182 Part 2: Strategic Actions: Strategy Formulation
RUBY WASHINGTON/The New York Tim/Redux
Virgin Group, known for its airline, has also transferred its brand
through its marketing competence to other product areas such
cosmetics, music, drinks, mobile phones, health clubs, and a number
of other businesses.lawnmowers, and cars and trucks. Company
officials state that Honda is a major manufac-
turer of engines focused on providing prod-
ucts for all forms of human mobility.^43
One way managers facilitate the transfer
of corporate-level core competencies is by
moving key people into new management
positions.^44 However, the manager of an older
business may be reluctant to transfer key peo-
ple who have accumulated knowledge and
experience critical to the business’s success.
Thus, managers with the ability to facilitate
the transfer of a core competence may come
at a premium, or the key people involved may
not want to transfer. Additionally, the top-
level managers from the transferring business
may not want the competencies transferred
to a new business to fulfill the firm’s diversifi-
cation objectives.^45 Research suggests that the
nature of the top management team can influ-
ence the success of the knowledge and skill
transfer process.^46 Research also suggests too
much dependence on outsourcing can lower the usefulness of core competencies thereby,
reducing their useful transferability to other business units in the diversified firm.^476-3c Market Power
Firms using a related diversification strategy may gain market power when successfully
using a related constrained or related linked strategy. Market power exists when a firm is
able to sell its products above the existing competitive level or to reduce the costs of its
primary and support activities below the competitive level, or both.^48 Heinz was bought
by a private equity firm in Brazil called 3G Capital Partners LP that is currently approach-
ing Kraft Foods Group to combine these two firms. This deal is supported by Warren
Buffet’s Berkshire Hathaway & Co. who teamed up with 3G to buy Heinz’s well established
ketchup and frozen food brands businesses for $23 billion. In a similar deal to build mar-
ket power, 3G took private food restaurant Burger King Worldwide, Inc., and also bought
Tim Hortons Inc. (a Canadian coffee and donut fast-food restaurant) through its Burger
King holdings. Warren Buffet also contributed $11 million to help finance the latter deal.
These deals obvious build market power for the combining firms in branded consumer
foods and fast food restaurants.^49
Ericsson has the largest share of the global market in telecommunications equipment,
and for many years its leadership position has afforded the company considerable market
power. That market power and its leadership position in research helped it garner major
contracts in telecommunications equipment; “About 40 percent of the world’s wireless
calls and data move through Ericsson’s network hardware.”^50 As communication firms
move to the “cloud” it is seeking acquisitions and contracts to maintain that market power.
In addition to efforts to gain scale as a means of increasing market power, firms can
foster increased market power through multipoint competition and vertical integration.
Multipoint competition exists when two or more diversified firms simultaneously com-
pete in the same product areas or geographical markets.^51 Through multi-point competi-
tion, rival firms often experience pressure to diversify because other firms in their dominant
industry segment have made acquisitions to compete in a different market segment.Market power exists
when a firm is able to sell its
products above the existing
competitive level or to reduce
the costs of its primary and
support activities below the
competitive level, or both.
Multipoint competition
exists when two or
more diversified firms
simultaneously compete in
the same product areas or
geographical markets.