CORPORATE STRATEGY

PAMANTASAN NG LUNGSOD NG MAYNILA

Intramuros, Manila

Graduate School of Engineering

Report by:
Ronnie Albert T. Montero
STRATEGIC MANAGEMENT
Prof. Jesusa Padilla

CORPORATE STRATEGY
1.1

Concentration Strategies

2.1

Horizontal Integration

2.2

Vertical Integration

2.3

Vertical Integration: Benefits & Drawbacks

3.1

Diversification Strategies

3.2

Levels of Diversification

3.3

Managerial Motives Underlying Diversification

3.4

Related and Unrelated Diversification

CORPORATE STRATEGY

LEARNING OBJECTIVES
1.
2.
3.
4.
5.
6.
7.
8.

Name and understand the three concentration

strategies.
Be able to explain horizontal and vertical integration.
Understand what background vertical integration is.
Understand what forward vertical integration is.
Be able to provide examples of backward and forward
vertical integration.
Explain the concept of diversification.
Be able to apply the three tests for diversification.
Distinguish related and unrelated diversification.

What is CORPORATE STRATEGY?

Corporate strategy deals with issues related to the portfolio
mix of businesses held by a multi-business
organization/corporation.

CORPORATE STRATEGY

1.1 CONCENTRATION STRATEGIES

A concentration strategy involves trying to compete
successfully within a single industry.
(1) Market penetration. Trying to gain additional share of a
firms existing markets using existing products.
(2) Market development. Taking existing products and
trying to sell them within new markets.
(3) Product development. Creating new products to serve
existing markets.

2.1 HORIZONTAL INTEGRATION

Rather than rely on their own efforts, some firms try to
expand their presence in an industry by acquiring or
merging with one of their rivals.

CORPORATE STRATEGY

2.2 VERTICAL INTEGRATION STRATEGIES

(1) Backward Vertical Integration. Involves a firm moving
back along the value chain and entering a suppliers
business.
(2) Forward Vertical Integration. Involves a firm moving
further down the value chain to enter a buyers
business.

1.4 VERTICAL INTEGRATION: BENEFITS &

DRAWBACKS
BENEFITS

DRAWBACKS

Reduce transportation costs if common

ownership results in closer geographic
proximity.

Potentially higher costs due to low

efficiencies resulting lack of supplier
competition.

Improves supply chain coordination.

Capacity balancing issues.

Provide more opportunities to

differentiate by means of increase
control over inputs.

Decreased flexibility due to previous

upstream or downstream investments.

Capture upstream or downstream profit

margins.

Decreased ability to increase product

variety if significant in-house development
is required.

Increase entry barriers to potential

competitors.

Developing new core competencies may

compromise existing competencies.

Gain access to downstream distribution

channels that otherwise would be
inaccessible.

Increase bureaucratic costs.

CORPORATE STRATEGY

Horizontal and Vertical Integration

(example)
Car Retail

Truck
Manufacture

CAR
MANUFACTURE

Bus
Manufacture

Components
Manufacture

3.1 DIVERSIFICATION STRATEGIES

The entry of a firm or business unit into new lines of activity,
either by processes of internal business development or
acquisition, which entail changes in its administrative
structure, systems and other management processes.

CORPORATE STRATEGY

3.1 DIVERSIFICATION STRATEGIES

Three Tests for Diversification
(1) How attractive is the industry that a firm is considering
entering?
(2) How much will it cost to enter industry?
(3) Will new unit and the firm be better off?

When to diversify?
A firm should consider diversifying when:
It can expand into businesses whose technologies and
products complement its present business.
Its resources and capabilities can be used as valuable
competitive assets in other businesses.
Costs can be reduced by cross-business sharing or transfer
of resources and capabilities.
Transferring a strong brand name to the products of other
businesses helps drive up sales and profits of those
businesses.

CORPORATE STRATEGY

3.2 LEVELS OF DIVERSIFICATION

3.3 MANAGERIAL MOTIVES

UNDERLYING DIVERSIFICATION
(1) Market Power.
(2) Combination and Sharing of Resources and Core
Capabilities.
(3) Internal Capital Market.

CORPORATE STRATEGY

3.4 RELATED DIVERSIFICATION &

UNRELATED DIVERSIFICATION
(1) Related Diversification. It occurs when a firm moves
into new industry that has important similarities with the
firms existing industry or industries.
(2) Unrelated Diversification. It occurs when a firm enters
an industry that lacks any important similarities with the
firms existing industry or industries.