Sario, Marie Fe A.

Business Policy

CBET 01-902E Prof. Alexander Cortez

Discussion Questions:

1. How does horizontal growth differ from vertical growth as a corporate strategy? From
concentric diversification?

Horizontal growth is the expanding of a firm's activities into other geographic regions
and/or by increasing the range of products and services offered to current markets. It often
involves the acquisition of another firm in the same industry (an example of external growth),
but it could also be through the expansion of a firm's products in its current markets (e.g.,
through line extensions) or expansion into another geographic region (an example of internal
growth). One example of external horizontal integration would be if Anheuser-Busch bought
Coors. An internal example was Coors' expansion into the eastern U.S. Vertical growth, in
contrast, involves a firm's taking over a function previously performed by a supplier or a
distributor. This would typically involve the addition of activities in other industries either
forward (downstream) or backward (upstream) on the industry value chain of current products or
services. The additions are primary justified in terms of support of the current product lines
regardless of their being in other industries (and thus can be argued to be diversification).

Concentric diversification, in contrast, is the addition of products or divisions which are

related to the corporation's main business, but are added because of the attractiveness of other
industries rather than because they support the activities of the current product lines. The
additions may be through acquisition or through internal development. The firm buys or
develops another division which is similar to its present product-line. Anheuser-Busch's
diversification into snack foods (Eagle Snacks) to complement its line of beers was an example
of concentric diversification. The products are not alike, but have a "common thread" relating
them. If Coca Cola bought PepsiCo, it would be an example of horizontal integration. If it
purchased its distributors, this would be an example of forward vertical integration. Its
acquisition of Taylor Wines, however, was an example of concentric diversification.

2. What are the tradeoffs between an internal and an external growth strategy? Which
approach is best as an international entry strategy?

Growth strategies attempt to expand company activities. This growth can be

accomplished internally or externally. Internal growth aims to achieve growth in sales, assets,
profits or a combination of these efforts. A company can grow internally with increases in
operations globally and domestically. This growth can be accomplished in many ways, including
horizontal or vertical growth. Internal growth can focus on the strengths and resources of a
company that will help it produce growth and high annual returns on capital invested in the
company.

External growth is designed for the same purposes as internal growth. However, it also
involves gaining market share, international recognition, acquiring strengths to develop
competitive advantages, and eliminating or dominating your competitors through acquisitions,
mergers and strategic alliances. In addition, the organizational structure and corporate culture can
influence the success of this growth. If various SBUs (strategic business units) work against each
other in a competitive nature, and fail to work together towards the goals of the corporation,
achieving synergy will be ineffective and the results minimized. External growth done through
mergers, acquisitions and strategic alliances, provides opportunities to develop strengths and
competencies an organization lacks but other organizations control. By gaining key resources
and knowledge, a company can gain market share and competitive advantages in an industry.

The best strategy for growth on an international basis appears to be determined by the
corporation and industry. However, on a broad perspective, external growth is more suitable.
“Strategic alliances, such as joint ventures and licensing agreements, between an MNC and a
local partner in a host country are becoming increasingly popular as means by which a
corporation can gain entry onto another country, especially developed countries.” (Hunger and
Wheelen. 2008. Pg 233.) Establishing relationships with local governments, workforces and
suppliers, can help an MNC enter and institute itself within a new country. It can then experience
growth which will develop into a true global competitor, managing its worldwide operations as if
they were completely interrelated. “Strategic alliances may complement or even substitute for an
internal functional activity.” (Hunger and Wheelen. 2008. Pg 233.)

3. Is stability really a strategy or just a term for no strategy?

An argument can be made that stability is not really a strategy in itself, but is just a pause
between strategies. Since one way to view strategy is as a direction the corporation is taking in
order to reach its objectives, standing still has no direction and thus is not a strategy. The text
takes the position, however, that stability is a strategy in itself. Just as no decision is the same as
making a decision; it is argued that even though stability may be viewed as not choosing a
strategy, it is therefore a strategy by default. Stability may be a very appropriate long-term
strategy for a small business in which the owner/manager does not want the corporation to grow
beyond his/her abilities to manage it personally and is very happy with the level of lifestyle the
business provides. Typically, however, stability is perceived only as a viable short-term strategy
while strategic managers are waiting for key factors needed for growth to fall into place.
Nevertheless, to the extent that stability helps explain the movement of a corporation toward its
objectives, it deserves to be called a strategy.
4. Compare and contrast SWOT analysis and portfolio analysis.

In comparing these two approaches, they are alike in a number of ways. They are both
attempts to summarize the key strategic factors coming out of an in-depth analysis of the external
and internal environment of a corporation or business unit. They are also easy to remember buzz-
words for use in the situational analysis. In contrasting these two approaches, they are different
in terms of what they stand for. S.W.O.T. is merely an acronym for Strengths, Weaknesses,
Opportunities, and Threats. It is not really a technique to aid in situation analysis. It merely is a
buzzword to help a person remember to search for strategic variables. Portfolio analysis, in
contrast, is a term for a whole series of different techniques for analyzing internal and external
environmental factors. Neither is really a substitute for the other and can actually complement
each other.

A SWOT analysis is used at the level of the individual business to identify the company's
strengths and weaknesses, as well as external opportunities and threats. Portfolio analysis, on the
other hand, is performed at the market level by analyzing the performance of a portfolio of
stocks.

5. How is corporate parenting different from portfolio analysis? How is it alike? Is it useful
concept in a global industry?

Corporate parenting is choosing an overall direction for a business. Portfolio analysis is

looking at all of the current investments and deciding the best course of action moving forward.

The basic difference between these two approaches to corporate strategy lies in the
questions they attempt to answer. According to the text, portfolio analysis attempts to answer the
following two questions:

•How much of our time and money should we spend on our best products and business units in
order to ensure that they continue to be successful?

•How much of our time and money should we spend developing new costly products, most of
which will never be successful?

The basic theme of portfolio analysis is its emphasis on cash flow. Portfolio analysis puts
corporate headquarters into the role of an internal banker. In portfolio analysis, top management
views its product lines and business units as a series of investments from which it expects to get
a profitable return. The product lines/business units form a portfolio of investments which top
management must constantly juggle to ensure the best return on the corporation’s invested
money.