Corporate Strategy - Free Essay Example

Q1:Explain what you understand by corporate strategy? Ans:Corporate strategy deals with the specification of a company,or the best product of a company that can help the company to deal or compete with other companies. There are several ways that a company can adopt .A company could compete with other companies by minimizing the cost of its product or by increasing the quality of the product or by attracting the customers by advertisement.(467) 2. Describe the different types of corporate strategy that a firm can adopt.? Ans:There are three most common corporate strategies that a firm can adopt: . Horizontal integration Verticle integration Diversification There are two major types of corporate strategies like single business and diversified.(448) 3. Provide a critical assessment of the usefulness of institutional theory for explaining cross-national differences and similarities in corporate strategy? Ans:Organizations are deeply rooted in Insitutional environment.It is widely accepted that national institutions strongly influence the behavior of firms. The institutional environment constructed by these institutions is or is not the same as a country. Some institutions, such as government policy, can vary within a country.For example, the state of Delaware has corporate laws that differ from those of most other states in the USA. Therefore, à ¯Ã‚ ¬Ãƒâ€šÃ‚ rms in Delaware face an insti- tutional environment that differs from the ones in other US states. ‘However many of the key institutions that structure economic relationships vary signià ¯Ã‚ ¬Ãƒâ€šÃ‚ cantly between nation states’. Among these key institutions, a difference can be discerned between institutions that structure general patterns of trust, cooperation, identity and subordination in a society, and those that are more directly involved in the economic system and constitute the more direct business environment. Because our aim is to focus on institutions that are able to explain differences in corporate strategies, we will focus on the latter institutions, which Whitley calls ‘proximate social institutions’. The three major categories these institutions can be divided into are the political system, the à ¯Ã‚ ¬Ãƒâ€šÃ‚ nancial system and the labour system. In order to explain differences in corporate strategies between various countries, several scholars have identià ¯Ã‚ ¬Ãƒâ€šÃ‚ ed various institutional factors. (454) 4. Explain how the political, financial and labour market systems have an impact on the corporate strategies of firms. Ans: Political system Government policy can have a strong impact on co rporate strategies. Anti- trust laws can inà ¯Ã‚ ¬Ã¢â‚¬Å¡uence corporate strategy. willingness of a government to share economic risks with private à ¯Ã‚ ¬Ãƒâ€šÃ‚ rms is important. tax laws can have an inà ¯Ã‚ ¬Ã¢â‚¬Å¡uence on corporate strategy, especially on the level of diversià ¯Ã‚ ¬Ãƒâ€šÃ‚ cation. Financial system The way the à ¯Ã‚ ¬Ãƒâ€šÃ‚ nancial system in a country functions can also have an impact on corporate strategies, especially on the level of diversià ¯Ã‚ ¬Ãƒâ€šÃ‚ cation in a country. Another aspect of the à ¯Ã‚ ¬Ãƒâ€šÃ‚ nancial system that can have an impact on corporate straegies is the market for corporate control. When there is a highly developed market for corporate control, it is easier for à ¯Ã‚ ¬Ãƒâ€šÃ‚ rms to undertake hostile take-overs and, thus, easier to get access to other industries. Therefore, a highly developed market for corporate control can lead to more diversià ¯Ã‚ ¬Ãƒâ€šÃ‚ cation. Nevertheless, it is important to note that a highly devel- oped market for corporate control also makes it easier to break up conglomerates through a hostile take-over and, by doing so, to end diversià ¯Ã‚ ¬Ãƒâ€šÃ‚ cation. Ownership and boards are also mentioned as institutional factors that have an inà ¯Ã‚ ¬Ã¢â‚¬Å¡uence on corporate strategies. Labour System: The labour system also inà ¯Ã‚ ¬Ã¢â‚¬Å¡uences corporate strategy. The way management development is organized can inà ¯Ã‚ ¬Ã¢â‚¬Å¡uence the way managers rate different directions of diversià ¯Ã‚ ¬Ãƒâ€šÃ‚ cation.(455-456) 5. Evaluate how industrial organization theory, transaction cost economics and agency theory can help to explain corporate strategy? Ans: Industrial Organization Theory: The structure of an industry determines the behaviour of the à ¯Ã‚ ¬Ãƒâ€šÃ‚ rms active in that industry, which, in turn, drives their performance. For example, if the concentration in the industry is low (i.e. there are many competitors with small market shares), à ¯Ã‚ ¬Ãƒâ€šÃ‚ rms are expected to engage in à ¯Ã‚ ¬Ãƒâ€šÃ‚ erce competition, which reduces their proà ¯Ã‚ ¬Ãƒâ€šÃ‚ tability. In this view, à ¯Ã‚ ¬Ãƒâ€šÃ‚ rms diversify because this gives access to market power, which reduces competition and, consequently, boosts their performance). Diversià ¯Ã‚ ¬  ed à ¯Ã‚ ¬Ãƒâ€šÃ‚ rms can use several instruments to reduce competition). Cross-subsidization involves the use of proà ¯Ã‚ ¬Ãƒâ€šÃ‚ ts gained in one industry to support activities in another. Specià ¯Ã‚ ¬Ãƒâ€šÃ‚ cally, a diversià ¯Ã‚ ¬Ãƒâ€šÃ‚ ed à ¯Ã‚ ¬Ãƒâ€šÃ‚ rm can afford ‘predatory pricing’, charging low prices that attract many customers, but do not cover all the costs. A single-business competitor, which presumably lacks the ‘deep pockets’ required to sustain low price levels, may eventually be forced to exit the industry. Transaction cost economics: In theory, activities in two different industries could be assigned to two independent à ¯Ã‚ ¬Ãƒâ€šÃ‚ rms. Any necessary coordination between the two à ¯Ã‚ ¬Ãƒâ€šÃ‚ rms could take place via the market. Agency theory Agency theory: Interests mattersfor everyone. Revolves around the conà ¯Ã‚ ¬Ã¢â‚¬Å¡ict of interest between principal and agent. The agent is hired to perform some activity on behalf of the principal, but the agent also has his or her personal interests, which may urge him or her not to act in the best interests of the principal. (469-471) 6. Evaluate the explanatory power of dominant logic, the resource-based view, organizational learning and strategic contingency theory in the area of compara- tive corporate strategy? Dominant logic: A dominant general management logic is deà ¯Ã‚ ¬Ãƒâ€šÃ‚ ned as ‘the way in which managers conceptualise the business and make critical resource allocation decisions’. For corporate strategy, the implication is that the dominant logic of a à ¯Ã‚ ¬Ãƒâ€šÃ‚ rm’s top management team drives the portfolio of businesses that can be managed successfully. If the top management team has a single dominant logic, the à ¯Ã‚ ¬Ãƒâ€šÃ‚ rm should either stick to one business or diversify into businesses with similar strategic characteristics. Diversià ¯Ã‚ ¬Ãƒâ€šÃ‚ cation into businesses with different strategic characteristics can only be successful if the top management team adopts multiple dominant logics, which, in turn, at least requires altering the composition of the top management team.Dominant logic could explain the success of some conglomerates with small head ofà ¯Ã‚ ¬Ãƒâ€šÃ‚ ces with limited management capacity. Their businesses may appear unrelated, but could, in fact, be strategically very similar. Moreover, dominant logic may explain the failure of takeovers that, beforehand, seem to offer a large potential for synergies. After the take-over, the businesses turn out to require different dominant logics, which the top management team cannot provide. Resource-based view: The resource-based view of the à ¯Ã‚ ¬Ãƒâ€šÃ‚ rm can be seen as a response to the dominant inà ¯Ã‚ ¬Ã¢â‚¬Å¡uence on à ¯Ã‚ ¬Ãƒâ€šÃ‚ rm behaviour and performance that industrial economics assigns to the industry. Instead, the resource-based view emphasizes a à ¯Ã‚ ¬Ãƒâ€šÃ‚ rm’s resources. If the resources possess certain characteristics, such as non-tradability, non-substitutability and non-imitability, they can serve as the source of competitive advantage for a à ¯Ã‚ ¬Ãƒâ€šÃ‚ rm.A à ¯Ã‚ ¬Ãƒâ€šÃ‚ rm can use its excess capacity in resources in a different industry, leading to diversià ¯Ã‚ ¬Ãƒâ€šÃ‚ cation , More à ¯Ã‚ ¬Ã¢â‚¬Å¡exible resources – in particular, à ¯Ã‚ ¬Ãƒâ€šÃ‚ nancial resources – can also be used for unrelated diversià ¯Ã‚ ¬Ãƒâ€šÃ‚ cation .Finally, only if the resources that are used for diversià ¯Ã‚ ¬Ãƒâ€šÃ‚ cation have the characteristics required for competitive advantage, will diversià ¯Ã‚ ¬Ãƒâ€šÃ‚ - cation increase à ¯Ã‚ ¬Ãƒâ€šÃ‚ rm performance. Organizational learning perspective: The underlying premise of the organizational learning perspective is that organizations can learn from experience, which translates into future actions and their success.The organizational learning perspective ha s not been established as an important explanation of corporate strategy, but it does provide an interesting direction for future research. Strategic contingency theory: The à ¯Ã‚ ¬Ãƒâ€šÃ‚ nal explanation of corporate strategy is provided by strategic contingency theory. The underlying notion is that a à ¯Ã‚ ¬Ãƒâ€šÃ‚ t between a à ¯Ã‚ ¬Ãƒâ€šÃ‚ rm’s strategy, on the one hand, and external and internal conditions or contingencies, on the other, increases performance. Consequently, corporate strategy can be seen as a response to various external and internal contingencies. Relevant external contingencies are government policy and market failure. An important aspect of government policy is anti-trust law. Through anti-trust law, policy-makers try to prevent large concentrations of power in an industry. If anti-trust policy is stringent and à ¯Ã‚ ¬Ãƒâ€šÃ‚ rms still want to grow, they are forced to expand in a different industry and thus diversify. Market failure as a n incentive for diversià ¯Ã‚ ¬Ãƒâ€šÃ‚ cation has already been discussed under transaction cost economics, above. If markets fail, coordination of activities in different industries within a à ¯Ã‚ ¬Ãƒâ€šÃ‚ rm is more efà ¯Ã‚ ¬Ãƒâ€šÃ‚ cient. The à ¯Ã‚ ¬Ãƒâ€šÃ‚ rm then becomes diversià ¯Ã‚ ¬Ãƒâ€šÃ‚ ed.(471-473) Q7: Legitimize your own theoretical choice for understanding corporate strategy? Ans: Political system: Best choice for understanding the corporate strategy in Political system,Because In political system anti trust law can influence the corporate strategy.Willingness of Government is also very important.Tax system also influence the corporate strategy indirectly.(455) Q8. Assess whether and why corporate strategies will converge or diverge across countries? Ans:Corporate strategies diverge in countries because political system,Financial system,management systems are different for different countries.(467)