Exam Questions

  1. Understand definitions of each corporate-level strategy

Strategic Alliances

This is any cooperative effort between two or more independent organizations to help develop, manufacture or sell products and/or services. Strategic alliances create value when they are valuable, rare, costly to imitate and the firm is organized to exploit it.

 Vertical Integration

It is the coming together of companies at different stages of production and/or distribution within the same industry. It can either be forward or backward integration. Vertical integration creates value when it is valuable, rare, costly to imitate and the firm is organized to exploit it.

Mergers and Acquisitions

Mergers- Two firms are combined on a relatively co-equal basis.

Acquisitions- One firm buys another firm.

M&As create value when they are valuable, rare, costly to imitate and the firm is organized to exploit it.

Corporate Diversification

It entails branching out into new business opportunities. Corporate diversification creates value when it is valuable, rare, costly to imitate and the firm is organized to exploit it.

  1. Conditions for different strategies to create economic value

Strategic Alliances

-Has the ability to shape the competitive environment.

-Can improve current operations.

-Facilitates entry and exit.

Vertical Integration

-The focal firm should have the ability to create synergy with other firms.

-It should also have the ability to capture above normal economic returns.

Mergers and Acquisitions

-There should be synergies between the divisions e.g economies of scale, economies of scope, transferring competencies, sharing infrastructure among others.

Corporate Diversification

-There must be some economic scope.

-The focal firm must have a cost advantage over outside equity holders in exploiting any economies of scope.

  1. Pros and Cons of each strategy

Strategic alliances

Pros- Creation of a competitive advantage in the market, reduction of costs and risks, and allows access to skills and resources of other partners.

Cons- Risks/disadvantages of sharing business secrets and difficulty of choosing the right partner.

Vertical Integration

Pros- Lower transaction costs, investment in specialized assets, competitive advantage and certainty of with quality.

Cons-Decrease in flexibility, inability to increase product variety and it can create some barriers to market entry.

Mergers and Acquisitions

Pros-Elimination of competition, increase in company size and synergies, and economies of scale.

Cons-substantial increase in prices, job losses and brand/reputation might be tarnished.

Corporate Diversification

Pros-Helps reduce risk from an investment, eliminates cyclical nature of the standard economy and maximization of the use of potentially underutilized resources.

Cons- Limits growth opportunities, there can be unexpected tax complications and adds complexity to investment process.

  1. Opportunism in strategic alliances/potential remedies

Opportunism is always the main reason for alliance performance risk and relational risk and even for alliances failure. Potential remedies for opportunism include making sure that both partners are comparable in size and have similar business interests. There also ought to be a good revenue sharing arrangement.

  1. Relationship between M&As and performance

M&As tend to create economic value for the acquiring firm through the competitive advantage that is created. This increases the performance level since the firm is able to increase on its market share.

  1. Review slides on strategic leadership

Strategic leadership encompasses a manager’s potential to express the company’s strategic vision to motivate and persuade employees to acquire that vision.

  1. Understand the Upper Echelons Perspective

*Read on this*

  1. Does executive leadership impact firm performance?

Yes. Executive leadership impacts firm performance in that it goes into determining the working environment in the organization. This is because executive leadership formulates a collective purpose, influences culture, instills value and determines the strategic plan for the firm.

  1. Relationship between multinationality and performance

Increasing levels of multinationality tend to bring significant performance benefits up to a certain optimum level beyond which the benefits start to decelerate, while the costs accelerate.

  1. Challenges and opportunities at the Bottom of the pyramid

Challenges

-The profitability prospects are low due to the low buying power of the consumers.

-The accessibility prospects are low too.

-Presence of weak institutions that make it difficult to find managerial talent and protect knowledge & resources.

-The liability of foreigness makes it difficult to understand social infrastructure and tailor local solutions.

Opportunities

-Four billion potential new customers

-The market is currently poorly served.

-Market saturation

  1. Why a business plan?

-Helps the organization to decide on the direction to pursue with regards to varied operations.

-Acts as a good presentation document for financial institutions and potential investors.

-Helps a business to manage its priorities while allocating resources.

-Helps in the tracking of best strategies that are suitable to an organization.

-Assists in the tracking and managing of performance within an organization.

 

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