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From competitive advantage to corporate strategy

Florida International University

MAN6635 International Business Policy
September 29th, 2016
Isabel Rumberg

Sometimes, corporations see acquiring other companies as a good way to grow.

Sadly, this is not always the best idea, since not all the time it turns out to be

A diversified company needs two levels of strategy, which are competitive

strategy and corporate strategy.

Competitive strategy is achieved when competitive advantage is created in
each one of the businesses. According to the article, this can be obtained by

reinventing the business model when needed.

On the other hand, in order for companies to acquire other companies and make
the whole process profitable, they need a solid corporate strategy to maximize
the shareholder value. Corporate strategy is it the glue, sort of speak, that adds

up all the business unit parts, and make them work as a uniform unit.
Corporate strategy gives direction to the corporation when it comes to choose
what kind of business is profitable and how the business units should be

There are 4 main concepts of corporate strategy: portfolio management,

restructuring, transferring skills, and sharing activities.

The main difference between these 4 concepts is that the last two are intrinsically
connected and dependent on the existing acquired business units, while the first

two are not dependent on them.

There are a few strategies in order to increase the corporation shareholder value;

the attractiveness test, the cost-of-entry test, and the better-off test.
The portfolio management: we have that an individual investor, in order to

spread the risk of investment, has a collection of shares in various companies.

According to the article, the main difference between an individual investor and a
corporation, it is that the former uses the portfolio management strategy to
maximize its return, by supplying capital and improving management techniques
to improve the operations of the acquired companies as a whole.

This strategy can meet the cost-of-entry test by finding an undervalued company.
Also, it can meet the better-off test by bringing a significant competitive

advantage to the acquired business.

Restructuring: it is a process where the corporation, as the name implies,
restructures the acquired business unit. It goes from acquiring undeveloped
organizations, restructure them by changing strategies and management, to

finally sell them.

This strategy can meet the cost-of-entry test by finding businesses with no
apparent potential. Also, it can meet the better-off test by not only finding these
undeveloped businesses, but also having the vision to restructure and transform

these companies.
Transferring skills: as mentioned before, in this kind of strategy, there is a more
interrelated relationship between the existing business and the acquired
corporation. This transferring of skills or expertise can only take place if the
different activities of the businesses involved are similar enough, so a

competitive advantage can be obtained.

Sharing activities: as the last strategy, in this strategy there is an interrelated
relationship among the businesses.

The main difference between the last

strategy and this one is that by sharing activities, the costs can be lowered and
therefore, the competitive advantage is enhanced. The sharing of activities will
only be beneficial to the corporations, if these activities bring competitive

advantage, and if the benefits outweigh the costs.

The author concludes that a company will create shareholder value if its strategy
goes from portfolio management to sharing activities.

The author fails to explain more in depth how more complex activities can be

handled once the integration of the new business takes place.

He also fails to explain more in depth how the skills and activities can be
transferred or shared from the corporation to new businesses.

Porter, M. E. (1987). From competitive advantage to corporate strategy. S.l.: Harvard
Bus Review Press.