Exam 1: Chapter 6- Corporate Level Strategy Flashcards
Corporate advantage
occurs when a firm maximizes its resources to build a competitive advantage across its business units
Diversification
A strategy in which a firm engages in several different businesses that may or may not be related in an attempt to create more value than if the businesses existed as stand-alone entities
Single-product strategy
a strategy in which a firm focuses on one specific product, typically in one market
Related diversification
a firm that own more than one business that uses a similar set of tangible and intangible resources
Unrelated diversification
a firm that manages several businesses with no reasonable connection
Horizontal diversification
another name for related diversification where a firm pursues businesses that share a similar set of tangible and intangible resources
Economies of scope
exist when the costs of operating two or more businesses or producing two or more products with the same corporate structure is less than the costs of operating the businesses independently or producing each product separately
Managers diversify their organizations for several reasons
1) the opportunity to leverage core assests or skills between different businesses
2) the opportunity for growth
3) the potential to manage or minimize risk
4) the potential for personal gain
synergy
created when a firm generates sustainable cost savings by combining duplicate activities or deploying underutilized assets across multiple businesses
Related diversification expanded
often involves firms that pursue economies of scope through the sharing of resources or capabilities
Market Power
achieved when a firm attempts to increase the price at which it sells products to levels above the normal price seen in the market
Transferring skills leads to competitive advantage if the similarities among businesses meet the following three conditions:
1) The activities involved in the business are similar enough that sharing expertise is meaningful
2) the transfer of skills involves activities important to competitive advantage
3) the skills transferred represent a significant source of competitive advantage for receiving unit
Financial economies
cost saving that a firm achieves through the distribution of capital among business units
The Diversification Test
- Attractiveness Test
- Cost of Entry Test
- Better-Off Test
International Scope Test
Considers two familiar components:
- “Better off Test”
- “Ownership Test”
Better Off Test
Will a global presence improve a firm’s competitive advantage over and above what it could achieve on its own?
Ownership Test
Does owning a global business unit provide the best alternative to sustaining or achieving a competitive advantage?
Factor Cost Differences
cost savings achieved by access to raw materials or other factors such as low-cost labor
Vertical Integration
occurs when one corporation owns business units that make inputs for other business units in the same corporation
Backward integration
occurs when a firm owns or controls the inputs it uses
Forward Integration
occurs when a firm owns or controls the customer or distribution channels for its main products
Administrative costs
the costs of coordinating activities between business units
Transaction costs
costs to obtain products or services from a contractor or supplier as well as the costs associated with writing and administering the contracts for these products and services
Alternatives to Vertical Intergration
Spot Contracts
Outsourcing
Spot Contracts
contracts that allow a buyer to purchase a commodity at a specific price
Outsourcing
Contracting with a firm outside the corporation to perform certain tasks or functions that the corporation used to do on its own
