FYBCOM Module - 3 Business and Entrepreneurship

Business & Entrepreneurship Module III
STRATEGY
Strategy (derived from the Greek word Strategos) refers to the art and science of
directing military forces. In general term as, strategy is a well thought of and
systematic plan of action wherein the plans are unified, comprehensive and
integrated that is used to defend oneself and more often, to defeat rivals.
Strategies are formulated in anticipation of some possible moves/actions of the
rivals.
BUSINESS STRATEGY
Business strategy refers to a well thought of and systematic plan of action
designed to achieve a long-term or overall aim. Businesses ought to be prepared
for the dynamic and hostile external forces while pursuing their mission and
objectives. The very injection of the idea of strategy into business organisations
is intended to reduce uncertainty caused by changes in the environment or the
external environment forces and attempts to relate the goals of the organisation
to the means of achieving them. In short, business strategies contribute in
ensuring the survival and success of an enterprise. In any organisation strategies
are formulated by the top or middle level management in due consideration of the
possible position, defensive and offensive moves and the relative strengths and
weaknesses of the rival companies. A strategy is said to be an effective one when
it capitalises on opportunities through the use of its strengths and neutralises all
threats by minimising the impact of the weaknesses to achieve pre-determined
objectives.
SIGNIFICANCE OF STRATEGY
1. Aligned with the strategic intent – vision, mission & objectives. Strategies are
formulated in order to ensure that the purpose of the organisation as encompassed
in its strategic intent would be attained.
2. Considers the variables in the business environment – Strategies are formulated
after considering the various elements in the internal & external environment.
Therefore they have a practical orientation to tackle the realistic situation.
3. Adaptability to changing environmental factors – as the business environment
changes, the strategies are also updated in order to face the environmental
challenges.
4. Proactive instead of reactive- Strategies are the means for a business to prepare
and tackle the challenges in the business environment, Thereby strategies make a
business proactive.
5. Provides competitive advantage – the right strategies formulated at the right
time, will empower the business to face the challenges in the environment and
also the take the offensive.
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COMPILED CLASS NOTES 2022-23
6. Expansion of business- Businesses which are doing good resort to expansion

strategies to cash in on their brand value. This strategy helps the business to build
up its presence in the market.
7. Economies of scale – a business following the right strategy, does well and
increases its scope through different strategies. This helps it to enjoy economies
of scale.
8. Focus on strengths and weaknesses- a good strategy is made after factoring in
the internal strengths and weaknesses of the business. The strategist encashes on
the strengths and tries to overcome or avoid the weaknesses to become
competitive.
9. Achieving goals and objectives – strategies are directed towards the goals and
objectives of the organisation. Successful implementation of the strategies
enables the business to achieve its goals and objectives.
10. Means to grab the opportunities and evade threats – strategies are the answer
to the opportunities in front of the business. The right strategies make use of the
opportunities and are the means by which the threats to the business are tackled.
11. Efficiency of business – strategies are directed towards making the business
efficient and productive in resource allocation, utilization and outcome
generation.
12. Sustainability of business- strategies enable a business to withstand the
challenges and gain competitive advantage. They make the business efficient and
productive. Such a business will be able to sustain in the long run.
STRATEGIC MANAGEMENT
Strategic management is the management process of developing a strategic
vision, setting objectives, crafting a strategy, implementing and evaluating the
strategy, and initiating corrective adjustments where deemed appropriate. David
defines strategic management as “the art and science of formulating,
implementing and evaluating cross-functional decisions that enable an
organisation to achieve its objectives”. Strategic management is related to
environmental analysis as every company begins their journey by setting some
objectives and analyses the strengths, weaknesses, opportunities and threats to
work towards achieving the same. They then formulate strategies accordingly
(keeping their strengths, weaknesses, opportunities and threats in mind) and focus
on maximising strengths and opportunities and minimising weaknesses and
threats. There are 3 levels of strategy and management for strategic management
purpose viz. Corporate Level Strategy, Strategic Business Unit Level Strategy
and Functional Level Strategy.
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STRATEGIC MANAGEMENT PROCESS

Essentially strategic management involves strategy formulation, strategy
execution and evaluation of the effectiveness of strategy. Broadly, strategic
management includes the following steps:
➢ Developing vision, purpose and strategic objectives.
➢ Analysis of the external competitive environment of the organization to
identify opportunities and challenges and analysis of the internal operating
environment to identify strengths and weaknesses.
➢ Formulating and choosing strategies based on strengths, weaknesses,
opportunities and threats (SWOT—Step 2).
➢ Strategy implementation.
➢ Strategy evaluation.
The first step can be technically known as a strategic intent, the second stage
generally referred to as an environmental assessment (SWOT analysis), and the
third step, called the strategy formulation and the next two steps are strategy
implementation and strategy evaluation and control. The chart below depicts the
strategic management process:
STEP 1: STRATEGIC INTENT (DEVELOPING VISION, MISSION AND

OBJECTIVES)
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The strategic management process begins with the development of the

organisation’s vision, mission and objectives. This is a basic but most crucial
stage as every company/organisation needs to have its own vision, mission and
objectives as it is this step that will guide and provide direction to the organisation
which helps in achieving goals efficiently. Just deciding upon and setting vision,
mission and objectives is not enough as the vision, mission and objectives need
to have relevance with the firm’s activities . If the firm’s existing vision, mission
and objectives are not relevant to its business, they need to be rewritten.
A vision outlines the aspirations of the organisation and provides a view of the
firm by answering the most fundamental question, “where we are going” and even
giving reasons as to why this makes good business sense for the organisation. Ax
mission statement states the core purpose for the existence of the organisation and
answers the question why it exists. A mission statement must be effective,
inspiring, long-term in nature and easily understood and communicated.
Objective is a desired future state or goal that a company attempts to realise. The
goals or objectives for an organisation is the end point that discusses where the
organisation wants to go and are based on vision and mission. Objectives must
be understandable, specific, realistic and must be measurable. Objectives define
relationship between the firm and the environment which forms the basis of
strategic decision making.
STEP 2: ENVIRONMENTAL ANALYSIS

The second phase of strategic management process has two tasks to be carried
out in separate phases which are explained below:
a) Analysis of Company’s External Environment
A firm needs to analyse its external operating environment. The aim of this step
is to identify organisation’s opportunities and threats. The key environmental
factors that affect an organisation may be political and legal, economic,
technological, socio-cultural, international, educational, ecological or
demographic factors. All these factors may be grouped in the macro environment
of any enterprise.
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b) Analysis of Company’s Internal Environment

The purpose of the internal analysis is to identify strengths and weaknesses of the
organisation. The internal environment of organisation consists of variables that
play an important role and have effects within the organisation itself. Constituents
of the internal environment include the suppliers, middlemen, customers,
competitors and the society at large. A business becomes strong when it has all
these constituents in balance. The absence of all or any of them makes the firm
weak.
STEP 3: STRATEGY FORMULATION
The development of long-range plans for the successful management of
environmental opportunities and risks is called as the formulation of the strategy.
Managers establish a set of strategic alternatives to follow in this phase.
Alternative approaches may be at national, corporate, business, and functional
levels. Managers build a business-specific model to align, suit or balance the
resources and skills of the company. Strategies should lead to building a
competitive advantage.
STEP 4: STRATEGY IMPLEMENTATION
Following the creation of alternative strategies and the selection of a particular
strategy to gain a competitive edge, the strategy developers should ask the
management to take put the plans into action. The current culture, structure and
policies may not often help the execution of the strategy. In such cases, they need
to be revised or adjusted accordingly. Managers should not pursue a strategy that
does not suit the existing culture, structure and policies. Generally, strategy
implementation is done by middle and operating level managers, and the same is
reviewed by top level managers.
STEP 5: STRATEGY EVALUATION AND CONTROL
Strategy evaluation and control go hand in hand with strategy execution. The
preparation and execution of strategy alone cannot help to achieve organizational
objectives. Strong control is key to corporate success. Strategic assessment and
monitoring are the mechanism by which organizational operations and
performance outcomes are evaluated and tracked in order to equate the actual
results with the predetermined goal performance. When organizational goals are
not accomplished, administrators ought to take corrective measures. Evaluation
and control help to find gaps in the execution of strategies.
LEVELS OF STRATEGY
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Strategies are formulated at three levels of organisation. The three levels are:
corporate level, business level and functional level. The three levels of strategy
are important in a conglomerate – a multi-storey and multi-division company.
When a company has a single unit, only two levels - corporate level and
functional level are important.
Corporate
Level
Strategic
Business Unit
Level
Functional Level
1. Corporate Level Strategy

Corporate Level Strategies are the highest level, long-term strategy encompassing
the entire organisation and providing direction to the company. Focusing on
Corporate Level Strategies, we can recall the observation of Peter Drucker . The
ultimate objective of strategic planning “is to identify the new and different
businesses, technologies, and markets which the company should try to create in
the long range. But the work starts with the question what is our present business?
Indeed, it starts with the questions which of our present businesses should we
abandon? Which should we play down? Which should we push and supply new
resources to?” This summarises the essence of corporate level strategies. It thus
gives emphasis to some fundamental questions such as what is the purpose of the
enterprise, what business/businesses it wants to be in and how to expand/get into
such with business/businesses (for example, by establishing greenfield
enterprises or by M&As). Corporate strategy is formulated by the top-level
corporate management (board of directors, CEO, and chiefs of functional areas).
Corporate Level Strategies are of the following types : 1) Stability Strategies 2)
Expansion Strategies 3) Retrenchment Strategies.
2. Strategic Business Unit (SBU) Level Strategy
Business-level strategy is the second level of the strategy pyramid. A business
unit is a part/segment performing a common set of activities. In simple words, it
is a separate unit of the corporate organisation involved in a single line of
business. Sitting within the context of the corporate strategy, the business strategy
is a way of achieving the aims of a particular business unit within the company.
One thing to remember is that implementing this approach level is only effective
for companies with several business units. An organization with multiple business
units can sell products as well as services or sell multiple products/services in
different industries. A large Bank is a prime example of an organization selling
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multiple services in different industries, with business units in corporate banking,

wealth management, risk management, and capital raising, to name a few. Each
of these business units would have distinct goals, and a distinct business strategy
to achieve these goals.
3. Functional Level Strategy
This is the stage at the organizational end of the company. At the functional level,
managers of different functional areas (such as marketing, finance, production,
human resources and more.) participate during the formulation and
implementation. Functional level strategy was encouraged by Peter Drucker in
his theory of Management by Objectives (MBO). Functional level strategies are
impacted by business level strategies which in turn are influenced by corporate
level strategies. Functional level managers must address the issues like efficiency
and effectiveness of marketing, production, customer service, thereby help in
effective implementation of corporate level strategies and help in achieving
firm’s goals or objectives.
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CORPORATE LEVEL STRATEGIES

Corporate-level strategy implies the topmost degree of strategic decision making,
which covers those business plans which are concerned with the company’s
objective, procurement and optimal allocation of resources and coordination of
business strategies of different units and divisions for satisfactory performance.
It is concerned with overall achievement of corporate objectives. It reflects the
combination and pattern of business moves, actions and hidden goals, in the
strategic interest of the concern, considering various business divisions, product
lines, customer groups, technologies and so forth. Such Strategies are needed at
every scale of operation of business. It helps business exercise the choice of
direction that the organization adopts. It consists of the Top Management’s
‘Game plan’ for administering and directing the concern. Corporate Strategies is
at the top of the Planning Pyramid.
Corporate level strategies are basically about decisions relating to

• Allocation of resources amongst different businesses of a firm,
• Transferring resources from one set of business to others, and
• Managing and nurturing a portfolio of businesses
These decisions are taken so that the overall corporate objectives are achieved.
These strategies help to exercise the choice of direction that an organisation
adopts. Whether it be a small business firm involved in a single business or a
large, complex and diversified conglomerate with several businesses, Corporate
strategies in both cases would be about the basic direction of the firm as a whole.
For a small firm having a single business, it could mean adoption of courses of
action that yield better profitability for the firm. For a large, multi-business firm,
corporate strategy would be about managing its various businesses for
maximizing their contribution to the overall corporate objectives and transferring
resources from one set of businesses to others.
Linking with the concept of business definition by Derek Abell, larger, multi-
business firms serve a diverse base of customer groups, customer functions and
make use of a range of different technologies, making them more complex.
Therefore they need a set of strategic alternatives to consider from, to decide upon
whether to continue or change the lines of business, to improve efficiency and
effectiveness in achieving the corporate objectives of their chosen business
sectors.
Following are the possible Strategic alternatives at the Corporate level (Glueck),
namely,
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• STABILITY
• EXPANSION
• RETRENCHMENT
I) STABILITY STRATEGIES
Stability Strategy is a corporate strategy where a company concentrates on
maintaining its current market position. A company that adopts such an approach
focuses on its existing product and market. It aims at Incremental Improvement
of Performance by marginally changing one or more business on the lines of
customer functions, customer needs or technology.
Stability can be pursued at the corporate level through the following alternatives:
• No change
• Profit
• Pause/ Proceed with caution
Reasons for adopting Stability Strategy:

• It is less risky, involves less changes
• When the environment is relatively stable
• Expansion may be perceived as threatening
• Consolidation is sought through stabilising after a period of rapid
expansion
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II) EXPANSION / GROWTH / INTENSIFICATION 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 its customer groups (who), customer functions (what) and
alternative technologies (how) – either singly (by itself) or jointly (with other
firms involved)- in order to improve its overall performance.
Following examples indicate how companies use the strategic alternative of

expansion in terms of their customer groups, customer functions or alternative
technologies:
1. A baby diaper manufacturing company expands its customer groups by making
adult diapers (expansion to different Customer groups)
2. A stockbroking company offers personalized financial services to small
investors apart from its normal dealings in shares and debentures with a view to
having more business and diversified risks. (expansion to different Customer
functions)
3. A bank upgraded its data management system by recording the information on
computers and reduced huge paperwork to improve the efficiency of the bank.
(expansion to different alternative technologies)
Expansion can be pursued at the Corporate level through the following

alternatives:
• Concentration
• Integration
• Diversification
• Internationalisation
• Cooperation
• Digitalisation
Reasons for adopting Expansion strategy:

• Environmental changes necessitate increase in pace of activities by the
firm.
• It indicates growth orientation of the firm.
• Will give more controls over the market in comparison to competitors
• To make use of the benefits accruing from scale of operations and
experience.
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III) RETRENCHMENT STRATEGIES

This corporate strategy is followed when an organisation aims at contraction of
its activities through a substantial reduction or elimination of 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. The firm withdraws from a customer group, customer
function or use of an alternative technology in one or more of its businesses, either
totally or partially.
Following examples indicate how companies use the strategic alternative of

retrenchment to get rid of unprofitable customer groups, customer functions or
alternative technologies:
1. A pharmaceutical company withdraws from retail selling to concentrate on
institutional selling to reduce the size of its sales force and increase market
efficiency. (retrenchment in terms of customer groups)
2. A corporate hospital decides to focus only on speciality treatment and realise
higher revenues by reducing its commitment to general cases which are less
profitable. (retrenchment in terms of customer functions)
3. A coaching centre discards face-to-face classes and adopts online classes to
serve larger clientele, reduce expenses and use existing facilities & personnel
more efficiently.
Retrenchment can be pursued at Corporate level through the following

alternatives:
• Turnaround
• Divestment
• Liquidation
Reasons for adopting Retrenchment strategy:

• Organisation becomes unviable & management no longer wishes to be
remain in business partly or wholly
• Environment faced is threatening
• Stability can be ensured by reallocation of resources from unprofitable to
profitable businesses
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CORPORATE LEVEL STRATEGIES – DETAILED EXPLANATION
(I) STABILITY STRATEGIES

Stability Strategy is a corporate strategy where a company concentrates on
maintaining its current market position. Stability strategy results from attempt by
an organization at incremental improvement of functional performance. A
company that adopts such an approach focuses on its existing product and market.
A few examples of this strategy are offering the same products to the same clients,
not introducing new products, maintaining market share etc. Usually it is
followed by small and medium sized organisations and it is a useful strategy in
the short-run.
A company following this strategy does not need any additional resources and
works using the existing expertise of the workforce. But, this strategy is useful
only if there is a simple and stable environment.
I. (A) 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
characterised as an absence of strategy though in reality, it is not so. Taking no
decision sometimes, is a decision too. When faced with a predictable and certain
external environment and stable organisational environment, an organisation
decides to continue with its present strategy. This is so because the organisation
does not find it worthwhile to alter the present situation by changing its strategy.
There are no significant opportunities or threats operating in the external and
industry environments. There are no major new strengths and weaknesses within
the organisation. There are no new competitors and no obvious threat of substitute
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products. Taking into account the external and internal environmental situation,
the organisation decides not to do anything new. There is but a distinction
between an inactive organisation that does not wish to change its strategy owing
to inertia, and an organisation that consciously decides to continue with its present
strategy. In the former case, it would be dangerous and even reckless, for the
organisation to be complacent. In the latter case, it would be prudent for the
organisation to continue with its present strategies. Several small and medium-
sized organisations operating in a familiar market-more often a niche market
follow ‘No change’ strategy.
I. (B) PROFIT STRATEGY

Sometimes things change in such a way that the firm has to adopt changes in its
working. There may be unfavourable external factors such as increase in
competition, recession in the industry, government attitude, industry down turn
etc. Under these situations it becomes difficult to sustain profitability. Assuming
that the changed situation will be a temporary phase and old situation will again
return, the firm tries to sustain its profitability by various measures such as
controlling expenses, reducing investments, raising prices, cut costs, increase
productivity etc. These measures will help the firm in sustaining current
profitability in the short run. Such a strategy, whereby a firm tries to lie low and
maintain its profitability by various means is called a Profit strategy. Such a
strategy can work only if the problem is indeed temporary, in the long run this
strategy may deteriorate the organisation’s strategic position.
Eg: A firm which sells off assets in a commercial locality & moves out to the
suburbs, Providing services to others needing outsourcing facilities etc. In the
short run, Profit strategy may be resorted to, but they will have to adjust their
policies in the longer run to the changing environment, otherwise they will find
it difficult to stay in the market.
I. (C) PAUSE/PROCEED-WITH-CAUTION STRATEGY

Pause/proceed-with-caution strategy 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 a while
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, to let structural changes take place and to let the systems
adapt to the new strategies. In this manner, pause/proceed-with-caution strategy
is a temporary strategy just like the profit strategy.
For e.g,, Hindustan lever, well known for soaps & detergents, also produced
substantial quantities of shoes and shoe uppers for the export markets. The
domestic shoe market was dominated by players such as Bata, Liberty and global
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giants like Adidas, Nike , Reebok etc. In order to gauge the market reaction,
Hindustan level sold a few thousand pairs of shoes in Indian cities. Based on the
results, it decided to focus only on the export markets, as it was doing earlier.
This is an example of adopting Pause/ Proceed-with-caution strategy.
(II) EXPANSION STRATEGIES

The Corporate level strategy of Expansion is followed by growth-oriented firms.
Growth and expansion can be achieved by various means such as developing new
markets, new products, venturing into businesses activities which are related or
unrelated with one’s existing line of business, exploring related business activities
within the same industry, looking out into international markets, either singly (by
itself) or jointly ( through cooperation with other firms) It involves re-evaluating
a company’s business so as to extend the capacity and scope of business and
considerably increasing the overall investment in the business.
The reasons for the expansion could be survival, higher profits, increased
prestige, economies of scale, larger market share, social benefits, etc.
II. (A) CONCENTRATION / INTENSIFICATION/ SPECIALISATION

STRATEGIES
Concentration is a 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. This is an
expansion strategy wherein excellent firms tend to rely on what they know they
are best at doing. Concentration involves growth of a business in terms of
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customer base, international coverage, profits etc., but most often in terms of
revenues. There are different ways of growing a business.
Ansoff’s Product-Market matrix provides us with three types of Concentration
strategies
• Market Penetration (existing Product in existing market)
• Market Development (existing product in a new market)
• Product Development (new product in an existing market)
A. (i) MARKET PENETRATION STRATEGY

It involves going deeper into the market i.e. penetrating deeper, by focussing on
increasing sales of Existing Products in the Existing Market itself. Market
penetration can be achieved by means such as decreasing prices to attract new
customers, increasing promotion and distribution efforts, selling products to
previous non-users. This strategy aims to increase usage of product by existing
customer, increase the market share of present products, drive out competitors
out of a mature market and secure dominance.
Examples:
• McDonalds the largest fast-food restaurant chain in the world uses
aggressive marketing to expand its revenue from existing consumer base.
It promotes its products through mainly advertisements and billboards
to age specific crowds like children and millennials.
• Budget airlines penetrated the Indian aviation market with low pricing,
resulting in a very high growth rate for the aviation industry for several
years
• Marketing a holiday resort as a wedding destination or destination for
corporate events
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A. (ii) MARKET DEVELOPMENT STRATEGY

This involves selling the Existing Products to New Markets. New markets may
be geographical (new regions) or demographic (different set of customers).
Examples:
• IKEA, the world’s largest furniture retailer founded in Sweden entered
India in 2018. India is the 37th country where IKEA has expanded. This is
a classic example of Market Development where a company is entering
into a new geographical segment.
• Asian Paints India’s leading and Asia’s third largest paint company, has
expanded its dealer network to cater to semi-urban and rural areas (new
demography) and expand its reach far and wide.
• The indigenous Coir Industry is now shifting its focus from conventional
customers to discerning customers looking for eco-friendly alternatives
(new demography)
A. (iii) PRODUCT DEVELOPMENT STRATEGY
This involves selling New Products to the Same Market. The move typically
involves extensive research and development and expansion of the company’s
product range. The product development strategy is employed when firms have a
strong understanding of their current market and are able to provide innovative
solutions to meet the needs of the existing market.
Examples:
• Marketing India as a Ayurveda-based medical treatment destination is a
product development strategy adopted by the Tourism industry.
• Coca Cola brought out its first flavour drink Coca Cola Cherry in 1985, an
extension of the original recipe which was a big hit. Later it introduced a
large variety of flavours like Blackberry, Lime, Vanilla etc which currently
dominate the world beverage market. Coca cola’s strategy provided a wide
range to its consumers with different taste preferences in the beverages
market.
II. (B) INTEGRATION STRATEGIES

Integration is a strategy of expansion through integration of business activities
along the value chain of a business.
Value chain: It is a set of interlinked activities performed by an organisation, right
from the procurement of raw materials to the marketing of finished products to
ultimate consumers.
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Integration means combining activities related to the present activity of firm. A

company may move up/ down the value chain to concentrate more
comprehensively on the customer groups and needs it is already serving. Hence,
a company adopting integration as a strategy for expansion commits itself to
adjacent (i.e. close, or related) businesses.
TYPES OF INTEGRATION STRATEGIES
B. (i) HORIZONTAL INTEGRATION

Horizontal integration is the combination of business activities at the same
level in the value chain. It involves the acquisition of one or more competitors.
For example, a shoe manufacturer adopts horizontal integration strategy and takes
over its rival shoe manufacturer. It becomes a bigger shoe manufacturer, and
remains at the same position as before in the value chain.
Horizontal integration exists both in terms of marketing and operations functions.
When a company wishes to sell in various geographical market segments, it can
have a number of subsidiaries selling the same product, making it horizontally
integrated in terms of marketing.
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When a company has several factories producing the same products and selling
them through and integrated marketing network, it is horizontally integrated in
terms of production. For example, if one luggage company acquires a rival
luggage company to form a bigger luggage company, it is horizontally integrated
in terms of production/operations.
Features
1. Movement beyond the boundaries of the firm, into the industry domain- For
adopting Integration strategy, a firm / organization moves beyond its boundaries
into the domain of the industry it is operating in. It may integrate with other firms
in the same industry. The other firm is at the same level in the value chain,
operating within the same industry.
2. Business Definition remains the same- Under horizontal integration, the
company’s business definition does not change. It remains in the same industry,
serving the same markets and customers through its existing products, by the
means of the same technologies.
3. Horizontal Integration of firms may be achieved through the route of any of the
Cooperation Strategies such as Mergers, Acquisitions, Joint ventures or Strategic
Alliances
Examples
1. Consolidations in the Indian Banking Industry
o Ganesh Bank takeover by Federal Bank
o Nedungadi Bank takeover by Global Trust Bank
o Sangli Bank takeover by ICICI Bank
o United Western Bank takeover by IDBI
2. Tata group established Tata Financial Services, Tata Capital and Tata
Investment Corporation in the same line of business.
3. Disney acquired Pixar (2006)
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4. Facebook acquired Instagram (2012)

5. AstraZeneca acquired ZS Pharma (2015)
6. Mariott acquired Starwood Hotels & Resorts worldwide (Hospitality
Industry) (2016)
B. (ii) VERTICAL INTEGRATION

Vertical integration is the combination of business activities at subsequent
levels in the value chain. It is any new activity undertaken by a business, with
the purpose of either supplying inputs (such as raw materials) or serving a
customer with outputs (such as marketing of firm’s product). A firm may
vertically integrate into activities related to its business, either by itself OR
by Cooperation Strategies such as mergers and acquisitions, joint ventures,
or strategic alliances.
Basic activities at different levels along the value chain are:
• Raw material supply
• Component supply
• Production
• Distribution
• After sales
Example: Activities at different levels along the value chain in the Textile
Industry
TYPES OF VERTICAL INTEGRATION:

• Backward Integration
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Backward integration is when a company expands backward in its respective

value chain into activities preceding the activity it is currently involved in . For
eg: a manufacturer of finished goods getting into the activity of raw material or
component manufacturing or supply. If the company is operating at the spinning
stage in the Textile Industry, then backward integration would be expansion into
agriculture/ sericulture, producing cotton and silk or ginning.
A manufacturing company can either indulge in backward integration by itself
venturing into / establishing a component making unit, or it can enter into that
activity by the route of Mergers, Acquisition, Joint venture or strategic alliance
with a firm which is already into component making.
Examples of Backward Integration
1. Apple
a. By itself: Opened Lab in Taiwan for developing LCD & OLED
screen technologies (2015)
b. Through Mergers and Acquisitions: It acquired AuthenTec- Touch
ID fingerprint sensor maker of iPhones (2012)
2. Amazon expanded from an online retailer of books to become a publisher
with its Kindle platform. Amazon also owns warehouses and parts of its
distribution channel.
3. IKEA purchased forests in Romania to supply its own timber i.e raw
material. (2015)
4. Indian Railways established their own production units
like Chittaranjan Locomotive Works, Diesel Locomotive Works,
Integral Coach Factory, Rail Wheel Factory and Rail Coach Factory
5. ITC resorted to backward integration for its cigarettes business
by establishing a packaging and printing business.
6. Brook Bond Ltd. (which was merged with Hindustan Lever) resorted
to backward integration by acquiring tea plantations.
• Forward Integration
Forward integration is when a company expands into activities which succeed the
activity it is currently involved in, in its respective value chain. For eg: A
manufacturer of finished goods getting into controlling the direct distribution or
supply of its products. In textile industry, a clothing manufacturer who opens his
own retail locations to sell product is an example of forward integration. Forward
integration helps companies cut out the middleman.
For integrating in the forward direction along the value chain activities, a firm
may set up its own unit in the new level of activity, or make use of the route of
Cooperation strategies such as Mergers, Acquisition, Joint ventures or strategic
alliances with other firms who are already in that activity.
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Examples of Forward Integration

1. Apple designs and manufactures its products, then sells them through its
exclusive company owned stores “Apple Stores”
2. Indian Railways established Catering and Tourism Corporation
3. Tea plantations like AVT, Mahavir Plantations, Harrisons Malayalam, etc.
started consumer packing and marketing of tea.
4. Textile firms like Bombay Dyeing, Maftalal and J&K
(Raymonds) resorted to forward integration by entering the readymade
garments business
5. Netflix originally distributed films and television shows created by other
content creators, then expanded into creating original content.
Summarising how backward and forward integration along the value chain
works:
Example: Backward and Forward integration along the value chain in the
Petroleum Industry
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II. (C) DIVERSIFICATION STRATEGIES

Concept
• 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.
• Diversification takes place when new products are made for new markets.
This strategy can also be found in the Ansoff Matrix where both ‘new
products’ and ‘new ‘markets converge’.
TYPES OF DIVERSIFICATION
There are two types of diversification:
• Concentric diversification (which is also called as related diversification)
• Conglomerate diversification (which is also called as unrelated
diversification)
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C. (i) CONCENTRIC OR RELATED DIVERSIFICATION

Meaning: When an organization takes up any activity in such a manner that it is
related to the existing business definition of a firm’s businesses, either in terms
of customer groups, customer functions and/or alternative technologies, it is
called concentric diversification.
Example: Indian Farmers Fertiliser Cooperative (IFFCO) operates in different
businesses based on their relatedness to its sole beneficiary-the Indian farmer.
The primary business of IFFCO is the production and distribution of fertilizers.
However, its related diversification strategies have taken it into other businesses
such as general insurance, to offer insurance risk cover to farmers and agricultural
commodity trading to enable farmers to gain access to quality testing and
warehousing facilities. The businesses are related in terms of Customer group-
farmers.
Concentric diversification can be further divided into three types:

• Marketing related concentric diversification: As the name suggests, under
this type of concentric diversification the existing and new businesses share
some commonalities as regards marketing. For example, a company in the
sewing machine business diversifies into kitchenware and household
appliances, which are sold through a chain of retail stores to family
consumers. The market relatedness here is in terms of the common
distribution channel for sewing machines, kitchenware and household
appliances, as they are targeted at the same Customer group. One should
note that here the customer function and technology of the new and existing
product is diversified.
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• Technology related concentric diversification: Under this, a new type of

product or service is provided with the help of related technology. For
example, a leasing firm offering hire-purchase services to institutional
customers also starts consumer financing for the purchase of durables to
individual customers. The technology relatedness is in terms of the
procedure of the financing service to institutional and individual
customers. Customer group and customer functions are diversified here.
• Marketing and technology-related concentric diversification: Here the
existing and the new businesses are related in terms of both marketing
(customer group) and technology. For example, a synthetic water tank
manufacturer starts making other synthetic items such as pre-fabricated
doors and windows for residential and commercial establishments sold
through its hardware suppliers’ network. Here, the technology used (plastic
processing and engineering) in the two businesses are related and the
distribution channels for both are related too as they are targeted on the
same customer group- residential and commercial establishments. The
dimension of customer function is diversified here.
C. (ii) CONGLOMERATE OR UNRELATED DIVERSIFICATION

Meaning: When an organization 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. Hence there has to be a sound
rationale for taking the risk of unrelated diversification.
The rationale for conglomerate diversification: Businesses need surplus cash to
diversify. Hence, conglomerate diversification can only be justified when the
surplus cash reinvested into new ventures can generate more value for the
shareholders, otherwise, it is prudent to return it to them.
Example of conglomerate diversification:
• Aditya Birla Group: It is present in a variety of unrelated businesses such
as aluminium, cement, chemicals, mining, retail, textiles etc.
• ITC Group: It is present in businesses such as FMCG, hotels, processed
food etc.
II. (D) COOPERATION / COOPERATIVE STRATEGIES
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Starting with the strategy literature, it is seen that the primary existence of the
Companies to operate within the society is for competing with each other.
Most of the strategy experts, especially Michael Porter believed that
Companies are competing with each other to have a limited market share in
the society. It is assumed that on the win of one company there is loss of one
or more company competing against each other.
On the contrary, many other experts believed that the companies can compete
with each other and at the same time cooperate with one another. It is said
that there can be existence of cooperation too along with the competition.
Competing with each other while having a mutual cooperation will make a
chance of market expansion. This strategy can benefit both the companies
irrespective of one who wins or lose.
Cooperation can be pursued in various ways which includes the following:

1. Mergers and acquisitions
2. Joint venture
3. Strategic alliances
D. (i) MERGERS AND ACQUISITIONS
MERGERS
A merger refers to an agreement in which two companies join together to form
one company. In other words, a merger is the combination of two companies
into a single legal entity. A merger happens when two firms, often about same
size, agree to go forward as a new single company rather than remain
separately owned and operated by pooling all their resources together, to
create a sustainable competitive advantage. For example, both Daimler-Benz
and Chrysler ceased to exist when two firms merged and a new company
Daimler-Chrysler was created. Companies seek mergers to gain access to a
larger market and customer base, reduce competition, and achieve economies
of scale.
There are different forms of merger which are distinct from each other as
follows:
1) Absorption:
When two or more entities are combined, into an existing company, it is
known as merger through absorption. In this type of merger, only one entity
continues to survive after the merger, while the rest of all cease to exist as they
lose their identity. E.g. Tata Chemicals Limited (TCL) absorbed Tata
Fertilizers Limited (TFL).
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2) Amalgamation/Consolidation:
Amalgamation occurs, when two or more companies decide to unite to carry
on their business together. In other words, it is a merger of one or more
companies with another in such a way that all assets and liabilities of the
amalgamating companies (merging with each other) become assets and
liabilities of the amalgamated company (the resulting company). Usually after
amalgamation, the amalgamated company has a new name and a separate legal
existence which has assets and liabilities of the previous companies. The
previous organisations dissolve their identity to create a new organisation.
ACQUISITIONS
An acquisition is defined as a corporate transaction where one company
purchases a portion or all of another company’s shares or assets. Acquisitions
are typically made in order to take control of, and build on, the target
company’s strengths and capture synergies.
The acquiring company buys the shares or the assets of the target company,
which gives the acquiring company the power to make decisions concerning
the acquired assets without needing the approval of shareholders from the
target company. In an acquisition, both companies continue to exist as separate
legal entities. One of the companies becomes the parent company of the other.
Takeover or acquisition is a popular strategic alternative adopted by Indian

companies. For more than three decades after Independence, the normal route
of growth was through licensing and setting up new projects. The post-
liberalisation period has seen an increasing use of takeover strategies (or
simply takeovers) as the means of rapid growth.
TYPES OF TAKEOVERS / ACQUISITIONS:

• Friendly Takeover: A "friendly takeover" is an acquisition which is
approved by the management. Before a bidder makes an offer for another
company, it usually first informs the company's board of directors. In an ideal
world, if the board feels that accepting the offer serves the shareholders better
than rejecting it, it recommends the offer be accepted by the shareholders.
• Hostile Takeover: A "hostile takeover" allows a suitor to take over a target
company whose management is unwilling to agree to a merger or takeover. A
takeover is considered "hostile" if the target company's board rejects the offer,
but the bidder continues to pursue it, or the bidder makes the offer directly
after having announced its firm intention to make an offer.
TYPES OF MERGER
• Horizontal Merger: A horizontal merger occurs between companies
operating in the same industry, or at the same level in the value chain. The
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merger is typically part of consolidation between two or more competitors

offering the same products or services. Such mergers are common in industries
with fewer firms, and the goal is to create a larger business with greater market
share and economies of scale since competition among fewer companies tends
to be higher. For instance, company manufacturing footwear combines with
another footwear manufacturing company. It results in horizontal integration
of the activities of the merging firms’.
• Vertical Merger: When two companies in subsequent levels in the value
chain merge, the union is referred to as a vertical merger. A vertical merger
occurs when two companies operating at different levels within the same
industry's supply chain combine their operations. Such mergers are done to
increase synergies achieved through cost reduction, which results from
merging with one or more supply companies. It results in vertical integration
of the merging firms’ activities. For instance, a footwear company combines
with a chain of shoe retail store, or a footwear company merging with a leather
tannery. It results in Vertical integration of activities of a company along its
value chain.
• Conglomerate Merger: This is a merger between two or more companies

engaged in unrelated business activities. The firms may operate in different
industries or in different geographical regions. Companies with no
overlapping factors will only merge if it makes sense from shareholder’s
wealth perspective, that is, if the companies can create synergy, which
includes enhancing value, performance, and cost savings. For instance,
footwear company combines with pharmaceutical company. It results in
conglomerate diversification of the firms’ business.
• Concentric Merger: A concentric merger involves combining of two or
more companies that operate in the same market or sector with overlapping
factors, such as technology, marketing, production processes, and research
and development (R&D). The merging companies are related in one or more
of the dimensions of business (Derek Abel’s 3-dimensional model). When the
companies merge, they are able to gain access to a larger group of consumers
and, thus, a larger market share. For eg., a footwear company merges with
another company making socks or another specialty footwear company. They
are related in terms of their customer groups, A lease financing firm merging
with a Consumer financing firm, both are related in terms of procedure of
financing (alt technology), A plastic tank manufacturer merging with a
manufacturer of plastic fabricated doors & windows are related in terms of
customer groups (builders / construction businesses) as well as alternative
technology (plastic moulding processing). Concentric merger results in
Concentric diversification of business.
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D. (ii) JOINT VENTURE STRATEGY:

A joint venture is a business agreement between two companies who make the
active decision to work together, with a collective aim of achieving a specific set
of goals and increase their respective bottom lines.
Through this arrangement, the companies effectively complement one another’s

strengths, while compensating for one another’s weaknesses. Both companies
share in the returns of the joint venture, while equally absorbing the potential
risks involved. Joint ventures are different from Strategic alliances, as in a Joint
Venture a new entity is created for the purpose. Joint ventures are also different
from mergers and acquisitions as they do not necessarily have to be permanent
partnerships. Furthermore, in a JV, both companies maintain their independence
and retain their identities as individual companies, thus allowing each one to
pursue business models outside the partnership mandate.
MAIN REASONS OF FORMING A JOINT VENTURE:

There are five main reasons why companies form Joint ventures:
• Leverage Resources
A joint venture can take advantage of the combined resources of both
companies to achieve the goal of the venture. One company might have a
well established manufacturing process, while the other company might
have superior distribution channels.
• Cost Savings
By using economies of scale both companies in the JV can leverage their
production at a lower per-unit cost than they would separately. This is
particularly appropriate with technology advances that are costly to
implement. Other cost savings as a result of a JV can include sharing
advertising or labor costs.
• Combined Expertise
Two companies or parties forming a joint venture might each have unique
backgrounds, skill sets, and expertise. When combined through a JV, each
company can benefit from the other's expertise and talent within their
company.
• Access to new markets:
When two companies enter into a joint venture, they combine their
customer contacts and thus get an access to new markets.
• A strategic move against the competition
When two companies enter into a joint venture, it enables them to better
compete against other industry leaders through the combination of markets,
technology, and innovation. Their collaborated resources, professional
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expertise and strengths provides an edge over others and hence increased
competitiveness.
• use joint venture partner's customer database to market each other’s

product
• offer partner's services and products to existing customers
• join forces in purchasing, research and development
• Another benefit of a joint venture is its flexibility. For example, a joint
venture can have a limited lifespan and only cover part of the actual
business, thus limiting the commitment for both parties and the business'
exposure.
FEW PROMINENT JOINT VENTURES:

• Tata Starbucks private ltd
• Sony Ericsson
• Indian oil skytanking ltd
• Mahindra-Renault ltd
• NBC Universal Television Group (Comcast) and Disney ABC
Television Group (The Walt Disney Company).
• Taxi giant UBER and heavy vehicle manufacturer Volvo
• Bharti-Walmart retail joint venture
• Lee cooper and pantaloon retail( india)
D. (iii) STRATEGIC ALLIANCE

A strategic alliance is defined in terms of three necessary and sufficient
characteristics:
• Two or more firms unite to pursue a set of agreed upon goals, but remain
independent subsequent to the formation of the alliance;
• The partner firms share the benefits of the alliance and control over the
performance of assigned tasks- perhaps the most distinctive characteristic
of alliances and the one that makes them so difficult to manage; and
• The partner firms contribute on a continuing basis, in one or more key
strategic areas, for example technology, product and so forth.
Lando Zeppai, Managing Partner of Booz, Allen and Hamilton, defines strategic
alliance as a cooperative arrangement between two or more companies where:
• A common strategy is developed in unison and a win-win attitude is
adopted by all parties.
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• The relationship is reciprocal, with each partner prepared to share specific

strengths with each other, thus lending power to the enterprise.
• A pooling of resources, investment and risk occurs for mutual (rather than
individual) gain.
In brief, strategic alliances are ‘cooperation between two or more independent
firms involving shared control and continuing contributions by all partners for
mutual benefits.’
WHAT MAKES AN ALLIANCE ‘STRATEGIC’?

Strategic alliances, by definition, cannot be tactical. In order to be strategic, an
alliance must satisfy one of these criteria:
For an alliance to be strategic, it must satisfy one of these criteria:

• It must be critical to the success of a core business goal or objective.
• It must be critical to the development or maintenance of a core competency
or other source of competitive advantage.
• It must enable blocking a competitive threat.
• It must create or maintain strategic choices for the firm.
• It must mitigate a significant risk to the business.
REASONS FOR STRATEGIC ALLIANCES

The primary reason why firms enter into strategic alliances is to enhance their
organizational capabilities and thereby gain competitive or strategic advantage.
For this to happen, they continually strive to gain access to new markets and new
supply sources. They also wish to become more profitable by using the latest
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technology and making optimum utilization of resources. When the firms find
that it is not feasible to either create resources internally or to acquire them, they
rely on strategic alliances to create a network of beneficial relationships.
Following are the several reasons why strategic alliances are used:
1. Entering new markets: A company that has a successful product or
service may wish to look for a new market. Doing so on one’s own
capabilities may seem to be difficult. This is especially true in case a
company wishes to explore foreign markets. Here, it is better to enter into
a partnership with a local firm which understands the markets better and is
more culturally attuned to them. This is one of the reasons why multi-
national corporations have entered into strategic alliances with Indian
firms.
2. Reducing manufacturing costs: Strategic alliances are used to pool
resources to gain economies of scale or make better utilization of resources
in order to reduce manufacturing costs. This is especially true of
procompetitive alliances where a long term relationship is generally inter-
industry, vertical value-chain relationships as between manufacturers and
their suppliers or distributers. General Motors and Hitachi’s working
together to develop an electronic car is representative of procompetitive
alliances.
3. Developing and diffusing technology: Strategic alliances may be used to
develop technological capability by leveraging the technical expertise of
two or more firms - an act which may be difficult to perform if these firms
act independently.
JOINT VENTURE vs. STRATEGIC ALLIANCE
Basis Joint Venture Strategic Alliance

Definition Joint venture is defined as A strategic alliance is an
the association of two or agreement between two
more business entities or more entities who are
coming together to form a working jointly with one
separate legal entity to another to enhance the
carry out continued businesses of each other.
business operations.
Objective To mitigate the risk To maximize the returns.
Agreement/Contract There exist a contract or The existence of a
agreement before forming contract is not necessary.
a joint venture. So, there may or may not
be a contract.
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Separate Legal Yes, there exists a separate No, there does not exist
Entity legal entity having its own any separate entity.
separate identity.
Independent There are no independent Here the independent
Organization entities existing once a entities continue to
joint venture is formed. operate and do not lose
Forming a joint venture their existence.
will not affect their
autonomy.
Management A bilateral form of Delegated management
management is there as the exists
association is a form of the
joint venture.
EXAMPLES OF STRATEGIC ALIANCES
1. DELL AND MICROSOFT:

To meet a broader variety of consumer needs and help drive digital changes, Dell
Technologies and Microsoft Corp. entered into a strategic alliance in April 2019.
Dell Technologies would offer a fully native, funded, and certified VMware cloud
infrastructure on Microsoft Azure through this partnership. Microsoft focusses on
enabling clients through collaborations to take advantage of the Microsoft cloud
in their digital transformation process, leveraging the technology they already
have. Through the new Dell Technologies Unified Workspace offerings,
customers can further accelerate their Windows 10 digital transformation journey
by leveraging the integration of Microsoft Windows. Such advantages allow
clients to better leverage the potential of technologies such as artificial
intelligence and the Internet of Things.
2. BHARTI AIRTEL AND CISCO:
Bharti Airtel (“Airtel”), India’s leading telecommunications services provider,
and Cisco announced an alliance in April 2019, to offer advanced networking and
connectivity solutions to enterprise and SMB customers in India. This partnership
leverages Airtel’s deep customer relationships and network to offer highly secure
and cutting-edge digitization technology from Cisco in India.
As part of the partnership, Airtel is to offer Managed Software-Defined Wide
Area Network (SD-WAN) services in collaboration with Cisco. Built on the
Cisco-Viptela platform, Airtel’s Managed SD-WAN service would provide real-
time analytics and in-built security.
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This approach would also include a centralised policy and a management

controller that will provide a clear view of data flows through their networks to
customers and allow them to optimise data traffic to meet their business needs.
For all their conferencing and collaboration needs, Airtel will also offer the Cisco-
Webex service as a one-stop destination. Airtel customers will be able to
communicate through different audio and video formats and devices with the
Webex platform, enabling them to connect seamlessly with remote offices,
clients, customers, and employees.
3. BAJAJ AND TRIUMPH:
Triumph Motorcycles and Bajaj Auto officially begun their long-term, non-equity
alliance in January 2020. The collaboration would see the two companies
cooperate in developing, engineering, and producing a range of mid-capacity
motorcycles with their respective strengths in large and small capacity
motorcycles. Triumph would play a key role in providing design inputs. Bajaj
will contribute its expertise at manufacturing low-cost motorcycles.
The strategic partnership will benefit both parties with Bajaj becoming one of
Triumph's key distribution partners in crucial new markets for the Triumph brand
around the globe. Bajaj is already India's largest exporter of motorcycles and
Triumph may be looking to make India its export hub with this company.
Triumph will help introduce the Indian two-wheeler maker Bajaj to markets
where it has a strong network . The brands will look to sell their products as value-
driven, low-cost products, even though the positioning will be premium for
Triumph in the new markets. The product is expected to be launched by 2022.
II. (E) INTERNATIONALISATION STRATEGIES

The Expansion through Internationalization is the strategy followed by an
organization when it aims to expand beyond the national market. The need for
the Expansion through Internationalization arises when an organization has
explored all the potential to expand domestically and look for the expansion
opportunities beyond the national boundaries. But however, going global is not
an easy task; the organization has to comply with the stringent benchmarks of
price, quality and timely delivery of goods and services, that may vary from
country to country. An often used framework to distinguish multiple forms of
internationally operating businesses is the Bartlett & Ghoshal Matrix (1989).
Bartlett and Ghoshal clustered these businesses based on two criteria: global
integration and local responsiveness.
GLOBAL INTEGRATION: Global integration pressures are the forces that
make MNCs exploit worldwide resources and integrate their activities on a global
basis to realize economies of scale and achieve cost reduction. Bartlett and
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Ghoshal summarize that the motivation of Global Integration is the need of

efficiency.
More specifically, the developments of advanced technologies allow companies
to expand manufacture globally and achieve economies of scale, resulting in the
more standardized products. Moreover, the tastes of consumers have become
homogeneous worldwide. Besides, MNCs tend to have “global chess” strategy,
using the profit generated in one market to fund operations in another.
LOCAL RESPONSIVENESS: Local responsiveness requires MNCs to make
strategic decisions based on local context. According to Bartlett and Ghoshal the
drivers for local responsiveness are
• The differences in consumer tastes in different countries;
• The typical characteristics of the product system in host countries;
• The administrative costs of coordinating manufacture on a global basis;
• The improvements in technologies enable companies to disperse
manufacture to smaller local plants with low cost;
• The trade and legislative barriers set by local governments.
The main pressures for local responsiveness are the differences in consumer tastes
and preferences; differences in infrastructure and traditional practices; in
distribution channels; and host government demands. Such pressures for local
responsiveness urge multinational firms to adjust their products and services to
better meet the demand of indigenous people.
Together these two factors generate four types of strategies that internationally
operating business can pursue: Multidomestic, Global, Transnational and
International strategies.
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E. (i) MULTIDOMESTIC: LOW INTEGRATION AND HIGH

RESPONSIVENESS
Multidomestic strategy maximizes local responsiveness by giving decentralizing

decision-making authority to local business units in each country so that they can
create products and services optimized to their local markets. It assumes that the
markets differ and, therefore, are segmented by country boundaries. In other
words, consumer needs and desires, industry conditions (e.g., the number and
type of competitors), political and legal structures, and social norms vary by
country. Using a multidomestic strategy, the firm can customize its products to
meet the specific preferences and needs of local customers. In addition, they have
little pressure for global integration. Consequently, multidomestic firms often
have a very decentralized and loosely coupled structure where subsidiaries
worldwide are operating relatively autonomously and independent from the
headquarter.
Examples:
• Rather than trying to force all of its American-made shows on viewers
around the globe, MTV customizes the programming that is shown on
its channels within dozens of countries, including New Zealand,
Portugal, Pakistan, and India.
• Food Company H. J. Heinz adapts its products to match local
preferences. Because some Indians will not eat garlic and onion, for
example, Heinz offers them a version of its signature ketchup that does
not include these two ingredients.
E. (ii) GLOBAL: HIGH INTEGRATION AND LOW RESPONSIVENESS
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Meaning: A firm using a global strategy sacrifices responsiveness to local

requirements within each of its markets in favor of emphasizing efficiency. This
strategy is the complete opposite of a multidomestic strategy. Some minor
modifications to products and services may be made in various markets, but a
global strategy stresses the need to gain economies of scale by offering essentially
the same products or services in each market. Global companies are highly
centralized and subsidiaries are often very dependent on the HQ. Their main role
is to implement the parent company’s decisions and to act as pipelines of products
and strategies. This model is also known as the Hub-and-Spoke model.
Examples:
• Microsoft offers the same software programs around the world but
adjusts the programs to match local languages.
• The luxury goods company Gucci sells essentially the same products
in every country.
• Global strategies also can be very effective for firms whose product or
service is largely hidden from the customer’s view, such as silicon chip
maker Intel.
• Pharmaceutical companies such as Pfizer sell the standardized
products across the countries.
E. (iii) TRANSNATIONAL: HIGH INTEGRATION AND HIGH

RESPONSIVENESS
The transnational company has characteristics of both the Global and

Multidomestic firm. Its aim is to maximize local responsiveness but also to gain
benefits from global integration. Even though this seems impossible, it is actually
perfectly doable when taking the whole value chain into considerations.
Transnational companies often try to create economies of scale more upstream in
the value chain and be more flexible and locally adaptive in downstream activities
such as marketing and sales. In terms of organizational design, a transnational
company is characterised by an integrated and interdependent network of
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subsidiaries all over the world. These subsidiaries have strategic roles and act as
centres of excellence. Due to efficient knowledge and expertise exchange
between subsidiaries, the company in general is able to meet both strategic
objectives.
Examples:
• Unilever makes a good example of this strategy. Its subsidiaries are given
strategic roles to play by the parent company and help determine what the
customer wants. These subsidiaries also function as centres of excellence
for the company.
• Nestlé has been able to integrate its activities globally as well as adapt its
products to local tastes by offering different products in different markets.
E. (iv) INTERNATIONAL: LOW INTEGRATION AND LOW

RESPONSIVENESS
Bartlett and Ghoshal originally didn’t include this type in their typologies. Other
authors on the other hand have attributed the name to the lower left corner of the
matrix. An international company therefore has little need for local adaption and
global integration. The majority of the value chain activities will be maintained
at the headquarter. This strategy is also often referred to as an EXPORTING
strategy. Products are produced in the company’s home country and send to
customers all over the world. Subsidiaries, if any, are functioning in this case
more like local channels through which the products are being sold to the end-
consumer. Large wine producers from countries such as France and Italy are great
examples of international companies.
II. (F) DIGITALIZATION STRATEGY

Digital strategy focuses on using technology to improve business performance,
whether that means creating new products or reimagining current processes. It
specifies the direction an organization will take to create new competitive
advantages with technology, as well as the tactics it will use to achieve these
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changes. This usually includes changes to business models, as new technology

makes it possible for innovative companies to provide services that weren’t
previously possible.
Terminologies used in context of Digitalization:
• Computerisation: Opting for mechanisation.
• Electronisation: progressive conversion of physical data into electronic
data through digitisation. For example, a physical watch can show the time
when we observe the hands pointing to figures on the circumference of the
dial. An electronic watch shows the time in digits or numbers on the dial.
• Digitisation- Conversion of analogue electrical signal into Digital signal.
For example , recording music on compact disk.
Digitalisation and electronisation has led to the widespread use of terms with a
prefix of 'E' or 'e' to Traditional functions and activities. Thus, we have e-business
(electronic business), e-commerce (electronic commerce) and various other terms
such as e-learning. e-trading, e-banking or e-tailing. the last one referring
electronic retailing. On a wider scale, we have terms such as e-society e-
governance or e-healthcare. Practically anything, the information of which can be
digitised, can be transmitted over the electronic networks thus traded or shared.
This has created an entirely new type of product category known as bitable
digitised products/services that are products or services that can be rendered in
the digitised form. Examples of bitable products/services are books, magazines,
music, newspapers, software, videos and financial banking and insurance
services. No wonder, we have industries related to these products and services
being profoundly affected by the phenomenon of digitalisation.
Besides the transformation of industries, yet another profound impact of
digitalisation is the emergence of yet another profound impact of digitalisation is
the emergence of The e-markets potentially integrate advertising, product
ordering, delivery of products and payment systems. E-markets provide an
electronic or on-line method to facilitate transactions between buyers and sellers,
that potentially provides support for all of the steps in the entire order fulfilment
process. " A growing number of customers are attracted to buy (and Sometimes
also sell) products in the e-markets. An increasing number of industries where
digitised products and services are available, enter the e-markets to conduct their
sales and marketing functions electronically.
Derek Abell defined business along the three dimensions of customer groups,
customer functions and alternative technologies. Customer groups relate to 'who'
is being satisfied, customer needs describe 'what' is being satisfied and alternative
technologies means how' the need is being satisfied. The phenomenon of
digitalisation has the potential to redefine the business of an organisation
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radically. New customer groups are created by the emergence of e-markets.

Customer functions are redefined by the digitised products and services available
in the e-markets. Alternative technologies emerge out of the convergence of
information, Internet, networking and telecommunications technologies.
POPULAR PATTERNS OF E-BUSINESS

1. E-channel pattern: This refers to the chain of relationships between
companies and customers and between companies and their partners/resellers.
Four business models are possible in e-channel pattern:
• transaction enhancement (providing information in a presale format)
• e-channel compression (using technology to reduce, through
disintermediation, the number of steps in the channel)
• e-channel expansion (lengthen the channel by adding their brokering
functionality)
• e-channel innovation (develop new channels to satisfy unmet customer
needs)
2. Click-and-brick pattern: Brick-and-mortar' firms are traditional
organisations. 'Click-and-order' firms are the new types of organisations that rely
on information technology. When the traditional business adopts some aspects of
the new types of organisations or the reverse happens, then it is the click-and-
brick pattern.
3. E-Portal pattern : Portals are intermediaries offering an aggregated set of
services for a specific, well defined group of users. Yahoo! is an example of a
portal. Portal owners position themselves between the suppliers and customers.
By doing so, they may offer value-added services or decrease transaction cost
between the suppliers and customers. The business model could be: eyeball
aggregators or super-portals Yahoo!), auction portals (e-Bay) or mega-
transactions portals (e.g. Expedia).
4. E-Market maker or Net market pattern: This is an online intermediary that
connects disparate buyers and sellers within a common vertical industry, such as
chemicals or steel. Net markets eliminate marketing channel inefficiencies by
aggregating offerings from many sellers or by matching buyers and sellers in an
exchange or an auction.
5. Pure e-digital products pattern: Many products or services can be produced,
delivered , consumed and licenced electronically. Several business models are
emerging such as digital media, delivery such as music downloads content
delivery, caching services and outsourcing services for hosting.
39
Examples:
1. The simple case of digitalisation of bank functions with which most of are
aware. Most banks in India have migrated, their low-value and simple
transactions out of the branch to alternate delivery channels (mostly automatic
teller machines the ATMs) and retaining high level and complex transactions in
the branch. This reduces the pressure of over-the-counter activities considerably.
This has been made possible due to the digitisation of customers' banking data.
Several of the banks have progressed into Online banking, where customers can
perform many of their banking activities over the Internet. In this manner, banks
have ventured beyond the brick and mortar delivery channel into ATMs and into
an era of anytime, anywhere electronic channels of online banking and mobile
banking. The e-banking products use state of the art technologies like digital
certificates, smart card authentication and secure networking. All this has been
made possible because of digitalisation. At the same time ,most Indian banks
retain their traditional operations by providing over-the-counter services, thus
adopting the click and brick pattern in tandem with various business models in
the e-channel pattern.
2. Indian railways is one of the largest organization in the world. lt now has an e-
portal pattern, making reservations available at its website, where the passengers
can buy tickets, pay using their debit or credit card , check train fares, routes and
availability in real-time and receive alerts about rail schedules . They can also
subscribe to an alert service that advises them about the reservation status at fixed
intervals. The portal attempts to be customer-centric by providing a travel
planner, tour packages, budget hotels and car rentals. Passengers can also track
their tickets from the time of booking, until third-party courier services make the
delivery, thus making an effective use of the click and brick pattern too.
III. RETRENCHMENT STRATEGIES

Retrenchment strategy is followed when an organisation substantially reduces the
scope of its activities. This is done through an attempt to find out the problem
areas and diagnose the causes of the problems. Next, steps are taken to solve the
problems. These steps result in different kinds of retrenchment strategies. This
strategy is used by corporations to reduce the diversity or the overall size of the
operations of the company. It is often used in order to cut down expenses with
goal of becoming financially stable, the strategy involves withdrawing from
certain markets or discontinuing sale of certain products. Basically, retrenchment
strategies are a response to decline in industries and markets. An organisation
therefore needs to understand clearly, the causes of the decline and its
consequences, in order to provide an appropriate response to decline.
40
MAJOR EXTERNAL FACTORS LEADING TO DECLINE:

• New organizational forms
• New business models
• New dominant technologies
• Demand saturation
• Adverse government policies
• Changing customer needs & preferences
• Emergence of Substitute products
MAJOR INTERNAL FACTORS LEADING TO DECLINE:

• Ineffective top management
• High costs
• Ineffective sales and marketing
• Excess assets
• Inappropriate strategies
• Continual resistance to externally imposed change
• Poor quality of functional management
• Wrong organizational design
• Unproductive new product development
CONSEQUENCES OF DECLINE
• Falling sales
• Increasing debt
• Diminishing profitability
• Shrinking market share
• Dwindling cash flow
• Loss of credibility & goodwill
• Disengagement of suppliers, creditors and customers
TYPES OF RETRENCHMENT STRATEGIES
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• Turnaround Strategy – This is a type of retrenchment strategy adopted to

reverse the process of decline or negative trend of a company. This strategy
is adopted when danger signs such arise such as persistent negative cash
flows, negative profits and declining market share etc.
• Divestment Strategy- Also called as Divestiture or Cutback strategy, this
retrenchment strategy is adopted when a turnaround was adopted but
proved unsuccessful. It involves sale or liquidation of a portion of a
business, or a major division, profit centre or Strategic Business Unit.
• Liquidation Strategy- This is the most extreme and unattractive
retrenchment strategy, which involves closing down the entire firm and
selling its assets. It is the last resort for a company as it leads to
unemployment and termination of opportunities. It may be difficult too as
buyers for the business may be difficult to find.
III. (A) TURNAROUND STRATEGY
MEANING:
Turnaround Strategy is a retrenchment strategy followed by an organization to
REVERSE a NEGATIVE TREND OR DECLINE in a firm’s business.
Turnaround strategies derive their name from the action involved, i.e., reversing
a negative trend and turning around the organisation to profitability.
It’s a technique of bringing failing companies back to life:
• -Loss-making to Profit making
• -Declining sales to increasing sales
• -Instability to stability
• -Weakness to strength
Example: Dell is the best example of a turnaround strategy. In 2006. Dell

announced the cost-cutting measures and to do so; it started selling its products
directly, but unfortunately, it suffered huge losses. Then in 2007, Dell withdrew
its direct selling strategy and started selling its computers through the retail
outlets and today it is the second largest computer retailer in the world.
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.
FEATURES OF TURNAROUND STRATEGY:

1. Involves restructuring
Turnaround involves restructuring the sick company. Restructuring means
rearranging the resources of the company for improving its profitability and
performance. The restructuring can be a:
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• -Financial restructuring,
• -Technical restructuring,
• -Marketing restructuring,
• -Personnel restructuring, etc.
2. Applicable to a loss-making unit- Turnaround is a strategy of converting a loss-
making or an uneconomic unit into a profitable one. Therefore it is applicable to
a loss-making unit. It is done (applied or implemented) by making systematic
efforts. It is a solution to solve the problem of industrial sickness.
3.Optimum utilisation of resources- Generally, a sick company doesn't make an
optimum utilisation of its all available resources such as human resources,
financial resources, physical resources, and so on. The turnaround strategy helps
to utilise the resources optimally by helping to restructure and reorganize all
available resources of the company. It tries to channelize resources only for
profitable venture and not for non-profitable ones.
4. It aims to have profitable performance- Objective of Turnaround is to reverse
the negative performance of an enterprise. Here a loss-making enterprise is to be
converted into a profit-making one. It is like rebirth of an enterprise.
5. Co-operation of employees is essential: Turn around process covers many
aspects of management. Naturally, support, participation and cooperation of all
employees is necessary for the successful execution of turnaround strategy.
6. Long term strategy: Turnaround is a long term strategy. It needs many years
for completion. It is not possible to convert loss making company into a profit
making company within one or two years. It may require even 10 years to
complete the turnaround process.
INDICATORS OF A TURNAROUND / CONDITIONS FOR

TURNAROUND
When should a company think of Turnaround Strategy? When one or many of the
below mentioned conditions are visible in a company, it should think of a
Turnaround:
• -Continuous losses
• -Poor management
• -Wrong corporate strategies
• -Persistent negative cash flows
• -Overmanning, high employee turnover and low morale
• -Declining market share
• -deterioration in physical facilities
• -Uncompetitive products and services
An organisation facing more than one of the above problems is referred to as the
sick co. Also, the need for a turnaround strategy arises because of the changes in
the external environment viz, change in the government policies, saturated
demand for the product, a threat from the substitute products, changes in the tastes
and preferences of customers, etc.
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MEASURES FOR MANAGING TURNAROUND

1. The existing CEO & management team handles the entire turnaround, with the
advisory support of a specialist external consultant. (successful only if the CEO
has reasonable amount of credibility left with the banks & Financial institutions
and a qualified consultant is available). This type of turnaround management I.e.,
under the existing team, is rarely attempted.
2. In another situation, the existing team withdraws temporarily and an Executive

Consultant or Turnaround specialist is employed to do the job. Generally deputed
by the bank and financial institutions and after the job is over, reverts back to his
original position. This method is also rarely used in India.
3. The last method involves replacement of the existing team , specially the CEO
or merging the sick unit with a healthy one (most often used measure).
STEPS IN TURNAROUND STRATEGY

I. SELECTING THE ALTERNATIVE STRATEGY/APPROACH TO
TURNAROUND
It is necessary to select any conventional method/approach for the introduction
of turnaround
strategy. These strategies/approaches are as follows:
1.Surgical Approach: Surgical turnaround involves a tough attitude and the

pattern of action followed is roughly the same everywhere. The turnaround works
in somewhat the manner described further. The new CEO quickly asserts his
authority by issuing orders and directives for changes, centralises functions, fires
employees and closes down plants and divisions. Then, the product mix may be
changed, obsolete machinery replaced. R & D, marketing and financial controls
strengthened. It fixes accountability till business shows signs of turning around
and should not be given up in middle as such a step will bring the whole process
of turnaround in danger.
Examples are companies like the US video games manufacturer Atari, which,
among other actions, cut its labour force by two-thirds to 3500 to turn itself
around. At British Leyland, 84,000 employees (40 per cent) were axed to
complete the surgery. At GE, 1,00, 000 of a workforce of 4,00, 000 lost their jobs;
at Imperial Chemical Industries (ICI), the labour force was reduced from 90,000
to 59, 000; half the staff at Chrysler Corporation disappeared; at British Steel,
half the company’s production capacity and 80 per cent of workforce were gone.
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2. Non-Surgical/Human Approach: As an alternative to surgical approach, the

CEO may use humane approach for the introduction of turnaround strategy. Here
he understands the problem, makes negotiations and settles the different conflicts
peacefully. He takes efforts to solve the problems in a democratic manner i.e.,
recovery through meetings, discussions, persuasions, etc. and sees that the
enterprise comes out of all difficulties by improving work culture and morale.
Example, SAIL, the Indian public sector steel giant’s losses were about `100 crore
during 1982–83 and `200 crore in 1983–84. A price rise during 1984–85 saw
SAIL break even in that year. But, rapid increases in coal prices and freight rates
threatened a loss in 1985–86. The steel ministry and SAIL management then
called for another price hike. Krishnamurthy entered the scene as Chairman,
SAIL in mid-1985. He promptly lobbied against price increase on the ground that
efficiency had to be improved. Indian steel was already the costliest in the world
and any further increase in steel price would have ruinous effects on the economy,
contended Krishnamurthy. He spent several months talking to small groups of
executives, officials, staff and workers in SAIL. He estimates that he talked to
over 25,000 employees to identify operating problems, got perception of how the
company was doing and what employees thought should be done to improve
performance and turn around the company. The turnaround strategy finally
emerged from discussions at all levels.
II. FOLLOW-UP STEPS FOR INTRODUCTION OF TURNAROUND

1. Providing financial backing: In order to introduce the turnaround package, it
is necessary to give attention to financial problems of the enterprise. Turnaround
process will not move without financial backing. Naturally, financial support
must be provided by the management. It is adding up extra finance to the
company for the purpose of revival.
2. Identification of problems faced by an enterprise: The problems faced by
the enterprise must be identified clearly for the introduction of turnaround
strategy. For this, analysis of product line, production processes, market
competition and relevant problems is essential. Such investigation of causes of
loss facilitates introduction of alternative solutions for removing losses to the
company. One of the alternatives will be selected for drawing action for the
introduction of turnaround.
3. Preparing comprehensive action plan: Identification of problems should be
followed by suitable comprehensive action plan for dealing with all problems due
to which turnaround strategy is essential. The action plan will be based on
alternative selected.
4. Executing of action plan: Finally, the action plan prepared should be
implemented efficiently. For effective execution of the action plan, enlightened,
democratic and expert leadership is necessary at the top level. Such leadership
may be provided by the existing chief executive or by a turnaround specialist. It
45
is also desirable to keep adequate watch on the execution of action plan so that
different area wise targets fixed are achieved within the time limit.
III. (B) DIVESTMENT STRATEGY

It is the process of selling subsidiary assets, investments, or divisions of a
company in order to maximize the value of the parent company. This strategy
involves sale or liquidation of a portion of a business, or major division, profit
centre or Strategic Business Unit (SBU). It is a part of retrenchment plan adopted
when a Turnaround didn’t work out. It is also called Divestiture or Cutback
strategy.
REASONS FOR DIVESTMENT

A divestment strategy may be adopted due to the following reasons:
• A business that had been acquired proves to be a mismatch and cannot be
integrated within the company , so has to be divested
• Persistent negative cash flows from a particular business create financial
problems for the whole company, creating the need for divestment of that
business.
• Severity of competition and the inability of an organisation to cope with it
may cause it to divest
• Technological upgradation is required if the business is to survive but in
cases where it is not possible for the organisation to invest so it has to be
divested.
• A better alternative may be available for investment causing an
organisation to divest a part of its unprofitable business.
• Divestment by an organisation may be a part of a merger plan executed
with another organisation, where mutual exchange of unprofitable
divisions may take place. The assumption is that such an exchange is in
mutual strategic interest.
• It may be the only way, the company may be able to survive.
• With the emergence of professional management, there is an increasing
pressure to streamline and restructure businesses using divestment
strategies
• Several family business houses as well as public sector companies in India
have always been widely diversified and Divestment is a preferred option
to bring them back on track
• With a wide-ranging portfolio of businesses, companies now face the
problem of diffusion of core competencies. This is the reason why several
companies in India are employing divestment as a strategy to streamline
their business portfolios and emerge as focussed organisations
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Examples:
• Tata group is a highly diversified entity with a range of businesses under
its fold. They identified their non-core businesses for divestment. TOMCO
was divested and sold to Hindustan Levers as soap and detergents were not
considered a core business for Tatas. Similarly, the pharmaceuticals
companies of Tatas- Merind and Tata Pharma were divested to Wockhart.
The cosmetics company Lakme was divested and sold to Hindustan Levers
as, besides being a non-core business, it was found to be non-competitive
and would have required substantial investment to be sustained.
• Indian Organic Chemicals set up in 1960 by the Ghai group, diversified
into food processing in 1986, from its main business of organic chemicals.
It was involved in manufacturing potato wafers & banana chips, but
became unviable. Therefore by early 1989 this food division had to be
divested, The reasons for its failure were many such as competition from
the unorganized sector, lack of marketing orientation as the firm basically
had a manufacturing orientation.
• India's largest paint manufacturer, Asian Paints undertook an international
divestment when it decided to divest its stake in its Australian operations.
The company's operations in Queensland were small and not expected to
make any significant impact in the company's performance. Compared
with Asian paints revenues of Rs 3,700 crore in the 2006, the share
purchase agreement to offload its stake in Asian Paints (Queensland) ltd.
fetched only Rs. 15 crore.
As is evident from the above illustrations, divestment may be the result of

failures. But they may also be the result of prudent thinking to divest unprofitable
lines and divert resources to other areas so that the overall effect could make a
company or business group more focussed on its core competencies and create
competitive advantage. When divestment does not work, liquidation may be the
only strategic alternative left.
III. (C) LIQUIDATION STRATEGY

MOST UNPLEASANT RETRENCHMENT STRATEGY –
LIQUIDATION STRATEGY
Liquidation strategy is a retrenchment strategy whereby an organization closes its
activities and sells of its assets. It is considered as the last resort and involves
some serious consequences for example:
• Loss of employment for workers and other employees
• Termination of opportunities where an organization could pursue future
activities
• Stigma of failure
47
WHY MEDIUM AND LARGE SCALE ORGANIZATION LIQUIDATE

RARELY
In India, many small-scale units, proprietorship and partnership ventures liquidate
frequently. However, large scale and medium scale organizations rarely liquidate
due to many reasons.
Following are the reasons why large scale and medium scale organizations
liquidate rarely
• Management may hesitate due to fear of losses
• Government may not easily allow liquidation due to various political and
other risk involved
• Trade unions discourage liquidation due to loss of employment
• In case of liquidation due to insolvency, creditors and suppliers will lose
their contractual rights against company. (however ceasing does not always
mean that the company is freed from its contractual obligations, it is only
in case of liquidation through insolvency)
• It is difficult to find the buyers to sell off the assets of the company
moreover, the compensation is also not adequate due to unusable condition
of the assets
• The possibility of liquidation of a company creates a bad impact on the
company’s (or business group’s) reputation
Despite of all the factors (Management, Government, Trade union, creditors and
suppliers, non-availability of buyers, bad impact on reputation of the company)
related with company’s liquidation which intend to create difficulties in the
process of liquidation, sometimes an organization may be forced to liquidate.
Note- As per the estimates of the Ministry of Company Affairs that oversees the
legal process of liquidation, barely 12.5 percent of the asset value is realised on
liquidation, moreover the process can take up to 15-20 years. This further
increases the difficulties in the process of liquidation.
Liquidation can also be termed as winding up of the company. The company’s
Act 1956 defines winding up of the company as the process whereby its life is
ended and its property administered for the benefits of its creditors and members.
PLANNED LIQUIDATION
It may be unpleasant to liquidate but when a dead business is worth more than
an alive one, it is a good proposition to liquidate. Planned Liquidation can be
adopted when the company’s real estate is worth more than the returns from its
48
activities. It involves a systematic plan to reap maximum benefits from the

organization and its shareholders through process of liquidation.
THREE WAYS OF LIQUIDATING THE COMPANY

I.Compulsory winding-up under an order of the Court
Under this, a company is dissolved due a petition filed and presented by a
creditor to the court for liquidation. The petition must be based on the
companies Act, 1956. The most usual ground is the inability of the
company to pay of its debts.
II. Voluntary winding-up

It involves dissolution of a company at the instance of its members. The
major objective is to settle the affair among the members and creditors
without intervention of the court.
III. Voluntary winding-up under the supervision of the Court

A company has to pass a resolution for voluntary winding up. The court
may make an order that the voluntary winding-up shall continue, but
subject to supervision of the court.
When the company’s affairs are completely wound up, it is said be dissolved. On
dissolution the company’s name is struck off from the registrar of the companies
and its legal personality as a corporation comes to an end.
Examples:
Even though, this strategy is not very often used in India, sometimes there may
not be a better alternative than to liquidate the organization
1. Alpic Finance company (case of liquidation by order of court)
The Bombay High court ordered Alpic Finance to liquidate when it defaulted on
its payment of one of its outstanding payments to its investors. The liquidation
was the ordered on a petition filed by the Small Industrial Development Bank of
India, which was one of the investors or secure Creditors of the company.
Under the liquidation proceedings, secured creditors like banks and financial
institutions may get a chance to salvage some of the investments, but thousands
of depositors stand to lose money. The secured creditors enjoy first charge over
the assets.
2. Digital Publishing Solutions Private LTD (case of voluntary dissolution)

Digital publishing solutions Private LTD went in for a voluntary dissolution.
Versware entered India in 1999 by buying out Pune-based Reality Information
49
Systems International Ltd India promoted by New Zealander, Richard Pipe.

Within 18 months, Versaware India grew to 1200 strong facility doing captive
work for Versaware US. But with electronic books failing to be successful and
due to increasing debts, the parent company decided to adopt liquidation strategy
in March 2001. Digital Publishing was previously known as Versaware
Technologies India Ltd and was a 100-per cent subsidiary of Versaware Inc., US.
Versaware also had a similar business in Israel. It was among the first companies
to get into e-publishing and had managed to raise US$ 40 million from venture
funds.
The liabilities are to be paid from funds generated out of sale of assets, current
account receivable and shareholder contributions.
3. Balmer Lawrie Hind Terminals private Limited (case of voluntary

liquidation)
Balmer Lawrie Hind Terminals private Limited is a private company
incorporated in the year 2011. It is involved in Transport, storage and
communication Activity. It is a joint venture company which had gone for
voluntary winding-up by its members.
BUSINESS LEVEL STRATEGY

Business level strategy is concerned with the strategic planning and execution of
initiatives for business units. Business strategy is considered the ‘middle’ level in
the overall strategy hierarchy.
Business strategies are the course of action adopted by an organisation for each
of its business separately to serve identified customer groups and provide value
to the customer by satisfaction of their needs. In the process, the organisation uses
50
its competencies to gain, sustain and enhance its strategic or competitive

advantage.
A business level strategy definition can be summarized as a detailed outline

which incorporates a company’s policies, goals, and actions with the focus being
on how to deliver value to customers, while maintaining an edge over
competitors. Thinking in terms of strategy levels is a useful way of dividing up
strategy in a meaningful way, allowing to distinguish between the various parties
and responsibilities involved in both the formulation and execution of the
strategy.
In short, business level strategy describes opportunities to provide value to

customers and gain competitive advantage in individual business areas. This is in
contrast to corporate level strategies which might look at multiple markets and
broader concepts that apply to the entire organization. As a result, organizations
with only one distinct business unit will often combine business strategy with
corporate strategy as a single strategy level.
BUSINESS LEVEL STRATEGY- EXAMPLE :
51
TYPES OF BUSINESS LEVEL STRATEGIES
I. COST LEADERSHIP STRATEGY

Offering a product at a lower price than competitors is the most straightforward
way in which businesses compete for customers. Business units can reduce costs
by a number of means - building better facilities, investing in tooling or reducing
the cost of overheads, minimizing costs of R&D, POS and so forth.
II. DIFFERENTIATION STRATEGY

Rather than focusing on lowering costs and passing those reduced costs onto
customers, differentiation strategies emphasize the development and marketing
of products in a manner which provides greater value to customers. In the laptop
market, Apple has invested heavily in R&D, customer service and marketing,
successfully carving a niche which allows Apple to charge substantially more
than other manufacturers without compromising market share.
III. FOCUS STRATEGY

This business level strategy is concerned with identifying a narrow target in terms
of markets and customers. An organisation seeking to adopt this strategy has to
locate a niche in the market wherein it can operate. Focus can be achieved through
cost leadership, or differentiation or by an integration of both approaches.
52
BUSINESS LEVEL STRATEGIES- DETAILED

EXPLANATION
I. COST LEADERSHIP STRATEGY

MEANING: When the competitive advantage of an organisation lies in its lower
cost of products or services relative to what the competitors have to offer, it is
termed as cost leadership. The organisation outperforms its competitors by
offering products or services at a lower cost than they can.
• Cost leadership is a part of marketing strategy. It is difficult to deploy the
strategy because the management must constantly work on reducing cost
at every level to remain competitive.
• Targets a broad market.
• Especially beneficial: where customers are price sensitive.
• Customers prefer a lower cost product, particularly if it offers the same
utility to them as comparable products available in the market do. When
all organisations offer products at a comparable price, the cost leader
organisation earns higher profit owing to the low cost of its products.
• Cost leadership offers a margin of flexibility to the organisation to lower
the price if the competition becomes stiff and yet earn more at the same
level of profit.
• The concept of cost leadership was developed by Michael Porter.
• Big Bazaar, Moser Baer, TATA steel, GCMMF (Amul) etc. are some Cost
leaders in India.
ACHIEVING COST LEADERSHIP

Central to the objective of achieving cost leadership is the understanding of the
value chain for a product/service of an organisation. Costs are spread over the
entire value chain, in activities that contribute to the making of the product. The
basic objective in achieving cost leadership is to ensure that the cumulative costs
across the value chain is lower than that of competitors. For doing this, it is
essential to analyse the cost drivers and then identify the areas for optimisation
of costs.
Several actions could be taken for achieving cost leadership. An illustrative list
of such actions is given below:
1. Demand forecasting: Accurate demand forecasting and high-capacity
utilisation is essential to realise cost advantages.
2. Economies of scale: Attaining economies of scale leads to lower per unit
cost of product/service.
53
3. Standardisation: High level of standardisation of products and offering

uniform service packages using mass production techniques, yield lower
per unit costs.
4. Aiming at the average customer: Aiming at the average customer makes
it possible to offer a generalised set of utilities in a product / service to
cover greater number of customers.
5. Use of cost-saving technologies: Investments in cost-saving technologies
can help an organisation to squeeze every extra paisa out of the cost,
making the product service competitive in the market.
6. Differentiation withholding: Withholding differentiation till it becomes
absolutely necessary is another way to realise cost-based competitiveness.
SOME CASES OF IMPLEMENTATION OF COST LEADERSHIP

STRATEGY
1. Gujarat Cooperative Milk Marketing Federation (GCMMF), the country's
largest cooperative, probably known better by its brand name Amul,
operates in the branded ice cream market on the lower-cost platform. It has
the backing of a large cooperative dairy network whose constituents are
located across the country and an efficient supply-chain in place for
procurement of high-quality milk. Besides these, it has developed a cold
chain of supplying its refrigerated products through an efficient
distribution network. In this way, Amul ice-cream can be found just about
everywhere, including STD booths, kirana shops, chemists and bakers,
who stock the ice-cream in deep freezers. .
2. Tata Steel consistently benchmarks itself against global standards in terms
of cost competitiveness. its strategy is based on breaking up the steel value
chain into primary steel making and finishing. The company strives to
utilise its resource advantage in captive iron ore mines within India and
then finishing steel close to the points of consumption anywhere in the
world, thus saving on transportation costs that are substantial for an item
such as steel. Its acquisitions under its internationalisation strategy are also
aimed at creating economies of scale in this capital-and labour-intensive
industry.
3. In the burgeoning mobile telecommunications markets in India, handsets
are a significant competitive sector where several companies vie to offer
low-cost mobile phones. Reliance Communications (RComm) was the first
mover in 2003, to offer ultra-low cost mobile phones at a price point of Rs.
501 Its Classic monochrome range of handsets at Rs.777 was quite
successful as the company claims to have sold 10 lakh sets within a week
of its launch. These phones are manufactured for the company by several
suppliers and are meant to serve as entry-level handsets in semi-urban and
rural areas, operating on the CDMA platform.
54
What each of these organisations does is to rely on its inherent strengths to lower
the cost of its product and emerge as a lower-cost producer vis a vis other rivals
in the industry. The lower-cost capability is then leveraged to achieve competitive
advantage .
BENEFITS ASSOCIATED WITH COST LEADERSHIP STRATEGY
1. Cost advantage: Cost advantage is possibly the best insurance against
industry competition. An organisation is protected against the ill effects of
competition if it has a lower-cost structure for its products and services.
2. Capacity to absorb increased price: Powerful suppliers possess higher
bargaining power to negotiate price increases for inputs. Organisations that
possess a cost advantage are less affected in such a scenario as they can
absorb the price increases to some extent.
3. Price reduction: Powerful buyers possess higher bargaining power to
affect a price reduction. Organisations that possess a cost advantage can
offer price reduction to some extent in such a case.
4. Minimize threat: The threat of cheaper substitutes can be offset to some
extent by lowering prices.
5. Effective entry barrier : Cost advantage acts as an effective entry barrier
for potential entrants, who cannot offer the product service at a lower
price.
II. DIFFERENTIATION STRATEGY

A Business Level Strategy can help an organization achieve a competitive
advantage in the marketplace. They provide a way to render value to customers
by exploiting the organization’s core competencies. One of the main types of
Business Level Strategies is Differentiation Strategy
When the competitive advantage of an organisation lies in special features
incorporated into the product/service which is demanded by the customers, who
are willing to pay for it, then the strategy adopted is the differentiation business
strategy. The organisation outperforms its competitors who are not able or willing
to offer the special features that it can and does. Customers prefer a differentiated
product/service when it offers them utility that they value and thus are willing to
pay more for getting such a utility. A differentiated product or service stands apart
in the market and is distinguishable by the customers for its special features and
attributes.
It is all about making the product or service really stand out from the crowd. It
requires innovation and out of the box thinking. To execute the differentiation
strategy, you need to conduct extensive market research to find a gap in the
market that needs filling, or by improving an existing product or service.
Generally, customers’ needs, tastes and preferences vary from one customer to
55
another customer. These differences in customers’ tastes, preferences and needs

can be satisfied by producing the product with different attributes.
Further, he should study the buying and consumption behaviour of different
classes of customers. The producer, then should incorporate the features into the
product offering based on the study. This will make the product much suitable to
the different customers compared to the competitors’ offerings.
Further, a differentiator organisation can charge a premium price for its
products/services, gain additional customers who value the differentiation and
command customer loyalty. Profits for the differentiator organisation come from
the difference in the premium price charged and the additional cost incurred in
providing the differentiation. To the extent the organisation can offer
differentiation by maintaining a balance between its price and costs, it succeeds.
But it may fail if the customers are no longer interested in the differentiated
features or are not willing to pay extra for such features.
Consequently, most of the customers will prefer this product to the
rivals/competitors. Competitive advantage results when more customers become
strongly attached to the attributes of a differentiator’s product offering. This
strategy is for firms that want a broad customer base based on their uniqueness.
ACHIEVING DIFFERENTIATION:
The key to achieving differentiation is to create value for the customers that is
unmatched by the competitors at the price at which the differentiator organisation
offers its products/services. An illustrative list of measures that a differentiator
organisation can adopt is given below:
1. An organisation can incorporate features that offer utility for the customer and
match her tastes and preferences.
2. An organisation can incorporate features that lower the overall cost for the
buyer in using the product service.
3. An organisation can incorporate features that raise the performance of the
product.
4. An organisation can incorporate features that increase the buyer satisfaction in
tangible or non-tangible ways.
5. An organisation can incorporate features that can offer the promise of a high-
quality of product service.
6. An organisation can incorporate features that enable the customer to claim
distinctiveness from other customers and enhance her status and prestige among
the buyer community.
7. An organisation can offer the full range of product and/or service that a
customer requires for her need satisfaction.
56
Thus, crafting and implementing differentiation strategy successfully depends

upon customer loyalty for differentiation, customer willingness to pay premium
price, bargaining power of suppliers, new potential entrants and substitute
products.
APPROACHES TO DIFFERENTIATION:
Differentiation may take several forms. Important among them are as follows: a
different taste, special features, superior service, spare parts availability, overall
value to the customer, engineering design and performance, product reliability,
quality manufacturer, technological leadership, a full range of services, complete
line of products, top-of-the-line image and reputation.
CONDITIONS UNDER WHICH DIFFERENTIATION IS USED:
A differentiation business strategy is suitable for special conditions primarily
related to the markets and customers. Generally, one would expect customers to
go for a product/service that comes for a lower price and offer comparable utility.
But normally, markets and customers are not homogenous. There are several
market niches and customer groups that demand special treatments by the
organisation. Products/services cannot always be uniform. If they were, they
would be commodities needing no special brand names.
The major conditions under which differentiation strategy could be employed are
as follows:
1. The market is too large to be catered by a few organisations offering a
standardised product/service.
2. The customer needs and preferences are too diversified to be satisfied by a
standardised product/service.
3. It is possible for the organisation to charge a premium price for differentiation
that is valued by the customer.
4. The nature of the product/service is such that brand loyalty is possible to
generate and sustain.
5. There is ample scope for increasing the sale of the product/service based on
differentiated features and premium pricing.
There are benefits as well as risks associated with differentiation business
strategy. First, let us see the benefits that arise out of differentiation.
III. FOCUS BUSINESS STRATEGY
Focus Business Strategies essentially rely upon cost leadership, differentiation or

an integration of both to achieve their goals, but they cater to a narrow segment
of a total market. Commonly used basis for identifying customer groups are
57
demographic characteristics (age, gender, income, occupation, etc.), geographic

segmentation (urban/ rural population or population of Northern India/Southern
India) or lifestyle (modern/traditional). After identifying the targeted market
segment, a focused organization uses either the cost leadership or differentiation
strategy or an integration of both to achieve Focus.
TYPES OF FOCUS STRATEGIES
1. (A) FOCUSED LOW COST STRATEGY

In addition to reducing cost, businesses may choose to further focus their efforts
by targeting only one subset of the market. This works best when a business
cannot focus on a more generalized cost leadership strategy in that it can’t afford
to offer multiple products and/or services at low prices to multiple market
segments. This strategy requires strong marketing to one’s target customer base
as well as the capacity to produce at a high-volume.
Examples:
1. Cred is an online credit card bill payment service which provides customers
with free rewards for paying their credit card bill using their service. They charge
nominal fees for the payment of the dues and the value of the rewards are more
than the fees you incur to use their service. Cred targets the niche market of Credit
Card holders who have a credit score of more than 750, which accounts for only
10% of India’s total credit card users.
2. Pustak Mahal's Rapidex series of books, particularly aimed at the niche market
of Indians seeking learn the English language, is a low-priced publication,
keeping in view the highly price-sensitive target audience and book piracy by
smaller players in the unorganized sector. It provides various vernacular speakers
in the Indian languages, an opportunity to learn English through self-learning
mode.
I. (B) FOCUSED DIFFERENTIATION STRATEGY

Focused Differentiation implies a smaller target customer base being served with
maximum efficiency, uniqueness and advantageous features. The main
components of this strategy include:
• The selection of a profitable market subset

• A focus on the areas in which the competition shows weakness
• A focus on where product substitution is most difficult
Examples:
1. A great example of this would be the Rolls Royce. These cars have withstood
the unwavering tests of time with their focus on status and premium customers.
They differentiate from the other auto makers by their quality and engineering
superiority.
58
2. Harvest Gold Foods India Ltd. differentiates its bread by its competitive
pricing, product attributes like freshness and high quality, efficient distribution
and transparent packaging. It has a geographical focus on the posh localities of
New Delhi.
3. Zensar Technologies is among the top software services and business
outsourcing providers from India. It is a joint venture of RPG Group and Fujitsu
Services of UK. It adopts a focused differentiation strategy and delivers exclusive
services in mission critical applications, enterprise applications, e-businesses,
BPO and knowledgeable services to big clients in the banking, finance, insurance,
telecommunications, utilities and manufacturing industries.
I. (C) INTEGRATED LOW COST/DIFFERENTIATION

This is a relatively newer type of Focus Strategy whereby, some businesses
follow an optimal approach of combining the benefits of cost leadership as well
as differentiation to follow a hybrid strategy called Integrated Low Cost –
Differentiation Strategy, emphasizing both low cost, as well as differentiation.
Examples:
1. The rise of so called ‘premium fast food’ restaurants, which offer both the low
price associated with more established fast food chains, as well as a differentiated
range of offerings, is a testament to the effectiveness of this strategy.
2. The best example of Integrated Low Cost/ Differentiation strategy is
SOUTHWEST AIRLINES. Following measures were adopted by them for
achieving Low cost and Differentiation at the same time.
For Low-Cost:
• Use of a single aircraft model (the Boeing 737)

• Use of secondary airports
• Shorter flight routes
• No meals
• No reserved seats
• No travel agent reservations
• A 15-minute turn-around time
For Differentiation:
• Greater focus on customer satisfaction

• A higher level of employee dedication
• New flight services for business travel (i.e., phones and faxes)
The combination of their low-cost and differentiation allows for positive

compromise. Customers are satisfied with the level of service they experience,
59
the low costs, etc., therefore they are more likely to choose this airline over the
pricier competition — who also does not serve in-fight meals.
ACHIEVING FOCUS
Focus is mainly concerned with identifying narrow target in terms of customers
and market. An Organization wanting to adopt Focus Strategy must identify a
niche market where there are no cost leaders and differentiators currently
operating. Niches exist in a market because often cost leaders and differentiators
tend to leave out segments of the market which may require special attention;
hence they offer products and services which serve a broader market without
taking into account the needs of niche markets. For Example, in the tyre market,
replacement of truck tyres constitutes the largest segment of the tyre market,
while on the other hand replacement for airplane tyres is miniscule. Therefore,
many tyre manufacturers tend to ignore the airplane tyre market. However, there
may be certain tyre companies who may feel that they have the necessary capital
and expertise to manufacture airplane tyres, which leads to formation of a focused
differentiation strategy for airplane tyres. There are customers who are willing to
pay premium prices for products to get special treatment, and on the other end of
the spectrum there are customers who are looking for products without all the
additional bells and whistles in their product just to ensure they end up paying as
little as possible. Measures which a focused organization can adopt are:
1. Choosing specific niches by identifying gaps not covered by cost leaders and
differentiators.
2. Creating superior skills for catering to such niche markets.
3. Creating superior efficiency for serving such niche markets.
4. Achieving lower cost/differentiation as compared to competitors in serving
such niche markets.
5. Developing innovative ways in managing the value chain, which is different
from the prevalent ways in an industry.
CONDITIONS UNDER WHICH FOCUS STRATEGIES ARE USED

Certain conditions which are ripe for adoption of Focus Strategy are:
1. There is some type of uniqueness in the segment which could either be
geographical, demographic or based on lifestyle. Only specialized
attributes and features could satisfy the requirements of such a segment.
2. There are specialized requirements for using the products or services that
the common customers cannot be expected to fulfil.
3. The niche market is big enough to be profitable for the focused
organization.
4. There is a promising potential for growth in the niche segment.
60
5. The major players in the industry are not interested in the niche as it may
not be crucial to their own success.
6. The focusing organization has the necessary skill and expertise to serve the
niche segment.
7. The focusing organization can guard its turf from other predator
organizations on the basis of customer relations and loyalty it has
developed and its acknowledged superiority in serving the niche segments.
61
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Business & Entrepreneurship Module III

6. Expansion of business- Businesses which are doing good resort to expansion

STRATEGIC MANAGEMENT PROCESS

STEP 1: STRATEGIC INTENT (DEVELOPING VISION, MISSION AND

The strategic management process begins with the development of the

STEP 2: ENVIRONMENTAL ANALYSIS

b) Analysis of Company’s Internal Environment

1. Corporate Level Strategy

multiple services in different industries, with business units in corporate banking,

CORPORATE LEVEL STRATEGIES

Corporate level strategies are basically about decisions relating to

Reasons for adopting Stability Strategy:

II) EXPANSION / GROWTH / INTENSIFICATION STRATEGIES

The Corporate strategy of Expansion is followed when an organisation aims at

Following examples indicate how companies use the strategic alternative of

Expansion can be pursued at the Corporate level through the following

Reasons for adopting Expansion strategy:

III) RETRENCHMENT STRATEGIES

Following examples indicate how companies use the strategic alternative of

Retrenchment can be pursued at Corporate level through the following

Reasons for adopting Retrenchment strategy:

CORPORATE LEVEL STRATEGIES – DETAILED EXPLANATION

(I) STABILITY STRATEGIES

I. (A) NO-CHANGE STRATEGY

I. (B) PROFIT STRATEGY

I. (C) PAUSE/PROCEED-WITH-CAUTION STRATEGY

(II) EXPANSION STRATEGIES

II. (A) CONCENTRATION / INTENSIFICATION/ SPECIALISATION

A. (i) MARKET PENETRATION STRATEGY

A. (ii) MARKET DEVELOPMENT STRATEGY

II. (B) INTEGRATION STRATEGIES

Integration means combining activities related to the present activity of firm. A

TYPES OF INTEGRATION STRATEGIES

B. (i) HORIZONTAL INTEGRATION

4. Facebook acquired Instagram (2012)

B. (ii) VERTICAL INTEGRATION

TYPES OF VERTICAL INTEGRATION:

Backward integration is when a company expands backward in its respective

Examples of Forward Integration

II. (C) DIVERSIFICATION STRATEGIES

C. (i) CONCENTRIC OR RELATED DIVERSIFICATION

Concentric diversification can be further divided into three types:

• Technology related concentric diversification: Under this, a new type of

C. (ii) CONGLOMERATE OR UNRELATED DIVERSIFICATION

II. (D) COOPERATION / COOPERATIVE STRATEGIES

Cooperation can be pursued in various ways which includes the following:

D. (i) MERGERS AND ACQUISITIONS

Takeover or acquisition is a popular strategic alternative adopted by Indian

TYPES OF TAKEOVERS / ACQUISITIONS:

merger is typically part of consolidation between two or more competitors

• Conglomerate Merger: This is a merger between two or more companies

D. (ii) JOINT VENTURE STRATEGY:

Through this arrangement, the companies effectively complement one another’s

MAIN REASONS OF FORMING A JOINT VENTURE:

• use joint venture partner's customer database to market each other’s

FEW PROMINENT JOINT VENTURES:

D. (iii) STRATEGIC ALLIANCE

• The relationship is reciprocal, with each partner prepared to share specific

WHAT MAKES AN ALLIANCE ‘STRATEGIC’?

For an alliance to be strategic, it must satisfy one of these criteria:

REASONS FOR STRATEGIC ALLIANCES

JOINT VENTURE vs. STRATEGIC ALLIANCE

Basis Joint Venture Strategic Alliance

EXAMPLES OF STRATEGIC ALIANCES