Corporate Strategy Notes PDF

APUNTES CORPORATE STRATEGY: UNIT 1 - INTRODUCTION TO CORPORATE STRATEGY 1.1. INTRODUCTION: Strategy: a set of actions the firm adopts to achieve & maintain a superior performance to its competitors. - HOW & WHERE to compete. Competitive strategies → how to compete in a given market. In sear...

APUNTES CORPORATE STRATEGY: UNIT 1 - INTRODUCTION TO CORPORATE STRATEGY 1.1. INTRODUCTION: Strategy: a set of actions the firm adopts to achieve & maintain a superior performance to its competitors. - HOW & WHERE to compete. Competitive strategies → how to compete in a given market. In search of advantage, companies differentiate their products & reduce costs (lead by efficiency). 1.2. WHAT IS CORPORATE STRATEGY? Corporate strategies → where to compete. They determine the company's actions to obtain a competitive advantage in the different business units & geographic markets in which it operates. - The portfolio of products/ services offered by the company & the geographic markets in which it operates vary over time. - Successful companies grow over time. 1.3. CORPORATE STRATEGIES: Why do the firms have incentives to grow? Different reasons: 1. Increase profitability 2. Reduce costs 3. Increase its bargaining power 4. Obtain greater ability to influence market conditions 5. Reduce risk 6. Motivate managers and qualified workers 7. Avoid falling behind other firms 8. Reduce dependencies What are the disadvantages/risks of growing? 1. Increase the organizational complexity. 2. Increase of costs 3. Since there are more agents involved, conflicting interests may appear 4. Greater public scrutiny 5. Greater difficulties in innovating (‘fat cat syndrome’) 6. Greater exposure to unexpected events 7. In the case of internationalization, the ‘liability of foreignness’ 3 dimensions of growth/ decrease: 1 - Increasing/ reducing its degree of vertical integration across the different stages of the value chain: In which businesses should the firm compete? Which activities should it outsource? 2 - Increasing/ reducing its product diversification: What is the range of goods and services it should offer? 3 - Increasing/ reducing its geographical scope: In which geographical markets should the firm compete? Ex: TELEFONICA Origin: state-owned satellite communications company & fixed telephony in Spain (Privatization 1995-1999). Telefonica has developed a strong corporate strategy to grow in Europe and Latin America's different businesses and geographic markets. Top management must make decisions about: - Level of diversification: What variety of products & services will the firm offer? - Vertical and horizontal integration: Which value chain stages will the firm cover? - Geographical scope (local, regional, national & international): In which geographical markets is the company competing? Senior management has to decide HOW to do it : - Mergers & Acquisitions (M&A) - Strategic Alliances - Greenfields UNIT 2 - VERTICAL INTEGRATION 2.1. THE BOUNDARIES OF THE FIRM: Make or buy: 1st relevant dimension of business growth → The degree of vertical integration: indicated by the number of stages of the industry value chain it covers. In which activities does it actively participate (ownership & control) & in which ones does it not? The degree of integration of the company will mark the boundaries between what is done within that company (integration) & what is done outside (outsourcing). The theory of transaction costs helps us define these boundaries. The market (price) and the company (hierarchy and contractual relations) are two alternatives to carrying out any activity (i.e., economic transaction). Example: a marketing campaign, the production of a new product, hiring new employees… The limits of companies vary between countries & between industries, even between links in the industry value chain. Example: South Korea or the computer industry Is it better to carry out a certain activity within the company or go to the market? Neither is free of cost, the theory of transaction costs helps us to answer that question. We must compare the magnitude of two types of transaction costs: - Internal transaction costs: a consequence of organizing an economic exchange within the company (integration). Example: the administrative cost of coordinating that activity, the time & resources used to carry it out (opportunity cost), & the economic cost of the resources used. - External transaction costs arise when going to the market to carry out that activity. Example: the cost of looking for someone to do it, the economic cost of subcontracting that activity, the cost of making the contract, negotiating it, and/or enforcing it (in case of non-compliance) External costs > internal costs → Integration (company) Internal costs > external costs → Outsourcing (market) Previous options are ‘extreme’ solutions. Other alternatives happen to be more often: A. Short-term contracts: - Contracts last