Lecture 6_Diversification_Integration_Post

Lecture 6_Diversification_Integration_Post -...

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DIVERSIFICATION & VERTICAL INTEGRATION
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3 Dimensions of Corporate Strategy Business Diversification: Horizontal expansion Vertical Integration: Forward or backward expansion Geographic Scope: Geographic and/or global expansion
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DIVERSIFICATION: Horizontal Expansion
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Core Business Closely Related Business Increasingly Unrelated Businesses Patterns of Diversified Expansion
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Key Questions in Diversification Decisions Resources On which resources could diversification be based? Can they contribute to competitive advantage in another business? Which could be developed further through additional investment or experience? Businesses Is there an attractive opportunities for expansion? Is there a defensible position to be built in the business? Does the business relate to the firm’s existing businesses? Would additional resources be required? How do you acquire the resources, and at what cost? Plan What is the overall plan and implementation? Which markets, segments, and what sequence?
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Motives for Diversification Operational economies of scope and scale: Shared and transferred activities Leveraging core competencies • Information advantage Financial economies of scope: Internal Capital Market Internal capital allocation Risk reduction Tax advantages Anticompetitive economies of scope: Market Power • Multi-point competition Exploiting market power Employee Incentives: Growth Motive Diversifying employees’ risk and improving promotion chances Maximizing management compensation • Avoiding declining industries
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Advantage of Scope Economies Corporate Scope Business unit competitive advantage Common Customer Common channels Brand Value Lower cost Higher quality Competitive Advantage Lower cost Higher quality Shared facilities, logistics, and purchasing Common technology Shared operating skills
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Key Characteristics * Exploits Interrelationships among divisions * Start with Value Chain analysis Identify ability to transfer skills or expertise among similar value chains
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This note was uploaded on 03/07/2012 for the course BUS 375 taught by Professor Siri during the Spring '12 term at University of Illinois, Urbana Champaign.

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Lecture 6_Diversification_Integration_Post -...

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