PLACING STRATEGIES INTO ACTION – CORPORATE STRATEGIES

CORPORATE STRATEGY
- It is primarily about the choice of direction for a firm as a whole and the management of its business or
product portfolio.
- It deals with three key issues facing the corporation as a whole
• The firms overall orientation toward growth, stability, or retrenchment (directional strategy)
• The industries or markets in which the firm competes through its products and business units
( portfolio analysis)
• The manager in which management coordinates activities and transfers resources and cultivates
capabilities among product lines and business units (parenting strategy)

The 4E`s to Addressing Corporate Strategy

Corporate strategy, it is primarily

about the choice of direction for a
firm as a whole and the management
of its business or product portfolio.
Corporate strategy deals with three
key issues facing the corporation as a
whole. So, these three key issues
would deal about the directional
strategy, the second one is the
portfolio analysis, and the third one,
we have the parenting strategy.

Corporate strategy, therefore,

includes decision regarding the flow
of financial and other resources to
and from a company's product lines
and business units. Through a series of coordinating devices, certain company transfer skills and capabilities
developed in one unit to another unit that needs such resources. In that way, it attempts to obtain synergy among these
numerous product lines and business units so that the corporate whole is greater than the sum of its individual business
unit parts.
Now, for the corporate strategy, we have what we call the four E's to addressing corporate strategy. So, the four
corporate strategy options referred to by Thompson and Katz-Beryl that strategists can consider are the following. Of
course, it's four E's, so definitely there are four.
So, we have, of course, the extend, the expand, exit, and enhance. Now, when we talk about extend, it means you're
going to extend the business by going beyond its current business model by adapting a new business model or you
could also enter into new business, so that is extend, so going beyond its current business model. The other E, we have
expand.
So, this option takes the form of adding products and or could also add services within the context of the company's
existing business concern or present area of operation. So, parang expansion, diba? You expand. So, you're going to
take the form of adding products or services.
The other one, the other E, we have exit. This option takes the form of making some sacrifice by dropping some
product lines and services or business units deemed uncompetitive or those that are unprofitable or less profitable to
operate. So, exit means you're going to sacrifice by dropping some product lines.
And the fourth E, we have enhance. So, this option takes the form of adding functionality or improving a product or
service that is currently being offered. So, you're going to improve, you're going to add a functionality by, of course,
by adding something in that particular product or particular service that is being offered in the market.
DIRECTIONAL STRATEGY
Just as every product or business unit must follow a business strategy to improve its competitive position, every
corporation must decide its orientation toward growth by asking the following three questions
• Should we expand, cut back, or continue our operations unchanged?
• Should we concentrate our activities within our current industry, or should we diversify into other industries?
• If we want to grow and expand nationally and/or globally, should we do so through internal development or
through external acquisitions, mergers or strategic alliances.

A corporation's directional strategy is composed of three general orientations. Now, these directional strategies are, we
have the first one, the growth strategies, the stability strategies, and the last one is the retrenchment strategies. Now,
these directional strategies, growth, stability, or retrenchment, they are also sometimes called the grand strategies.
Now, an organization's mission and vision are the most fundamental forms of directional strategy. A mission
statement defines your business purpose and sets the overall tone for your strategic direction. Whereas, a vision
statement outlines what you hope to achieve as you work towards your mission and helps to focus your strategy
toward reaching your specific business goals.
Now, going back to our three grand strategies or the directional strategies, let us try to define what is this growth
strategy, the stability strategy, and of course, the retrenchment strategy. Now, under growth, a growth is a directional
strategy aimed at growth as used when you want to move beyond your current achievements associated with your
product, with your performance, profit, or other business measures. So, organizations following a growth strategy may
simply step up existing operations through maybe increased investment or efficiencies to create business expansion.
Other approaches would also include taking on additional activities previously handled by an external provider such
as, like for example, a pharmacy service or medical equipment maintenance, and diversifying now your services into
new sectors such as consumer health publishing or nutritional supplements. So, kumbaga, there is growth. So, that's
the first one, the growth strategy.
The second one, the stability. This is a directional strategy focused on stability, naman, strives to maintain the status
quo in your business operations and outcomes. So, stable, so it means maintain the status quo.
So, the low risk, moderate reward strategy requires no alteration to your existing practices. So, it is most appropriate
for organizations that operate within a reliable market and bring in consistent returns on investment. So, the approach
also may be useful as an interim strategy for businesses seeking to control growth or wait out a temporary change in
the market.
This strategy also assumes that your company is actually doing well under this current business model. Now, since the
pathway to growth is uncertain, you should employ a stability strategy to ensure incremental progress that would still
bring in revenue, which includes practices such as research and development, and of course, product innovation. An
example for this stability could be offering free trials of your existing products to your target agents to increase now
its engagement.
So, that is a stability. And then the third one, retrenchment. Retrenchment is a directional strategy designed to help
faltering companies improve their poor performance.
A retrenchment approach typically involves reducing operational costs and capacity through downsizing or cutting
down personnel and products, or could also be divesting underperforming business units and markets, and could also
outsource or outsourcing critical business functions. So, essentially, a retrenchment strategy is a turnaround tactic to
help you regain organizational strength and financial stability by scaling back in weak areas and focus on the parts of
your business that support competitive advantage and profit. So, retrenchment, this strategy is only used when the
company is looking to the protective measures in keeping the solvency of the business.
So, you should compile your SWOT or the Strength, Weaknesses, Opportunities, and Threat Analysis to see which
marketing you can successfully operate in. So, those are the three directional strategies or sometimes called also our
grand strategies.

GROWTH STRATEGY
• By far the most widely pursued corporate directional strategies are those designed to achieve growth in sales,
assets, profits or some combination. Companies that do business in expanding industries must grow to
survive. Continuing growth means increasing sales and a change to take advantage of the experience curve to
reduce the per unit cost of products sold, thereby increasing profits.

Reasons for adopting growth strategy

o In industry which are subject to frequent change in technology and other conditions , growth is
necessary for survival.
o Growth offers many economies because of large scale operations.
o Some believes that society benefits from growth strategies.
o Growing companies have high level of prestige in the corporate world.
o Increasing size may lead to more control over the market vis a vis competitors.

A corporation can grow internally by expanding its operations both

globally and domestically, or it can grow externally through mergers,
acquisition, and strategic alliances.

Growth is a very attractive strategy for 2 key reasons

• Growth based on increasing market demand may mask
flaws in the company – flaws that are immediately evident in
a stable or declining market. A growing flow of revenue into
a highly leveraged corporation can create a large amount of
organizational slack (unused resources) that can be used
quickly to resolve problems and conflicts between
departments and divisions.
• A growing firm offers more opportunities for advancement,
promotion, and interesting jobs.

Growth Strategy – Concentration

Concentration– if a company’s current product lines have real growth potential, concentration of resources on those
product lines makes sense as a strategy for growth.
Ansoff’s matrix is a tool for understanding at a high-level, the general direction of growth. It helps a firm match
products and markets.
Market penetration - Under this strategy the firm aims at increasing the sale of present product in the existing market
through aggressive promotion.
Market development - It implies increasing sales by selling present products in the new and unexplored markets
Product development - In this, the firm tries to grow by developing improved products for the present market.

By far, the most widely pursued corporate directional strategies are those designed to achieve growth in sales, growth
in assets, profits, or some combination. The basic growth strategies are concentration strategies, integration strategies,
and diversification strategies. In concentration strategies, if a company's current product lines have real growth
potential, concentration of resources on those product lines makes sense as a strategy for growth.
Now, concentration, these are also known as intensification or focus strategy. Under these strategies, the corporate
adapted the philosophy that doing what the company know they are best at doing. The objective, therefore, of
concentration strategy is to expand the organization's present businesses or business.
So, for many firms, concentration strategies are very sensible. These strategies involve trying to compete successfully
only within a single broad industry. Now, there are three concentration strategies.
The first one is we have the market penetration, second one, the market development, and third one, we have the
product development. Now, a firm can use one, two, or all three as part of their effort to excel within an industry. So,
Ansoff described these strategies in a certain matrix.
So, as you can see in your screen, we have there the Ansoff matrix. So, Ansoff matrix, this is a tool for understanding
at a high level. The general direction of growth.
It helps a firm match products and markets. The firm must decide whether to prioritize increasing profit or growth and
how the firm will achieve it. Take note, no one strategy is appropriate for all companies at all times.
Markets are defined as customer groups and products are items sold to customers. Now, let us try to look at the
different, what's this, the three concentration strategies. Let us start with the first one, which is the market penetration.
Under this strategy, the firm aims at increasing the sale at present product in the existing market through aggressive
promotion. So, the firm penetrates deeper into the market to capture a larger share of the market. Take note, a firm
pursuing market penetration strategy directs its resources to the profitable growth of an existing products in current
markets.
It is the most common form of intensive growth strategy. So, remember this one, market penetration is the most
common form of intensive growth strategy. So, the variants of these strategies, the market penetration strategies
variants are the following.
Number one, increase sales to current customers by habituating existing customers to use more. Kaya nga penetrate,
left them, this existing customer, pursue them or persuade them to use more. Second one, second variant of this
penetration strategy, pull customers from the competitor's products to company's products, maintaining existing
customers intact.
So, you pull customers or you persuade the customers of your competitors. The third one is you convert non-users of a
product into users of the product and making potential opportunity for increasing the sales. So, those are the three
variants of the penetration or market penetration.
The firm would try to increase actually market share for present products in current markets through increase of
marketing efforts like the increase of sales promotion, increase in advertising expenditure, could also be appointment
of skilled sales force, proper customer support and could also include after sales service. So, that is the market
penetration. The second one is the market development.
So, market development, it implies increasing sales by selling present products in the new and unexplored market. So,
new and unexplored markets. Generally, it is possible through the appointment of sales agents and dealers or the
development of new channels of distribution could also be in the form of franchising.
So, thus, in market development process, the firm tries to move into new geographical areas with its existing products.
However, the firm should try to incorporate some minor modifications, if any, in existing products to the local
conditions of that particular geographical area. So, they also need to adopt the local condition of that particular
geographic area if they would want to develop or if they would want to take the market development strategy.
This strategy, the market development, involves introducing present products or services into new geographic areas.
The marketing efforts are made on existing products to customers in related market areas or could also be by adding
different channels of distribution. So, the market development can be achieved in any of the following ways.
Number one, as I have mentioned a while back, they could add new distribution channels to expand the consumer
reach of the product or they could also enter new market segments. Another way is by entering new geographical
markets. So, those are the three ways, by adding new distribution channels, by entering new market segments or by
entering new geographical markets.
In market development strategy, a firm seeks to increase the sales by taking its product into new markets. The last one
is the product development. In this, the firm tries to grow by developing improved products for the present market.
It incorporates improvements in the quality and standard of the existing product as well as launching of new products
in the market. Product development is made possible through, first one, launching of new products through research
and development. And the second one is through product innovation.
So, this strategy involves the growth of market through substantial modification of existing products or creation of
new but related products that can be marketed to current customers through established channels. So, the variants of
this strategy again are expand sales through developing new product, create different quality version of the product
and develop additional models and sizes of the product to suit the varied preference of the customers. A company,
therefore, can increase its current business by product improvement or introduction of products with new features.
Now, as seen in the illustration, in the ANSOF matrix, diversification is included. So, in diversification, beyond a
certain point, it is no longer possible for a firm to expand in the basic product market. So, the firm now will seek to
increase sales by developing new product.
This strategy towards growth is called diversification. So, diversification does not imply involving adding variety in
the existing product line but adding completely different line of products. So, products added may be complementary.
So, diversification is a widely used strategy for growth. So, many companies have opted for diversification as a
growth strategy.

Growth Strategy – Integration Strategies

Integration strategies - It is done where the company attempts to widen the scope of its business definition in such a
manner that it results in serving the same set of customers. The alternative technology of the business undergoes a
change.
It is combing activities related to the present activity of a firm. Such a combination may be done through value chain.

• Vertical growth – can be achieved by taking over a function previously provided by a supplier or by a
distributor. The company in effect, grows by making its own supplies or by distributing its own product.
• Vertical growth results in vertical integration
• Vertical integration - the degree to which a firm operates vertically in multiple locations on an industry’s
value chain from extracting raw materials to manufacturing to retailing.

Growth Strategy – Types of Vertical Integration

Forward Integration. When a business takes over the distribution system and sells its products/services directly
to the customers. For instance, an automotive and mobile brand opens up its retail showrooms to sell vehicles and
mobile phones directly to the end consumers.

Backward Integration. When a business takes control over the supply of the raw material, it’s backward
integration. For instance, a supermarket and a fruit seller buy the vegetable and fruit farm to control the supply of
 its products. An automotive company buys the electronic parts and tire manufacturing companies to ensure the
availability of material.

Balanced Integration. As the name implies, balanced integration is a combination of forward integration and
backward integration. Here the business acquires both raw material supply chain and distribution channels to
control everything.

Growth Strategy - Vertical integration – Forward integration

• Forward vertical integration is another corporate option where the firm engages in business activities in the
area of distribution and retailing of the product or service directly to the customers.
• Vertical growth is a logical strategy for a corporation or business unit with a strong competitive position in a
highly attractive industry – especially when technology is predictable and markets are growing.

Situations favoring forward integration

• When an organization’s present distributors are especially expensive, or unreliable or incapable of
meeting the firm’s distribution needs;
• When the availability of quality distributors is so limited as to offer a competitive advantage to
those firm that integrate forward
• When an organization competes in an industry that is growing and is expected to continue to grow;
this is a factor because forward integration reduces an organization’s ability to diversify if its basic
industry falters;
• When an organization has both the capital and human resources needed to manage the new
business of distributing its own products;
• When the advantage of stable production are particularly high.

Growth Strategy – Vertical Integration

• Transaction cost economics proposes that vertical integration is more efficient than contracting for goods
and services in the marketplace when the transaction costs of buying goods on the open market become too
great.
• Harrigan proposes that a company’s degree of vertical integration can range from total ownership of the value
chain needed to make and sell a product to no ownership at all.

Vertical integration continuum

Businesses use vertical integration when they are facing competition. Vertical integration allows the company
to have control over various stages of supply, distribution, and production. Company chooses vertically integrated
strategy to make sure that they have complete control over the raw material, the supply chain, and manufacturing
processes.
Pagkatapos, ang pwede sa integrasyon vertikal ay pagkakaroon sa chanel distribution ng produkto ng
kumpanya. Harry Gun proposes that a company's degree of vertical integration can range from total ownership of the
value chain needed to make and sell a product to no ownership at all. Now, let us try to look at the illustration in your
slides.
Now, this is what we call the vertical integration continuum. Now, under this illustration, we can see the full
integration, the taper integration, the quasi-integration, and the long-term contract. Okay.
Now, when we talk about the full integration, the first one, a certain firm internally makes 100% of its key
supplies and completely controls its distribution. So, this means that the firm ventures into the incredible task of
creating or producing all the raw materials it needed to be able to produce a product and thus all the needed services to
push the product to the market and sell to its targeted market. So, 100% they produce the raw materials and 100% they
also distributed their finished products.
That is a full integration. The second one, we have the taper integration. This is also called concurrent
sourcing.
So, a firm internally produces less than half of its requirements and they're going to buy the rest from outside
supplier. So, when we talk about buying the rest materials needed from outside suppliers, this is what we call
backward taper integration. So, going backward to the source of the raw materials.
This option takes the form of using its resources to contain a majority of the inputs to its products so that it has
a certain level of control of the market price. So, the remaining minority of its inputs or materials is now sourced from
the open market. So, that is the taper integration.
The third one, we have the quasi integration. So, a company actually does not make any of its key supplies but
they're going to purchase most of its requirements from outside suppliers. But then, these outside suppliers are under
partial control.
So, we call that one the backward quasi integration. So, this strategy relies more on external sources for a
large part of its needs or raw materials inputs for its products. So, it's quasi because actually they're not producing,
they're not making any of its key supplies but they do buy from outside suppliers.
But again, these outside suppliers are under partial control of that particular company. And the last one is we
have the long-term contract. Long-term contract is an agreement between two firms to provide agreed upon goods and
services to each other for a specified period of time.
This cannot really be considered to be vertical integration unless it is an exclusive contract that specifies that
the supplier or the distributor cannot have a similar relationship with a competitive firm. So, that is a requirement to
consider this long-term contract under vertical integration. It should be under an exclusive contract.
In that case, the supplier or distributor is really a captive company that although officially independent, does
most of its business with the contracted firm and is formally tied to the other company through a long-term contract.

Growth Strategy – Horizontal Integration

Horizontal growth – a firm can achieve horizontal growth by expanding its operations into other geographic location
and/or by increasing the range of products and services offered to current markets. Research indicates that firms that
grow horizontally by broadening their product lines have high survival rates.
Horizontal growth results in horizontal integration.
Horizontal integration - the degree to which a firm operates in multiple geographic locations at the same point on an
industry’s value chain. (Ex. P&G continually adds additional sizes and multiple variations to its existing product lines
to reduce possible niches competitors may enter.
A corporation can grow internally by expanding its operations both globally and domestically, or it can grow
externally through mergers, acquisition, and strategic alliances.
Merger - corporate combination of two or more independent business corporations into a single enterprise, usually the
absorption of one or more firms by a dominant one.
Acquisition (takeover)
– purchase of a company that is completely absorbed as an operating subsidiary or division of the acquiring
corporation.
- Takeover may be defined as ‘a transaction or series of transactions whereby an individual or group of
individuals or company acquires control over the management of the company by acquiring equity shares
carrying majority voting power’.

Kinds of Takeover:
1. Friendly takeover
2. Hostile takeover
 3. Bailout takeover
4. Tender offer
5. Purchase of assets
6. Management buyout
Strategic alliance- is another option involving a partnership among two or more corporations or business units to
achieved strategically significant objectives that are mutually beneficial.

A corporation can grow internally by expanding its operations both globally and domestically, or it can grow
externally through mergers, acquisition, and strategic alliances. Merger is a corporate combination of two or more
independent business corporations into a single enterprise. Usually, the absorption of one or more firms by a dominant
one.
A merger may be accomplished by one firm purchasing the other assets with cash or its securities, or by purchasing
the other shares or stocks or by issuing its stocks to the other firms' stockholders in exchange for their shares in the
acquired firm. This usually occurs between firms of somewhat similar size and are usually friendly in nature, meaning
there was a mutual consent among merging companies and not a hostile takeover. Acquisition, on the other hand, is
the purchase of a company that is completely absorbed as an operating subsidiary or division of the acquiring
corporation.
Acquisition usually occurs between firms of different sizes and can be either friendly or hostile. Hostile acquisition is
termed as takeover. A takeover generally involves the acquisition of a certain block of equity capital of a company
which enables the acquirer to exercise control over the affairs of the company.
The main objective of takeover bid is to obtain legal control of the company. Takeover is an acquisition of shares
carrying voting rights in a company with a view to gaining control over the assets and management of the company.
Now, let us try to look at the different kinds of takeover.
We have six actually. The way in which controlling interest can be attained would be through the following. We have
the six kinds of takeover.
The first one is we have the friendly takeovers. In a friendly takeover, the acquirer will purchase the controlling shares
after thorough negotiations and agreement with the seller. The consideration is decided by having friendly
negotiations.
The takeover bid is finalized with the consent of majority shareholders of the target company. This form of purchase is
also called as consent takeover. So, the other term for friendly takeovers would be consent takeover.
In a friendly takeover, the acquirer first approaches the promoters or the management of the target company for
negotiating and acquiring the shares. Friendly takeover is for mutual advantage of acquirer and the acquired
companies. The second kind of takeover is we have the hostile takeover.
A person seeking control over a company purchases the required number of shares from non-controlling shareholders
in the open market. This method normally involves purchasing of a small holding of small shareholders over a period
of time at various places. As a strategy, the purchaser keeps his identity a secret.
So, these takeovers are also referred to as violent takeovers. Violent takeovers. The hostile takeover is againt the
wishes to the target company management.
So, acquirer makes a direct offer to the shareholders of the target company without the prior consent of the existing
promoter or of the existing management. Another kind of takeover is the bailout takeovers. These forms of takeover
are resorted to bail out the sick companies to allow the company for rehabilitation as per the schemes approved by the
financial institutions.
The lead financial institution will evaluate the bids receiver for acquisition, the financial position and track record of
the acquirer. The fourth kind of takeover is we have the tender offer. In a tender offer, one firm offers to buy the
outstanding stock of the other firm at a specific price and communicates this offer in advertisements and mailings to
stockholders.
By doing so, it bypasses the incumbent management and board of directors of the target firm. Consequently, tender
offers are used to carry out hostile takeovers. The acquired firm will continue to exist as long as there are minority
stockholders who refuse the tender.
From a practical standpoint, however, most tender offers eventually become mergers if the acquiring firm is successful
in gaining control of the target firm. Other kind of takeover is we have the purchase of assets. In a purchase of assets,
one firm acquires the assets of another.
Though a formal vote by the shareholders of the firm being acquired is still needed. And the last kind of takeover, we
have the management buyout. So in this form, a firm is acquired by its own management or by a group of investors,
usually with a tender offer.
After the transaction, the acquired firm can cease to exist as a publicly traded firm and become a private business.
These acquisitions are called management buyouts if managers are involved and leveraged buyout if the funds for the
tender offer come predominantly from the debt.

Two main kinds of Strategic Alliance

1. Equity alliances
2. Non-equity alliances

Types of Strategic Alliances

1. Scale alliances
2. Access alliances
3. Complementary alliances
4. Collusive alliances

Strategic alliance is another option involving a partnership among two or more corporations or business units to
achieve strategically significant objectives that are mutually beneficial. An alliance is defined as associations to
further the common interest of the members. Strategic alliance is an arrangement or agreement under which two or
more firms cooperate in order to achieve certain commercial objectives.
The motives behind strategic alliance are to reduce cost, technology sharing, product development, market access,
availability of capital, risk sharing, and others. The concept of alliance is gaining importance in infrastructure sectors,
more particularly in the areas of power, oil, and gas. The objective is to facilitate the transfer of technology while
implementing large objectives.
The resultant benefits are shared in proportion to the contribution made by each party in achieving the targets. In
strategic alliance, two or more firms that unite to pursue a set of agreed-upon goals remain independent subsequent to
the formation of an alliance. There are two main kinds of strategic alliance.
We have the equity and the non-equity alliances. The equity alliance, this involves the creation of a new entity that is
owned separately by the partners involved. The most common form of equity alliance is the joint venture, where two
companies remain independent but set up a new company that is jointly owned by the parents.
Alliances can also be formed with several partners and these are termed as a consortium alliance. The other kind of
strategic alliance is we have the non-equity alliances. They are typically loser and do not involve the commitment
implied by ownership.
Non-equity alliances are often based on contracts. One common form of contractual alliance is franchising, where one
company, the franchisor, gives another company, the franchisee, the right to sell the franchisor's products or services
in a particular location in return for a fee or loyalty. Now, we have different types of strategic alliances.
We have the scale alliances, we have the access alliances, the complementary alliances, and the collusive alliances.
Strategic alliances allow a company to rapidly extend its strategic advantage and generally require less commitment
than other forms of expansion. A key motivator is sharing resources or activities, although there may be less obvious
reasons as well.
Now, there are four types of alliances, starting with, of course, the first one, which is the scale alliances. This involves
companies combining to achieve necessary scale. The capabilities of each partner may be quite similar, but together,
they can achieve advantages that they could not easily achieve on their own.
Thus, combining together can provide what we call now the economies of scale in the production of outputs.
Combining might also provide economies of scales in terms of inputs, for example, by reducing the purchasing costs
of raw materials or services. Another type of strategic alliance is we have the access alliances.
This involves a company allying in order to access the capabilities of another company that are required to produce or
sell its own products and services. For example, in countries such as Mexico, which is a Western company, Mexico
might need to partner with local distributor to access effectively the national market for its products and services. The
local company is critical to the international company's ability to sell.
Access alliances can also work in the opposite direction. With a local company or seeking a licensing alliance to
access inputs from an international company, for example, the technologies or the brands. The other type of strategic
alliances, we have the complementary alliances.
This involves companies at similar points in the value network combining their distinctive but complementary
resources so that each partner is bolstered where it has particular gaps or weaknesses. And the last one is we have the
collusive alliances. This involves companies colluding secretly to increase their market power.
By combining into cartels, they reduce competition in the marketplace, enabling them to extract higher prices from
customers or lower prices from suppliers. Such collusive cartels among for-profit businesses are discouraged by
regulators. For instance, mobile phone and energy companies are often accused of collusive behavior.

International Entry Options for Horizontal Growth

• Exporting
• Licensing
• Franchising
• Join Venture
• Green-Field Development
• Product Sharing
• Turnkey Operations
• BOT Concept (Build, Operate, Transfer)
• Management Contract
• Piggybacking

This time let us discuss about the international entry options for horizontal growth. So some of the most popular
options for international entry would include exporting, licensing, franchising, the joint venture, the greenfield
development, the product sharing, the turnkey operations, the BOT concept, the management contract, and the
piggybacking. For the first one, exporting, this is a good way to minimize risk and experiment with specific product.
Exporting is shipping goods produced in the company's home country to other countries for marketing. Direct
exporting is selling directly to the market you have chosen using in the first instance your own resources. Many
companies, once they have established a sales program, turn to agents and or distributors to represent them further in
the market.
Agents and distributors work closely with you in representing your interests. They become the face of your company
and thus, it is important that your choice of agents and distributors is handled in much the same way you would hire a
key staff person.
Another international entry option is the licensing. Under a licensing agreement, the licensing firm grants right to
another firm in the host country to produce and or sell a product. The licensee pays compensation to the licensing firm
in return for technical expertise. Licensing essentially permits a company in the target country to use the property of
the licensor.
Such property is usually intangible, such as trademarks, patents, and production techniques. The licensee pays a fee in
exchange for the rights to use the intangible property and possibly for technical assistance as well. Because little
investment on the part of the licensor is required, licensing has the potential to provide a very large return on
investment.

However, because the licensee produces and markets the product, potential returns from manufacturing and marketing
activities may be lost. Thus, licensing reduces cost and involves limited risk. However, it does not mitigate the
substantial disadvantages associated with operating from a distance.
As a rule, licensing strategies inhibit control and produce only moderate returns. Another international entry option is
we have the franchising. Under a franchising agreement, the franchisor grants rights to another company to open a
store using the franchisor's name and operating system.
Franchising works well with firms that have a repeatable business model, like for example food outlets, that can be
easily transferred into other markets. There are two requirements when considering or using the franchise model. The
first is that your business model should either be very unique or have strong brand recognition that can be utilized
internationally.
And secondly, you may be creating your future competition in your franchisee. Another international entry option we
have the joint ventures. A joint venture may be an association between a company and a firm in the host country or a
government agency in that country.
Joint ventures are a particular form of partnership that involves the creation of a third independent managed company.
A joint venture with multinational companies contribute to the expansion of production capacity, the transfer of
technology and capital, and above all, penetrating into global market. Entering into a joint venture is a part of strategic
business, policy to diversity, and enter into new markets, acquire finance, technology, patents, and of course brand
name.
Okay, so another international entry option would be the acquisition. Acquisition, this is a relatively quick way to
move into an international area wherein you're going to purchase another company already operating in that area. In
some markets buying an existing company may be the most appropriate entry strategy.
Another option is the greenfield development. If a company doesn't want to purchase another company's problems
along with its asset, it may choose greenfield development and build its own manufacturing plant and distribution
system. Greenfield investments require the greatest involvement in international business.
A greenfield investment is where you buy the land, build the facility, and operate the business on an ongoing basis in a
foreign market. It is certainly the most costly and holds the highest risk, but some markets may require you to
undertake the cost and risk due to government regulations, transportation costs, and the ability to access technology or
skilled labor. Another option is a product sharing.
So, this means the process of combining the higher labor skills and technology available in developed countries with
the lower cost labor available in developing countries. Product sharing is often called outsourcing.
Okay, another international entry option is the turnkey operations. So, this typically contracts for the construction of
operating facilities in exchange for a fee. The facilities are transferred to the host country or firm when they are
complete. The customer is usually a government agency.
So, the turnkey projects are particular to companies that provide services such as environmental consulting,
architecture, construction, and engineering. A turnkey project is where the facility is built from the ground up and
turned over to the client ready to go. Turn the key and the plant is operational.
Another international entry option is a BOT concept. The BOT stands for build, operate, and transfer concept. This is
a variation of the turnkey operations.
So, instead of turning the facility over to the host country when completed, the company operates the facility for a
fixed period of time during which it earns back its investment plus a profit. So, it then turns the facility over to the
government at a little or no cost to the host country.
Another option is the management contract. So, it offers a means through which a corporation can use some of its
personnel to assist a firm in a host country for a specified fee and period of time.
And the last one is the piggybacking. This is a particularly unique way of entering the international arena. If you have
a particularly interesting and unique product or service that you sell to large domestic firms that are currently involved
in foreign markets, you may want to approach them to see if your product or service can be included in their inventory
for international markets. This reduces your risk and costs because you are essentially selling domestically and the
larger firm is marketing your product or service for you internationally.
Diversification Strategies

According to the strategist Richard Romelt, companies

begin thinking about diversification when their growth has
plateaued and opportunities for growth in the original
business have been depleted. This often occurs when an
industry consolidates, becomes mature and most of the
surviving firms have reached the limits of growth using
vertical and horizontal growth strategies.
Motives for Diversification
GROWTH
- The desire to escape stagnant or declining industries a powerful motives for diversification (e.g. tobacco,
oil, newspapers).
- But, growth satisfies managers not shareholders.
- Growth strategies (esp. by acquisition), tend to destroy shareholder value.

RISK SPREADING
-- Diversification reduces variance of profit flows
-- But, doesn’t create value for shareholders—they can hold diversified portfolios of securities.
-- Capital Asset Pricing Model shows that diversification lowers unsystematic risk not systematic risk.

PROFIT
-- For diversification to create shareholder value, then bringing together of different businesses under
common ownership and must somehow increase profitability.

BASIC DIVERSIFICATION STRATEGIES

Concentric (Related) Diversification – Growth through concentric diversification into related industry may be a very
appropriate corporate strategy when a firm has strong competitive position but industry attractiveness is low. Doing
this option is done either by investing in a new business or start-up or simply investing in existing business
organizations.

Situations favoring concentric diversification

 • When an organization competes in a no-growth or a slow growth industry;
• When adding new, but related products significantly would enhance the sales of current products;
• When new but related products could be offered at highly competitive prices;
• When new but related products have seasonal sales levels that counterbalance an organization’s existing peaks
and valley
• When an organization’s products are currently in the decline stage of the product life cycle
• When an organization has strong management team
According to the strategist Richard Rommelt, companies begin thinking about diversification when their growth has
plateaued and opportunities for growth in the original business have been depleted. This often occurs when an industry
consolidates, becomes mature, and most of the surviving firms have reached the limits of growth using vertical and
horizontal growth strategies. Now, there are two basic diversification strategies.
We have the concentric or the related diversification, and the other one is the conglomerate or the unrelated
diversification. Now, on the first one, the concentric or related diversification, growth through concentric
diversification into related industry may be a very appropriate strategy when a firm has a strong competitive position,
but industry attractiveness is low. Now, in terms of competitive advantage or competitive advantage can result from
related diversification if opportunities exist to, first one, transfer expertise, capabilities, and technology.
Second one, combine related activities into a single operation and reduce cost. Third one, leverage use of firm's brand
name reputation. And the last one, conduct related value chain activities in a collaborative fashion to create valuable
competitive capabilities.
Now, the different approaches that can be used under this related or concentric diversification are the following. One,
you can share or sharing of sales force, advertising, or distribution activities. Another one is exploiting closely related
technologies.
We can also or companies can also transfer know-how or expertise from one business to another. Another approach
could be transferring brand name and reputation to a new product or service. And the last approach could be acquiring
new businesses to uniquely help firm's position in existing businesses.
Concentric diversification may be employed for the following purposes. Number one could be to counteract silica
fluctuations in the present products or services. Number two could be to utilize the cash flows generated by the
existing product or service.
Number three, to face saturation of demand for the present product or service. Number four, to gain managerial
expertise in new field of businesses. And the last one, to capitalize on the reputation of present product or service.

Conglomerate (Unrelated) Diversification - diversifying into an industry unrelated to its current one. This option
allows the company to venture into other products or services not only as a fallback but as a venue or opportunity for
the expansionary options in the future.
Situations favoring conglomerate diversification
• When an organization’s basic industry is experiencing declining annual sales and profits
• When an organization has the capital and managerial talent needed to compete successfully in a new industry
• When an organization has the opportunity to purchase an unrelated business that is attractive investment
opportunity;
• When existing market for an organization’s present products are saturated

Conglomerate or unrelated diversification is diversifying into an industry unrelated to its current one. This option
allows the company to venture into other products or services not only as a fallback but as a venue or opportunity for
the expansionary options in the future. In this growth strategy, a firm enters into business which is unrelated to its
existing business both in terms of technology and marketing.
Unrelated or conglomerate diversification involves diversifying into businesses with no strategic fit, no meaningful
value chain relationships, and no unifying strategic theme. The approach is to venture into any business in which we
think we can make a profit. Firms pursuing unrelated diversifications are often referred to as conglomerates.
So, what are considered as attractive targets? One would be companies with undervalued assets. For, if companies
with undervalued assets, capital gains may be realized, which makes it an attractive target. Another one could be
companies in financial distress.
So, this may be purchased at bargain price and turned around. And the third one is the companies with bright
prospects but limited capital. Conglomerate diversification strategy may be adapted for the following reasons.
So, we have six reasons. The first reason could be to achieve a growth rate higher than what can be realized through
expansion. Another reason could be to make better use of financial resources with retained profits exceeding
immediate investment needs.
Another reason is to avail of potential opportunities for profitable investment. Or it could also be to achieve distinctive
competitive advantage and greater stability. Another reason could be to spread the risks.
And last one, to improve the price-earning ratio and market price of the company shares.

Levels and Types of Diversification

STABILITY STRATEGIES
□ A corporation may choose stability over growth by continuing its current activities without any significant
change in direction.

Popular strategies
Pause/proceed-with-caution strategy is, in effect, a timeout – an opportunity to rest before continuing a
growth or retrenchment strategy. It is a very deliberate attempt to make only incremental improvements until a
particular environmental situation changes.

No change strategy – is a decision to do nothing new – a choice to continue current operations and policies for
the foreseeable future. Rarely articulated as a definite strategy, a no change strategy’s success depends on lack
of significant change in a corporations situation.

Profit strategy is a decision to do nothing new in a worsening situation but instead to act as though the
company’s problems are only temporary. The profit strategy is an attempt to artificially support profits when a
company’s sales are declining by reducing investment and short term discretionary expenditures.
A corporation may choose stability over growth by continuing its current activities without any significant change in
direction. Popular stability strategies would include the pause, proceed with caution strategy, other one would be the
no change strategy, and then the third one is we have the profit strategy. The first strategy, pause, proceed with caution
strategy, is in effect a time out, an opportunity rest before continuing a growth or a retrenchment strategy.
Firms that wish to test the ground before launching a complete generic strategy usually follow this type of approach.
This approach is necessary where an intervening period of consolidation is thought essential before embarking on
major expansion spree. The objective is to ensure that the strategic changes flow down the organizational levels,
necessary structural changes take place, and the organizational systems adapt to new strategies.
Thus, pause, proceed with caution strategy is also a short run deliberate and conscious effort to postpone major
strategic changes to a more appropriate time. The second stability strategy is the no change strategy. A no change
strategy is a decision to do nothing new, a choice to continue current operations and policies for the foreseeable future.
Rarely articulated as a definite strategy, a no change strategy's success depends on a lack of significant change in a
corporation's situation. The relative stability created by the firm's modest competitive position in an industry facing
lethal or no growth encourages the company to continue on its current course, making only small adjustments for
inflation in its sales and profit objectives. So under this second one, there are no obvious opportunities or threats, nor
much in the way of significant strength or weaknesses.
Few aggressive new competitors are likely to enter such an industry. The corporation has probably found a reasonable,
profitable and stable niche for its products. So unless the industry is undergoing consolidation, the relative comfort a
company in this situation experiences is likely to encourage the company to follow a no change strategy in which the
future is expected to continue as an extension of the present.
The third stability strategy is the profit strategy. Under the profit strategy, this is a decision to do nothing new in a
worsening situation, but instead to act as though the company's problems are not temporary. So the profit strategy is
an attempt to artificially support profits when a company's sales are declining by reducing investment and short term
discretionary expenditures.

RETRENCHMENT STRATEGIES
□ A company may pursue retrenchment strategies when it has a weak competitive position in some or all of its
product lines resulting in poor performance – sales are down and profits are becoming losses. These strategies
impose a great deal of pressure to improve performance.

Popular strategies
Turnaround strategy – emphasizes the improvement of operational efficiency and is probably most
appropriate when a corporation’s problems are pervasive but not yet critical. It is a strategy adopted by
firms to stop the decline and revive their growth.
2 basic phases of turnaround strategy
- Contraction (retrenchment)
- Consolidation (growth and development/recovery)
Captive company strategy – involves giving up independence in exchange for s
security
Sell-out strategy – makes sense if the management can still get a good price for its shareholders and the
employees can keep their jobs by selling the entire company to another firm.
Liquidation/Bankruptcy – involves giving up management of the firm to the courts in return for some
settlement of the corporations obligations.

A company may pursue retrenchment strategies when it has a weak competitive position in some or all of its product
lines resulting in poor performance. Retrenchment is a short-run renewal strategy designed to overcome organizational
weaknesses that are contributing to declining performance. It is meant to refill and rejuvenate the organizational
resources and capabilities so that the organization can regain its competitiveness.
Retrenchment may be thought as a minor surgery to correct a problem. Managers would often try a minimal treatment,
first cost-cutting or a small layoff, hoping that nothing more painful will be needed to turn the firm around. When
performance measures reveal a more serious situation, more radical action is needed to restore the performance.
Even sometimes organization also needs to exit from businesses to cut down the losses and improve performance.
Popular strategies under the retrenchment strategies would include the turnaround strategy, the captive company
strategy, the sell-out strategy, and the liquidation bankruptcy strategy. The first popular strategy, which is the
turnaround strategy, this would emphasize the improvement of operational efficiency and is probably most appropriate
when a corporation's problems are pervasive but they are not yet critical.
It is a strategy adopted by firms to stop the decline and revive their growth. A turnaround situation exists when a firm
encounters several years of declining financial performance subsequent to a period of prosperity. In simple words,
turnaround situation is nothing but absolute and relative to industry declining performance of a sufficient degree to
warrant explicit turnaround actions.
The response to turnaround situations can be broken down to two phases. The first phase is the contraction or it is also
termed as the retrenchment phase. The second one is the recovery or the consolidation phase.
Now, under contraction or the retrenchment, this is the initial effort to quickly stop the bleeding with the general
across the board cutback in size and in cost. The contraction or the retrenchment phase is focused on the firm's
survival and achievement of a positive cash flow. So, the means to achieve this objective needs an emergency plan to
stop the firm's financial bleeding.
So, it involves the classic retrenchment activities such as the liquidation, the divestment, the product elimination, and
the downsizing of workforce. The retrenchment strategies are also characterized by the revenue generating, product
market refocusing, or cost cutting and asset reduction activities. When severity is low, a firm has some financial
buffer.
Stability may be achieved through cost reduction alone. When the turnaround situation severity is high, a firm must
immediately arrest the decline or bankruptcy is imminent. Cost reduction must be supplemented with more drastic
asset reduction measures.
Assets targeted for reduction are those ones which are unproductive. In contrast, more productive resources are
protected from cuts and further reconfigured as critical elements of the future core business plan of the company. The
second one is we have the consolidation or the growth and development.
So, under the second basic phase of turnaround strategy, this involves a return to growth or recovery stage. And the
turnaround process shifts away from retrenchment and move towards growth and development. It is often seen that
those firms declined due to external factors needs entrepreneurial reconfiguration.
Recovery through efficiency maintenance or maintaining a linear efficient organization post-retrenchment would be
possible if turnaround causes are internal. Means such as acquisitions, new products, new markets and increased
market penetration would fall under entrepreneurial reconfiguration. Recovery is said to have been achieved when
economic measures indicate that the firm has regained its pre-downturn levels of performance.
The second popular strategy under the retrenchment strategy is a captive company strategy. So, this involves giving up
independence in exchange for security. A company with a weak competitive position may not be able to engage in
full-blown turnaround strategy.
The industry may be sufficiently attractive to justify such an effort from either the current management or the
investors. Captive strategy means relinquishing independence in exchange for security. Company with very weak
position or company is operating in such industry which is not sufficiently attractive or both may not initiate full-
blown turnaround strategy.
In these circumstances, company's management search for an angel by offering to be captive company to one of its
larger customers in order to guarantee company's existence through long-term contract. So, by this way, company may
reduce its cost and scope of some functional activities. And the third retrenchment strategy is we have the sell-out
strategy.
So, this makes sense if the management can still get a good price for its shareholders and the employees can keep their
jobs by selling out the entire company to another firm. So, the hope is that another company will have the necessary
resources and determination to return the company to profitability. If the corporation has multiple business lines, it
chooses to sell off a division with low growth potential.
This transaction is what we call divestment. So, divestment is often used after a corporation acquires a multi-unit
corporation in order to shed the units that do not fit with the corporation's new strategy. Divestment strategy involves
the sale of a company or major component of it.
This option is suitable for those corporations operating with weak competitive position in the industry. If turnaround
and captive strategies are not viable, then this strategy is adapted. So, the sell-out strategy makes sense if management
can obtain a good price for its shareholders and the employees can keep their jobs.
The last retrenchment strategy is the liquidation and bankruptcy. Liquidation is the termination of the company. This
is the last resort to any company when all other attempts of turnaround captive companies sell-out would fail.
In case of liquidation, a firm has to go through tedious and complex legal formalities. Sometimes, firm's management
is given to courts in return for some settlement of its obligation. This is referred as bankruptcy.
While the terms bankruptcy and liquidation are often used together, they technically mean two different things.
Liquidation is part of bankruptcy, but it is not the entire process. Bankruptcy deals with a much more broad scope of
events that lead to the eventual discharge of firm's debts.