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21download_doc-8.php - J370Session8 VerticalIntegration...

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J370 Session 8 Vertical Integration Class Session #8 – Thursday, September 24 Dr. Siri Terjesen The Strategic Management Process Logic of Corporate Level Strategy Corporate level strategy should create value: 1. such that the value of the corporate whole increases 2. such that businesses forming the corporate whole are worth more than they would be  under  independent ownership 3. that equity holders cannot create through portfolio investing  * a corporate level strategy should create synergies that are not available in equity markets Key Benefit of Vertical Integration: Value Chain Economies What is Vertical Integration? What is Vertical Integration? Value Chain Economies Competitive Advantage Market vs Hierarchy (integration) as Economic Exchange Markets and integrated hierarchies are ‘forms’ in which economic exchange can take  place market: transaction occurs outside the firm (Leprino buys milk from dairy farms) Integrated: transaction occurs inside the firm (Leprino buys dairy farms) Economic exchange should be conducted in the form that maximizes value for the focal  firm thus, firms assess which form is likely to generate more value  Market vs Hierarchy  Value of Vertical Integration Birds Eye Rarity of Vertical Integration Integration vs. Non-Integration
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21download_doc-8.php - J370Session8 VerticalIntegration...

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