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Chapter 6

Comm 401 Chapter 6.docx

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Concordia University
COMM 315

Chapter 6 CorporateLevel StrategyCorporatelevel strategies are strategies firms use to diversify their operations into several markets or businessesFirms use corporatelevel strategies to create value through economies of scope and market powerGain a competitive advantage by selecting and managing a group of different businesses competing in different product marketsHelp select new strategic positions that are expected to increase the firms valueBecause the diversified firm operates in several different and unique product markets and likely in several businesses it forms 2 types of strategies the corporatelevel or companywide and businesslevel or competitive Levels of DiversificationVary according to their level of diversification and the connections between and among their businessesThe single and dominantbusiness categories denote relatively low levels of diversificationMore fully diversified firms are classified into related and unrelated categories A firm is related through its diversification when its businesses share several links for example businesses may share products technologies or distribution channels oThe more links among businesses the more constrained is the relatedness of diversificationUnrelateness absence of direct links between businesses1 Low levels of diversificationaSingle business 95 or more of revenue comes from a single businessbDominate business between 70 and 95 of revenue comes from a single business2 Moderate to high levels of diversificationaRelated constrained less than 70 of revenue comes from the dominant business and all business share product technological and distribution linkagesbRelated linked mixed related and unrelated less than 70 of revenue comes form the dominant business and there are only limited links between the businesses3 Very high levels of diversificationaUnrelated less than 70 of revenue comes from the dominant business and there are no common links between businesses Reasons for Diversification1Valuecreating diversificationEconomies of scope related diversificationoSharing activities transferring core competenciesMarket power related diversificationoBlocking competitors through multipoint competition vertical integrationFinancial economies unrelated diversificationoEfficient internal capital allocation business restructuring2Valueneutral diversification a desire to match and thereby neutralize a competitors market powerAntitrust regulationTax lawsLow performanceUncertain future cash flowsRisk reduction for firm
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