Strat Mngmt Quiz 7

Backward Integration

Company takes control over the production or raw material end of the supply chain

Why would a company use backward integration

• Reduce dependance on external supplies

• Better control over supply chain

Forward integration

Company takes control over the distribution or retail

Why would a company use forward integration?

• Better control over sales channels

• Improve profitability

Vertical integration

The company becomes either its own supplier, distributer, or both

Pros of vertical integration

• Control over supply

• Increase efficiency

• reduce costs

• improve quality

Cons of vertical integration

• High investment costs

• reduced flexibility

The opposite of vertical integration

• Retrenchment

• Divestment

• Outsource

How does diversification work?

Diversificiation works best when it creates synergy

What is synergy?

the costs saved on transportation, marketing and more when you have 2 or more companies

Diversification

A company enters new markets or industries to reduce risk

and increase profitability.

Related diversification

A company enters a market that is closely related to its current business

Unrelated diversification

A company enters a market that is unrelated to its current business

How to diversify

1. Internal development

2. Strategic alliances (partnerships)

3. Joint ventures

4. Mergers and Acquisitions

Diversification advantages

• Risk reduction

• Growth opportunities

Diversification disadvantages

• Management complexity

• Potential for overextension

BCG Matric

High market growth rate with low relative market share

Question marks

High market growth rate with high market share

Stars

Low market growth rate with high relative market share

Cash Cows

Low market growth rate with low relative market share

Dogs