Kia and other automakers. If you were assigned to turn around a struggling automaker such as General Motors or Chrysler

Exercises

1. Divide your class into four or eight groups, depending on the size of the class. Each group should select a different industry. Find examples of each international strategy for your industry. Discuss which strategy seems to be the most successful in your selected industry.

2. This chapter discussed Kia and other automakers. If you were assigned to turn around a struggling automaker such as General Motors or Chrysler, what actions would you take to revive the company’s prospects within the global auto industry?

Chapter 8: Selecting Corporate-Level Strategies

Chapter 8: Selecting Corporate-Level Strategies 8.1 Selecting Corporate-Level Strategies 8.2 Concentration Strategies 8.3 Vertical Integration Strategies 8.4 Diversification Strategies 8.5 Strategies for Getting Smaller 8.6 Portfolio Planning and Corporate-Level Strategy 8.7 Conclusion

8.1 Selecting Corporate-Level Strategies

Learning Objectives

After reading this chapter, you should be able to understand and articulate answers to the following questions:

1. Why might a firm concentrate on a single industry?

2. What is vertical integration and what benefits can it provide?

3. What are the two types of diversification and when should they be used?

4. Why and how might a firm retrench or restructure?

5. What is portfolio planning and why is it useful?

What’s the Big Picture at Disney?

Walt Disney remains a worldwide icon five decades after his death.

Wikimedia Commons – public domain.

The animated film Cars 2 was released by Pixar Animation Studios in late June 2011. This sequel to the smash hit Cars made

$66 million at the box office on its opening weekend and appeared likely to be yet another commercial success for Pixar’s parent

corporation, The Walt Disney Company. By the second weekend after its release, Cars 2 had raked in $109 million.

Although Walt Disney was a visionary, even he would have struggled to imagine such enormous numbers when his company was

created. In 1923, Disney Brothers Cartoon Studio was started by Walt and his brother Roy in their uncle’s garage. The fledgling

company gained momentum in 1928 when a character was invented that still plays a central role for Disney today—Mickey Mouse.

Disney expanded beyond short cartoons to make its first feature film, Snow White and the Seven Dwarves, in 1937.

Following a string of legendary films such as Pinocchio (1940), Fantasia (1940), Bambi (1942), and Cinderella (1950), Walt

Disney began to diversify his empire. His company developed a television series for the American Broadcasting Company (ABC) in

1954 and opened the Disneyland theme park in 1955. Shortly before its opening, the theme park was featured on the television show

to expose the American public to Walt’s innovative ideas. One of the hosts of that episode was Ronald Reagan, who twenty-five years

later became president of the United States. A larger theme park, Walt Disney World, was opened in Orlando in 1971. Roy Disney

died just two months after Disney World opened; his brother Walt had passed in 1966 while planning the creation of the Orlando

facility.

The Walt Disney Company began a series of acquisitions in 1993 with the purchase of movie studio Miramax Pictures. ABC

was acquired in 1996, along with its very successful sports broadcasting company, ESPN. Two other important acquisitions were

made during the following decade. Pixar Studios was purchased in 2006 for $7.4 billion. This strategic move brought a very creative

and successful animation company under Disney’s control. Three years later, Marvel Entertainment was acquired for $4.24 billion.

Marvel was attractive because of its vast roster of popular characters, including Iron Man, the X-Men, the Incredible Hulk, the

Fantastic Four, and Captain America. In addition to featuring these characters in movies, Disney could build attractions around them

within its theme parks.

With annual revenues in excess of $38 billion, The Walt Disney Company was the largest media conglomerate in the world by

2010. It was active in four key industries. Disney’s theme parks included not only its American locations but also joint ventures in

France and Hong Kong. A park in Shanghai, China, is slated to open by 2016. The theme park business accounted for 28 percent of

Disney’s revenues.

Disney’s presence in the television industry, including ABC, ESPN, Disney Channel, and ten television stations, accounted for 45

percent of revenues. Disney’s original business, filmed entertainment, accounted for 18 percent of revenue. Merchandise licensing

was responsible for 7 percent of revenue. This segment of the business included children’s books, video games, and 350 stores spread

across North American, Europe, and Japan. The remaining 2 percent of revenues were derived from interactive online technologies.

Much of this revenue was derived from Playdom, an online gaming company that Disney acquired in 2010.1

By mid-2011, questions arose about how Disney was managing one of its most visible subsidiaries. Pixar’s enormous success had

been built on creativity and risk taking. Pixar executives were justifiably proud that they made successful movies that most studios

would view as quirky and too off-the-wall. A good example is 2009’s Up!, which made $730 million despite having unusual main

characters: a grouchy widower, a misfit “Wilderness Explorer” in search of a merit badge for helping the elderly, and a talking dog.

Disney executives, however, seemed to be adopting a much different approach to moviemaking. In a February 2011 speech, Disney’s

chief financial officer noted that Disney intended to emphasize movie franchises such as Toy Story and Cars that can support sequels

and sell merchandise.

 

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