This article explains four common strategies in business: integration strategies, intensive strategies, diversification strategies and defensive strategies. Every strategy is divided into several specific strategies. This article also gives some example of the implementation of these strategies.
Integration Strategies
Integration strategies allow a firm to gain control over distributors, suppliers, and/or competitor. There are three types of integration strategies: forward, backward and horizontal.
Forward integration strategy
Forward integration strategy involves gaining ownership or increased control over distribution and retailers. For example, Coca-cola has bought domestic and foreign bottling companies in order to increase its production and distribution efficiency. An effective means of implementing forward integration is franchising. Business can expand rapidly because cost and opportunities are spread among many individuals.
Backward integration strategy
Backward integration is a strategy of seeking ownership or increased control of a firm's suppliers. This strategy can be especially appropriate when the firm's current suppliers are unreliable, too costly or cannot meet the firm's needs.
Horizontal integration strategy
Horizontal integration refers to a strategy of seeking ownership of or increased control over a firm's competitors. Mergers, acquisitions, and takeovers among competitors allow for increased economies of scale and enhanced transfer of resources and competencies.
Intensive Strategies
Market penetration, market development and product development are sometimes referred to as intensive strategies, because they require intensive effort to improve a firm's competitive position with existing products.
Market penetration strategy
A market penetration strategy seeks to increase market share for present products or services in present markets, through greater marketing efforts. This strategy includes increasing the number of sales person, increasing advertising and promotion.
Market development strategy
Market development strategy involves introducing present products or services into new geographic area. Although there is no guarantee of success, in many industries, it is going to be hard to maintain a competitive edge by staying close to home.
Product development strategy
Product development is a strategy that seeks increased sales by improving or modifying present products or services. Product development strategy usually entails large research and development expenditures. Large expenditures in product development strategy are a major reason why automotive and computer firm do not own their distribution or dealers
Diversification Strategies
Although it is very difficult to manage diverse business activities, but sometimes diversification is still appropriate and successful strategy. There are three general types of diversification strategies: concentric, horizontal and conglomerate.
Concentric diversification strategy
Adding new but related products or services is widely called concentric diversification strategy. An example of this strategy is the recent entry of Bell Atlantic Corporation, a telephone company, into the video programming business.
Horizontal diversification strategy
Adding new, unrelated products or services for present costumer is called horizontal diversification strategy. This strategy is not as risky as conglomerate diversification strategy, because a firm should already be familiar with its present customers.
Conglomerate diversification strategy
Adding new, unrelated products or services is called conglomerate diversification strategy. General Electric is an example of a firm that is highly diversified. GE makes locomotives, light bulbs, and refrigerators. GE manages more credit cards than American Express. GE owns more aircraft that American Airlines.
Defensive Strategies
In addition of integration, intensive and diversification strategies, organizations could also pursue defensive strategies. There are four types of defensive strategies: joint venture, retrenchment, divestiture and liquidation.
Joint venture strategy
Joint venture is a popular strategy that occurs when two or more companies form a temporary partnership or consortium for the purpose of capitalizing on some opportunity. This strategy can be considered defensively only because the firm is not undertaking the project alone. This strategy allows companies to improve communication and networking, to globalize operation and minimize risk.
Retrenchment strategy
Retrenchment occurs when an organization regroups through cost and asset reduction to reverse declining sales and profits. This strategy is design to fortify an organization's basic distinctive competence. In some case, bankruptcy can be an effective type of retrenchment strategy. Bankruptcy can allow a firm to avoid major debt obligations and to avoid union contracts.
Divestiture strategy
Selling a division or part of an organization is called divestiture. Divestiture is often used to rise capital for further strategic acquisitions or investment. This strategy is also useful to rid unprofitable activities in a firm.
Liquidation strategy
Selling all of company's assets, in parts, for their tangible worth is called liquidation. Liquidation is a recognition of defeat and consequently can be an emotionally difficult strategy. However, it may be better to cease operating than to continue losing large sum of money.
