mgmt

Answer the following in 250 words each:

a)  What is the growth strategy of GE in India?  What led to the challenges GE is facing?    Critically evaluate the vertical integration and diversification options for GE.

b) How should Raja think about the situation? What are the most important considerations for him to weigh? How should they factor into his course of action?

c) Use one of the three value strategies - product stream positions, custom solutions integration, or network exchange system - to identify alternative options for Raja.

Read the case answer the question, here is the Concept you need to use to answer the question. I do not need reference.

Vertical Integration

• In an industry value chain, each firm:

  • Makes its profits

  • Builds in inefficiencies in the transfer of goods and services from one firm to another

• To try saving these transaction costs, firms may vertically integrate

• Vertical integration may be

  • Backward integration: upstream operations closer to the raw materials

  • Forward integration: downstream operations closer to the customer

Advantages of Vertical Integration

• Creates entry barriers for new entrants

• Reduces transaction costs (buying, selling, inventory holding, ordering costs)

• Offers tighter control and coordination of operations

• Allows to spread fixed or overhead costs over a large number of product/ services

Limits of Vertical Integration

• Limits flexibility in times of demand/technology shifts; requires innovation and efficiency in each line of business

• Requires robust system of organizing, culture building, and performance management, as KSF could vary in different lines of business

  • E.g., R&D, manufacturing, and marketing in pharmaceuticals have vastly different characteristics

Diversification

• Nature of competitive strategies may vary for each business unit

• Must create significant value addition by:

  • Improving core processes (resource capability)

  • Enhancing structural position (positional capability)

Types of Diversification

• Related diversification

  • Complementary: Entry into new business activity based on shared commonalities in the components of the value chains of the firms

  • Vertical integration: Entry into the businesses of its suppliers or its customers, to gain control over the supply and delivery systems.

Related (complementary) diversification adds value through economies of scope:

• Transferring operational skills or strategic capability from one business to another

  • Phillip Morris to Miller Brewing

• Combining the value chain

  • P&G’s diaper and power towel businesses

• Leveraging strong brand names

  • Virgin

• Stretching core competencies for added value

  • Terry Berry from graduation rings to corporate incentive programs

• Creating stronger capabilities by combining relative strengths of multiple businesses

  • Daimler and Chrysler

• Gaining competitive leverage

  • For multi-market competition

Unrelated diversification adds value through use of managerial capability when:

• Industry is attractive, based on external analysis

• Cost of entering the business is lower than the potential benefits, as soft targets for acquisitions exist

  • Firms with investment constraints in a high growth industry

  • Firms that are undervalued and could be acquired at low acquisition premiums, and then restructured by breaking them apart and sell off