Strategic Management: Integration, merger vs acquisition,
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1. Porter (1985) noted that a firm is "stuck in the middle" if they try to both differentiate their products/services and compete on low-cost. However firms like Wal-Mart, Southwest Airlines, and Home Depot, use exactly that strategy and are quite successful. Why? Or coudl they be more successful is they got out "of the middle"?
2. Describe the risks associated with horizontal integration, vertical integration, concentric diversification, and conglomerate diversification. Why is a concentration strategy considered less risky?
3. What is the difference between a merger and an acquisition? Which seems riskier? Why?
4. Why would a firm use joint ventures, strategic alliances, and outsourcing? How do these strategies reduce risk?
5. Mergers and Acquisitions are once again becoming "popular" - explain!
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Solution Summary
Integration and mergers versus acquisition for strategic management are examined.
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Strategic Management
A firm that tries to both differentiate their products and services and compete on low cost are said to be "stuck in the middle" by Porter (1985). This strategy though has seen many companies such as Home depot, Wal-Mart and Southwest Airlines become quite success. This is mainly because a combination of differentiation and cost leadership strategies is dependent on more factors than Porter highlighted and more than often instead of leading to a non profitable "stuck in the middle" situation often leads to sustainable competitive advantage. Hill (1988) in his research found that a combination of low cost and differentiation strategies is necessary for companies to establish a sustainable competitive advantage in an industry, where differentiation becomes a strategy of achieving a low cost position. By differentiating their products companies have been able to enjoy the benefits of economies of scale which generally lowers costs.
If these companies got out of the "middle" it would drastically change their business strategies which would not necessarily led to an increase in business performance. In this current competitive global market place, pursuing one strategy of either differentiation or cost leadership, would not offer a competitive advantage to a firm. What companies need is a balance in differentiation and cost strategies that will give them a competitive edge from traditional industries pursuing only one of the strategies. Since Porter, an integrative differentiation-cost leadership strategy has been developed to keep up with changes in the business environment.
Horizontal integration is expanding the business at the same level of the value chain. This can be done through expanding internal business processes or through expanding external business processes through business activities such as mergers and acquisitions. Some of the risks associated with horizontal integration include: rise of anti trust issue in the case where ...
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