{"id":512,"date":"2018-10-22T06:56:38","date_gmt":"2018-10-22T06:56:38","guid":{"rendered":"http:\/\/mgmtp03.epgpbooks.inflibnet.ac.in\/?post_type=chapter&p=512"},"modified":"2019-01-11T09:55:58","modified_gmt":"2019-01-11T09:55:58","slug":"cooperative-strategies","status":"publish","type":"chapter","link":"https:\/\/ebooks.inflibnet.ac.in\/mgmtp03\/chapter\/cooperative-strategies\/","title":{"rendered":"Cooperative Strategies"},"content":{"raw":"
\"epgp<\/a>\r\n<\/span><\/div>\r\n
\r\n\r\n \r\n\r\n \r\n\r\n1.1 Learning Objectives\r\n\r\n1.2 Introduction\r\n\r\n1.3 Corporate Level Strategy\r\n

1.3 a Corporate level strategy involves:<\/p>\r\n

1.3 b Different types of corporate level strategies are:<\/p>\r\n1.4 Cooperative Expansion Strategy\r\n

1.4 a There are different ways of expansion<\/p>\r\n1.5 Strategic Alliances\r\n

1.5 a\u00a0 Strategic Alliances Types<\/em><\/p>\r\n

1.5 b Reasons\u00a0 for Strategic Alliances<\/p>\r\n1.6 Diversification\r\n

1.6 a Diversification is of three types \u2013<\/p>\r\n

1.6 a i. Unrelated Diversification<\/p>\r\n

1.6 a ii Related diversification<\/p>\r\n

1.6 a. iii Conglomerate diversification<\/p>\r\n

1.6 b Reasons For Diversification<\/span><\/p>\r\n1.7 Mergers and Acquisition<\/span>\r\n

1.7 a Acquisition<\/span><\/p>\r\n

1.7 b Benefits of Acquisition over Internal Development<\/span><\/p>\r\n

1.7 c Drawbacks of Acquisition over Internal Development<\/span><\/p>\r\n

1.7 d Differences between Acquisitions and Mergers<\/span><\/p>\r\n1.8 Takeovers<\/span>\r\n

1.8 a Friendly takeover<\/span><\/p>\r\n

1.8 b Hostile takeover<\/span><\/p>\r\n

1.8 c Reverse takeovers<\/span><\/p>\r\n

1.8 d Backflip takeover<\/span><\/p>\r\n1.9 Summary<\/span>\r\n\r\n<\/div>\r\n

\r\n\r\n \r\n\r\n1.1 Learning Objectives<\/strong>\r\n\r\n \r\n\r\nFollowing are the learning objectives of the lesson\r\n\r\n \r\n\r\n1.\u00a0\u00a0\u00a0 To understand the difference between functional level, business level and corporate level strategies.\r\n\r\n \r\n\r\n2.\u00a0\u00a0\u00a0 To understand different types of corporate level strategies.\r\n\r\n \r\n\r\n3.\u00a0\u00a0\u00a0 To understand cooperative expansion strategies.\r\n\r\n \r\n\r\n1.2 Introduction<\/strong>\r\n\r\n \r\n

Strategy is a game plan to target a market, conduct operations, satisfy customers and achieve organizational objectives.<\/p>\r\n \r\n

It lays down organizations\u2019 desired goals, direction and destination. Strategy can never be perfect; it is flexible. There are no second best choices in strategies. Strategy is partially proactive and partially reactive.<\/p>\r\n \r\n

Proactive actions may include improvement of company\u2019s market position and achieving higher growth rate. And reactive actions are important because to know the fresh market conditions and the developments which have not taken place till yet. Strategies are formulated at three different levels:<\/span><\/p>\r\n\r\n<\/div>\r\n

\r\n\r\n \r\n\r\n1.\u00a0\u00a0\u00a0 Corporate level strategy\r\n\r\n2.\u00a0\u00a0\u00a0 Business level strategy\r\n\r\n3.\u00a0\u00a0\u00a0 Functional level strategy\r\n\r\n<\/div>\r\n\"\"\r\n
\r\n\r\n \r\n

i. Corporate level strategy looks for the development of whole of the organization, beginning with mission, goals, to determining the business plan, resources and finally implementing different strategies in order to achieve a desired goal.<\/p>\r\n \r\n

Example: Godrej which deals with wide range of businesses like soaps, furniture, edible oil, Information Technology, real estate.<\/p>\r\n \r\n\r\nii. Business Level strategy deals with translation of goals to form individual businesses.\r\n\r\n \r\n\r\n<\/div>\r\n

\r\n\r\n\"\"\r\n\r\n \r\n\r\niii. Functional Level strategy deals with specific business functions or operations like human resources, product development, customer service etc\r\n\r\n<\/div>\r\n
\r\n\r\n\"\"\r\n\r\n \r\n\r\n1.3 Corporate Level Strategy<\/strong>\r\n\r\n \r\n

Corporate strategy is strategy which refers to decisions concerning expansion or retrenchment from an industry and also about how the management of a multi-business enterprise can achieve synergies. Three issues addressed are:<\/p>\r\n \r\n

It helps a company decide where a company should compete, how should it compete and what route would it need to take to achieve the profitability objective i.e. cost leadership or product differentiation.<\/p>\r\n \r\n

A company through its various strategies should maintain strategic consistency across its strategic business units and make possible cooperation amongst these units in order to not only create value for the stakeholders in these business units but also to maintain a market identity even with a diversified portfolio.<\/p>\r\n \r\n\r\n<\/div>\r\n

\r\n\r\n\"\"\r\n\r\n \r\n\r\n1.3 a Corporate level strategy involves<\/strong>:\r\n\r\n \r\n

Reach- It defines companygoals, types of business in which companyshould get involved.<\/p>\r\n \r\n

Activities and relationships- It helps in developing a relation by sharing and coordinating with the staff. It helps in investing business units in different units to harmonize different business activities.<\/p>\r\n \r\n

Management practises- Corporates decides how business units are managed by direct corporate intervention or by less government agencies.<\/p>\r\n\r\n<\/div>\r\n

\r\n\r\n\"\"\r\n\r\n1.3 b Different types of corporate level strategies are<\/strong>:\r\n\r\n \r\n\r\n1.\u00a0\u00a0\u00a0 Stability Strategies:\r\n\r\n \r\n\r\nIt involves 3 strategies which are\r\n\r\n \r\n\r\nNo change Strategies\r\n\r\n \r\n\r\nPause\/proceed with caution strategies Profit strategies\r\n\r\n \r\n\r\n2.\u00a0\u00a0\u00a0 Cooperative Expansion Strategies\r\n\r\n \r\n\r\nIt involves 5 strategies these are\r\n\r\n \r\n\r\nIntegration\r\n\r\n \r\n\r\nDiversification Cooperation\r\n\r\n \r\n\r\nInternationalization\r\n\r\n \r\n\r\n3.\u00a0\u00a0\u00a0 Defensive\/ Retrenchment Strategies\r\n\r\n \r\n\r\nIt involves 3 types of investments\r\n\r\n \r\n\r\nTurnaround Divestment Liquidation\r\n\r\n \r\n\r\n4.\u00a0\u00a0\u00a0 Combination Strategies<\/span>\r\n\r\n \r\n\r\nIt involves 3 types of strategies<\/span>\r\n\r\n \r\n\r\nSimultaneous Sequential<\/span>\r\n\r\n \r\n\r\nCombination of both<\/span>\r\n\r\n<\/div>\r\n
\r\n\r\n \r\n\r\n1.4 Cooperative Expansion Strategy<\/strong>\r\n\r\n \r\n

Every enterprise wants to expand to avoid risk drowning. Expansion provides ample of opportunities to the enterprise and is important for it. This is possible after achieving fundamentals of expansion. Expansion strategies are made in such a way that they help enterprise to maintain a competitive edge in international market. Hence for successful competition, survival and to flourish, an enterprise has to pursue an expansion strategy. Expansion is an important strategic option that allow the company to fulfill its long term growth objectives. It also help in pursuing significant growth as opposed to slow growth in stability strategy.<\/p>\r\n \r\n

A cooperative strategy is the attempt by a company is to try and achieve its objectives of expansion but with cooperation through other players either within the same industry or from complimentary or non related industry. The objective of cooperative strategy is to expand by cooperating and working with others rather than working against others. The cooperative strategy allows synergistic use of resources of all the organizations. A cooperative strategy like strategic alliances can offer a company a chance to expand even if does not have a comprehensive portfolio of assets by choosing a partner who does. For example Ellily Lilly and Ranbaxy formed a strategic alliance to compliment each other\u2019s portfolios and objectives. The cooperative strategies also help companies explore new markets at a fraction of the risk.<\/p>\r\n \r\n

For achieving long term objectives the expansion strategy provides the blueprint required to grow and also allow them to sustain their competitive advantage even in the complex stages of market and product evolution. Expansion strategy helps a company achieve economies of scale, which reduces operating costs and helps in improving earnings. Though main focus of the lesson is strategic alliances the lesson does discuss the other expansion strategies briefly.<\/p>\r\n \r\n\r\n1.4 a There are different ways of expansion of an enterprise in global market these are\r\n\r\n \r\n\r\nIntegration (Mergers and Acquisitions) Diversification\r\n\r\n \r\n\r\nCooperation (strategic alliances) Internationalization\r\n\r\n<\/div>\r\n

\r\n\r\n\"\"\r\n\r\n \r\n\r\n1.5 Strategic Alliances<\/strong>\r\n\r\n \r\n

A strategic alliance is defined as a collaboration between the companies or incumbents of an industry or from different industries whereby they agree to share their resources and capabilities inpursuit of sustained competitive advantage and above average rate of return . these are also referred to as cooperative strategies where two or more companies decide to pool in their resources and capabilities to exploit a market opportunity. The companies in this case decide to work with each other to gain competitive advantage rather than work against each other. For example a strategic alliance was forged between two pharmaceutical giants i.e. elilly lilly and Ranbanxy, Which was used to enter India by elilly lilly and by Ranbaxy to gain knowledge about foreign markets. Similarly strategic alliance between bharti and walmart was a ode to cooperative strategy.<\/p>\r\n \r\n

A global company is involved in multiple strategic alliances to compliment the needs of different markets and countries it is present in. for example IBM has formed alliances with Sun Microsystems, SAP, Lenovo, and Cisco, among others. These strategy alliances help IBM deal with threats from different companies and add on to the portfolio its strengths. The objective of each specific strategic alliance is unique and specific.<\/p>\r\n \r\n

It is important to note that strategic alliances are not a uni-directional relationship. The basis of this relationship is the fact that both the parties , who are involved in this relationship, bring something unique to the table. This uniqueness adds to the competitive advantage that the strategic alliance can exploit over the period of time. It is very important in the strategic alliance that all the partners are actively solving problems, are being dependable, and are again and again finding ways to combine their resources and capabilities to create value to gain sustained competitive advantage an above-average returns.<\/p>\r\n \r\n

1.5 a Three Types of Strategic Alliances<\/em><\/strong><\/p>\r\n \r\n

The academic text refers to 3 types of strategic alliances which have been discussed in this section of the lesson i.e. joint ventures, equity strategic alliances, and nonequity strategic alliances.<\/span><\/p>\r\n\r\n<\/div>\r\n

\r\n\r\n \r\n

a. A joint venture<\/em><\/strong>: a joint venture is defined as an alliance between two organizations or companies where a the organizations chose to lose their individual identity and form new and independent identity. This new identity which is formed from two or more partners, can boast of a resource and capability pool which consists of best of both the partnering companies. These ventures help companies establish associations which help them pass tactical knowledge about value addition to partners so as to gain competitive advantage and above average rate of return.<\/p>\r\n \r\n

b. An equity strategic alliance.<\/em><\/strong> This type of alliance is defined as<\/em> an alliance where partner companies have unequal shares in the new a venture created. The unique characteristics of the new venture are that it is created by combining resources and capabilities of the partnering firms. For example, Citigroup Inc. has formed a strategic alliance with Shanghai Pudong Development Bank Co.<\/p>\r\n \r\n

c. A nonequity strategic alliance<\/em><\/strong> is defined as a alliance where partnering companies agree to share and leverage their resources and capabilities to gain competitive advantage in the target market. The Main difference between an equity strategic alliance and an non-equity strategic alliance is that in a non equity strategic alliance that the partnering companies do not set up a separate independent company and so don\u2019t take equity positions.<\/p>\r\n \r\n\r\n<\/div>\r\n

\r\n\r\n\"\"\r\n\r\nJoint ventures\r\n\r\n \r\n

A joint venture strategy is a strategy in which two or more company pool up their resources for accomplishing a specific task. This task helps in achieving a new project or provides companywith different entity. Each member of joint venture is associated with all the expenses and revenue of the company. Joint venture is seen as a tool of international expansion. International joint venture enables companies to use resources and capabilities of each other which help in achieving economies of scale for bringing new product or service in market faster, more efficiently, more reliably and more cheaply than what they could do. Joint ventures have partners and these partners have certain position in the eyes of local and international markerts. Before commencing of a joint venture the companies checks the following following variables \u2013size of company, business field and activity, abroad investments, structure and ownership strategy of company and many other variables.<\/p>\r\n \r\n

In joint ventures when two companies come in contract they lay the foundation of a third company which means 1+1=3. The companies share profit and risk equally. The best example of joint venture is Sony Ericsson. Sony was the leading brand in electronics in India and Ericsson was the leading mobile brand of America. Both the companies joined hands to create a third company called Sony Ericsson to provide services in India. Another example of joint venture is Nokia and Microsoft.<\/p>\r\n \r\n\r\n1.5 b Reasons Companies Develop Strategic Alliances<\/strong>\r\n\r\n \r\n

A company can develop strategic alliances for varied reasons. Some of them have been listed below<\/p>\r\n \r\n

1.\u00a0\u00a0\u00a0 Technology has be come the basis of competition and at times because of patent or limitation in terms of resources and capabilities companies cannot gain access to these technologies. However, access is important to gaining market success and it is in these scenarios companies contemplate alliances.<\/p>\r\n \r\n

2.\u00a0\u00a0\u00a0 Many a times companies enter strategic alliances to gain access to unique and price competitive ways of adding value to the market offering. The competition these days is determined by not only understanding the customer needs but also how quickly one can get that need satisfied i.e. cater to the market. Many a times companies find short cuts to the development process by opting for alliances or division of process across partners.<\/p>\r\n \r\n\r\n3. As a source of revenue.\r\n\r\n \r\n\r\n4. As a route to enter a new market where a sole entry is not possible or allowed for example china.\r\n\r\n \r\n

5. Many times companies enter strategic alliances to cater to diverse customer needs and they don\u2019t want to loose the customer to competitor so they partner. For example in airline industry not every airline can cater to every route and therefore they partner and form\u00a0<\/span>alliances.<\/span><\/p>\r\n\r\n<\/div>\r\n

<\/div>\r\n
\r\n\r\n\"\"\r\n\r\n1.6 Diversification<\/strong>\r\n\r\n \r\n

Diversification is a type of portfolio management in which investor reduces the risk of volatility by investing in various products of company which have very low correlation with each other. The advantage of diversification is that when in a company one product is earning a high profit and other is running in losses it balances or outweighs the negative investment.<\/p>\r\n \r\n\r\n1.6 a Diversification is of three types \u2013\r\n\r\n \r\n\r\nUnrelated diversification Related diversification\r\n\r\nConglomerate diversification\r\n\r\n<\/div>\r\n

\r\n\r\n\"\"\r\n\r\n \r\n

1.6 a i. Unrelated Diversification: Unrelated-diversified (or highly diversified)<\/em><\/strong> companies do not share resources or linkages. Companies that pursue u examples-<\/p>\r\n \r\n

TATA Group \u2013 it have diversified its business from steel to hotels, tatamotors , TCS etc.<\/p>\r\n \r\n

AMWAY \u2013it is a beauty and home care products have entered into jewellary.<\/p>\r\n \r\n

1.6 a ii Related diversification: A related-diversified company has been defined as the one in which at least 30 percent of its revenues are earned from sources outside of the dominant business. example<\/p>\r\n \r\n

Nestle \u2013 for assistance to tomato sauce and ketchup they have introduced maggi. 1.6 a. iii Conglomerate diversification example \u2013<\/p>\r\n \r\n\r\nGeneral electronics \u2013 it have diversified its business in electronics , financial sevices ,health care etc.\r\n\r\n \r\n\r\nTATA group \u2013 tata group of hotels produces their own amenities, are also in communication.\r\n\r\n \r\n\r\n \r\n\r\n1.6 b REASONS FOR DIVERSIFICATION<\/strong>\r\n\r\n \r\n

Companies opt to adopt diversification strategies to add value for the stakeholders. However, more specifically the main purpose of adopting these strategies is to deal or gain an upper hand over the competitor and his market power, to reduce the employment risk by concentrating on product line and also to increase the attractiveness of the company as a employer. It has been established that more diversified is the portfolio of a firm, larger is the size and more is the compensation which enables the firm to attract better talent.<\/span><\/p>\r\n\r\n<\/div>\r\n

\r\n\r\n\"\"\r\n\r\n1.7 Mergers and Acquisition<\/strong>\r\n\r\n \r\n

If two companies combine their value would more as a single unit rather them different unit. Mergers and acquisitions are done by company to increase their market share and to survive in competitive markets. Mergers and acquisition are two different thing. Merger is when two different company joins hands to create a new venture. For example \u2013 Lipton tea and Brooke bond. Where as acquisition refers to overtaking of one entity by other. For example \u2013 TATA group acquired Corus 2006 the deal size was $12.98 billion.<\/p>\r\n \r\n

Legally speaking in merger two companies come in an agreement for the formation of a third company and in acquisition one company takeover all the operational aspects of other company.<\/p>\r\n\r\n<\/div>\r\n\"\"\r\n

\r\n\r\n \r\n\r\nVarieties of merger\r\n\r\n \r\n

Horizontal merger \u2013 two companies with delivering same product and are in direct competition. Example Coke and Pepsi.<\/p>\r\n \r\n\r\nVertical\u00a0 merger\u00a0 \u2013\u00a0 two\u00a0 companies\u00a0 which\u00a0 are\u00a0 producing\u00a0 products\u00a0 of\u00a0 one\u00a0 finished\u00a0<\/span>product. Example \u2013 automobile company joining hands with part supplier.<\/span>\r\n\r\n \r\n\r\nMarket extension merger \u2013 two companies selling same products in different markets.<\/span>\r\n\r\nExample -Eagle Bancshares<\/span>\r\n\r\n<\/div>\r\n

\r\n\r\n \r\n\r\nProduct extension merger \u2013 two companies selling different but related products in the same market. Example \u2013 Mobilink telecom by broadband.\r\n\r\n \r\n\r\nConglomerate merger \u2013 in this there are two companies that does not any common product line. Example \u2013 Walt Disney and American Broadcasting.\r\n\r\n<\/div>\r\n\"\"\r\n
\r\n\r\n \r\n\r\n1.7 a Acquisition<\/strong>\r\n\r\n \r\n

As we have discussed earlier acquisition refers to overtaking the company and its operational aspects of the company. For example, Flipkart and Myntra, a big acquisition in Indian history. Flipkart acquired Myntra at a whooping amount of Rs. 2000 crore deal according to the insider details.<\/p>\r\n \r\n

Another example of acquisition is Tata Tea taking over Tetley Tea making it world\u2019s second largest tea marketer and which was double of what Tata tea was for a 271 lakh pound through leverage buyout.<\/p>\r\n \r\n\r\n1.7 b Benefits of Acquisition over Internal Development\r\n\r\n \r\n

One of the key advantages of acquisition over other methods of expansion is pace of development. Acquisitions ensure that a company enters a new business with adequate size;\u00a0and attains viable competitive strength. In this strategy the acquiring company is guaranteed of entering at minimum efficient scale for cost purposes and is provided access to complementary assets and resources. In addition, entry by acquisition may foster a less competitive environment \u2013 by eliminating a competitor.<\/span><\/p>\r\n\r\n<\/div>\r\n

\r\n\r\n\"\"\r\n\r\n \r\n\r\n1.7 c Drawbacks of Acquisition over Internal Development<\/strong>\r\n\r\n \r\n

Acquisitions are often more expensive than internal development; they are unlikely to generate sufficient return on capital to justify the premium cost; and the acquiring companymay inherit several unnecessary adjunct businesses. The internal development process allows for many points at which the project can be assessed and reevaluated so the companycan pull the plug. Acquisitions are typically all or nothing propositions. There is also a potential problem of organizational conflict\u2014 the eruption of cultural clashes that can impede the integration of two companies.<\/p>\r\n \r\n\r\n1.7 d Differences between Acquisitions and Mergers<\/strong>\r\n\r\n \r\n

The term acquisition means that a transfer of ownership has taken place; that is, one companybought another. A merger is the consolidation or combination of one companywith another. Mergers are typically between companies of relatively equal size and influence that fuse together to form one new larger firm. There are three categories of motives for M&As: managerial self interest, hubris, and synergy.<\/p>\r\n \r\n

1.8 Takeovers<\/span><\/strong><\/p>\r\n \r\n

Takeovers generally refers to purchase of one company by other. Whereas in UK takeovers are termed as acquisition of a public company whose shares are listed in the stock exchange. Takeovers are of different kinds these can be \u2013<\/span>Friendly takeover Hostile takeover Reverse takeover Backflip takeover<\/span><\/p>\r\n \r\n

Friendly takeover <\/span><\/p>\r\n

Hostile takeover <\/span><\/p>\r\n

Reverse takeover <\/span><\/p>\r\n

Backflip takeover<\/span><\/p>\r\n\r\n<\/div>\r\n\"\"\r\n

\r\n\r\n \r\n\r\n1.8 a Friendly takeover<\/strong>\r\n\r\n \r\n

A friendly takeover is a takeover in which the acquisition is approved by the management. In this before a bid is made by the bidder the deal is usually first informed to management and if the management thinks that through this deal the shareholder are getting benefited or through its rejections they suffer loses. In private company the shareholders and the board are usually the same people or connected with one another, so private takeover are friendly. For example \u2013 Johnson and Johnson friendly takeover of Dutch Vaccine maker Crucell. The deal accounted to 1.75billion euros.<\/p>\r\n \r\n\r\n1.8 b Hostile takeover<\/strong>\r\n\r\n \r\n

In a hostile takeover the bidder can takeover the company whether their management are willing or not willing to sell the company. Hostile takeover happens when the board rejects the offer made by the bidder. There are various ways to develop a hostile takeover<\/span><\/p>\r\n\r\n<\/div>\r\n

\r\n\r\n \r\n\r\nTender offer \u2013 when an acquiring company makes a public offer at a fixed price which is above the market price.\r\n\r\n \r\n\r\nCreeping tender offer \u2013 in this the bidder quietly buys enough stock of the company in the open market which allow to change in the management.\r\n\r\n<\/div>\r\n\"\"\r\n
\r\n\r\n \r\n

An example of hostile takeover is Oracle over People soft. After a battle of 18 months the oracle company takeover the people soft company.<\/p>\r\n \r\n\r\n1.8 c Reverse takeovers<\/strong>\r\n\r\n \r\n

A reverse takeover is the one in which the public company is acquired by the private company so that private company can bypass the complex process of going public. In this generally the private players buys the share of the public company and then merge it with their company. For example MTN a African based telecommunication company is planning for reverse takeover of Reliance communication through this deal the company value would reach up to 70 billion with 120 lakh users.<\/p>\r\n \r\n\r\n1.8 d Backflip takeover<\/strong>\r\n\r\n \r\n

It is a type of takeover in which the acquiring company turns himself into the subsidiary of the purchased company. This happens when a larger but less known company acquire a struggling company. For example the takeover of Bank of America by the National Bank, but it adopted the name of Bank of America.<\/span><\/p>\r\n\r\n<\/div>\r\n

\r\n\r\n \r\n\r\n1.9 Summary<\/strong>\r\n\r\n \r\n

Strategy is a game plan to target a market, conduct operations, satisfy customers and achieve organizational objectives. It lays down organizations\u2019 desired goals, direction and destination. Strategy can never be perfect; it is flexible. There are no second best choices in strategies. Strategy is partially proactive and partially reactive. Corporate level strategy looks for the development of whole of the organization, beginning with mission, goals, to determining the business plan, resources and finally implementing different strategies in order to achieve a desired goal. Corporate level strategies are those strategies which are concerned with the strategic decision making in the company. These strategies are made by high governing bodies of the firm. One of the main corporate level strategies is to decide the means of expansion into new areas. Current lessons discusses cooperative strategy as a option to expand the corporate portfolio.<\/p>\r\n\"\"\r\n\r\n\r\n<\/div>\r\n\r\n\r\n\r\n
you can view video on Cooperative Strategies<\/strong><\/td>\r\n\"\"<\/a><\/td>\r\n<\/tr>\r\n<\/tbody>\r\n<\/table>","rendered":"
\"epgp<\/a>
\n<\/span><\/div>\n
\n

 <\/p>\n

 <\/p>\n

1.1 Learning Objectives<\/p>\n

1.2 Introduction<\/p>\n

1.3 Corporate Level Strategy<\/p>\n

1.3 a Corporate level strategy involves:<\/p>\n

1.3 b Different types of corporate level strategies are:<\/p>\n

1.4 Cooperative Expansion Strategy<\/p>\n

1.4 a There are different ways of expansion<\/p>\n

1.5 Strategic Alliances<\/p>\n

1.5 a\u00a0 Strategic Alliances Types<\/em><\/p>\n

1.5 b Reasons\u00a0 for Strategic Alliances<\/p>\n

1.6 Diversification<\/p>\n

1.6 a Diversification is of three types \u2013<\/p>\n

1.6 a i. Unrelated Diversification<\/p>\n

1.6 a ii Related diversification<\/p>\n

1.6 a. iii Conglomerate diversification<\/p>\n

1.6 b Reasons For Diversification<\/span><\/p>\n

1.7 Mergers and Acquisition<\/span><\/p>\n

1.7 a Acquisition<\/span><\/p>\n

1.7 b Benefits of Acquisition over Internal Development<\/span><\/p>\n

1.7 c Drawbacks of Acquisition over Internal Development<\/span><\/p>\n

1.7 d Differences between Acquisitions and Mergers<\/span><\/p>\n

1.8 Takeovers<\/span><\/p>\n

1.8 a Friendly takeover<\/span><\/p>\n

1.8 b Hostile takeover<\/span><\/p>\n

1.8 c Reverse takeovers<\/span><\/p>\n

1.8 d Backflip takeover<\/span><\/p>\n

1.9 Summary<\/span><\/p>\n<\/div>\n

\n

 <\/p>\n

1.1 Learning Objectives<\/strong><\/p>\n

 <\/p>\n

Following are the learning objectives of the lesson<\/p>\n

 <\/p>\n

1.\u00a0\u00a0\u00a0 To understand the difference between functional level, business level and corporate level strategies.<\/p>\n

 <\/p>\n

2.\u00a0\u00a0\u00a0 To understand different types of corporate level strategies.<\/p>\n

 <\/p>\n

3.\u00a0\u00a0\u00a0 To understand cooperative expansion strategies.<\/p>\n

 <\/p>\n

1.2 Introduction<\/strong><\/p>\n

 <\/p>\n

Strategy is a game plan to target a market, conduct operations, satisfy customers and achieve organizational objectives.<\/p>\n

 <\/p>\n

It lays down organizations\u2019 desired goals, direction and destination. Strategy can never be perfect; it is flexible. There are no second best choices in strategies. Strategy is partially proactive and partially reactive.<\/p>\n

 <\/p>\n

Proactive actions may include improvement of company\u2019s market position and achieving higher growth rate. And reactive actions are important because to know the fresh market conditions and the developments which have not taken place till yet. Strategies are formulated at three different levels:<\/span><\/p>\n<\/div>\n

\n

 <\/p>\n

1.\u00a0\u00a0\u00a0 Corporate level strategy<\/p>\n

2.\u00a0\u00a0\u00a0 Business level strategy<\/p>\n

3.\u00a0\u00a0\u00a0 Functional level strategy<\/p>\n<\/div>\n

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 <\/p>\n

i. Corporate level strategy looks for the development of whole of the organization, beginning with mission, goals, to determining the business plan, resources and finally implementing different strategies in order to achieve a desired goal.<\/p>\n

 <\/p>\n

Example: Godrej which deals with wide range of businesses like soaps, furniture, edible oil, Information Technology, real estate.<\/p>\n

 <\/p>\n

ii. Business Level strategy deals with translation of goals to form individual businesses.<\/p>\n

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iii. Functional Level strategy deals with specific business functions or operations like human resources, product development, customer service etc<\/p>\n<\/div>\n

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1.3 Corporate Level Strategy<\/strong><\/p>\n

 <\/p>\n

Corporate strategy is strategy which refers to decisions concerning expansion or retrenchment from an industry and also about how the management of a multi-business enterprise can achieve synergies. Three issues addressed are:<\/p>\n

 <\/p>\n

It helps a company decide where a company should compete, how should it compete and what route would it need to take to achieve the profitability objective i.e. cost leadership or product differentiation.<\/p>\n

 <\/p>\n

A company through its various strategies should maintain strategic consistency across its strategic business units and make possible cooperation amongst these units in order to not only create value for the stakeholders in these business units but also to maintain a market identity even with a diversified portfolio.<\/p>\n

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1.3 a Corporate level strategy involves<\/strong>:<\/p>\n

 <\/p>\n

Reach- It defines companygoals, types of business in which companyshould get involved.<\/p>\n

 <\/p>\n

Activities and relationships- It helps in developing a relation by sharing and coordinating with the staff. It helps in investing business units in different units to harmonize different business activities.<\/p>\n

 <\/p>\n

Management practises- Corporates decides how business units are managed by direct corporate intervention or by less government agencies.<\/p>\n<\/div>\n

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1.3 b Different types of corporate level strategies are<\/strong>:<\/p>\n

 <\/p>\n

1.\u00a0\u00a0\u00a0 Stability Strategies:<\/p>\n

 <\/p>\n

It involves 3 strategies which are<\/p>\n

 <\/p>\n

No change Strategies<\/p>\n

 <\/p>\n

Pause\/proceed with caution strategies Profit strategies<\/p>\n

 <\/p>\n

2.\u00a0\u00a0\u00a0 Cooperative Expansion Strategies<\/p>\n

 <\/p>\n

It involves 5 strategies these are<\/p>\n

 <\/p>\n

Integration<\/p>\n

 <\/p>\n

Diversification Cooperation<\/p>\n

 <\/p>\n

Internationalization<\/p>\n

 <\/p>\n

3.\u00a0\u00a0\u00a0 Defensive\/ Retrenchment Strategies<\/p>\n

 <\/p>\n

It involves 3 types of investments<\/p>\n

 <\/p>\n

Turnaround Divestment Liquidation<\/p>\n

 <\/p>\n

4.\u00a0\u00a0\u00a0 Combination Strategies<\/span><\/p>\n

 <\/p>\n

It involves 3 types of strategies<\/span><\/p>\n

 <\/p>\n

Simultaneous Sequential<\/span><\/p>\n

 <\/p>\n

Combination of both<\/span><\/p>\n<\/div>\n

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 <\/p>\n

1.4 Cooperative Expansion Strategy<\/strong><\/p>\n

 <\/p>\n

Every enterprise wants to expand to avoid risk drowning. Expansion provides ample of opportunities to the enterprise and is important for it. This is possible after achieving fundamentals of expansion. Expansion strategies are made in such a way that they help enterprise to maintain a competitive edge in international market. Hence for successful competition, survival and to flourish, an enterprise has to pursue an expansion strategy. Expansion is an important strategic option that allow the company to fulfill its long term growth objectives. It also help in pursuing significant growth as opposed to slow growth in stability strategy.<\/p>\n

 <\/p>\n

A cooperative strategy is the attempt by a company is to try and achieve its objectives of expansion but with cooperation through other players either within the same industry or from complimentary or non related industry. The objective of cooperative strategy is to expand by cooperating and working with others rather than working against others. The cooperative strategy allows synergistic use of resources of all the organizations. A cooperative strategy like strategic alliances can offer a company a chance to expand even if does not have a comprehensive portfolio of assets by choosing a partner who does. For example Ellily Lilly and Ranbaxy formed a strategic alliance to compliment each other\u2019s portfolios and objectives. The cooperative strategies also help companies explore new markets at a fraction of the risk.<\/p>\n

 <\/p>\n

For achieving long term objectives the expansion strategy provides the blueprint required to grow and also allow them to sustain their competitive advantage even in the complex stages of market and product evolution. Expansion strategy helps a company achieve economies of scale, which reduces operating costs and helps in improving earnings. Though main focus of the lesson is strategic alliances the lesson does discuss the other expansion strategies briefly.<\/p>\n

 <\/p>\n

1.4 a There are different ways of expansion of an enterprise in global market these are<\/p>\n

 <\/p>\n

Integration (Mergers and Acquisitions) Diversification<\/p>\n

 <\/p>\n

Cooperation (strategic alliances) Internationalization<\/p>\n<\/div>\n

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 <\/p>\n

1.5 Strategic Alliances<\/strong><\/p>\n

 <\/p>\n

A strategic alliance is defined as a collaboration between the companies or incumbents of an industry or from different industries whereby they agree to share their resources and capabilities inpursuit of sustained competitive advantage and above average rate of return . these are also referred to as cooperative strategies where two or more companies decide to pool in their resources and capabilities to exploit a market opportunity. The companies in this case decide to work with each other to gain competitive advantage rather than work against each other. For example a strategic alliance was forged between two pharmaceutical giants i.e. elilly lilly and Ranbanxy, Which was used to enter India by elilly lilly and by Ranbaxy to gain knowledge about foreign markets. Similarly strategic alliance between bharti and walmart was a ode to cooperative strategy.<\/p>\n

 <\/p>\n

A global company is involved in multiple strategic alliances to compliment the needs of different markets and countries it is present in. for example IBM has formed alliances with Sun Microsystems, SAP, Lenovo, and Cisco, among others. These strategy alliances help IBM deal with threats from different companies and add on to the portfolio its strengths. The objective of each specific strategic alliance is unique and specific.<\/p>\n

 <\/p>\n

It is important to note that strategic alliances are not a uni-directional relationship. The basis of this relationship is the fact that both the parties , who are involved in this relationship, bring something unique to the table. This uniqueness adds to the competitive advantage that the strategic alliance can exploit over the period of time. It is very important in the strategic alliance that all the partners are actively solving problems, are being dependable, and are again and again finding ways to combine their resources and capabilities to create value to gain sustained competitive advantage an above-average returns.<\/p>\n

 <\/p>\n

1.5 a Three Types of Strategic Alliances<\/em><\/strong><\/p>\n

 <\/p>\n

The academic text refers to 3 types of strategic alliances which have been discussed in this section of the lesson i.e. joint ventures, equity strategic alliances, and nonequity strategic alliances.<\/span><\/p>\n<\/div>\n

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 <\/p>\n

a. A joint venture<\/em><\/strong>: a joint venture is defined as an alliance between two organizations or companies where a the organizations chose to lose their individual identity and form new and independent identity. This new identity which is formed from two or more partners, can boast of a resource and capability pool which consists of best of both the partnering companies. These ventures help companies establish associations which help them pass tactical knowledge about value addition to partners so as to gain competitive advantage and above average rate of return.<\/p>\n

 <\/p>\n

b. An equity strategic alliance.<\/em><\/strong> This type of alliance is defined as<\/em> an alliance where partner companies have unequal shares in the new a venture created. The unique characteristics of the new venture are that it is created by combining resources and capabilities of the partnering firms. For example, Citigroup Inc. has formed a strategic alliance with Shanghai Pudong Development Bank Co.<\/p>\n

 <\/p>\n

c. A nonequity strategic alliance<\/em><\/strong> is defined as a alliance where partnering companies agree to share and leverage their resources and capabilities to gain competitive advantage in the target market. The Main difference between an equity strategic alliance and an non-equity strategic alliance is that in a non equity strategic alliance that the partnering companies do not set up a separate independent company and so don\u2019t take equity positions.<\/p>\n

 <\/p>\n<\/div>\n

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Joint ventures<\/p>\n

 <\/p>\n

A joint venture strategy is a strategy in which two or more company pool up their resources for accomplishing a specific task. This task helps in achieving a new project or provides companywith different entity. Each member of joint venture is associated with all the expenses and revenue of the company. Joint venture is seen as a tool of international expansion. International joint venture enables companies to use resources and capabilities of each other which help in achieving economies of scale for bringing new product or service in market faster, more efficiently, more reliably and more cheaply than what they could do. Joint ventures have partners and these partners have certain position in the eyes of local and international markerts. Before commencing of a joint venture the companies checks the following following variables \u2013size of company, business field and activity, abroad investments, structure and ownership strategy of company and many other variables.<\/p>\n

 <\/p>\n

In joint ventures when two companies come in contract they lay the foundation of a third company which means 1+1=3. The companies share profit and risk equally. The best example of joint venture is Sony Ericsson. Sony was the leading brand in electronics in India and Ericsson was the leading mobile brand of America. Both the companies joined hands to create a third company called Sony Ericsson to provide services in India. Another example of joint venture is Nokia and Microsoft.<\/p>\n

 <\/p>\n

1.5 b Reasons Companies Develop Strategic Alliances<\/strong><\/p>\n

 <\/p>\n

A company can develop strategic alliances for varied reasons. Some of them have been listed below<\/p>\n

 <\/p>\n

1.\u00a0\u00a0\u00a0 Technology has be come the basis of competition and at times because of patent or limitation in terms of resources and capabilities companies cannot gain access to these technologies. However, access is important to gaining market success and it is in these scenarios companies contemplate alliances.<\/p>\n

 <\/p>\n

2.\u00a0\u00a0\u00a0 Many a times companies enter strategic alliances to gain access to unique and price competitive ways of adding value to the market offering. The competition these days is determined by not only understanding the customer needs but also how quickly one can get that need satisfied i.e. cater to the market. Many a times companies find short cuts to the development process by opting for alliances or division of process across partners.<\/p>\n

 <\/p>\n

3. As a source of revenue.<\/p>\n

 <\/p>\n

4. As a route to enter a new market where a sole entry is not possible or allowed for example china.<\/p>\n

 <\/p>\n

5. Many times companies enter strategic alliances to cater to diverse customer needs and they don\u2019t want to loose the customer to competitor so they partner. For example in airline industry not every airline can cater to every route and therefore they partner and form\u00a0<\/span>alliances.<\/span><\/p>\n<\/div>\n

<\/div>\n
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1.6 Diversification<\/strong><\/p>\n

 <\/p>\n

Diversification is a type of portfolio management in which investor reduces the risk of volatility by investing in various products of company which have very low correlation with each other. The advantage of diversification is that when in a company one product is earning a high profit and other is running in losses it balances or outweighs the negative investment.<\/p>\n

 <\/p>\n

1.6 a Diversification is of three types \u2013<\/p>\n

 <\/p>\n

Unrelated diversification Related diversification<\/p>\n

Conglomerate diversification<\/p>\n<\/div>\n

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 <\/p>\n

1.6 a i. Unrelated Diversification: Unrelated-diversified (or highly diversified)<\/em><\/strong> companies do not share resources or linkages. Companies that pursue u examples-<\/p>\n

 <\/p>\n

TATA Group \u2013 it have diversified its business from steel to hotels, tatamotors , TCS etc.<\/p>\n

 <\/p>\n

AMWAY \u2013it is a beauty and home care products have entered into jewellary.<\/p>\n

 <\/p>\n

1.6 a ii Related diversification: A related-diversified company has been defined as the one in which at least 30 percent of its revenues are earned from sources outside of the dominant business. example<\/p>\n

 <\/p>\n

Nestle \u2013 for assistance to tomato sauce and ketchup they have introduced maggi. 1.6 a. iii Conglomerate diversification example \u2013<\/p>\n

 <\/p>\n

General electronics \u2013 it have diversified its business in electronics , financial sevices ,health care etc.<\/p>\n

 <\/p>\n

TATA group \u2013 tata group of hotels produces their own amenities, are also in communication.<\/p>\n

 <\/p>\n

 <\/p>\n

1.6 b REASONS FOR DIVERSIFICATION<\/strong><\/p>\n

 <\/p>\n

Companies opt to adopt diversification strategies to add value for the stakeholders. However, more specifically the main purpose of adopting these strategies is to deal or gain an upper hand over the competitor and his market power, to reduce the employment risk by concentrating on product line and also to increase the attractiveness of the company as a employer. It has been established that more diversified is the portfolio of a firm, larger is the size and more is the compensation which enables the firm to attract better talent.<\/span><\/p>\n<\/div>\n

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1.7 Mergers and Acquisition<\/strong><\/p>\n

 <\/p>\n

If two companies combine their value would more as a single unit rather them different unit. Mergers and acquisitions are done by company to increase their market share and to survive in competitive markets. Mergers and acquisition are two different thing. Merger is when two different company joins hands to create a new venture. For example \u2013 Lipton tea and Brooke bond. Where as acquisition refers to overtaking of one entity by other. For example \u2013 TATA group acquired Corus 2006 the deal size was $12.98 billion.<\/p>\n

 <\/p>\n

Legally speaking in merger two companies come in an agreement for the formation of a third company and in acquisition one company takeover all the operational aspects of other company.<\/p>\n<\/div>\n

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 <\/p>\n

Varieties of merger<\/p>\n

 <\/p>\n

Horizontal merger \u2013 two companies with delivering same product and are in direct competition. Example Coke and Pepsi.<\/p>\n

 <\/p>\n

Vertical\u00a0 merger\u00a0 \u2013\u00a0 two\u00a0 companies\u00a0 which\u00a0 are\u00a0 producing\u00a0 products\u00a0 of\u00a0 one\u00a0 finished\u00a0<\/span>product. Example \u2013 automobile company joining hands with part supplier.<\/span><\/p>\n

 <\/p>\n

Market extension merger \u2013 two companies selling same products in different markets.<\/span><\/p>\n

Example -Eagle Bancshares<\/span><\/p>\n<\/div>\n

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 <\/p>\n

Product extension merger \u2013 two companies selling different but related products in the same market. Example \u2013 Mobilink telecom by broadband.<\/p>\n

 <\/p>\n

Conglomerate merger \u2013 in this there are two companies that does not any common product line. Example \u2013 Walt Disney and American Broadcasting.<\/p>\n<\/div>\n

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1.7 a Acquisition<\/strong><\/p>\n

 <\/p>\n

As we have discussed earlier acquisition refers to overtaking the company and its operational aspects of the company. For example, Flipkart and Myntra, a big acquisition in Indian history. Flipkart acquired Myntra at a whooping amount of Rs. 2000 crore deal according to the insider details.<\/p>\n

 <\/p>\n

Another example of acquisition is Tata Tea taking over Tetley Tea making it world\u2019s second largest tea marketer and which was double of what Tata tea was for a 271 lakh pound through leverage buyout.<\/p>\n

 <\/p>\n

1.7 b Benefits of Acquisition over Internal Development<\/p>\n

 <\/p>\n

One of the key advantages of acquisition over other methods of expansion is pace of development. Acquisitions ensure that a company enters a new business with adequate size;\u00a0and attains viable competitive strength. In this strategy the acquiring company is guaranteed of entering at minimum efficient scale for cost purposes and is provided access to complementary assets and resources. In addition, entry by acquisition may foster a less competitive environment \u2013 by eliminating a competitor.<\/span><\/p>\n<\/div>\n

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 <\/p>\n

1.7 c Drawbacks of Acquisition over Internal Development<\/strong><\/p>\n

 <\/p>\n

Acquisitions are often more expensive than internal development; they are unlikely to generate sufficient return on capital to justify the premium cost; and the acquiring companymay inherit several unnecessary adjunct businesses. The internal development process allows for many points at which the project can be assessed and reevaluated so the companycan pull the plug. Acquisitions are typically all or nothing propositions. There is also a potential problem of organizational conflict\u2014 the eruption of cultural clashes that can impede the integration of two companies.<\/p>\n

 <\/p>\n

1.7 d Differences between Acquisitions and Mergers<\/strong><\/p>\n

 <\/p>\n

The term acquisition means that a transfer of ownership has taken place; that is, one companybought another. A merger is the consolidation or combination of one companywith another. Mergers are typically between companies of relatively equal size and influence that fuse together to form one new larger firm. There are three categories of motives for M&As: managerial self interest, hubris, and synergy.<\/p>\n

 <\/p>\n

1.8 Takeovers<\/span><\/strong><\/p>\n

 <\/p>\n

Takeovers generally refers to purchase of one company by other. Whereas in UK takeovers are termed as acquisition of a public company whose shares are listed in the stock exchange. Takeovers are of different kinds these can be \u2013<\/span>Friendly takeover Hostile takeover Reverse takeover Backflip takeover<\/span><\/p>\n

 <\/p>\n

Friendly takeover <\/span><\/p>\n

Hostile takeover <\/span><\/p>\n

Reverse takeover <\/span><\/p>\n

Backflip takeover<\/span><\/p>\n<\/div>\n

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 <\/p>\n

1.8 a Friendly takeover<\/strong><\/p>\n

 <\/p>\n

A friendly takeover is a takeover in which the acquisition is approved by the management. In this before a bid is made by the bidder the deal is usually first informed to management and if the management thinks that through this deal the shareholder are getting benefited or through its rejections they suffer loses. In private company the shareholders and the board are usually the same people or connected with one another, so private takeover are friendly. For example \u2013 Johnson and Johnson friendly takeover of Dutch Vaccine maker Crucell. The deal accounted to 1.75billion euros.<\/p>\n

 <\/p>\n

1.8 b Hostile takeover<\/strong><\/p>\n

 <\/p>\n

In a hostile takeover the bidder can takeover the company whether their management are willing or not willing to sell the company. Hostile takeover happens when the board rejects the offer made by the bidder. There are various ways to develop a hostile takeover<\/span><\/p>\n<\/div>\n

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 <\/p>\n

Tender offer \u2013 when an acquiring company makes a public offer at a fixed price which is above the market price.<\/p>\n

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Creeping tender offer \u2013 in this the bidder quietly buys enough stock of the company in the open market which allow to change in the management.<\/p>\n<\/div>\n

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 <\/p>\n

An example of hostile takeover is Oracle over People soft. After a battle of 18 months the oracle company takeover the people soft company.<\/p>\n

 <\/p>\n

1.8 c Reverse takeovers<\/strong><\/p>\n

 <\/p>\n

A reverse takeover is the one in which the public company is acquired by the private company so that private company can bypass the complex process of going public. In this generally the private players buys the share of the public company and then merge it with their company. For example MTN a African based telecommunication company is planning for reverse takeover of Reliance communication through this deal the company value would reach up to 70 billion with 120 lakh users.<\/p>\n

 <\/p>\n

1.8 d Backflip takeover<\/strong><\/p>\n

 <\/p>\n

It is a type of takeover in which the acquiring company turns himself into the subsidiary of the purchased company. This happens when a larger but less known company acquire a struggling company. For example the takeover of Bank of America by the National Bank, but it adopted the name of Bank of America.<\/span><\/p>\n<\/div>\n

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 <\/p>\n

1.9 Summary<\/strong><\/p>\n

 <\/p>\n

Strategy is a game plan to target a market, conduct operations, satisfy customers and achieve organizational objectives. It lays down organizations\u2019 desired goals, direction and destination. Strategy can never be perfect; it is flexible. There are no second best choices in strategies. Strategy is partially proactive and partially reactive. Corporate level strategy looks for the development of whole of the organization, beginning with mission, goals, to determining the business plan, resources and finally implementing different strategies in order to achieve a desired goal. Corporate level strategies are those strategies which are concerned with the strategic decision making in the company. These strategies are made by high governing bodies of the firm. One of the main corporate level strategies is to decide the means of expansion into new areas. Current lessons discusses cooperative strategy as a option to expand the corporate portfolio.<\/p>\n

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