Module 5 Corporate Strategies PDF

**MODULE 5** **CORPORATE STRATEGIES** LEARNING OBJECTIVES =================== After completing this module, you are expected to: i. define and explain the significance of integrative growth strategies; ===================================================================== ii. differentiate...

**MODULE 5** **CORPORATE STRATEGIES** LEARNING OBJECTIVES =================== After completing this module, you are expected to: i. define and explain the significance of integrative growth strategies; ===================================================================== ii. differentiate horizontal integration from vertical integration; iii. differentiate backward integration from forward integration; iv. assess the utility of the Boston Consulting Group Model; v. evaluate the application of the General Electric Model; and vi. discuss the role of global strategies in the conduct of today's business. [**Module 5 Corporate Strategies**](about:blank) LEARNING ACTIVITIES =================== **Individual Activity** ASSESSMENT/EVALUATION ===================== I. *Synchronous Test* with time limit. II. *Asynchronous Learning* As businesses focus on developing their degree of internal competitiveness, companies adopt external growth strategies. These are alternative modes of addressing the challenges confronting organizations. In this module, we will discuss other types of integrative growth strategies. Essentially referred to as corporate strategies, these strategies include the Boston Consulting Group Model, the General 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 the resources of the organization in another company or business to achieve 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. **Figure 5.1 Horizontal and Vertical Integration of an Organization** 1\. **Horizontal integration** is a strategy where the organization acquires another competing business. There are varied reasons for undertaking horizontal integration. First, organizations may employ horizontal integration to eliminate real or potential competitors because some competitors can present themselves as deadly threats to an organization. For example, Jollibee purchased Mang Inasal for fear of losing their market share in the fast-food industry. Another possible reason is the desire of the organization to simply expand its reach, expand its market demographically, and maintain its market status as a market leader, market challenger, or a market follower. Lastly, an organization may undergo horizontal integration to help increase its revenues. **2. Vertical integration** is the process of consolidating into an organization other companies involved in all aspects of a product\'s or a service\'s process from raw materials to distribution. It is an integrated growth strategy adopted by an organization to gain control over its suppliers and distributors, increase the company\'s market share, minimize transaction and inventory costs, and ensure adequate stocks in the retail stores. Vertical integration can either be backward or forward. a. **Backward integration** is another integrative acquisition growth strategy where the organization buys one of its suppliers. An organization may carry out backward integration to better control its supply chain and ensure a more reliable or cost-effective supply of input. Furthermore, the organization can eliminate inefficiencies to secure quality output or according to set conformance standards. The organization can apply product and process strategies so that the right products are produced and the right services are 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 a manufacturer of mobile phones, it can buy its supplier of phone cases. b. **Forward integration** is carried out when the organization buys distribution companies that are part of its distribution chain. In effect, the organization is able to remove the intermediary, thus, eliminating distribution costs. Forward integration allows an organization to reinvent its marketing outlook and redesign its marketing strategies. For example, an organization engaged in garment manufacturing can buy their retail sales outlets that are displaying and selling their clothing lines to help increase their sales.  In summary, integrative growth strategies are corporate in nature. These strategies may include 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 the organization because the costs of buying from suppliers decrease significantly. In forward integration, the organization takes over the marketing activities of its retailers. **The Boston Consulting Group Model** The Boston Consulting Group Growth-Share Paradigm started to make its impact on corporate Consultant strategy in the early 1970\'s. The BCG model was developed by Bruce Henderson of the Boston Consultant Group. This model classifies the products or business units of an organization in terms of two parameters, namely market share and market growth, in relation to the marketing leader. **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: - A high 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. - A high market share in a low 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. - A low market share in a high market growth defines **question marks**. These essentially new products need promotional strategies. - A low market share in a low market growth defines **dogs**. They should essentially be minimized, if not avoided. They can be expensive to the company. **The General Electric Model** Mckinsey conceptualized the General Electric (GE) Model for the company. This model is an improvement of the BCG Model. It is used to assess the strength of a strategic business unit (SBU) of an organization. It takes into consideration two parameters to determine the overall strength of an SBU. These parameters are market attractiveness and business strengths. **External factors** that may affect market attractiveness include market size and growth, market niche and segmentation, demand, and overall risk. On the other hand, the **internal factors** that may affect business strength include brand strength, staying power, profit margins, quality, customer patronage, and others.  **Figure 5.3 General Electric Model** (Business Resource, Inc. 2014) In the GE model (Figure 5.3), the circle represents the organization or the company. There are nine cells. Cells 1, 2, and 3 are favorable positions with relatively attractive growth opportunities. Cells, 4, 5, and 6 possess medium attractiveness, and caution must be taken in making additional investments. Lastly, Cells 7, 8, and 9 are not attractive and the company should think of getting out.  **Table 5.1 General Electric Model** (Chunawala 2002) 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. **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 to sell competitive and distinct products and services that are suited to the customer demands of different countries. Thus, the strategy in one country may vary in another, depending on customer expectations. In **global strategies**, the company treats the world as a whole, one market and one source of supply with slight local variations. **Benefits of Global Strategies** Pursuing global strategies can be beneficial to companies. Given a larger market for its products, companies can enjoy larger sales and earnings. They can benefit from the global branding of their products and services, not to mention, the earnings from economies of scale. Higher production volume with efficiency increases savings and creates greater advantage for companies. Sourcing of labor can be studied to optimize labor costs. **Resources Required** In building a global strategy, certain resources are necessary to establish a level of competitiveness. They are: - substantial capitalization because funding requirements can be demanding; - managerial and strategic leadership to be able to come up with the best strategies for success; - expertise and capabilities on the part of management and employees; and - quality and differentiated products and services. The 21st century is an era of borderless reality. Communication, technology, mobility, and particularly, doing business or conducting service operations extend to the farthest corners of the world. As a result, global strategies have become a consideration. International expansion, global markets, and global products present a needed alternative for some organizations. **END OF MODULE 5 Corporate Strategies**