Corporate Level Strategies

 Corporate level strategies, also known as

Grand or Generic strategies, are basically
about the choice of direction that a firm
adopts in order to achieve its objectives. It
provides overall direction for the firm
irrespective of its size whether it is small or
big.
Corporate Strategies
 For deciding the orientation towards growth, we have to
answer three questions:
 Should we continue with the same business with similar
efforts – STABILITY STRATEGIES
 Should we expand into new business areas by adding
new functions, products and markets – GROWTH /
EXPANSION STRATEGIES
 Should we get out of this business or a part of the
business – RETRENCHMENT STRATEGIES
 Should we use a mixture of strategies – COMBINATION
STRATEGY
 CORPORATE STRATEGIES
Growth
Concentration
Vertical Growth
Horizontal Growth
Diversification
Concentric
Conglomerate

Stability Retrenchment

Cautiously proceed Turnaround

Maintain Divest/Sale
Profit Liquidation
 Examples of Generic or grand
strategies
Stability – better after sales service, bulk discount,
Improve performance to sustain
Growth – Expansion in customer group, function or
technology
Retrenchment - Withdrawal - Customer group, function,
technology (unprofitable)
Combination – When a mixture of strategies is used .
e.g. Wide variety of services to customers (stability)
- New products in product range (expansion)
Stability Strategies

 It aims at maintaining the existing business

course without any significant variations or
additions.
 Relevant for a firm working in reasonably certain
and predictable environment, less risks
 Usually followed by SMEs
 Same objectives are to be followed
 Suitable for short run if firm is satisfied with its
performance.
Features of Stability Strategies

Incremental improvements
No redefinition of the business
Fairly a modest strategy
Maintains similar status
Reasons to follow Stability Strategies

 Managerial satisfaction
 The degree of resistance to change
 Fear of loss of control
 Lack of resources
 Some threats by external environment
 Retention of core competence
 Certainty and predictability of future
Types of Stability Strategies

No change strategy –

 A conscious decision to do nothing new .
 Co. enjoys relatively stable competitive
position and it has not much threats and
opportunities.
 Adopted by SMEs
 Co. makes few marginal adjustments for
inflation in its sales and profit aims.
Reasons for following No Change
Strategies
At present, co. is having least risks and it
doesn’t want to go in for higher risk levels.
Resistance to change is quite high and
only inevitable changes are accepted.
The firm is happy with present level
performance and preferring to continue the
same.
This strategy is easier to follow.
Types of Stability Strategies
 Game Strategy –
 Also known as Game Strategy.
 It assumes that the difficulties faced by the firm
are temporary.
 The firm takes measures such like reducing
investments and blaming the negative
environment factors such as govt. policies.
 It is a secretive strategy and cannot be
continued for long time.
 Aims at sustaining profitability.
Reasons for following Profit Strategies

The unit’s product is in saturation or

declining stage.
The unit’s product is not prestigious to the
org.
The unit’s contribution is not significant to
the total sales of the org.
The unit’s sales will decline less rapidly
than the reduction in corporate support.
Types of Stability Strategies

Pause Strategy –
 Is also known as ‘breathing spell’ strategy,
basically a short-term strategy.
 Adopted by the firms that wish to test the ground
before moving ahead with a full-fledged grand
strategy.
 It is an opportunity to rest before shift in strategy.
 The objective is to make present factors more
productive to assure rapid future growth.
Reasons for following Pause
Strategies
o The firm has achieved high growth levels
and it is the time to take rest to follow the
new heat.
o To stare off political uncertainty and to wait
and watch going further.
o There is a need for pause to regain
stamina to run further.
o To achieve economies of scale after
attaining sizeable market share.
Types of Stability Strategies
Proceed with Caution –
It aims at pulling on the existing business
as a precaution measure particularly when
the external env. factors are not clear.
The purpose is to allow the structural
changes to take place and let the systems
adapt to new strategies.
It is also a short-term strategy.
Reasons for following Proceed with
Caution Strategies
 The firm is facing any external env. threat.
 Internal constraints are there i.e.
weaknesses are outweighing its strengths.
 The firm is extremely cautious and a keen
observer of the environmental conditions.
 To maintain same status is preferable for
the firm and it does not want to go in for
showmanship.
Expansion through Diversification

 The strategy in which growth objective is

achieved by adding new products or
services to the existing ones.
 It may involve internal or external, related
or unrelated, horizontal or vertical and
active or passive dimensions – either
singly or collectively.
Reasons for Diversification

 It spreads the risks e.g. business of air-

coolers and water heaters.
 Better utilization of resources.
 Developing competitive edge.
 It makes firm dominant in the market.
 It brings in the synergistic benefits.
 Due to environmental threats e.g. cigarette
manufacturers diversify in other lines.
Reasons for Diversification
 Maximizing returns by investing in profitable
business and selling out non-profitable ones.
 Stabilizing returns by avoiding economic
upswings and downswings through having
stakes in different industries.
 Exercising of personal choice by industrialists
and managers to create industrial empires by
owning businesses in diverse sectors.
Risks of Diversification
 Demand a wide variety of dissimilar skills to
manage them successfully.
 Increases the administrative costs of managing,
integrating and controlling a wide portfolio of
businesses.
 Decreasing commitment to single or few
businesses that need more attention.
 It is a complex strategy to formulate and
implement.
Types of Diversification

Concentric or Related diversification –

When an org. takes up an activity in such
a manner that it is related to the existing
business definition, either in terms of
customer groups, functions or alternative
technologies, it is called CONCENTRIC
Diversification.
Concentric or Related diversification

 This strategy involves either –

 Introduction of new products or services to
serve similar customers in similar markets.
 Introduction of new products or services
using technologies similar to the present
product or service line.
Types of Concentric Diversification

Market related Concentric diversification –

When a similar type of product is offered
with unrelated technology. For example –
A co. manufacturing white goods enters
into the field of consumer goods.
Technology related Concentric
diversification – New type of product or
service is offered with the similar
technology.
Types of Concentric Diversification

For example – A firm offering hire-

purchase to institutional customers enters
into providing home loans.
Market and technology related Concentric
diversification – Similar type of product is
provided with related technology. For
example – A raincoat manufacturer
makes waterproof shoes and rubber
gloves to sell through same retail outlets.
Pros and Cons of Concentric
Diversification
 It enables a firm to attain synergy by
exchange of resources and skills and to
avail economies of scale and tax benefits.

 It increases the risk and commitment, thus

reducing the flexibility.
Types of Diversification

Conglomerate Diversification – It means

addition of new products or services to the
existing line of business.
It is the expansion of product line beyond
the present industry into products and
markets having no common features with
the existing ones.
For example – Ponds’, ITC, Reliance etc.
Pros and Cons of Conglomerate
Diversification
 It offers the advantage of better mgt. and
allocation of cash flows, higher ROI, and
reduction of risk by spreading investment
in different areas.

 Diversion of resources and attention to

other areas leading to lack of
concentration and facing the risk of
managing entirely new business.
Expansion by Cooperation
Variants of Cooperation Strategies

 Mergers and Acquisitions

 Joint Ventures
 Strategic Alliances
Mergers and Acquisitions

 Concept of Mergers and Acquisitions

 Types of Mergers
 Motives behind the Mergers
 Pros and Cons of Mergers and
Acquisitions
Joint Ventures

 It is a form of business combination in

which two unaffiliated firms contribute
financial and /or physical assets, as well
as personnel, to a new company formed to
engage in some economic activity, such
as production or marketing of a product.
Joint Ventures…….

 A J/V by a domestic company with an

MNC can allow the transfer of technology
and reaching of global market.
 Entering into J/V is a part of strategic
business policy to diversify and enter into
new markets, acquire finance, technology,
patent and brand names etc.
Definition of Joint Ventures

 According to Reserve Bank of India,

‘A foreign concern formed, registered or
incorporated in accordance with the laws
and regulations of the host country in
which the Indian party makes a direct
investment, whether such investment to a
majority or minority shareholding.’
Conditions for Joint Ventures

 When an activity is uneconomical for an

organization to do it alone.
 When risk of business has to be shared.
 When the distinctive competence of two
firms can be brought together.
 When setting up an organization requires
tough hurdles like tariffs, quotas, licenses
etc.
Advantages of Joint Ventures

 Optimum utilization of resources where

their strengths lie.
 Possible to undertake R&D in a bigger
way, leading to more innovations.
 Opportunity to acquire new technology or
process.
 Allow to go global
Advantages of Joint Ventures

 Help to implement new systems,

procedures and work culture to improve
overall productivity and effectiveness.
 Advantages of joint economies of co-
production, common procurement etc.
Triggers of Joint Ventures

 Technology
 Geography
 Changes in regulations
 Sharing of risk and capital
 Intellectual exchange
Strategic Alliances

 It is an arrangement under which two or

more firms cooperate in order to achieve
certain common objectives.

 The firms that unite remain independent

subsequent to formation of an alliance.
Strategic Alliances

 The agreement contains the terms like

capital contribution, infrastructure, decision
making, sharing of risk return etc.

 Mutual understanding and trust are the

basic tenets of strategic alliances.
Reasons for Strategic Alliances

 Entering new markets

 Reducing manufacturing costs
 Developing and diffusing technology
Pitfalls in Strategic Alliances

 Lack of trust and commitment,

misunderstandings, conflicting goals and
interests, inadequate preparation for
entering into partnership, hasty
implementation of plans. Besides, external
environmental changes which make the
alliance unviable are the major drawbacks
of strategic alliances.
Types of Strategic Alliances

 Pro competitive Alliances – (Low

interaction, low conflict) – Inter industry,
vertical value chain relationships between
manufacturers and suppliers.
 Non competitive alliances – (high
interaction, low conflict) – intra industry,
between non rival firms
Types of Strategic Alliances

 Competitive Alliance – (High interaction, high

conflict) – Between two very strong rival, may
within the country or one domestic and the
other foreign company.
 Pre competitive Alliance- (Low interaction,
high conflict) – Two firms, generally unrelated
industries, work on well-defined activities
such as new technology development, joint
R&D, advertising comapign etc.
How to Manage Strategic Alliances

 Clearly define a strategy and define

responsibilities.
 Phase in the relationships between the
partners.
 Blend the cultures of partners.
 Provide for an exit strategy
Examples of Strategic Alliances

 Bank of India with Union Bank of India and

Infrastructure Development Finance
Company for IB, loan syndication training
etc.
 Bajaj Tempo with State Bank of Indore to
promote agricultural mechanization.
Scheme is known as Indore Bank-Bajaj
Tempo-Krishi Vikas Scheme.
Expansion by Internationalization

 These type of strategies require the

organizations to market their products or
services beyond the domestic or national
market.
 For doing so, an organization will have to
assess the international environment,
evaluate its own capabilities and devise
strategies to enter foreign market.
Porter’s Model of Competitive
Advantage of Nations
 This model states that there are four national
characteristics that determine an environment
conducive to create globally competitive firms
in particular industry. These factors are:
 Factor conditions
 Demand conditions
 Related and supporting industries
 Firm strategy, structure and rivalry
Porter’s ‘diamond’
Factors to be considered in
International Strategies
 Cost Pressures – The pressure on a firm to
minimize its unit costs. It is high in
industries like chemicals, petroleum or steel
that serve universal needs.
 Pressures for Local Responsiveness – Here
the firm tailors its strategies to respond to
national- level differences in terms of
variables like preferences and tastes etc.
e.g. cars, clothes, food, entertainment etc.
Types of International Strategies

 Multi domestic Strategy

 Global Strategy
 International Strategy
 Transnational Strategy
Multi domestic strategy

 Firms try to achieve a high level of local

responsiveness by matching their offerings
to the national conditions operating in the
countries they operate in. Firm
customizes its products and services
according to their local conditions in the
different countries. It leads to high costs as
a lot depends on R&D etc.
Global Strategy

 Firms rely on a low-cost approach based

on enjoying the benefits of location
economies and offer standardized
products and services. Firms focus on low-
cost structure and provide products and
services in an undifferentiated manner in
all the countries the global firms operate
in, usually at competitive prices.
International Strategy

 Firms create value by transferring

products and services to foreign markets
where these are not available.
 Firm maintains a tight control over its
overseas operations, offers standardized
products in different countries with little or
no differentiation.
Transnational Strategy

 Firms adopt a combined approach of low-

cost and high-responsiveness
simultaneously.
 Possibly, it is the only strategy viable in
the modern competitive world.
International Entry Modes
 Export Entry Mode
Direct Exports
Indirect Exports
 Contractual Entry Modes
Licensing
Franchising
 Investment Entry Modes
Joint ventures and strategic alliances
Wholly-owned subsidiaries
Advantages of Expansion through
Internationalization
 Achieving Economies of Scale
 Expansion of Markets
 Harnessing Location Economies
 Access to resources Overseas
Disadvantages of Expansion through
Internationalization
 Higher Risks
 Difficulty in Managing Cultural Diversity
 Higher Bureaucratic Costs
 Higher Distribution Costs
 Trade Barriers
Strategic Decisions in
Internationalization

 Which international market to enter?

 Timing of entry into international markets.
 Scale of entry into international markets.
Growth/Expansion Strategies

A firm turns to expansion strategy when it

seeks sizeable growth. According to
William F. Glueck,
Glueck ”A growth strategy is
one that an enterprise pursues when it
increases its level of objectives upward in
significant increment, much higher than an
exploration of its past achievement level.”
Growth/Expansion Strategies

Growth Strategy is an attractive strategy for

two reasons:-
Growth based on market demand will
cover up the company’s flaws and
strategic errors.
A growing firm provides a lot of
opportunities in terms of new jobs, career
advancement and promotion.
Features of Growth Strategy

 It is highly versatile strategy.

 It involves redefinition of the business.
 It is the mark of exponential growth.
 There are two routes to growth –
diversification and intensification.
Need for Growth Strategy

 Survival rests on growth.

 Growth is imperative for efficient and
effective utilization of resources.
 Growth is managerial motivation.
 Moving from loss to profit wedge.
 Growth results in satisfaction to all the
stakeholders.
When to follow Growth Strategy?

When the organization gets green signal

from external environment.
When the present business is non-viable
to continue.
When the firm has rested after earlier spell
of growth.
Factors to Considered for Expansion

 Organization’s options for capacity

expansion.
 Future demand and costs inputs.
 Assessing technological changes.
 Predicting competitors capacity expansion.
 Assessing demand – supply balance.
 Expected cash flow.
 Testing the analysis for consistency.
Types of Growth/Expansion Strategies

a. Expansion through Concentration

b. Expansion through Integration
c. Expansion through Diversification
d. Expansion through Cooperation
e. Expansion through Internationalization
Variants of Growth Strategy
 Market Development Strategy – Developing new
markets by expanding geographical markets or
by attracting other markets, to increase sales.
 Product Development Strategy – Modifying the
existing products or creating new products in
related items already produced.
 Innovative Strategy – Creating new products
which change the PLC of present products and
make them obsolete. R&D plays an important
role.
Expansion through Concentration

 A form of growth strategy resulting in

concentration of resources on those
product lines, which have growth potential.
 Also known as ‘stick to the knitting’.
 “Doing what we know we are the best at
doing.”
 For Example, BAJAJ AUTOS
concentrating on two-wheelers market.
Expansion through Concentration

 Involves converging resources in one or

more of a firm’s business in terms of their
respective customer needs, functions or
alternative technologies, either singly or
jointly, in such a manner that it results in
expansion.
 It is preferred because it would like to do
more of what it is already doing.
Expansion through Concentration

 It involves investment of resources in a

product line for an identified market with
the help of proven technology.
 Internally, the firm should be strong
enough to sustain expansion and it should
have adequate funds to invest in additional
resources required for expansion.
Merits of Expansion through
Concentration
 Involves minimal changes, so it is less
threatening.
 Enables the firm to master one or few
businesses, thus gaining specialization.
 Specialization ultimately, leads to
competitive advantage to the firm.
 Decision making process is easy as there
is a high level of predictability.
Demerits of Expansion through
Concentration
 Putting all eggs in one basket has problems.
 Heavily dependent on single industry, so
adverse conditions can harm the firm.
 Can lead to org. inertia due to overdoing of
anything.
 Product obsolescence, emergence of newer
technologies, mkt. fluctuations can be the
threats.
 Cash flow problems at the time of maturity, when
firm has over-invested in fewer areas.
Expansion through Integration

 Since a value chain is a set of interlinked

activities performed by an organization
right from the procurement of basic raw
materials down to the marketing of
finished products to the ultimate
consumers. So , the firm may move up or
down in the chain, this is what is called
INTEGRATION.
Expansion through Integration
 A company attempts to widen the scope of its
business definition in such a manner that it
results in serving the same set of customers.

 It is combining activities related to the present

activity of the firm.

 An integration takes place to grow financially

strong, have the benefits of R&D and economies
of production and marketing.
Expansion through Integration

 Its adoption results in widening of the

scope of the business definition of the firm
and strengthening of core competencies
and competitive advantage.

 It is also an attempt to bring under one

management the resources of two or more
firms.
Expansion through Integration

 Since a value chain is a set of interlinked

activities performed by an organization
right from the procurement of basic raw
materials down to the marketing of
finished products to the ultimate
consumers. So , the firm may move up or
down in the chain, this is what is called
INTEGRATION.
Types of Integration

 Horizontal Integration

 Vertical Integration
- Forward or Downstream Integration
- Backward or Upstream Integration
Types of Integration

 Horizontal Integration – It takes place

between two rival firms producing same
product or services.
 It may be adopted with a view to expand
geographically by buying a competitor’s
business.
 For Example – Brooke Bond and Lipton.
- Adidas and Reebok
Benefits of Horizontal Integration
 Economies of Scale – lower cost structure by
spreading over the fixed costs of operations over
a larger base of products.
 Economies of Scope – results in two or more
organizations using the same resource base to
produce a variety of products.
 Increased Market Power
 Reduction in Industrial Rivalry
Types of Integration

 Vertical Integration – When an org starts

producing new products that serve its own
needs, it takes place. Any new activity
undertaken with the purpose of either
supplying inputs or serving as a customer
for outputs is vertical integration.
 For Example – Vimal Textiles have their
own retail showrooms.
Types of Vertical Integration

Forward/Downstream Integration – It is a
case of the firm for advanced phases. It is
moving higher up in the production, and /or
distribution processes towards the end user
or consumer.
If the costs of selling the finished products
are lesser than the price paid to the sellers
to do the same thing, it is profitable for the
firm to move down the value chain.
Reasons for Forward Integration

Gaining better control over sales and

prices.
Improving the scope of quality of service
at downstream levels.
Harnessing the competitive advantage in
the broader perspective.
Types of Vertical Integration
 Backward/Upstream Integration – It involves
the addition of activities to ensure the firms of its
inputs. It means moving to earlier stages of
production to get inputs at the lowest price with
high quality and high quantity.

 If the costs of making are less than the costs of

procurement, firm moves up in the value chain.
 For Example – Polyester cloth firm starts
manufacturing polyester yarn.
Reasons for Backward Integration

 Getting regular and adequate supply of

inputs.
 To have the benefits of enhanced quality
control.
 To save the indirect taxes payable on
purchase of inputs.
 To improve the negotiation power with
suppliers.
Merits of Vertical Integration

ECONOMIES OF INTEGRATION
 Economies of combined operations.
 Economies of internal control and
coordination.
 Economies of Information.
 Economies of avoiding the market.
 Economies of stable relationships.
Merits of Vertical Integration

BEST TAPING OF TECHNOLOGY.

ASSURED SUPPLY OF INPUTS AND
DEMAND FOR END PRODUCTS
ENHANCED ABILITY TO
DIFFERENTIATE
OFF-SETTING BARGAINING POWER
AND INPUT COST-DISTORTIONS
Demerits of Vertical Integration

 Huge Capital Investments

 Danger of Imbalance of Technology
 Uncertainty and Instability of Demand
 Dangers of Size Difference
 Post-Integration Managerial Problems