CAPSTONE FINAL

What are the major motives for firms wanting to grow

increase profits- more markets= more sales= more money

lower costs- bigger scale = better deals on materials, tech, etc.

reduce risk- diverse markets/products = not having all your eggs in one basket

motivate management- growth gives more power and prestige

survive competition- big firms can better defend market share

markets vs. firms

markets (buy)

use contracts, suppliers, external vendors

• good for flexibility, low cost

• risk: less control, coordination issues

firms (make)

do all internally (in-house)

• good for quality control

• risk: higher cost, bureaucracy

make-or-buy continuum

you can fully make, fully buy, or do something in between (alliances, licensing)

what is corporate strategy

it’s about what businesses a firm should compete in

3 dimensions:

• vertical integration (owning parts of a supply chain)

• diversification (spreading new products into new markets)

• geographic scope (what countries, regions to operate in)

vertical integration

backward = you take over the earlier steps (ex: buying your supplier)

forward = you take over later steps (ex: opening your own store)

benefits: more control, save money long term, protect tech/ secrets

risks: expensive, less flexibility, hard to reverse

alternatives: strategic alliances, contracts, outsourcing

corporate diversification types

• single business (just one thing)

• dominant business (mostly one, some of another)

• related diversification (new areas that share tech/customers)

• unrelated diversification (totally different industries)

core competence market matrix

helps decide if diversification makes sense based on what you’re already good at and where you sell

build, borrow, or buy framework

use when deciding how to grow:

• build = develop it yourself (takes time, control)

• borrow = partner with someone (faster, shared risk)

• buy = acquire company (fast, costly)

why strategic alliances matter

let firms grow without buying or building

why firms do them:

• share resources

• enter new markets

• lower costs and risks

merger vs acquisitions

merger = two comanies combine as equals

acquisition = one company buys another

why use them?

• enter markets quickly

• gain tech or talent

• eliminate a competitor

horizontal integration

• buying/ merging with a competitor

• pros: scale, eliminate rivals

• cons: antitrust issues, culture clashes, overpaying

why companies go global

pros: more customers, lower costs, access talent/ resources

cons: distance, cultural/ language barriers, political risk

CAGE distance framework

• use it to decide which countries to enter

• cultural (language, values)

• administrative (laws, policies)

• geographic (distance, infrastructure)

• economic (wealth, income levels)

integration-responsiveness framework

4 strategies for MNE’s

• global standardization (same everywhere)

• localization (adapt to each market)

• transnational (mix of both)

• international (just export the same product)

Porters 5 forces

explains why some countries dominate in certain industries

• factor conditions (talent/ resources)

• demand conditions (home market size/ sophistication)

• related/ supporting industries

• firm strategy, structure, rivalry

organizational design

the way a company sets up people, systems, culture, and processes to carry out strategy

key types of structure

simple: one boss, reports to them (startups)

functional: people grouped by job type (marketing, sales)

multidivisional (M-form): divisions by product or geography

Matrix: Mix of functional + divisional (complex but flexible)

culture

Layers: Artifacts (visible stuff), values, assumptions (deep beliefs)

comes from: founders, leaders, company history

Control

input controls = rules, procedures, training

output controls = set goals, measure results

used to guide behavior & performance to match strategy

shared value creation

• strategy that creates both economic value and social value

• do good + do well (e.g., sustainable practices, ethical sourcing)

corporate governance

• set of rules/ processes to make sure managers act in shareholders’ best interest

• Tools: Board of directors, audits, incentive plans

Agency theory

problem: managers (agents) may not act in interest of owners (principals)

• fix it with governance mechanisms (e.g., bonuses, oversight)

business ethics & strategy

ethical level = legal, responsible, and morally right

helps build trust, brand, and long-term success

fully make

fully internal production

licensing

you let someone else use your tech/brand for a fee

franchising

they use your brand/model, but you don’t do the operations

joint venture

you and another firm split ownership and share resources

strategic alliances

you work closely together, but stay separate companies

long term contracts

you commit to buying from a supplier for a long period

spot market (fully buy)

you just buy from whoever has the best offer at the time