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NO. MATRIKULASI

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NO. KAD PENGENALAN

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TABLE OF CONTENTS
1.0

2.0

3.0

Introduction....................................................................................................................1
1.1

Purpose of the Assignment.................................................................................1

1.2

Corporate Level Strategies.................................................................................1

Analysis of Corporate Strategies Used in Business.......................................................2


2.1

Forward Integration............................................................................................2

2.2

Backward Integration.........................................................................................3

2.3

Market Penetration.............................................................................................5

2.4

Market Development..........................................................................................7

2.5

Product Development.........................................................................................8

2.6

Related Diversification.....................................................................................10

Conclusion....................................................................................................................12

BIBLIOGRAPHY....................................................................................................................13

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1.0

Introduction

1.1

Purpose of the Assignment

This assignment discusses and presents examples about different types of corporate level
strategies which are employed by business firms to achieve their organizational goals. In this
paper, six types of strategies are discussed which are: forward integration, backward
integration, market penetration, market development, product development and related
diversification.

1.2

Corporate Level Strategies

Strategic planning is a systematic, well and formally documented process that is used to
decide several key decisions that the business firm as a whole and viewed as a corporate
which will guide the going of the firm in the years to come. Corporate level strategies
describe the strategic scope of the organization as a whole. It is achieved through corporate
planning. In short, corporate level strategies are decided to answer the following objectives so
as to address the long-term direction for the organization as a whole:
1. To define the scope of the operation i.e. what the business firm should be doing and
where should it be in business;
2. To allocate resources to the various existing lines of business or business units;
3. To ascertain the level of diversity that should exist in the business as it moves into the
future;
4. To determine the nature of the diversity and the broadness of the diversity that the firm
should undertake;
5. To determine the organization of the firm such as its boundaries, impact of the boundaries
with stakeholders (suppliers, customers and other interest groups).
The need to fulfil these objectives led to a selection of six corporate level strategies to
run the business which are: forward integration, backward integration, market penetration,
market development, product development and related diversification.

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2.0

Analysis of Corporate Strategies Used in Business

2.1

Forward Integration

Forward integration is one of the three types of vertical integration that can be done in a
business firm. It refers to a form of management control that involves companies in the same
supply chain to belong to one owner. In other words, forward integration means gain in
ownership or increased control over distributors or retailers. Forward integration happens
when the company joins with or create business whose role in the production of its goods
happens after its own. This means that the products move forward after the company has
finished its share of the manufacture. This may include the distribution, sale or transportation
of the goods. In most cases, forward integration is regarded as a form of diversification from
the companys usual business.
There are many ways how forward integration can occur such as the use of mergers
and acquisitions, controlling retail, establishing outlets and creating monopoly. In mergers
and acquisition, the company merges with or acquire another organization involved in the
distribution of its products. Controlling retail means that every aspect of the distribution of
the companys product is within the control of the management which may include supply,
warehousing and distribution as well as maintenance. Other than that, establishing outlets can
be a form of forward integration too whereby the firm creates outlets where they can channel
their products through these outlets. Lastly, creating monopoly is achievable when the same
owner controls both the manufacturing and distribution processes.
An example of a company using forward integration is Hong Leong Bank Berhad.
This is a public listed company on Bursa Malaysia and is a member of the Hong Leong
Group Malaysia. Hong Leong Bank actively uses merger and acquisition as a form of
forward integration to increase control of the retail banking in this country. The bank has its
humble beginning as Kwong Lee Mortgage and Remittance Company in 1905, located in
Kuching, Sarawak and later incorporated as Kwong Lee Bank Ltd in 1934 and renaed MUI
Bank in 1989. Due to the stiff competition and the various banking legislations imposed by
the Central Bank of Malaysia, Hong Leong embarked on mergers and acquisition. Hong
Leong Group acquired MUI Bank through Hong Leong Credit Berhad and is now known as

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Hong Leong Financial Group Berhad in 1994. In 2004, Hong Leong Finance Berhad was
acquired by Hong Leong Bank. The acquisition led to a stronger, leading market position got
Hong Leong Group. To further increase the ownership of the market, Hong Leong Bank
merged with EON Bank Group in 2011 and this has resulted in more than RM145 billion in
assets and expanded network of 329 branches nationwide.
Their forward integration strategy has led the Hong Leong Group as a banking and
financial conglomerate with diverse range of industries which include banking and financial
services, manufacturing and distribution, property development and investments, hospitality
and leisure and principal investment. It has resulted in making the Hong Leong Group to take
the fourth market leader in Malaysia based on its asset size as shown in Figure 1 below.

Figure 1: Market Leader in the Banking and Finance Sector by Asset Size
Source: http://talkaboutsharesmarket.blogspot.com/2011/05/banking-consolidation-thirdround.html

2.2

Backward Integration

Backward integration is a strategy of seeking ownership or increased control of a firms


suppliers. Backward integration is distinguished from forward integration because in forward
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integration, the business is integrated towards the end customer while for backward
integration; the business is integrated away from the customer but forging closer relationship
with the supplier. This strategy is appropriate when the firms current suppliers are unreliable,
too costly or cannot meet the firms needs. An enterprise engages in backward integration to
minimize resource acquisition costs and inefficient operations. Backward integration enables
the firm to save cost by producing in-house what were previously outsourced and by ensuring
that the quality if the materials used in its final products is at a satisfying standard (Thomson
& Strickland, 1996).This strategy also helps the firm to reduce the risk of uncertainty of
being dependent on suppliers of crucial components or support services, therefore lessening
their vulnerability to powerful suppliers that raise price when circumstances arise.
An example of a business dealing with backward integration is Starbucks. It is a wellknown chain of coffee shop which can be found in most populated urban areas in the world
including in Malaysia. One of their crucial ingredients necessary to make coffee is coffee
beans. Therefore, to ensure that there is a steady and reliable supply of coffee at a reasonable
operating cost, Starbucks is backward vertically integrated with coffee farms in China rather
than buying coffee beans from a coffee bean supplier.

Figure 2: Backward Integration by Starbuck


Source:
http://online.wsj.com/news/articles/SB10001424052748704462704575609733431622088
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Burkitt (2010) in The Wall Street Journal reported that Starbucks set up its first-ever
coffee bean farm in Yunnan to cater to the rapidly growing population of coffee drinkers in
China. The competition for high-quality beans suggests that some competitor may not receive
them at all and therefore, those who have can afford to sell their coffee at a high price.
Starbucks strategic plan for backward integration ensures that it will have a bean supply and
that this will be received at a reasonable price.

2.3

Market Penetration

Market penetration is defined as the proportion of people in the target market who purchase a
specific brand or a category of goods. It is determined by using penetration rate and
penetration share measurement. The penetration rate is the percentage of the relevant
population that has purchased a given brand or category at least once in the time period under
study while a penetration share is a comparison that the brands customer population to the
number of customers for its category in the relevant market as a whole (Farris, et al., 2010).
Market penetration is one of the strategies derived from the Ansoff Growth matrix
which is a planning tool to determine how product and market growth can be strategized.
Figure 3 shows the Ansoff Growth Matrix which is a growth strategy where the business
focuses on selling existing products into existing markets. The objectives of a market
penetration strategy are:

To maintain or increase the market share of current products which can be attained
using a combination of competitive pricing strategies, advertising, sales promotion
and more resources dedicated to personal selling.

To secure dominance of growth markets

To restructure a mature market by pushing away competitors through more aggressive


promotional campaign supported by pricing strategy designed to make the market
unattractive for competitors.

To increase usage by existing customers such as introducing loyalty schemes.

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Figure 3: Ansoff Growth Matrix


Source: http://www.tutor2u.net/business/strategy/ansoff_matrix.htm

Giant Hypermarket Sdn Bhd is one of the renowned hypermarket/supermarket in


Malsysia offering everyday low prices, big variety and great value products that are offered in
the most vibrant, comfortable and complete shopping environment. Giant has a growing
brand and is recognized as Malaysias 11th Most Valuable Brand in 2007 and in 2008, the 12 th
Most Valuable Brand by Interbrand. In both years, Giant was also awarded Top Retailer in
Malaysia and Best of the Best in Asia Pacific Retailers Award.
Giant uses market penetration strategy to sell its groceries and household products in
the competitive retailing market. In order to sustain its competitiveness, Giant secures the
penetration rate and penetration share of its brand through various means including
aggressive advertising and promotional activities. Figure 4 shows how Giant attracts more
customers to come to Giant retail outlets by promoting an opportunity for Visa Debit Card
owners to win RM1,000 Giant shopping vouchers and other great value products.

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Figure 4: Aggressive Advertising and Promotional Activities through Market


Penetration Strategies by Giant Hypermarket
Source: http://www.giant.com.my/news/details.aspx?ID=48

2.4

Market Development

Figure 3 showing the Ansoff Growth Matrix indicate that market development is also another
strategic decision that business owners can take to increase their competitiveness in a new
market with their existing products. Market development strategy means that the potential
market is expanded through new users or new uses. New users are defined as new geographic
segments, new demographic segments, new institutional segments or new psychographics
segments. New uses refer to new ways or innovative ways of using the same product.
An example of a market development strategy is shown by the Malaysia Kitchen
Programme (MKP) which is a global initiative undertaken by MATRADE to strengthen and
introduces Malaysias restaurant based on a brand image that represents its cuisine as a
multicultural, dynamic and vibrant country. The programme promotes Malaysian
restaurants overseas by creating demand for Malaysian cuisine through an integrated, holistic
and multi-pronged promotional programme. The MKP initiative was able to raise higher
visibility of Malaysia in the international market which included London, New York,
Australia, New Zealand and China. With the various marketing strategies used, MKP was
able to secure new targets for Malaysian food cuisines and associated products and services
in overseas locations.

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Figure 5: Market Development Strategies for Malaysian Restaurants in Overseas


Locations through Malaysia Kitchen Programmes (MKP)
Source: http://www.btimes.com.my/Current_News/BTIMES/articles/3DAPOR/Article/#

2.5

Product Development

Product development is also another growth strategy that is shown on the Ansoff Growth
Matrix which indicates the need for new product development as a way of staying ahead of
competition in the same market. Product development basically focuses on customer needs
whereby new products are developed to meet customers needs. Other than that, brand
extension is also a common strategy for new product development. Brand extension means
that a commonly known brand name is used to introduce another similar but different
product. Business firms may also identify opportunities to capitalize on technology to provide
products and services more conveniently, less expensively and in new ways so that their
products remains wanted by the customers.
Quick Service Restaurants such as KFC remains competitive by offering new
products from time to time in order to sustain customers to patronize their outlets. For
example, KFC introduced its morning meal offers to customers as a means of competing with
other fast food services such as McDonald which is offering breakfast meals beside the
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normal offers as shown in Figure 6 and Figure 7. With these new products or innovations of
existing products, the number of customers that patronize the morning period in KFC outlets
increases.

Figure 6: KFC a.m. Meals as a Product Development Strategy to Remain Competitive


Source: http://demo.kfc.com.my/breakfast-menu.html

Figure 6: More Choices of Morning Meals at KFC


Source: http://demo.kfc.com.my/ecraving.html

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2.6

Related Diversification

According to the Ansoff Growth Matrix, diversification is a growth strategy choice when
there is a need to develop new products for new markets. Diversification is often used by
large companies who want to expand their business internationally. It may also be used to
expand local market control by gathering a larger customer based for varied products and
services. In the Ansoff Growth Matrix, the first three strategies are pursued with the same
technical, financial and merchandising resources used for the original product line but in
diversification, the company may need to use new skills, new techniques and new facilities.
There are three types of diversification strategies as explained in Table 1 below.

Table 1: Different Types of Diversification Strategies


Strategies
Concentric
diversification

Explanation
There is technological similarity between the industries whereby
the firm can leverage its technical know-how to gain some
advantage. An example of such company is a company that
manufactures industrial adhesives who might want to diversify
into adhesives to be sold via retailers. In this case, the technology
remains the same but the marketing efforts have changed.
A new product that increases its market share by expanding the
product line is also a form of concentric diversification. For
example, Nestle is a popular home brand offering a wide range of
drink products such as Milo, Nestea, Nescafe and such. An
additional product such as Oat Meal may add to the possibility of
the company to earn more profit.
Other than that, the company may seek new products that have
technological or marketing synergies with the existing product
lines but appealing to the new group of customers. This helps the
company to tap the part of the market that has not been tapped,
thus providing opportunity to gain revenue. For example,
Samsung Company may include a new wireless Headphone with
amplifying sound for the Elderly who have difficulty in hearing.

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Strategies
Horizontal
diversification

Conglomerate
diversification (lateral
diversification)

Explanation
Horizontal diversification can be used by a firm which add new
products or services that are often technologically or
commercially unrelated to current products but appealing to
current customers. For example, Chan Furniture initially started
as a furniture company, selling furniture made locally or imported
but eventually expanded to include electrical goods and home
appliances as a means of diversification to offer more products
and services to their customers
The company may markets new products or services that have no
technological or commercial synergies with current products but
may appeal to new groups of customers. The conglomerate
diversification has very little relationship with the firms current
business but the decision was made to improve profitability and
the flexibility of the company as well as to get a better reception
in capital markets as the company continues to become larger.
Most large and multinational companies such as Berjaya Holdings
are using conglomerate diversification strategy to expand their
group of business. Berjaya Corporation Holdings embarks on
several business areas which include:
Consumer marketing, direct selling and retail
Financial Services
Hotels, Resorts, Vacation Timeshare & Recreation
Development
Property Investment and Development
Gaming & Lottery Management
Development of Sanitary Landfill, Environvental
Services and clean Technology Investment
Food & Beverage and
Investment Holding and others

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3.0

Conclusion

The explanation given in this assignment report complete with examples of companies and
how they use the strategies to ensure growth and sustain their competitiveness in the market
that they choose to embark on has provided a greater and deeper understanding that doing
business cannot be done blindly and without planning. Strategic management implies the
need for information about the customers, the market, the suppliers and other factors internal
or external to the company. Strategic management also means that there is a systematic and
orderly manner of maintaining competitiveness of the firm. By selecting and imparting the
best corporate strategy, it assures that the company will be productive and profitable in the
years to come.
The discussion of factual knowledge presented in this assignment report also suggests
that at some point of time, a particular strategy is most appropriate and therefore the company
must be able to select which strategy is best employed at that time and then change to another
strategy (ies) when the situation requires it.
In conclusion, business owners, particularly small and medium business entrepreneurs
must develop a sound knowledge and skills of corporate business strategies in order to steer
the company towards continuous success presently and in the future.

[2,760 words]

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BIBLIOGRAPHY
Best, R. J. (2009). Market-Based Management (5th Ed.), Upper Saddle River, NJ: Pearson
Prentice-Hall.
Burkitt, L (2010). Starbucks to open China coffee farm, securing global supply, The Wall
Street
Journal,
November
15,
2010,
retrieved
from:
http://online.wsj.com/news/articles/SB100014240527487044627045756097334316220
88Starbucks
Farris, P. W., Bendle, N. T., Pfeifer, P. E. & Reibstein, D. J. (2010). Marketing Metrics: The
Definitive Guide to Measuring Market Performance, Upper Saddle River, New Jersey:
Pearson Education Inc.
Hong

Leong
Bank
(2013).
About
HLB
http://www.hongleong.com/about-hlg_today.html

Group,

Retrieved

from:

Thompson, A. A., Jr., & Strickland, A. J. (Eds.). (1996). Strategic management: Concepts
and cases (9th ed.). Irwin: McGraw-Hill.
Wheelen, T. L., & Hunger, J. D. (2004). Strategic management and business policy (9th ed.).
Singapore: Pearson.
Zaidi Isham Ismail (September 4, 2010). Malaysian restaurants cook up a storm overseas,
Business
Times,
retrieved
from: http://www.btimes.com.my/Current_News/
BTIMES/articles/3DAPOR/Article/##ixzz2jvWr54Jb

Other Websites References:


Corporate level strategy guides the organization as a whole, retrieved from:
http://www.simply-strategic-planning.com/corporate-level-strategy.html
Corporate level strategy, retrieved from: https://www.inkling.com/read/strategicmanagement-david-14th/chapter-5/integration-strategies
Market
Kitchen
Programme,
retrieved
http://www.openrice.com/english/special/feature.htm?cmsid=1751

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from: