University:
California State University, Northridge
Course:
MPA 632B | Strategic Management
Academic year:

2024
Views:

197

Pages:

21
Author:

maturizeznhr

CHAPTER 9 CORPORATE-LEVEL STRATEGY: HORIZONTAL INTEGRATION, VERTICAL INTEGRATION, AND STRATEGIC OUTSOURCING LEARNING OBJECTIVES  Discuss how corporate-level strategy can be used to strengthen a company’s business model and business-level strategies  Define horizontal integration and discuss the primary advantages and disadvantages associated with this corporate-level strategy 2 LEARNING OBJECTIVES  Explain the difference between a company’s internal value chain and the industry value chain  Describe why, and under what conditions, cooperative relationships such as strategic alliances and outsourcing may become a substitute for vertical integration 3 CORPORATE-LEVEL STRATEGY AND THE MULTIBUSINESS MODEL  Corporate-level strategies should be chosen to promote the success of its business-level strategies  Which allows it to achieve a sustainable competitive advantage, leading to higher profitability 4 CORPORATE-LEVEL STRATEGY AND THE MULTIBUSINESS MODEL  Levels of business model  Business model and strategies for each business unit or division in every industry in which it competes  Higher-level multibusiness model that justifies its entry into different businesses and industries 5 HORIZONTAL INTEGRATION  Acquiring or merging with industry competitors to achieve the competitive advantages that arise from a large size and scope of operations  Acquisition: Company uses its capital resources to purchase another company  Merger: Agreement between two companies to pool their resources and operations and join together to better compete in a business or industry 6 BENEFITS OF HORIZONTAL INTEGRATION      Lowers the cost structure Increases product differentiation Leverages a competitive advantage Reduces rivalry within the industry Increases bargaining power over suppliers and buyers 7 PROBLEMS WITH HORIZONTAL INTEGRATION  Difficult to implement  Conflict with the Federal Trade Commission (FTC)  Increase in prices  Abuse of market power  Crushing potential competitors 8 VERTICAL INTEGRATION  When a company expands its operations either backward or forward into an industry  Backward vertical integration - Produces inputs for the company’s products  Forward vertical integration - Uses, distributes, or sells the company’s products 9 FIGURE 9.1 - STAGES IN THE RAW-MATERIALS-TOCUSTOMER VALUE-ADDED CHAIN 10 FIGURE 9.2 - THE RAW-MATERIALS-TO-CUSTOMER VALUE-ADDED CHAIN IN THE PC INDUSTRY 11 INCREASING PROFITABILITY THROUGH VERTICAL INTEGRATION  Vertical integration increases product differentiation, lowers costs, and reduces industry competition when it:  Facilitates investments in efficiency-enhancing specialized assets  Protects product quality  Results in improved scheduling 12 PROBLEMS WITH VERTICAL INTEGRATION  Increasing cost structure  Disadvantages that arise when technology is changing fast  Disadvantages that arise when demand is unpredictable  Vertical disintegration: When a company decides to exit industries either forward or backward in the industry value chain to its core industry to increase profitability 13 COOPERATIVE RELATIONSHIPS  Quasi integration: Use of long-term relationships, or investment into some of the activities normally performed by suppliers or buyers  In place of full ownership of operations that are backward or forward in the supply chain 14 COMPETITIVE BIDDING AND SHORTTERM CONTRACTS  Competitive bidding strategy - Independent component suppliers compete to be chosen to supply a particular component  Short-term contracts - Last for a year or less  Does not result in specialized investments  Signals a company’s lack of long-term commitment to its suppliers 15 STRATEGIC ALLIANCES AND LONGTERM CONTRACTING  Strategic alliances: Long-term agreements between two or more companies to jointly develop new products or processes  Substitute for vertical integration  Avoids bureaucratic costs  Component suppliers benefit because their business and profitability grow as the companies they supply grow 16 STRATEGIES TO BUILD LONG-TERM COOPERATIVE RELATIONSHIPS  Hostage taking: Means of exchanging valuable resources to guarantee that each partner to an agreement will keep its side of the bargain  Credible commitment: Believable promise or pledge to support the development of a longterm relationship between companies  Each company should possess a kind of power to discipline its partner, if the need arise 17 STRATEGIC OUTSOURCING  Decision to allow one or more of a company’s value-chain activities to be performed by independent, specialist companies  Virtual corporation: Companies pursued extensive strategic outsourcing to the extent that they only perform the central value creation functions that lead to competitive advantage 18 FIGURE 9.3 - STRATEGIC OUTSOURCING OF PRIMARY VALUE CREATION FUNCTIONS 19 BENEFITS OF OUTSOURCING Lower cost structure Enhanced differentiation Focus on the core business 20 RISKS OF OUTSOURCING  Holdup  Risk that a company will become too dependent upon the specialist provider of an outsourced activity  Increased competition  Building of an industry-wide resource that lowers the barriers to entry in that industry  Loss of information and forfeited learning opportunities 21

Corporate Level Strategy

Related Documents

Description

Related Documents

Free up your schedule!

Take 5 seconds to unlock