Chapter 6

Key terms

corporate level strategy

is an action taken to gain a competitve advantage through the selection and management of a mix
of business competing in several industries or product markets.

economies of scope

means that the production of one good reduces the cost of producing another related good, occur when
producing a wider variety of goods

corporate level core competencies

refers to a company's set of skills or experience in some activity rather than physical or financial assets

market power

refers to the ability of a firm to raise and maintain price above the level that would prevail under
competition is referred to as market or monopoly power

multipoint competition

describes a situation where firms compete simultaneously across multiple products or markets and
competitive actions taken in one market trigger reactions in other markets.

vertical integration

is a strategy whereby a company owns or control its suppliers.

financial economies

is a branch of economics that analyzes the use and distribution of resources in markets in which
decisions are made under uncertainly

synergy

is an interaction or cooperation giving rise to a whole that is greater than the simple sum of its parts

Review Questions:

1.What is corporate level. strategy and why it is important?

Corporate level strategy is an action taken to gain a competitive advantage through the selection and
management of a mix of business competing in several industries or product markets. It is important
because it affects a company's finance, management, human resource and where the products are sold.
The purpose is to maximize its profitability and maintain its financial sucess in the future.

2. What are the different levels of diversification firms can pursue by using different corporate level
strategies?

There are low, moderate to high, and very high levels of diversifications. A firms pursuing a low level of
diversification would use are single businesses or dominate business diversification strategy.

3.What are the three reasons firms choose to diversity their operations?

The three (3) reasons of diversification are:

1.the internal capital market

2. increase interest tax shield

3.growth opportunities

4. How do firms create value when using a related diversification strategy?

A company can create value by using what is called a related diversification strategy, this will include
operational relatedness and also corporate relatedness through operational relatedness, the company
shares its activities.

5.What are the two ways to obtain financial economies when using a unrelated diversification strategy?

The first is to make efficient allocations of the internal capital which help mitigate risks, and second is
restricting a firms assets

6.What incentives and resources encourage diversification?

Diversification incentives come both in the internal and external business environment some
external incentives are possible antitrust or tax laws such as laws provides incentives to various firms to
diversity their business.

7.What motives might encourage managers to over diversity their firms?

Imcreased compensation through over diversification the company may generate more and more
revenue which will enable them to their employees resulting in better satisfsction and increased level of
motivation.

Reduction of managerial risks: if the firms get over diversified it eventually reduces the managerial risks
involved.

Discussion Questions:
1. What corporate diversification strategy is being pursued by Sany? What evidence do you have that
supports your position?

Horizontal Diversification Strategy

it is the corporate diversification strategy being pursued by Sany. We observed this because Sany was
recently accused patent violation with Manitowoc which is diversified leader of equipment. Evidence
that also support our position is that Sany is looking to take lead in the market. To do so they have to be
competitive and expand their priorities and business.

2.How does the level of change im gross domestic product indicator of country economic health
influence a firm like Sany?

Three of Sany's businesses are involved construction, cranes,road constructions machinery and
pumpover machinery, used mainly for concrete. Gross domestic product (GDP) is the value of the goods
and services that a country provides. If the GDP is falling, it means that the country is producing less
goods and services. This has a ripple effect that the country would have less money to invest in new
items or new constructions.

3.Why does a firms such as Sany on the heavy equipment industry spend so much of it revenue on R@D
and innovation?

Sany is the fifth largest producer of this type of equipment globally, Sany is trying to overtake Caterpillar
as the market leader. Caterpillar is a well established international firm. One of the ways that are more
efficient, achieve better quality, having new technology innovations or creating new products.All of
those items involves Sany learning and creating something that doesn't exist today and that requires
research and development (R@D) with innovation.

4.Given that it is now seeking international expansion, how do you expect the judgement against it to
affect it growth prospects outside of China?

Sany is not a well known company globally, certainly not compared to Caterpillar. In order to convince
people in other countries to use your product at least one of two items must be well known, your
product is clearly superior to its competitors and your company reputation is well known.
Chapter 7

KEYTERMS

acquisition. Is a strategy through which one firm buys a controlling or 100 percent, interest in another
firm with the internet of making the acquired firm a subsidiary business within its portfolio.

Merger. Is a strategy through which two firms agree to intergrate their operations on a relatively
coequal basis.

Restructuring. is a strategy through whichba firm changes its set of businesses or its financial structure.

Takeover. is a special type of acquisition where the target firm does not solicit the acquiring firm's
bid,thus takeovers are unfriendly acquisition.

REVIEW QUESTIONS

1. Why are merger and acquisition strategies popular in many firm competing in the global economy?

The reason why merger and acquisitions are popular in the firms competing in the global market are as
follows

-it increases market power

-it over comes entry barriers.

-cost new product develop ment and its launch get reduced.

-Help the firm to develop new capabilities.

2. What reasons account for firm's decisions to use acquisition strategies as a means to achieving
strategic competitiveness?

Increased market power and reason a company may acquire another is to overcome any market entry
barriers that it may have previously had problems overcoming.

3.What are the seven primary problems that affect a firm's efforts to successfully use an acquisition
strategy

1.Difficulty in relation to integration

2.improper target evaluation

4.Inability to work together efficiently

5.Over diversification

6.Management becomes hyper focused on acquisition.

7.End result is to large/expensive to manage.

4.What are the attributes associated with a successful acquisition strategy?

Both companies will have complementary resources which will mean that is more likely to gain synergy.
The acquiring firm evaluates an appropriate company to acquire on all levels and the most
complementary and least expensive acquisition is made.

5. What is the restructing strategy,and what are its common forms?

The restructing stratgy is a strategy that is applied when a company wants to change its business set or
financial or arrangement.

The common forms are Downsizing,downscoping and leveraged buyouts.

6.What are the short- and long - term outcomes associated with the different restructing strategies?

Downsizing:

-Short term will yield a reduction in labor cost.

-Longterm outcome is loss of people and performance.

Down scoping

-Short term will yield reduction in debt as well as having an emphasis in strategic controls.

-Longterm effect is higher performance.

Leveraged buy out strategy:

- short term outcome also has strong emphasis in strategic control but it will also have high cost debt

- longterm outcome for the leveraged buyout will be higher level.