Professional Documents
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Diversification Manage additional businesses - Apply excess resources, capabilities, and core competencies that have multiple uses
Corporate Strategy
Directional Strategy overall orientation towards growth, stability, retrenchment Portfolio Strategy industries/markets that the firm competes in through products lines & business units Parenting Strategy coordination and transfer of resources between product lines & business units
Example: Waste Management sold its Australian and Italian waste management subsidiaries.
Single Business
95% or more of corporate revenue come from a single business unit Wm. Wrigley Jr. Co.
Limited Diversification
Between 70-95% of corporate revenues comes from a single business unit. Hershey Foods Corporation
of firm revenues comes from a single business unit, and different business units share numerous links and common attributes.
Unrelated Diversification Less than 70% of firm revenues comes from a single business, and there are few, if any, links or common attributes among businesses.
Vertical Integration: Coordinating upstream activities (those closer to the raw materials) with downstream activities (those closer to the customer)
reduces or eliminates costs of buying and selling (Transaction Costs) smoother, more efficient operation
Differences in minimum efficient scale in vertically integrated corporation. Must remain innovative in all Value Chain activities. Possible incompatibilities between managerial skills and corporate cultures that make upstream and downstream activities successful.
Strategy Formulation: Corporate Strategy Vertical and Horizontal Integration - Value Chain Activities Horizontal Integration
Coordinating
Corporate managers have expertise to recognize undervalued stocks that many individual investors would miss. Corporations have economies of scale for financing acquisitions that individuals do not.
Horizontal Integration Costs:
Conglomerate discount: value of stock of conglomerate sells for less than total value of individual stocks. Takeover premiums: corporations usually pay a premium over the normal trading price of the targets stock.
Integration difficulties
Inadequate evaluation of target Large or extraordinary debt
Portfolio Analysis
Assessing Business Units Competitive Position
Possession of desirable core competencies Relative market share Profit margins relative to competitors Ability to match or beat rivals on product quality and service
Caliber of management
Portfolio Analysis
questions marks: business growth rate - high; relative competitive position - weak stars: business growth rate - high; relative competitive position - strong cash cows: business growth rate - low; relative competitive position - strong dogs: business growth rate - low; relative competitive position - weak
Strengths: evaluate businesses individually, raises issues of cash flow for expansion
Weaknesses: difficult to define product & market segments, subjective determinations, lack of clarity of product life cycle position, static comparisons.
Industries:
Heinz group - infant feeding products, sauces, convenience meals, seafood, pet food, and food service. UBFCF - processing and supply to resellers of frozen and chilled foods.
Combined Revenues:
Do not achieve more than 2/3 of aggregate Community-wide turnover in one member state, so qualifies as having Community dimension.
products would have market share in excess of 25% is the Irish market for frozen ready-made meals, where parties achieve 30%.
However, merged entity will continue to face competition from rapidly growing retailer brands (value increased by over 50% over three years) that account for 30% of market. Birds Eye has more than 10% and Nestle has more than 5% market share.