vertical integration copyright © 2006 pearson prentice hall. all rights reserved. strategic...

Vertical Vertical IntegrationIntegration

Copyright © 2006 Pearson Prentice Hall. All rights reserved. Copyright © 2006 Pearson Prentice Hall. All rights reserved. Strategic Management & Competitive Advantage - Barney & HesterlyStrategic Management & Competitive Advantage - Barney & Hesterly 6-6-11

Chapter 6Chapter 6

Vertical Integration

Strategic Management & Competitive Advantage – Barney & Hesterly 2

Vertical IntegrationVertical Integration


Mision Objetivos

Analisis Externo

Analisis Interno

Decisiones estrategicas

ImplementacionEstrategica

Ventaja competitiva

El proceso de administracion estrategica

Estrategia a nivel corporativo

A que negocio entrar?

Integracion vertical





Logica de la estrategia a nivel corporativo

Estrategia a nivel corporativo debe de crear valor

2) A fin de que los negocios dentro de la compania puedan tener valor por si mismos de manera independiente

3) Que el valor de capital no pueda ser creado a traves de inversion en portafolios

• La estrategia a nivel corporativo debe de generar sinergias que no son posible de crear en mercados de capital

• integracion vertical+ cadenas economicas de valor

1) A fin de que la compania como un todo crezca





Que es la integracion vertical

Porcesadoras de queso

Ejemplo de la pizza

Ganaderos

Agricultores

semillas

Distribuidoresde alimentos

Cadenas de Pizza

Consumidor final





Que es la integracion vertical?

procesadores

ganaderos

agricultores

semillas

distribuidores

Cadenas depizza

Consumidorfinal

Integracion hacia atras

Inegracion hacia adelante





Economias de la cadena de valor

Logica economica

La firma focal es capaz de crear sinergia conotras firmas

• La firma focal es capaz de generar beneficios mayores a los de la competencia

• reduccion en costos

• mejora en beneficios procesadores

ganaderos

distribuidores

Integracionhacia atras

Integracion haciaadelante





Ventaja competitiva

Si la integracion vertical cumple los criterios del VRIO, entonces puede generar una ventaja competitiva





Valor de la integracion vertical

Mercado vs. intercambio economico integrado

• el intercambio economico debe de ser tal que permitaMaximizar el valor de la firma focal

• los mercados y las formas de integracion permiten en intercambio economico

• asi las firmas buscan la manera de maxmizar sus beneficios

La integracion hace sentido cuando la firma focal puede generar mayor valor que aquel

en el que el mercado se crea





Valor de la integracion vertical

Consideraciones de valor

Apalan-camiento

flexibilidadOportu-nismo

• las capacidades deUna firma puedenSer fuentes de ventajaCompetitiva en otrosnegocios

• de no ser asi, noSe da el intercambio

• se puede generar alinternalizar

• internalizar puede ser menos costosoQue utilizar oportunismo

• internalizar es menos flexible

• flexibilidad se dacuando laIncertidumbre esalta





Rareza de la IV

Integracion vs no integracion

• la estrategia de integracion puede ser rara si integra o no lo hace pues esta NO depende la forma que la empresa tome sino quer depende en el valor generado





Imitabilidad de la IV

Forma vs funcion

• la forma, per se, no es costosa de imitar

• la funcion de valor puede ser costosa de imitar si:

•la combinacion de los recursos y capacidades le da:

historicidad unica

Abiguedad causal

Complejidad social

Requerimientos de capital son limitados





Imitabilidad de IV

Modos de entrada

• adquisicion de desarrollo interno

• las alianzas estrategicas son un ejemplo de la IV a menos costo

• adquriri un proveeedor en vez de generarlos

• los limites son las capacidades y recursos de las empresas





Organizacion

Functional Structure (U-Form)

Accounting Finance Marketing HR Engineering

Conflict

Con

flict

OriginalBusiness

NewBusiness

OriginalBusiness

NewBusiness

NewBusiness

NewBusiness

NewBusiness

OriginalBusiness

OriginalBusiness

OriginalBusiness

Cooperation

Cooperation

CEO’s Role





Organizacion de la IV

Metodos de control administrativo

Que se necesita controlar?

• cooperacion y conflicto entre areas

• integracion de nuevos negocios

• los esfuerzos para generar sinergias

• horizonte de tiempo entre administradores





Expansion Internacional

Cost(capital en riesgo)

Controlexportacion

licencia

franquicia

Alianza estrategica

inversion

bajo alto

alto

adquisicion

Costo-Control tradeoff

Int. vertical

No IV

IV parcial





Resumen

Integracion vertical…

• hace sentido cuando economias de la cadena de Valor se pueden crear y capturar

• puede peritir a algunas companias apalancar sus capacidades• puede ser una respuesta al oportunismo y la incertidumbre

• como un tipo de intercambio NO es raro ni ostoso de imitar





Resumen

La integracion vertical…

• es una decision importante de considerar para Posibles expansiones internacionales

• hace sentido en circunstancias especificas

• puede ser costosa si se hace mal

Propiedad puede ser costosa, integrarse solo cuando los beneficios son mas que los costos

Vertical Vertical IntegrationIntegration


Chapter 7Chapter 7





Mission Objectives

ExternalAnalysis

InternalAnalysis

StrategicChoice

StrategyImplementation

CompetitiveAdvantage

The Strategic Management Process

Corporate LevelStrategy

Which Businessesto Enter?

• Vertical Integration

• Diversification





Logic of Corporate Level Strategy

Corporate level strategy should create value:

1) such that businesses forming the corporate wholeare worth more than they would be under independent ownership

2) that equity holders cannot create throughportfolio investing

• a corporate level strategy must createsynergies

Therefore,

• economies of scope - diversification





Integration and Diversification

Integration

Diversification

Custo

mer

Distrib

ution

Focal

Firm

Suppli

er

Raw M

ater

ials

ForwardBackward

CurrentBusinesses

NoLinks

ManyLinks

Unrelated Related

OtherBusinesses

OtherBusinesses





Types of Corporate Diversification

Product Diversification:

Geographic Market Diversification:

Product-Market Diversification

• operating in multiple industries

• operating in multiple geographic markets

• operating in multiple industries in multiplegeographic markets

At a general level…





Types of Corporate Diversification

Limited Diversification

Related Diversification

Unrelated Diversification

• single business: > 95% of sales in single business

• dominant business: 70% to 95% in single business

• related-constrained: all businesses related on mostdimensions

• related-linked: some businesses related on somedimensions

• businesses are not related

At a more specific level…





Product and Geographic Diversification

Possibilities:

• single-business in multiple geographic areas

• single-business in one geographic area

• related-constrained in one or multiple geographic areas

• related-linked in one or multiple geographic areas

• unrelated in one or multiple geographic areas

Note:• relatedness usually refers to products

• seemingly unrelated products may be related onother dimensions





Competitive Advantage

If a diversification strategy meets theVRIO criteria…

Is it Valuable?

Is it Rare?

Is it costly to Imitate?

Is the firm Organized to exploit it?

…it may create competitive advantage.





Value of Diversification

Two Criteria

1) There must be some economy of scope

2) The focal firm must have a cost advantage overoutside equity holders in exploiting any economies of scope





Value of Diversification

Business X Business Y Business Z

Independent: equity holder could buy shares of each firm

Value

Business X

Business Y

Business Z

Focal Firm

Value

+ +

EconomiesOf

Scope

Combined: equity holder buys shares in one firm





Economies of Scope

Four Types

Operational

Financial

Anticompetitive

Managerialism





Economies of Scope

Operational Economies of Scope

Sharing Activities

• exploiting efficiencies of sharing businessactivities

Example: Orbitz

Spreading Core Competencies

• exploiting core competencies in other businesses

Example: Frito-Lay’s Trucking

• competency must be strategically relevant





Economies of Scope

Financial Economies of Scope

Internal Capital Market

• premise: insiders can allocate capital acrossdivisions more efficiently than the external capitalmarket

• works only if managers have better information

• may protect proprietary information

• may suffer from escalating commitment

Example: Hanson Trust, PLC





Economies of Scope


Risk Reduction

• counter cyclical businesses may providedecreased overall risk

Example: Snow Skiis & Water Skiis

• individual investors can usually do this moreefficiently than a firm

however,





Economies of Scope


Tax Advantages

• transfer pricing policy allows profits in onedivision to be offset by losses in another division

• this is especially true internationally

Example: Ireland

• can be used to ‘smooth’ income





Economies of Scope

Anticompetitive Economies of Scope

Multipoint Competition

• mutual forbearance

• a firm chooses not to compete aggressivelyin one market to avoid competition in anothermarket

Example: American Airlines & Delta: Dallas & Atlanta

Market Power• using profits from one business to compete in

another business• using buying power in one business

to obtain advantage in another business





Economies of Scope

Managerialism

• an economy of scope that accrues to managersat the expense of equity holders

• managers of larger firms receive more compensation(larger scope = more compensation)

• therefore, managers have an incentive toacquire other firms and become ever larger

• even though the incentive is there, it is difficultto know if managerialism is the reason for anacquisition





Equity Holders and Economies of Scope

Most economies of scope cannot be capturedby equity holders

• risk reduction can be captured by equity holders

Managers should consider whether corporatediversification will generate economies of scopethat equity holders can capture

• if a corporate diversification move is unlikelyto generate valuable economies of scope,managers should avoid it





Rareness of Diversification

Diversification per se is not rare

Underlying economies of scope may be rare

• relationships that allow an economy of scopeto be exploited may be rare

• an economy of scope may be rare becauseit is naturally or economically limited

• a soft drink bottler buys the only source ofspring water available

• a hotel in a resort town creates a large water park,there are only enough customers to support one park





Imitability of Diversification

Duplication of Economies of Scope

Less Costly-to-Duplicate Costly-to-Duplicate

Employee Compensation

Tax Advantages

Risk Reduction

Shared Activities*

Core Competencies

Internal Capital Allocation

Multipoint Competition

Exploiting Market Power

(codified/tangible) (tacit/intangible)

*may be costly depending on relationships





Imitability of Diversification

Substitution of Economies of Scope

Internal Development Strategic Alliances

• start a new business underthe corporate whole

• find a partner with thedesired complementaryassets

Competitors may use these strategies to arrive at aposition of diversification without buying another firm

• avoids potential cross-firm integration issues • less costly than

acquiring a firm





International Diversification

Three Types of International Risk

Cultural/Popular Financial Political

• product may not beaccepted simplybecause of yourcountry of origin

Example: Resistanceto McDonald’s byFrance’s oldergeneration

• currencyexchange

• generaleconomicconditions

Example: Asianeconomic crisisof the 1990s

• nationalization

• quotas

• tariffs

• regulations

Example: Bolivianationalized itspetroleumindustry in the ’70s






Managing International Risks

Cultural/Popular• avoidance

• neutral branding (disguising country of origin)

Example: Where is Häagen-Dazs from?

Financial

• currency hedging

• geographic diversification

• spreading risk across several countries






Managing International Risks

Political

• negotiation with governments

• political neutrality

• foreign governments often have an interestin direct investment

Example: Case International in Brazil

• find a local partner





Summary

Corporate Strategy: In what businesses shouldthe firm operate?

• an understanding of diversification helps managersanswer that question

Two Criteria:

1) economies of scope must exist

2) must create value that outside equity holderscannot create on their own





Summary

Economies of Scope

• a case of synergy—combined activities generategreater value than independent activities

• may generate competitive advantage if theymeet the VRIO criteria

Firms should pursue diversification only if carefulanalysis shows that competitive advantage is likely!

vertical integration copyright © 2006 pearson prentice hall. all rights reserved. strategic...

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