Tubice, Noel G.

Business Policy November 6, 2019

CBET-01-902E

1. How does horizontal growth differ from vertical growth as a corporate strategy? From concentric
diversification?

Horizontal growth is the expanding of a firm's activities into other geographic regions and/or by
increasing the range of products and services offered to current markets. It often involves the acquisition of
another firm in the same industry, but it could also be through the expansion of a firm's products in its current
markets or expansion into another geographic region.
Vertical growth involves a firm's taking over a function previously performed by a supplier or a
distributor. This would typically involve the addition of activities in other industries either forward (downstream)
or backward (upstream) on the industry value chain of current products or services. The additions are primary
justified in terms of support of the current product lines regardless of their being in other industries.
Concentric diversification is the addition of products or divisions which are related to the corporation's
main business, but are added because of the attractiveness of other industries rather than because they support
the activities of the current product lines. The additions may be through acquisition or through internal
development. The firm buys or develops another division which is similar to its present product-line.

2. What are the tradeoffs between an internal and an external growth strategy? Which approach is best as an
international entry strategy?

Internal growth aims to achieve growth in sales, assets, profits or a combination of these efforts. A
company can grow internally with increases in operations globally and domestically. This growth can be
accomplished in many ways, including horizontal or vertical growth. It can focus on the strengths and resources of
a company that will help it produce growth and high annual returns on capital invested in the company. Expanding
growth into a new industry requires organization and the unification of various company resources for optimal
results. For example, vertical growth, when used with a distinctive competency and to expand a competitive
advantage along the industry value chain, can improve market position. However, it can also reduce a company’s
strategic flexibility and focus. Internal growth requires management to evaluate the current company strategic
plan and consider options for the desired growth. They must evaluate the options available and consider various
outcomes based on the growth potential.
External growth is designed for the same purposes as internal growth. However, it also involves gaining
market share, international recognition, acquiring strengths to develop competitive advantages, and eliminating or
dominating your competitors through acquisitions, mergers and strategic alliances. External growth done through
mergers, acquisitions and strategic alliances, provides opportunities to develop strengths and competencies an
organization lacks but other organizations control. By gaining key resources and knowledge, a company can gain
market share and competitive advantages in an industry. However, all external growth opportunities face
uncertainty.
The best strategy for growth on an international basis appears to be determined by the corporation and
industry. However, on a broad perspective, external growth is more suitable. “Strategic alliances, such as joint
ventures and licensing agreements, between an MNC and a local partner in a host country are becoming
increasingly popular as means by which a corporation can gain entry onto another country, especially developed
countries.” (Hunger and Wheelen. 2008. Pg 233.) Establishing relationships with local governments, workforces
and suppliers, can help an MNC enter and institute itself within a new country. It can then experience growth
which will develop into a true global competitor, managing its worldwide operations as if they were completely
interrelated. “Strategic alliances may complement or even substitute for an internal functional activity.” (Hunger
and Wheelen. 2008. Pg 233.)
3. Is stability really a strategy or is it just a term for no strategy?

An argument can be made that stability is not really a strategy in itself, but is just a pause between
strategies. Since one way to view strategy is as a direction the corporation is taking in order to reach its objectives,
standing still has no direction and thus is not a strategy. However, stability is a strategy in itself. Just as no decision
is the same as making a decision, it is argued that even though stability may be viewed as not choosing a strategy,
it is therefore a strategy by default. Stability may be a very appropriate long-term strategy for a small business in
which the owner/manager does not want the corporation to grow beyond his/her abilities to manage it personally
and is very happy with the level of life style the business provides. Typically, however, stability is perceived only as
a viable short-term strategy while management is waiting for key factors needed for growth to fall into place.
Nevertheless, to the extent that stability helps explain the movement of a corporation toward its objectives, it
deserves to be called a strategy.

4. Compare and contrast SWOT analysis with portfolio analysis.

These two approaches are alike in a number of ways. They both attempts to summarize the key
strategic factors coming out of an in-depth analysis of the external and internal environment of a
corporation or business unit. They are also easy to remember buzz-words for use in the situational
analysis. Terms like S.W.O.T., cash cows, and dogs help remind that the basis of strategic management
is environmental assessment. They are different in terms of what they stand for. S.W.O.T. is merely an
acronym for Strengths, Weaknesses, Opportunities, and Threats. It is not really a technique to aid in
situation analysis. It merely is a buzz-word to help a person remember to search for strategic variables
in the internal and external environment of the firm. Portfolio analysis, in contrast, is a term for a
whole series of different techniques for analyzing internal and external environmental factors. Neither
is really a substitute for the other and can actually complement each other.

5. How is corporate parenting different from portfolio analysis?How is it alike? Is it a useful concept in a
global industry?

Corporate parenting attempts to answer two similar, but different questions:

1. What businesses should this company own and why?
2. What organizational structure, management processes, and philosophy will foster superior
performance from the company's business units?
Portfolio analysis attempts to answer these questions by examining the attractiveness of
various industries and by managing business units for cash flow, that is, by using cash generated from
mature units to build new product lines. Unfortunately, portfolio analysis fails to deal with the question
of what industries a corporation should enter or with how a corporation can attain synergy among its
product lines and business units. As suggested by its name, portfolio analysis tends to primarily take a
financial point of view and views business units and product lines as if they were separate and
independent investments.
Corporate parenting, in contrast, views the corporation in terms of resources and capabilities
that can be used to build business unit value as well as generate synergies across business units. The
central job of corporate headquarters is not to be a banker, but to coordinate diverse units to achieve
synergy. This is especially important in a global industry in which a corporation must manage
interrelated business units for global advantage. Corporate parenting is similar to portfolio analysis in
that it attempts to manage a set of diverse product lines/business units to achieve better overall
corporate performance.