Corporate Strategy Quiz

International Corporate Strategy

• Course offered by ESCP Europe in 2025.
• Taught by Louis Mulotte, Tilburg University.

Team Project

• Students must choose a firm to study for the project.
• Website to find firm options: https://go.uvt.nl/escp2025
• Due date for firm selection: Saturday, January 18, noon
• Students should select a diversified firm and avoid companies studied during the course (e.g., Ahold, Apple, Danone, etc.).

What is Corporate Strategy?

• Corporate Strategy focuses on creating value across businesses, products, and markets.
• It involves developing an overall plan for how to maximize such value creation and ensure that it is consistent with the resource limits of an organization.

Puzzle

• A cartoon depicts the idea of reviewing corporate strategy.

Real examples

• The presentation includes images of various companies (e.g., Bouygues, Frito-Lay, TFI, IKEA).

What is corporate strategy about?

• Aims to create added value across different businesses.
• Questions the limitations of value creation.
• Explores how to optimize business organization for maximum value creation.

And so, what?

• Sources of profitability
• Data from a 2017 study (meta-analysis) indicates corporate level contributes 20%, industry 10%, and business level 40% to profitability.
• Other factors contribute 27%

What is corporate strategy about? (2)

• Emphasizes the key considerations: Which expansion moves? Where? Which activities or assets? Which corporate benefits? Why? How to get them? How to expand

1. Where?

• Business Development (BD) involves expanding existing activities (e.g., Volkswagen expanding into Audi, Skoda, Seat, and Porsche).
• Horizontal Expansion (HE) combines existing activities with new ones, often within related industries (e.g., Mercedes Benz expanding from cars to trucks and buses).
• Vertical Expansion (VE) involves taking on activities formerly outsourced to external parties (e.g., Zara, or Total).

1. Where? (2)

• Illustrative breakdown of expansion types with examples like Apple (Headphones / AirPods vs. Phones).

ABC Types

• Luxottica (Italy) and Essilor (France) merged to create a global eyewear presence (€46bn).
• British American Tobacco acquired Reynolds American (takeover of $50bn) .
• French aerospace company Safran bid €10bn for Zodiac Aerospace.

2. How?

• Three main modes of expansion: Build, Blend, and Buy.

The 'corporate expansion matrix'

• A table categorizing expansion strategies based on whether the new activity is similar or different from the existing business and whether it concerns upstream or downstream activity.

3. Why?

• Cost and revenue synergies are key drivers of M&A activity.

The grand challenge!

• A diagram presents the factors (lower input cost, lower production cost, higher revenues) that influence the rationale for acquisitions (Build/Blend/Buy).

Logics for Corporate Growth

• Various factors (Decreased Input Cost, Decreasing Production Cost, and Increased Revenues) drive business development, horizontal expansion, and vertical expansion in the context of corporate growth, with specific examples (e.g., Nissan acquisition by Renault).

ABC synergies

• Luxottica and Essilor are combining to dominate the eyewear market.
• British American Tobacco acquired Reynolds American to create the largest tobacco company.
• Safran is acquiring Zodiac Aerospace.

Horizontal Expansion: Net effect

• A graph illustrates the interaction between synergistic gains and coordination costs in relation to the number of businesses involved.

Average Number of Businesses

• A table presents average diversification data (median, mean, and percentage of total) for U.S. public companies among the Forbes Top 500 list.

Expansion Performance

• A table visualizing the effect of expansion mode (build, blend, buy) on different expansion operations (same business, upstream or downstream activity, or different business).

Key takeaways

• Includes information on where to expand (Business Development, Vertical Expansion, Horizontal Expansion).
• Explains how to expand (Build, Blend, Buy).
• Details the reasons for expansion (Lower input costs, Lower production costs, Higher revenues).

M&As and Corporate Strategy

• Presentation about Mergers and Acquisitions (M&A) and corporate strategy.
• A presentation with a title (M&As and Corporate Strategy), year (2024), and instructor's name (Louis Mulotte, Tilburg University).

2. Vertical Acquisitions

• Focuses on vertical acquisitions.

Terminology

• Discusses backward and forward vertical expansion.

Examples

• Provides examples of backward and forward vertical expansion, including several acquisitions.

The 'corporate expansion matrix' (2)

• A table categorizes different types of expansion, based on whether the activities are similar or different from the existing business, and whether they relate to upstream or downstream activities,.

Logics for Corporate Growth

• Summarizing the factors driving corporate growth, including horizontal expansion and vertical expansion.

Inputs also refer to financial resources

• Discusses the importance of financial resources as inputs for corporate growth and explains when conglomerates are helpful.

Decreasing production cost via VE

• Explains how vertical expansion can reduce production costs.
• Discusses the reasons for such reduction, including coordination and managerial integration between different stages and factors.

Factors driving market failures

• Describes transaction cost economics (Coase and Williamson) and explains why market failures might occur, including monopolistic risk, market risk, and renegotiation risk.

Printing or not Printing?

• Discusses considerations for a new publishing firm (ABC Publishing) regarding printing.
• Suggests a decision on either vertical expansion or outsourcing.

Market failures

• A table shows the impact of risk related to each type of expansion strategy when evaluating printing options

Inputs also refer to financial resources (2)

• Firms sometimes lack sufficient resources.
• A joint venture with a financially rich firm can be beneficial, particularly when markets are not efficient.
• Examples: Japanese keiretsu (large conglomerate family structure).

Decreasing production cost via VE (2)

• Discusses cost economies due to coordination-based strategies.
• Provides examples such as Alcan (technological integration).

Fast fashion

• Discusses the approach to fast fashion (Zara, American Apparel, Benetton) that focuses on a cost-effective and well-coordinated model.

Increasing revenues via VE

• Explores how vertical expansion can increase revenues.
• Discusses cases where ownership of downstream operations helps to increase prices.

Reputation

• Discusses how Microsoft leveraged its reputation from its software business into hardware products to increase revenue via forward vertical expansion.
• Discusses the importance of reputation in expanding into new markets.

Outsourcing vs vertical integration

• Outlines considerations for outsourcing rather than internalizing a corporate function.

Expansion Performance

• Presents a table summarizing expansion performance based on expansion type, similarity of activities, and related activities in the business.

How to expand?

• Outlines the three approaches to corporate expansion, build, blend, and buy.

BBB: Pros & Cons

• Discusses the pros and cons of the three expansion methods.

Acquisition premium

• Graph showing medium one-week acquisition deal premiums over time.

Financial Market Reactions

• Presents the impact of announcements on stock prices through a table of examples (acquisition, divestment, etc.) and relevant financial impact (cumulative abnormal returns).

Short-Term M&A performance

• Shows graph of short-term M&A performance, including a comparison for acquirer and target performance.

Long-term M&A performance

• Outlines the correlation among total revenue growth and annualized excess shareholder returns.

Perceived M&A performance

• Illustrates the percentage of M&A deals that effectively achieved the stated cost savings or revenue synergies, highlighting the significant shortfall between expectations and actual outcomes in most cases.

Reasons for failures // pitfalls

• Presentation explaining the various elements that lead to M&A failures, with corresponding percentages based on survey data.

Reasons for failures // pitfalls (2)

• Diagram visualizing the different stages of an M&A process and the corresponding proportions of failure at each step, highlighting areas of risk.

Timeline

• Shows the timeline for M&A development process.

Reasons for failures // pitfalls (3)

• Details the factors that contribute to the reasons for M&A failures, including poor strategy or execution before transactions or poor implementation after the deal.
• Covers various scenarios, like poor strategy, synergy mismatch, overconfidence.

Which mode to choose?

• A presentation slide about deciding among build, blend, and buy options.

Insights from Academic Research

• Presents evidence showing that optimizing the mode of expansion according to resource gaps results in better performance.

The "Christmas tree"

• Image of three different Christmas trees.

Why Acquiring? Catch-up acquisitions

• Explains why companies perform acquisitions, separating the reasons into "doing things better" (internal redevelopments) and "doing better things" through various acquisitions types (transformation and bolt-on acquisitions.

Bold-On Acquisitions

• Explains why acquisition is done (cost reduction and increasing revenues).
• Provides examples of acquisitions in different industries (e.g., Microsoft acquisition of Skype and Lync for enterprise communication).

Bolt-on acquisitions

• Explains the reasoning behind merging companies to reduce costs and increase revenues.
• Provides several examples, including the acquisition of Kansas City Southern by Canadian Pacific Railway, Alstom-Bombardier's train production, etc.

Catch-up acquisitions

• Examples of firms pursuing catch-up acquisitions, including Apple's strategy to enter music streaming.

Transformation acquisitions

• Examples of transformation acquisitions (e.g., Microsoft's acquisition of LinkedIn, Coca-Cola's acquisition of Costa Coffee).
• Indicates that these are not primarily intended to generate synergies between the two firms, but rather to enable the acquiring firm to develop or explore new capabilities.

The "Christmas tree" (2)

• Image of three different Christmas trees.

M&A Implementation

• Focuses on the implementation stage of mergers and acquisitions.

Post Merger Integration (PMI)

• Discusses the different challenges with integrating acquired firms, including managerial autonomy and operational interdependence.

More about Holding

• Explains the specifics regarding the Holding mode of expansion.
• Describes the advantages and disadvantages of this approach.

Post Merger Integration (PMI)(2)

• Presents factors to consider when consolidating an operation.

Post Merger Integration (PMI)(3)

• Presents options and strategies according to the need for decision-making autonomy and the potential interdependence of operations.

Expansion Trajectories

• Discusses the concept of experiential learning in the context of corporate expansion.

Experiential Learning

• Explains how causal ambiguity can affect internal processes.
• Explains how this lack of clarity might harm learning.

Causal ambiguity

• Discusses the concept of causal ambiguity with examples comparing a clear and an unclear cause-effect relationship.

Can experience harm performance?

• Presents the factors of causal ambiguity that can lead to low performance.

The 'Experiential Learning' Matrix

• A matrix visually illustrating the impacts of experience on performance based on the clarity of cause and effect in the prior activities.

Impact of experience in M&As

• High levels of causal ambiguity and high dissimilarity in M&As.
• Inexperienced firms often outperform experienced firms in M&As, potentially due to a more cautious approach.

Philip Morris expansion – Step 1

• Explains how Phillip Morris employed strategies like aggressive marketing and building larger scale plants to expand their businesses.

Philip Morris expansion – Step 2

• Explains how Phillip Morris entered the beer market.
• Describes some of the techniques they employed at that time. - Describes what the advantages and negative characteristics were for that approach in the beer market.

Philip Morris expansion – Step 3

• Explains how Phillip Morris entered the soft drinks market.
• Outlines the difficulties they encountered while executing their chosen strategy.

Philip Morris: So, what happened?

• Table comparing the tobacco/beer and soft drink markets, highlighting similarities and differences.

Misleading experience: PM

• Analyzes why Philip Morris's experiences with expansion may not directly translate to success in new markets due to differences (dissimilarity) in market characteristics and the high degree of causal ambiguity.

What does the "PM Case" tell us?

• Presentation focusing on the lessons we can draw from the PM case.

Divestitures

• Overview of the process of divesting business units.

The Corporate Strategy's missing link

• Discusses the impact of announcement on stock prices.
• Covers various announcements relevant to corporate strategy (e.g., Acquisitions, E-businesses, divestitures).

Types of divestitures

• Categories of divestiture strategies, focusing on horizontal and vertical divestitures, along with key objectives for choosing each method and examples.

Nestle corporate strategy

• Details the divestment strategies adopted by Nestle to focus on core competencies, and provides specific cases like the divestment of their US ice cream, meat, and water businesses.

17 FEBRUARY 2021 Nestlé to divest US water business in $4.3bn deal

• Summary of the Nestlé divestment of its US water business to One Rock Capital Partners.

Nestle's core transformation (1905-2013)

• Visual representation of Nestlé's key acquisitions and divestitures throughout its history.

Divestitures. More examples

• A list of examples of divestitures across various industries and time periods.

Legacy divestitures

• Analysis of divestitures of legacy businesses, focusing on the decision reasoning of the cases (e.g., Unilever's sale of its margarine business to private equity firm KKR).

IBM announcement of the divestiture of its server division (2020, Oct 8th)

• Presentation that includes a graph and a detailed report about the announcement of the IBM server division divestiture.

Combining corporate development activities

• Shows a diagram visualizing how internal growth, divestitures, and external growth through acquisitions and alliances are all related.

The "Transformation Path"

• Discusses a model that illustrates the path of learning new competencies through acquisitions, internal redeployment, and bolt-on acquisitions.

Performance

• Presents the performance of M&A and divestiture strategies based on historical data.

Optimal growth trajectory

• Outlines the optimal growth trajectory for organizations. Includes internal growth and external development to obtain new capabilities

M&As and Corporate Strategy(2)

• The topic of this summary is Mergers and Acquisitions and Corporate Strategy.

M&A Implementation (2)

• Explains the components of post-merger integration.

Post Merger Integration (PMI)(4)

• Displays various possibilities for integrating an acquired company.

Test your understanding of corporate strategy concepts and the implications of market expansion through the Luxottica and Essilor deal. Explore questions related to horizontal integration, team project guidelines, and the overall focus of corporate strategy. This quiz will challenge your knowledge of strategic decision-making in business.