Description
Strategies For Firms In Foreign Markets
***Integrations***
Topics covered by the lesson:
• Business level strategy
• Corporate level strategy
• Strategies for firms in foreign markets
• Mergers and acquisitions
Examples…
Integration & organization
External
design
element
Organizational
change caused by
integration
Taking part
in
integrations
4
Strategic management process
Corporate mission and goals
Internal analysis External analysis
Strategic choice
Business level strategy
Corporate level strategy
Portfolio analysis and entry and exit
strategies
Choosing
organizational
structure
Choosing
organizational
controls
Conflicts, Politics
and Change
Matching Strategy,
structure and controls
Feedback
Business level strategy
1. Overall cost leadership – emphasizes producing and
delivering the product or service at a low cost relative to
competitors, while not neglecting quality or service
2. Differentiation strategy – requires a product or service that
is recognized industry wide as being unique, thus permitting to
charge above average prices
3. Focus strategy – involves concentrating on a particular group
of customers, geographic markets or product line segments in
order to serve narrow market better than competitors serve
broader market
Corporate level strategy
1. Stable growth
2. Growth
- Concentration on a single product or service
- Concentric diversification
- Vertical integration
- Horizontal integration
- Conglomerate diversification
3. Retrenchment
- Turnaround
- Divestment
- Liquidation
4. Combination
Integration processes
Corporate level strategy-explained
• Horizontal integration
- Growth trough the acquisition of one or more similar firms
operating at the same stage of the production chain
(competitors)
ADV:
- Eliminate competitors and provide the acquiring firm access to
new markets expl. MOL-Tifon
- Economies of scale and increasing efficiency of capital use
- Moderately increased risk as the success of the expansion usually
depends upon proven abilities
RISK: Increased commitment to one type of business
GROWTH
Corporate level strategy-explained
• Vertical integration
- Growth trough acquiring firms that supply original firm with inputs
or are customers for its outputs
- Backward – move into supplying products and services used in
production
- Forward – move towards distribution of own products
- Reasons: decreasing dependability of the supply or to take
control over sales or distribution channels
GROWTH
Raw
material
Intermediate
Manufacturer
Assembly Distribution Retail
Vertical integration
Value is added by:
- production cost savings (production processes carried out in
quick succession)
- avoidance of market costs (no buying/selling costs)
- better quality control
- protection of proprietary technology
Disadvantages:
- cost disadvantages (commitment to certain supplier or
retailer)
- technological change
- demand uncertainty
Vertical and horizontal integrations
Textile producer Textile producer
Shirt manufacturer Shirt manufacturer
Clothing store Clothing store
Acquisition or merger of competing businesses – HORIZONTAL integration
Acquisition or merger of suppliers or customer businesses –VERTICAL integration
GROWTH
• Concentric diversification
– departure from firm’s existing base of operations, typically
by acquisition of a separate business with synergic
possibilities counterbalancing the strengths and
weaknesses of the two businesses – example Head
- products and services added must lie within
organization’s know how, experience in technology,
distribution channels or customer base
- Difference among horizontal integration and concentric
diversification – horizontal integration aims at
competitors
GROWTH
13
14
• Conglomerate diversification
- Growth pattern based on the most promising opportunity available
(little attention given to creating product-market synergy with the
existing businesses).
- Reasons: balance in portfolio, better access to capital, synergy
- Possible forms: product conglomerate, geographical conglomerate,
pure conglomerate
GROWTH
• Endgame strategies – occur in environment of declining
product demand and excess plant capacity
Favorable industry
conditions
Unfavorable industry
conditions
Competitive
strength
Lacks
competitive
strength
Leadership
or niche
Niche or
harvest
Harvest or
divest
quickly
Divest
quickly
• Turnaround – an attempt to improve efficiency during a
decline by cost or asset reduction (change management, cut
capital expenditures, centralized decision making, reduced
advertising, selling off assets etc.)
• Divestment – selling the business or setting it up as a
separate corporation
• Liquidation – business is terminated and assets are sold off
RETRENCHMENT
• Combination strategies
- can be used in simultaneous or sequential form
Simultaneous: retrenching in certain areas or products while
pursuing in other areas or products
Sequential: using a turnaround strategy and then employing
growth strategy when conditions improve
Competitive strategies for firms in foreign markets
• Niche market exporting (pure exporting)
• Licensing/Contract manufacturing – contractual arrangement that
includes the transfer of some industrial property right for a fee
(patents, trademarks or technical know-how)
• Franchising – special form of licensing that grants the franchisee the
right’s to use the parent’s name, brand, reputation, and business
model at a specified location
• Joint Venture
• Foreign branching
• Wholly owned subsidiaries
Joint ventures
- Separate corporate entity jointly owned by two or
more organizations
- One organizational form for achieving
organizational objectives that neither organization
could normally attain acting alone
- Reasons for entering joint ventures: formal restrictions,
economies of scale, risk sharing, access to resources
Mergers & acquisitions
• Methods used for previously mentioned growth
strategies:
• MERGER – two companies combine their operations creating
a third company (A+B=C)
• ACQUISITION – one company buys and controls other
company (A+B=A+B; or A; or B)
• M&A can be in the following forms:
- horizontal - concentric
- vertical - conglomerate
• Reasons for M&A
- Market value of stock of both firms
- Better utilization of existing manufacturing facilities
- Smoothing out present cyclical trends in present
products or services
- Providing resources for expanding the organization
- Securing a source of raw materials
- Providing avenue for selling organization’s stock
Carrying out mergers and acquisitions:
- Can be carried out in friendly or a hostile environment
- Friendly M or A when stockholders and management of both
organizations agree that the combination will be good for both
organizations, and they work together to ensure its success
- Takeover (hostile M or A) when organization that is to be acquired
(target firm) resists the attempt
• Factors to avoid in order to ensure a successful M or A:
- Paying too much
- Marring disparate corporate cultures
- Counting on key managers staying
- Assuming a boom market won’t crash
- Leaping before looking
- Swallowing to large company
Strategic Alliances
• Partnerships that exist for a defined time period during
which partners contribute their skills and expertise to a
cooperative project
• - usually not equal position among partners
Acquisition Joint Venture Strategic
Alliance
Allows 100% control
No need for interfirm
consensus
Less flexible
Larger commitment of
resources
Greater risk
May cause conflicts of
corporate culture
Requires combining IS
Affords cost cutting
possibilities
Can be used to correct
previous errors in strategy
selection
Firms intersect over narrow,
well-defined segments
Exploit distinctive
opportunities
Usually involves only two
firms
Enables joint production of a
single product
Combines known resources
Can be used to avoid risks in
merger transaction
Tensions: Each firm seeks to
learn as much possible but
not to convey too much
Useful for creating complex
systems among multiple
firms
Partners usually larger than
in joint venture
Allows firms to focus on fewer
core competencies
Difficult to measure
contribution of participants
Limited time duration
Active participation of senior
managers
Substitute for government-
prohibited, cross-border
mergers
Special forms:
1. Cartel - formal agreement among firms that produce
homogenous products with the purpose of achieving monopoly
position
– firms do not lose their legal entity
2. Consortia - temporary contract based organization created
by businessmen or companies in order to carry out a certain
task
Holding company – consists of unrelated operating
businesses where “investor” evaluates each unit
individually and allocates resources according to
project returns
- investor owns at least 51% of stocks for the other
companies
President
Autos Movies
Toys
Food
Accounting and Finance
doc_664070477.pdf
Strategies For Firms In Foreign Markets
***Integrations***
Topics covered by the lesson:
• Business level strategy
• Corporate level strategy
• Strategies for firms in foreign markets
• Mergers and acquisitions
Examples…
Integration & organization
External
design
element
Organizational
change caused by
integration
Taking part
in
integrations
4
Strategic management process
Corporate mission and goals
Internal analysis External analysis
Strategic choice
Business level strategy
Corporate level strategy
Portfolio analysis and entry and exit
strategies
Choosing
organizational
structure
Choosing
organizational
controls
Conflicts, Politics
and Change
Matching Strategy,
structure and controls
Feedback
Business level strategy
1. Overall cost leadership – emphasizes producing and
delivering the product or service at a low cost relative to
competitors, while not neglecting quality or service
2. Differentiation strategy – requires a product or service that
is recognized industry wide as being unique, thus permitting to
charge above average prices
3. Focus strategy – involves concentrating on a particular group
of customers, geographic markets or product line segments in
order to serve narrow market better than competitors serve
broader market
Corporate level strategy
1. Stable growth
2. Growth
- Concentration on a single product or service
- Concentric diversification
- Vertical integration
- Horizontal integration
- Conglomerate diversification
3. Retrenchment
- Turnaround
- Divestment
- Liquidation
4. Combination
Integration processes
Corporate level strategy-explained
• Horizontal integration
- Growth trough the acquisition of one or more similar firms
operating at the same stage of the production chain
(competitors)
ADV:
- Eliminate competitors and provide the acquiring firm access to
new markets expl. MOL-Tifon
- Economies of scale and increasing efficiency of capital use
- Moderately increased risk as the success of the expansion usually
depends upon proven abilities
RISK: Increased commitment to one type of business
GROWTH
Corporate level strategy-explained
• Vertical integration
- Growth trough acquiring firms that supply original firm with inputs
or are customers for its outputs
- Backward – move into supplying products and services used in
production
- Forward – move towards distribution of own products
- Reasons: decreasing dependability of the supply or to take
control over sales or distribution channels
GROWTH
Raw
material
Intermediate
Manufacturer
Assembly Distribution Retail
Vertical integration
Value is added by:
- production cost savings (production processes carried out in
quick succession)
- avoidance of market costs (no buying/selling costs)
- better quality control
- protection of proprietary technology
Disadvantages:
- cost disadvantages (commitment to certain supplier or
retailer)
- technological change
- demand uncertainty
Vertical and horizontal integrations
Textile producer Textile producer
Shirt manufacturer Shirt manufacturer
Clothing store Clothing store
Acquisition or merger of competing businesses – HORIZONTAL integration
Acquisition or merger of suppliers or customer businesses –VERTICAL integration
GROWTH
• Concentric diversification
– departure from firm’s existing base of operations, typically
by acquisition of a separate business with synergic
possibilities counterbalancing the strengths and
weaknesses of the two businesses – example Head
- products and services added must lie within
organization’s know how, experience in technology,
distribution channels or customer base
- Difference among horizontal integration and concentric
diversification – horizontal integration aims at
competitors
GROWTH
13
14
• Conglomerate diversification
- Growth pattern based on the most promising opportunity available
(little attention given to creating product-market synergy with the
existing businesses).
- Reasons: balance in portfolio, better access to capital, synergy
- Possible forms: product conglomerate, geographical conglomerate,
pure conglomerate
GROWTH
• Endgame strategies – occur in environment of declining
product demand and excess plant capacity
Favorable industry
conditions
Unfavorable industry
conditions
Competitive
strength
Lacks
competitive
strength
Leadership
or niche
Niche or
harvest
Harvest or
divest
quickly
Divest
quickly
• Turnaround – an attempt to improve efficiency during a
decline by cost or asset reduction (change management, cut
capital expenditures, centralized decision making, reduced
advertising, selling off assets etc.)
• Divestment – selling the business or setting it up as a
separate corporation
• Liquidation – business is terminated and assets are sold off
RETRENCHMENT
• Combination strategies
- can be used in simultaneous or sequential form
Simultaneous: retrenching in certain areas or products while
pursuing in other areas or products
Sequential: using a turnaround strategy and then employing
growth strategy when conditions improve
Competitive strategies for firms in foreign markets
• Niche market exporting (pure exporting)
• Licensing/Contract manufacturing – contractual arrangement that
includes the transfer of some industrial property right for a fee
(patents, trademarks or technical know-how)
• Franchising – special form of licensing that grants the franchisee the
right’s to use the parent’s name, brand, reputation, and business
model at a specified location
• Joint Venture
• Foreign branching
• Wholly owned subsidiaries
Joint ventures
- Separate corporate entity jointly owned by two or
more organizations
- One organizational form for achieving
organizational objectives that neither organization
could normally attain acting alone
- Reasons for entering joint ventures: formal restrictions,
economies of scale, risk sharing, access to resources
Mergers & acquisitions
• Methods used for previously mentioned growth
strategies:
• MERGER – two companies combine their operations creating
a third company (A+B=C)
• ACQUISITION – one company buys and controls other
company (A+B=A+B; or A; or B)
• M&A can be in the following forms:
- horizontal - concentric
- vertical - conglomerate
• Reasons for M&A
- Market value of stock of both firms
- Better utilization of existing manufacturing facilities
- Smoothing out present cyclical trends in present
products or services
- Providing resources for expanding the organization
- Securing a source of raw materials
- Providing avenue for selling organization’s stock
Carrying out mergers and acquisitions:
- Can be carried out in friendly or a hostile environment
- Friendly M or A when stockholders and management of both
organizations agree that the combination will be good for both
organizations, and they work together to ensure its success
- Takeover (hostile M or A) when organization that is to be acquired
(target firm) resists the attempt
• Factors to avoid in order to ensure a successful M or A:
- Paying too much
- Marring disparate corporate cultures
- Counting on key managers staying
- Assuming a boom market won’t crash
- Leaping before looking
- Swallowing to large company
Strategic Alliances
• Partnerships that exist for a defined time period during
which partners contribute their skills and expertise to a
cooperative project
• - usually not equal position among partners
Acquisition Joint Venture Strategic
Alliance
Allows 100% control
No need for interfirm
consensus
Less flexible
Larger commitment of
resources
Greater risk
May cause conflicts of
corporate culture
Requires combining IS
Affords cost cutting
possibilities
Can be used to correct
previous errors in strategy
selection
Firms intersect over narrow,
well-defined segments
Exploit distinctive
opportunities
Usually involves only two
firms
Enables joint production of a
single product
Combines known resources
Can be used to avoid risks in
merger transaction
Tensions: Each firm seeks to
learn as much possible but
not to convey too much
Useful for creating complex
systems among multiple
firms
Partners usually larger than
in joint venture
Allows firms to focus on fewer
core competencies
Difficult to measure
contribution of participants
Limited time duration
Active participation of senior
managers
Substitute for government-
prohibited, cross-border
mergers
Special forms:
1. Cartel - formal agreement among firms that produce
homogenous products with the purpose of achieving monopoly
position
– firms do not lose their legal entity
2. Consortia - temporary contract based organization created
by businessmen or companies in order to carry out a certain
task
Holding company – consists of unrelated operating
businesses where “investor” evaluates each unit
individually and allocates resources according to
project returns
- investor owns at least 51% of stocks for the other
companies
President
Autos Movies
Toys
Food
Accounting and Finance
doc_664070477.pdf