CORPORATE EXPANSION

&
STRATEGIC ACTIONS

THE DYNAMICS OF
CORPORATE EXPANSION
The Corporate conglomerate's growth and
expansion hinges on corporate management
system that plan and implements strategy that
will increase their profitability and market
share.
The firm uses the dynamics of corporate-level
strategy when it chooses to diversify its
business interest beyond its core operation.
Corporate expansion and diversification play a
major role in the behavior of large firms by
studying the market and entering into its
business niche after a careful analysis of its
profitability.
Dimensions need to study before embarking
on any decision to expand or diversify
1. The business that would generate additional
revenue using its core competencies.
1. The management strategy that will be used to
operate it profitably.
1. The trusted people who will be assigned as part
of the management team.
1. The investment needed and the management
available.
1. The relative importance of the business in
building its corporate image.
CRAFTING CORPORATE
STRATEGY
The Corporate strategy is
expected to generate above-
average return on investments
by creating value.
Successful diversification is
expected to reduce variability in
the firm's profitability index as
the income generated would
come from different business
units.

Diversification requires the The prevailing logic of

crafting of the multi-business diversification suggests that the
strategy that involves operating firm operates into additional
in different business markets using its excess capital
environment and product resources, capabilities, and core
markets. competencies that create value
laden opportunities.
CORPORATE LEVELS
OF DIVERSIFICATION
REAL ESTATE BRANCH SUBSIDIARY

Generally, diversification means expansion of business either through

operating in multiple industries simultaneously (product diversification)
or entering into multiple geographic markets (geographic market
diversification) or starting a new business in the same industry.
Diversification is pursued to upsurge cost-effectiveness through greater
sales volume.
 LEVELS DIVERSIFICATION
MODERATE and HIGH
01 LOW LEVEL 02 03 HIGH LEVEL
LEVEL
A firm pursuing a moderate and high level A highly diversified
This level of diversification of diversification uses either a related firm that has no
operates its actions constrained or a related linked, corporate- relationships
primarily on a single or level diversification strategy. between its
dominant business. The When the links between the diversified businesses follows an
company is in sole firm’s businesses are rather direct, meaning unrelated
they use similar sourcing, throughput and diversification
business if its revenue of
outbound processes, it is a related strategy. It produces
tthe single product is 95%
constrained diversification strategy. less than 70% of its
of the entire sales. If the
Moreover, the diversified company with a profits from the
produced profits are
portfolio of businesses that have only a few dominant business
between 70% and 95%,
links between them is called a mixed but there are no
the company’s business is related and unrelated firm and is using the
dominant. mutual links between
related linked diversification strategy.
the SBUs.
 LEVELS AND TYPES OF CORPORATE
DIVERSIFICATION STRATEGY
01 02 03

it refers to corporate Diversification of this nature This strategy is getting a

expansion where most of its focuses on strategic operation
sale volume came from its on a single type of business
core competencies of with an added twist by
operation. offering other services that
will generate added revenues.
certain percentage of their
revenue from inter-related
operations. The links between
the operations are in the
same area but the main
business is the one
generating the greater share
of revenue.

Diversification Dominant or two-

Inter-related
through expanded layered
diversification
operations diversification
 LEVELS AND TYPES OF CORPORATE
DIVERSIFICATION STRATEGY
04 05 06

Process of getting the Process of moving its Refers to highly diversified firms
business operation wherein business operation into two that generated their revenue
they used to source out the or three layers by integrating from unrelated business but
inputs from an existing its core businesses into other are being controlled by its
supplier. processing operation. mother corporation or became
independent with each other
but the major stockholder is the
mother company.

Backward Forward Conglomerate or

diversification diversification higher leve of
strategy strategy diversification
 Rationale For
Corporate Diversification Strategy
 1. THE CORPORATE

ENHANCE STRATEGIC

COMPETITIVENESS
As the corporate base expands its operational
efficiency, the firm develops strategic competencies
that have to be tasked to develop new ventures that
will increase the corporate revenue.

Developed Corporate resources in terms of

executive manpower & financial capabilities.

- Strong driving force that motivates the firm to

expand vertically or horizontally.
A. THE POWER IN THE

ECONOMIES OF SCALE

The corporate sharing of activities to the new

ventures reflects the transferring of
knowledge and the development of strong
capabilities.
Corporate core competencies
are a complex set of values
and resources that link the
different business activities in
the managerial and
technological knowledge,
experience and expertise.
The experience gained in the mother firm could be
used effectively.
The cost of training has been eliminated
The development of greater managerial motivation
Empowerment and the development of corporate
responsibility
 Power of the firm when it is able to sell
its products or services below the
competing firm or to reduce the cost of
production and distribution by offering
similarity in product quality.

by acquiring or by producing
establishing a new
the inputs of
firm that will handle
production or
the production of
new product that is creating a new
different or similarly venture that
the same with that will handle its
of the competing distribution.
firm.
D. THE POWER OF CORPORATE FINANCIAL
STRATEGIE AND CAPABILITIES
this is the unrelated system of diversification where the firm invest its capital
resources on ventures that will protect its core business operation while
generating profit in their investments.

Efficiency in Capital Market Allocation

the source of capital investment came from profit generated in the firm's
internal operation. the generated income could be distributed to
stockholders or invested in new capital market that will generated
additional revenue.

example:
returning cash to shareholders via dividends, repurchasing shares of
stock, issuing a special dividend, or increasing a research and
development (R&D) budget.
Strategic Restructuring Processes
a firms create value by buying, restructuring, then selling the restructures
firms' asset in external market

conglomerate with resources at their disposal may buyout some non-

performing firms and develop them into profitable ventures that may be
related or unrelated to their operation.
 2. CORPORATE INCENTIVES
AND RESOURCE COMPETITIVENESS
Value-creating Incentives to diversify
are single-business and dominant-business
INCENTIVES diversification strategies
Value-Neutral Incentives to diversify
1. Antitrust Regulation and Tax Laws
2. Low Performance
3. Uncertain Future Cash Flow
4. Synergy and Firm Risk Reduction

RESOURCE A firm must have the types and levels of resources and capabilities
needed to successfully use a corporate-level diversification
strategy. Although both tangible and intangible resources facilitate
diversification, they vary in their ability to create value.
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