What is Corporate Strategy?
Corporate strategy describes the thinking that goes into the choices corporations make when they try to configure and coordinate all of their multi-market activities. Corporate strategy is about the decisions, the planning and the tradeoffs that are made to manage these multi-business multi-market firms. Corporate strategy focuses on the corporation as a whole. Business strategy focuses on the choices a firm makes in a single market. Corporate strategy is about WHERE to compete. Business strategy is about HOW. In a corporation, business strategy and corporate strategy need to be well-designed and integrated. A good corporate strategy will enhance the strategies of the businesses within the corporation. When this happens, the business strategy are benefiting from corporate advantages. The essence of corporate strategy is expanding a free standing single business into a multi-business corporation in order to create value in ways that cannot be done separately. Corporate strategy will configure the optimal scope of the multi-business portfolio, and create profit generating advantages across the portfolio (Competitive strategy is about business units).
Dimensions of Corporate Strategy
- Horizontal expansion – Business diversification
- Vertical integration – forward or backward expansion
- Geographic scope – geographic and or global expansion
Corporate Scope: the markets in which a corporation has chosen to maintain a competitive presence.
Ownership arrangements: what arrangements have been made to control and manage lines of business (own? Or develop an alliance?).
Test to Tackle Scope and Ownership
The “better off” test: “does the presence of a specific corporation in a given market improve the competitive advantage over and above what they could achieve on their own?” If a business unit is better off managing on its own -> the corporation shouldn’t manage it as part of its portfolio. Alternatively, if bringing the business unit into the corporation improves the competitive advantage of the business unit or other business units within the corporation then the corporation is “better off”
The “ownership test”: used to evaluate whether a corporation should own any of its business units. The question that’s asked: “does ownership of the business unit produce a greater competitive advantage than an alternative arrangement would produce?”
If a corporation fails the better off test, it shouldn’t compete in particular market. If a corporation passes the better off test, but fails the ownership test, it should maintain competitive presence in market, but should not pursue full ownership of business unit.
Global Strategy
Focuses on the economic and strategic logic of the geographic and global expansion of firms. Approaches to Global Strategy include:
- Global approach
- Multi-domestic approach
- Transnational approach
- Replicate home market approach?
Remember.. the essence of strategy is focusing resources on a critical point of leverage!
The WBMH Framework
Why?
- Why expand?
- Why diversify or expand globally?
- What are the motives?
- Forced to cross borders?
- Competitors crossing borders?
From the above we can understand the speed which which to move, the size of the expansion move, and the steps that can be taken.
Bring or Build?
- Bring: what successful
- Strategies
- Competitive advantages
- Core competencies
- Business models …Can the business bring to the new markets?
- Build: any corporate or global advantages by
- Combining
- Coordinating
- Managing operations across markets
- Capture economies of scale and scope in different activities
Additional Frameworks to consider: Ghemawat’s 3 A’s framework (Adaptation, Arbitrage, Aggregation) and USC Marshall Heptagon Framework
Meet (what will the firm meet in the new markets?)
- New market environment
- Global players
- Cultural differences
- Supply chains
- Government regulations
Additional frameworks to consider as we think about the Meet step:
Ghemawat’s CAGE Framework
How?
Considers how will the firm enter the new market, and how will the firm compete and operate in the new market.
Reasons firms go global
- Growth imperative (they have filled the local markets, too saturated domestic markets)
- Efficiency imperative (they need to ensure cost competitiveness, supply chain will be pushed to different markets)
- Knowledge imperative (innovation might require expanding to new markets)
- Globalization of customers imperatives
- Globalization of competitors imperatives (if competitors beat us to new markets)