Corporate Level Strategy

Corporate Level Issues Product Diversity Corporate Parenting Roles Managing the Portfolio International Diversity

The multi business organization Corporate Parent Businesses

Three levels of strategy Corporate Strategy Business/ Competitive Strategy Functional Strategy

Corporate Strategy An action taken to gain a competitive advantage through the selection and management of a mix of businesses competing in several industries or product markets

Corporate Strategy (contd) What should be the nature and values of the enterprise in the broadest sense ? What businesses should we be in ? What structure, systems and processes will be necessary to link the various businesses to each other ? How can corporate centre add value ?

Three major components Growth Strategy Portfolio Strategy Corporate Parenting Strategy

Product / Market Diversity Diversification is a strategy that takes the organization into both new markets and products or service. Economies of Scope Corporate Managerial Capability Increase market power Hedge risks

Related Diversification Is strategy development beyond current products and markets, but within the capabilities or value network of the organization

Nature and Scope of Corporate Strategies Stability Strategies Growth Strategy Retrenchment Strategy Combination Strategy

Stability Strategy Decides to serve the same markets Pursue same objectives with incremental improvement of functional performance Concentrates resources in a narrow product market for developing competitive advantage

When Stability Strategy The economy or industry is in turmoil Environmental turbulence is minimal Just off a period of growth Growth ambitions modest Industry in mature stage

Approaches to Stability Holding Strategy Stable Growth Harvesting Strategy Profit or End Game Strategy

Expansion Strategies When the firm has lofty growth objectives When new opportunities are emerging Firm is the leader Firm has surplus resources Diversification fulfils growth objectives

Expansion ( contd ) Expansion through intensification – Ansoff’s product market expansion grid Expansion through Integration

Ansoff’s Product Market Expansion Grid Markets / Products Current MarketsNew Markets Current ProductMarket Penetration Market Development New ProductsProduct Development Diversification

Market Penetration Motivating Existing Customers to buy more frequently Increase efforts to attract it’s competitions’ customers Targeting new customers – price concessions, better customer service

Market Development Strategy Tries to achieve growth by introducing existing products in new markets Can move to new geographical areas Can attract different market segments

Product Development Strategy Development of a new/ improved product for it’s current markets Likely to succeed when the products have low brand loyalty Carries risk with it.

Diversification Mergers & Acquisitions : Outright purchase of a company by another eg Tech Mahindra buys Satyam Strategic Alliance & Joint Venture : Agreements between companies to form collaborative partnership eg Maruti-Suzuki Internal Development : Organic growth into other LOBs eg Reliance, ITC

Advantages of related diversification Transferring skills, expertise, and capabilities from one business to another Cob9ining the value chain Leveraging strong brand names Creating stronger capabilities

Integration Vertical Integration – either forward or backward into adjacent activities in the value network. Eg buying a car component company by a car manufacturer is BI whereas buying of a repair centre is FI. Horizontal Integration is development to activities which are complementary to present activities.

When to Vertically Integrate Are our existing suppliers / customers meeting the needs of end customers ? Eg Nike outsourcing production units to SA& it’s logistics to FedEx. How volatile is the current situation Is it possible to influence the of our upstream/ downstream businesses? Will Vertical Integration enhance the structural position of the business ? eg GCI integrated forward via

Advantages of Vertical Integration Build Entry Barriers Reduce Transaction Costs Better control & coordination of operations Spread fixed costs / overheads over large number of products/ services

Limitations of Vertical Integration Balancing the line Forcing companies to commit to technologies / products and risk losing flexibility Problem of integrating significantly different LOB into a coherent whole

Unrelated Diversification Is the development of products or services beyond the current capabilities or value network Pays off by exploiting dominant logic Conglomerate may be effective in countries with underdeveloped markets

Advantages of Unrelated Diversification Spreading business risks Optimization of financial investments Exploiting corporate resources and management capabilities

Forms of Diversification Vertical : Diversification across value chain Horizontal : Diversification into complementary businesses Geographic : Firms expand into other geographic areas

International Expansion Exporting Licensing Joint Venture Direct Investment

Exporting Marketing of domestically produced goods in a foreign country Advantage – minimizes risk, ensures speed of entry m maximizes scale using existing resources Disadvantage – trade barriers and tariff add to cost, limits access to local market information, seen as outsider

Licensing Licensing permits a company in the target country to use the property of the licensor eg trademarks, patents, and production techniques Advantage – high ROI, able to circumvent trade barriers Disadvantage – lack of control over use of assets, license period is limited

Joint Ventures Partners strategic goal converge but competitive goal diverge Partners size, resources, market power are small compared to the industry leaders Advantage – viewed as insider, potential for learning, overcomes cultural distance Disadvantage – Dilution of control, Knowledge spillovers, higher risk

Direct Investment It is the ownership of facilities in the target country Greater knowledge of local market Viewed as insider Higher risk than other modes Require more resources and commitment

Reasons for international diversity Globalization of Markets and Competition Suppliers follow customers Bypass limitations in home market Gain arbitrage on differences Internationalizing of value added activities

International Strategy Multi domestic strategy- Value adding activities are located in national individual markets served by the organization Global Strategy Standardized products exploiting economies of scale. Transnational : Seeks the best of both multidomestic and global strategy

Creating value through corporate strategy Reducing Risk Maintaining growth Balancing Cash Flows Sharing Infrastructure Increasing Market power Capitalizing on core competence