Unit V DB GSM

BUS 6320, Global Strategic Management 1

Course Learning Outcomes for Unit V

At the end of this unit, you should be able to:

4. Explain methodologies in the overall evaluation of business strategies.
4.1 Evaluate different types of corporate diversification.

Required Unit Resources

Chapter 8: Corporate Strategy: Vertical Integration and Diversification (ULO 4.1)
This chapter discusses the three dimensions of corporate strategy, boundaries of the firm, types of vertical
integration along the value chain, and corporate diversification.

Chapter 9: Corporate Strategy: Strategic Alliances, Mergers, and Acquisitions (ULO 4.1)
This chapter reviews how firms achieve growth, strategic alliances, and mergers and acquisitions.

Unit Lesson

Lesson: Corporate Strategy (ULO 4.1)

What Is Corporate Strategy?

Corporate strategy is a fact-based system that assists organizational leaders in securing competitive
advantage for their firm. In that regard, Rothaermel (2024) notes that corporate strategy frames the
boundaries of a firm to include three key components: vertical integration, horizontal diversification, and
geographic scope. This is illustrated in Exhibit 8.2: The Three Dimensions of Corporate-Level Strategy:
Vertical Integration, Horizontal Diversification, and Geographic Scope, in the course textbook. Vertical
integration considers the value chain from transforming raw materials to finished products. Horizontal
diversification considers the range of products and services being offered. Geographic scope considers the
location of the activities of the firm—local, regional, national, or global. Of course, firms are under pressure to
grow. Growth can include increased profits, reduced costs, an increase in market power, reduction of risk,
and/or motivation of management and employees (increased productivity).

Boundaries of the Firm

The corporate strategy is a template that assists in establishing the boundaries of the firm. In part, the
boundaries of the firm can be explained by transaction costs that can be internal or external. Controlling these
costs is a key way a firm can expand on its competitive advantage by keeping costs lower. Organizing the
economic activity of a firm should reflect the unique attributes of the firm and the sector within which it
operates.

How is technology driving change in organizing the economic activity of a firm? One component of the
organizational design discussion relates to the principal agent problem. Rothaermel (2024) defines this
problem as a “situation in which an agent performing activities on behalf of a principal pursues his/her own
interests” (p. R-2). An example of this concern in application would be a chief executive officer of a firm
making decisions of value more to the benefit of the CEO as opposed to the firm.

UNIT V STUDY GUIDE
Corporate Strategy

BUS 6320, Global Strategic Management 2

UNIT x STUDY GUIDE
Title

The Make or Buy Continuum

As illustrated in Exhibit 8.5: Alternatives on the Make-or-Buy Continuum, firms often are faced with a basic
decision: to buy a service or product outside of the firm or to make that service or product internally. Of
course, each option comes with its costs and benefits and the correct answer to the make or buy question is
contextual.

Strategic Alliances

As firms look to grow alliances are an important opportunity that must be considered. Rothaermel (2024)
defines strategic alliances as “voluntary arrangements between firms that involve the sharing of knowledge,
resources, and capabilities with the intent of developing processes, products, or services” (p. 307).

Corporate Diversification

There are three important questions framing corporate strategy:

1. Vertical integration is a process in which a firm acquires another company for greater control related
to the supply or distribution chain. Vertical integrations can assist a firm in increasing profits as well
as making them less dependent on suppliers and/or distributors. Vertical integration can include
backward and/or forward integration, and it is about the control of all aspects of the value chain of the
firm. For example, a firm might decide to take control of the inputs of its production process instead of
depending on a supplier. This would include acquiring a process that was previously contracted out—
for example hiring employees.

2. Horizontal integration relates to a firm buying the competitor. Horizontal integration can assist a

company expand and diversify as well as enter new markets.

3. Geographic scope refers to the physical area in which the firm operates. Many successful firms have
strategically included a global component as a key part of their growth plans. For example, many
firms have expanded operations into China to take advantage of lower labor costs and/or a much
larger market.

Build-Borrow-Buy

In this unit, we explored the importance of firms looking to grow. As a firm considers growth options, they
often look at build-borrow-buy options. There are different costs and risks associated with each of these
options. For example, a build option would take longer in many cases as opposed to buying an existing plant
or operation. The key point is that a firm should carefully consider the build-borrow-buy framework as a part of
their growth plan. Each of these options can be effective as illustrated in Exhibit 9.1: Guiding Corporate
Strategy: The Build-Borrow-Buy Framework. When deciding on the best option for a firm, consideration
should be based on the unique aspects of the firm and the factors that inform that decision. Lauby (2018) of
the Society for Human Resource Management notes that this model can be applied to decisions around hiring
employees.

Alliances

In terms of alliances, firms enter these voluntary relationships “to strengthen competitive position; enter new
markets; hedge against uncertainty; access complementary assets; or learn new capabilities” (Rothaermel,
2024, p. 356). Exhibit 9.4: How to Make Alliances Work provides guidance on managing alliances to the
benefit of both parties. Rothaermel notes that trust is a critical aspect of any strategic alliance. The alliance
must be managed to the benefit of both firms.

Mergers and Acquisitions

A merger is the joining of two separate companies to form a new firm. Mergers assist a firm in reducing
competitive intensity, lowering costs, and increasing differentiation (Rothaermel, 2024).

BUS 6320, Global Strategic Management 3

UNIT x STUDY GUIDE
Title

Acquisition is the takeover or purchase of one firm by another. The rationale behind acquisition includes
“access to new markets and distribution channels, access to a new capability or competency, strategic
preemption” (Rothaermel, 2024, p. 361).

Summary

In conclusion, the environment of business—domestic and global—is turbulent with change as a constant
factor to be addressed by all firms. For a company to develop and maintain a competitive advantage, the firm
must constantly monitor its own capabilities and that of its competitors, and continuous improvement is
critical. Organizational leaders must understand that they need to develop new resources, competencies, and
capabilities to continually take advantage of emerging opportunities (Larson, 2016).

References

Larson, C. (2016, November 15). Disruptive innovation theory: What it is & 4 key concepts. Harvard Business

School Online’s Business Insights.
christensens-theory-of-disruptive-innovation

Lauby, S. (2018, May 11). How to create a recruiting strategy: Buy, build, and borrow. Society for Human

Resource Management.
acquisition/Pages/How-to-Create-a-Recruiting-Strategy.aspx

Rawpixel. (n.d.). Character illustration of people with global network concept [Image]. Freepik.

concept_3585190.htm#query=strategy%20global%20business%20planning&position=2&from_view=
search&track=ais&uuid=eab5dd3f-267d-4ae8-9a3a-5381e987b5ac

Rothaermel, F. T. (2024). Strategic management (6th ed.). McGraw Hill.

Vector4stock. (n.d.). Business process illustration infographic of business structure from idea to successful

business [Image]. Freepik.

idea-successful-business-
project_26195295.htm#query=strategy%20global%20business%20planning&position=34&from_view
=search&track=ais&uuid=eab5dd3f-267d-4ae8-9a3a-5381e987b5ac

Learning Activities (Nongraded)

Nongraded Learning Activities are provided to aid you in your course of study. You do not have to submit
them. If you have questions, contact your instructor for further guidance and information.

Activity: Vertical Integration Reflection (Optional)
As we see in this unit, integration is an important strategy for a firm to consider. In Chapter 8, review the
section “When Does Vertical Integration Make Sense?” In a personal journal, write your responses to the
following questions:

• How would you apply the concept of vertical integration to the firm that you selected earlier for the
Unit III Assignment?

• Has the global pandemic impacted the use of vertical integration?

Activity: Case Study (Optional)
In Chapter 8, read the Chapter Case 8 Part I: Amazon’s Corporate Strategy. In a personal journal note your
thoughts on the following questions:

BUS 6320, Global Strategic Management 4

UNIT x STUDY GUIDE
Title

• How has Amazon evolved from an online bookstore to one of the largest retailers in the world?
• In reviewing Amazon’s strategic initiatives, how do you see innovation and technology playing a part

in their success?

Activity: Strategy Highlight 8.1 (Optional)
In Chapter 8, read Strategy Highlight 8.1: The Equity Alliance between Coca-Cola and Monster: A Troubled
Engagement? In a personal journal, note your thoughts on the following question:

• How do we develop strategic alliances that are beneficial to each party?

Activity: Strategy Highlight 8.2 (Optional)
In Chapter 8, read Strategy Highlight 8.2: P&G’s Diversification Strategy: Turning the Tide? In a personal
journal, note your thoughts about the diversification strategy.