Corporate Level Strategies

Corporate Level Strategies Kinds of Grand Strategies: * Stability Strategies * Growth Strategies * Retrenchment Strategies * Combination Strategies Stability Strategies The basic approach is ‘maintain present course: steady as it goes. ‘ In an effective stability strategy, companies will concentrate their resources where the company presently has or can rapidly develop a meaningful competitive advantage in the narrowest possible product-market scope consistent with the firm’s resources and market requirement’s Types of Stability Strategies No change strategy: * Firms adopting this strategy maintain the same level of operations * Small business firms desire satisfactory level of operations rather than growth * Pause and proceed strategy: * Slow growth is more desired rather than maintenance of status quo * A sustainable growth strategy is more optimistic than the zero growth Stability Strategy of Indian Companies * Many companies in different industries have been forced to adopt stability strategy because of over capacity in the industries concerned.

For Example: Steel Authority of India has adopted stability strategy because of over capacity in steel sector. Instead it has concentrated on increasing operational efficiency of its various plants rather than going for expansion. Others industries are ‘heavy commercial vehicle’, ‘coal industry’. Example: Apart from over capacity, regulatory restrictions in some industries have forced companies to adopt stability strategy. Cigarette, liquor industries fall in this category because of strict control over capacity expansion.Both these industries require license under the provisions of Industries (Development and regulations) Act, 1951.

Growth or expansion Strategies If we look at the corporate performance in the recent years, we find how the various organizations have grown both in terms of sales and profit as well as assets. For example: Reliance Industries Limited Nirma Limited Types of Growth / Expansion Strategies Concentric Expansion Strategy The first route of growth is to expand the present line of business. It can be aimed at market penetration, market development and / or product development. Market Penetration: The organization tries to capture market share in the existing product and aims at expanding its business at a rate higher than the industry growth. * Eg.

:Reliance has captured substantial market share in textile yarn and intermediaries * Eg. : ITC has captured substantial market share in cigarettes. * Market Development: Attempt is made to increase sales by developing new markets either geography-wise or segment-wise. * For eg. Many companies which find that the urban market is saturated and there is little scope for expansion, opt for developing new market in rural areas.

Some of the companies which have made keen attempt to develop rural market are HUL (personal products), Colgate (oral care products), LG (TV), Videocon (Consumer durables), etc. * Product Development: efforts are attempted at to achieve growth through product innovation so as to penetrate in new segment. * For eg. Samsung (TV) may offer slim line TV, Plasma TV, etc.

Integration Strategy * When firms use their existing base to expand in the direction of their raw materials or the ultimate consumers, or, alternatively they acquire complimentary or adjacent businesses, integration takes place. Integration basically means combining activities related to the present activity of a firm. Types of Integration Strategy * Vertical Integration * Horizontal Integration Vertical Integration When an organization starts making new products that serve its own needs, vertical integration takes place. Any new activity undertaken with the purpose of either supplying inputs (such as raw materials) or serving as a customer for outputs (such as, marketing of firm’s product) is vertical integration Vertical Integration at Reliance IndustriesReliance started its business with textiles and went for backward integration to produce PFY and PSF, critical raw materials for textiles, PTA and MEG-raw materials for PSF and PFY, paraxylene -raw materials for PTA and MEG, and finally naphtha for producing paraxylene * NaphthaParaxylenePTA + MEGPSf(fibres) and PFY yarns Textiles Vertical Integration at Modern Group * Expansion strategies at Modern Group, consisting of five companies having a combined turnover of Rs. 115 crore in 1989, involved diversification in the form of backward and forward integration. Forward integration took place at Modern Suiting when it diversified into worsted suiting.

With an investment of Rs. 7 crore, it acquired sulzer looms, sophisticated fabric processing facilities and other sophisticated equipments to manufacture a premium terry wool suiting with the brand name ‘Amadeus’. * Backward integration at Modern Woolens involved a collaboration with Schild of Switzerland for wool processing, combing, and woolen tops which are necessary for the production of woolen textiles.In this manner, a number of backward and forward linkages were being attempted within the Modern Group with the objective of raising the turnover to Rs. 250 crore by 1992. Horizontal Integration * When an organization takes up the same type of products at the same level of production or marketing process, it is said to follow a strategy of horizontal integration * For Eg.

: When a luggage company takes over its rival luggage company * Horizontal Integration strategy may be frequently adopted with a view to expand geographically by buying a competitor’s business, to increase the market share or to benefit from economies of scale. Solidaire India Ltd. is a prominent manufacturer of TVs and has a sizeable presence in the market in southern India. It started with the name of Hi Beam Electronics Ltd. in 1974.

Subsequently, this unit was merged with two other units to form a consortium called TriStar Electronics. In 1978, the brand name Solidaire was adopted. In this manner the growth strategy of the company started with Horizontal Integration. * Takeover of Neyveli Ceramics and Refractories Ltd. (Neycer) by Spartek Ceramics India Ltd.

n the early 1990s. Both the companies were in sanitary ware and tile production. By acquiring Neycer, Spartek became the largest ceramic tile manufacturer in the country. * Expansion through Diversification: * Diversification is the process of entry into a business which is new to an organization either marketwise or technology wise or both. * Diversification may involve internal or external, related or unrelated, horizontal or vertical, and active or passive dimensions—— either singly or collectively.

* Eg. “Kesoram Cotton Mills” into textiles, cellophane paper, firebricks, cast-iron pipes, and cement. * “ITC Ltd. ” (a cigarette major) into hotel, paper and packaging; edible oils,etc. * Concentric Diversification * Conglomerate Diversification Concentric Diversification When an organization takes up an activity in such a manner that it is related to the existing business definition of one or more of a firm’s business, either in terms of customer groups, customer functions or alternative technologies, it is called Concentric Diversification. Types of Concentric Diversification Marketing-related Concentric Diversification: When a similar type of product is offered with the help of unrelated technology * For example: a company in the sewing machine business diversifies into kitchenware and household appliances, which are sold to housewives through a chain of retail stores.

* Technology-related Concentric Diversification: When a new type of product or service is provided with the help of related technology * For example, a leasing firm offering hire-purchase services to institutional customers also starts consumer financing for the purchase of durables to individual customers. Marketing-and-Technology-related Concentric Diversification: when a similar type of product or service is provided with the help of related technology * for example a raincoat manufacturer makes other rubber-based items, such as, waterproof shoes and rubber gloves, sold through the same retail outlets. Conglomerate Diversification * When an organization adopts a strategy which requires taking up those activities which are unrelated to the existing business definition of one or more of its business, either in terms of their respective customer groups, customer functions or alternative technologies For Example: * ITC, a cigarette company diversifying into the hotel industry * Essar Group in shipping, marine construction, oil support services, and iron and steel * Shriram Fibres Ltd. In nylon industrial yarn, synthetic industrial fabrics, nylon tyre cords, fluorochemicals, fluorocarbon refrigerant gases, ball and needle bearings, auto electrical, hire-purchase and leasing, and financial services Managing Diversification at the Munjal Group In 1978, the Munjal Group of Ludhiana, Punjab established manufacturers of Hero Bicycle-planned to diversify into yarn manufacture.The reasons for diversification were: * 95 % of acrylic yarn used in India comes to Ludhiana * A lot of cotton grows in Punjab and could be used in manufacturing yarn * Group philosophy to involve itself in providing basic inputs to industry * In the seventies, yarn was a profitable sector * But the company (Hero Fibres) faced many problems like a downsizing in the cotton and acrylic yarn market, differing work ethos in the yarn industry as compared to that in the light engineering industry, and a high rate of turnover. The problems were resolved by adopting a plan under which he following steps were taken: * Close involvement of the top management and personnel from existing companies took place * Avoiding employment of groups of workers to prevent the formulation of a coterie, the orientation and training of managers and workers, and providing jobs to family members of workers to make migration of labour difficult This case of Hero Fibres illustrates that despite strong reasons for diversification, the actual implementation of plans is crucial to the success of diversification strategies Expansion through Cooperation:This can be done through simultaneous competition and cooperation among rival firms for mutual benefit Types of Cooperative Strategies * Mergers * Takeovers (or Acquisitions) * Joint Ventures * Strategic Alliances Merger Strategy A merger is a combination of two or more organizations in which one acquires the assets and liabilities of the other in exchange for shares or cash, or both the organizations are dissolved, and the assets and liabilities are combined and new stock is issued.

Examples: * Polyolefin Industries with NOCIL * TVS Whirlpool Ltd. with Whirlpool of India Ltd. Sandoz (India Ltd. ) with Hindustan Ciba Geigy Ltd. * Nirma Detergents Ltd. , Nirma Soaps and Detergents Ltd.

, and Shiva Soaps and Detergent Ltd. With Nirma Ltd. Acquisition or Takeover Strategy * Acquisition or Takeover is the attempt of one firm to acquire ownership or control over another firm against the wishes of the latter’s management. * But in practice it can be hostile or friendly Controversies created by Acquisition or Takeover Strategy * Takeover attempt of Escorts and DCM by Swaraj Paul, a non resident Indian based at London, created lot of resentment in Indian Business scene n 1990s * Takeover of Raasi Cement by India Cement have generated lot of tension * Friendly Takeover: Tata Tea’s takeover of Consolidated Coffee (a grower of coffee beans) and Asian Coffee (a Processor) Joint Venture Strategy * Joint Ventures are partnerships in which two or more firms carry out a specific project or corporate in a selected area of business. * It can be temporary, disbanding after the project is finished, or long-term.

* Ownership of the firms remains unchanged * Even a successful joint venture may not last forever. Nor does the collapse of a joint venture always imply failure.Actually, corporate partnerships are formed for specific and time bound objectives which, once achieved, leave little reason for the alliance to be continued. Joint Ventures that last longer do so because their objectives have been redesigned”. Examples of Joint Venture * IBM World Trade Corporation and Tata Industries Ltd. Created joint venture to form Tata Information Systems Ltd. The stated purpose was to make it India’s top information technology company * Cummins Engine Company and TELCO formed a joint venture to manufacture Telco Engines * Reliance Industries and Nynex Corporation Tata Industries and Bell Canada * Ashok Leyland and Singapore Telecom Strategic Alliances * Strategic Alliance is a combination of the efforts of two or more organizations to develop competitive advantage In Strategic Alliance, two or more partners join hands together for certain specified objectives, generally, for certain specific period. When these objectives are achieved, partners terminate their alliance Strategic Alliances in India ‘Oberoi group of Hotels’ has entered into Strategic Alliance with ‘Lufthansa Airlines’, ‘Hong Kong Bank’, and ‘Mercury Travels’.All these four organizations undertake promotional activities jointly. Any person who stays in Oberoi hotels gets bonus point.

His bonus point increases if he travels by Lufthansa, uses Hong Kong Bank facilities, and engages Mercury Travel’s services. On the basis of his accumulated bonus points, he gets various prizes including free air ticket to New York * Internationalization Strategy: International Strategy is a type of expansion strategy that require firms to market their products or services beyond the domestic or national market.Firm would have to assess the international environment, evaluate its own capabilities, and devise strategies to enter foreign markets. Types of International Strategies * International Strategy: Firms adopt International Strategy when they create value by transferring products and services to foreign markets where these products and services are not available. International firm, by maintaining a tight control over its overseas operations, offers standardized products and services in different countries with little or no differentiationLike IBM, Kellogg, Proctor ;amp; Gamble, Microsoft, etc adopt this strategy for the different countries they operate in. * Multidimension Strategy: Firm adopts a Multidimension Strategy when they try to achieve a high level of local responsiveness by matching their products and services offerings to the national conditions operating in the countries they operate in. Multidimension firm attempts to extensively customize their products and services according to the local conditions operating in the different countries. Like Coca Cola, McDonald, Pizza Hut, etc.

Global strategy: The global firms tries to focus intensively on a low cost structure by leveraging their expertise in providing certain products and services, and concentrating the production of these standardized products and services at a few favourable locations around the world. These products and services are offered in an undifferentiated manner in all countries the global firm operate in, usually at competitive prices. * Transnational Strategy: Firms adopt a Transnational strategy when they adopt a combined approach of low-cost and high local responsiveness simultaneously for their products and services.Entry Modes * Export Entry Mode * Contractual Entry Mode * Licensing Mode * Franchising * Technical Agreements, Service Contracts * Investment Entry Mode * Joint Venture * Independent Venture * Illustrative Example Blue Dart Express, the courier company which started in 1994, tied up with Gelco International which was acquired by the US courier giant, Federal Express (Fedex). Later it entered into a financing arrangement with Schroeder Asia to part finance its air operating company, Blue Dart Aviation Ltd.

Although FedEx has set up its own operations in India, Blue Dart continues as its associate * Archies Greetings and Gifts has collaboration with Gibson Greetings and American Greetings Corporation and has adopted the franchising route for expansion through which it operates in more than 120 Indian Cities and six countries abroad * Retrenchment Strategy: When a firm’s position is disappointing or, at the extreme, when its survival is at stake, then Retrenchment Strategy may be appropriate Types of Retrenchment Strategies Turnaround Strategy: If the firm chooses to focus on ways and means to reverse the process of decline, it adopts a turnaround Strategy example Metal Box India Ltd. a reputed company in the packaging industry, turned sick due to its wrong strategic move of diversifying into bearings manufacture in the early eighties. Eight of its nine units closed down as a results of which the BIFR and the ICICI formulated a rehabilitation package for the turnaround of the company The BIFR-ICICI package covers the following: Closure of three unprofitable units at Calcutta, Bombay and Cochin * Retrenchment of 3000 workers drawn from all the nine through compensation * A flat 20 percent cut in wages for the remaining workers * Write-off or conversion of outstanding loans from financial institutions and banks * Concessions and relief of up to 50 percent in sales, octroi, and turnover taxes, among others from the state governments * Introduction of a new promoter in place of the parent multinational Metal Box,plc, of UK which wanted to divest its 33. 2 % shareholding * Divestment Strategy: It involves the sale or liquidation of a portion of business, or a major division, profit centre or SBU. This strategy is usually adopted when the company is performing poorly or when it no longer fits the company’s strategic profile.

Divestment of TOMCO Tata group is a highly-diversified entity with a range of businesses under its fold. They identified their non core businesses for divestment.TOMCO was divested and sold to Hindustan Levers as soaps and detergents was not considered a core business for the Tatas. Divestment of VST ‘VST Natural Products’, the food business company of ‘VST’, the tobacco firm, was divested to the ‘Global Green Company’ of the ‘Thapar group’. The reasons for divestment were: non availability of raw materials and inadequate working capital infusion.

‘VST’, the parent company, could not invest more as it was itself running under a loss. Liquidation Strategies: This involves closing down a firm and selling its assets. It is considered as a last resort because it leads to serious consequences such as loss of employment for workers and other employees, termination of opportunities where a firm could pursue any future activities, and stigma of failure Liquidation at Empress Mills On May 14, 1986, the Bombay High Court appointed a provisional liquidator in the petition for the voluntary liquidation of Empress Mills at Nagpur.Empress Mills was a 113-years-old mill owned by the Tatas. Behind the liquidation petition lay a host of reasons.

The major strategic cause for liquidation lies in the fact that for nearly 50 years, Empress Mills did not invest in modernization or keep pace with competition. In the wider context, the government policies did not prove favourable for the cotton textile industry. The management of the mill carried the blame for neglect and delayed action. After Mr.Ratan Tata took over as chairman of the company in 1977, some efforts were made for modernization but these proved to be grossly insufficient.

A proposal to merge the mill with other textile units of the Tatas could not materialize. Rationalization of the product-mix across these units also proved to be a non-starer owing to resistance offered by executives Efforts to negotiate a voluntary retirement scheme to cut down on the 6000 workers-employees strength also failed.Ultimately, the banks and financial institutions delayed the formulation of a rehabilitation package that could turn the mill around. The state government apparently did not provide the much needed political support that could have helped save the jobs of the workers. The case of Empress Mills provides the important lesson that if timely strategic action is not taken and the situation is allowed to drift, even the largest business group of India, such as the Tatas, cannot save a company from inevitable death.Combination Strategies * Combination Strategies are a mixture of stability, expansion or retrenchment strategies applied either simultaneously (at the same time in different businesses) or sequentially (at different times in the same business).

* It would be difficult to find any organization that has survived and grown by adopting a single ‘pure’ strategy. The complexity of doing business demands that different strategies be adopted to suit the situational demands made upon the organization.Company adopted Combination Strategies to deal with the complexity of the environment The Tube Investments of India (TI), a Murugappa group company, has created strategic alliances in its three major businesses: tubes, cycles, and strips. In cycles, it has entered into regional outsourcing arrangements with the UP-based Avon (which we could term as co-opetition, as Avon is TI’s competitor in the cycle industry) and Hamilton Cycles in the western region. In steel strips, TI has entered into a manufacturing contract with Steel Tubes of India, Steel Authority of India, and the Jindals