7 – Corporate Level Strategy

Introduction

Corporate strategy is primarily concerned with selecting a course of action for the corporation. The primary goal of a corporate strategy is to create value for the individual businesses that comprise it. A corporate strategy entails decisions about which businesses to pursue, how to allocate resources among them, how to transfer skills and capabilities from one set of businesses to another, and how to manage and nurture a portfolio of businesses to achieve synergies among product lines and business units so that the corporate whole is greater than the sum of its business units. Corporate executives serve on behalf of shareholders and provide strategic direction to company units. In these circumstances, a significant question is if and how the corporate level can contribute value to what firms do, or at the very least, avoid destroying value.

Thus, corporate strategy is concerned with two fundamental issues:

1. In which businesses should a company compete?

2. How can these firms be coordinated and managed to generate “Synergy?”

7.1 Expansion Strategies

The most often pursued corporate strategy is growth. Companies that operate in rapidly expanding industries must expand to survive. A firm can expand its activities domestically or internationally through mergers, acquisitions, joint ventures, or strategic partnerships.

Justifications for Pursuing Growth Strategies

Businesses frequently pursue growth strategies for the following reasons:

1. To gain economies of scale: Growth enables enterprises to establish large-scale operations, allowing fixed costs to be distributed across a vast production volume.

2. To attract talent: Talented people like to work in growing companies.

3. Enhance profits: In the long run, growth is required to increase the organization’s earnings, especially in a chaotic and hyper-competitive environment.

4. To become a market leader: As a company grows, it gains access to market leadership positions. Due to aggressive growth tactics, companies such as Reliance Industries, TISCO, and others have soared to new heights.

5. To fulfil a natural urge: A healthy company naturally desires to grow. Growth chances provide a powerful stimulus to such a desire. Additionally, a company would naturally desire to expand in a dynamic world where numerous businesses were expanding.

6. To assure survival: Growth is sometimes required for survival. In some instances, a company may be unable to exist unless it maintains a critical minimum level of business. Furthermore, if a company does not expand when competitors do, it may lose competitiveness.

Growth Strategy Subcategories:

There are three broad sorts of growth strategies:

1. Intensive Strategies (Concentration techniques)

2. Integration Techniques (Integrative strategies)

3. Diversification Techniques

1. Concentration Techniques:

Aggressive advertising and realigning the product and market possibilities accessible to the organization may be possible ways to attract clients without expanding the organization’s current range of products or services. These tactics are known as intensification or concentration strategies. By stepping up its efforts, the company can boost its present product-line sales and market share more quickly. This is most likely the most successful internal growth approach for companies whose goods or services are nearing the end of their product life cycle. The majority of intense strategy techniques deal with product-market realignment.

As a result, there are three major intensive strategies:

1. Market Penetration:

Market penetration involves boosting market share for existing products within current markets through intensified marketing efforts. This includes expanding the sales force, increasing promotional activities, and providing incentives, among other tactics.

2. Market Development:

Market development aims to increase market share by introducing present products to new markets. This can be achieved through various approaches:

(a) Entering New Geographic Markets:

Companies may expand beyond their current regions and venture into other parts of the country or foreign markets. Examples include regional, national, and international expansions. For instance, Nirma was initially confined to local markets and expanded regionally and then nationally.

(b) Entering New Market Segments:

This involves developing product versions appealing to market segments, exploring new distribution channels, and advertising through different media. Hindustan Lever, for instance, entered the low-priced detergent segment with “Wheel” to compete with “Nirma.”

This strategy proves practical when:

• New untapped or unsaturated markets exist.
• New distribution channels are available.
• The firm has excess production capacity.
• The industry is rapidly globalizing.
• The firm possesses resources for expanded operations.

3. Product Development:

Product development strives to increase market share by introducing new or improved products to current markets. This includes:

(a) Developing New Product Features

(b) Introducing Quality Variations

(c) Creating Additional Models and Sizes (Product Proliferation)

Hindustan Lever, for instance, consistently adds new brands or improved versions of consumer products to maintain its market share.

This strategy is particularly effective when:

• The firm’s products are in the maturity stage.
• The industry witnesses rapid technological developments.
• The firm operates in a high-growth sector.
• Competitors introduce improved quality products regularly.
• The firm possesses strong R&D capabilities.

2. Integrative Strategies:

In business strategy, integration plays a pivotal role, encompassing the fusion of activities integral to a firm’s current operations. This amalgamation often aligns with the industry value chain, where a company undertakes various activities, from procuring raw materials to marketing and distributing finished goods. These interconnected activities are commonly referred to as value chain activities.

Vertical Integration:

Vertical integration involves gaining ownership or increased control over suppliers or distributors and comes in two forms:

1. Backward Integration:

This entails gaining ownership or increased control of a firm’s suppliers. For instance, a manufacturer may acquire a supplier’s business involved in producing raw materials or parts. Brooke Bond’s acquisition of tea plantations exemplifies backward integration.

2. Forward Integration:

In contrast, forward integration involves gaining ownership or increased control over distributors or retailers. Textile firms like Reliance, Bombay Dyeing, and JK Mills (Raymond’s) have embraced forward integration by establishing their showrooms.

Advantages of Vertical Integration:

1. Ensures a secure supply of raw materials or distribution channels.

2. Provides control over essential inputs required for production or distribution.

3. Opens avenues for new business opportunities and technologies.

4. Eliminates the need to manage various suppliers and distributors.

Risks:

1. Increased costs, expenses, and capital requirements.

2. Loss of flexibility in investments.

3. Challenges associated with unbalanced facilities or unmet demand.

4. Additional administrative costs tied to managing a more complex set of activities.

Disadvantages of Vertical Integration:

1. Boosts the firm’s capital investment.

2. Increases business risk.

3. Diverts financial resources from potentially more lucrative endeavours.

4. Locks the firm into relying on in-house sources of supply.

5. Presents capacity-matching challenges.

6. Different skills and capabilities are needed, potentially lacking in the manufacturer.

7. Outsourcing parts may be more cost-effective and less complicated than in-house manufacturing.

Weighing the Pros and Cons:

The decision to pursue vertical integration depends on whether it enhances organizational performance by reducing costs, building expertise, or increasing differentiation. The impact on costs, flexibility, response times, and administrative coordination must be justified, ultimately enhancing a company’s competitiveness.

Horizontal Integration:

Horizontal integration, sometimes termed horizontal diversification, involves seeking ownership or increased control over a firm’s competitors operating at the same stage of the industry value chain. This strategy often includes acquisitions, mergers, or takeovers of similar firms.

Advantages of Horizontal Integration:

1. Eliminates or reduces competition.

2. Provides access to new markets.

3. Yields economies of scale.

4. Allows the transfer of resources and capabilities.

Appropriate Scenarios for Horizontal Integration:

1. A firm competes in a growing industry.

2. Increased economies of scale offer a significant competitive advantage.

3. The firm possesses the capital and human talent required to manage an expanded organization.

4. Competitors are struggling due to the firm’s lack of managerial expertise or resources.

In essence, thoughtful consideration of vertical and horizontal integration strategies is crucial for businesses navigating the intricate dynamics of the marketplace. This ensures that strategic decisions align with organizational goals and industry trends.

3. Diversification Techniques:

Diversification is the strategic process of introducing new and existing businesses and broadening the company’s product or market portfolio. Simply, it involves adding new products or ventures to complement the existing ones. A diversified company is characterized by having two or more distinct business entities, and the primary goal of diversification is to achieve a broader market presence and maximize profits.

From a risk management perspective, companies use diversification to spread risk across various products or industries. For instance, an air-conditioning company may diversify by adding room heaters to its product lines, or a camera manufacturer may branch into producing copying machines.

Types of Diversification:

1. Concentric Diversification:

This type involves adding a new but related business. It encompasses the acquisition of businesses that share technological, market, or product similarities with the acquiring firm. The selected new business should be compatible with the firm’s existing operations.

2. Conglomerate Diversification:

Conglomerate diversification involves adding a new but unrelated business that is not connected to the company’s technology, products, or markets. Examples include ITC diversifying from cigarettes into hotels, edible oils, and financial services or Reliance Industries diversifying from textiles into petrochemicals, telecommunications, and retailing. Contrary to concentric diversification, conglomerate diversification primarily serves financial interests and does not produce significant synergy.

Advantages of Diversification:

I) Risk Distribution:

-Business risk is spread across diverse industries.

-Financial resources are allocated to industries offering the best profit prospects.

-Acquiring distressed businesses at a low price can enhance shareholder wealth.

-Company profitability can be more stable in economic upswings and downswings.

Disadvantages of Diversification:

I) Management Challenges:

-Managing different businesses effectively can be challenging.

-The new business may not provide a competitive advantage without strategic fits.

Diversification into Both Related and Unrelated Businesses:

Companies may adopt a mixed approach, diversifying into related and unrelated businesses. The actual practice varies, leading to three types of enterprises:

i) Dominant Business Enterprises:

a. One major “core” business accounts for 50 to 80 percent of total revenues.

b. The remaining revenue comes from small related and unrelated businesses (e.g., TISCO).

ii) Narrowly Diversified Enterprises:

a. Diversification centres around a few (two to five) related or unrelated businesses (e.g., BPL).

iii) Broadly Diversified Enterprises:

a. Diversification encompasses a wide-ranging collection of related and unrelated businesses (e.g., ITC, Reliance Industries).

7.2 Retrenchment Techniques

They are only used as a last resort. When a company’s competitive position in some or all of its product lines is weak, resulting in bad performance—sales are down and profits are falling—it may undertake retrenchment methods. Management may employ one or more of the following retrenchment tactics to address the deficiencies bringing the company down:.

1. Turnaround

2. Divestment

3. Bankruptcy

4. Liquidation

7.2.1 Turnaround Plan

When a company is sick, it is experiencing a significant financial shortage or a regular decline in operational earnings. Such businesses become insolvent unless proper internal and external efforts are made to improve the firm’s financial position. This is referred to as a “turnaround plan.”

Any successful turnaround strategy is made up of three interconnected phases:

1. The first stage is detecting an approaching disaster. Several authors and research studies have identified unique early warning signs of corporate illness.

2. The second phase is studying the reasons for illness to get the company back on track. These are both short-term and long-term metrics.

3. The third and final step entails the execution and monitoring of the change process.

When Is a Turnaround Required?

Do businesses become ill overnight and qualify as potential turnaround candidates, or do they become ill gradually and may be halted by appropriate corrective action? The latter is true in the vast majority of circumstances. However, organisations that become ill frequently do not identify this condition and fail to take prompt corrective measures.

Even though the causes of sickness differ from one firm to the next, some similar symptoms precede the onset of sickness. John M. Harris has compiled a list of a dozen warning signs of imminent illness.

1. Loss of market share:

This is the most serious symptom of a catastrophic illness. A corporation losing market share to competitors needs to sit up and take notice. Regular market share monitoring allows businesses to monitor their market performance in comparison to their competitors. Any sign of a diminishing market share should prompt rapid corrective action.

2. Falling constant rupee sales:

Sales data should be adjusted for inflation to be useful. If consistent rupee sales numbers reveal a downward trend, this is a warning flag to watch out for.

3. Falling profit margins:

Profit margins are a good indicator of a company’s health. To avoid miscalculations, it is critical to understand the profit data appropriately. A profitability decline might manifest as lower absolute profits, lower profits per rupee of sales, a poorer return on investment, or reduced profit margins.

4. Increasing reliance on debt:

A company that is overly reliant on debt quickly finds itself in a bind with few options. A significant increase in debt, a lopsided debt-to-equity ratio, and a lowered corporate credit rating may cause banks and other financial institutions to impose restrictions and become hesitant to lend money. When financial institutions are reluctant to lend money, the firm’s stock market rating falls, and it becomes extremely difficult for the company to raise funds from the public.

5. Restricted dividend policies:

Missed or restricted dividends indicate trouble. Frequently, such corporations may have previously paid a significantly higher share of earnings as dividends when they should have been reinvesting in the business. The current inability to pay dividends reflects the depth of the issue.

6. Failure to reinvest adequately in the business:

A firm must reinvest adequately in plant, equipment, and maintenance to remain competitive and on a fast growth path. When a company expands, the mix of new investments and reinvestments often justifies borrowing. Companies that fail to realise this fact and attempt to finance growth solely with internal money are putting a brake on growth.

7. Diversification at the expense of the core business:

It is well-known that once a company reaches a certain degree of maturity in its existing operation, it begins to seek diversification. This is frequently done at the expense of the primary business, which subsequently begins to erode and decline. Diversification in new businesses should be sought as an addition to, not a replacement for, the central core business.

8. Lack of planning:

The notion of planning is typically lacking in many businesses, particularly those founded by individual entrepreneurs. The lack of thought or planning that goes into the acts and their effects can frequently result in catastrophic setbacks.

9. Inflexible CEOs:

A CEO who is resistant to listening to new ideas from others indicates that bad news is coming. Even if the CEO recognises the warning signs, his refusal to accept any proposal from his employees further obstructs the path to recovery.

10. Management succession issues:

When nearly all top executives are in their mid-fifties, there may be a severe void at the second command line. A significant management crisis is unavoidable as these older managers retire or leave due to a perception of diminishing prospects.

11. Unquestioning boards of directors:

Directors having family, social, or business links to the CEO or who have been on the board for a long time may no longer be objective in their judgement. As a result, these directors have a limited role in challenging or cautioning the CEO about his activities.

12. An unwillingness to learn from competitors:

Companies in decline frequently have a closed approach and are hesitant to learn anything from their competitors. Companies that have survived difficult competitive times constantly analyse their competitors’ moves.

Different Types of Turnaround Strategies:

Slater divides turnaround techniques into two basic types. There are two types of turnarounds:

1. Strategic turnaround and

2. Operational turnaround.

Analyzing the business’s existing strategic and operational health can determine whether a sick business requires strategic or operational turnaround. Operating turnarounds are more accessible to implement and can be used only when the business has ordinary to strong strategic strengths (product-market relationship).

Strategic turnaround options may include either a new approach to competing in a current business or launching an entirely new one. Product portfolio management can be used to approach entering a new business as a turnaround strategy. The strategic turnaround focuses on gaining market share in a specific product-market framework or re-positioning the product-market relationship in a new direction.

There are four types of operational turnaround strategies. They are as follows:

-Revenue-increasing tactics

-Cost-cutting measures

-Asset-diminishing methods

-Strategies for Combination

The emphasis of all of these options is on short-term profit. As a result, if a sick firm is operating much below its break-even point, it must take action to minimise fixed costs and assist in lowering the firm’s overall costs. In practice, determining which assets may be sold without impacting business efficiency is always challenging. The company may need to consider its strategic move in the following two to three years to identify sellable assets. The following are the turnaround tactics that are appropriate in various situations:

If the ill company is functioning significantly but not very below its break-even point, the most acceptable turnaround strategy is one that generates additional revenues. These may take the shape of price reductions to improve sales, driving product demand through promotional activities, or, in some cases, the introduction of scaled-down replicas of the firm’s primary products. Increased product sales result in better sales and lower per-unit costs, resulting in larger operating profits.

If the company is functioning close to but below the break-even point, the turnaround strategy calls for the use of combination methods. Combination methods target cost-cutting, revenue-generating, and asset-reduction initiatives in an integrated and balanced manner. The combination tactics have a direct positive influence on both cash flows and earnings.

If the organisation is nearing its break-even point, it normally requires cost-cutting measures. Because cost-cutting actions are easier to implement than revenue-generating actions, the former is usually favoured for immediate short-term profit improvements.

On the other hand, Slater has linked the selection of turnaround solutions to the causes of decline. Changes in management and organisational processes, stronger financial controls, acquisition growth, and new financial strategies are among the recommended strategies.

The turnaround process is closely related to the selection of a turnaround strategy. The following section will cover this in more detail.

Procedure for Turnaround:

Transforming a failing business into a profitable one is complex and tough. It is complicated because a good turnaround strategy necessitates corrective activities in numerous inadequate areas of the company. All of these actions must be coordinated and must not contradict one another.

The turnaround process is challenging because it requires perceptual and attitudinal adjustments at all levels of personnel. When a company is in a crisis, these human change processes become extremely sensitive. As a result, a change in leadership or even an active intervention from outside is often proposed to effect such changes in the organisation.

As soon as the corporate performance parameters indicate unacceptable corporate performance, the controls inside the organisation must be tightened promptly. Adequate controls favourably impact cost-cutting, profit improvement, and the firm’s net cash flows. However, increasing financial and administrative controls does not ensure a stable turnaround process. Controls combined with a poor product image may speed up the process of organisational demise. So, as the controls are being implemented, the company’s strategic posture must also be reviewed. This entails significant changes in the company’s product mix, customer mix, and resource deployment pattern. Changes in top management and various organisational procedures must supplement these two stages of change. If these adjustments generate satisfactory early results, it is vital to reinforce these changes for long-term impacts.

Prahlad and Thomas have proposed ten ideas for improving sick units. These are the propositions:

a. The revival of a sick unit necessitates developing and implementing a new plan.

b. Localizing problems and timing corrective activities aids in the resuscitation of a sick unit.

c. The successful implementation of the turnaround strategy necessitates a suitable organisational structure, a participatory decision-making environment, effective administrative and budgetary controls, training, performance evaluation, career advancement, and rewards.

d. Profit generation must be prioritised in the turnaround approach, and profits must be viewed as a reasonable goal.

e. The organization’s leadership and employees must be highly accepting and committed to revival measures, if not absolute. Openness in management processes aids in acquiring commitment and, as a result, facilitates the implementation process.

f. Transparency in the transformation process fosters trust in senior management and its strategy.

g. Understanding technological processes and a problem-solving mentality to overcome technical obstacles are required to turn around ill businesses.

h. Consultants can be essential in objective problem analysis and implementing creative changes.

i. The appointing authorities’ active support for the chief executive is crucial for the turnaround strategy’s implementation.

j. In sick units, leadership serves as a focal point for activity.

Thus, these premises clearly show that the critical challenges in any turnaround operation are strategy, management process, technical competency, and leadership.

7.2.2 Divestment

The sale of a division or a portion of an organisation is divestiture. This method is frequently employed to acquire funds for additional strategic acquisitions or investments. Divestiture is commonly utilised as part of a turnaround strategy to eliminate unprofitable operations that demand excessive cash or do not fit well with the firm’s other activities.

Under the following conditions, divestiture is an appropriate strategy to pursue:

-When a business cannot be revived

-When a company requires more resources than it can give.

-When a business is to blame for a company’s overall poor performance

-When a company does not fit in with the rest of the organisation.

-When a huge sum of money is needed fast

-When the government’s legal actions endanger a company’s existence.

Reasons for Divestitures

1. Poor division fit:

If the parent business believes that a specific division within the company cannot be handled successfully, it may consider selling the division to another company. This does not imply that the division is unprofitable. The other company, which has more experience in the industry, might handle the division more profitably. This means someone other than the selling business can handle the division better.

2. Reverse synergy:

Synergy refers to the additional benefits obtained when two businesses unite. When there is synergy, the combined entity is worth more than the sum of the parts appraised individually. To put it another way, 2 + 2 = 5. When the parts are valued more separately than within the parent company’s corporate structure, reverse synergy exists. To put it another way, 2 + 2 = 3. In such a circumstance, an outside bidder may be able to pay more for a division than the parent firm is willing to pay.

3. Poor performance:

When a company’s divisions are not lucrative enough, it may decide to divest them. The division may achieve a rate of return lower than the parent company’s cost of capital. A division may become unprofitable for various reasons, including increased material and labour costs, a drop in demand, and so on.

4. Financial market factors:

A divestiture may also occur because the post-divestiture firm and the sold segment have improved access to capital markets. The combined capital structure may make it difficult for the company to raise funds from investors. Some investors may be interested in steel companies, while others may be interested in cement companies. Due to the cyclical nature of the companies, these two groups of investors are not interested in participating in a combined company with cement and steel businesses. As a result, each investor group is interested in standalone cement or steel enterprises. As a result, divestitures may give the two enterprises stronger access to financial markets as independent corporations rather than the merged corporation.

5. Cash flow considerations:

Selling a segment generates immediate cash inflows. Companies in financial difficulties or insolvency may be obliged to sell profitable and important divisions to survive the crisis.

6. To free up managerial talent:

Administration may become overburdened with the conglomerate’s management, resulting in inefficiency. As a result, they sell one or more of the company’s divisions. Following the divestment, the existing management can focus on the surviving operations and run them more efficiently.

7. To address mistakes made in investment decisions:

During the pre-liberalization period, many Indian enterprises diversified into unrelated fields. They then realised that diversifying into unrelated fields was a huge error. They needed to divest to repair an earlier error. This is because they expanded into product markets with which they were less familiar than with their previous activity.

8. Profit from the sale of lucrative divisions:

This sort of divestment occurs when a company purchases underperforming firms, turns them profitable and then sells them to other enterprises. To generate a profit, the parent business may repeat this process.

9. To lessen debt burden:

Many corporations sell assets or divisions to reduce debt and balance the firm’s capital structure.

10. To assist in the financing of new acquisitions:

Companies may sell less profitable divisions and purchase more profitable ones to boost the organisation’s overall profitability.

Different Types of Divestitures

1. Spin-off:

A spin-off is a type of demerger in which an existing parent company distributes the shares of the new firm free of charge to the parent company’s shareholders on a pro-rata basis. There is no monetary transaction, the subsidiary’s assets are not revalued, and the transaction is viewed as a stock dividend. Both companies exist and continue to operate separately after the spin-off. During the spin-off process, a new firm is formed. The stockholders of the parent firm become shareholders of the newly spun-off company.

The reasons for a spin-off are similar to those for a divestiture.

a. Involuntary Spin-off:

When faced with an unfavourable regulatory judgement, a company may be obliged to spin off to comply with legal requirements.

b. Defensive spin-off:

The defensive spin-off is a takeover defence. The company may seek to spin off units to make itself less appealing to bidders.

c. Spin-off tax consequences: 

Spin-off tax consequences: Shares allotted to shareholders during the spin-off are not taxed as capital gain or dividends.

For example, ITC spun off its hotel operations and became ITC Hotels Ltd.

2.  Sell-off:

This is a type of reorganisation in which a corporation sells a division to another company. The proceeds are often received as cash or securities when a company unit is sold. When a company decides to sell a failing division, the asset is transferred to another owner, who presumably values it higher because he can use the asset more profitably than the seller. The seller receives cash in exchange for the asset. As a result, the company can put this capital to use better than it did with the sold asset. The firm may also receive a premium for the assets since the buyer can use them better. In general, sell-offs benefit the market price of the shares of both the buyer and seller companies. As a result, sell-offs benefit both firms’ stockholders.

3. Voluntary corporate liquidation or bankruptcy:

It is also referred to as a complete sell-off. Companies usually choose voluntary liquidation since it adds value to the shareholders. In liquidation, the firm’s value may exceed its present market value. In this case, the firm sells its assets/divisions to several parties, which may result in a larger value than if sold as a whole. A firm may eventually liquidate itself through a series of spin-offs or sell-offs.

4. Equity carve-outs:

This is a separate type of divestiture and a different type of spin-off and sale. It is similar to the parent company’s initial public offering (IPO) of a portion of equity stock in a completely owned subsidiary. The parent firm may sell a 100 per cent interest in the subsidiary company or choose to stay in the subsidiary’s business by selling only a portion of interest (shares) and keeping the remaining percentage of ownership. Following the public offering of shares, the subsidiary company’s shares will be listed and traded independently in the capital market. The parent firm receives funds from selling the subsidiary business’s shares. The parent firm may still have a controlling interest in the subsidiary and so retain control of the company. Many companies use equity carveouts to reduce their exposure to a risky line of operation. They also contribute to the parent company’s fundraising efforts.

5. LBOs (leveraged buyouts):

A leveraged buyout is a firm acquisition in which the acquisition is financed primarily through debt. Debt usually accounts for 70-90 per cent of the buying price. The company’s assets (asset-based lending) may secure a large portion of the debt. Firms with high collateral value assets can get such loans more readily. As a result, LBOs are typically encountered in capital-intensive businesses. Debt is obtained based on the prospective earnings of the organisation in the future.

In most LBOs, the buyer seeks a company with a fast growth rate and a large market share. The company must be profitable, and the product’s demand must be known and stable for earnings to be projected. The company’s debt should be modest, and its liquidity position should be excellent. Because such enterprises have low operating risk, they can be acquired with high financial leverage and risk.

The lender is willing to lend even though the company is highly leveraged because he has complete faith in the buyer’s ability to fully exploit the business’s potential and transform it into great value. He also demands a high interest rate for the loan because it is high risk.

7.2.3 Bankruptcy

This is an example of a defensive approach. It enables organisations to submit a petition in court for legal protection for the firm if the firm cannot pay its debts. The court decides on the company’s claims and resolves the corporation’s responsibilities.

7.2.4 Liquidation

When an entire company is dissolved, and its assets are sold, it is called liquidation. It is a last-resort strategy. If no purchasers are found for a business that wishes to be sold, the company may be wound up and its assets liquidated to pay financial commitments.

Under the following conditions, liquidation becomes an unavoidable strategy:

-When an organisation has attempted and failed to implement both a turnaround and a divestment strategy.

-When a company’s sole option is to declare bankruptcy. A firm can lawfully declare bankruptcy first, then wind up the business to acquire funds to pay debts.

-When a company’s stockholders can reduce their losses by selling their assets.

7.3 Combination Techniques

A corporation can follow two or more corporate strategies simultaneously. However, a combination tactic can be extremely hazardous if taken too far. No organisation can afford to pursue all possible strategies that could help the company. Decisions that are difficult to make must be made. Priorities must be determined. Because organisations, like individuals, have limited resources, they must choose between competing solutions.

When separate divisions pursue diverse objectives, a combination approach is widely used in large diversified corporations. In addition, organisations battling to survive may utilise a combination of defensive techniques.

7.4 Internationalisation

When a company’s primary focus is on its domestic operations, but a percentage of its activities occur outside of its home country, it is called an “International Company.” In other words, an international firm is predominantly headquartered in a single country but obtains a significant portion of its resources or profits from different countries. For example, a small business that exports some of its products outside of its native country is called “international” in its operations.

Internationalisation entails establishing an international division and exporting items via that division. The company focuses on the domestic market and exports that are in high demand elsewhere. The home office retains complete control over product and marketing strategies. As a company’s international success grows, it may establish manufacturing and marketing facilities in a foreign country, allowing for some degree of customization. Country units can make small changes to items to meet local demands. However, they have far less independence and autonomy than multi-national corporations. All core competency sources are centralised.

Most large US multinational corporations followed an international strategy in the decades following World War II. These corporations centralised R&D and product development while establishing manufacturing and marketing units in other countries. Companies like McDonald’s and Kellogg’s are examples of firms that used this strategy. These corporations make some local changes but are relatively limited in scope. With increased cost-cutting pressures from global competition, particularly from low-cost countries, the usage of this method has been limited.

The following are the disadvantages of this strategy:

Concentrating most of its activity in a single area misses out on the benefits of an appropriately distributed value chain.

It is vulnerable to higher levels of currency risk because the company is too closely associated with a single country, and a rise in currency value may suddenly make the product unattractive abroad.

Exporting

This entails selling goods in foreign nations via an agent or distributor. This option allows larger companies to begin their international expansion with a low-cost investment. It has advantages and disadvantages.

Merits

It is less expensive

There is no need to establish manufacturing plants in other countries.

Demerits

Not suited for heavy, perishable, or fragile items.

Import duties raise the price of the product.

Expensive transportation

Inability to obtain lower production costs in the host country

7.5 Strategies for Collaboration

Cooperative tactics like strategic alliances and joint ventures are a reasonable and timely reaction to intense and quick changes in economic activity, technology, and globalisation. Besides alliances between companies in the same country, cross-border alliances are becoming increasingly prevalent. Alliances are classified into joint ventures, strategic partnerships, and consortia.

7.5.1 Partnerships

A joint venture is formed when two companies contribute equity to form a new company, usually in the host country, to develop new products, build a manufacturing facility, or establish a sales and distribution network (E.g., Maruti Suzuki). The following are some of the most frequently mentioned benefits:

Increasing efficiency;

Increasing access to knowledge; and

Dealing with political risk concerns.

Collusions may limit competitiveness.

Merits

• The new venture will benefit from the combined experience of two partners.
• Both parties share capital and risks.
• Assists in meeting host country regulations

Demerits

• It is possible that the two partners will not get along.
• The firm must split profits with the partner.
• Problems may arise as a result of the host country’s culture.

7.5.2 Strategic Partnerships

This is a joint venture between two or more companies to achieve a common purpose. Each alliance partner contributes expertise or resources to the group. An alliance of this type is typically created to access a crucial capacity that does not exist in-house.

Boeing and Airbus, for example, created a strategic agreement to produce a larger aeroplane. Joint ventures, which are also a type of strategic partnership, have the same benefits and drawbacks.

7.5.3 Consortia

Consortia are huge interconnected ties, cross-ownership, and stock positions across enterprises in the same industry. There are two types of consortia:

1. Multipartner Consortia:

These are multi-partner alliances formed to share an underlying technology. Air Bus Industries is one of the most essential European-based consortiums to date. Airbus brings together four European aerospace companies from the United Kingdom, France, Germany, and Spain.

2. Cross-holding Consortia:

These include big Japanese Keiretsus (Sumitomo, Mitsubishi, and Mitsui) and Korean Chaebols (Daewoo, LG, Hyundai, and Samsung). Building long-term focus and achieving technological critical mass among associated member companies are two fundamental characteristics of cross-holding consortia.

7.6 Restructuring

Another way for the corporate office to offer significant value to a corporation is through restructuring. The corporate office looks for underperforming business units with untapped potential or firms on the verge of substantial, positive change. The parent steps in, frequently selling off the entire or a portion of the business, changing management, cutting payroll and superfluous spending, altering strategies, and infusing the business with new technology, procedures, reward systems, etc. When the reorganisation is finished, the corporation can either “sell high” and capture the increased value or maintain the business in the corporate family and reap the financial and competitive benefits of improved performance.

For the restructuring strategy to work, the corporate office must have insights into recognising businesses competing in industries with high potential for change. Of course, they must also have the necessary talents and resources to turn around the company, even if they are in new and unfamiliar industries.

Assets, capital structure, and management can all be restructured.

Asset restructuring entails disposing of unproductive assets or even entire lines of business. In some circumstances, it may even include acquisitions that strengthen the core operations.

Capital restructuring entails altering the debt-equity mix or the mix of different types of debt or equity.

Management restructuring entails changes to the top management team’s membership, organisational structure, and reporting linkages. Tight financial control, performance-based awards, and a reduction in middle-level managers are all standard steps in management restructuring. In some circumstances, parental reorganisation may result in strategic modifications and the incorporation of new technology and procedures.