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Outline
Corporate-level vs. Business-level strategies
Product diversification
Geographic diversification
Combining product and geographic diversification
A comprehensive model of diversification
Acquisitions
Debates and extensions
Product Diversification
Product-related diversification
Emphasis on operational synergy and economies of scale
Product-unrelated diversification
Focus on financial synergy and economies of scope
Conglomerate serves as internal capital market that direct financial
resources to high-potential high-growth areas.
Source: Adapted from R. E. Hoskisson, M. A. Hitt, & R. D. Ireland, 2004, Competing for Advantage (p. 228), Cincinnati: Thomson South-Western.
Geographic
Diversification
Geographic Diversification
International diversification
Limited international scope
Geographically and culturally adjacent countries
Source: Adapted from F. Contractor, S. K. Kundu, & C.-C. Hsu, 2003, A three stage theory of international expansion: The link between
multinationality and performance in the service sector (p. 7), Journal of International Business Studies, 34: 518.
Figure 9.3
Industry-based considerations
Growth opportunity
Structural attractiveness of an industry (Porters five forces)
Intense rivalry leads firms to seek opportunities for
diversification
High entry barrier often results in acquisitions as opposed to
green-field for diversification
Bargaining power of suppliers and buyers, respectively, may
prompt firms to extend their scope by acquiring suppliers
upstream and/or downstream buyers.
Resource-based considerations
PRODUCT-RELATED DIVERSIFICATION
PRODUCT-UNRELATED DIVERSIFICATION
Synergy
Operational synergy
Financial synergy
Economies
Economies of scale
Economies of scope
Control emphasis
Organizational structure
Centralization
Decentralization
Organizational culture
Cooperative
Competitive
Information processing
Diversification create value by spreading risk, but what rare, nonimitable and organizationally-embedded values does it create?
Institution-Based Considerations
Formal Institutions
Informal Institutions
The evolution of the scope of the firm: Benefits and costs economic, bureaucratic, marginal
Source: Adapted from G. Jones & C. Hill, 1988, Transaction cost analysis of
strategy-structure choices (p. 166), Strategic Management Journal, 9: 159
172.
Figure 9.5
The Evolution of the Scope of the Firm in the United States: 19501970 and 19701990
Source: M. W. Peng, S. H. Lee, & D. Wang, 2005, What determines the scope of the firm ov
er time? A focus on institutional relatedness, Academy of Management Review (in press).
Figure 9.6
The Optimal Scope of the Firm: Developed versus Emerging Economies at the Same Time
Source: M. W. Peng, S.-H. Lee, & D. Wang, 2005, What determines the scope of the firm o
ver time? A focus on institutional relatedness, Academy of Management Review (in pres
s).
Figure 9.7
Acquisitions
Setting the terms straight
Acquisition
Merger
Cross-border M&A, three primary categories: merger, vertical,
conglomerate
Friendly and hostile M&A
Source: Adapted from United Nations, 2000, World Investment Report 2000 (p. 100), New York: U
N
Figure 9.8
INDUSTRY-BASED ISSUES
RESOURCE-BASED ISSUES
INSTITUTION-BASED ISSUES
Leverage superior
managerial capabilities
Access to complementary
resources
Reduce risk
Scope economies
Hubris motives
Managerial motives
Table 9.2
Pre-acquisition: Overpayment
for targets
Post-acquisition: Failure in
integration
CROSS-BORDER M&As
Table 9.3