P & G Case Study
Synergy is one of the most important reasons that make Procter& Gamble implement the related constrain diversify strategy. This is, Synergy can help P&G in several ways:
1, Gain market power relative to their competitors: P&G can gain its market power through both multimarket competition and vertical integration.
2. Combining talent and technology: the second important thing about synergy is that it can improve the firm’s efficiency that can derived from economies of scale, economies of scope, and sharing resources such as (Technological advance, human capital, and knowledge) across the business in the merged firm.
3. Reducing the company’s cost as well as helping the company to eliminate its operation redundancy processes. For …show more content…
The main reasons behind Procter& Gamble of created the economies of scope are:
1. Gaining advantage of tangible and intangible assets: P&G selected related diversification as their corporate-level strategy in an attempt to exploit economies of scope between their various business units. Cost-savings result when a business transfers expertise in one business to a new business. P&G can share operational skills and knowledge in manufacturing or even share plant facilities, equipment, or other existing assets. P&G also share its intangible assets like expertise or a corporate core competence in order to maximize limited constraints.
2. Increasing the firm’s profitability: if a firm have its own economies of scope, the firm can increase it’s profitability because economies of scope help firm to reduce or lower its average total cost as a result of increasing the number of different goods that P&G produced. For example, Proctor & Gamble produces hundreds of products from razors to toothpaste, and they hire expensive graphic designers and marketing experts who will use their skills across the product lines. Because the costs are spread out, this lowers the average total cost of production for each …show more content…
Gaining advantage of tangible asset: Operational relatedness can help P&G to gain its economies of scope through sharing activities. This is, P&G businesses share product, technological, and distribution linkages, and these type of activity sharing is common among related-constrained diversified companies. For instance, P&G uses paper products as a key input, so they are likely to share key facets of procurement and inbound logistics, as well as primary manufacturing activities.
2. Sharing primary or support activities (in value chain): P&G have several shared activities for both primary and support activities in its value chain such as inbound logistics, outbound logistics, and operations. By sharing primary and support activities, P&G can be able to develop its core competencies through effective (and efficient) sharing of primary activities, and it help the company to achieve a competitive advantage.
3. Allocating Capital More Efficiently: Since P&G can be able to achieve its efficiency and effectiveness through sharing its primary and support activities, it help P&G to allocate its capital expenditure more efficiency across the