My personal lesson notes are summarised in this document per session, per case (so it is also useful to use for group work of this course): it is based on the recordings which are summaries of the lectures. The document contains 14 pages and covers the first four sessions! This is all you need duri...
Competitive
analysis and
strategy: part I
Notes mini-lectures
Session 1, 2, 3 and 4
, KU Leuven
Session 1: Horizontal boundaries of the firm and diversification:
easyGroup
Why do firms diversify? (diversification = in a different industry)
Some reasons are weak, and others are stronger
A. Efficiency reasons: potential benefits (= enhancing
profits/shareholder value)
1. Economies of scope
= reducing average cost by sharing resources and spreading
costs over industries and applying underutilized firm
capabilities (leveraging core competencies) in other product
markets: e.g., dominant general management logic (often only
possible for related businesses)
= relates to diversification: sharing costs across multiple
businesses in multiple markets and industries
x Economies of scale: increase activities in the same industry:
reducing average costs per unit when sales expand in a given
market
2. Economizing on transaction costs in buyer-supplier relationships
It is about vertically related businesses
If two businesses require strong vertical coordination and if
transactions involve relationship specific investments
3. Internal capital markets work better than (imperfect) external
capital markets
It might be quite costly to find financing in the external capital
market (higher risk premiums due to incomplete information
and difficult monitoring) to finance an investment in another
industry that is profitable in the eyes of the firm and the
shareholders may be hesitant
In the internal market, there is more knowledge: have better
information (preferential) than the market to spot the
profitable opportunity in the other industry
Less investigation in the opportunity because of excess cash
flows leads to unprofitable investments
Can apply to unrelated businesses
4. Risk diversification
Stable revenues and profits, which is good, but shareholders
could do their own diversifying in the portfolio according to
their own preferences: firm diversification does not create
much value
The benefits of buying summaries with Stuvia:
Guaranteed quality through customer reviews
Stuvia customers have reviewed more than 700,000 summaries. This how you know that you are buying the best documents.
Quick and easy check-out
You can quickly pay through EFT, credit card or Stuvia-credit for the summaries. There is no membership needed.
Focus on what matters
Your fellow students write the study notes themselves, which is why the documents are always reliable and up-to-date. This ensures you quickly get to the core!
Frequently asked questions
What do I get when I buy this document?
You get a PDF, available immediately after your purchase. The purchased document is accessible anytime, anywhere and indefinitely through your profile.
Satisfaction guarantee: how does it work?
Our satisfaction guarantee ensures that you always find a study document that suits you well. You fill out a form, and our customer service team takes care of the rest.
Who am I buying this summary from?
Stuvia is a marketplace, so you are not buying this document from us, but from seller Fenne2Steve. Stuvia facilitates payment to the seller.
Will I be stuck with a subscription?
No, you only buy this summary for R136,03. You're not tied to anything after your purchase.
