SM Chapter 6
SM Chapter 6 BUAD 4890
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This 1 page Class Notes was uploaded by Anna Notetaker on Friday October 7, 2016. The Class Notes belongs to BUAD 4890 at Middle Tennessee State University taught by Richard Mpoyi in Fall 2016. Since its upload, it has received 14 views. For similar materials see Strategic Management in BUAD at Middle Tennessee State University.
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Date Created: 10/07/16
Strategic Management – Corporate Level Strategy 1. Three Test of Diversification : thinking about adding a company to our portfolio – apply and see a. Industry Attractiveness – Five Forces Model (Weak/Low) b. Cost of Entry – Price, How Quickly the payback period is, only single digit is considered by everyone. (10/1 = 10 or 20/4 = 5) You want the 20 c. Better Off Test – seeks to determine if the acquisition target is better off operating under our umbrella or independently – we are asking that is we buy a company, are we making that company profitable or better off by purchasing it? 2. Three Ways to Diversify: a. Acquisition – one company purchases a controlling interest in the other a+b=A b. Joint Venture – two companies fund the creation of a brand new stand- alone entity – own management team, financial structure, etc. Separate entity, but some sort of ties to parent. a+b=a+b+c c. Greenfield Venture – a country goes into another country and starts a brand new company by itself. 3. Related Diversification – adding a company with a closely related industry to our own – broadens product line and saves money. Brings in a leverage to make a company better. i. Established brand name – leverage ii. Increases the likelihood: economies of scale and scope iii. More market power iv. Transfer resources and capacities v. New strengths created 4. Unrelated Diversification i. True diversification ii. Take advantage of all profitable inventory iii. Turnaround specialist – company that looks for distressed companies with warning signs – buys them, and flips them. iv. Stabilize Profitability Cycle – requires attention during certain parts of the year
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