Lecture 9

Corporate-Level Strategy: Horizontal Integration,

Vertical Integration and Strategic Outsourcing
 Lecture Summary

• Corporate-level Strategy
• Horizontal Integration (advantages and disadvantages)
• Vertical Integrations (advantages and disadvantages)
• Alternatives to Vertical Integration
• Strategic Outsourcing (advantages and disadvantages)
 Corporate-Level Strategy

1. Nature of Business and Industries

2. Entering, consolidating or exiting businesses or industries

Corporate-level Strategies should be

Chosen to promote the success of its
business-level strategies
 Horizontal Integration

• Horizontal Integration
• Acquisition
• Merger
 Benefits of Horizontal Integration

• Lowers Cost Structure

• Product Bundling
• Cross Selling
• Leveraging Competitive Advantage
 Problems of Horizontal Integration

• Company Cultures
• High Employee Turnover
• Antitrust Authorities
 Vertical Integration
• Vertical Integration
• 4-step PC Example

Intel & Sell Online/

Kyocera HP, Dell
AMD Retailers
 Increasing Profitability through Vertical Integration

• Facilitating Investments in Specialized Assets

• Holdup
• Tapered Integration
• Improved Scheduling
 Problems of Vertical Integration

• Increasing Cost Structure

• Transfer Price
• Technological Change
 Alternatives to Vertical Integration:
Cooperative Relationships

• Short-term Contracts
• Competitive Bidding

• Long-term Contracts
• Quasi Integration
 Strategic Outsourcing

• Strategic Outsourcing
 Benefits and Risks of Outsourcing

• Benefits of Outsourcing
• Focus on the Core Business

• Risks of Outsourcing
• Holdup
• Increased Competition
• Loss of Information and Forfeited Learning Opportunities
 Lecture Takeaways
• Corporate-Level Strategy
• Horizontal Integration (merger & acquisition)
• Benefits of Horizontal integration (cost structure, product differentiation, product
bundling, cross-selling, leveraging competitive advantage)
• Problems of Horizontal Integration (culture, employee turnover, antitrust authorities)
• Vertical Integration
• Benefits of Vertical Integration (specialized assets, holdup, tapered integration,
scheduling)
• Problems of Vertical Integration (cost structure, technological change)
• Alternatives to Vertical Integration (bidding, quasi-integration)
• Strategic Outsourcing
• Benefits of Strategic Outsourcing (core business)
• Problems of Strategic Outsourcing (holdup, competition, information loss, learning
opportunities)