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Example: What corporate

strategies are in use? (1) Dell acquires Apple.

Horizontal Intergration. Dell and Apple both make personal computers. Ifthats 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 thesynergy is likely using Dells marketing prowess to leverage Applesoperating 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, ofmicroprocessors.

B

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strategies are in use? (2) Microsoft acquires Prentice-Hall.

Unrelated diversification. Microsoft is in high-technology, Prentice-Hall isin 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 doesoperating systems (Windows) and applications (Excel). Apple does

primarily operating systems (Mac OS) and PCs (Macintosh). So they are inthe same industry (operating systems) which means horizontal integration,and in related industries (PCs, PC applications) which means relateddiversification.

B

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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 strategybuild 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

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strategies are in use? (4) Procter & Gamble sells Tide detergent in Italy

Global product strategysell the same product everywhere. But

maybe, Tide is not really Tide everywherethere are changes madeto 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, thecompany is adjusting its strategy to conform to local preferences,

and that means the overall corporate strategy looks multidomestic.

B

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Corporate-Level Strategies

Corporate strategies are dynamic

Corporations enter and exit businesses simultaneously

Growth: Make the corporation larger. Grow each business. Entermore businesses and markets than you are exit.

Stability: Essentially sticking with the current businesses

Retrenchment: Make the corporation smaller. Prune unprofitableparts of each business. Exit more businesses than you are entering.

Big Question: Why should there be corporate-level strategiesat all? Why shouldnt the businesses compete on their own?

There must be a core competency that can be translated intocompetitive advantage within the different businesses

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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

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Growth through diversification

Diversification is explicitly about acquiring or merging with othercorporations or business units.

Related diversification - grow by merging with or acquiring firmsin different, but related, industries

Goal: strategic fit that allows synergy

Synergy: When two units produce additional value throughoperating together rather than separately.

Unrelated diversification - grow by merging with or acquiringfirms in different and unrelated industries

Goal: ? reduce cyclicality

On average less successful than related diversification

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Corporate Tinkertoys:Diversification and Integration around

the airline industry

American Airlines United Airlines

National Rent-a-Car Boeing

.

Airline Industry

Related

Diversification

ChryslerUnrelated

Diversification

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Vertical Integration

Vertical Integration

A strategy that allows an organization to create value byproducing its own inputs or distributing its own products.

Backward vertical integration

occurs when a firm seeks to reduce its input costsby producing its owninputs (generics).

Forward vertical integration

occurs when a firm performs functions its customers did, itselffor

example, distributes its outputs or products to lower distribution costsand ensure quality serviceto customers (Compaq vs. Dell).

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Airline Industry Example:

Diversification and Integration

American Airlines United Airlines

National Rent-a-Car Boeing

.

Horizontal IntegrationVertical Integration

Backward

Vertical IntegrationForward

Airline Industry

Chrysler

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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

Retrenchmentaction to address weaknessesthat are leading to performance declines, to:

stabilize operations (shutting retail stores)

revitalize organizational resources and capabilities

prepare to compete effectively once again

Exitshutting down or selling the business Often difficult for managers (e.g., steel, flag

carriers)

BX

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Strategy 12