Chapter 3
A Primer in Corporate and International Strategy for Media Firms
In pursuing competitive advantages, a media firm goes through the stages of strategy analysis, formulation, and implementation (Dess, Lumpkin, & Taylor, 2004). These strategic actions involve different lev- els of complexity as well as resource commitments, ranging from microlevel, functional strategies like an advertising campaign; to busi- ness-level strategies that are mainly concerned with developing core competencies in a specific product market (e.g., a differentiation or cost leadership strategy); to corporate strategies that deal with how a media corporation diversifies its business units, allocates resources, and man- ages its portfolio. Although each business unit of a diversified firm has to analyze and align the external and internal environment of its prod- uct market with the unit’s business mission and intent to exploit com- petitive advantages in a particular market (e.g., ABC in the network TV market), a diversified corporation such as Disney, the corporate parent of ABC, also has the challenging tasks of finding the best combination of resources and business environments in which the overall company can be competitive in multiple markets. Hitt, Ireland, and Hoskisson (2001) suggested that a company may adopt among five generic business-level strategies: cost leadership, differentiation, focused cost leadership, fo- cused differentiation, and integrated cost leadership/differentiation. Compared to these single-market business-level strategies, corporate strategies tackle more multidimensional issues such as mergers and ac- quisitions as well as product and geographical diversification that are heavily dependent on the conditions of a firm’s external environment and have substantial implications for the development and appropria-
38Chan-Olmsted, S. M. (2005). Competitive strategy for media firms : Strategic and brand management in changing media markets. Retrieved from http://ebookcentral.proquest.com Created from ashford-ebooks on 2019-03-01 14:48:04.
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tion of its resources. Along the same line, considering the popularity of strategic alliances in the media industries and the emergence of numer- ous global media conglomerates, a media firm’s cooperative strategies that exploit pooled competitive advantages and international strategies that aim at capitalizing on the technological, political, societal, and eco- nomic changes in the global marketplace have also become critical cor- porate decisions that impact a media firm’s competitiveness in the marketplace. Thus, to supplement the general strategic management concepts discussed in chapter 2, this chapter further reviews relevant theories in areas of diversification, M&A, strategic alliances and net- works, and international strategy. It also discusses how these strategic approaches and theories might be applicable to media products in the context of a changing media marketplace. Note that whereas diversifi- cation, M&A, and cooperative strategies such as strategic alliances are examined in the context of an international marketplace, additional concepts in international expansion are discussed separately.
DIVERSIFICATION
Diversification is the dominant topic in the studies of corporate strat- egy—the strategic management of organizations with multiple busi- ness units in search of synergistic competitive advantages. Various reasons have been cited as the drivers for diversification. These ratio- nales might be grouped into six categories: growth, market power, mar- ket efficiency, financial-performance improvement, profit stability, and synergy effects. In fact, diversification is simply a “faster” way to grow, especially via the means of acquisitions. Unlike natural internal expan- sion, which takes time for planning, developing, and implementing, an acquisition or merger can be achieved fairly quickly and new resources and customers become immediately available. For example, most lead- ing cable television multiple system operators (MSOs) have grown tre- mendously in the last decade through acquisitions of clustered systems rather than through building new systems. Scholars have noted that a diversified firm may acquire market power that is unavailable to its un- diversified counterparts (Caves, 1981; Hitt et al., 2001; McCutcheon, 1991; Scherer, 1980; Sobel, 1984). For instance, a vertically integrated diversifier may gain market power through reciprocal buying and sell- ing (Grant, 1998). A diversified firm can make use of efficiencies that are unavailable to its single-business-unit (SBU) counterparts by owning sharable, transferable resources and thus leading to scale/scope econo- mies. A diversifier can also generate cash from its core, successful busi- ness unit to invest in other ventures for additional profits. Television networks and movie studios have long used the cash they garner from blockbusters to invest in new content or technology projects. Further- more, diversification into new businesses can reduce risks and varia- tions in corporate profits by expanding the firm’s lines of business.
A PRIMER IN CORPORATE AND INTERNATIONAL STRATEGY I 39
Chan-Olmsted, S. M. (2005). Competitive strategy for media firms : Strategic and brand management in changing media markets. Retrieved from http://ebookcentral.proquest.com Created from ashford-ebooks on 2019-03-01 14:48:04.
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NBC’s entry into the cable market with its MSNBC and CNBC properties has helped boost its advertising sales amid declining broadcast TV audi- ences. Finally, a diversified firm may benefit from synergy—the added value created by business units working together.
Sanchez and Heene (2004) suggested that corporate synergies might be achieved as a result of cost reductions through a combination of economies of scale, scope, learning, and substitution (i.e., resource sub- stitution) enabled by a firm’s business portfolio; or as a result of im- proved products or processes through better control of key inputs and supply/distribution relationships with vertical integration, leveraging of technology and intangible assets such as brands, and sharing of knowledge and capabilities. Such synergistic effects have also fre- quently been cited as a driver for media firms’ diversification (Jung & Chan-Olmsted, in press). For instance, media conglomerates have placed more emphasis on the promotion of their own subsidiaries’ prod- ucts such as television programs or movies. The result is that these con- glomerates, with their enormous resources and diverse holdings, have been very successful in developing and promoting content products in ways their stand-alone counterparts cannot match (Jung, 2001, 2002; McAllister, 2000; D. Williams, 2002).
Diversification involves either geographic or product market expan- sions (see Fig. 3.1). Sanchez and Heene (2004) suggested that an SBU typ- ically grows geographically in a domestic market before expanding internationally or beginning horizontal integration with acquisitions of business units in its domestic market. Very often, domestic or even inter- national vertical integration with businesses upstream or downstream from the distribution channel is the last step. In fact, the media industry is going through a phase of transformation, moving from a national to an international marketplace as many media conglomerates also become multinational corporations. The strategy of international diversification
40 I CHAPTER 3
FIG. 3.1. Types of corporate and international strategies.
Chan-Olmsted, S. M. (2005). Competitive strategy for media firms : Strategic and brand management in changing media markets. Retrieved from http://ebookcentral.proquest.com Created from ashford-ebooks on 2019-03-01 14:48:04.