Chapter 6: Corporate Strategy

Question 1

corporate strategy refers to

Answer 1

portfolio company

Question 2

diversified co. has 2 levels of strategy

Answer 2

1. business level concerns (competitive)
2. corporate strategy concerns (company-wide)

Question 3

business level concerns

Answer 3

• how to create comp. adv. in each of the businesses in whcih a company competes

Question 4

corporate strategy concerns: 3 concerns

Answer 4

1. what business the corp should be in
2. how the corp office should manage the array of busn. units
3. how does te corp. entity add value to its separate businesses

Question 5

levels of diversification

Answer 5

• low levels => single/dominant businesses (vertical integ.)
• moderate to high levels => related (sharing) - (horizontal)
• very high levels => unrelated/conglomerates (minimal links)

Question 6

reasons for diversification

Answer 6

1. economies of scope
2. market power

Question 7

reasons for diversification: economies of scope

Answer 7

1. sharing activities (operational relatedness)
2. transferring skills (corporate relatedness)

Question 8

unrelated diversification

Answer 8

conglomerates

Question 9

conglomerates can create value through

Answer 9

financial economics

1. efficient internal capital market allocation (port mgmt)
2. restructuring of assets

Question 10

3 incentives for diversification

Answer 10

1. antitrust regulations
2. offest low performance
3. diversification & size are correlated