Strategic Management Ch7

Turnaround strategy

Emphasizes the improvement of operational efficiency and is most appropriate when the corporation's problems are pervasive, but not yet critical

Concentration

Focus of resources upon product lines that make sense as a strategy for growth

Franchising

Grants rights to another company to open a retail store using the franchiser's name and operating system

Licensing

Grants rights to another firm in the host country to produce and/or sell a product

Concentric diversification

Growth into a related industry; ideal when company has strong competitive position but industry attractiveness is low

Conglomerate diversification

Growth into an unrelated industry; ideal for a company in an unattractive industry and a lack of outstanding abilities or skills that are easily transferrable

Ways to enter international operations

1) Exporting 2) Licensing 3) Franchising 4) Joint ventures 5) Acquisitions 6) Green-Field development 7) Production sharing 8) Turnkey operations 9) BOT concept 10) Management contracts

Types of stability strategies

1) Pause/proceed-with-caution 2) No-change 3) Profit

Types of retrenchment strategies

1) Turnaround 2) Captive company 3) Sell-out 4) Divestment 5) Bankruptcy 6) Liquidation

No-change strategy

A decision to do nothing new - a choice to continue to continue current operations and policies for the foreseeable future; rarely articulated as a definite strategy

Profit strategy

A decision to do nothing new in a worsening situation but instead act as though the company's problems are only temporary; an attempt to artificially support profits when a company's sales are declining by reducing investment and short-term discretionary expenditures

Horizontal growth

A firm's expansion in operations into other geographic locations and/or by increasing the range of products and services offered to current markets; high survival rate

Backward integration

Assuming functions previously provided by a supplier

Acquisitions

A relatively quick way to move into an international area by purchasing another company already operating in that area

Pause/proceed-with-caution strategy

A timeout - an opportunity to rest before continuing a growth or retrenchment strategy; a deliberate attempt to make only incremental improvements until a particular environmental situation changes

Merger

A transaction involving two or more corporations in which stock is exchanged but in which only one corporation survives; somewhat "friendly"

BOT Concept

A variation of the turnkey operation; instead of turning the facility over to the host country when completed, the company operates the facility for a fixed period of time during which it earns back its investment plus a profit

Vertical growth

Achieved by taking over a function previously provided by a supplier or by a distributor; growth by making its ow supplies and/or by distributing its own products

Long-term contracts

Agreements between two firms to provide agree-upon goods and services to each other for a specified period of time; not considered vertical integration unless it is an exclusive contract

Forward integration

Assuming functions previously provided by a distributor

Joint Ventures

Combines resources and expertise needed to develop new products or technologies between a foreign corporation and a domestic company; most popular strategy upon entering a country

Synergy

Concept that two business will generate more profits together than they could separately

Turnkey Operations

Contracts for the construction of operating facilities in exchange for a fee; the facilities are transferred to the host country or firm when they are complete

Dogs

Have low market share and don not have the potential to bring in much cash because they are in an unattractive industry

GE Business Screen

Includes nine cells based on long-term industry attractiveness and business strength competitive position; includes much more data in two key factors than just business growth rate and comparable market share

Captive company strategy

Involves giving up independence in exchange for security; happens if a company is in weak competitive position and cannot engage in a full-blown turnaround strategy

Bankruptcy

Involves giving up management of the firm to the courts in return for some settlement of the corporation's obligations

Stars

Market leaders that are typically at the peak of their product life cycle and are able to generate enough cash to maintain their high share of the market; usually contribute to the company's profits

Exporting

Minimizes risk; shoppes goods produced in the company's home country to other countries for marketing

Question marks

New products with the potential for success; need a lot of cash for development

Management Contracts

Offers a means through which a corporation can use some of its personnel to assist a firm in a host country for a specified fee and period of time

Corporate strategy

Primarily about the choice of direction for a firm as a whole and the management of its business or product portfolio

Transaction cost economics

Proposes that vertical integration is more efficient than contracting for goods and services in the marketplace when the transaction costs of buying goods on the open market become too great

Growth strategies

Strategies that expand the company's activities

Stability strategies

Strategies that make no change to the company's current activities

Retrenchment strategies

Strategies that reduce the company's level of activities

Horizontal integration

The degree to which a firm operates in multiple geographic locations at the same point on an industry's value chain; Procter&Gamble

Vertical integration

The degree to which a firm operates vertically in multiple locations on an industry's value chain from extracting raw materials to manufacturing to retailing

Directional strategy

The firm's overall orientation toward growth, stability, or retrenchment

Diversification

The incorporation into different industries to continue growth

Portfolio strategy

The industries or markets in which the firm competes through its products and business units

Parenting strategy

The manner in which management coordinates activities and transfers resources and cultivates capabilities among product lines and business units

Production Sharing

The process of combining higher labor skills and technology available in developed countries with the lower-cost labor skills and technology available in developed countries with the lower-cost available in developing countries

Acquisition

The purchase of a company that is completely absorbed as an operating subsidiary or division of the acquiring corporation

BCG Growth-Share Matrix

The simplest way to portray a corporation's portfolio of investments; each of the corporation's product lines or business units is plotted on the matrix according to both the growth rate of the industry in which it competes and its relative market share; Figure 7.3

Liquidation

The termination of a firm when the industry is unattractive and the company too weak to be sold as a going concern; converts salable assets to cash, which is distributed to shareholders after all obligations are paid

Portfolio analysis

Top management views its product lines and business units as a series of investments from which it expects a profitable return; p 220

Cash cows

Typically bring in far more money than is needed to maintain their market share; products that are "milked" for cash that will be invested in new question marks

Corporate parenting

Views a corporation in terms of resources and capabilities that can be used to build business unit value as well as generate synergies across business units

Green-Field Development

When a company builds its own manufacturing plant and distribution system; firms with high levels of technology multinational experience, and diverse product lines prefer this

Quasi-integration

When a company does not make any of its key supplies but purchases most of its requirements from outside suppliers that are under its partial control

Divestment

When a corporation has multiple business lines and it chooses to sell off a division with low growth potential

Sell-out strategy

When a corporation with a weak competitive position in an industry is unable either to pull itself up by its bootstraps or find a customer to which it can become a captive company and therefore must sell out

Full integration

When a firm internally makes 100% of its key supplies and completely controls its distributors

Taper integration

When a firm internally produces less than half of its own requirements and buys the rest from outside suppliers