The Definition of Corporate Level Strategy
A Corporate Level Strategy itself is an action taken to gain a competitive advantage through
the selection and management of a number of businesses that compete in several industries
or product markets. Corporate Level Strategy help companies to select new strategic
positions that are expected to increase the firm’s value.
The Purposes of Corporate Level Strategy
Firms use Corporate Level Strategy as a means to grow revenues and profits, but there can
be additional strategic intents to growth. Firms can pursue defensive or offensive strategies
that realize growth but have different strategic intents. Firms can also pursue market
development by entering different geographic markets. Firms can acquire competitors or
firms can buy a supplier or customer. And the basic corporate strategy is focuses on
diversification.
The Definition of Diversification
Diversification is an action taken by a company by diversifying the types of goods and
services and also expanding and adding new types of business with the aim of increasing the
company's revenue and profits. An example of a corporate-level strategy is “Product
Diversification” which concerns the scope of markets and industries in which the company
will compete.
The level of diversification is subdivided into 3 levels, namely Low, Moderate, and High
levels. The first is Low Levels of Diversification divide into
- Single Business is ninety five persen or more of revenue comes from a single
business.
- Dominant Business between seventy persen and ninety five persen of revenue
comes from a single business
The second level is Moderate and High Levels Diversification, divide into
- Related Constrained Less than seventy persen of revenue comes from the dominant
business and all businesses share product, technological, and distribution linkages.
- Related linked (Mixed) Less than seventy persen of revenue comes from the
dominant business, and there are only limited links between businesses.
And the last is Very High Levels Diversification which is Unrelated Less than seventy persen of
revenue comes from the dominant business, and there are no common links between
businesses.
The primary reasons why the firms do the diversification
There are many reasons why a company does this diversification strategy. Typically, a
diversification strategy is used to increase the firm’s value by improving its overall
performance. Value is created either through related diversification or through unrelated
diversification when the strategy allows a company’s businesses to increase revenues or
reduce costs while implementing their business-level strategies. Another reason is that this
diversification has a neutral effect as well as a decreasing effect on the value of the
company, where the neutral effect has the aim of neutralizing the market power of
competitors by acquiring companies with strategic resources such as distributors who
already have extensive distribution channels. while the reason for this diversification can
reduce the value of the company because Decisions to expand a firm’s portfolio of
businesses to reduce managerial risk or increase top managers pay can have a negative
effect on the firm’s value. Greater amounts of diversification reduce managerial risk in that
if one of the businesses in a diversified firm fails.
