CORPORATE LEVEL STRATEGIES

CATEGORIES OF BUSINESS ORGANIZATIONS

SINGLE PROPRIETORSHIP PARTNERSHIP CORPORATION COOPERATIVE

Group of Companies

Parent Company Subsidiaries

NATURE OF CORPORATE LEVEL STRATEGY

• CORPORATE LEVEL STRATEGY

• CORPORATE STRATEGY

4 E’s to Addressing Corporate Strategy

1.Extend

2.Expand

3.Exit

4.Enhance

Figure 16. Ways that a Business Strategy can Evolve

EXPANDEXIT

ENHANCE

EX

TEN

D

ENHANCEMENTAdd functionality or

improve a product or service that is currently

offered.

EXTENSIONAdopt new business model

or enter new business.

EXPANSIONAdd products and services within an existing business.

EXITDrop a product or

service line or exit a business.

Key Issues is Corporate Level Strategy

a)Directional Strategyb)Portfolio Strategyc)Parenting Strategy

Strategic Choices at Corporate Level

a.Business Closure

b.Business Disposal

c.Business Acquisition

d.Business Reorganization

e.Business Start up

f. The impact of doing nothing different

Figure 18. Basic Model for Integration and Diversification Options

INDIRECT COMPETITORS

DIRECT COMPETITORS

VERTICAL

INTEGRATION

The Company

Horizontal integration

Forward integration

Backward integration

Horizontal diversification

Horizontal integration/diversification

Customers/End Users

Suppliers

Vertical integration

- is the degree to which a firm owns its upstream suppliers and its downstream buyers. - the term VI describes a style of management control

Three (3) varieties: backward (upstream) vertical integration forward (downstream) vertical integration balanced (both upstream and downstream) vertical integration

Vertical Integration Option

a.Full Integration

b.Taper Integration

c.Quasi- Integration

d.Long-term Contracts

Horizontal integration

- is a strategy where a company acquires, mergers or takes over another company in the same industry value chain.

Merger is the joining of two similar sizes, independent companies to make one joint entity. 

Acquisition is the purchase of another company. Hostile takeover is the acquisition of the company,

which does not want to be acquired.

Horizontal Diversification

Generally perceived as a strategy that evolves around the idea of seeking ownership or increased control over the direct and indirect competitors of the business.

Direct and Indirect competitors

Direct competitors can be classified as:

Offering the same products and/or services as you are offering to your clients and/or customers.

Having the same targeted field of clients, customers and/or demographics.

Using the same tactics in advertising or bringing news/informations of products/services to your targeted demographics.

Indirect competitors can be classified as “wanting to have a share of the pie”

Figure 19. Hierarchy of Strategy

Functional strategy

Corporate strategy

Business(Division level strategy)

3 levels of Strategy

Corporate strategy —this strategy seeks to determine what businesses a company should be in or wants to be in. Corporate strategy determines the direction that the organization is going and the roles that each business unit in the organization will plan in pursuing that direction.

Business strategy —this strategy seeks to determine how an organization should compete in each of its businesses.

Functional strategy —this strategy seeks to determine how to support the business strategy.

CORPORATE LEVEL STRATEGIES • Conglomerate Diversification

• Unrelated Diversification

Situations favoring conglomerate diversification In an effort to extend growth beyond its turf, large companies dream of expanding their image beyond profit objectives . Fame and corporate image beyond the boundaries of the industry or sector they are known for are among the motivations that drive corporate giants to go into conglomerate diversification.

Concentric Diversification

Is a corporate diversification option that involves engaging or dealing with products or services that are somehow related to or associated with what the firm is presently handling.

Situations favoring concentric diversification

When an organization competes in a no-growth or a slow-growth industry;

When adding new, but related products significantly would enhance the sales of current products;

When new, but related, products could be offered at highly competitive prices;

When new, but related, products have seasonal sales levels that counterbalance an organization’s existing peaks and valley;

When an organization’s products are currently in the decline stage of the product life cycle; and

When an organization has a strong management team.

The Need for Strategic Fit Product Fit

Is achieved when distribution channels, sales forces, promotion techniques, or customers can be handled at the same time for more than one product or service.

Operating Fit Involves economies being realized in certain areas like purchasing, warehousing, production and operations, research and development, or personnel from more than one product or services. Management Fit

Occurs when managers are given responsibility over areas of accumulated exposure from one line of business to another.

Directions of Corporate Level Strategies

Growth Strategy expands the company’s activities;

Stability Strategies make no chance to the company’s current activities; and

Retrenchment Strategies reduce the company’s level of activities

Growth Strategy Options

Merger- Involves a transaction involving two or more corporations in which a stock is exchanged or swapped among independent business organizations from which only one company services

Acquisition- Is an option that involves the purchase of a company then completely absorbed as in operating subsidiary or division of the acquiring corporation.

Strategic alliance- is another option involving a partnership among two or more corporations or business units to achieved strategically significant objectives that are mutually beneficial.

Stability Strategies

Pause/proceed with caution. This is in effect, a sort of time out. It is an opportunity to rest before continuing a growth or retrenchment strategy. No change strategy.

It involves a decision to do nothing new. Profit strategy.

It involves a decision to do nothing new in a worsening situation and instead, to act as though the company’s problems are only temporary.

Retrenchment strategies

Turnaround strategy. This strategy emphasizes on the improvement of operational efficiency and is probably most appropriate when a corporation’s problems are pervasive but not yet critical.

-Contraction -Consolidation

Sell-out/Divestment strategy. This strategy is resorted to when a company has a weak competitive position in its industry.

Bankruptcy strategy. Involves giving up management of the firm to the courts in return for some settlement of the corporation’s obligations.

Liquidation strategy. Is the termination of the firm’s business operation.

INTERNATIONAL AND OTHER ENTRY

OPTIONS

• Shipping goods to other country.

Exporting

• Grants rights tp another firm in thr host cou0ntry to prudce or sell prodcut or services.

Licensing

• Grants rights to another company to open a business.

Franchising

• Companies Combine the resources & Expertise needed to develop new Products or Technologies.

Joint Venture

• Acquiring or Purchasing another company.

Acquisition

• Building its own manufacturing plant and distribution system.

Greenfield Development

Production Sharing

• Construction of Operating facilities in exchange for fee.

Turnkey Operations

• A corporation may use its personnel to assist a firm in a host country for a specified fee & period of time.

Management Contract

Build-Operate-Transfer / BOT Concept

Outsourcing

STRATEGIC ALLIANCE

OBJECTIVES IN STRATEGIC ALLIANCE

OTHER JUSTIFICATION FOR

STRATEGIC ALLINACE

OTHER JUSTIFICATION FOR STRATEGIC

ALLINACES

SUCCESS & FAILURE FACTORS IN ALLIANCE

BENEFITS & PITFALL OF MERGER & ACQUISITIONS

OUTSOURCING: ADVANTAGE & CONDITIONS TO CONSIDER

WHEN DOES OUTSORCING MAKE SENSE?