MANAGING THE MULTI BUSINESS

CORPORTION
When a firm has diversified into more than one line of
business it is called multi business firm. . The primary
objective of a multi-business firm is achieving higher
financial performance than the firms units would
achieve Having one successful company makes it
easier to start a second one, but it's also a risky
venture thatif not done correctlycould jeopardize
not only the new company but the established one as
well if they were independent.

Why expand business??

Expand market share and increase sale
Controlling expenses
Every business wants to have low expenses; so
some companies will therefore enter the global
arena to minimize their costs. Companies will
examine the resources they need and where they
can get them at the lowest price. By searching
outside of their own borders, companies hope to
find more economical solutions to the production
and manufacturing problems they have.

 Diversification
Companies have a foothold in a number of countries so
they dont have to depend on the economy of one
country. Companies engaged in international business
can protect their investments and their markets by
dealing with countries in a variety of countries. A
recession in one county wont have a huge effect if
business is doing well in another country.
competitiveness
Many companies expand globally for defensive reasonsto protect themselves from competitors or potential
competitors, or to gain advantage over them.

Why Do Firms Diversify?

To Grow
Increase sales & profitability beyond what firms core
businesses can provide
Managerial self-serving behavior -- compensation
Managerial hubris -- pride or status that come from
managing a large business
To more fully utilize existing resources and capabilities
Skills in sales & marketing, general management
skills & knowledge, distribution channels, etc.

Why Do Firms Diversify?

Risk reduction and/or spreading
Escape from unattractive or undesirable industries
(e.g., tobacco & oil companies)
Stability of profit flows (CAPM: systematic vs.
unsystematic risks; shareholders & diversified
portfolios)
To make use of surplus cash flows
Large cash balances attract corporate raiders
Use cash balances to avoid hostile takeovers
To build shareholder value
Create synergy among the businesses of a firm
Make 2 + 2 = 5: The whole should be greater than
the sum of the parts

Portfolio Analysis or Strategies

the strategic units that make up the company and the
attempts to evaluate current effectiveness and
vulnerabilities (McDonald et al, 1992)
How much of our time and money should
we spend on our best products to ensure
that they continue to be successful?
How much of our time and money should
we spend developing new costly products,
most of which will never be successful?

Examples of Portfolios
Unilever: ice cream, tea, spreads,
Proctor & Gamble: Detergents,
nappies,
Gillette: batteries, Shaving products
Virgin; trains, planes, cola, music
stores

Single & Multiple Business

Organizations
Single business organizations
Operates primarily in only one industry (e.g., CocaCola Beverage Industry; Wrigley Jr. Company
Chewing Gum)
Multiple Business Organizations
Operates in more than one industry
Example: PepsiCo Snack Food Industry business
(Frito Lay); & Beverage Industry
Philip Morris Companies Tobacco Industry;
Brewery Industry (Miller Brewery); & Food
Processing Industry (Kraft General Foods).

Types of Growth Strategies

International

Concentration

Organizational
Growth
Diversification
Related
Unrelated
Horizontal
Integration

Vertical
Integration
Backward
Forward

Concentration Strategy
A growth strategy where the firm
Concentrates on its primary line of business
Looks for ways to meet its growth objectives through
increasing its level of operation in this primary
business
When a single-business organization pursues growth, it is
using the concentration strategy

Vertical Integration
Strategies
An organizations attempt to gain
control of

Its inputs (backward integration) -- supplier

Its output (forward integration) -- distributor
Or both inputs and output
Purpose is to (1) reduce resource acquisition
costs, & (2) deal with inefficient operations

Vertical Integration

Considered a growth strategy because the

firms operations are expanded beyond
primary business
Mixed empirical results as to whether
strategy helps or hurt performance
What is the role of outsourcing in achieving

Horizontal Integration
Strategies
Expanding the firm's operations through combining
with competitors operating in the same industry &
doing the same things
It is an appropriate corporate growth strategy as long
as
It enables the company to meet its growth
objectives
It can be strategically managed to attain a
sustainable competitive advantage
It satisfies legal and regulatory guidelines

Diversification Strategies
A corporate growth strategy in which a firm expands its
operation by moving into a different industry
Many reasons or motives for diversification
Two major types of diversification
Related (concentric) diversification
Unrelated (conglomerate) diversification

Implementing Growth
Strategies
Mergers & Acquisitions
A merger is a legal transaction in
which two or more organizations
combine through an exchange of stock,
but only one firm actually remain
An acquisition is an outright purchase
of an organization by another
What is a Takeover?

Implementing Growth
Strategies
Strategic Partnering
When two or more firms establish a
legitimate relationship by combining
their resources, core competencies,
distinctive capabilities for some
business purpose
Arrangement can be used to
implement any of the growth
strategies
Vertical Integration
Horizontal Integration
Related Diversification

Implementing Growth
Strategies
Types of Strategic Partnerships
Joint Venture (JV)
Two or more separate organization form an
independent organization for strategic purposes
Partners usually own equal shares of new
venture
Used when partners do not want to be legally
joined
Long-Term Contract
Legal contract between organizations covering a
specific business purpose
Typically between an organization & its suppliers