Headquarter-level strategy

Barriers and challenges to headquarter-level control

Cross Cultural Challenges Subsidiary-level challenges
Headquarter-level challenges

Diversification Strategies
Some organizations stick to the business they know well which is called as Concentration Strategy or a single market strategy.Example Boeing in US and Airbus in France. Sometimes due to some unavoidable environmental pressures companies opt to diversify their business.

The eight synergy killers

Inhibiting corporate strategy Infighting between the barons(Personality clashes, jealousy, competition for promotion) A culture of secrecy Misaligned incentives Excessive performance pressure Insulation from performance pressure

Domineering corporate staff Mistrust

Types of Industrial Diversification

Two industrial diversification options are available to the firm 1. Related Diversification 2.Unrelated Diversification Related Diversification presents firms with three Key potential benefits Economies of Scope Market Power
Knowledge Competencies.

Diversification in emerging economies

Institutions that support key business activities are not yet developed
Weak educational institutions Unpredictable government behaviour Lack of information and weak law enforcement

Related and unrelated global diversification

Related global diversification is the dispersion of a global firms activities across countries within relatively homogeneous cluster of countries. Unrelated global diversification is the dispersal of the global firms activities across heterogeneous geographic regions.

They vary on:

Physical proximity (lower costs of managerial coordination) Cultural proximity Level of economic development (Intangible Assets)

Benefits of global diversification

It enhances shareholder value
Creates flexibility within the firm to respond to changes in relative prices,differences in tax systemsand other institutional differences. Benefits corporate managers (Power and prestige)

Costs and risks of global diversification

Complex to manage than that of a purely domestic firm Inefficient cross-subsidization of less profitable business units
Risk of value-reducing diversification strategies

Advantages of vertical integration

Enables multinational firms to cross-subsidize one stage of the value chain by another in order to squeeze out competitors Provides multinational firms with the opportunity to retain control over proprietary knowledge Enables multinational firms to input and output markets to competitors Reduces uncertainties in demand and price

Enables multinational firms to add value at different stages of the value chain

Disadvantages of vertical integration

Vertically integrated multinational firms:
do not concentrate on their core tasks have higher costs relative to competitors which pursue an outsourcing strategy have high barriers to exit