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Strategic Business Expansion: Integration, Diversification, Alliances

Learn about vertical integration, diversification, and strategic alliances as strategies for business growth. Understand their advantages, disadvantages, and implementation in the corporate world. Explore ways to create value and manage risks effectively.

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Strategic Business Expansion: Integration, Diversification, Alliances

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  1. Chapter 9: Corporate Strategy -- Vertical Integration, Diversification, and Strategic Alliances Text by Charles W. L. Hill Gareth R. Jones Multimedia Slides by Milton M. Pressley Univ. of New Orleans

  2. Preview • Concentration on a Single Business • Vertical Integration • Alternatives to Vertical Integration: Cooperative Relationships and Strategic Outsourcing • Diversification • Strategic Alliances as an Alternative to Diversification

  3. Concentration on a Single Business SEARS Coca-Cola McDonalds

  4. Concentration on a Single Business (Continued) Advantages • Allows Company to Focus Resources and Capabilities in Just One Area • Does Not Diversify Into Areas That It Knows Little About and Where Resources and Capabilities Add Little Value

  5. Concentration on a Single Business (Continued) Disadvantages • Vertical Integration May Be Required to Create Value and Establish a Competitive Advantage • Opportunities May Be Missed

  6. Vertical Integration • Vertical Integration Defined

  7. Figure 9.1: Stages in the Raw Material to Consumer Value Chain Raw Materials Intermediate Manufacturer Assembly Distribution End User Upstream Downstream

  8. Dow Chemicals Union Carbide Examples Intermediate Manufacturer Intel Motorola Apple Compaq Bizmart Computer World Figure 9.2: The Raw Material to Consumer Value Chain in the PC Industry Raw Materials Assembly Distribution End User

  9. Full Integration Taper Integration Customers A B C Customers Suppliers A B C Figure 9.3: Full and Taper Integration Suppliers

  10. Creating Value Through Vertical Integration • Building Barriers to Entry • Facilitating Investments in Specialized Assets • Protecting Product Quality • Improved Scheduling

  11. Arguments Against Vertical Integration • Cost Disadvantages • Technological Change • Demand Uncertainty

  12. Bureaucratic Costs and the Limits of Vertical Integration • Lack of Incentive to Reduce Operating Costs • Lack of Strategic Flexibility in Times of Changing Technology • Uncertain Demand

  13. Alternatives to Vertical Integration: Cooperative Relationships and Strategic Outsourcing • Short-Term Contracts and Competitive Bidding

  14. Alternatives to Vertical Integration: Cooperative Relationships and Strategic Outsourcing • Short-Term Contracts and Competitive Bidding • Strategic Alliances and Long-Term Contracting

  15. Alternatives to Vertical Integration: Cooperative Relationships and Strategic Outsourcing • Hostage Taking • Credible Commitments • Maintaining Market Discipline • Periodic Renegotiation • Parallel Sourcing Policy Building Long-Term Cooperative Relationships

  16. Alternatives to Vertical Integration: Cooperative Relationships and Strategic Outsourcing • Outsourcing • Virtual Corporation

  17. Diversification • Related Diversification

  18. Diversification • Related Diversification • Unrelated Diversification

  19. Creating Value Through Diversification Diversification • Acquiring and Restructuring • Transferring Competencies • Economies of Scope

  20. Bureaucratic Costs and the Limits of Diversification Diversification • Number of Businesses • Coordination Among Businesses

  21. Figure 9.4: Structure of a Company Sharing Marketing Between Two Business Units Head Office Packaged Food Products HouseholdProducts Marketing Consumers

  22. Bureaucratic Costs and the Limits of Diversification (Continued) Diversification • Number of Businesses • Coordination Among Businesses • Limits of Diversification

  23. Diversification That Dissipates Value Diversification • Diversification to Pool Risks • Diversification to Achieve Greater Growth

  24. Source of Ways of Bureaucratic Strategy Creating Value Costs Restructuring Number of · · Related Businesses · Transferring Skills Coordination · Diversification Economies of · Among Businesses Scope Restructuring Number of · · Unrelated Businesses Diversification Related and Unrelated Diversification Table 9.1: Comparing Related and Unrelated Diversification

  25. Strategic Alliances as an Alternative to Diversification • Strategic Alliance Defined • Advantages: • Firms May Create Value by Realizing Economies of Scope • Enable Companies to Swap Complementary Skills • Disadvantage • Profits Must Be Split • Risk That One Firm May Give Away Critical Know-How That May Create a Competitor from the Alliance Partner

  26. CONCENTRATION ON A SINGLE BUSINESS VERTICAL INTEGRATION ALTERNATIVES TO VERTICAL INTE- GRATION: COOPERATIVE RELATIONSHIPS AND STRATEGIC OUTSOURCING DIVERSIFICATION STRATEGIC ALLIANCES AS AN ALTERNATIVE TO DIVERSIFICATION Chapter Summary

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