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Joe Mahoney
Corporate Level Strategy
A corporate-level strategy is 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.
What businesses should the firm be in?
How should the corporate office manage
its group of businesses?
Corporate Level Strategy
Vertical Integration
Strategic Alliances
Diversification (corporate portfolio
management)
To add value, a corporate strategy should enable a company,
or one of its business units, to perform one or more of the
value creation functions at a lower cost, or in a way which
supports a differentiation advantage. Corporate strategy
is the way a company creates value through the
configuration and coordination of multi-market activities.
Vertical Integration
Defining Vertical Integration
Market Power
entry barriers
down stream price maintenance
up stream power over price
Efficiency
specialized assets & the holdup problem
protecting product quality
improved scheduling
Transactions
Transactions Costs
Costs and
and the
the
Scope
Scope of
of the
the Firm
Firm
Which is more efficient : several specialist firms linked by markets,
or the combination of these specialist firms under common
ownership.
VERTICAL PRODUCT GEOGRAPHICAL
AREAS
SINGLE V1 P1 P2 P3 A1 A2 A3
FIRM V2
V3
SEVERAL V1 P1 P2 P3 A1 A2 A3
SPECIALIZED V2
FIRMS V3
No Spot Exchange
Substantial
specialized
investments
relative to Yes Complex contracting
contracting costs? environment relative to
costs of integration?
No Yes
Vertical
Contract Integration
Equity alliance
Cooperative contracts are
supplemented by equity
investments by one partner in the
other partner. Sometimes these
investments are reciprocated
Formal
Formal
Networks
Networks
Network-Based
Network-Based
Organizations
Organizations
Informal
Informal
Networks
Networks
Expediting
Expediting Multidisciplinary
Multidisciplinary
Communication
Communication
Electronic
Electronic
Networks
Networks
Structuring the Alliance to Reduce
Opportunism Walling off
critical technology
Establishing
contractual
safeguards
Seeking credible
commitments
Figure 14.1
Internal development
Acquisition
Joint venture
Licensing
The Industry Attractiveness-Business
Strength Matrix
Industry Attractiveness
Investment
High Selective
and Selectivity
Growth
Growth
Harvest/
Harvest/ Harvest/
Harvest/
Low Selectivity Divest Divest
Divest Divest
IN UNITED STATES:
1998: total value $1.6 trillion
1999: total value $1.75 trillion
Mergers and Acquisitions
A merger is a strategy through
which two firms agree to integrate
their operations on a relatively co-
equal basis because they have
resources and capabilities that
together may create a stronger
competitive advantage.
Mergers and Acquisitions
An acquisition is a strategy
through which one firm buys a
controlling or 100 percent interest
in another firm with the intent of
using a core competence more
effectively by making the acquired
firm a subsidiary business within its
portfolio.
Mergers and Acquisitions
A takeover is a type of an
acquisition strategy wherein the
target firm did not solicit the
acquiring firm’s bid.
Reasons for Problems in
Acquisitions Achieving Success
Increased Integration
market power difficulties
Overcome Inadequate
entry barriers evaluation of target
Avoid excessive
competition Too large
Ch7-3
Mergers and Acquisitions
Diversification
• e.g., Seagram’s acquisition of Universal Studios
(1) Luck;
Downscoping