AB3601 - Week 6 - Corporate Level Strategies
AB3601 - Week 6 - Corporate Level Strategies
AB3601 - Week 6 - Corporate Level Strategies
Strategic Management
Caleb Tse
Strategy, IB and Entrepreneurship Division
Nanyang Business School
Nanyang Technological University
AY2023-24 S2
Agenda
Explain Corporate-level Strategies
• What is Corporate Level Strategy?
• Types of Diversification
• Motives for Diversification
• Operational & Corporate Relatedness
• Market Power via Vertical Integration
• How to use Portfolio Management Tools
10-min Break
... ...
Healthcare Other Healthcare Other
(e.g., Energy Industries (e.g., Energy industries
diagnostic (e.g., (e.g., diagnostic (e.g., (e.g.,
imaging) renewable building and imaging) renewable building and
power) automation) power) automation)
Corporate Strategy
A corporate-level strategy specifies actions a firm takes to gain a
competitive advantage by selecting and managing a group of
different businesses competing in different product markets
Corporate Strategy
A corporate-level strategy specifies actions a firm takes to gain a
competitive advantage by selecting and managing a group of
different businesses competing in different product markets
Where to compete?
What is Corporate Strategy?
Corporate Strategy
A corporate-level strategy specifies actions a firm takes to gain a
competitive advantage by selecting and managing a group of
different businesses competing in different product markets
Dominant: Package
delivery
Secondary: Non-
Single-business: packaged businesses
Pepper sauce
Moderate/High Levels of Diversification
• Related constrained diversification strategy
• <70% of revenue comes from the dominant business and all business
share product, technological, distribution linkages
• Related linked diversification strategy
• <70% of revenue comes from the dominant business, and there are only
limited links between businesses
❖ What is Synergy?
https://www.youtube.com/watch?v=eH3n94IHRGk
Market Power: Vertical Integration
• Vertical integration advantages:
• Securing critical supplies
• Lowering costs & improving quality & facilitating planning
• Fend off imitation on technologies
• Facilitating investments in specialized assets
• Two sources:
• Efficient internal capital market allocation: Better than external capital market, and if firm
debt/equity stabilities is high, potentially lower costs of capital
• Asset restructuring
Value Neutral Diversifications
• External Incentives
• Antitrust regulations: Can diversifications take place or not?
• Tax laws: Deduction of tax for certain expansions of firms
• Internal Incentives
• Low performance (past) & uncertain future cash flows (future)
• Synergy & reduction of risk for the firm
Value Reducing Diversifications
• Managerial motives to diversify beyond value-creating and value-
neutral levels: Empire-building
• Positive correlation between diversification and size: The desire for increased
compensation and status
• Reduced managerial risk (e.g. lower risk of job loss)
• A firm must have the types and levels of resources and capabilities
needed to successfully use a corporate-level diversification strategy
Direct Ownership
Internal Development
• How can we develop new capabilities and competencies required by
diversification by ourselves?
• Will we be able to build up capabilities and competencies in a timely
manner?
The Choice of Expansion Will Have to Take into Consideration the Firm’s Unique Strengths &
Weaknesses, and Various External Factors
Internal Portfolio Management
BCG Growth-share Matrix:
Restructuring
The Product Portfolio: BCG Model
• No economies of scope: If we get rid of the dog, we get rid of economies of scope.
For eg., if Toyota’s cost of producing a Tacoma pickup and a sedan is lower than
producing each of those independently, then there are synergies which exist. If we
get rid of one, the cost structure goes up!