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Strategic Management: corporate-level growth strategies

Updated on October 29, 2015

Four corporate-level growth strategies

Strategic Management Homework 4

Introduction

Corporate growth strategies have become significantly popular for organizations given that growth is equated to success. For organizations to attain appropriate growth, surpluses must be generated for in order to augment the wages, salaries and or bonuses of both the employees and management. On the other hand, surplus may be used for internal/external growth of the organization. The four corporate level growth strategies that maybe used to achieve such success include; vertical, horizontal, and concentric and conglomerate strategies.

Vertical integration

According to Hyland (2013) vertical integration is one of the most popular types of integration. This particular strategy of growth entails the extension of the present business of an organization in to two possible directions; backward integration and forward integration. While an internal backward integration involves the organization creating its source of supply, the external approach entails the acquisition of existing supplier (s). On the other hand, forward integration involves moving in to a market that serves as the consumer of the organization's products/services.

Vertical integration enables an organization to attain control over suppliers/distributors, which in turn allows the organization to have more power within the market, minimize the cost of transaction and secure the channels of distribution and/or supplies. A good example of this type of integration can be seen in such organizations as Sony, Samsung and HTC. In the case of Sony, enhancement of vertical integration was with regards to the expansion of the Sony Semiconductor Kyushu Corporation’s Kokubu Technology Center in 2004. This was meant to improve the production environment of the semiconductors due to their benefit in differentiating and adding value to the electronic products.

Horizontal integration

According to Gerald and Elisifa (2013) horizontal integration is a strategy that organizations use for the purposes of selling a given type of product in different markets. In marketing, this strategy has been shown to be more popular as compared to vertical integration. This form of integration is particularly more popular when organizations are either being acquired of merged with another organization in the industry. Moreover, it is popular when the two organizations tend to be in the same stage of production. For instance, this may be observed in a car manufacturing company/organization merging with another car manufacturer. According to Hyland (2013), this strategy is beneficial to an organization given that it allows an organization to strengthen its position in the industry. This strategy also allows the organization to become more competitive through the acquisition/merger. Disney merger with Pixar, both being in the movie production industry, is one of the best examples of horizontal integration.

On the other hand, horizontal expansion entails the expansion of a given organization within the industry where it is already well established, this allows the organization to increase market share for a given product or service. However, this strategy is particularly beneficial for an average competitive organization that intends to enhance its position and compete better within a given industry. Horizontal growth may be achieved through internal or external means.

apart from goring the size of the organization, horizontal integration also allows an organization to attain the economies of scale, increase product differentiation, get access to other markets and reduce the number of competition in general. Given that this is highly common for organizations within a similar organization, it results in industry consolidation. for an organization, horizontal integration may prove effective in the event that a competitor is lacking of some skills, competencies, or capabilities or where an organization has in place enough resources required for managing M&A.

Concentric

Concentric (related) strategy

According to Wilfred, Bernard and George (2014) concentric (related) diversification involves the diversification of a given organization in to other related businesses. This enables an organization to reduce costs associated with production. For instance, an organization involved with water projects may decide to implement plants that generate power in the process. In this case, the organization in question builds the business around another business (s) with value chains that possess strategic fits of competitive value. typically, such a strategic fit is available in the event that a given activity or activities that comprise the value chain of various businesses are highly similar as to present opportunities for the firm that is engaging in the diversification. With this strategy, operations of the other business benefits from access to the core competencies of the organization.

On the other hand, this form of diversification may be described as the addition of new, but related products and or services. unlike the concentration strategy, the concentric strategy of diversification entails expansion of a given organization in to products or services that are related, but also in a distinct area. The concentration strategy on the other hand is where expansion of the business is of the current business practices. one of the biggest advantage of concentric diversification is the fact that an organization gets an opportunity to build expertise in another area that is related to its operations. In turn, this has the benefit of producing combined effects on the resources of the organization, which tends to be greater than the total of its part. This strategy has been used by PepsiCo, where it broadened its line of products to include fast food franchises as well as snacks. In this case, such companies as Pizza Hut would buy soft drinks to serve to their customer along with their products.

Conglomerate diversification

This form of diversification involves the combination of several businesses/organization from different industries into a single corporate structure to form a multi- industry organization with one parent company and its subsidiaries. Through conglomerate acquisitions, organizations get an opportunity to benefit from an effective allocation of resources through internal market capital as well as financial synergy. According to a study carried out by Grigorieva and Gorbatov (2015) conglomerates have the potential enhance their efficiency in the emerging markets. This is because the strategy allows an organization the ability to raise capital with more ease. Efficiently allocate capital among its divisions, diversify the portfolios of investors in addition to equipping the management through sufficient training and coaching.

Whereas conglomerates have been shown to be gains among developed nations, a recent Mckinsey study found diversified groups of businesses to be thriving in emerging markets. According to the study, sales of these organizations were shown to be rising rapidly in the last decade. In china and India, the rise was shown to have been by 23 percent while in South Korea it was by 11 percent. According to a recent report in the economist (2013) it was reported that conglomerates are on the increase particularly due to the emerging markets. To succeed, they are combining with such highly diversified companies as Tata in India in a bid to cover a bigger market and market share. A good example of a conglomerate is HSBC Holdings, which is in charge of four major global businesses. These include commercial banking, retail banking and wealth management, global private banking as well as global banking and markets.

BP OIL

BP oil is typically involved in such activities as drilling, extraction, as well as the transportation off crude oil where it is refined in to various other products such as heating oil and airplane fuel. On the other hand, the company is also involved in the transportation of the end products to the retailers as well as ownership of the outlets, which makes BP oil a vertically integrated company. although these characteristics mark the company as a vertically integrated company, it has also been categorized as a horizontally integrated company due to the fact that it also produces a variety of products that include among others gasoline, heating oil and kerosene. From its activities, BP has often been used as an example of both a horizontal and vertical firm.

References

Absanto, Gerald and Nnko, Elisifa. Analysis of business growth strategies and their contribution

to business growth: a Tanzania case study. International Journal of Economics, Commerce and Management United Kingdom Vol. I, Issue 1, 2013 Licensed under Creative Common Page 1 http://ijecm.co.uk/ ISSN 2348 0386.

Brian Hyland. June 2013. Growth Strategies for SMEs. Baker Tilly & Ryan Glennon.

Marangu Wilfred, Oyagi Bernard and Gongera Enock George. An analysis of concentric

diversification strategy on Organization competitiveness: Case of sugar firms in Kenya. European Journal of Business and Management www.iiste.org ISSN 2222-1905 (Paper) ISSN 2222-2839 (Online) Vol.6, No.19, 2014

Robert Waschik, Tim Fisher & David Prentice. 2010. Managerial Economics, Second Edition: A

Strategic Approach.

Svetlana Grigorieva & Georgii Gorbatov. 2015. Puzzle of corporate diversification efficiency in

bric countries. Basic research program working papers. Series: financial economics. WP BRP 47/FE/2015.

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