case anlysis on fdi
Corporate Strategy: Horizontal Integration, Vertical Integration, and Strategic Outsourcing
SYNOPSIS OF CHAPTER
This chapter and Chapter 10 concern corporate-level strategy. This chapter focuses on the different strategic choices that companies make with regard to horizontal and vertical integration. In particular, we consider the arguments for and against horizontal and vertical integration and examine strategic alliances and strategic outsourcing as alternatives. In the next chapter, the focus is on the strategies that companies use to enter and exit businesses.
Successful corporate strategy adds value by enabling the company to perform one or more of the value-creation functions at a lower cost or in a way that allows differentiation and brings a premium price. For a company to be successful, its corporate strategy must assist in the process of establishing a distinctive competency at the business level.
To a certain extent, this view conflicts with the received wisdom of the strategic management literature. It is often claimed that a company’s corporate-level strategy sets the context for its business level strategy. Our position is that if a corporate level strategy is to succeed, the reverse should be the case. That is, the process of establishing a sustainable competitive advantage at the business level defines the set of appropriate corporate-level strategies.
Another theme stressed in the chapter is that the existence of bureaucratic diseconomies implies a fundamental limit to the profitable pursuit of horizontal and vertical integration. As companies become more diversified or vertically integrated, top management begins to lose control, leading to the dissipation rather than the creation of value.
A final theme of this chapter is that strategic alliances and strategic outsourcing are often viable alternatives to horizontal and vertical integration. That is, these strategies can achieve many of the same benefits without encountering the same
SYNOPSIS OF CHAPTER
This chapter and Chapter 10 concern corporate-level strategy. This chapter focuses on the different strategic choices that companies make with regard to horizontal and vertical integration. In particular, we consider the arguments for and against horizontal and vertical integration and examine strategic alliances and strategic outsourcing as alternatives. In the next chapter, the focus is on the strategies that companies use to enter and exit businesses.
Successful corporate strategy adds value by enabling the company to perform one or more of the value-creation functions at a lower cost or in a way that allows differentiation and brings a premium price. For a company to be successful, its corporate strategy must assist in the process of establishing a distinctive competency at the business level.
To a certain extent, this view conflicts with the received wisdom of the strategic management literature. It is often claimed that a company’s corporate-level strategy sets the context for its business level strategy. Our position is that if a corporate level strategy is to succeed, the reverse should be the case. That is, the process of establishing a sustainable competitive advantage at the business level defines the set of appropriate corporate-level strategies.
Another theme stressed in the chapter is that the existence of bureaucratic diseconomies implies a fundamental limit to the profitable pursuit of horizontal and vertical integration. As companies become more diversified or vertically integrated, top management begins to lose control, leading to the dissipation rather than the creation of value.
A final theme of this chapter is that strategic alliances and strategic outsourcing are often viable alternatives to horizontal and vertical integration. That is, these strategies can achieve many of the same benefits without encountering the same