Line of Business and Supply Chain Expansions
Line of business and supply chain expansions, respectively, represent horizontal and vertical extension strategies that seek to exploit the "strategic fit" among the merged business units. It is expected that the performance of the consolidated entity is enhanced because of the combined alliance of the business units. Strategic considerations include the opportunities for technology, resource, knowledge, and capability sharing; business combinations that reduce costs; greater bargaining power at the corporate level; focused marketing, sales, and service to a common customer base; extension of a brand name or corporate image into new businesses; and collaboration of supply chain activities to create competitive advantage. An example of both geographical and line of business expansion from our client base is Danka Business Systems, pic, one of the world's largest suppliers of office imaging equipment, services, supplies, and parts. In its 20-plus year history, Danka has grown from a $500,000 single-office company, to a $2 billion global presence. Several key acquisitions
significantly extended the company's product offerings and geographical locations. Danka's goal has been to "achieve a worldwide scope of operations with an enviable client list and a product and service portfolio that enables it to compete globally by providing customer solutions at every level of the enterprise" .
Another of our clients provides an example of both international and supply chain expansion. C-MAC Industries is a leading, internationally diversified, designer, and manufacturer of advanced electronic components, modules, subsystems, and systems. In a recent vertical acquisition, C-MAC acquired the assets of one of its own customers. The company made the acquisition to "enhance C-MAC's position as a global leader in electromechanical manufacturing and assembly" .
Non-related expansion or "diversification" often becomes a primary strategy when a company has diminished growth prospects in its current market. Companies may seek to diversify when they have core competencies that can be extended to other similar businesses, or when they have the resources and managerial depth to expand into other financially attractive markets. A deliberate diversification strategy eliminates the risk of concentrating on a single business, particularly in our current business climate where rapid innovation, increasing and more sophisticated customer demands, and worldwide market access via the Internet can quickly drive a single-business firm into obsolescence. An example of a firm pursuing a deliberate diversification strategy is CPAC-Fuller. This global organization's origins are in supplying specialty chemicals to the imaging industry. However, in the mid-1990s, the company acquired the Fuller Brush Company as part of a diversification program to become
less dependent upon its core business. CPAC-Fuller has successfully integrated these two diverse businesses by emphasizing its central philosophy of "solving customer problems through high quality, service, and innovation"
The Impact of Strategy on Integration
By focusing on the strategies that drove the mergers and acquisitions, we can then begin to build a roadmap to integrate the resulting global hierarchies. In particular we should ask the following questions:
1. What are the business realities that drove the strate
gies in each of the acquisitions made by the corpora
2. Is the corporation pursuing a strategy of vertical,
horizontal, or diversified expansion, or some combi
nation of the three?
3. Is the scope of the corporate operations regional,
multinational, or global?
4. Can the corporation gain significant competitive
advantage by adopting a globally integrated ap
The answers will help us to understand the degree of integration that will be required in the firm's infrastructure, systems, and organization and culture. In general, firms that are expanding through a strategy of diversification may only need integration at the highest level of systems and organization. In contrast, firms pursuing a strategy of vertical expansion may need integration across all levels of the organization, in essence creating an internal supply chain organization.
To Be Continued
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