cuarter 5 CORPORATE STRATEGIES (Learning Outcomes particularly at the end of this chapter, the students should be able te: 1. define and explain the significance of integrative growth strat : i tegles; differentiate horizontal integration from vertical integration; differentiate backward integration from forward integration; assess the utility of the Boston Consulting Group Model; evaluate the application of the General Electric Model; and discuss the role of global strategies in the conduct of today’s business. As businesses focus on developing their degree of internal competi ecemal growth strategies. These are alternative modes of Suet oie acieen oan ‘organizations. In this chapter, we will discuss other types of integrative growth strategies. Essentially opted to as corporate strategies, these strategies include the Boston Consulting Group Model, the epea Electric Model, global strategies, and the Competitive Advantage of Nations espoused by Michael Porter. Integrative Growth Strategies Integrative growth strategies, which are essentially external growth strategies, involve investing | theresources of the organization in another company or business to achieve growth goals. Integrative | rowth strategies are essentially acquisition strategies. Types of integrative growth strategies include horizontal integration and vertical integration. The two types of vertical integration are backward integration and forward integration. Horizontal — > Figure 5.1 Horizontal and Vertical Integration of an Organization Vertical Integration + Backward Integration + Forward Integration 1. Horizontal integration is a strategy where the organization acquires another competing bores These are. varied reasons for undertaking horizontal integration, Fist organizations may employ horizontal integration to eliminate real or potential ceompetitor: becntse some competitors can present themselves 25 Aeadyeaag 10 0 crgonzation For example Jolibee purchased Mang Inasafor fear of losing eee share in the fastfood industry. n Scanned with CamScannerCORPORATE STRATEGIES 4 ns. in this chapter, we will discuss other types of integrative growah strategies. Essentially 3: comporets strategies, these strategies include the Boston Consulting Group Model, the Eisctric Model, global strategies, and the Competitive Advantage of Nations espoused by Michael Porter. Integrative Growth Strategies 9 rowth strategies, which are essentially external growth strategies, involve investing ‘he resources of the organization in another company or business toachieve growth goals. Integrative growth strategies are essentially acquisition strategies. Types of integrative growth strategies include horizontal integration and vertical integration. The two types of vertical integration are backward integration and forward integration. oa bb GD Figure 5.1. Horizontal and Vertical Integration of an Organization Vertical Integration + Backward Integration + Forward integration 1 ‘zontal ir ion is a strategy where the organization acquires another competing beat ee varied oe for undertaking horizontal integration. Pad organizations may employ horizontal integration to eliminate real me pen A Competitors because some ‘competitors can present themselves as deadly threat ~~ crganization. For example, Jollibee purchased Mang nasal for fear of losing their mar share in the fast-food industry. n Scanned with CamScannerJ STRATEGIC MANAGEMENT ALADE SIMPLE | nization to simply expand Its teag, | rarket status as a Market leader ay undergo horizon) | | Another possible reason is the desire of the org expand its market demographically, and maintain its m™. market challenger, or a market follower Lastly, an organization ™ Integration to help increase its revenues, nization other Companies 2. Vertical integantion is the process of consolid from raw materials ty involved in all aspects of a product's or a servi s er anization to ous | Gistribution, It is an integrated growth strategy adopted by an oeet share, minimize control overits suppliersand distributors, increase the company 5% etal stores. Vertica) | transaction and inventory costs, and ensure adequate stocks in the a integration can either be backward or forward. 7 =. Backward integration is another integrative acquisition growth yout ramet fits suppliers. An organization Tatra reliable or cost. organization buys one o} c integration to better control its supply heel and ean eliminate inefficient effective supply of input. Furthermore, the orga ‘ cee ery outatoraccording toset conformance See baba apply product and process strategies so that the right : ond the right services ae rendered at the right time. Effective backward integration can help increase the profitability ‘of an organization and thus, create competitive advantage. For example, if Nokia is 2 manufacturer of mobile phones, it can buy its supplier of phone cases. . ie on is carr ization buys distribution Forward integration is carried out when the organit tribution Companies tat ‘xe part of its distribution chain, In effect, the organization is Sie to remove the intermediary, thus, eliminating distribution costs. Forward integration allows an organization to reinvent its marketing outlook and redesign ie marketing strategies. For example, an organization engaged in garment manufacturing can buy retail outlets that are displaying and selling their clothing lines to help increase their sales. jating into an orgal in summary, integrative growth strategies are corporate in nature. These strategies may indude horizontal or vertical integration. The latter can be either forward or backward. In backward integration, an organization buys one of its suppliers. This form of integration is beneficial to ‘organization because the costs of buying from suppliers decrease significantly. In forward ion, the organization takes over the marketing activities of its retailers. What are integrative growth strategies? {s the implementati i i ic Explain your oe of horizontal integration an effective company strategy? When isit i eye *ppropriate for a company to adopt forward integration? Give an example. |s backward i i i , ae integration applicable to companies with traditional products? Explain Scanned with CamScanner‘Chapters ~ Corporate STRATEGIES | 73 The Boston Consulting Group Model The Boston Consultin: 2 19 Grou strategy in the early 1970s, the pect Share Paradigm started to make its impact on corporate F 'e BCG mo Consultant Group. This model classifies there cepa! by Bruce Henderson of the Boston oducts or business units of an organization in term: s of two parameters, namely, marl ly, market share and market growth, in relation to the marketing leader. prioritize divest Market Growth Market Share Figure 5.2 Boston Consulting Group Model (Henderson 2013) Market share is the relative sales percentage of a company in relation to the total sales percentage of the market in consideration. This metric value gives a general idea of how the company stands with respect to the market and its competitors. Thus, Company X can have a low market share (5%) or a high market share (80%) of hamburger sales in relation to its competitors. On the other hand, market growth refers to an increase in demand over time. It may be high or low. The BCG Model illustrates four broad categories in relation to market share (low, high) and market growth (low, high). Thus, we have the following: + Ahigh market share in a high market growth defines stars. They are the market leaders and if the market continues to grow, they are likely to become cash cows. + Ahigh market share in alow market growth defines cash cows. Since they are the market leaders in a mature market growth, establishing a competitive: advantage can generate a lot of cash flow and bring about high profit margins. + Alow market share in a high market growth defines question marks. These essenti new products need promotional strategies. * flow market share in a low market growth defines dogs. Tey should essential Be minimized, if not avoided. They can be expensive to the company. ally The General Electric Model inpoverne? conceptualized the General Electric (GE) Model for the company. This model is an ® organizatign the BCG Model. Its used to assess the strength of a strategic business unit (SBU) of SBU.These pa It takes into consideration two parameters to determine the overall strength of an Parameters are market attractiveness and business strength. Scanned with CamScanner76 | STRATEGIC MasiaGEwENT MADE Sie Extemal factors that may sect market attractiveness include market size 296 GOW a internal niche and segmentation demand, and overall risk. On the other hans. ailect business strength inctude brand srength, saying Domes profi, margins. & and others. | . Market Attractivensaa. Figure 53 General Blectric Model (Susiness Resource, loc In the GE model (Figure 5.3), the circle represents the organization or the company. There a= sine calle. Cells 1, 2, and 3 are favorable positions with relatively attractive growth opporsuniscs must be taken in making additional Cals 4, 5, and 6 possess medium attractiveness, and caution investments. Lastly, Cells 7,8, and 9 are not attractive and the company should think of getting out Table 5.1 General Electric Model (Chunawelz 2002) the following strategies: + Ride with the market growth + Seek niches or specialization + Seekan opportunity to increase strength through acquisition Scanned with CamScannerchapters —Corrorare srrarecies | 75 The Boston Consulting Group Growth-Share Paradigm and the General Electric (GE) Model are two popular frameworks conceptualized by industry consultants to aid organizations in mapping their market and business performance. The BCG Model measures market share and market growth while the GE Model measures market attractiveness and business strength. What is the Boston Consulting Group Model? Choose a company and use this model to discuss its market share and market growth status. Are there stars, cash cows, dogs, and question marks in the products of the company? Make your recommendations. Discuss the applicability of the General Electric Model in relation to market attractiveness and business strength. Make your recommendations. Global Strategies In some instances, organizations pursue global strategies for external business expansion. Global strategies cover three main areas: international, multinational, and global. Companies who might want to sell their excess products outside their home markets pursue international strategies. A company is said to be doing international business although its focus is the home market. On the other hand, a company can engage in multinational strategies when it is involved in a number of markets outside the home country. The challenge in undertaking multinational strategies is te srcomPetitive and distinct products and services that are suited to the customer demands of bl pase counties. Thus, the strategy in one country may vary in another, depending on on One gu In global strategies, the company treats or considers the world asa whole, one marke! Source of supply with slight local variations. , . .. paeet Global Strategies ee Cnpaneg 2 Obal strategies can be beneficial to companies. Given a larger market for oducts apt UY larger sales and earnings. They can benefit from the global (aime with pevce®: NOt to mention, the earnings from economies of scale. Higher P bor can bes eNCY increases savings and creates greater advantage for companies 'Udied to optimize labor costs, Scanned with Cam canner* — quality anc difterectates oroducts anc services. The ist century is an epoch of border’ (ES 206 GORA rotucts oresect 2 reeded aiemative for some organizations. Scanned with CamScannerChapter Conporare srraeaies | 77 World's Greatest Strategists Bernard Arnault; Louis Vuitton Sa is a luxury | * We have unique products. prand builder who is many | « ms sleps ahead of his generation. Our strategy is to trust the creators, He is credited to building We do not like failures, Juxury goods juggernaut with | * Desi . . Miptbition ta annualeeatee oat esigners are closer to artists than to engineers. 65, his family controls 46.5% Every time there has been a crisis, we have gained of Paris-based Louis ; market share, products, turning: then We do not put the entire company at risk by introducing all new products all the time. Ifone day we must sell something, first we want to turn it around and make it profitable. Sometimes you do not succeed. We learned that genius is not enough to succeed. The key to success is this duality — timelessness and the utmost modernity. It is not enough to have a talented designer; the management must be inspired too. The creative process is very disorganized; the production process has to be very rational. ‘A good product can last forever. Source:Vito J. Racanelli, Barron's Special Report 2014 Strategic Guides: 1. Study the biography of Bernard Arnault, CEO of there is something significant like his interests, and career orientation, and other facts that mig) enjoying now. Study the beginnings of Louis Vuitton, the challeng} and its journey toward success. f Louis Vuitton. Include his childhood, if his educational attainment, professional ht have contributed to the success he is \és it encountered through the years, ie i ad From the management, result-driven, practical, and inspirational swateainy ye ed by Amault at Louis Vuitton, which struck you as something worth imitating: answer, Scanned with CamScanner