COLLEGE OF BUSINESS AND ECONOMICS

DEPARTMENT OF MANAGEMENT

PhD IN INTERNATIONAL BUSINESS AND STRATEGY

SEMINAR IN STRATEGIC MANAGEMENT (MGMT – IBS 725)

Individual Assignment

On

PART I: STRATEGIC MANAGEMENT FORMULATION

Submitted To: Dr. Yohannes W. (Associate Professor)

Submitted By: Tesfamaryam

Id: GSR/5380/16

April, 2024

Adis Abeba, Ethiopia

Contents
Executive Summary.................................................................................................................3

Strategic Management Action.................................................................................................3

CHAPTER FOUR....................................................................................................................4

1.BUSINESS-LEVEL STRATEGY........................................................................................4

CHAPTER 6...........................................................................................................................15

2.CORPORATE-LEVEL STRATEGY...............................................................................15

C H A P T E R 7.....................................................................................................................21

3.MERGER AND ACQUISITION STRATEGIES............................................................21

Chapter – 8..............................................................................................................................27

4.International strategy.........................................................................................................27

5. CHAPTER -9......................................................................................................................33

COOPERATIVE STRATEGY.............................................................................................33
 Executive Summary

Strategic Management Formulation

The second part of the strategic management framework delves into strategic actions related
to strategy formulation. This section encompasses various key topics that are critical to
developing effective business strategies for achieving competitive advantage and long-term
success.

In Chapter 4, the focus is on business-level strategy, exploring how firms compete within
specific industries or market segments. The chapter outlines different approaches to
gaining a competitive edge, such as cost leadership, differentiation, and focus strategies. It
discusses how businesses create unique value propositions to attract customers and maintain
profitability, emphasizing the importance of understanding market trends, customer needs,
and competitive forces.

Chapter 5 examines competitive rivalry and competitive dynamics, analyzing the

interactions among firms competing in the same industry. It focuses on strategies that
companies use to maintain or improve their market position amid rivalry, highlighting
competitive actions, responses, and the importance of understanding competitors' moves.
This chapter explores how firms can anticipate competitive dynamics and develop strategies
to achieve a sustainable competitive advantage.

Corporate-level strategy is the subject of Chapter 6, which addresses decisions related to

managing a portfolio of businesses. The chapter discusses the role of diversification,
integration, and restructuring in building a robust corporate structure. Topics such as vertical
integration, horizontal integration, and strategic alliances are covered, with an emphasis on
aligning corporate-level strategy with overarching business goals and market conditions.

In Chapter 7, the focus shifts to merger and acquisition (M&A) strategies, exploring the
rationale behind companies combining or acquiring other businesses. The chapter reviews
various types of M&A activities, including horizontal and vertical mergers, and examines the
benefits and risks involved. It discusses the strategic motivations for M&A, such as growth,
synergy, diversification, and market entry, while also addressing integration challenges and
the importance of due diligence.

Chapter 8 explores international strategy, investigating how firms expand their operations
beyond domestic borders. It outlines various entry modes, such as exporting, licensing, joint
ventures, and wholly owned subsidiaries, while considering the complexities of operating in a
global environment, including cultural differences, regulatory frameworks, and competitive
pressures. The chapter underscores the importance of developing a global strategic approach
to achieve competitive advantage in international markets.

Lastly, Chapter 9 centers on cooperative strategy, focusing on partnerships and collaborations

between firms to achieve mutual benefits. This chapter discusses various forms of
cooperation, such as joint ventures, strategic alliances, and networks, and examines the
strategic benefits of cooperation, including resource sharing, risk reduction, and access to
new markets or technologies. It emphasizes the importance of building strong, effective
partnerships and managing relationships to achieve strategic goals.
 CHAPTER FOUR

1. BUSINESS-LEVEL STRATEGY
 Is an integrated and coordinated set of commitments and actions the firm uses to gain
a competitive advantage by exploiting core competencies in specific product
markets?
 Business-level strategy indicates the choices the firm has made about how it intends
to compete in individual product markets.
1. Discuss the relationship between customers and business-level strategies in terms of who,
what, and how.
The relationship between customers and business-level strategies can be summarized as
follows:
Who: Determining the customers to serve
A key part of a business-level strategy is deciding which customers the firm will target
and serve. This involves segmenting the market and selecting the target customer
group(s).
What: Determining which customer needs to satisfy
The firm must assess what needs and preferences the target customers have and then
determine how to best satisfy those needs through its products and services.
How: Determining core competencies necessary to satisfy customer needs
To effectively serve the target customers, the firm must identify and leverage its core
competencies - the activities and capabilities that allow it to outperform rivals in meeting
customer needs.
Effectively managing relationships with customers is critical for a successful business-
level strategy. The firm must understand customer needs, decide which customer
segments to focus on, and then develop the necessary competencies to deliver superior
value to those targeted customers. The "who, what, and how" framework helps guide this
alignment between customers and the firm's business-level strategy.
For example, a cost leadership strategy would target price-sensitive customers and require
core competencies in operational efficiency and cost control. In contrast, a differentiation
strategy would target customers valuing unique features/benefits and need core
competencies in innovation and premium brand-building. The firm's choices regarding
customers, their needs, and the firm's capabilities form the foundation of an effective
business-level strategy.
2. Explain the differences among business-level strategies.

The main types of business-level strategies are:

1. Cost Leadership Strategy:

 The firm aims to become the low-cost producer in its industry.

 This allows the firm to offer the lowest prices to customers and gain market share.
 Core competencies needed include operational efficiency, process engineering, and
tight cost control.

2. Differentiation Strategy:

 The firm seeks to offer products/services that are perceived as unique industry-wide.
 This allows the firm to charge premium prices and appeal to customers valuing those
unique features.
 Core competencies needed include innovation, brand management, and customer
intimacy.

3. Focus Strategies:

 The firm focuses on a particular buyer group, segment of the product line, or
geographic market.
 Cost Focus Strategy: Targets a specific segment and aims to be the low-cost provider
to that segment.
 Differentiation Focus Strategy: Targets a specific segment and seeks to differentiate
within that segment.

4. Integrated Cost Leadership/Differentiation Strategy:

 The firm combines both low-cost and differentiation approaches.

 It seeks to be the low-cost provider of a differentiated product.
 Core competencies required span both cost efficiency and innovative capabilities.
4. Use the five forces of competition model to explain how above average returns above can
be earned through each business-level strategy.

The five forces of competition model can be used to explain how above-average returns can
be earned through each of the business-level strategies:

1. Cost Leadership Strategy:

 Threat of New Entrants: High entry barriers from economies of scale and cost
advantages make it difficult for new firms to undercut the cost leader.
 Bargaining Power of Suppliers: The cost leader's high volume allows it to extract
concessions from suppliers, limiting their bargaining power.
 Bargaining Power of Buyers: The cost leader can still earn profits at the lower end of
the market, limiting buyer power.
 Threat of Substitutes: The cost leader's low prices make it difficult for substitutes to
compete.
 Intensity of Rivalry: The cost leader can undercut rivals on price, deterring price wars.

2. Differentiation Strategy:

 Threat of New Entrants: Brand loyalty and unique product features create entry
barriers for new firms.
 Bargaining Power of Suppliers: Suppliers benefit from the firm's success, reducing
their bargaining power.
 Bargaining Power of Buyers: Buyers have fewer alternatives, reducing their ability to
bargain.
 Threat of Substitutes: Unique features make substitutes less attractive to customers.
 Intensity of Rivalry: Differentiation reduces price competition, leading to higher
industry profits.

3. Focus Strategies:

 Cost Focus: Similar to cost leadership, but in a narrow market segment.

 Differentiation Focus: Similar to differentiation, but in a narrow market segment.
The five forces model shows how each generic strategy can create barriers to competition and
enable above-average returns. The cost leader, differentiator, and focused firms can all
capitalize on their strategic positions to protect profits within the industry

5. Describe the risk of using each of the business level strategies

Each of the business-level strategies carries certain risks:

1. Cost Leadership Strategy:

 Technological changes can nullify cost advantages and require major new
investments.
 Competitors may find ways to imitate the cost leader's efficiency and drive down
industry prices.
 Focusing excessively on cost can lead to neglect of other important areas like product
quality, innovation, and customer service.
 Customers may perceive the product as basic or lacking in desirable features, making
them vulnerable to differentiated competitors.

2. Differentiation Strategy:

 Competitors may be able to imitate the differentiating features over time, eroding the
firm's advantage.
 Customers may not be willing to pay the premium prices required to support the
differentiating factors.
 The costs of achieving differentiation may exceed the extra revenues it generates,
undermining profitability.
 Focusing on differentiating features can distract the firm from controlling its costs.

 Focus Strategies: Cost Focus: Competitors may be able to match the firm's cost
position, eliminating the competitive advantage. The target segment may not be large
enough to be profitable. Differentiation Focus: Competitors may be able to find ways
to differentiate within the same target segment. The target segment may not be willing
to pay the premium prices needed to support differentiation.

4. Integrated Cost Leadership/Differentiation:

  Balancing the capabilities required for both low-cost and differentiation can be very
challenging.
 Trying to be "stuck in the middle" between the two strategies can lead to below-
average performance.
 Competitors may be able to outperform the firm in one dimension (cost or
differentiation).

The key is for firms to play to their strengths and capabilities, and to watch for changes in the
environment that could undermine their chosen strategic approach. Successful execution is
critical for any business-level strategy to generate above-average returns

Competitive Rivalry and Competitive Dynamics

1. Define competitors, competitive rivalry, competitive behaviour, and Competitive
dynamics.

 Competitors: are firms operating in the same market, offering similar products, and
targeting similar customers.
 Firms that compete directly against each other in the same industry or market.

Competitive rivalry:

 Is the ongoing set of competitive actions and competitive responses that occur among
firms as they manoeuvre for an advantageous market position?
 The dynamic interaction and competitive actions/responses between competing firms
within an industry or market.

Competitive behaviour:

 Is the set of competitive actions and competitive responses the firm takes to build or
defend its competitive advantages and to improve its market position?
 The specific strategic and tactical actions taken by competitors to outperform each
other, such as price changes, new product introductions, advertising campaigns, etc.

Competitive dynamics:
  Refer to all competitive behaviours—that is, the total set of actions and responses
taken by all firms competing within a market.
 The study of the competitive behaviour of firms over time, including factors that
influence the likelihood and types of competitive actions and responses taken.

Multimarket competition

 Occurs when firms compete against each other in several product or geographic
markets.

2. Describe market commonality and resource similarity as the building blocks of a

competitor analysis.

Market commonality and resource similarity are two key elements of competitor analysis in
the context of competitive dynamics.

1. Market Commonality:
 o Market commonality refers to the degree of overlap between the markets or
segments that competitors serve.
o Firms that compete in the same markets are more likely to take competitive
actions and respond to each other's moves.
o The greater the market commonality between competitors, the more intense
the competitive rivalry is likely to be.
o Is concerned with the number of markets with which the firm and a competitor
are jointly involved and the degree of importance of the individual markets to
each.
2. Resource Similarity:
o Resource similarity refers to the degree to which a firm's tangible and
intangible resources (e.g., technologies, manufacturing capabilities, and brand
names) resemble those of its competitors.
o Is the extent to which the firm’s tangible and intangible resources are
comparable to a competitor’s in terms of both type and amount?
o Firms with similar resources are more likely to compete head-to-head and
perceive each other as direct threats.
o The greater the resource similarity between competitors, the more intense the
competition is likely to be, as they have the ability to respond effectively to
each other's actions.
3. Explain awareness, motivation, and ability as drivers of competitive behaviours.

The passage discusses three key drivers of competitive behaviours in firms:

1. Awareness:
o Firms need to be aware of their competitors, their actions, and the state of
industry competition.
o This awareness comes from competitor analysis, monitoring the external
environment, and understanding market commonalities and resource
similarities between competitors.
2. Motivation:
o Firms need to be motivated to engage in competitive actions and responses.
o Factors that influence motivation include first-mover incentives,
organizational size, quality, and dependence on the market.
 o Firms with greater motivation are more likely to initiate competitive attacks.
3. Ability:
o Firms need to have the ability to effectively respond to competitor actions.
o Factors that influence ability include the type of competitive action taken, the
actor's reputation, and the firm's dependence on the market.
o Firms with greater ability are more likely to respond effectively to competitive
moves by rivals.

The passage states that these three drivers - awareness, motivation, and ability - determine the
likelihood and nature of competitive rivalry and dynamics between firms competing in the
same industry. Understanding these drivers is important for predicting and managing
competitive interactions.

4. Discuss factors affecting the likelihood a competitor will take competitive actions.

Here are the key factors that affect the likelihood a competitor will take competitive actions:

1. Market Commonality - The degree of overlap in the markets served by competing

firms. Higher market commonality increases the likelihood of competitive actions and
responses.
2. Resource Similarity - The similarity of resources and capabilities between competing
firms. Higher resource similarity increases the likelihood of competitive actions and
responses.
3. First-Mover Incentives - Firms that are first to take a competitive action gain
advantages that make it more likely they will take further actions.
4. Organizational Size - Larger firms have more resources to devote to competitive
actions, making them more likely to take actions.
5. Quality - Firms with higher quality products/services are more likely to take
competitive actions to defend their position.
6. Actor's Reputation - Firms with a reputation for being aggressive competitors are
more likely to be attacked and to respond rapidly to competitive moves.
7. Dependence on the Market - Firms that are more dependent on a particular market are
more likely to respond aggressively to protect their position in that market.
 8. Type of Competitive Action - Certain types of competitive actions, like price cuts or
new product introductions, are more likely to prompt a competitive response than
others.

In summary, factors like market overlap, resource similarity, size, quality, reputation, and
market dependence all influence the likelihood a competitor will take competitive actions to
defend or improve their position.

5. Describe factors affecting the likelihood a competitor will respond to actions taken
against it.

Here are some of the key factors that affect the likelihood a competitor will respond to
competitive actions taken against it:

1. Type of competitive action:

 Competitors are more likely to respond to competitive actions that are direct or
aggressive, such as price cuts, new product introductions, or major marketing
campaigns.
 Competitors are less likely to respond to more indirect or less aggressive actions.

2. Dependence on the market:

 Competitors that are highly dependent on a particular market are more likely to
respond to actions that threaten their position in that market.
 Competitors with more diversified markets may be less likely to respond to actions in
a single market.

3. Actor's reputation:

 Competitors with a reputation for being aggressive responders are more likely to
retaliate against competitive actions.
 Competitors seen as less aggressive may be less likely to respond.

4. Organizational size:
  Larger, more resourceful competitors are more able to respond effectively to
competitive actions.
 Smaller competitors may lack the resources to mount a strong counterattack.

5. First-mover incentives:

 If the initial competitive action provides significant first-mover advantages, the

targeted competitor is more likely to respond to try to offset those advantages.
 If the first-mover advantages are less significant, the competitor may be less
motivated to respond.

6. Quality:

 Competitors with higher quality products/services may be more confident in their

ability to withstand competitive attacks and thus less likely to respond.
 Lower quality competitors may feel more threatened and be more likely to retaliate.

The likelihood of response also depends on the overall competitive dynamics in the industry,
with some industries seeing more active competitive responses than others. Understanding
these factors can help firms predict how competitors may react to their strategic moves.

6. Explain the competitive dynamics in each of slow-cycle, fast-cycle, and standard-

cycle markets.

Here are the key points about competitive dynamics in different market cycles:

Slow-Cycle Markets:

 Competitive advantages are more sustainable over time

 Firms compete more on the basis of resources and capabilities that are difficult to
imitate
 Competitive actions and responses tend to be less frequent
 Firms are more likely to engage in indirect competition through differentiation rather
than direct price competition

Fast-Cycle Markets:
  Competitive advantages are short-lived
 Firms compete on the basis of new innovations and speed to market
 Competitive actions and responses are rapid and frequent
 Firms engage in more direct price competition to gain market share

Standard-Cycle Markets:

 Competitive advantages have moderate sustainability over time

 Firms compete using a balance of resource-based advantages and new innovations
 Competitive actions and responses occur at a moderate pace
 Firms use a mix of differentiation and price competition

The key difference is the sustainability of competitive advantages. In slow-cycle markets,

advantages last longer so firms focus more on resource-based strategies. In fast-cycle
markets, advantages are fleeting so firms must compete on innovation speed. Standard-cycle
markets fall in the middle, requiring a balance of resource-based and dynamic capabilities.
The pace of competition also varies accordingly across the different market cycles.
 CHAPTER 6

2. CORPORATE-LEVEL STRATEGY
1. Define corporate-level strategy and discuss its purpose.

Corporate-level strategy refers to the overall strategy a diversified corporation uses to gain a
competitive advantage by adding value to the different businesses within its portfolio. The
purpose of corporate-level strategy is to:

1. Determine which businesses the corporation should be in (the scope of the firm's
operations).
2. Manage the portfolio of businesses to create synergies and maximize overall
profitability.

The key elements of corporate-level strategy include:

1. Levels of diversification - Low, moderate, or high levels of diversification across

different industries/businesses.
2. Reasons for diversification - Increasing market power, overcoming entry barriers,
gaining economies of scale/scope, reducing risk, etc.
3. Types of diversification strategies:
o Related constrained diversification - Businesses are related through
operational or corporate relatedness.
o Related linked diversification - Businesses are related but also differ in some
ways.
o Unrelated diversification - Businesses are not related.
4. Restructuring strategies - Downsizing, divestment, leveraged buyouts, etc. to refocus
the business portfolio.
The goal is to create value through diversification and effectively manage the portfolio of
businesses to outperform competitors and maximize long-term profitability. Corporate-level
strategy decisions have significant implications for resource allocation, organizational
structure, and coordination across the different businesses.

2. Describe different levels of diversification with different corporate level strategies.

The key points regarding different levels of diversification and corporate-level strategies are:

1. Levels of Diversification:
o Low Levels of Diversification: The firm competes in a small number of
related businesses.
o Moderate and High Levels of Diversification: The firm competes in a larger
number of businesses, some of which may be unrelated.
2. Reasons for Diversification:
o Value-Creating Diversification: Includes related constrained and related linked
diversification strategies. These create value through operational relatedness
(sharing activities) and/or corporate relatedness (transferring core
competencies).
o Value-Neutral Diversification: Diversification motivated by incentives (e.g.
empire building) or resource availability rather than value creation.
o Value-Reducing Diversification: Diversification driven by managerial motives
(e.g. reducing personal risk) rather than shareholder value.
3. Value-Creating Diversification Strategies:
o Related Constrained Diversification: Firms diversify into businesses that share
activities or transfer competencies.
o Related Linked Diversification: Firms diversify into businesses that share
activities and transfer competencies.
o Operational Relatedness and Corporate Relatedness: Firms can achieve both
types of relatedness simultaneously.
4. Unrelated Diversification:
o Firms diversify into businesses that are not related either operationally or
through the transfer of core competencies.
o Rationale is often efficient internal capital market allocation.
 5. Restructuring of Assets:
o Firms may restructure assets through methods like downsizing, downscoping,
and leveraged buyouts.

The key is understanding how the different levels and types of diversification strategies are
linked to value creation (or destruction) for the firm and its shareholders.

3. Explain three primary reasons firms diversify.

The three primary reasons firms engage in diversification are:

Value-Creating Diversification:
a. Related Constrained Diversification: Firms diversify into related businesses to share
activities and transfer core competencies, creating operational and corporate relatedness.
b. Related Linked Diversification: Firms diversify into related businesses to leverage market
power and achieve synergies.

Value-Neutral Diversification:
a. Incentives to Diversify: Managers may diversify to increase their power, compensation,
and prestige, even if it does not create value for shareholders.
b. Resources and Diversification: Firms may diversify if they have excess resources that
cannot be profitably reinvested in their core business.

Value-Reducing Diversification:

a. Managerial Motives to Diversify: Managers may engage in diversification to

decrease their personal risk, even if it reduces value for shareholders.

4. Describe how firms can create value by using a related diversification strategy

Based on the information provided in the document, firms can create value through related
diversification strategies in the following ways:

1. Operational Relatedness: Firms can share activities across their different businesses,
allowing them to achieve economies of scale and operational synergies. This sharing
of activities helps create value.
 2. Corporate Relatedness: Firms can transfer core competencies and resources across
their different businesses. This allows them to leverage strengths and capabilities in
new markets and businesses, creating value.
3. Simultaneous Operational and Corporate Relatedness: When firms can achieve both
operational relatedness through sharing activities and corporate relatedness through
transferring core competencies, it creates the highest potential for value creation
through related diversification.

The document states that "Simultaneous Operational Relatedness and Corporate Relatedness"
allows firms to best realize the value-creating potential of related diversification strategies.
By sharing operational activities and transferring core competencies across businesses, firms
can achieve "market power" and generate value.

In contrast, unrelated diversification strategies are described as more likely to be "value-

neutral" or even "value-reducing" in terms of creating value. The key is for firms to focus on
related diversification that leverages operational and corporate relatedness.

5. Explain the two way value can be created with an unrelated diversification strategy
According to the textbook, there are two ways value can be created with an unrelated
diversification strategy:
1. Efficient Internal Capital Market Allocation:
 With unrelated diversification, the firm can allocate capital across its diverse set of
businesses in a more efficient manner than external capital markets.
 The firm can shift capital from lower-performing businesses to higher-performing
ones, maximizing the overall value created.
2. Incentives and Resources:
 The firm may have incentives to diversify, such as the desire to stabilize earnings or
reduce risk.
 The firm may also have excess resources, such as cash flows or managerial talent, that
it can deploy into unrelated businesses as a way to create value.
So in essence, unrelated diversification can create value by allowing the firm to
allocate capital more efficiently across its businesses compared to external capital
markets, as well as by leveraging the firm's available resources and incentives to
diversify into new unrelated domains. The key is that the value created from these
 factors offsets any potential value destruction from a lack of operational or corporate
relatedness between the firm's diverse business units.
6. Discuss the incentives and resources that encourage diversification.

Here are the key points about the incentives and resources that encourage diversification:

Incentives to Diversify:

 Market Power - Diversification can increase a firm's market power and allow it to
charge higher prices.
 Spreading Risk - Diversifying across multiple businesses can reduce a firm's overall
risk.
 Excess Cash Flow - When a firm has excess cash flows, managers may have an
incentive to diversify rather than return cash to shareholders.
 Managerial Motives - Managers may diversify to increase their power, prestige,
compensation, and job security, even if it doesn't create value for shareholders.

Resources and Diversification:

 Slack Resources - When a firm has excess resources (financial, human, or

technological), it has the capacity to pursue diversification opportunities.
 Core Competencies - If a firm has strong core competencies, it may be able to
leverage those competencies to successfully diversify into related businesses.
 Horizontal and Vertical Integration - Firms that are already integrated horizontally or
vertically often have the resources and capabilities to further diversify.
 Mergers and Acquisitions - Acquiring other firms provides a way for companies to
quickly diversify their operations.

7. Describe motives that can encourage managers to over diversify a firm.

The text identifies several potential motives that can encourage managers to over-diversify a
firm, leading to value-reducing diversification:

1. Managerial Motives to Diversify:

 o Empire Building: Managers may pursue diversification to increase the size of
the firm and their own power, prestige, and compensation, even if it does not
create value for shareholders.
o Risk Reduction: Managers may diversify to reduce their own personal risk,
even if it does not maximize shareholder wealth.
o Entrenchment: Managers may diversify to make the firm less vulnerable to
takeover, even if it does not improve performance.
2. Incentives to Diversify:
o Compensation Incentives: Executive compensation plans that reward increases
in firm size or diversification can motivate managers to diversify excessively.
o Managerial Discretion: Firms with weak corporate governance and limited
oversight give managers more discretion to pursue diversification for personal
benefits rather than shareholder value.

The key point is that managers may have personal incentives to diversify beyond what is
optimal for the firm and its shareholders. This can lead to value-reducing diversification that
does not create synergies or improve performance, but instead serves the interests of the
managers themselves. Effective corporate governance mechanisms are important to align
manager and shareholder interests and prevent excessive, value-destroying diversification.
 CHAPTER7

3. MERGER AND ACQUISITION STRATEGIES

Key reasons for the popularity of merger and acquisition (M&A) strategies among
firms:

1. Increased Market Power: M&A can help firms overcome entry barriers and increase
their market power, allowing them to charge higher prices.
2. Cost and Speed Advantages: M&As can provide faster entry into new markets and
products compared to developing them internally. This can lower R&D costs and
speed up time to market.
3. Lower Risk: Acquiring an existing firm and its products/capabilities is seen as lower
risk compared to developing new products from scratch.
4. Increased Diversification: M&As allow firms to diversify their product/service
offerings and reduce overall business risk.
5. Reshaping Competitive Scope: Firms can use M&As to strategically reshape their
competitive scope and positioning.
6. Learning and Capability Development: Acquiring other firms can provide access to
new knowledge, technologies, and capabilities that can be leveraged.

The M&A activity has been particularly popular during economic crises and downturns, as
firms seek to gain market share, capabilities, and cost advantages through strategic
acquisitions. Overall, the ability of M&As to quickly enhance market power, capabilities, and
diversification make them an attractive strategic option, especially in an increasingly
competitive global business environment.
2. Discuss reasons why firms use an acquisition strategy to achieve strategic
competitiveness.

Based on the content of the document, the key reasons why firms use acquisition strategies to
achieve strategic competitiveness include:

1. Increased Market Power: Acquisitions can help firms overcome entry barriers and
increase their market power, as discussed in the section "Reasons for Acquisitions" (p.
190-192).
2. Overcoming Entry Barriers: Acquisitions allow firms to enter new markets or
industries more quickly by acquiring an existing player rather than trying to build a
presence from scratch (p. 192).
3. Reduced Risk and Faster Speed to Market: Acquisitions are seen as lower risk
compared to developing new products internally, and can provide faster access to new
markets or capabilities (p. 193, 195).
4. Increased Diversification: Acquisitions allow firms to diversify their product/service
offerings and reduce risk (p. 195).
5. Reshaping Competitive Scope: Acquisitions can help firms reshape their competitive
scope and positioning (p. 197).
6. Learning and Developing New Capabilities: Acquisitions can provide access to new
technologies, skills, and capabilities that the acquiring firm may lack (p. 197).

The study shows the key strategic rationales that drive firms to pursue acquisition strategies,
highlighting how acquisitions can be used to enhance a firm's competitive position and
achieve strategic goals.

3. Describe seven problems that work against achieving success when using an
acquisition strategy.

When using an acquisition strategy, there are several problems that can work against
achieving success. Here are seven common problems associated with acquisition strategies:

1. Cultural Clash: The merging of two different organizational cultures can create
conflicts and difficulties in integration. Misalignment of values, norms, and practices
can hinder effective collaboration and synergy.
2. Overpayment: Paying an excessive price for the target company can result in financial
strain on the acquiring company. Overvaluation of the target's assets or future
prospects can lead to a negative impact on the acquiring company's financial
performance.
3. Integration Challenges: Integrating the operations, systems, processes, and personnel
of the acquired company with the acquiring company can be complex and time-
consuming. Integration difficulties can disrupt business operations and hinder the
realization of anticipated synergies.
4. Poor Due Diligence: Insufficient or inadequate due diligence can lead to unforeseen
risks and problems post-acquisition. Inadequate assessment of the target company's
financials, operations, legal issues, or market dynamics can result in unpleasant
surprises and hinder the achievement of desired outcomes.
5. Loss of Key Talent: During the acquisition process, key employees of the target
company may leave due to uncertainties or dissatisfaction with the new ownership.
The loss of critical talent can impact the acquired company's performance and the
success of integration efforts.
6. Incompatible Strategies: Incompatibility between the strategic objectives, business
models, or market positioning of the acquiring and acquired companies can hinder
successful integration. Misalignment in strategic direction and lack of synergy can
lead to difficulties in realizing intended benefits.
7. Resistance to Change: Employees in both the acquiring and acquired companies may
resist changes resulting from the acquisition. Resistance to new processes, systems,
reporting structures, or cultural shifts can impede the achievement of integration goals
and hinder overall success.
4. Reasons for acquisition and problems in achieving success
5. Attributes of successful Acquisition

6. When the acquisitions strategy result was fail firms consider using structuring
strategy
 Is a strategy through which a firms changes its set of business or its financial
structure
Restructuring and its outcomes
 Chapter – 8

4. International strategy
1. Explain traditional and emerging motives for firms to pursue international diversification.
 Increased Market Size, Higher Returns on Investment, Economies of Scale and
Learning, Location Advantages, Overcoming Entry Barriers and Diversification-
Extend products lifecycle. Operating in multiple countries can reduce a firm's
overall risk exposure compared to being concentrated in a single domestic market.
 To secure needed resources

The document also mentions some emerging motives, such as:

 Regionalization trends, where firms focus on expanding within a particular

geographic region rather than globally.
 Responding to liability of foreignness challenges that come with operating in
unfamiliar international environments.
 Addressing political, economic, and management complexities involved in managing
multinational operations.

2. The four major benefits of an international strategy.

3. International strategy
Explore the four factors that provide a basis for international business level strategies.

1. Who: Determining which customers to serve in international markets. This involves

identifying the target customer segments and their needs.
2. What: Determining which customer needs to satisfy in international markets. This
requires understanding what value proposition the firm can offer to customers in different
countries.
3. How: Determining the core competencies necessary to satisfy the identified customer
needs in international markets. This relates to the firm's ability to leverage its resources
and capabilities to meet customer demands globally.
4. Competitive Scope: Determining the geographic scope over which the firm will compete,
such as a single country, a region, or globally. This relates to the level of international
diversification the firm pursues.

 Firms choose to use one or both of two basic types of international strategies:
business-level international strategy and corporate-level international strategy.
 At the business level, firms follow generic strategies: cost leadership, differentiation,
focused cost leadership, focused differentiation, or integrated cost
leadership/differentiation.
 The three corporate-level international strategies are multi-domestic, global, or
transnational (a combination of multi-domestic and global).
 International Business-Level Strategy- Each business must develop a competitive
strategy focused on its own domestic market. The home country of operation is often
the most important source of competitive advantage.
  International Corporate-Level Strategy
 Are based at least partially on the type of international corporate-level strategy
the firm has chosen.
 Focuses on the scope of a firm’s operations through both product and
geographic diversification.
 Is required when the firm operates in multiple industries and multiple
countries or regions.
 The headquarters unit guides the strategy, although business- or country-level
managers can have substantial strategic input, depending on the type of
international corporate-level strategy followed
 The three international corporate-level strategies are multi-domestic, global,
and transnational
Multi-domestic_ is an international strategy in which strategic and operating decisions are
decentralized to the strategic business unit in each country so as to allow that unit to tailor
products to the local market.
A global strategy_ is an international strategy through which the firm offers standardized
products across country markets, with competitive strategy being dictated by the home office.
A transnational strategy_ is an international strategy through which the firm seeks to
achieve both global efficiency and local responsiveness.

4. The environmental trends affecting international strategy, especially liability of

foreignness and regionalization.

The key environmental trends affecting international strategy are:

Liability of Foreignness:

 This refers to the challenges and disadvantages that foreign firms face compared to
local domestic firms when operating in a foreign market.
 Foreign firms often lack local knowledge, relationships, and legitimacy, putting them
at a competitive disadvantage.
 Examples of liability of foreignness include navigating unfamiliar regulations, dealing
with cultural differences, and overcoming consumer biases against foreign brands.
 Firms can try to overcome liability of foreignness through strategies like acquisitions,
joint ventures, and building local partnerships.

Regionalization:
  There is a trend towards greater regionalization of the global economy, with firms
focusing more on regional markets rather than global expansion.
 Reasons include differences in consumer preferences, regulations, and infrastructure
across regions.
 Firms may find it more effective to tailor their strategies, products, and operations to
specific regional markets rather than trying to be globally standardized.
 Examples include the growth of regional trade blocs like the European Union,
NAFTA, and ASEAN.
 Firms need to analyze the unique characteristics and dynamics of regional markets as
part of their international strategy.

Other key trends:

 Increased global competition and the rise of multinationals from emerging markets
 Rapid technological changes impacting global operations and communications
 Growing importance of managing global supply chains and logistics
 Geopolitical uncertainties and protectionist policies in some countries

5. The five main modes of international market entry are:

1. Exporting:
o Selling domestically produced products in foreign markets
o Lowest resource commitment and risk, but also lowest potential return
o Useful for firms testing international markets or with limited resources
2. Licensing:
o Granting a foreign company the right to use the firm's intellectual property
(e.g. brand, technology, patents) in exchange for royalties
o Allows rapid international expansion with minimal resource commitment
o Firm retains some control but has less direct involvement in foreign operations
3. Strategic Alliances:
o Collaborative agreements between firms, such as joint ventures or other
partnerships
o Allows shared resources, risks, and decision-making with a partner firm
o Can provide access to local knowledge, distribution channels, and capabilities
4. Acquisitions:
 o Purchasing an existing foreign company to quickly enter a new market
o Provides more direct control but requires higher resource commitment
o Can help overcome liability of foreignness by obtaining local expertise
5. New Wholly Owned Subsidiary:
o Establishing a new company-owned operation in the foreign market
o Highest resource commitment and risk, but also highest potential return
o Allows full control over foreign operations but requires greater capabilities
 CHAPTER -9

5.COOPERATIVE STRATEGY

1. Define cooperative strategies and explain why firms use them.

 Is a strategy in which firms work together to achieve a shared objective.
 Access to new markets and resources, Share risk and reduce uncertainty,
Achieve economies of scale and scope, Learn and build new capabilities,
Respond to competition:
2. Three types of strategic alliances.

1. Complementary Strategic Alliances:

o Formed between firms with different but complementary resources,
capabilities, or market positions.
o The goal is to create synergies by combining these differences in a way that
benefits both partners.
o Examples include an established firm partnering with a startup to access new
technologies, or a firm in one country partnering with a firm in another
country to gain market access.
2. Competition Response Alliances:
o Formed by firms seeking to counter the competitive threat posed by other
players in the industry.
o The alliance allows firms to pool resources, share risks, and establish a
stronger collective position.
o Examples include airlines forming alliances to compete against dominant
industry players, or small firms banding together to take on larger competitors.
3. Uncertainty-Reducing Alliances:
o Formed by firms to manage environmental uncertainty and reduce risks.
o The alliance provides access to critical resources and knowledge that help
firms adapt to changing market conditions.
o Examples include firms in volatile or fast-changing industries forming
alliances to keep up with technological changes or evolving customer
preferences.

Across these three types, the key benefits of strategic alliances include:
  Accessing new markets, technologies, or other critical resources
 Sharing investment costs and risks
 Achieving economies of scale and scope
 Learning and building new organizational capabilities

Business-Level Cooperative strategy

Corporate Level Cooperative strategy

Competitive risk with cooperative strategy