Module 4

CORPORATE LEVEL STRATEGIES

Thermax Ltd

Pre reads:
[Link]
Berger Paints

Pre-reads: https://
[Link]/about-us/[Link]
Learning Objectives

Explain the basic types of corporate strategies.

Describe how organisations employ concentration strategies.
Compare and contrast horizontal and vertical integration
strategies.
Demonstrate understanding of related and unrelated
diversification strategies.
Explain the types of retrenchment strategies.
Discuss the rationale for corporate restructuring and its
implementation in Indian context.
Cooperative
Corporate Strategies
Corporate-level strategies (or simply, corporate strategies) are basically about
decisions related to:
• Allocating resources among the different businesses of a firm;
• Transferring resources from one set of businesses to others;
• Managing and nurturing a portfolio of businesses; and
• Creating value across businesses in the portfolio.

Corporate strategies help to exercise the choice of direction that an organisation

adopts. There could be a small business firm involved in a single business or a
large, complex and diversified conglomerate with several different businesses.

Stability, Expansion, Retrenchment and combination of these

Stability Strategies

• The corporate strategy of stability is adopted by an organisation when it

attempts at incremental improvement of its performance by marginally
changing one or more of its businesses in terms of their respective customer
groups, customer functions, and alternative technologies - either singly or
collectively.
• A packaged Tea Company provides special service to its institutional buyers, apart from
its consumer sales through market intermediaries, in order to encourage bulk buying
and thus improve its marketing efficiency
• A Photo copier machine provides better after sales service
• A steel company modernises its plant to improve efficiency and productivity
Stability Strategies

The major reasons for adopting stability strategy are:

• It is less risky, involves less changes and people feel comfortable with
things as they are.
• The environment faced is relatively stable.
• Expansion may be perceived as being threatening.
• Consolidation is sought through stabilising after a period of rapid
expansion.

3 types – no-change, profit, pause / proceed-with-caution

strategy
 Types of Stability Strategies
• No-change strategy: As the term indicates, this stability strategy is a conscious
decision to do nothing new i.e. to continue with the present business definition.
This could be characterised as an absence of strategy though in reality it is not so.
• Profit strategy: An organisation may assess the current situation and assume that
its problems are short-lived and will go away with time. Till then, the organisation
tries to sustain its profitability by artificial measures by adopting a profit strategy.
• Reduce investments, cut costs, raise prices, increase productivity, sell off assets, change
location etc.

• Pause / proceed-with-caution strategy: is employed by organisations that wish

to test the ground before moving ahead with a full-fledged corporate strategy or
organisations that have had a blistering pace of expansion and wish to rest awhile
before moving ahead.
• HUL sells leather shoes export biz to Hindustan Foods
 Expansion Strategies
• The corporate strategy of expansion is followed when an organisation aims at high
growth by substantially broadening the scope of one or more of its businesses in
term of their respective customer groups, customer functions, and alternative
technologies - singly or jointly - in order to improve its overall performance.
• A chocolate manufacturer expands its customer groups to older people
• A stockbroker firm offers analytical premium service to existing customers along
with other products and services
• Off-set printing firm changes from traditional machines to desk top printing to
increase production and efficiency
Expansion Strategies
• The major reasons for adopting expansion strategies are as below.
• It may become imperative when environment demands increase in pace of
activity.
• Increasing size may lead to more control over the market vis-à-vis competitors.
• Advantages from the experience curve and scale of operations may accrue.
• Psychologically, strategists may feel more satisfied with the prospects of growth
from expansion: chief executives may take pride in presiding over organisations
perceived to be growth-oriented.
• Concentration, integration, diversification and internationalisation
 Retrenchment Strategies
• The corporate strategy of retrenchment is followed when an organisation aims at contraction
of its activities through substantial reduction or elimination of the scope of one or more of its
businesses in terms of their respective customer groups, customer functions, or alternative
technologies - either singly or jointly - in order to improve its overall performance.
• Paint company pulls out of consumer paints business to focus on institutional selling to reduce size of
sales force and increase marketing efficiency
• A corporate hospital decides to focus only on specialty treatment and realise higher revenue
• A Private institution attempts to serve large no of working professional through distance learning system
to reduce expenses and utilise current resources efficiently

• The major reasons for adopting retrenchment strategies are as below.

• The management no longer wishes to remain in business either partly or wholly due to continuous losses
and the organisation becoming unviable.
• The environment faced is threatening.
• Stability can be ensured by reallocation of resources from unprofitable to profitable businesses.

• Turnaround, divestment, liquidation

 Combination Strategy
• The combination strategy is followed when an organisation adopts a mixture of
stability, expansion, and retrenchment strategies either at the same time in its
different businesses or at different times in one of its business with the aim of
improving its performance.
• A paint company makes decorative paints available to end users (stability),
expands its product range to include industrial and automotive paints (expansion).
Closing down industrial paint contract services division (retrenchment)
• The major reasons for adopting combination strategy are as below.
• The organisation is large and faces complex environment.
• The organisation is composed of different businesses, each of which lies in a different
industry requiring a different response.

• Any combination strategy is the result of a serious attempt on the part of

strategists to take into account the variety of environmental and organisational
factors that affect the process of strategy formulation.
Analyse the strategies used by:

The Murugappa Group

ITC
Aditya Birla Group
Pidilite Industries
Candico’s
Expansion Strategy
Cooperative
 1. Concentration Strategies

• Concentration is a simple, first-level type of expansion strategy. It involves

converging resources in one or more of a firm's businesses in terms of their
respective customer needs, customer functions, or alternative technologies -
either singly or jointly - in such a manner that expansion results.
• In strategic management terminology concentration strategies are known
variously as intensification, focus, specialisation or organic growth
strategies.
• Among them, organic growth that means ‘growth from within’ as a strategy is
often contrasted with inorganic growth that takes the firm beyond toward
diversification.
Ansoff’ Product-Market Matrix Strategies
 Types of Concentration Strategies
• Market penetration involves selling more products to the same
market: a firm may attempt focussing intensely on existing markets with
present products using a market penetration type of concentration.
• builds on established strategic capabilities;
• means the organisation’s scope is unchanged;
• leads to greater market share and increased power vis-à-vis buyers and
suppliers;
• provides greater economies of scale and experience curve benefits.
• Increased share of its existing markets with its existing product range using
existing strategic capabilities
• Low cost airlines went with aggressive marketing with low pricing resulting
in high growth rate for aviation industry
Types of Concentration Strategies
• Constraints –
• Retaliation from competitors – price wars
• Legal constraints - restrictions imposed by regulators
• Economic constraints – recession, public sector funding
• Consolidation
• organisations focus defensively on their current markets with current
products
• Acquiring weaker competitors, and closing capacity
• Defending market share – sufficient to sustain and cover fixed costs,
differentiation strategies to build customer loyalty, switching costs
• Downsizing or divestment
 Types of Concentration Strategies
• Market development involves selling same products to new markets: it
may try attracting new users for existing products resulting in a market
development type of concentration. (Geographic, demographic)
• New segment – Universities offering online courses to working professionals
• New users – Aluminium manufacturer selling in packaging and cutlery
manufacture now supplemented by users in aerospace and automobiles.
• New geographies – a small retailer opens up new branch in another town
• Coir industry faces heavy competition because of synthetic foam and fibres
products (projecting it as environment friendly product in export market)
• Strategies based on simply offloading traditional products or services in new
markets are likely to fail
• challenge of coordinating between different segments, users and geographies,
 Types of Concentration Strategies
• Product development involves selling new products to
same markets: it may introduce newer products in existing
markets by concentration on product development.
• Sony – Walkman to CD to MP3 player
• An expensive and high-risk activity – heavy investments and high risk
of project failures
• Involves varying degrees of related diversification (in terms of
products)
• Tourism industry – Ayurveda/ Spiritual based medical treatment
Concentration Strategies

When:
• Competitive behaviour is predictable
• Firm is internally strong to pursue expansion
• Adequate financial, technological and managerial capabilities
• High growth and attractiveness in industry

Bajaj Auto
Exide Industries
 Concentration Strategies
• Advantages
• Minimal organizational changes: managers of the firm are more familiar and
comfortable with present businesses
• Enables firm to specialize by gaining in depth knowledge of the business
• Intense focus on resources may result into competitive advantage
• Familiar systems and processes
• Decision making is easy as there is high level of predictability
• Disadvantages
• Heavy dependence on one industry. Adverse conditions in one industry (recession,
heavy competition)
• Product obsolescence, fickleness of market, emergence of new technologies
• Doing too much of know things (Organisational inertia)
• May lead to cash flow problems
2. Integration Strategies

• Integration means expanding through combining businesses or

activities related to the present business or activity of a firm. This can be
done in two ways.
• One, the organisation can take over or partner with another firm at the
same point of production to expand its size of operations in the present
business. This is integrating horizontally.
• A formal shoemaker takes over another company making formal shoes
• Two, an organisation can take over or partner with another firm at a
different point of production in which case it is integrating vertically.
• A shoe maker takes over the business of finished leather supplier
• Integration strategies push the organisations outside their boundaries.
Ansoff’s Matrix for Diversification Strategies
Horizontal Integration and Vertical Integration
• When an organisation takes up the same or similar type of products at the
same level of production or marketing process keeping it at the same stage
of the value chain, it is said to follow a strategy of horizontal integration.
• When an organisation starts making new products that serve its own needs,
vertical integration takes place. In other words, any new activity undertaken
with the purpose of either supplying inputs or serving as a customer for
outputs is vertical integration.
• Vertical integration could be of two types: backward and forward
integration.
• Backward integration means retreating to the source of raw materials.
• Forward integration means moving the organisation ahead to the ultimate
customer or end user.
Horizontal Integration
• A luggage company taking over its rival luggage company (takeover,
merger, acquisition)
• Business increases in size, stronger competitive position
• Adopted for geographic expansion, increasing market share, to benefit
from economies of scale, to complement strength
• Value chain – at the same point of production
• A supermarket become hypermarket but stays in retailing business only
• Marketing and operations functions
• Takeover of Indian Banks
Horizontal Integration strategies

Advantages Disadvantages
Economies of Scale Mergers may not increase the
value of an organization
Economies of Scope
Increases size of the organization
Increased product differentiation
(MRTP Act)
Increased market power
Mismatch of resources
Replicating a successful business
model
Reduction in Industry rivalry
Vertical Integration
• When an organisation starts making new products that serve its own
needs, vertical integration takes place. In other words, any new activity
undertaken with the purpose of either supplying inputs or serving as a
customer for outputs is vertical integration.
• Transaction cost economics (cost of making and cost of procurement)
(cost of selling finished product lesser than price paid to the sellers)
• Processed based industry such as ‘Steel Company’
Integration strategies in Textile industry
Types Of Partial Vertical Integration Strategies

• Taper integration strategies require firms to make a part of

their own requirements and to buy the rest from outside
suppliers or when firms sell some of their products through
company outlets and others through independent retailers.
• Through quasi integration strategies firms purchase most
of their requirements from other firms in which they have
an ownership stake or when firms sell most of their
products through their own stores.
Vertical Integration Strategies

Advantages Disadvantages
Greater control improving economies Increased cost of coordinating
of scale integration

Increased market coverage Excess capacity or underutilisation of

resources
Better manufacturing process with
shorter production cycles Technological obsolescence and loss
of strategic flexibility
Opportunities for differentiation
Increased mobility and exit barrier
Raising entry barriers for competitors Supporting poor performing businesses
Cost saving Lack of information and feedback from
suppliers and distributors
 3. Diversification Strategies
• Diversification involves a substantial change in business definition - singly or
jointly - in terms of customer functions, customer groups, or alternative
technologies of one or more of a firm's businesses.
• There could be many types of diversification strategies depending on whether the
organisation uses related or unrelated technology to make its new products for
new markets.
• A book publisher moving to publish comics/magazine, A book publisher entering into
movie production

• Two basic strategic alternatives of diversification are: related and unrelated

diversification. In Ansoff’s terminology, they are called concentric and
conglomerate diversification respectively.
Why related diversification?

• Transferring competitively valuable expertise, technological know-

how, or other capabilities from one business to another.
• Combining the related activities of separate businesses into a single
operation to achieve lower costs.
• Exploiting common use of a well-known brand name.
• Cross-business collaboration to create competitively valuable
resource strengths and capabilities.
Six guidelines for when related diversification may be an
effective strategy
• When an organization competes in a no-growth or a slow-growth industry.
• When adding new, but related, products would significantly enhance the
sales of current products.
• When new, but related, products could be offered at highly competitive
prices.
• When new, but related, products have seasonal sales levels that
counterbalance an organization’s existing peaks and valleys.
• When an organization’s products are currently in the declining stage of
the product’s life cycle.
• When an organization has a strong management team.
Concentric Diversification (Related Diversification)

• When an organisation takes up an activity related to the existing

business definition of one or more of a firm's businesses either in
terms of customer groups, customers functions or alternative
technologies, it is concentric diversification.
• Marketing-related concentric diversification
• Technology-related concentric diversification
• Marketing- and technology-related concentric diversification
 Types of Concentric Diversification
• Marketing-related concentric diversification: A similar type of product is
offered with the help of unrelated technology.
• A sewing machine manufacturer diversifies into kitchenware and household
appliances which are sold through same distribution channel.
• Technology-related concentric diversification: A new type of product or
service is provided with the help of related technology.
• A bank offering loan to institutional customers also starts consumer financing for
purchase of durable items
• Marketing- and technology-related concentric diversification: A similar
type of product or service is provided with the help of related technology.
• A synthetic water tank manufacturer makes other synthetic items like pre-
fabricated doors, and windows for residential and commercial establishments
distributed through hardware stores
Concentric Diversification

• Maintain core focus of business

• Larson & Toubro • IFFCO – (Indian Farmer and
• Infrastructure Fertiliser Cooperative Ltd)
• Power • Production and distribution of
• Hydrocarbon fertilisers
• Process Industry • General insurance,
• Defence agriculture commodity trading
• IT IFFCO Kisan App, IFFCO
• Products, Systems & Equipment Bazar etc
• Finance
• Real Estate
Conglomerate Diversification (Unrelated Diversification)

• When an organisation adopts a strategy which requires taking up

those activities which are unrelated to the existing business definition
of one or more of its businesses either in terms of their respective
customer groups, customer functions or alternative technologies, it is
conglomerate diversification.
• A book publisher going into carpet manufacturing
• Sporting goods manufacturer entering into hospitality business
• Financial services company entering into education field
Conglomerate Diversification

• Aditya Birla Group

• R&D (IPR), carbon black, cement, chemicals, financial services,
insulators, mining, telecommunications, fashion, trading solutions etc
• TTK Prestige Group
• Consumer durables, TTK Healthcare Limited - Pharmaceuticals,
Medical devices & Consumer products, TTK Protective Devices Limited
- Condoms , TTK Services Private Limited - NRI Services and KPO
• Public sector organization – IOC
• NGOs and Voluntary organisations – CRY – concentrated
Ten guidelines for when unrelated diversification may
be an effective strategy
• When revenues derived from an organization’s current products or
services would increase significantly by adding the new, unrelated
products.
• When an organization competes in a highly competitive or a no-growth
industry, as indicated by low industry profit margins and returns.
• When an organization’s present channels of distribution can be used to
market the new products to current customers.
• When the new products have countercyclical sales patterns compared to
an organization’s present products.
• When an organization’s basic industry is experiencing declining annual
sales and profits.
Ten guidelines for when unrelated diversification may
be an effective strategy (continued)
• When an organization has the capital and managerial talent needed to compete
successfully in a new industry.
• When an organization has the opportunity to purchase an unrelated business that is
an attractive investment opportunity.
• When there exists financial synergy between the acquired and acquiring firm.
• (note that a key difference between related and unrelated diversification is that the former
should be based on some commonality in markets, products, or technology, whereas the
latter is based more on profit considerations.)

• When existing markets for an organization’s present products are saturated.

• When antitrust action could be charged against an organization that historically has
concentrated on a single industry.
Why are Diversification Strategies Adopted?
• Diversification strategies are adopted to minimise risk by spreading it over several
businesses. (seasonal products – air coolers and water heaters)
• Diversification may be used to capitalise on its capabilities and business model so
as to maximise organisational strength or minimise weaknesses. (Authorised
dealer offering after sales service for other brands)
• Diversification may be the only way out if growth in existing businesses is blocked
due to environmental and regulatory factors. (cigarette manufacturers)
• Diversification takes an organisation away from the comfortable confines of
concentration and integration strategies to that of an environment fraught with
many risks.
• Related Diversification: Synergies of marketing, finance, operations,
informational, managerial and personnel etc.
• Unrelated Diversification: spreading business risks, maximising returns,
Risks of Diversification

• Diversification, especially unrelated, is a complex strategy to formulate and

implement.
• Diversification strategies demand a wide variety of skills.
• Diversification results in decreasing commitment to a single or few
businesses and diverting it to several of them at the same time.
• Diversification often does not result in the promised rewards.
• Diversification increases the administrative costs of managing, integrating,
and controlling a wide portfolio of businesses.
Identify the diversification strategies used by

Mahindra and Mahindra. Visit its website [Link]

Bharat Forge. Visit the website [Link]

Break-out room is being created. You will get 10 minutes to prepare and
5-7 minutes to comment/ present.
4. International Strategies

• International strategies are a type of expansion strategies that require

organisations to market their products or services beyond the domestic or
national market. For doing so, an organisation would have to assess the
international environment, evaluate its own capabilities, and devise
strategies to enter foreign markets.
• The major factors for the growth are the technological developments
reducing the transportation costs, improvement in communication technology
enabling better contact between trading and investing nations, and the
policy-induced trade liberalisation leading to lowering of barriers to
international trade and investment
Relevance of WTO in the Internationalisation
for Companies
The WTO was founded on January 1, 1995 as a successor to the General Agreement
on Trade and Tariff (GATT) by the Uruguay round negotiations. While GATT focussed
mainly on trade in goods, the WTO covers cross-border trade in services and ideas,
and the movement of personnel. It has a membership of 160 countries. (Ngozi Okonjo-
Iweala)
The functions of the WTO are:
• Administering WTO trade agreements
• Forum for trade negotiations
• Handling trade disputes
• Monitoring national trade policies
• Technical assistance and training for developing countries
• Cooperation with other international organizations
Porter’s Model of Competitive Advantage of
Nations
Porter’s Model of Competitive Advantage of
Nations
• Factor conditions: The special factors or inputs of production such as natural
resources, raw materials, labour, etc. that a nation is especially endowed with.
• Demand conditions: The nature and size of the buyer's needs in the domestic
market such as sophisticated and demanding buyers and large markets in the
nation.
• Related and supporting industries: The existence of related and supporting
industries to the industries in which a nation.
• Firm strategy, structure, and rivalry: The conditions in the nation determining
how firms are created, organised, and managed, and the nature of domestic
competition such as strong rivals.
Advantages Of International Strategies

• Realising economies of scale

• Realising economies of scope – competencies and
skills
• Expansion and extension of markets
• Realising location economies
• Access to resources overseas
Disadvantages Of International Strategies
• Higher risks
• Uncertainty in economic and political environments
• Difficulty in managing cultural diversity
• employees
• High bureaucratic costs
• Coordination and communications costs
• Higher distribution costs
• Trade barriers
• Tariff / non tariff barriers, price restrictions, currency fluctuations
Strategic Decisions in Internationalisation
• Which international markets to enter?
• Systematic analysis of benefits, costs and risks of market entry and
profiling of countries by assigning ranking in terms of attractiveness and
long term profit potential
• Timing of entry into international markets
• First mover advantages and risks
• Scale of entry into international markets
• Small scale or large scale
Factors influencing International Strategies
• Cost pressures denote the demand on a firm to minimise its unit costs. By
doing so, the firm tries to derive full benefits from economies of scale and
location economies.
• Pressures for local responsiveness makes a firm tailor its strategies to
respond to national-level differences in terms of variables like customer
preferences and tastes, government policies, or business practices.
Types of International Strategies
Types of International Strategies
• Firms adopt an international strategy when they create value by transferring
products and services to foreign markets where these products and services
are not available.
• Firms adopt a multi-domestic strategy when they try to achieve a high level
of local responsiveness by customising their products and services according
to the local conditions present in the different countries they operate in.
• Firms adopt a global strategy when they rely on a low-cost approach based
on reaping the benefits of experience-curve effects and location economies
and offering standardised products and services across different countries.
• Firms adopt a transnational strategy when they adopt a combined approach
of low-cost and high local responsiveness simultaneously for their products
and services.
 Born-Global Firms
The born-global firms are business organisation that, from or near their founding, seek superior
international performance from the application of knowledge-based resources to the sale of
outputs in multiple countries.
Airbnb, Google, FaceBook, LinkedIn, Uber
Some of the characteristics are:
• Emphasis on differentiation strategy
• Emphasis on superior product quality
• High activity in international markets from or near the founding
• Leveraging advanced information and communications technology
• Limited financial and tangible resources
• Managers have a strong international outlook and international entrepreneurial orientation
• Present across most industries
• Using external, independent intermediaries for distribution in foreign markets
Challenges for Indian Companies Competing
Abroad
• The Indian firms were not concerned with size and expansion as protectionism within
the country made these considerations redundant.
• Secondly, the market potential in practically every industry was not realised and firms
perceived adequate opportunities within the country.
• Thirdly, the Indian firms did not possess sufficient resources - particularly financial
resources - to venture outside.
• Fourthly, the government policies did not favour and facilitate internationalisation.
• Lastly, India as a nation ranks very low on rating of international competitiveness and
a country to do business with.
Indian Firms- International Strategies
• The forces of globalisation and internationalisation have impacted the government
policies to change creating an increasing awareness of the need to adopt international
corporate- and business-level strategies.
• The nature and intensity of domestic competition has changed in recent years making
several industries highly competitive.
• Business houses realised the limits of expansion within national markets so they
adopted international strategies.
• The corporate governance reforms in India have resulted in greater transparency in
company operations resulting in opportunities for networking with global firms in
manufacturing and services.
• The presence of extensive diasporas-based networks of Indians around the world has
contributed positively to the efforts of firms to internationalise.
 Regionalisation Strategies
• The home base strategy entails embarking on international expansion by
starting catering to nearby foreign markets from the home country.
• The portfolio strategy consists of establishing or acquiring businesses outside
the home country but reporting to the home base.
• The hub strategy requires building regional bases or hubs. These hubs provide
shared resources to the local operations in the countries around the hub.
• The platform strategy is establishing interregional base of activities that can be
shared across the region benefiting from economic of scale and economies of
scope.
• The mandate strategy focuses on the economies of specialisation apart from
economies of scale. The specialisation is achieved by allotting certain regions
broad mandates to perform certain specialised roles or supply unique products
or services for the whole organisation.
 Regionalisation Strategies
• https://
[Link]/news/industry/etauto-exclusive-globalisation
-to-regionalisation-role-reversal/75614801
Strategies for the Bottom-of-the-pyramid(BoP)
• Essentially, the idea of BoP is addressed to the MNCs that have increasingly
found the markets saturating at most places they operate in.
• The BoP strategy is meant to show the way to MNCs how to exploit the
opportunities that are believed to be available in serving the poorer sections
of the society.
• These sections of the society constitute huge markets that have people who
have very little income; prefer to buy cheaper products and services or
products in lesser quantities; and may not be much concerned with high
quality or other differentiating propositions.
• The BoP idea not only is meant to widen the market base for MNCs or local
firms but also serve as one of the significant social objectives that firms may
pursue so that they can attempt to achieve their economic objectives while
simultaneously serving the society through poverty alleviation.
Strategies for competing with Global
Companies in India

• With the emergence of a vast domestic market and relatively low-cost

workers with advanced technical skills, India is very much on the radar of
MNCs. Increasingly multinationals are setting up manufacturing operations in
India.

• When MNCs enter into emerging economies, most local firms assume they
can respond in one of only three ways: by calling on the government to
reinstate trade barriers or provide some other form of support; by becoming
a subordinate partner to a multinational; or by simply selling out and leaving
the industry.
Challenges before Indian Brands in
International Markets

• Foreigners don’t trust Indian brands.

• Most Indian MNCs have a very broad product portfolio that fails
to focus on markets.
• India does not have the reputation for innovation.
• Beyond Indian markets, Bollywood endorsements, logos and
brand identities do not scale as marketing communication.
• The advertising department can’t fight the CEO.
Strategy Options for Local Companies
against Global Companies
Strategies for Foreign MNCs in India

Foreign companies can also set up joint ventures with other foreign companies
or Indian companies.
Liaison office can be created by a foreign company represent it or for other
purposes such as facilitating import or export, and technical and financial
collaboration.
Branch office of foreign companies can be set up for a range of purposes such
as import and export, consultancy and research work, providing IT services and
designing software, and other similar activities.
Foreign companies that are engaged or contracted by an Indian company for a
particular project can open a project office for a limited duration.
Blueprint for MNCs in India

Bain & Company offers a five step blueprint for MNCs operating in
or planning to enter Indian markets:

• Bold commitment to India MNCs

• Tailor offerings for India MNCs
• Adapt repeatable models
• Invest in local talent
• Create roadmap for results
Modes of International Entry
• Export entry modes: Under these modes, the firm produces in the home
country and markets in the overseas markets.
• Direct and Indirect exports
• Contractual entry modes: These modes are non-equity associations
between an international company and a company or any other legal entity
in the overseas markets.
• Licensing, Franchising, technical agreements, contract manufacturing, service
contracts, B-O-T arrangements
• Investment entry modes: These modes involve ownership of production
units in the overseas market based on some form of equity investment or
direct foreign investment.
• Joint Venture and Strategic Alliance, Independent or fully owned subsidiaries
IKEA in India

[Link]
strategy-in-india
/
Cooperative
Cooperative Strategies

• A strategy in which firms work together to achieve a shared objective

• Cooperating with other firms is a strategy that:
• Creates value for a customer.
• Exceeds the cost of constructing customer value in other ways.
• Establishes a favorable position relative to competitors.

• Mergers and Acquisition

• Joint Venture
• Strategic Alliance
Cooperative Strategies

• Cooperation may also reduce costs and risks, such as those

associated with new product development and other forms of
innovation
• It may provide easier access to new markets, and opportunities for
mutual synergy and learning
 Mergers And Acquisitions
• A merger or an acquisition in a company sense can be defined as the combination of
two or more companies into one new company or corporation
• In a merger there is usually a process of negotiation involved between the two
companies prior to the combination taking place.
• For example, assume that Companies A and B are existing financial institutions.
Company A is a high street bank with a large commercial customer base. Company B
is a building society or similar organisation specialising in providing home loans for the
domestic market.
• Both companies may consider that a merger would produce benefits as it would make
the commercial and domestic customer bases available to the combined company
• Company B might be able to use its home loans experience to offer better deals to
potential and existing mortgage customers of company A.
• The two companies may decide to initiate merger negotiations. If these are favourable,
the outcome would be a merger of the two companies to form a new larger whole. 75
 Mergers And Acquisitions
• In an acquisition the negotiation process does not necessarily take place. In an acquisition
company A buys company B.
• Company B becomes wholly owned by company A. Company B might be totally absorbed
and cease to exist as a separate entity, or company A might retain company B in its pre-
acquired form.
• This limited absorption is often practiced where it is the intention of company A to sell off
company B at a profit at some later date.
• In acquisitions the dominant company is usually referred to as the acquirer and the lesser
company is known as the acquired.
• The lesser company is often referred to as the target up to the point where it becomes
acquired.
• In most cases the acquirer acquires the target by buying its shares. The acquirer buys
shares from the target’s shareholders up to a point where it becomes the owner.
• Achieving ownership may require purchase of all of the target shares or a majority of them.
Different countries have different laws and regulations on what defines target ownership. 76
 Mergers And Acquisitions
• Acquisitions can be friendly or hostile
• The target may view the acquisition as an opportunity to develop into new areas
and use the resources offered by the acquirer.
• This happens particularly in the case of small successful companies that wish to
develop and expand but are held back by a lack of capital.
• The smaller company may actively seek out a larger partner willing to provide the
necessary investment.
• In this scenario the acquisition is sometimes referred to as a friendly or agreed
acquisition. Alternatively, the acquisition may be hostile.
• In this case the target is opposed to the acquisition. Hostile acquisitions are
sometimes referred to as hostile takeovers.

77
 Mergers And Acquisitions
• Why?
• Strategic rationale.
• A might want to gain a foothold in a lucrative new expanding market but lacks any
experience or expertise in the area. Sony created R&D in electronic gaming console

• Speculative rationale
• The acquirer views the acquired company as a commodity
• To share in the potential profitability of this field without committing itself

• Management failure rationale

• Financial necessity rationale
• Political rationale

78
 Mergers And Acquisitions
• Motives
• Speed of entry
• The competitive situation may influence a company to prefer acquisition
• Consolidation opportunities
• Financial markets
• Exploitation of strategic capabilities can motivate acquisitions
• Cost efficiency is a commonly stated reason for acquisitions typically by merging
units so as to rationalise resources
• Obtaining new capabilities

79
 Mergers And Acquisitions
• Top 10 Disastrous Mergers & Acquisitions (M&A)
• [Link]

• Top mergers and acquisitions in India during 2018

• [Link]

• List of Mergers and Acquisitions in India

• [Link]

80
 Mergers And Acquisitions
• Motives behind Acquisition driven by the stakeholder expectations
• Institutional shareholder expectations
• Managerial ambition
• Speculative motives

81
Mergers And Acquisitions

Mergers take place when the objectives of the buyer firm and the seller
firm are matched to a large extent; acquisitions or takeovers usually are
based on the strong motivation of the buyer firm to acquire.
Takeover is a common way for acquisition and happens when one firm
acquires ownership and control over another firm. Mergers carried out in
reverse are known as demergers or spin-offs.
Demerger involves spinning off an unrelated business / division in a
diversified company into a stand-alone company along with a free
distribution of its shares to the existing shareholders of the original
company.

82
 Types of Mergers
Horizontal mergers take place when there is a combination of two or more organisations in the
same business, or of organisations, engaged in certain aspects of the production or marketing
processes.
Vertical mergers take place when there is a combination of two or more organisations, not
necessarily in the same business, which create complementarities either in terms of supply of
materials (inputs) or marketing of goods and services (outputs).
Concentric mergers take place when there is a combination of two or more organisations related
to each other either in terms of customers functions, customer groups, or alternative technologies
used.
Conglomerate mergers take place when there is a combination of two or more organisation
unrelated to each other, either in terms of customer functions, customer groups, or alternative
technologies.
Cash Mergers in the case of a ‘cash merger’, also known as a ‘cash-out merger’, the shareholders
of one entity receive cash in place of shares in the merged entity. This is a common practice in
cases where the shareholders of one of the merging entities do not want to be a part of the merged
entity. 83
 Types of Acquisitions
Friendly takeover. ‘negotiated takeover’, a friendly takeover involves an acquisition of the target
company through negotiations between the existing promoters and prospective investors. This
kind of takeover is resorted to further some common objectives of both the parties.
Hostile Takeover. A hostile takeover can happen by way of any of the following actions: if the
board rejects the offer, but the bidder continues to pursue it or the bidder makes the offer without
informing the board beforehand.
Leveraged Buyouts. The acquisition is funded by borrowed money. Often the assets of the
target company are used as collateral for the loan. This is a common structure when acquirers
wish to make large acquisitions without having to commit too much capital, and hope to make
the acquired business service the debt so raised.
Bailout Takeovers. A profit making company acquires a sick company. This kind of takeover is
usually pursuant to a scheme of reconstruction/rehabilitation with the approval of lender
banks/financial institutions. One of the primary motives for a profit making company to acquire a
sick/loss making company would be to set off of the losses of the sick company against the
profits of the acquirer, thereby reducing the tax payable by the acquirer
84
Reasons For Mergers And Acquisitions

Why the buyer wishes to merge:

• To increase the value of the organisation's stock.
• To increase the growth rate and make a good investment.
• To improve stability of earning and sales.
• To balance, complete, or diversify product line.
• To reduce competition.

Why the seller wishes to merge:

• To increase the value of the owner's stock and investment.
• To increase the growth rate.
• To acquire resources to stabilise operations.
• To benefit from tax legislation.
• To deal with top management succession problem .
85
Mergers and Acquisition Examples

1. Arcelor Mittal
The biggest merger valued at $38.3 billion was also one that was the most hostile. In 2006,
Mittal Steel announced its initial bid of $23 billion for Arcelor which was later increased to
$38.3 billion. This deal was frowned upon by the executives because they were influenced
by the patriotic economics of several governments. These governments included the
French, Spanish, and that of Luxembourg. The very fierce French opposition was criticized
by the French, American, and British Media.
In its first step to prevent the deal, Arcelor transferred its subsidiary, Dofasco, into a trust
and adopted the poison pill strategy to keep Mittal from buying Arcelor. The adoption of
poison pill made it difficult for Mittal Steel to carry out the deal. Mittal capped his stake
under 45% and offered 12 of 18 seats on the board to independent directors, including
those from the unions, and also agreed to a lock in on his shares for 5 years. This resulted
in the new company Arcelor-Mittal controlling 10% of global steel production.
[Link]
86
Mergers and Acquisition Examples

2. Vodafone and Idea

Reuters reported the Vodafone Idea merger to be valued at $23 billion. Although the deal
resulted in a telecom giant it is safe to say that the 2 companies were pushed to do so due
to the entry of Reliance Jio and the price war that followed. Both companies struggled
amidst the growing competition in the telecom industry. The deal worked both for Idea and
Vodafone as Vodafone went on to hold a 45.1% stake in the combined entity with the Aditya
Birla group holding a 26% stake and the remaining by Idea.
On the 7th of September, Vodafone Idea unveiled its brand new identity ‘Vi’ which marked
the completion of the integration of the 2 companies.

87
Mergers and Acquisition Examples

3. Walmart Acquisition of Flipkart

Walmarts acquisition of Flipkart marked its entry into the Indian Markets. Walmart won the
bidding war against Amazon and went onto acquire a 77% stake in Flipkart for $16 billion.
Following the deal, eBay and Softbank sold their stake in Flipkart. The deal resulted in the
expansion of Flipkart’s logistics and supply chain network.

Flipkart itself had earlier acquired several companies in the eCommerce space like Myntra,
Jabong, PhonePe, and eBay.

88
Mergers and Acquisition Examples

4. Tata and Corus Steel

Tata’s takeover of Corus Steel in 2006 was valued at over $10 billion. The initial offers from
Tata were at £4.55 per share but following a bidding war with CSN, Tata raised its bid to
£6.08 per share. Following the Corus Steel had its name changed to Corus Steel and the
combination resulted in the fifth-largest steel making company.
The following years were unfortunately harsh on Tata’s European operations due to the
recession in 2008 followed by reduced demand for steel. This eventually resulted in a
number of lay-offs and sales of some of its operations.
https://
[Link]/business/backstory-tata-steels-high-octane-battle-to-acquire-corus-940
[Link]

[Link]
89
Mergers and Acquisition Examples

5. The Consumer Giants Merge

Hindustan Unilever Limited (HUL) acquired GSK Consumer Healthcare of GlaxoSmithKline
(GSK). The deal worth of ₹ 27750 crores would give away products like Horlicks and Boost
in HUL’s basket. Since this deal would affect the competition in the Indian FMCG market,
because the two companies are giants of the game, the approval from NCLT was needed.
While the amalgamation mainly benefits HUL because it gets a new range of renowned
products, GSK would take all this money to establish its original production in Bangladesh.
This is not a good sign for Indian business.

90
Issues and Procedures in Mergers and
Acquisitions
Issues:
• Strategic
• Legal
• Financial
• Managerial

Procedure:
• Spell out the objective.
• Indicate how the objective would be achieved.
• Assess managerial quality.
• Check the compatibility of business styles.
• Anticipate and solve problems early.
• Treat people with dignity and concern.
91
Joint Venture
Joint Ventures

A joint venture could be considered as the new entity resulting

from a long-term contractual agreement between two or more
parties to undertake mutually beneficial economic activities,
exercise joint control, contribute equity, and share in the profits or
losses of the entity.
Conditions calling for joint ventures:
• When an activity is uneconomical for an organisation to do alone.
• When the risk of business has to be shared and, therefore, is reduced for the
participating firms.
• When the distinctive competence of two or more organisation can be brought
together.
• When setting up an organisation requires surmounting hurdles such as import
quotas, tariffs, nationalistic-political interests, and cultural roadblocks.

93
Triggers for a Joint Venture

Technology
Geography
Regulation
Sharing of risk and capital
Intellectual exchange

94
Types Of Joint Ventures

Between two Indian organisations in one industry

Between two Indian organisations across different industries
Between an Indian organisation and a foreign organisation in
India
Between an Indian organisation and a foreign organisation in that
foreign country
Between an Indian organisation and a foreign organisation in a
third country
Between government and private sector organisations in the form
of public-private partnerships

95
Joint Ventures : Benefits And Drawbacks

The major benefits that are likely to accrue from joint ventures
include: minimising risk, reducing an individual company's
investment, and creating access to foreign technology, broad-
based equity participation, access to governmental and political
support, and entering new fields of business and synergistic
advantages.
Reasons joint ventures can fail includes:
• Change of strategy
• Regulatory changes
• Success of joint venture
• Having partners hampers growth
• Lack of transparency

96
Joint Ventures : Examples

Eicher and Volvo JV

[Link]

97
Joint Ventures : Examples in India

1. Hindustan Aeronautics Ltd

Hindustan Aeronautics Ltd is India’s aerospace and defence company with headquarters in
Bangalore, Karnataka.
HAL is one of the ‘Navratna’ companies of India, meaning, it is one of the drivers of this
country’s economy while being of vital service to the nation.
HAL has the highest number of JVs in India. They include JVs for making fixed wing fighter
and civilian aircraft, aircraft engines, helicopters, defence systems and aerostructures and
myriad other aerospace and aeronautics related products.
HAL has JVs with Rosoboronexport, Aviazapchast and Mikoyan-Gurevich (MiG) of Russia,
British Aerospace and Rolls Royce Holdings Ltd of UK, Elbit Systems, Israel, Merlin-Hawk
and Edgewood Ventures of the USA, Snecma of France,
Canadian Aerospace as well as Indian firms Tata Technologies, Infotech Enterprises,
Samtel Group and ICICI Bank, among others. These projects are worth billions of US
Dollars and serve defence needs of India and partner countries.
98
 Joint Ventures : Examples in India
2. Vistara
A great example of Indian Joint Venture with a foreign company is the airline, Vistara, a Full-
Service Carrier. Vistara is the brand name of Tata SIA Airlines Ltd, a JV between India’s
corporate giant Tata Sons and Singapore Airlines (SIA).
The airline Vistara commenced operations on January 9, 2015, with its maiden flight between
New Delhi and Mumbai. By end of January 2018, Vistara operated some 25 destinations in
India.
It also holds the unique distinction of being the first airline to operate a domestic flight out of
Terminal-2 from Mumbai’s Chhatrapati Shivaji International Airport.
Tata Sons holds 51 percent stake while SIA controls the remaining 49 percent in the airline.
Vistara has carried some three million passengers since its launch.
The two stakeholders are pumping in billions of US Dollars into Vistara to expand domestic
operations, foray into international markets and expand its fleet of narrow-body and wide-
body aircraft.
Vistara is one the most successful joint ventures company in India and is estimated to hold
about four to five percent share of India’s domestic aviation market. 99
 Joint Ventures : Examples in India
3. GATI-KWE
GATI-Kintetsu Express Private Limited (GATI-KWE) is a joint venture company between
GATI– India’s leading logistics, distribution and supply chain provider and Japan’s Kintetsu
World Express. KWE holds 30% stake and Gati holds the remaining 70%.
The JV allows GATI-KWE to offer customers in India, a high-quality logistics service using
various modes of transportation across different terrain.
“GATI-KWE is a 3500 people strong company with an intrinsic network that spans the length
and breadth of India – GATI-KWE has a reach of 99.3 percent covering 667 districts out of
671 districts in India with a fleet size of more than 4,000 vehicles,” states the company
website.

100
 Joint Ventures : Examples in India
4. Maruti Suzuki
Maruti Suzuki India Limited (MSIL), a subsidiary of Suzuki Motor Corporation, Japan, is
India’s largest passenger car maker. Maruti Suzuki is credited with having ushered in the
automobile revolution in the country.
Maruti Suzuki India Limited (MSIL), a subsidiary of Suzuki Motor Corporation, Japan, is
India’s largest passenger car maker. Maruti Suzuki is credited with having ushered in the
automobile revolution in the country.

101
 Joint Ventures : Examples in India
5. HDFC ERGO
HDFC ERGO General Insurance Company Ltd. is a joint venture between HDFC Ltd., India’s
premier Housing Finance Institution and ERGO International AG, the primary insurance entity
of Munich Re Group. (51:49)
The Company offers complete range of general insurance products ranging from Motor,
Health, Travel, Home and Personal Accident in the retail space and customized products
like Property, Marine and Liability Insurance in the corporate space.

102
Strategic Alliances

103
Strategic Alliances
Strategic alliances as an arrangement for “cooperation between two or more
independent firms involving shared control and continuing contributions by all
partners for mutual benefit.
Necessary and sufficient characteristics of SA
• Two or more firms unite to pursue a set of agreed upon goals but remain independent
subsequent to the formation of the alliance
• The partner firm share the benefits of the alliance and control over the performance of
assigned tasks.
• The partner firm contribute on a continuing basis in one or more key strategic areas
(technology, product etc.)

104
Strategic Alliances
The process of SA is the formation of a cooperative arrangement between two or
more companies where:
• A common strategy is developed in unison and a win-win attitude is adopted by all parties
• The relationship is reciprocal, with each partner prepared to share specific strengths with each
other, thus lending power to the enterprise
• A pooling of resources, investment and risks occurs for mutual gain.

In order to be strategic, an alliance must satisfy one of these criteria:

• Be critical to the success of a core business goal or objective
• Be critical to the development or maintenance of a core competency or other source of competitive
advantage
• Enables blocking a competitive threat
• Creates or maintains strategic choices for the firm
• Mitigates a significant risk to the business
105
Reasons For Strategic Alliances
To leverage relationships to enhance organizational capabilities and gain
competitive advantage
Entering new markets: A company that has a successful product or service may
wish to look for new markets. They enter into a partnership with a local firm in that
foreign market which understands the markets better and is more culturally
attuned to them.
Reducing manufacturing costs: Strategic alliances are used to leverage
resources by pooling resources to gain economies of scale or making better
utilisation of resources in order to reduce manufacturing costs.
Developing and diffusing technology: It helps develop technological capability
by leveraging the technical expertise of two or more firms.
To accelerate product introduction, overcome legal and trade barriers.
106
Types of Strategic Alliances

Licensing, franchising,
long-term sourcing, joint
manufacturing, joint
marketing, joint distribution,
joint research etc.

107
Types Of Strategic Alliances

Pro-competitive alliances (Low interaction / Low conflict): These are generally inter-
industry, vertical value-chain relationships between manufacturers and their suppliers or
distributors.
Non-competitive alliances (High interaction/ Low conflict): These are intra-industry
partnerships between non-competitive firms. Such alliances can be entered upon by firms
that operate in the same industry yet do not perceive each others as rivals.
Competitive alliance (High interaction/ High conflict): These are partnerships that bring
two rival firms in a cooperative arrangement where intense interaction is necessary.
Precompetitive alliance (Low interaction/ high conflict): These partnerships bring two
firms from different, often unrelated industries to work on well-defined activities such as new
product development, new technology development, creating awareness about new
products or idea etc..

108
 Types of strategic alliance

In terms of ownership, there are different kinds of strategic alliances:

Equity alliances involve the creation of a new entity that is
owned separately by the partners involved.
Non-equity alliances are typically looser alliances, without
ownership and often based on contracts, for example,
franchising, licensing or subcontracting.
 Equity alliances

The most common form of equity alliance is the joint venture,

where two organisations remain independent but set up a new
organisation jointly owned by the parents. (An example is,
Etihad Airways has many equity alliances.)
A consortium alliance involves several partners setting up a
venture together. (An example is Sematech research
consortium set up by IBM, HP, Toshiba and Samsung.)
 Non-equity alliances

Non-equity alliances are often based on contracts. Such alliances are also
common in both the private and the public and not-for-profit sectors.

Three common forms of non-equity alliance:

• Franchising (KFC or Subway).
• Licensing (common in food and pharma companies).
• Long-term subcontracting (common in supplying parts for
automobile manufacture).
 Motives for alliances

Scale alliances – lower costs, more bargaining power and sharing

risks.
Access alliances – partners provide needed capabilities (e.g.
distribution outlets or licenses to brands).
Complementary alliances – bringing together complementary
strengths to offset the other partner’s weaknesses.
Collusive alliances – to increase market
power. Might be kept secret to evade
competition regulations.
Strategic alliance motives
 Strategic alliance processes

Two themes are vital to success in alliances:

• Co-evolution – the need for flexibility and change as
the environment, competition and strategies of the
partners evolve

• Trust – partners need to behave in a trustworthy fashion

throughout the alliance.
 Strategic alliance evolution (1 of 2)

Courtship – finding the right partner.

Negotiation – agreeing roles, ownership, profit share and
responsibilities.
Start-up – committing resources, establishing systems, making
adjustments.
Maintenance – ongoing investment and operations. Evolving
with change.
Termination – finding an exit strategy
(sometimes friendly but sometimes bitter).
Strategic alliance evolution (2 of 2)

Source: Adapted from E. Murray and J. Mahon (1993), ‘Strategic alliances: gateway to the new Europe’, Long Range Planning, 26, p. 109.
Alliances: Principles and Pitfalls

Principles:
• Clearly define a strategy and assign responsibilities
• Phase in the relationship between the partners
• Blend the cultures of the partners
• Provide for an exit strategy

Pitfalls:
• Lack of trust and commitment, perceived misunderstandings among
partners, conflicting goals and interests, inadequate preparation for
entering into partnership, hasty implementation of plans, and focussing
on controlling the relationship rather than managing it for mutual benefit
are some of the dangers of strategic alliances.

117
Strategic Alliances: Examples

1. Strategic Partnerships between Spotify and Uber:

The alliance between Spotify and Uber is an example of a strategic
alliances between two companies. These two companies, through this
alliance, increasing their customer base as they offer Uber riders to take
control of the stereo.
In this way, both companies are getting an edge over their competitors.
Customers of Spotify can play their favorite playlist while riding in the Uber
ride by getting the premium package of Spotify.

118
Strategic Alliances: Examples

2. Red Bull and GoPro

In 2012, Red Bull partnered with GoPro to support a record-breaking
skydive from a balloon. Red Bull sponsored the dive, and the skydiver
wore a GoPro camera to capture it.
The two brands later formed a long-term strategic alliance for Red Bull
extreme sports events, such as the Red Bull Rampage. Only GoPro
cameras are used to capture an athlete’s point-of-view shots at these
events.
The Red Bull/GoPro strategic partnership is so successful because the
brands have similar adrenaline-seeking audiences. Thanks to this
strategic alliance, both brands now have an even stronger association
with high-level thrills.

119
Strategic Alliances: Examples

Sun Pharma and Merck

https://
[Link]/companies/sun-pharma-to-end-venture-wi
th-merck-amp-co/[Link]

120
 Comparing acquisitions, alliances and
organic development

Key factors in choosing the method of strategy development:

Urgency – organic development is slowest, alliances
accelerate the process but acquisitions are quickest.
Uncertainty – an alliance means risks and costs are shared and
thus a failure means these costs are shared.
Type of resources and capabilities – acquisitions work best
with ‘hard’ resources (e.g. production units) rather than ‘soft’
resources (e.g. people). Culture
clash is the big issue.
Buy, Ally or DIY
Cooperative
Retrenchment Strategies
 Retrenchment Strategies
• Retrenchment strategy is followed when an organisation substantially
reduces the scope of its activities. This is done through an attempt to find
out the problem areas and diagnose the causes of the problems. Next,
steps are taken to solve the problems. These steps result in different kinds
of retrenchment strategies.
• The first set of factors leading to decline is external to the organisation.
• The second set of factors leading to decline is internal to the organisation.
• The consequences of decline are most often seen in several problems for
the organisations.
• It is important to understand that decline is manifested in several
symptoms.
 Retrenchment Strategies
• Symptoms in performance criteria like diminishing profitability, dwindling
cash flow, falling sales, shrinking market share, increasing debt or loss of
credibility and goodwill
• If the organisation chooses to focus on ways and means to reverse the
process to decline, it adopts a turnaround strategy.
• If it cuts off the loss making units, divisions or SBUs, curtail its product
line, or reduces the functions performed, it adopts divestment (or
divestiture) strategy.
• If none of these action work, then it may choose to abandon the activities
totally, resulting in a liquidation strategy
 1. Turnaround Strategies
Internal – emphasis on improving internal efficiency – operational turnaround
External – external turnaround
Turnaround strategies derive their name from the action involved, i.e. reversing a
negative trend and turning around the organisation to profitability.
Conditions for turnaround strategies:
• Persistent negative cash flow
• Negative profits
• Declining market share
• Deterioration in physical facilities
• Over manning, high turnover of employees, and low morale
• Uncompetitive products or services
• Mismanagement
 1. Turnaround Strategies - Types
• Pursuing cost effectiveness
• Improving cash flow, belt-tightening, fire-fighting
• Undertaking asset retrenchment
• Underperformed assets, replace, divested
• Focusing on core activities
• To conserve resources
• Building for the future
• During recovery phase of the turnaround
• Reinvigorating leadership within organisation
• Replacement of CEO, a part of top management,
• Initiating cultural change
Manging Turnaround

• The existing chief executive and management team handles the entire
turnaround strategy with the advisory support of a specialist external
consultant
• The existing team withdraws temporarily and an executive consultant
or turnaround specialists looks after turnaround. (Mostly appointed by
financial Institutions)
• Replacement of the existing team
2. Divestment Strategy

• Divestment (also called divestiture or cutback) strategy involves the

sale or liquidation of a portion of business, or a major division, profit
centre or SBU.
• Divestment is usually a part of rehabilitation or restructuring plan and
is adopted when a turnaround has been attempted but has proven to
be unsuccessful.
• An organisation may choose to divest in two ways. A part of the
company is divested by spinning it off as a financially and
managerially independent company, with the parent company
retaining partial ownership or not. Alternatively, the organisation may
sell a unit outright.
2. Divestment Strategy

• Reasons
• Acquired business is a mismatch and cannot be integrated within company
• Persistent negative cash flows
• Severity of competition and inability of an organisation cope up with it
• Costlier and time consuming technological upgradation
• Divestment to survive in the industry
• Availability of better alternative
• Due to merger
• Due to regulatory restrictions
2. Divestment Strategy

• Approaches to divestment
• A part of company is divested by spinning off as a financially and
managerially independent company with the parent company retaining
partial ownership or not.
• Sell a unit outright
• Decision to divest
• It is painful for the management as it amounts to admitting failure
• Psychologically difficult to depart
2. Divestment Strategies in the Indian Context

• Hindustan Unilever
• TATA Group
• L&T
• Indian Organic Chemicals
3. Liquidation Strategy

• Liquidation is the ‘last resort’ strategy when the organisation cannot be turned
around or it cannot be divested as there are no buyers.
• It is a retrenchment strategy that is considered the most extreme and
unattractive which involves closing down an organisation and selling its
assets. The aim is to recoup as much money possible before the closure
takes place.
• It is considered as the last resort because it leads to serious consequences
such as loss of employment for workers and other employees, termination of
opportunities where an organisation could pursue any future activities, and the
stigma of failure.
3. Liquidation Strategy

• Difficulties in liquidation
• Planned liquidation
• Liquidation strategies in the Indian Context
Corporate Restructuring

• At the micro level, restructuring has three connotations: corporate- or

business-level restructuring, financial restructuring and organisational
restructuring.
• First, corporate- or business-level restructuring means changes in the
composition of an organisation's set of businesses in order to create a more
profitable enterprise.
• Within the organisation, restructuring takes place in two forms:
organisational and financial. Organisational restructuring may involve
several types of managerial actions. Financial restructuring deals with
changes in the equity pattern, equity holdings and cross-holding pattern,
debt servicing schedule, and similar such issues.
Family Tree of Strategic Alternatives at the
Corporate-Level
Rationale For Corporate Restructuring

• Corporate restructuring deals with the business portfolio changes that

organisations undertake in order to either deal with problems being faced by
them or to create a more profitable enterprise.
• Environmental changes are causing the organisations to revise their
assumptions and mental models. It is for this reason that restructuring is
being done at various levels so that organisations and the strategies they
employ are aligned with the environmental realities.
• Many established Indian companies are restructuring as these were the ones
which diversified excessively in the first case. Newer companies, set up in the
1990s and in the new millennium, do not find much need for restructuring.
Cooperative
Combination Strategies

Simultaneous combination strategy

Sequential combination strategy
Case lets

With the global economic recession Soft Cloth Ltd. incurred significant
losses in all its previous five financial years. Currently, they are into
manufacturing of cloth made of cotton, silk, polyster, rayon, lycra and
blends. Competition is also intense on account of cheap imports. The
company is facing cash crunch and has not been able to pay the
salaries to its employees in the current month.
Suggest a grand strategy that can be opted by Soft Cloth Ltd.
Case lets

Vastralok Ltd., was started as a textile company to manufacture cloth.

Currently, they are in the manufacturing of silk cloth. The top
management desires to expand the business in the cloth manufacturing.
To expand they decided to purchase more machines to manufacture
cotton cloth.
Identify and explain the strategy opted by the top management of
Vastralok Ltd.