Corporate Strategy and Vertical Integration

Flashcards covering key concepts related to corporate strategy, vertical integration, transaction costs, and diversification.

Corporate Strategy

The decisions that leaders make on where to compete, including dimensions like vertical integration, diversification, and geographic scope.

Core Competencies

Unique strengths of a firm that allow it to achieve competitive advantage, often discussed in Chapter 4.

Economies of Scale

Cost advantages gained by increasing the level of production, discussed in Chapter 6.

Economies of Scope

Cost advantages that result from a firm providing a variety of products rather than specializing in a single product.

Transaction Costs

Costs associated with economic exchanges, including searching for contractors and setting up contract agreements.

Vertical Integration

Ownership of inputs or distribution channels in the value chain.

Backward Vertical Integration

Owning inputs of the value chain to enhance control over production.

Forward Vertical Integration

Owning activities that are closer to the customer in the value chain.

Make or Buy Decision

The decision firms must make whether to produce in-house or purchase from the market based on transaction costs.

Principal-Agent Problem

A situation where agents (managers) act in their own interests rather than on behalf of the principals (owners), common in publicly traded companies.

Information Asymmetry

A situation in which one party has more or better information than another, often leading to market inefficiencies.

Product Diversification

An increase in the variety of products or services a firm offers.

Geographic Diversification

An increase in the variety of markets or geographic regions where a firm operates.

Related Diversification

A form of diversification where businesses share core competencies.

Unrelated Diversification

A form of diversification where businesses do not share core competencies, often referred to as conglomerates.

BCG Growth-Share Matrix

A tool for portfolio planning that categorizes business units based on market growth and relative market share.

Financial Economies

The advantages that arise from restructuring and reallocating capital efficiently across business units.