OUHK 2013 Tutorial 3
B399 Management
Policy and Strategy
Tutorial 3
Kent Ip
OUHK
Course Overview
Part 3 of Textbook
Corporate Strategies (Chapter 6 – 11)
Chapter 6
Vertical Integration
Chapter 7
Corporate Diversification
Chapter 8
Organizing to Implement Corporate
Diversification
Chapter 6
Vertical Integration
6.1 What is Corporate
Strategy?
Corporate Strategy is a firm’s theory of how to gain competitive advantage by operating in several businesses simultaneously 6.2 What is Vertical
Integration? (P.182)
A firm’s level of vertical integration is simply the number of steps in the value chain that a firm accomplishes within its boundaries Firms that are vertically integrated accomplish more stages of the value chain within their boundaries than firms that are less vertically integrated
6.3 Backward Vertical
Integration
Closer to gaining access to raw materials
Example: computer companies developed all their own software, they were engaging in backward vertical integration, because these actions are close to the beginning of the value chain
6.4 Forward Vertical
Integration
Those stages bring it closer to the end of the value chain
Example: Companies staffed and operated their own call centers in the United States, they were engaging in forward vertical integration, because these activities brought them closer to the ultimate customer 6.5 The Value of Vertical
Integration (P.183)
1. Vertical Integration and the Threat of
Opportunism
2. Vertical Integration and Firm Capabilities
3. Vertical Integration and Flexibility
Adam Smith’s “invisible hand” coordinates the quantity and quality of goods and services produced with the quantity and quality of goods and services demanded through the adjustment of prices – all without centralized controlling authority
6.5 The Value of Vertical
Integration
6.5.1. Vertical
Integration and the Threat of Opportunism
Using Vertical Integration to reduce the threat of opportunism* If the cost of vertical integration is greater than the
Policy and Strategy
Tutorial 3
Kent Ip
OUHK
Course Overview
Part 3 of Textbook
Corporate Strategies (Chapter 6 – 11)
Chapter 6
Vertical Integration
Chapter 7
Corporate Diversification
Chapter 8
Organizing to Implement Corporate
Diversification
Chapter 6
Vertical Integration
6.1 What is Corporate
Strategy?
Corporate Strategy is a firm’s theory of how to gain competitive advantage by operating in several businesses simultaneously 6.2 What is Vertical
Integration? (P.182)
A firm’s level of vertical integration is simply the number of steps in the value chain that a firm accomplishes within its boundaries Firms that are vertically integrated accomplish more stages of the value chain within their boundaries than firms that are less vertically integrated
6.3 Backward Vertical
Integration
Closer to gaining access to raw materials
Example: computer companies developed all their own software, they were engaging in backward vertical integration, because these actions are close to the beginning of the value chain
6.4 Forward Vertical
Integration
Those stages bring it closer to the end of the value chain
Example: Companies staffed and operated their own call centers in the United States, they were engaging in forward vertical integration, because these activities brought them closer to the ultimate customer 6.5 The Value of Vertical
Integration (P.183)
1. Vertical Integration and the Threat of
Opportunism
2. Vertical Integration and Firm Capabilities
3. Vertical Integration and Flexibility
Adam Smith’s “invisible hand” coordinates the quantity and quality of goods and services produced with the quantity and quality of goods and services demanded through the adjustment of prices – all without centralized controlling authority
6.5 The Value of Vertical
Integration
6.5.1. Vertical
Integration and the Threat of Opportunism
Using Vertical Integration to reduce the threat of opportunism* If the cost of vertical integration is greater than the