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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" [4].

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" [5].

Diversified Expansions


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

For balance of this article, click on the below link:

Lean Manufacturing Articles and click on Series 13


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