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Strategy Formulation:

Corporate Strategy

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Corporate Strategy

Three Key Issues:

• Firm’s directional strategy• Firm’s portfolio strategy• Firm’s parenting strategy

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Corporate Directional Strategies

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Corporate Strategy

Directional Strategy:– Orientation toward growth

• Expand, cut back, status quo?• Concentrate within current industry,

diversify into other industries?• Growth and expansion through internal

development or acquisitions, mergers, or strategic alliances?

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Corporate Strategy

Directional Strategy:– Three Grand Strategies:

• Growth strategies• Stability strategies• Retrenchment strategies

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Corporate Strategy

Growth Strategies:– Most widely pursued strategies– External mechanisms:

• Mergers– Transaction involving two or more firms in which

stock is exchanged but only one firm survives.• Acquisition

– Purchase of a firm that is absorbed as an operating subsidiary of the acquiring firm.

• Strategic Alliance– Partnership of two or more firms to achieve

strategically significant objectives that are mutually beneficial.

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Corporate Strategy

2 Basic Growth Strategies:

– Concentration– Current product line in one industry

– Diversification– Into other product lines in other industries

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Corporate Strategy

Basic Concentration Strategies:

–Vertical growth

–Horizontal growth

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Corporate Strategy Concentration:

Vertical growth

– Vertical integration• Full integration• Taper integration• Quasi-integration

– Backward integration

– Forward integration

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Corporate Strategy

Concentration:

Horizontal Growth

– Horizontal integration

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Corporate Strategy

Basic Diversification Strategies:

– Concentric Diversification

– Conglomerate Diversification

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Corporate Strategy

Diversification:

Concentric:

– Growth into related industry– Search for synergies

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Corporate Strategy

Diversification:

Conglomerate:

– Growth into unrelated industry– Concern with financial considerations

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Corporate Strategy

InternationalEntry

Options

ExportingLicensing

FranchisingJoint VenturesAcquisitions

Green-Field DevelopmentProduction SharingTurnkey Operations

BOT ConceptManagement Contracts

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Corporate Strategy

Stability Strategies:

–Pause/proceed with caution

–No change

–Profit strategies

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Corporate Strategy Retrenchment Strategies:

– Turnaround

– Captive Company Strategy

– Selling out

– Bankruptcy

– Liquidation