H5:: corporate-level strategy

Question 1

corporate level strategy

definitie

Answer 1

how to compete succesfully (generate comp adv)/about to max econolic value by operating several activities
–> corporate level strategy is higher than business level strategy: takes place at CEO level
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determining organizational scope:
- scope of activities
- scope of products and services

Question 2

Scope of activities

Answer 2

value chain= discrete activities that must be accomplished to design, build en sell product or service

wich of these activities will company preform on their own and for wich of these companies will they involve other companies: MAKE OR BUY

Question 3

INTEGRATION

explain

Answer 3

INTEGRATION= when company chooses to do something inside the company and integrate it

• BACKWARD INTEGRATION (UPSTREAM)
  = moves up, bv from manufacturing to raw materials
• FORWARD INTEGRATION (DOWNSTREAM)
  = moves down, they take more responsibility

KIJK VOORBEELDEN IN SAMENVATTING

Question 4

TRANSACTION COST ECONOMICS

when is it best to integrate?

Answer 4

you make or buy it –> depending on what is cheaper
cheaper to make in house? -> do it
—> identifie sources of costs, both inside and outside the company

• EXTERNAL TRANSACTION COSTS= cost of transacting on the market (searching for partners); contractual agreement: write a contract and monitor it
• INTERNAL TRANSACTION COSTS= cost of transacting withing the firm; bv: hiring, salaries, supervising

make when:
- C house<C market: firms are lore efficient in organizing economic activity
- C house > C market: markets are more efficient in organizing economic activity

Question 5

threat of opportunism

Answer 5

chance that company will take advantage of the relationship- exploit vulnerability of the other partner –> the lower the thrust u have in the company u work with the higher the threat of opportunity

Question 6

threat of opportunism

(1) level of uncertainty and complexity

Answer 6

to what extend possible to expect or anticipate all the complexities and possible opportunistic behaviors by the partner

INCOMPLETE CONTRACTING:
- IDEAL: possible to expect all the possible sources of opportunism
- REALITY: contracts arent very effective, because cannot expect all wrong things

–> more unceartainty and complexity= great threat of opportunism

Question 7

threat of opportunism

(2) level of transactions-specific investment

Answer 7

= assets that have significantly more value in intended use than in their other best use
- intended use: is to make that logo, but the moment toyota not interested anymore, the next best use is not existing
- the bigger the difference between intended use and second best use: the higher the risk

the more specific investment needed for a deal= greater threat of opportunism
–> as a supplier afraid that if you make these investments, you will lose IF the partner behaves opportunistically and no longer wants the parts

Question 8

WHY integrate?

Answer 8

resolve threat of opportunism through integration

IMPROVE EFFICIENCY
- command and control
- coordinate
- transaction specific investments

REDUCE EFFICIENCY
- administrative costs
- low powered incentives –> not motivated, just an employee

Question 9

How does integration help companies create greater economic value

Answer 9

by using right corporate level strategy, firm can create great economic value by reducing costs

Question 10

DIVERSIFICATION

definition
relative and not relative

Answer 10

defining scope of products that the company wants to offer to the customers
–> deciding range of products that the company wants to offer

• RELATIVE= company is diversified but industries have links with each other
• UNRELATED DIVERSIFICATION= very little common attributed of the activities

Question 11

when does diversification create economic value?

RELATED ECONOMIES OF SCOPE

Answer 11

with economies of scope= gain something from applying asset or resource to new markets/when u gain something

SOURCES OF ECONOMIES OF SCOPE:
1) operational economies of scope
= you can share activities (bv 3 product, 1 value chain)

2) financial economies of scope
= risk reduction when company is more diversified, tax advantages

3) anticompetitive economies of scope
= exploiting market power –> CROSS-SUBSIDIZATION= cover losses in one market with the profits of another.

Question 12

Related economies of scope may backfire

Answer 12

• diversification gives rise to cots relating managing different business
• can be bad for reputation is some businesses underperform

Question 13

unrelated diversification

Answer 13

does not fit well together

• financial economies of scope applies: risk reduction, tax advantages
• market power also applies: cross subsidization