MODULE IV-

CORPORATE LEVEL
STRATEGY (PART A)
DR.MOLLY CHATURVEDI
CORPORATE STRATEGIES
Corporate-level strategies (or simply, corporate strategies) are basically
about decisions related to:
• Allocating resources among the different businesses of a firm;
• Transferring resources from one set of businesses to others;
• Managing and nurturing a portfolio of businesses; and
• Creating value across businesses in the portfolio.

Corporate strategies help to exercise the choice of direction that an

organisation adopts. There could be a small business firm involved in a
single business or a large, complex and diversified conglomerate with
several different businesses.

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EXPANSION STRATEGIES

The corporate strategy of expansion is followed when an organisation aims at

high growth by substantially broadening the scope of one or more of its
businesses in term of their respective customer groups, customer functions, and
alternative technologies - singly or jointly - in order to improve its overall
performance.Ex- A chocolate manufacturer expand its customer groups to include middle aged
and old persons to its existing customers comprising children and teenagers

The major reasons for adopting expansion strategies are as below.

• It may become imperative when environment demands increase in pace of activity.
• Increasing size may lead to more control over the market vis-à-vis competitors.
• Advantages from the experience curve and scale of operations may accrue.
• Psychologically, strategists may feel more satisfied with the prospects of growth from
expansion: chief executives may take pride in presiding over organisations perceived
to be growth-oriented.

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ADVANTAGES

1.Increased Market Share

2.Diversification
3.Economies of Scale
4.Access to New Talent and Resources
5.Brand Recognition and Reputation
6.Increased Profit Potential
7.Learning and Innovation
8.Competitive Advantage
9.International Presence
10.Enhanced Financial Performance

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DISADVANTAGES

1.Increased Costs and Financial Risks

2.Market Saturation and Oversupply
3.Operational Complexities
4.Cultural and Regulatory Challenges
5.Competitive Response and Rivalry
6.Brand Dilution and Reputation Risks
7.Resource Allocation Issues
8.Uncertain Market Demand
9.Integration Challenges in Mergers and Acquisitions
10.Managerial and Organizational Challenges

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 TYPES OF EXPANSION STARTEGY

1. Expansion through Concentration.

2. Expansion through Integration.
3. Expansion through Diversification
4. Expansion through Internationalization.
CONCENTRATION STRATEGIES

Concentration is a simple, first-level type of expansion strategy. It involves

converging resources in one or more of a firm's businesses in terms of their
respective customer needs, customer functions, or alternative technologies -
either singly or jointly - in such a manner that expansion results.
In strategic management terminology concentration strategies are known
variously as intensification, focus, specialisation or organic growth strategies.
Peter and Waterman(1982) in their book ,In search of excellence advocated
Concentration as “Stick to the knitting", they elaborated by emphasising that
excellent firms tend to rely on doing what they know ,they are best at doing”

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 ANSOFF’S PRODUCT MARKET MATRIX/TYPES OF
CONCENTRATION STRATEGIES
• The matrix was developed by applied mathematician and business manager H. Igor Ansoff and was
published in the Harvard Business Review in 1957. The Ansoff Matrix is often used in conjunction with
other business and industry analysis tools, such as the PESTEL, SWOT, and Porter’s 5 Forces frameworks,
to support more robust assessments of drivers of business growth.
• The Ansoff Matrix is a fundamental framework taught by business schools worldwide. It is a simple and
intuitive way to visualize the levers a management team can pull when considering growth opportunities. It
features Products on the X-axis and Markets on the Y-axis.
ANSOFF’ PRODUCT-MARKET MATRIX
STRATEGIES

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TYPES OF CONCENTRATION STRATEGIES

MARKET PENETRATION involves selling more products to the

same market: a firm may attempt focussing intensely on existing
markets with present products using a market penetration type of
concentration. Low cost airlines in India went into aggressive
marketing with low pricing
MARKET DEVELOPMENT involves selling same products to new
markets: it may try attracting new users for existing products resulting
in a market development type of concentration. A coffee company
that has only been selling its products in the US could expand
to Europe or Asia.

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 CONTD..

PRODUCT DEVELOPMENT
It involves selling new products to same markets: it may introduce newer
products in existing markets by concentration on product development. For
example- the development of Fanta Icy Lemon. Coca-Cola developed this new
product to sell to its existing markets to increase sales. Apple products follows
the strategy of Product development . In the service industry, promoting India
as Ayurveda based medical treatment destination or promoting green lush
plantation of Kerala ,serenic beaches of Karnataka in the tourism to its
existing set of customers.

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DIVERSIFICATION STRATEGIES

In relative terms, a diversification strategy is generally the highest risk endeavor; after all, both product
development and market development are required. While it is the highest risk strategy, it can reap
huge rewards – either by achieving altogether new revenue opportunities or by reducing a firm’s
reliance on a single product/market fit (for whatever reason).

There are generally two types of diversification strategies that a management team might consider:

1. Related Diversification – Where there are potential synergies that can be realized between the
existing business and the new product/market.An example is a producer of leather shoes that decides
to produce leather car seats.

2. Unrelated Diversification – Where it’s unlikely that any real synergies will be realized between the
existing business and the new product/market.Let’s work on the leather shoe producer example again.
Consider if management wanted to reduce its overall reliance on the (highly cyclical) consumer
discretionary high-end shoe business, they might invest heavily in a consumer packaged goods
product in order to diversify.

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ANSOFF’S MATRIX FOR DIVERSIFICATION
STRATEGIES

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ADVANTAGES

1.Specialization and Expertise

2.Cost Efficiency
3.Enhanced Market Penetration
4.Brand Building
5Competitive Advantage
6.Targeted Marketing
7.Faster Decision-Making
8.Resource Allocation
9.Risk Mitigation
10.Innovation and R&D

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DISADVANTAGES

1.Vulnerability to Market Fluctuations

2.Limited Diversification
3.Dependency on a Single Market or Product
4.Reduced Adaptability to Changing Trends
5.Market Size Constraints
6.Competitive Risk in the Chosen Niche
7.Over-reliance on Specific Customers
8.Regulatory and Legal Risks
9.Potential for Saturation in the Target Market
10.Difficulty Expanding into New Markets

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INTEGRATION STRATEGIES

Integration means expanding through combining businesses or activities

related to the present business or activity of a firm. This can be done in
two ways.
One, the organisation can take over or partner with another firm at the
same point of production to expand its size of operations in the present
business. This is integrating horizontally.
Two, an organisation can take over or partner with another firm at a
different point of production in which case it is integrating vertically.
Integration strategies push the organisations outside their boundaries.

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HORIZONTAL INTEGRATION AND VERTICAL
INTEGRATION
When an organisation takes up the same or similar type of products at the same
level of production or marketing process keeping it at the same stage of the value
chain, it is said to follow a strategy of horizontal integration.
When an organisation starts making new products that serve its own needs,
vertical integration takes place. In other words, any new activity undertaken
with the purpose of either supplying inputs or serving as a customer for outputs is
vertical integration.
Vertical integration could be of two types: backward and forward integration.
Backward integration means retreating to the source of raw materials. Forward
integration means moving the organisation ahead to the ultimate customer or end
user, the company owns and controls business activities that are ahead in the
value chain of its industry.

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EXAMPLES OF HORIZONTAL AND VERTICAL
INTEGRATION
Horizontal-Takeover and acquisition of Sangli Bank by ICICI and United western Bank
by IDBI. IDBI was able to substantially increase its retail presence by adding 230 bank
branches network to its 180 branches network. Getting through RBI,restrictions on
opening new bank branches is easier through such amalgamations.

VERTICAL

BACKWARD-The Swedish Furniture And Home Accessories Giant IKEA. The

Organization Purchased 83,000 Hectares Of Forests In Romania To Supply Its Timber
Requirements

FORWARD-E-commerce giant Amazon acquired grocery brand Whole Foods to venture

into the brick-and-mortar business so that customers could buy the products from the
outlets. Nike reducing dependence on wholesalers, distributors & retailers, and
prioritizing direct-to-consumer sales is an example of Forward Integration

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TYPES OF PARTIAL VERTICAL INTEGRATION
STRATEGIES
Taper integration strategies require firms to make a part of their own
requirements and to buy the rest from outside suppliers or when firms
sell some of their products through company outlets and others through
independent retailers. Ex-Tim Hortons owning some of its retail outlets
but also using franchising, Coca-Cola and Pepsi both having integrated
bottling subsidiaries while also relying on independent bottlers for
production and distribution in some markets
Quasi integration strategies firms purchase most of their requirements
from other firms in which they have an ownership stake or when firms
sell most of their products through their own stores. Ex-. a large
pharmaceutical firm that acquires part interest in a drugstore chain in
order to guarantee that its drugs have access to the distribution
channel(DRL in Medplus).
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BENEFITS AND LIMITATIONS- HORIZONTAL
INTEGRATION
Benefits: Horizontal integration leads to economies of scale,
economies of scope, increased market power, increased product
differentiation, replicating a successful business model and
reduction in industry rivalry .
Limitations: Horizontal integration increases size but it may attract
the provisions of monopolies, restrictive trade practices act or anti-
trust laws.
Economies of scope may not arise in most cases
 VERTICAL INTEGRATION- ADVANTAGES

1. Major advantages of adopting vertical integration

2. Greater control over value chain resulting in economies of scale and scope and
improving supply chain coordination
3. Greater control over market coverage leading to a bigger customer base
4. More streamlined manufacturing processes with shorter production cycles
5. More opportunities to differentiate products by means of better control of inputs
6. Enhancing learning across processes and cross-functional experience
7. Raising the entry barriers for potential competitors
8. Savings in transportation costs due to proximity of value chain partners
 VERTICAL INTEGRATION- DISADVANTAGES

1. Increased costs of coordinating integration over multiple stages of value chain

2. Potential for either excess capacity or under-utilisation of resources because of
uneven productivity across different value chain activities
3. Technological obsolescence due to relying on outside manufacturers
4. Loss of strategic flexibility owing to dependence on outsiders
5. Increased mobility and exit barriers
6. Tight coupling to poor performing business units owing to dependence
7. Lack of information and feedback from suppliers and distributors