Having chosen the general orientation a company’s managers can select from more specific corporate strategies such as concentration within one product line/industry or diversification into other products/industries. These strategies are useful both to corporations operating in only one product line and to those operating in many industries with many product lines.
By far the most widely pursued corporate directional strategies are those designed to achieve growth in sales, assets, profits or some combination. Companies that do business in expanding industries must grow to survive. Continuing growth means increasing sales and a chance to take advantage of the experience curve to reduce per unit cost of products sold, thereby increasing profits. This cost reduction becomes extremely important if a corporation’s industry is growing quickly and competitors are engaging in price wars in attempts to increase their shares of the market. Firms that have not reached “critical mass” (that is, gained the necessary economy of large scale productions) will face large losses unless they can find and fill a small, but profitable, niche where higher prices can be offset by special product or service features. That is why Motorola Inc., continues to spend large sum on the product development of cellular phones, pagers, and two-way radios, despite a serious drop in market share and profits. According to Motorola’s Chairman George Fisher, “what’s at stake here is leadership”. Even though the industry was changing quickly, the company was working to avoid the erosion of its market share by jumping into new wireless markets as quickly as possible. Being one of the market leaders in this industry would almost guarantee Motorola enormous future returns.
A Corporation can grow internally by expanding its operations both globally and domestically, or it can grow externally through mergers, acquisition and strategic alliances. A merger is a transaction involving two or more corporations in which stock is exchanged, but from which only one corporation survives. Mergers usually occur between firms of somewhat similar size and are usually “friendly”. The resulting firm is likely to have a name derived from its composite firms. One example in the Pharma Industry is the merging of Glaxo and Smithkline Williams to form Glaxo Smithkline. An Acquisition is the purchase of a company that is completely absorbed as an operating subsidiary or division of the acquiring corporation. Examples are Procter & Gamble’s acquisition of Richardson-Vicks, known for its Oil of Olay and Vicks Brands, and Gillette, known for shaving products.
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