Corporate strategy, strategic alliances, mergers and acquisitions Flashcards
What is the Build-Borrow-or-Buy Framework?
A corporate strategy tool that helps companies decide whether to build capabilities internally, borrow them through partnerships, or buy them by acquiring another company.
Give an example of when a company might choose to build.
A tech company developing its own artificial intelligence software internally to maintain full control over the technology.
When should a company choose to build capabilities internally?
When the company has the necessary in-house resources, knowledge, and time; when protecting proprietary technology is critical.
When should a company choose to borrow resources?
When the company lacks time, expertise, or resources to build internally but prefers not to acquire another company, or when flexibility is needed.
Provide an example of a borrowing scenario.
A pharmaceutical company forming a joint venture with a biotech firm to access advanced drug development technology.
When is it appropriate for a company to buy capabilities?
When immediate access is needed, the capabilities are critical to the long-term strategy, or it is more cost-effective than building or borrowing
Example of a buying scenario.
A consumer goods company acquiring a small startup that has developed a new innovative product line.
What does relevance mean in the Build-Borrow-Buy Framework?
The degree to which a firm’s internal resources can address the resource gap effectively.
What is tradability in the context of the Build-Borrow-Buy Framework?
The ability to obtain needed resources through external agreements or contracts, allowing for ownership transfer or use.
Define closeness regarding resource partners in the Build-Borrow-Buy Framework.
The proximity needed to the external resource partner, which can be achieved through equity alliances or joint ventures.
What role does integration play when considering a buy option?
It assesses how well the targeted firm can be integrated if acquired, particularly under conditions of low relevance and high need for closeness.
What are strategic alliances?
Formal agreements between two or more companies to collaborate on specific business objectives while remaining independent.
Why do companies enter strategic alliances?
To strengthen competitive positions, enter new markets, hedge against uncertainty, access complementary assets, and learn new capabilities.
What are the three types of strategic alliances?
Non-equity alliances (contractual partnerships)
Equity alliances (partial ownership)
Joint ventures (new, jointly owned entities)
What is essential for successful alliance management?
Partner compatibility, trust, and ensuring that expected benefits exceed costs
What is the goal of post-formation alliance management?
To create VRIO (Value, Rarity, Imitability, Organization) resource combinations that lead to competitive advantage.
What is a merger?
The joining of two independent companies to form a combined entity, usually through a friendly process.
Why do firms pursue horizontal integration through mergers?
To reduce competitive intensity, lower costs, and increase differentiation.
What is an acquisition?
The purchase of one company by another, which can be friendly or hostile.
Why do firms engage in acquisitions?
To access new markets and distribution channels, overcome entry barriers, access new capabilities, and preempt rivals.
What are some common issues associated with M&A?
Many M&A deals do not create competitive advantage, often failing to realize anticipated synergies and potentially destroying shareholder value.
What was a key factor in the failure of the DaimlerChrysler merger?
A lack of integration, leading to missed synergies and a persistent cultural clash between the two companies.
What lessons can be learned from the DaimlerChrysler case?
The importance of addressing cultural differences, achieving operational integration, and the need for strong leadership in mergers.
