System AND COMPETITIVE ADVANTAGE IN DIVERSIFIED COMPANIES

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Section Outline. At the point when to DiversifyBuilding Shareholder ValueEntering New BusinessesRelated Diversification StrategiesUnrelated Diversification StrategiesDivestiture and Liquidation StrategiesCorporate Turnaround, Retrenchment, and Portfolio Restructuring StrategiesMultinational Diversification StrategiesCombination Diversification Strategies.

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´╗┐Part 7 STRATEGY AND COMPETITIVE ADVANTAGE IN DIVERSIFIED COMPANIES Screen design made by: Jana F. Kuzmicki, PhD, Indiana University Southeast

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Chapter Outline When to Diversify Building Shareholder Value Entering New Businesses Related Diversification Strategies Unrelated Diversification Strategies Divestiture and Liquidation Strategies Corporate Turnaround, Retrenchment, and Portfolio Restructuring Strategies Multinational Diversification Strategies Combination Diversification Strategies

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Diversification and Corporate Strategy An organization is enhanced when it is in at least two lines of business Strategy-production in an expanded organization is a greater picture practice than creating a procedure for a solitary line-of-business A broadened organization needs a multi-industry, multi-business technique A vital activity arrange must be produced for a few distinct organizations contending in differing industry conditions

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Stages in Transitioning from a Single Business to a Diversified Company What next? Organize 1 : Small single-business serving a provincial market STAGE 2 : Geographic extension STAGE 3 : Vertical reconciliation (discretionary) STAGE 4 : Diversification - normally started when development openings lessen in the organization's available business

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When to Diversify? When it bodes well to broaden relies on upon Growth potential in present business Attractiveness of chances to exchange existing skills to new organizations Potential cost-sparing chances to be acknowledged by entering related organizations Availability of sufficient money related and authoritative assets Managerial aptitude to adapt to unpredictability of working a multi-business endeavor

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When Does Diversification Start to Make Sense? Solid aggressive position, quick market development - Not a decent time to expand Strong focused position, moderate market development - Diversification is beat need thought Weak aggressive position, fast market development - Not a decent time to broaden Weak aggressive position, moderate market development - Diversification merits thought

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Strategic Management Principle To make shareholder esteem, a differentiating firm should get into organizations that can perform preferable under regular administration over they could perform working as free remain solitary undertakings!

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Corporate Strategy Alternatives Make new acquisitions Divest powerless units Restructure portfolio Retrench Become a DMNC Liquidate Post-Diversification Strategic Alternatives Vertical Integration Diversify into Related Businesses Diversify into Unrelated Businesses Single Business Concentration Diversify into Related & Unrelated Businesses

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Diversification Strategies Entering new enterprises Related broadening Unrelated enhancement Divestiture and liquidation Corporate turnaround, conservation, and rebuilding Multinational expansion

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Strategies for Entering New Businesses Acquire existing organization Start-up new business inside Joint wander with another organization

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Concept: Economies of Scope Arise from capacity to kill costs by working at least two organizations under same corporate umbrella Exist when it is less expensive for at least two organizations to work under brought together administration than to work freely Cost sparing open doors can come from interrelationships anyplace along organizations' esteem chains

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Concept: Strategic Fit Exists among various organizations when their esteem chains are adequately like offer open doors Offers upper hand capability of Lower costs Efficient exchange of Key aptitudes Technological mastery Managerial know-how Use of a typical brand name

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Types of Strategic Fit Technology Fits Operating Fits Distribution & Customer-Related Fits Managerial Fits

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What Is Unrelated Diversification? Includes differentiating into organizations with No key fit No important esteem chain connections No bringing together key topic Approach is to wander into "any business in which we want to make a benefit" Firms seeking after inconsequential enhancement are frequently alluded to as aggregates

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Basic Premise of Unrelated Diversification Any organization that can be obtained on great money related terms and offers great prospects for gainfulness is a decent business to broaden into!

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Acquisition Criteria For Unrelated Diversification Strategies Can business meet corporate focuses for benefit and ROI? Will business require considerable mixtures of capital? Is business in an industry with development potential? Is business sufficiently huge to add to the parent company's primary concern? Is there potential for union troubles or unfavorable government controls? Is industry powerless against retreat, expansion, high loan fees, or moves in government approach?

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Attractive Acquisition Targets Companies with underestimated resources Capital increases might be acknowledged Companies in money related pain May be obtained at deal costs and pivoted Companies with brilliant prospects however constrained capital

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Appeal of Unrelated Diversification Business chance scattered over various ventures Capital assets can be coordinated to those enterprises offering best benefit prospects Stability of benefits - Hard circumstances in one industry might be counterbalanced by great circumstances in another industry If deal estimated firms with enormous benefit potential are purchased, shareholder riches can be upgraded

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Drawbacks of Unrelated Diversification Difficulties of capability overseeing numerous different organizations There are no vital fits which can be utilized into upper hand Consolidated execution of irrelevant organizations has a tendency to be no superior to whole of individual organizations all alone (and it might be more regrettable) Promise of more noteworthy deals benefit dependability over business cycles rarely acknowledged

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How Broadly Should a Company Diversify? Two inquiries ought to direct random broadening endeavors: 1. What is the slightest broadening it will take to accomplish worthy development and benefit? 2. What is the most broadening that can be overseen, given its additional intricacy?

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Diversification and Shareholder Value RELATED DIVERSIFICATION A technique driven way to deal with making shareholder esteem UNRELATED DIVERSIFICATION A fund driven way to deal with making shareholder esteem

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Post-Diversification Strategies Divestiture and liquidation Corporate turnaround Corporate conservation Portfolio rebuilding Multinational expansion

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Multinational Diversification Strategies Distinguishing trademark Diversity of organizations and differing qualities of national markets Presents a major procedure making challenge Strategies must be considered and executed for every industry, with the same number of multinational varieties as is suitable

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