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Where Will We Compete (3. Diversification (Assessing diversification…

- - - - By developing its new capabilities entirely in-house
        Disad: require significant time and resources
      - By acquiring new capabilities
        Ad: quick entrance to market, existing market share adding, certain uncontested competitive advantages
        Disad: complex acquisition analysis, resource requirements
      - By outsourcing the capability
        Ad: rapid and less resource-intensive
        Disad: risky quality and quantity problem
      - Merger and acquisitions
        (merger: a new entity is formed; acquisition: one entity absorbs another.)
        
        Five objectives
        
        Creating cost efficiencies
        
        Expanding geographical coverage
        
        Extending product offerings
        
        Gaining access to technology, resources, or capabilities
        
        Supporting the organization’s ability to adapt to the evolution of its industry
        
        Two main obstacles
        
        insufficient due diligence to the transaction
        
        A mismatch of organizational cultures
  - - - New competencies will come naturally, easily, or quickly
        
        Exposure to changes or negative trends
        
        Acquisition might not be cost-efficient if the added activity is not significant to the organization’s operations
        
        Mismatch of capabilities
    - - Backward integration: the process of buying or owning elements of the production cycle and channel of distribution back toward raw material supplier.
      - Forward integration: process of buying or owning elements of the production cycle; the channel of distribution forward toward the final customer.
- - - - Widespread dispersal of value chain activities
      - Focused location of value chain activities:
        Production advantage
        Economic of scale
        Learning curve effects
        Better coordination with suppliers and customers
  - - - Ad: organization is highly decentralized; local country leaders have enough power to make decisions and use resources; highly responsive to local conditions and needs.
        Disad: not promote the type of exchange btw headquarters and locals; not take advantage of the increased customer base.
    - - Ad: organization is highly standardized; centralized decision making; same products with minor customizations; take advantage of country strengths; transfer and share of capabilities across borders; organizational learning and innovation increase; lower costs by using multiple locations to lower transportation costs and speed delivery to customers.
        Disad: require leaders having global perspectives and comfortable with different cultures; complex management; require ability to respond to local markets for efficiencies and strengths of global brands.
    - - Ad: both achieve standardization and local responsiveness.
        Disad: time-consuming to adapt all elements of a strategy to different conditions; sometimes conflict demand from various markets.
  - - - Ad: relatively little investment and internal change to the organization; maintain full control of the activity.
        Disad: competitive power might be weakened.
    - - Ad: organization receives royalty from the licensee and the licensee assumes the expenses of using or producing the property and all market risks.
        Disad: lose control over the property.
    - - Ad: (similar to license) more appropriate for service and retail business seeking to other foreign countries.
        Disad: lose control over brand.
    - - Ad: full control over the project and investment; potentially higher financial return than licensing and franchising.
        Disad: larger investment; high risk.
    - - Ad: achieve economic of scale; gain additional access to distribution channels; mutual learning.
        Disad: concerns about sharing proprietary technology.
- - - - Strategic fit exists when:
        a potential for sharing expertise or assets that will have synergistic effects on the performance; assets can be shared to lower costs; brand identity can be transferred to support consumer recognition.
  - - - Industry attractiveness is assessed based on:
        market size and growth trend;
        intensity of competition;
        emerging opportunities and threats;
        cross-industry strategic fit;
        resource requirement;
        macro-environmental effects;
        industry profitability.
      - Competitive strength is assessed based on:
        market share;
        costs and profitability relative to competitor’s performance;
        product features relative to competitor’s products;
        competitive advantages (e.g., strong brand, key relationships with suppliers and/or distributors);
        synergistic benefits from other enterprises in the portfolio.