Chapter 8: Corporate Strategy Flashcards
Amazon has diversified through: (3)
- Prime Air using drones for package drop-off
- Amazon Campus
- Electronics like Echo, Alexa
corporate strategy (vs business strategy)
corporate strategy is WHERE to compete, focusing on multiple industries and product scope of the firm
(bus strat is HOW to compete)
corporate strategy determines the boundary of the firm along 3 dimensions:
- vertical integration
- diversification
- geographic scope
why do firms need to grow? (5)
- increase profits and returns
- lower costs, EofScale
- increase market power
- reduce risk through diversification
- motivate management
transaction costs
all internal and external costs associated with an economic exchange in a market
external transaction costs may include…
negotiating, monitoring, enforcing contracts
internal transaction costs may include…
recruiting/retaining employees, setting up a shop floor
if In-House Costs are less than Market Costs, the firm should.. (3)
- vertically integrate
- own product of inputs
- or own output distribution channels
if Market Costs are less than In House Costs the firm should…
consider purchasing instead
advantages (3) and disadvantages (4) of organizing economic activity within a firm
- fiat; hierarchical authority
- coordination
- community of knowledge
- administrative costs
- low-powered incentives
- principal-agent problem
advantages (1) and disadvantages (4) of market-organized economic activity
- high powered incentives and flexibility
- search costs
- opportunism
- incomplete contracting
- enforcement of contracts
vertical integration
degree to which a firm owns its upstream (backward) suppliers, or downstream (forward) buyers
why do firms invest in vertical integration? (5)
- reduce dependence on suppliers/buyers
- protect valuable assets
- deal w/ problems of transactions-specific investments
- quality control
- transaction costs
benefits of vertical integration (4)
- lowering costs
- improving quality
- facilitating scheduling and investments in specialized assets
- securing critical supplies and distribution channels
risks of vertical integration (4)
- increasing costs
- reducing quality
- reducing flexibility
- increasing potential for legal repercussions
market transactions/VI is not the only options on the make-or-buy continuum. alternatives include (3)
in order from Buy to Make:
- short/long-term contracts (licensing, franchising)
- equity alliances and joint ventures
- subsidiary relationship
product diversification
increase in variety of products/services
geographic diversification
increase in variety of market regions (regional to international)
product-market diversification
combination of product and geographic
single business corporate diversification
low levels of diversification
dominant business corporate diversification
slightly more div. than single-bus.; additional business activities are pursued
related constrained diversification
diversifies into related businesses while sharing resources + activities across them
unrelated corporate diversification
aka conglomerate; no businesses share competencies
A single business derives more than __% of its revenues from one business; a Dominant Business derives between __-__% from one business but pursues 1+ activities that account for the remainder.
95
70-95
