Module IV

Corporate Level Strategies (Part 2)

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 Topics
3. Expansion Strategies:
(iv) Internationalization Strategies
(v) Cooperative Strategies
(vi) Digitalization Strategies

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 International Strategies
International strategies are a type of expansion strategies that require organisations to
market their products or services beyond the domestic or national market. For doing so,
an organisation would have to assess the international environment, evaluate its own
capabilities, and devise strategies to enter foreign markets.

The major factors for the growth are the technological developments reducing the
transportation costs, improvement in communication technology enabling better contact
between trading and investing nations, and the policy-induced trade liberalisation leading
to lowering of barriers to international trade and investment

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 Modes of International Entry
Export entry modes: Under these modes, the firm produces in the home country and
markets in the overseas markets.

Contractual entry modes: These modes are non-equity associations between an

international company and a company or any other legal entity in the overseas markets.

Investment entry modes: These modes involve ownership of production units in the
overseas market based on some form of equity investment or direct foreign investment.

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 Advantages of International Strategies

• Realising economies of scale

• Realising economies of scope
• Expansion and extension of markets
• Realising location economies
• Access to resources overseas

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 Disadvantages Of International Strategies
• Higher risks
• Difficulty in managing cultural diversity
• High bureaucratic costs
• Higher distribution costs
• Trade barriers

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 Factors influencing International Strategies

Cost pressures denote the demand on a firm to minimise its unit costs. By doing so,
the firm tries to derive full benefits from economies of scale and location
economies.

Pressures for local responsiveness makes a firm tailor its strategies to respond to
national-level differences in terms of variables like customer preferences and
tastes, government policies, or business practices.

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 Types of International Strategies

Firms adopt an international strategy when they create value by transferring products and
services to foreign markets where these products and services are not available.

Firms adopt a multi domestic strategy when they try to achieve a high level of local
responsiveness by customising their products and services according to the local
conditions present in the different countries they operate in.

Firms adopt a global strategy when they rely on a low-cost approach based on reaping the
benefits of experience-curve effects and location economies and offering standardised
products and services across different countries.

Firms adopt a transnational strategy when they adopt a combined approach of low-cost
and high local responsiveness simultaneously for their products and services.

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 Types of International Strategies

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 Co-operative Strategies
In many cases, pursuit of corporate objectives may be achieved through cooperating
with other firms.

It focuses on the benefits that can be gained through cooperation and how the
management of cooperation can realize these benefits.

These are broadly known as cooperative strategies

Some of these strategies include mergers and acquisitions, Joint ventures and Strategic
alliances

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 Mergers And Acquisitions
Mergers take place when the objectives of the buyer firm and the seller firm are matched
to a large extent; acquisitions or takeovers usually are based on the strong motivation of
the buyer firm to acquire.

Takeover is a common way for acquisition and happens when one firm acquires
ownership and control over another firm. Mergers carried out in reverse are known as
demergers or spin-offs.

Demerger involves spinning off an unrelated business / division in a diversified company

into a stand-alone company along with a free distribution of its shares to the existing
shareholders of the original company.

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 Types of Mergers and Acquisitions
Horizontal mergers take place when there is a combination of two or more organisations
in the same business, or of organisations, engaged in certain aspects of the production or
marketing processes.
Vertical mergers take place when there is a combination of two or more organisations, not
necessarily in the same business, which create complementarities either in terms of
supply of materials (inputs) or marketing of goods and services (outputs).
Concentric mergers take place when there is a combination of two or more organisations
related to each other either in terms of customers functions, customer groups, or
alternative technologies used.
Conglomerate mergers take place when there is a combination of two or more
organisation unrelated to each other, either in terms of customer functions, customer
groups, or alternative technologies.

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 Reasons For Mergers And Acquisitions
Why the buyer wishes to merge:
• To increase the value of the organisation's stock.
• To increase the growth rate and make a good investment.
• To improve stability of earning and sales.
• To balance, complete, or diversify product line.
• To reduce competition.

Why the seller wishes to merge:

• To increase the value of the owner's stock and investment.
• To increase the growth rate.
• To acquire resources to stabilise operations.
• To benefit from tax legislation.
• To deal with top management succession problem.

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 Issues in Mergers and Acquisitions
Issues:
• Strategic
• Legal
• Financial
• Managerial

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 Joint Ventures
A joint venture could be considered as the new entity resulting from a long-term contractual
agreement between two or more parties to undertake mutually beneficial economic activities,
exercise joint control, contribute equity, and share in the profits or losses of the entity.

Conditions calling for joint ventures:

• When an activity is uneconomical for an organisation to do alone.
• When the risk of business has to be shared and, therefore, is reduced for the
participating firms.
• When the distinctive competence of two or more organisation can be brought together.
• When setting up an organisation requires surmounting hurdles such as import quotas,
tariffs, nationalistic-political interests, and cultural roadblocks.

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 Types Of Joint Ventures

Between two Indian organisations in one industry

Between two Indian organisations across different industries
Between an Indian organisation and a foreign organisation in India
Between an Indian organisation and a foreign organisation in that foreign country
Between an Indian organisation and a foreign organisation in a third country
Between government and private sector organisations in the form of public-private
partnerships

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 Joint Ventures : Benefits And Drawbacks

The major benefits that are likely to accrue from joint ventures include: minimising risk,
reducing an individual company's investment, and creating access to foreign technology,
broad-based equity participation, access to governmental and political support, and
entering new fields of business and synergistic advantages.
Reasons joint ventures can fail includes:
• Change of strategy
• Regulatory changes
• Success of joint venture
• Having partners hampers growth
• Lack of transparency

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 Strategic Alliances

Strategic alliances as an arrangement for “cooperation between two or more

independent firms involving shared control and continuing contributions by all partners
for mutual benefit.
In order to be strategic, an alliance must satisfy one of these criteria:
• Be critical to the success of a core business goal or objective
• Be critical to the development or maintenance of a core competency or other source
of competitive advantage
• Enables blocking a competitive threat
• Creates or maintains strategic choices for the firm
• Mitigates a significant risk to the business

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 Reasons For Strategic Alliances
Entering new markets: A company that has a successful product or service may wish to
look for new markets. They enter into a partnership with a local firm in that foreign market
which understands the markets better and is more culturally attuned to them.

Reducing manufacturing costs: Strategic alliances are used to leverage resources by

pooling resources to gain economies of scale or making better utilisation of resources in
order to reduce manufacturing costs.

Developing and diffusing technology: It helps develop technological capability by

leveraging the technical expertise of two or more firms.

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 Types of Strategic Alliances

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 Types Of Strategic Alliances

Pro-competitive alliances (Low interaction / Low conflict): These are generally inter-
industry, vertical value-chain relationships between manufacturers and their suppliers or
distributors.

Non-competitive alliances (High interaction/ Low conflict): These are intra-industry

partnerships between non-competitive firms. Such alliances can be entered upon by firms
that operate in the same industry yet do not perceive each others as rivals.

Competitive alliance (High interaction/ High conflict): These are partnerships that bring
two rival firms in a cooperative arrangement where intense interaction is necessary.

Precompetitive alliance (Low interaction/ high conflict): These partnerships bring two
firms from different, often unrelated industries to work on well-defined activities .
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 Digitalisation
Digitalisation is defined as digital coding of information and the growing productivity gains
in processing and transmission it enables.

The versatility and economy of digitalisation makes it possible for information to be

available efficiently, sufficiently, inexpensively and extensively within and outside
organisations. This has significant implications for the strategies of organisations.

Digitalisation is a vast subject encompassing a number of areas such as business, social

sciences or technology.

The phenomenon of digitalisation has the potential to redefine the business of an

organisation radically.

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 Methods of Digitalisation

Deconstruction: Through deconstruction, the total product or service is broken down into
components some of which can be delivered digitally thus enhancing the value to the
customers.

Disintermediation: When some processes in the value chain are eliminated it is called
disintermediation.

Re-intermediation: When processes in the value chain are supplemented by one or more
intermediaries it is called re-intermediation.

Industry morphing: Digitalisation has created a situation where traditional industries are
transforming into entirely new types of industries. In this way, the traditional boundaries
that defined a particular business are being transformed – a process called morphing.
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 Methods of Digitalisation
Cannibalisation: In many businesses, a set of activities performed in the value chain are
being replaced by a new set of activities thus eating away that part of the value chain.
This eating away is called the cannibalisation of value chain.

Techno-intensification: Digitalisation of the value chain and value system results in a

situation where there is more intensive use of technology and decreasing use of human
resources. This phenomenon is termed as techno-intensification.

Re-channelling: Deconstruction of value chain results in breaking it down into

components and divesting or outsourcing these components to external suppliers and
alliance partners.

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