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