final mgcr 423 Flashcards
vertical acquisition
: firm acquires suppliers or distributors of the acquiring firm.
Economies of scale:
you get a better cost structure by increasing units sold (cost = variable + fixed/u)
Economies of scope:
variable + fixed/(u1 + u2)
Transferring capabilities and competencies from one business to another (we invest in that skill once and use it twice or in two different places)
Related and relevant fixed cost=
= related businesses
Economies of scope can result from:
- knowledge (scale free – no opportunity cost problem, you can use it anytime any place)
The goal is fungibility which isthe ability of a good or asset to be interchanged with other individual goods or assets of the same type. (for the characters to work in movies and also in amusement parks) - Machine (has opportunity cost – the machine cannot be used in both areas at the same time, you should use it for the best use of it, where do you create more profit)
economies of scope: Fixed cost that is relevant to?
more than one business (this can be used to further revenue or economize production cost)
types of Value creating diversification (3):
economies of scope
market power
financial economies
Merger?
Two firms agree to integrate their operations on a relatively co-equal basis.
Acquisition?
One firm buys a controlling, or 100%, interest in another firm with the intent of making the acquired firm a subsidiary business within its portfolio.
Takeover
An acquisition in which the target firm did not solicit the acquiring firm’s bid for outright ownership.
Reasons for acquisitions:
Learning and developing new capabilities - TRW has some capabilities that ZF needs. Instead of developing capability, you can acquire firm to get capability much faster. gain access to capabilities they lack
Overcoming entry barriers - well-established competitors may have economies of scale in manufacturing or servicing their products. In addition, enduring relationships with customers often create loyalties and customer
information that are difficult for new entrants to overcome
Lower risk than developing new projects - The outcomes of an acquisition can be estimated more easily and accurately than the outcomes of an internal product development process
Cost of New Product Development and Increased Speed to Market - acquisitions provide more predictable returns as well as faster market entry. Returns are more predictable because the performance of the acquired firm’s products can be assessed prior to completing the acquisition
Increased diversification - it is difficult for companies to develop
products that differ from their current lines for markets in which they lack experience
Reshaping the Firm’s Competitive Scope - Reducing a company’s dependence on specific products or markets shapes the firm’s competitive scope
Increased Market Power - primary reason for acquisitions, so that a core competence can be used to gain competitive advantage in the acquiring firm’s primary market
market power exists when a firm is able to?
sell its goods or services above
competitive levels or when the costs of its primary or support activities are lower than
those of its competitors
Market power only appears in:
the captured value (in the value stick), it does not appear in the creation of value or extension of stick
Two strategy Levels?
Business-unit level strategy (competitive) (Ch. 4)
How can a firm create competitive advantage?
Corporate-level strategy (company-wide) (Ch. 6)
What is the mix of industries we should be in?
How do we add value in each unit?
Do all firms have a corporate strategy?
All firms have a corporate strategy, even single-line businesses
The decision not to engage in other industries is important
