B the products use similar distribution channels C the target market is the

B the products use similar distribution channels c

This preview shows page 119 - 128 out of 169 pages.

B. the products use similar distribution channels. C. the target market is the same, even if the products are very different. D. the methods of production are the same. 6-119 Dr. M. Usman Aleem
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Related Diversification: Leveraging Core Competencies Core competencies reflect the collective learning in organizations. Can lead to the creation of value and synergy if… They create superior customer value The value chain elements in separate businesses require similar skills They are difficult for competitors to imitate or find substitutes for 6-120 Dr. M. Usman Aleem
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Related Diversification: Sharing Activities Corporations can also achieve synergy by sharing activities across their business units. Sharing tangible & value-creating activities can provide payoffs: Cost savings through elimination of jobs, facilities & related expenses, or economies of scale Revenue enhancements through increased differentiation & sales growth 6-121 Dr. M. Usman Aleem
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Related Diversification: Market Power Market power can lead to the creation of value and synergy through… Pooled negotiating power Gaining greater bargaining power with suppliers & customers Vertical integration - becoming its own supplier or distributor through Backward integration Forward integration 6-122 Dr. M. Usman Aleem
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Example: Question? Shaw Industries , a giant carpet manufacturer, increases its control over raw materials by producing much of its own polypropylene fiber, a key input into its manufacturing process. This is an example of A. leveraging core competencies. B. pooled negotiating power. C. vertical integration. D. sharing activities. 6-123 Dr. M. Usman Aleem
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Related Diversification: Vertical Integration Exhibit 6.3 Simplified Stages of Vertical Integration: Shaw Industries 6-124 Dr. M. Usman Aleem
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Related Diversification: Vertical Integration 1. It is the company satisfied with the quality of the value that its present suppliers & distributors are providing? 2. Are there activities in the industry value chain presently being outsourced or performed independently by others that are a viable source of future profits? 3. Is there a high level of stability in the demand for the organization’s products? 4. Does the company have the necessary competencies to execute the vertical integration strategies? 5. Will the vertical integration initiatives have potential negative impacts on the firm’s stakeholders? 6-125 Dr. M. Usman Aleem
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Related Diversification: Vertical Integration The transaction cost perspective Every market transaction involves some transaction costs : Search costs Negotiating costs Contract costs Monitoring costs Enforcement costs Need for transaction specific investments Administrative costs 6-126 Dr. M. Usman Aleem
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Unrelated Diversification Unrelated diversification enables a firm to benefit from vertical or hierarchical relationships between the corporate office & individual business units through… The corporate parenting advantage Providing competent central functions Restructuring to redistribute assets Asset, capital, & management restructuring Portfolio management BCG growth/share matrix 6-127 Dr. M. Usman Aleem
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