CORPORATE STRATEGIES
Chapter 5
CORPORATE STRATEGIES
other types of integrative growth strategies 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
essentially external growth strategies
involve investing the resources of the organization in
another company or business to achieve growth goals
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 Vertical Integration
- Backward
Integratio Organization integration
n -Forward Integration
HORIZONTAL INTEGRATION
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.
Another possible reason is the desire of the organization to
simply expand it 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.
VERTICAL INTEGRATION
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, minimum. transaction and inventory
costs, and ensure adequate stocks in the retail stores.
Vertical integration can either be backward or forward.
BACKWARD INTEGRATION
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.
FORWARD INTEGRATION
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
retail outlets that are displaying and selling their clothing
lines to help increase their sales.
THE BOSTON CONSULTING GROUP
MODEL
The Boston Consulting Group Growth-Share Paradigm started
to make its impact on corporate 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.
THE BOSTON CONSULTING GROUP
MODEL
THE BOSTON CONSULTING GROUP
MODEL
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.
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).
THE BOSTON CONSULTING GROUP
MODEL
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 strength.
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.
THE GENERAL ELECTRIC MODEL
THE GENERAL ELECTRIC MODEL
Table 5.pdf
GLOBAL STRATEGIES
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 or considers 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.
