Documente Academic
Documente Profesional
Documente Cultură
Module Outline
From Single-Business to Diversification Building Shareholder Value Diversification Strategies Related Diversification Strategies Unrelated Diversification Strategies Divestiture and Liquidation Strategies Corporate Turnaround, Retrenchment, and Portfolio Restructuring Strategies Multinational Diversification Strategies Combination Diversification Strategies
Present
Product Development
Market
New
Market Development
Diversification
Strong competitive position, slow market growth Diversification is top priority consideration
Why Diversify?
To build shareholder value A diversification move is capable of increasing shareholder value if it passes 3 tests:
1. Attractiveness Test 2. Cost of Entry Test 3. Better-Off Test
Diversification Strategies
Entering new industries Related diversification Unrelated diversification Divestiture and liquidation Corporate turnaround, retrenchment, and restructuring Multinational diversification
Potential conflicts
Sourcing of components Exporting Whether operations should conform to foreign firms standards or to local preferences Control over cash flows and profits
Exploits what firm does best and allows transfer of core competencies from one business to another Helps achieve economies of scope
Presence of strategic fit in a diversified firms portfolio, along with corporate managements skill in capturing benefits of the interrelationships
Makes related diversification capable of being a 2 + 2 = 5 phenomenon
Market-Related Fits
Arise when value chains of different businesses overlap so products can be
Used by same customers Marketed and promoted in similar ways Distributed through common dealers and retailers
Operating Fits
Arise when different businesses present opportunities for cost-sharing or skills transfer
Procurement of purchased inputs R&D / technology Manufacturer and assembly Administrative support functions Marketing and distribution
Management Fits
Emerge when different business units have comparable types of
Entrepreneurial, administrative, or Operating problems
Allow accumulated managerial know-how in one business to be useful in managing another business
Management must access that some centralized strategic control is great enough to justify sacrificing business-unit autonomy
Promises greater sales-profit stability over business cycles, but is seldom realized
Unrelated Diversification
Finance-Driven approach to create shareholder value
Liquidation
Most painful option Involves terminating firms existence
Primary competitive advantage of an MNC Ability to transfer certain skills from country to country efficiently and cheaply MNCs market position in a country negotiated with host government, not due to pressures of international competition
Often, being a DMNC was competitively superior to an MNC due to economies of scope Related diversification produces extra competitive advantage for an MNC where
Expertise in a core technology was applied in different industries Important brand name advantages existed
End of Module 7