NBC buys Telemundo

1
NBC buys Telemundo

• Gives NBC access to fast growing segment
• Use of acquisitions to enter new markets/
  segments
• Deal worth 1.98 billion plus 700 million of
  debt
• Problems in valuing acquisitions

Source New York Times
2
Vertical integration, diversification strategic
alliances

• Session 14

3
Corporate strategy

• Product scope
• Specialization or diversification
• Geographical scope
• Local market or global markets
• Vertical scope (value chain)
• Short value chain or long value chain

Source Grant
4
Scope of the firm

• Markets v/s hierarchies
• Transaction costs v/s administrative costs
• Transaction costs
• Opportunism, Bounded Rationality, Uncertainty,
  Small numbers
• Administrative costs
• Differences in scale of operations between
  different production stages
• Managing strategically different businesses

5
Railroad Tycoon
Source New York Times
6
Vertical integration

• Types
• Backward, forward
• Full, partial (taper)
• Benefits
• Barriers to entry
• Investment in specialized assets
• Quality
• Improved scheduling

7
CBS Viacom, Paramount, Spelling
Source NY Times
8
Disadvantages of vertical integration

• Inefficiency
• Loss of flexibility
• Demand uncertainty
• Compounding of risk
• Bureaucratic costs

9
Do vertical empires work?

• Been there, done that General Motors, Ford,
  Lockheed Martin
• Building vertically integrated structures
  Microsoft, AOL-Time Warner
• Lean, mean approach, Outsourcing through
  contractual arrangements Dell, Hewlett-Packard,
  Nortel Networks

Source Business Week, 2000
10
Co-operative relationships

• Voice v/s exit strategy
• Short term contracts
• Competitive bidding
• Long term contracts / strategic alliances
• Hostage taking
• Credible commitments
• Maintaining market discipline
• Strategic outsourcing
• Virtual corporations
• Hollow corporations?

11
Outsourcing

• Topsy Tail founded in 1991
• Achieved sales of 80 million in two years
• How many employees?

12
USA Networks diversification strategy

• Entertainment (4 cable channels 13 TV stations)
• Internet operations (Ticketmaster.com,
  Citysearch, a web design firm, and an electronic
  hotel reservation service)
• Retailing (Home shopping network and others)
• Creating synergies across the businesses
• Subsequent break up of USA Networks sale to
  Vivendi

Source Forbes USA Networks web site
13
Diversification

• Related versus unrelated
• Advantages
• Market power
• Acquiring and restructuring
• Transfer of competencies
• Economies of scope
• Disadvantages
• Co-ordination

14
Diversification

• How attractive is the industry to be entered?
• Can the firm establish a competitive advantage
  within an industry?
• Motives for diversification
• Growth
• Risk reduction
• Profitability

Source Grant
15
Alliances may pay off on Survivor, but are
companies better off solo?
Source CBS website
16
SOME OF AOLs ALLIANCES
HACHETTE FILIPACCHI

• E-commerce

• Content
• and traffic

• Geographic expansion

• CHINA INTERNET CORP

• Technology

• Digitalcity

• NETWORK COMPUTER INC.

17
STARBUCKS
Philippines
Korea
Rustan
Shinsegne
Japan
To a large degree our international expansion
will be driven by JV offers we receive Founder
Licensee
Licensee
Singapore
China
Bonvests
JV stores
BAIC Beijing
Licensee stores
Geographic partners
JV-distributes to hotels, embassies
Cobranding partners
Customer alliances
70 million passengers per year, worldwide
Retail formats
Host
In-store stores
Canada bookstores
Worldwide airport kiosks
Note Starbucks Coffee, Sazabys, ITT Sheraton,
United Airlines, Chapters, Host Marriott
Services, Barnes Noble Inc.,Dreyers Grand Ice
Cream, and Pepsi are proprietary trademarks,
other partners include Nordstrom, Costco
18
Strategic alliances

• Benefits
• Flexibility
• Speed
• Pools resources and capabilities of many firms
• International expansion
• Drawbacks
• Lack of control
• Assisting competitors
• Informal structure