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22 Cards in this Set
- Front
- Back
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How does a firm do what it already does better?
(2 ways) |
1. Concentration Strategies
2. Vertical integration strategies |
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Concentration Strategies
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*Actions that firms use to compete within a single industry.
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Types of concentration strategies (4)
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1. Market penetration
2. Market development 3. Product development 4. Horizontal integration (divided in *Acquisition and *Merger) |
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Market Penetration
(Concentration Strategy) |
*An attempt to gain additional share of existing markets using existing products.
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Market development
(Concentration Strategy) |
*Attempting to sell existing products within new markets.
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Product development
(Concentration Strategy) |
*Creating new products to serve existing markets.
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Horizontal Integration and its types (AM)
(Concentration Strategy) |
*Pursuing a concentration strategy by acquiring or merging with a rival.
*When implementing a growth strategy to improve long-term competitive position, a company facing high entry barriers should choose one of these: -Acquisition: One company’s purchase of another company. -Merger: The joining of two similarly sized companies into one company. |
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Horizontal Integration
(Concentration Strategy) Benefits and Risks |
Benefits: *Lowering costs through greater economies of scale. *Achieve greater efficiency by combining forces. *Reduce rivalry intensity to make industry more profitable. *Acquire valuable brands. *New distribution channels.
Risks: *60%+ erode shareholder wealth. *Clash of cultures. *Buyer never recoups investment. |
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Vertical integration strategies
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*When a firm gets involved in new portions of the value chain.
Can be done independently or through merger or acquisition |
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Types of Vertical Integration Strategies (2) (BF)
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*Backward vertical integration: A buyer enters the industry from which it purchases goods or services.
*Forward vertical integration: A supplier enters the industry into which it supplies inputs. |
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Reasons for Vertical Integration (4)
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-A firm’s suppliers or buyers have too much power over firm.
-A firm’s suppliers or buyers become increasingly profitable at the firm’s expense. -Reduce or eliminate leverage of supplier or buyer. -Create greater profit potential. |
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How can a firm do different things?
Diversification strategies |
*Diversification strategies: A firm enters an entirely new industry(ies).
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Three tests for diversification
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*How attractive is the industry that a firm is considering entering?
*How much will it cost to enter the industry? *Will the new unit and the firm be better off? |
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Types of Diversification Strategies (3) (RCU)
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*Related Diversification
*Core Competency *Unrelated Diversification |
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Related diversification
(Diversification Strategy) |
*When a firm moves into a new industry that has important similarities with the firm’s existing industry or industries.
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Core competency
(Diversification Strategy) |
*A skill set that is difficult for competitors to imitate, can be leveraged in different businesses, and contributes to the benefits enjoyed by customers within each business.
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Unrelated diversification
(Diversification Strategy) |
*When a firm enters an industry that lacks any important similarities with the firm’s existing industry or industries.
*Most unrelated diversification efforts do not end well. |
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How can a firm get better by getting smaller?
(One strategy with two types) |
Downsizing Strategies
-Retrenchment -Restructuring Strategies (3 types) |
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Retrenchment
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*Reducing the size of part of a firm’s operations, often though laying off employees.
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Types of Restructuring strategies
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*Divestment: Selling off part of a firm’s operations.
*Spin off: Creating a new company whose stock is owned by investors out of a piece of a bigger company. *Liquidation: Shutting down portions of a firm’s operations, often at a tremendous financial loss. |
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How can a firm plan for future corporate movement?
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*Portfolio Planning.
*Boston Consulting Group (BCG) Matrix - Cash Cows: High market share units within slow-growing industries. - Stars: High market share units within fast-growing Industries. - Question marks: Low market share units within fast-growing industries. - Dogs: Low market share units within slow-growing industries. |
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Limitations to portfolio planning (3)
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*Can oversimplify the reality of competition by focusing only on two dimensions of an industry.
*Can create motivational problems among employees. *Does not help identify new opportunities. |
