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[CS-1] Corporate Scope, G3 (Owen, Eason, Wick, Silvia), Low, Questions…

- - - - Have a better understanding on local markets and business conditions.
      - These firms may hustle more and penetrate the market better.
        
        How to maintain it in the vertically integrated operation?
        Ex: Managers in bottling operation get commssions based on the profit.
    - - To have a better control of overall quality.
      - To ensure the new technology or marketing investments are made.
        
        How to ensure these investments are made?
        Ex: Requiring some level of annual investments in the contract.
- - - - Seeking to reduce transaction costs.
      - Applying the synergy of resources scailing(or sharing).
    - - Seeking to replicate market-like incentives.
      - Applying the synergy of resources redeployment(or transferring).
- - - - The value of the diversified firm is less than the sum of its SBU's
    - - Create value from a set of fewer and more related business
        
        diversification premium
  - - - enter related business
    - - scale common resources that can be used in multiple business
      - develop slack resources and redeploy to other business
    - - to reduce risk or grow the size of firm
  - - - merges with another company in the same industry
        
        to increase the size
    - - Related (and Unrelated) Diversification
        
        a set of different business
      - Example
        
        Movie : Wall Street
        
        How should a conglomerate buy or break up a company to create value?
  - - - at various stages of industry life cycle
      - called strategic business units or SBUs
      - redeployment of cash
  - - - Unrelated businesses
        
        not effective in creating value
      - Headquarters staff
        
        getting too bloated
      - General management knowledge
        
        not enough to manage businesses well
    - - spilt up
        
        insurance, hotels business
        
        Engineered parts
        
        a water business called Xylem
        
        a defense business called Exelis
    - - ITT stock
        
        zoomed up almost 20%
      - Reason
        
        Efficiency of financial markets
        
        it is simple to borrow money from equity markets, bond markets, or a bank.
        
        Unrelated businesses
        
        ITT's businesses operate as separate companies
        
        Separate companies would do better
        
        investors focus on the respective businesses and bid up the company's stock price
    - - International Telephone and Telegraph
        
        Conglomerate
        
        hotels
        
        Starwood
        
        car rentals
        
        Avis Rent a Car
        
        insurance
        
        Hartford
        
        Strategry
        
        analyzing the financials to manage business
  - - - An alliance, long-term contract, licensing, etc
      - Deere
        
        1980's farm crisis
        
        The moment that need to diversify and get out of the very cyclical market
        
        Way
        
        globalization
        
        To bring some scale to their channel into their engineering
        
        Chose mining
        
        Lean on Hitachi as a partner
        
        Alliance partnership
        
        achieve the same goal
  - - - does the combination of businesses create value?
    - - To access the value from the presume synergies, does the same company need to own the businesses?
- - - - product and service
    - - regional,national,global markets
    - - stages of industry value chain
- - - - lack of the needed resources or capabilities to handle an activity.
      - better able to aggregate demand and build scale.
      - responsive to market and technology trends
    - - Learn from their outsourcing partners
      - develop their own capabilities in the long run
      - stop eventually outsourcing a critical or profitable activity.
    - - When we rely on outsourcing continuously, it is hard to catch up