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CH 6 Notes
CH 6 Notes
CH 6 Notes
Corporate Strategy is what makes the whole company greater than the sum of its business units.
Diversification Manage additional businesses - Apply excess resources, capabilities, and core competencies that have multiple uses
Corporate Strategy
Directional Strategy overall orientation towards growth, stability, retrenchment Portfolio Strategy industries/markets that the firm competes in through products lines & business units Parenting Strategy coordination and transfer of resources between product lines & business units
Geographic Diversification: (In this case undiversifying) Example: Waste Management sold its Australian and Italian waste management subsidiaries.
Limited Diversification
Single Business
95% or more of corporate revenue come from a single business unit Wm. Wrigley Jr. Co.
Limited Diversification
Between 70-95% of corporate revenues comes from a single business unit. Hershey Foods Corporation
Related Diversification
of firm revenues comes from a single business unit, and different business units share numerous links and common attributes.
Proctor & Gamble
Related Linked Diversification Less than 70 percent of firm revenues comes from a single business unit, and different business units share only a few links and common attributes or different links and common attributes. General Electric
Unrelated Diversification
Less than 70% of firm revenues comes from a single business, and there are few, if any, links or common attributes among businesses.
Vertical Integration: Coordinating upstream activities (those closer to the raw materials) with downstream activities (those closer to the customer)
Differences in minimum efficient scale in vertically integrated corporation. Must remain innovative in all Value Chain activities. Possible incompatibilities between managerial skills and corporate cultures that make upstream and downstream activities successful.
Corporate managers have expertise to recognize undervalued stocks that many individual investors would miss. Corporations have economies of scale for financing acquisitions that individuals do not. Horizontal Integration Costs:
Conglomerate discount: value of stock of conglomerate sells for less than total value of individual stocks. Takeover premiums: corporations usually pay a premium over the normal trading price of the targets stock.
Unilever PLC (Anglo-Dutch) buys SlimFast for $2.3 billion and Ben & Jerrys for $326 million
First deal (SlimFast) is a high price but it has got good growth rates. Second deal (Ben & Jerry's) is a very high price, but it has got some very difficult growth rates Ben & Jerrys deal seen as a competitive response to an agreement by Unilever's arch-rival Nestle SA (Swiss) last year to form a U.S. ice cream joint venture with Pillsbury (unit of
Diageo British).
The Nestle-Pillsbury deal put together Nestle's U.S. novelty ice cream unit and Pillsbury's U.S. Haagen-Dazs business, creating a strong force in the growing premium ice cream market.
Study by McKinsey & Company: only 23% of mergers over a 10-year period generated returns in excess of costs incurred in the deal. THINK ABOUT AOL-TIME WARNER!!! Acquisition: one firm buys controlling interest in another firm; acquired firm becomes subsidiary in acquirers business portfolio.
(Hostile)Takeover: acquisition that was not solicited
Increased market power Capitalizing on core competencies Overcome entry barriers Bypass cost of new product development: Increased speed to market Increased diversification Avoiding excessive competition
Integration difficulties
Portfolio Analysis
BCG Growth-Share Matrix
questions marks: business growth rate - high; relative competitive position - weak stars: business growth rate - high; relative competitive position - strong cash cows: business growth rate - low; relative competitive position - strong dogs: business growth rate - low; relative competitive position - weak
Portfolio Analysis
Strengths: evaluate businesses individually, raises issues of cash flow for expansion Weaknesses: difficult to define product & market segments, subjective determinations, lack of clarity of product life cycle position, static comparisons.
Industries:
Heinz group - infant feeding products, sauces, convenience meals, seafood, pet food, and food service. UBFCF - processing and supply to resellers of frozen and chilled foods.
Combined Revenues:
Do not achieve more than 2/3 of aggregate Community-wide turnover in one member state, so qualifies as having Community dimension.
products would have market share in excess of 25% is the Irish market for frozen ready-made meals, where parties achieve 30%.
However, merged entity will continue to face competition from rapidly growing retailer brands (value increased by over 50% over three years) that account for 30% of market. Birds Eye has more than 10% and Nestle has more than 5% market share.