1

Example: What corporate

strategies are in use? (1)
Dell acquires Apple.
Horizontal Intergration. Dell and Apple both make personal computers. If
thats what you see, they are in the same industry and so this is horizontal
integration like United Airlines acquiring American.
Related Diversification. Dell makes PCs, Apple makes an operating system
for PCs. From that perspective, this is related diversification where the
synergy is likely using Dells marketing prowess to leverage Apples
operating system technology.
Obviously, from a business point of view this is a fairly silly scenario, as are
many of the scenarios. Thats not the point, eh?
Dell acquires Intel.
Backwards vertical integration. Intel is a key supplier to Dell, of
microprocessors.
B
2
Example: What corporate
strategies are in use? (2)
Microsoft acquires Prentice-Hall.
Unrelated diversification. Microsoft is in high-technology, Prentice-Hall is
in publishing (they publish our textbook). There is no clear relatedness
here.
If this was an essay question, you might craft a plausible relatedness up and
get credit. But these arent test questions, they are to make you think!
Microsoft acquires Apple.
Horizontal Integration or related diversification. Microsoft primarily does
operating systems (Windows) and applications (Excel). Apple does
primarily operating systems (Mac OS) and PCs (Macintosh). So they are in
the same industry (operating systems) which means horizontal integration,
and in related industries (PCs, PC applications) which means related
diversification.
B
3
Example: What corporate
strategies are in use? (3)
Intel acquires Dell.
Forward vertical integration. Dell is one of Intels main customers.
Microsoft dominates the PC operating system business.
Concentration strategy build on your existing strengths.
Gateway (PC company) closes 35 retail stores to restore profitability.
Retrenchment.
Intel discontinues selling PCs to avoid competing with customers.
Exit. This actually happened and represents strategic exit (Intel
was financially strong) rather than exit under duress.
B
4
Example: What corporate
strategies are in use? (4)
Procter & Gamble sells Tide detergent in Italy
Global product strategy sell the same product everywhere. But
maybe, Tide is not really Tide everywhere there are changes made
to the formula but the brand is the same. That leans toward a
multidomestic strategy.
Procter & Gamble sells Joy dishwashing liquid virtually worldwide
and Salvo dishwashing liquid in Latin America.
Joy alone is a Global strategy. But if combined with Salvo, the
company is adjusting its strategy to conform to local preferences,
and that means the overall corporate strategy looks multidomestic.
B
5
Corporate-Level Strategies
Corporate strategies are dynamic
Corporations enter and exit businesses simultaneously
Growth: Make the corporation larger. Grow each business. Enter
more businesses and markets than you are exit.
Stability: Essentially sticking with the current businesses
Retrenchment: Make the corporation smaller. Prune unprofitable
parts of each business. Exit more businesses than you are entering.
Big Question: Why should there be corporate-level strategies
at all? Why shouldnt the businesses compete on their own?
There must be a core competency that can be translated into
competitive advantage within the different businesses
6
Corporate-Level Growth Strategies
Concentration (focus on existing businesses):
Grow existing business units, often by entering new markets
Integration
Vertical or horizontal
Can be organic (own unit) or acquisition
Diversification
Related or unrelated
Explicitly about acquisition
International Expansion:
Existing business units enter new markets
Can be organic (own unit) or acquisition
7
Growth through diversification
Diversification is explicitly about acquiring or merging with other
corporations or business units.
Related diversification - grow by merging with or acquiring firms
in different, but related, industries
Goal: strategic fit that allows synergy
Synergy: When two units produce additional value through
operating together rather than separately.
Unrelated diversification - grow by merging with or acquiring
firms in different and unrelated industries
Goal: ? reduce cyclicality
On average less successful than related diversification
8
Corporate Tinkertoys:
Diversification and Integration around
the airline industry
American Airlines United Airlines
National Rent-a-Car Boeing
.
Airline Industry
Related
Diversification


Chrysler


Unrelated
Diversification
9
Vertical Integration
Vertical Integration
A strategy that allows an organization to create value by
producing its own inputs or distributing its own products.
Backward vertical integration
occurs when a firm seeks to reduce its input costs by producing its own
inputs (generics).
Forward vertical integration
occurs when a firm performs functions its customers did, itself for
example, distributes its outputs or products to lower distribution costs
and ensure quality service to customers (Compaq vs. Dell).
10
Airline Industry Example:
Diversification and Integration
American Airlines United Airlines
National Rent-a-Car Boeing
.
Horizontal Integration


Vertical Integration
Backward








Vertical Integration
Forward
Airline Industry
Chrysler
11
International Expansion: To
customize or not to customize?
Global product strategy: Same product, same marketing approach
everywhere.
Standardization provides for lower production cost.
Ignores national differences that local competitors can address to
their advantage.
Multidomestic product strategy: Customize products, marketing
in each national market
Helps gain local market share.
Raises production costs.
Which one?: how much do national environments differ?

Multinational / Ethnocentric




Transnational / Polycentric
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Retrenchment and Exit
Retrenchment action to address weaknesses
that are leading to performance declines, to:
stabilize operations (shutting retail stores)
revitalize organizational resources and capabilities
prepare to compete effectively once again
Exit shutting down or selling the business
Often difficult for managers (e.g., steel, flag
carriers)
BX