diversification strategies enter entirely new industries. While
vertical integration involves a firm moving into a new part of a value chain that
it is already in, diversification requires moving into new value chains. Many
firms accomplish this through a merger or an acquisition, while others expand
into new industries without the involvement of another firm.

Related Diversification
Because it leverages strategic fit, companies that engage in related diversification are more
likely to achieve gains in shareholder value. Related diversification occurs when a firm
moves into a new industry that has important similarities with the firm’s existing industry or
industries. Because films and television are both aspects of entertainment, Disney’s
purchase of ABC is an example of related diversification.
Some firms that engage in related diversification aim to develop and exploit a core
competency to become more successful. A core competency is a skill set that is difficult for
competitors to imitate, can be leveraged in different businesses, and contributes to the
benefits enjoyed by customers within each business.
Example: Newell Rubbermaid is skilled at identifying underperforming brands and
integrating them into their three business groups: (1) home and family, (2) office products,
and (3) tools, hardware, and commercial products.
Honda Motor Company provides a good example of leveraging a core competency through
related diversification. Although Honda is best known for its cars and trucks, the company
started out in the motorcycle business. Through competing in this business, Honda
developed a unique ability to build small and reliable engines. When executives decided to
diversify into the automobile industry, Honda was successful in part because it leveraged
this ability within its new business. Honda also applied its engine-building skills in the all-
terrain vehicle, lawn mower, and boat motor industries.
Sometimes the benefits of related diversification that executives hope to enjoy are never
achieved. For example, both soft drinks and cigarettes are products that consumers do not
need. Companies must convince consumers to buy these products through marketing
activities such as branding and advertising. Thus, on the surface, the acquisition of 7Up by
Philip Morris seemed to offer the potential for Philip Morris to take its existing marketing
skills and apply them within a new industry. Unfortunately, the possible benefits to 7Up
never materialized.

Unrelated Diversification
Why would a soft-drink company buy a movie studio? It’s hard to imagine the logic behind
such a move, but Coca-Cola did just this when it purchased Columbia Pictures in 1982 for
$750 million. This is a good example of unrelated diversification, which occurs when a firm
enters an industry that lacks any important similarities with the firm’s existing industry or
industries. Luckily for Coca-Cola, its investment paid off—Columbia was sold to Sony for $3.4
billion just seven years later.
Example: Lighter firm Zippo is currently trying to avoid this scenario. According to CEO
Geoffrey Booth, the Zippo is viewed by consumers as a “rugged, durable, made in America,
iconic” brand. This brand has fueled eighty years of success for the firm. But the future of
the lighter business is bleak. Zippo executives expect to sell about 12 million lighters this
year, which is a 50 percent decline from Zippo’s sales levels in the 1990s. This downward
trend is likely to continue as smoking becomes less and less attractive in many countries. To
save their company, Zippo executives want to diversify. As of March 2011, Zippo was
examining a wide variety of markets where their brand could be leveraged, including
watches, clothing, wallets, pens, liquor flasks, outdoor hand warmers, playing cards, gas
grills, and cologne.
Most unrelated diversification efforts, however, do not have happy endings. Harley-
Davidson, for example, once tried to sell Harley-branded bottled water. Starbucks tried to
diversify into offering Starbucks-branded furniture. Both efforts were disasters. Although
Harley-Davidson and Starbucks both enjoy iconic brands, these strategic resources simply
did not transfer effectively to the bottled water and furniture businesses.

Defensive Strategy
Defensive strategies are defined as the tools that help companies to retain
valuable customers that can be taken away by competitors. Competitors can
be defined as other firms that are located in the same market category or sell
similar products to the same segment of people. When this rivalry exists, each
company must protect its brand, growth expectations, and profitability to
maintain a competitive advantage and adequate reputation among other
 brands. To reduce the risk of financial loss, firms strive to take their
competition away from the industry.

Retrenchment
A new defensive strategy requires planning. It consists of the reduction of the expenses by
selling assets or having employees' layoffs to increase profitability. This forces employees to
manufacture the company's products with limited resources or with cheaper raw material.
For example, in years before 2009, Starbucks has had 600 closings in the United States and
61 in Australia. In 2009 the CEO of Starbucks, Howard Schultz, was planning on closing 300
company - operated stores around the world and 200 of them were established in the
United States. After all that, the company planned to open 140 stores in the United States
and 170 stores globally spread in the same year. To accomplish that, the firm wanted to cut
700 work positions around the world. Also, Starbucks was planning on entering to the value
- meal race to compete with the McDonald's new McCafé coffee bars and survive the global
recession.
Five guidelines indicate when a company should begin retrenchment should be
implemented:

 The company has clear knowledge of their competence but has failed to focus and
achieve their goals.
 The company is the weaker competitor in an industry or market place.
 An organization doesn't operate with efficiency, scarcity of employee motivation,
low reliability and high level of stress due to the fact that employees have to
increase their operation level.
 The enterprise has failed to take advantage of external opportunities, focus on
internal strengths, and has ignored competence threats—leading to further
mismanagement and disorganization.
 The organization has developed too fast for its internal operation, so it needs to
pause and restructure.

Divestiture
Divestiture is when the company sells some of its assets to accomplish a certain objective,
such as higher returns or reduces debts. Usually, companies that implement this strategy
want to invest that capital to create higher future revenue. This strategy has helped some
organizations to get more focused on their core business and improve their performance in
the market. It is common that enterprises sell their poorly assets or divisions, but the global
economic collapse forced them to negotiate even their valuable properties and goods. It is
similar to the retrenchment tool, but divestiture actions don't directly fire employees to cut
costs.
For example, in 2009 Ailing Lehman Brothers Holdings divested its venture-capital division
as the firm sold part of the assets to generate enough cash to pay their debts. The acquiring
firm, HarbourVEst Partners LLC, changed the name of the Lehman division to Tenaya Capital.

Liquidation
Liquidation is the hardest strategy to perform by a company because it means that it went
into bankruptcy. This can be caused because the operation and administration of the firm
was not appropriate or the managers were not trained enough to control the activities of
the firm. In this case, the unique solution is to sell all the company's assets in small parts to
shareholders, stakeholders or other companies that are economically solvent. Although this
is a tough decision, it is better to stop the operational chaos instead of continuing losing
more money.
For example, in 2009 the Hard Rock Park in Myrtle Beach located in South Carolina was
liquidated just nine months after its inauguration, despite of two years of construction.
Promoters expected that this thematic park would be the greatest in South Carolina, but it
only generated $20 million in ticket sales—far below the $24 million in annual interest they
owed. They had projected at least 30,000 customers per day, but tourist was not interested
in the attractions, and the owners lost huge amounts of money.