Republic of the Philippines

Province of Bukidnon
Municipality of Pangantucan
Ordinance No. 1 series of 2016
CHED En Banc Resolution No. 421-2016
TIN: 000-631-170-000
PANGANTUCAN BUKIDNON COMMUNITY COLLEGE
___________________ DEPARTMENT

Instructor: RYNHART L. SIBAYAN Course Code: MGT 3

Yr. & Section:_____________ Course Title: STRATEGIC MANAGEMENT
Contact Number (Optional): ___________________ Module No. : 9
I. Main Topic: Material:
Corporate Level Strategy.
Module 9
II. Main Objectives
Reference:
Analyze dynamics in competitive rivalry including competitive action and response. - https://ebooks,Ipude.in/
commerce/mcom/term_4/
DCOM506_DMGT502_STRATE
GIC_MANAGEMENT.pdf
- https://pracownik.kul.pl/files/
12439/pubilc/3David.pdf

Textbook:
- Dess, G., Lumpkin, G., Eisner, A.,
McNamara, G., & Kim, B,.
( 2012). Strategic Management
Text & Cases. Mc Graw Hill
Education

III. Lesson Preview/ Review

Introduction

Corporate strategy is primarily about the choice of direction for the corporation as a whole. The basic
purpose of a corporate strategy is to add value to the individual businesses in it. A corporate strategy
involves decisions relating to the choice of businesses, allocation of resources among different
businesses, transferring skills and capabilities from one set of businesses to others, and managing
and nurturing a portfolio of businesses in such a way as to obtain synergies among product lines and
business units, so that the corporate whole is greater than the sum of its individual business units.
The essence of a corporate strategy vis-a-vis a business-level strategy is summarized in Figure 7.1.

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 Managers at the corporate level act on behalf of shareholders and provide strategic guidance to
business units. In these circumstances, a key question that arises is to what extent and how might
the corporate level add value to what the businesses do; or at least how it might avoid destroying
value.
Corporate strategy is thus concerned with two basic issues:
1. What businesses should a firm compete in?
2. How can these businesses be coordinated and managed so that they create “Synergy.”

IV. Discussion/ Activity & Assessment

1) Expansion Strategies
Growth strategies are the most widely pursued corporate strategies. Companies that do business in
expanding industries must grow to survive. A company can grow internally by expanding its operations
or it can grow externally through mergers, acquisitions, joint ventures or strategic alliances.

Reasons for Pursuing Growth Strategies

Firms generally pursue growth strategies for the following reasons:

1. To obtain economies of scale: Growth helps firms to achieve large-scale operations, whereby
fixed costs can be spread over a large volume of production.
2. To attract merit: Talented people prefer to work in firms with growth.
3. To increase profits: In the long run, growth is necessary for increasing profits of the organization,
especially in the turbulent and hyper–competitive environment.
4. To become a market leader: Growth allows firms to reach leadership positions in the market.
Companies such as Reliance Industries, TISCO etc. reached commanding heights due to growth
strategies.
5. To fulfill natural urge: A healthy firm normally has a natural urge for growth. Growth
opportunities provide great stimulus to such urge. Further, in a dynamic world characterized by the
growth of many firms around it, a firm would have a natural urge for growth.
6. To ensure survival: Sometimes, growth is essential for survival. In some cases, a firm may not
be able to survive unless it has critical minimum level of business. Further, if a firm does not grow
when competitors are growing, it may undermine its competitiveness.

Categories of Growth Strategies

Growth strategies can be divided into three broad categories:

1. Intensive Strategies
2. Integration Strategies
3. Diversification Strategies

Concentration Strategies

Without moving outside the organization’s current range of products or services, it may be possible to attract
customers by intensive advertising, and by realigning the product and market options available to the
organisation. These strategies are generally referred to as intensification or concentration strategies. By
intensifying its efforts, the firm will be able to increase its sales and market share of the current product-line
faster. This is probably the most successful internal growth strategy for firms whose products or services are in
the final stages of the product life cycle. Most of the approaches of intensive strategies deal with product-
market realignments.
Thus, there are three important intensive strategies:
1. Market penetration
2. Market development
3. Product development

1. Market penetration: Market penetration seeks to increase market share for existing products in the
existing markets through greater marketing efforts. This includes activities like increasing the sales
force, increasing promotional effort, giving incentives etc.

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 Market penetration is generally achieved through the following three major approaches:
A. Increasing sales to the current customers: This can be done through:
a. Increasing the size of the purchase
b. Advertising other uses
c. Giving price incentives for increased use For example, if customers of toothpaste who brush
once a day are convinced to brush twice a day, the sales of the product to the current
consumers might almost double.
B. Attracting competitor’s customers: If the firm succeeds in making the customers to switch from
the competitor’s brands to the firm’s brands, while maintaining its existing customers intact, there
will be an increase in the firm’s sales.
This can be done through:
a. Increasing promotional effort
b. Establishing sharper brand differentiation
c. Offering price cuts
C. Attracting non-users to buy the product: If there are a significant number of non-users of a
product who could be made users of the product, there will be an opportunity to increase market
share.
This can be done through:
a. Inducing trial use through sampling, price incentives etc.
b. Advertising new use
2. Market Development: Market development seeks to increase market share by selling the present
products in new markets.
This can be achieved through the following approaches:
A. By entering new geographic markets: A company, which has been confined to some part of a
country, may expand to other parts and foreign markets.
Thus, market development can be achieved through:
a. Regional expansion
b. National expansion
c. International expansion
3. Product Development: Product development seeks to increase the market share by developing new
or improved products for present markets.
This can be achieved through:
A. Developing new product features
B. Developing quality variations
C. Developing additional models and sizes (product proliferation)

Integrative Strategies
Integration basically means combining activities relating to the present activity of a firm. Such a combination
can be done on the basis of the industry value chain. A company performs a number of activities to transform
an input to output. These activities include right from the procurement of raw materials to the production of
finished goods and their marketing and distribution to the ultimate consumers. These activities are also called
value chain activities; the value chain activities of an industry are shown in Figure 7.2. So, a firm that adopts
integration may move forward or backward the industry value chain.

Expanding the firm’s range of activities backward into the sources of supply and/or forward into the distribution
channels is called “Vertical Integration”. Thus, if a manufacturer invests in facilities to produce raw materials or
component parts that it formerly purchased from outside suppliers, it remains in the same industry, but its
scope of operations extend to two stages of the industry value chain. Similarly, if a manufacturer opens a chain
of retail outlets to market its products directly to consumers, it remains in the same industry, but its scope of
operations extend from manufacturing to retailing. Viewed from a broader angle, the firm’s own value chain
activities are often closely linked to the value chain activities of the suppliers and distributors. Suppliers’ value
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chain is important because the costs, performance features and quality of the inputs influence a firm’s own
costs and product differentiation capabilities. Anything the firm does to lower costs or improves quality of its
inputs, will enhance its own competitiveness in the market. Similarly, the costs and margins paid to distributors
and retailers become a part of the price the consumers pay. Besides, the activities of distributors and retailers
affect consumers’ satisfaction.

Vertical integration can be:

1. Full integration: participating in all stages of the industry value chain.
2. Partial integration: participating in selected stages of the industry value chain.

A firm can pursue vertical integration by starting its own operations or by acquiring a company already
performing the activities it wants to bring in house.

Thus, integration is basically of two types:

1. Vertical integration and
2. Horizontal integration

Vertical Integration

As already explained above, vertical integration involves gaining ownership or increased control over suppliers
or distributors. Vertical integration is of two types

1. Backward Integration: Backward integration involves gaining ownership or increased control of a

firm’s suppliers. For example, a manufacturer of finished products may take over the business of a
supplier who manufactures raw materials, component parts and other inputs. Brooke Bond’s acquisition
of tea plantations is an example of backward integration. Backward Integration increases the
dependability of the supply and quality of raw materials Notes used as production inputs.
This strategy is generally adopted when:
A. Present suppliers are unreliable, too costly or cannot meet the firm’s needs.
B. The firm’s industry is growing rapidly.
C. The number of suppliers is small, but the number of competitors is large.
D. Stable prices are important to stabilize cost of raw materials.
E. Present suppliers are getting high profit margins.
F. The firm has both capital and human resources to manage the new business.
2. Forward Integration: Forward integration involves gaining ownership or increased control over
distributors or retailers. For example, textile firms like Reliance, Bombay Dyeing, JK Mills (Raymond’s)
etc. have resorted to forward integration by opening their own showrooms.
Forward Integration is generally adopted when:
A. The present distributors are expensive, or unreliable or incapable of meeting the firm’s needs.
B. The availability of quality distributors is limited.
C. The firm’s industry is growing and will continue to grow.
D. The advantages of stable production are high.
E. Present distributors or retailers have high profit margins.
F. The firm has both the capital and human resources needed to manage the new business.

Advantages of Vertical Integration:

1. A secure supply of raw materials or distribution channels.
2. Control over raw materials and other inputs required for production or distribution channels.
3. Access to new business opportunities and technologies.
4. Elimination of need to deal with a wide variety of suppliers and distributors.

Risks
1. Increased costs, expenses and capital requirements.
2. Loss of flexibility in investments.
3. Problems associated with unbalanced facilities or unfulfilled demand.
4. Additional administrative costs associated with managing a more complex set of activities.

Disadvantages of Vertical Integration:

1. It boosts the firm’s capital investment.
2. It increases business risk.
3. It denies financial resources to more worthwhile pursuits.
4. It locks a firm into relying on its own in-house sources of supply.
5. It poses all kinds of capacity-matching problems.
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 6. It calls for radically different skills and capabilities, which may be lacked by the manufacturer.
7. Outsourcing of component parts may be cheaper and less complicated than in-house manufacturing.

Guidelines for Vertical Integration:

1. If the performance of suppliers or distributors is satisfactory, it is not appropriate to take over these
activities.
2. Highly fluctuating sales or demand for the products of the organisation can either strain resources
(when demand is high) or result in unutilized capacity (when demand is low). The cycle of “boom and
bust” is not conducive to integration.
3. The strategy of vertical integration may be viable if there is a likelihood of expansion of capacity in the
near future.

Horizontal Integration

Horizontal integration is a strategy of seeking ownership or increased control over a firm’s competitors. Some
authors prefer to call this as horizontal diversification. By whichever name it is called, this strategy generally
involves the acquisition, merger or takeover of one or more similar firms operating at the same stage of the
industry value chain. Recent acquisition of Arcelor by Mittal Steels and the acquisition of Corus by Tata Steel
are good examples of horizontal integration.

The most important advantage of horizontal integration is that it generally eliminates or reduces
competition. Other advantages are:
1. It yields access to new markets.
2. It provides economies of scale.
3. It allows transfer of resources and capabilities.

Horizontal integration is an appropriate strategy when:

1. A firm competes in a growing industry.
2. Increased economies of scale provide a major competitive advantage.
3. A firm has both the capital and human talent needed to successfully manage an expanded
organization.
4. Competitors are faltering due to lack of managerial expertise or resources, which the firm has.

It should be noted that horizontal integration might not be an appropriate strategy if competitors are doing
poorly due to an overall decline in industry sales. Some increased risks are associated with both types of
integration. For horizontally integrated firms, the risk comes from increased commitment to one type of
business. For vertically integrated firms, the risk comes from shortage of managers with appropriate skills or
expertise to manage the expanded activities. If there is much more potential profit in downstream or upstream
activities, it is better to go in for vertical integration.

Diversification Strategies
Diversification is the process of adding new businesses to the existing businesses of the company. In other
words, diversification adds new products or markets to the existing ones. A diversified company is one that has
two or more distinct businesses. The diversification strategy is concerned with achieving a greater market from
a greater range of products in order to maximize profits. From the risk point of view, companies attempt to
spread their risk by diversifying into several products or industries.

Diversification can be achieved through a variety of ways :

1. Through mergers and acquisitions.
2. Through joint ventures and strategic alliances.
3. Through starting up a new unit (internal development)

Thus, the first concern in diversifying is what new industries to get into and whether to enter by starting a new
business unit or by acquiring a company already in the industry or by forming a joint venture or strategic
alliance with another company. A company can diversify narrowly into a few industries or broadly into many
industries. The ultimate objective of diversification is to build shareholder value i.e., increasing value of the
firm’s stock.

Reasons for Diversification: The important reasons for a company diversifying their business
are:
1. Saturation or decline of the current business: If the company is faced with diminishing market
opportunities and stagnating sales in its principal business, it may become necessary to enter new
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 businesses to achieve growth.
2. Better opportunities: Even when the current business provides scope for further growth, there may be
better opportunities in new lines of business. A firm in a “sunset industry” may be tempted to enter a
“sunrise industry.”
3. Sharing of resources and strengths: Diversification enables companies to leverage existing
competencies and capabilities by expanding into businesses where these resources become valuable
competitive assets. By sharing production facilities, technological capabilities, managerial expertise,
distribution channels, sales force, financial resources etc., synergy can be obtained.
4. New avenues for reducing costs: Diversifying into closely related businesses opens new avenues for
reducing costs.
5. Technologies and products: By expanding into industries, the company can obtain new technologies
and products, which can complement its present businesses.
6. Use of brand name: Through diversification, the company can transfer its powerful and well-known
brand name to the products of other businesses.
7. Risk minimization: The big risk of a single-business firm is having all its eggs in one industry basket. If
the market is eroded by the appearance of new technologies, new products or fast–changing consumer
preferences, then a company’s prospects can quickly diminish.

Risks of Diversification: Diversification has several risks. They are:

1. There is no guarantee that the firm will succeed in the new business. In fact, many diversifications have
been failures.
2. If the new lines of business result in huge losses, that adversely affects the main business of the
company.
3. Diversification may sometimes result in neglect of the old business.
4. Diversification may invite retaliatory moves by competitors, which may adversely affect even the old
businesses

Types of Diversification: Broadly, there are two types of diversification:

1. Concentric Diversification: Adding a new, but related business is called concentric diversification.
It involves acquisition of businesses that are related to the acquiring firm in terms of technology,
markets or products. The selected new business has compatibility with the firm’s current business. The
ideal concentric diversification occurs when the combined profits increase the strengths and
opportunities and decrease the weaknesses and threats. Thus, the acquiring firm searches for new
businesses whose products, markets, distribution channels and technologies are similar to its own, and
whose acquisition results in “Synergy’’. This is possible with related diversification because companies
strive to enter product markets that share resources and capabilities with their existing business units.
Diversification must create value for shareholders. But this is not always the case. Acquiring firms
typically pay premiums when they acquire a target firm. Besides, the risks and uncertainties are high.
Why do firms still go in for diversification? The answer, in one word, is “Synergy”

Advantages
A. Increases the firm’s stock value.
B. Increases the growth rate of the firm.
C. Better use of funds than plugging them back into internal growth.
D. Improves the stability of earnings and sales.
E. Balances the product line when the life cycle of the current products has peaked.
F. Helps to acquire a needed resource quickly (e.g. technology or innovative management etc.)
G. Achieves tax savings.
H. Increases efficiency and profitability through synergy.
I. Reduces risk..
2. Conglomerate diversification: Adding a new, but unrelated business is called conglomerate
diversification. The new business will have no relationship to the company’s technology, products or
markets. For example, ITC which is basically a cigarette manufacturer has diversified into hotels, edible
oils, financial services etc. Similarly, Reliance Industries, which is basically a textile manufacturer, has
diversified into petro chemicals, telecommunications, retailing etc. Unlike concentric diversification,
conglomerate diversification does not result in much of synergy

Advantages
A. Business risk is scattered over diverse industries.
B. Financial resources are invested in industries that offer the best profit prospects.
C. Buying distressed businesses at a low price can enhance shareholder wealth. (
D. Company profitability can be more stable in economic upswings and downswings.
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 Disadvantages
A. It is difficult to manage different businesses effectively.
B. The new business may not provide any competitive advantage if it has no strategic fits

Means to Achieve Integration or Diversification: Profitable growth is one of the prime objectives of any
business firm. Growth can be achieved internally or externally. Internal growth in assets, sales and profits
takes place when the firm introduces a new product or increases the capacity for the existing products through
setting up a new plant. Increasing the capacities through internal growth takes time and involves lot of risk.
Alternatively, business firms can suddenly increase their growth rate by acquisitions, mergers, etc. These
strategies are often referred to as cooperation strategies.

As already mentioned, growth especially by way of integration or diversification can be

achieved through four basic means:
1. Mergers and acquisitions
2. Joint ventures
3. Strategic alliances
4. Internal development

With the opening up of the Indian economy, business firms have the freedom to expand, diversify and
modernize the operations and set up new undertakings. Market forces continue to play the role and
experienced entrepreneurs always remain in search of opportunities to take over units and to expand their
operations. So the free economic environment plays a very important role in accelerating the merger and
acquisition activities.

2) Retrenchment Strategies
They are the last resort strategies. A company may pursue retrenchment strategies when it has a weak
competitive position in some or its entire product lines resulting in poor performance – sales are down and
profits are dwindling. In an attempt to eliminate the weaknesses that are dragging the company down,
management may follow one or more of the following retrenchment strategies.
1. Turnaround
2. Divestment
3. Bankruptcy
4. Liquidation

Turnaround Strategy
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A firm is said to be sick when it faces a severe cash crunch or a consistent downtrend in its operating profits.
Such firms become insolvent unless appropriate internal and external actions are taken to change the financial
picture of the firm. This process of recovery is called “turnaround strategy”.

Any successful turnaround strategy consists of three inter-related phases:

1. The first phase is the diagnosis of impending trouble. Many authors and research studies have
indicated distinct early warning signals of corporate sickness.
2. The second phase involves analyzing the causes of sickness to restore the firm on its profit track.
These measures are of both short-term and long-term nature.
3. The third and final phase involves implementation of change process and its monitoring

When Turnaround becomes Necessary

Do companies turn sick overnight and qualify as potential candidates for turnaround or do they become sick
slowly which can be stopped by timely corrective action? Obviously, the latter is true in most of the cases. But
the reality is also that companies becoming sick often do not themselves recognize this fact, and fail to take
timely action to remedy the situation. Despite the fact that factors that lead to sickness may vary from company
to company, there are some common signals which herald the onset of sickness. John M Harris has listed a
dozen danger signals of impending sickness.

1. Decreasing market share: This is the most significant symptom of a major sickness. A company which
is losing its market share to competition needs to sit up and take careful note. Regular monitoring of
market share helps companies to keep a tag on their performance in the market vis-à-vis their
competitors. Any indication of declining market share should trigger off immediate corrective action.
2. Decreasing constant rupee sales: Sales figures, to be meaningful, should be adjusted for Notes
inflation. If constant rupee sales figures are showing a declining trend, then this is a danger signal to
watch out.
3. Decreasing profitability: Profit figures are a good indication of a company’s health. Care must be
taken to interpret the profit figures correctly, so as to avoid any misjudgments. Decreasing profitability
can show up as smaller profits in absolute terms or lower profits per rupee of sales or decreasing return
on investment or smaller profit margins.
4. Increasing dependence on debt: A company overly reliant on debt soon gets into a tight corner with
very few options left. A substantial rise in the amount of debt, a lopsided debtto-equity ratio and a
lowered corporate credit rating may cause banks and other financial institutions to impose restrictions
and become reluctant to lend money. Once financial institutions are hesitant to lend money, the
company’s rating on the stock market also slides down and it becomes very difficult for the company to
raise funds from the public too.
5. Restricted dividend policies: Dividends frequently missed or restricted dividends signal danger.
Often, such companies may have earlier paid substantially higher proportion of earnings as dividends
when in fact they should have been reinvesting in the business. Current inability to pay dividends is an
indication of the gravity of the situation.
6. Failure to reinvest sufficiently in the business: For a company to stay competitive and keep on the
fast growth track, it is essential to reinvest adequate amounts in plant, equipment and maintenance.
When a business is growing, the combination of new investments and reinvestments often warrants
borrowing. Companies which fail to recognize this fact and try to finance growth with only their internal
funds are applying brakes in the path of growth.
7. Diversification at the expense of the core business: It is a well-observed fact that once companies
reach a particular level of maturity in the existing business, they start looking for diversification. Often
this is done at the cost of the core business, which then starts to deteriorate and decline. Diversification
in new ventures should be sought as a supplement and not as a substitute for the primary core
business.
8. Lack of planning: In many companies, particularly those built by individual entrepreneurs, the concept
of planning is generally lacking. This can often result in major setbacks as limited thought or planning
go into the actions and their consequences.
9. Inflexible chief executives: A chief executive who is unwilling to listen to fresh ideas from others is a
signal of impending bad news. Even if the CEO recognizes the danger signals, his unwillingness to
accept any proposal from his subordinates further blocks the path towards recovery.
10. Management succession problems: When nearly all the top managers are in their modified, there
may be a serious vacuum at the second line of command. As these older managers retire or leave
because of perception of decreasing opportunities, there is bound to be serious management crisis.
11. Unquestioning boards of directors: Directors, who have family, social or business ties with the chief
executive or have served very long on the board, may no longer be objective in their judgment. Thus,
these directors serve limited purpose in terms of questioning or cautioning the CEO about his actions.
8
 12. A management team unwilling to learn from its competitors: Companies in decline often adopt a
closed attitude and are not willing to learn anything from their competitors. Companies which have
survived tough competitive times continuously analyse their competitors’ moves.

Types of Turnaround Strategies

Slater has classified the turnaround strategies into two broad categories. These are strategic turnaround and
operating turnaround. Whether a sick business needs strategic or operating turn-around can be ascertained by
analyzing the current strategic and operating health of the business. The operating turnarounds are easier to
carry out and can be applied only when there is average to strong strategic strengths (product-market
relationship) in the business. The strategic turnaround choices may involve either a new way to compete
existing business or entering an altogether new business. Entering a new business as a turnaround strategy
can be approached through the process of product portfolio management. The strategic turnaround focuses
either on increasing the market share in a given product-market framework or by shifting the product-market
relationship in a new direction by re-positioning.

The operating turnaround strategies are of four types. These are :

1. Revenue-increasing strategies
2. Cost-cutting strategies
3. Asset-reduction strategies
4. Combination strategies

The focus of all these choices is on short-term profit. Thus, if a sick firm is operating much below its break-
even, it must take steps to reduce the levels of fixed cost and help in reducing the total costs of the firm. In real
life, it is always a difficult choice to identify the assets which can be sold without affecting the productivity of the
business. To identify saleable assets, the firm may have to keep in mind its strategic move in the next two to
three years. The turnaround strategies appropriate under different circumstances are: If the sick firm is
operating substantially but not extremely below its break-even point, then the most appropriate turnaround
strategy is the one which generates extra revenues. These may be in the form of price reduction to increase
sales, stimulating product demand through promotional efforts or sometimes by introducing scaled down
versions of the main products of the firm.

The increased quantities of product sales not only result in higher sales but also reduce the per unit cost, thus
leading to higher operating profits. If the firm is operating closer but below break-even point then the
turnaround strategy calls for application of combination strategies. Under combination strategies cost-reducing,
revenue generating and asset-reduction actions are pursued simultaneously in an integrated and balanced
manner. The combination strategies have a direct favorable impact on cash flows as well as on profits. If the
firm is operating around break-even point, it usually needs cost-reduction strategies, since cost-reduction
actions are easily carried out as compared to revenue generating actions, the former is usually preferred for
quick short-term profit increases. Slater has, however, linked the choice of turnaround strategies to the causes
of decline.

The recommended choice of strategies includes change in management and organizational processes,
improved financial controls, growth via acquisition and new financial strategies. Closely associated to the
choice of turnaround strategy is the concept of turnaround process. We will focus on this aspect in the next
section.

Divestment
Selling a division or part of an organization is called divestiture. This strategy is often used to raise capital for
further strategic acquisitions or investments. Divestiture is generally used as a capital or that do not fit well with
the firm's other activities.

Divestiture is an appropriate strategy to be pursued under the following circumstances:

1. When a business cannot be turned around
2. When a business needs more resources than the company can provide
3. When a business is responsible for a firm's overall poor performance
4. When a business is a misfit with the rest of the organization
5. When a large amount of cash is required quickly
6. When government's legal actions threaten the existence of a business.

Types of Divestitures

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 1. Spin-off: It is a kind of demerger when an existing parent company distributes on prorate basis the
shares of the new company to the shareholders of the parent company free of cost. There is no money
transaction, subsidiary's assets are not revalued, and transaction is treated as stock dividend. Both the
companies exist and carry on their businesses independently after spin-off. During spin-off, a new
company comes into existence. The shareholders of the parent company become the shareholders of
the new company spunoff.
2. Sell-off: It is a form of restructuring, where a firm sells a division to another company. When the
business unit is sold, payment is received generally in the form of cash or securities. When the firm
decides to sell a poorly performing division, this asset goes to another owner, who presumably values it
more highly because he can use the asset more advantageously than the seller. The seller receives
cash in the place of asset. So the firm can use this cash more efficiently than it was utilizing the asset
that was sold. The firm can also get premium for the assets because the buyer can more
advantageously use such assets. Sell-off generally have positive impact on the market price of shares
of both the buyer and seller companies. So sell-offs are beneficial for the shareholders of both the
companies.
3. Voluntary corporate liquidation or bust-ups: It is also known as complete sell-off. The companies
normally go for voluntary liquidation because they create value to the shareholders. The firm may have
a higher value in liquidation than the current market value. Here the firm sells its assets/divisions to
multiple parties which may result in a higher value being realized than if they had to be sold as a whole.
Through a series of spinoffs or sell-offs a company may go ultimately for liquidation.
4. Equity carveouts: It is a different type of divestiture and different form of spin-off and selloff. It
resembles Initial Public Offering (IPO) of some portion of equity stock of a wholly owned subsidiary by
the parent company.
5. Leveraged buyouts (LBO's): A leveraged buyout is an acquisition of a company in which the
acquisition is substantially financed through debt. Debt typically forms 70-90% of the purchase price.
Much of the debt may be secured by the assets of the company (asset based lending). Firms with
assets that have a high collateral value can more easily obtain such loans. So LBOs are generally
found in capital intensive industries. Debt is obtained on the basis of company's future earnings
potential.

Bankruptcy
This is a form of defensive strategy. It allows organizations to file a petition in the court for legal protection to
the firm, in case the firm is not in a position to pay its debts. The court decides the claims on the company and
settles the corporation's obligations.

Liquidation
Liquidation occurs when an entire company is dissolved and its assets are sold. It is a strategy of the last
resort. When there are no buyers for a business which wants to be sold, the company may be wound up and
its assets may be sold to satisfy debt obligations.

Liquidation becomes the inevitable strategy under the following circumstances:

1. When an organization has pursued both turnaround strategy and divestiture strategy, but failed.
2. When an organization’s only alternative is bankruptcy. A company can legally declare bankruptcy first
and then wind up the company to raise needed funds to pay debts.
3. When the shareholders of a company can minimize their losses by selling the assets of a business.

3) Combination Strategies
A company can pursue a combination of two or more corporate strategies simultaneously. But a combination
strategy can be exceptionally risky if carried too far. No organization can afford to pursue all the strategies that
might benefit the firm. Difficult decisions must be made. Priorities must be established. Organizations like
individuals have limited resources, so organizations must choose among alternative strategies.

In large diversified companies, a combination strategy is commonly employed when different divisions pursue
different strategies. Also, organizations struggling to survive may employ a combination of several defensive
strategies.

4) Internationalization
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When the focus of a business is its domestic operations, but a portion of its activities are outside the home
country, it is called an "International Company". In other words, an international company is one that is
primarily based in a single country but that acquires some meaningful share of its resources or revenues from
other countries. For example, a small company engaged in exporting some of its products beyond its home
country, is called "international" in its operations.

Internationalization involves creating an international division and exporting the products through that division.
The firm really focuses on the domestic market, and exports what is demanded abroad. All control is retained
at home office regarding product and marketing strategies. As a firm becomes more successful abroad, it
might set up manufacturing and marketing facilities in the foreign country, and allow a certain degree of
customization. Country units are allowed to make some minor adaptations to products to suit local needs. But
they have far less independence and autonomy compared to multi-domestic companies. All sources of core
competencies are centralized.

Exporting
This means selling the products in other countries through an agent or a distributor. This choice offers avenues
for larger firms to begin their international expansion with a minimum investment. There are merits and
demerits

5) Cooperation Strategies
Cooperative strategies such as strategic alliance and joint ventures are a logical and timely response to
intense and rapid changes in economic activity, technology and globalization. Apart from alliances between the
firms operating within the same country, cross border alliances have also become increasingly popular these
days. Alliances generally come in three basic types joint ventures, strategic alliance, and consortia.

Joint Ventures

In a joint venture, two firms contribute equity to form a new venture, typically in the host country to develop new
products or build a manufacturing facility or set up a sales and distribution network (Eg. Maruti Suzuki).
The commonly cited advantages are:
1. Improvement of efficiency
2. Access to knowledge
3. Dealing with political risk factors
4. Collusions may restrict competition

Strategic Alliances
This is a collaborative partnership between two or more firms to pursue a common goal. Each partner in an
alliance brings knowledge or resources to the partnership. Such an alliance is generally formed to access a
critical capability not possessed in-house.

Consortia
Consortia are defined as large interlocking relationships, cross holdings and equity stakes between businesses
of an industry. There could be two forms of consortia:
1. Mult-ipartner Consortia: These are multi-partner alliances intended to share an underlying
technology. One of the most important European based consortiums to date is Air Bus Industries.
Airbus brings together four European aerospace firms from Britain, France, Germany and Spain
2. Cross-holding Consortia: These include large Japanese Keiretsus (Sumitomo, Mitsubishi, and Mitsui)
and Korean Chaebols (Daewoo, LG, Hyundai, and Samsung). Two important features of cross-holding
consortia are building long-term focus and gaining technological critical mass among affiliated member
companies.

6) Restructuring
Restructuring is another means by which the corporate office can add substantial value to a business. Here,
the corporate office tries to find either poorly performing business units with unrealized potential or businesses
on the threshold of significant, positive change. The parent intervenes, often selling off the whole or part of the
businesses, changing the management, reducing payroll and unnecessary expenses, changing strategies, and
infusing the business with new technologies, processes, reward systems, and so forth. When the restructuring
is complete, the company can either "sell high" and capture the added value or keep the business in the
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corporate family and enjoy the financial and competitive benefits of the enhanced performance.

For the restructuring strategy to work, the corporate office must have insights to detect businesses competing
in industries with a high potential for transformation. Additionally, of course, they must have the requisite skills
and resources to turn the businesses around, even if they may be in new and unfamiliar industries.

Restructuring can involve changes in assets, capital structure or management.

1. Assets restructuring involves the sale of unproductive assets, or even whole lines of businesses, that
are peripheral. In some cases, it may even involve acquisitions that strengthen the core businesses.
2. Capital restructuring involves changing the debt-equity mix or the mix between different classes of debt
or equity.
3. Management restructuring involves changes in the composition of top management team,
organizational structure, and reporting relationships. Tight financial control rewards based strictly on
meeting performance goals, reduction in the number of middle-level managers are common steps in
management restructuring. In some cases, parental restructuring may even result in changes in
strategy as well as infusion of new technologies and processes.

 Assessments, Activities and Exams should be done during Face to Face Classes.

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