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International Business Management > Lecture 5 - Strategic Alliances and Acquisitions > Flashcards

Lecture 5 - Strategic Alliances and Acquisitions Flashcards

1
Q

What is the two stage decision model used for?

A

Benchmarking:

  • Given that no firm is likely to have enough resources and capabilities to be good at all primary and support activities, the key is to examine whether the firm has resources and capabilities to perform a particular activity in a manner superior to competitors
  • If managers find that a particular activity performed by their firm is unfavorable, a two-stage decision model can remedy the situation
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2
Q

Outline the 2 stage decision model

A

Look at lecture notes

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3
Q

Define what strategic alliances are

A

Voluntary agreements of cooperation between firms involving exchange, sharing or co-developing products, technologies, or services

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4
Q

What are the three stages of the formation of alliances?

A

STAGE ONE: To cooperate or not to cooperate?

  • to grow by pure market transactions, the firm has to independently confront competitive challenges
  • very demanding even for resource-rich multinationals

STAGE TWO: Contract or equity?

  • the choice between contract and equity also boils down to institutional constraints

STAGE THREE: Specifying the relationship?

  • firms need to choose a specific format among the family of equity-based or contractual (non equity-based) alliances
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5
Q

Draw the formation of alliances flow chart

A

Look at notes

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6
Q

What are the three types of equity-based alliances?

A
  • strategic investment
  • cross-shareholding
  • joint ventures
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7
Q

What is a strategic investment?

A

one partner invests in another

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8
Q

What is a cross-shareholding?

A

both partners invest in each other

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9
Q

What is a joint venture?

A

The most common form of equity alliance is the joint venture, where two companies remain independent but set up a new organization jointly owned by the parents

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10
Q

What does the alliance continuum show?

A

Depicts alliances as degrees of compromise between pure market transactions and acquisitions

  • Contractual alliances are associations between firms that are based on contracts and do not involve shared ownership
  • Equity-based alliances are based on ownership or financial interest between the firms
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11
Q

Why do firms enter into strategic alliances?

A
  • To gain global market leadership
  • To gain inside knowledge about unfamiliar markets and cultures
  • To master new technologies and build expertise
  • To have access to valuable skills and competencies in particular geographic locations
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12
Q

What are the advantages of strategic alliances?

A
  • They lower investment costs and risks for each partner by facilitating resource pooling and risk sharing
  • They are more flexible organisational forms and allow for a more adaptive response to changing conditions
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13
Q

What are the disadvantages of strategic alliances?

A
  • Culture clash and integration problems due to different management styles and business practices (choice of wrong partner)
  • Anticipated gains may not materialise due to an overly optimistic view of the synergies or a poor fit of partners’ resources and capabilities
  • Risk of becoming dependent on partner firm for essential expertise and capabilities: inhibits innovation
  • Difficult to protect proprietary technologies, knowledge bases or trade secrets from partners who may turn rivals
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14
Q

How can firms minimize opportunism?

A

1) walling off critical capabilities: need to protect from partner
2) swapping critical capabilities through credible commitments
- sometimes none of these approaches work and the relationship deteriorates

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15
Q

What are the stages involved in a divorce?

A

INITIATION
- initiator starts feeling uncomfortable with the alliance (for whatever reason)

GOING PUBLIC

  • initiator likely to go public first but partner may preempt by blaming the initiator
  • impacts shareholders

UNCOUPLING
- alliance dissolution can be friendly or hostile

  • a lot depends on the environment in which the alliance sits: harder to dissolve alliances in some countries
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16
Q

Draw the alliance dissolution flow chart

A

Look at notes

17
Q

What are the four key factors that influence alliance performance?

A

Equity (e.g. JVs)

  • greater equity stake may mean firm is more committed, likely to result in higher performance
  • companies have more to lose

Learning and experience (this is why firms join in the first instance)

  • Has a firm successfully learned from its partners?
  • Experience often used as a proxy

Nationality

  • Dissimilarities in national culture may create strains in alliances
  • must also consider corporate culture
  • less about the contract and more about the ‘chemistry’ between firms which determines success of relationship

Relational capabilities
- Alliance performance may fundamentally boil down to soft, hard-to-measure relational capabilities

18
Q

What can firms do to improve the odds of alliance success?

A
  • contract v ‘chemistry’
  • warning signs
  • invest in the relationship
  • conflict resolution mechanisms
19
Q

What are the strategic alliance factors for success?

A
  • picking a good partner
  • being sensitive to cultural differences
  • recognizing that the alliance must benefit both sides
  • adjusting the agreement over time to fit new circumstances
  • structuring the decision-making process for swift actions
  • ensuring both parties keep their commitments
20
Q

What is a merger?

A

Combination of operations and management of two firms to establish a new legal entity; accounts for only 3% of all M&As

21
Q

What is an acquisition?

A

Transfer of the control of operations and management from one firm (target) to another (acquirer)

22
Q

What are the different features of alliances and acquisitions?

A

ALLIANCES

  • create value primarily by combining complementary resources
  • may be more suitable under high levels of uncertainty
  • cost less
  • allow for learning opportunities from working together

ACQUISITIONS

  • derive most value by eliminating redundant resources
  • preferable when the level of uncertainty is low
  • one-off deals
  • must incorporate both the good and bad parts of the acquired firm
23
Q

Draw the flow chart highlighting the varieties of cross-border mergers and acquisitions

A

Look at notes

24
Q

What are the different motives for acquisitions?

A

Synergistic motives

Hubris motives

Managerial motives

  • Increasing the firm’s scale of operations and market share
  • Expanding a firm’s geographic coverage
  • Extending the firm’s business into new product categories
  • Gaining quick access to new technologies or complementary resources and capabilities (similar to alliance)
  • Shareholder pressure to merge or acquire
25
Q

What two ‘fits’ do firms have to consider when undergoing M&As?

A

STRATEGIC FIT
- does the target firm strengthen or complement the acquiring firm’s strategy? (It is easy to over-estimate this potential synergy)

ORGANISATIONAL FIT
- is there a match between the management practices, cultural practices and staff characteristics of the target and the acquiring firm?

26
Q

Why do as many as 70% of acquisitions fail?

A

PRE-ACQUISITION

  • executive hubris and/or managerial motives
  • inadequate screening and failure to achieve strategic fit
  • 80% of acquiring firms do not analyze organizational fit
  • failure to address multiple stakeholders’ concerns regarding job losses and diminished power

POST-ACQUISITION

  • integration problems
  • strategic fit
  • organizational fit resulting in inadequate attention to people issues, resulting in low morale and high turnover
  • clashes of national cultures
  • loss of key employees of the targeted firm
  • Cost savings may prove smaller than anticipated
27
Q

What are the symptoms of acquisition failures?

A

Look at notes

28
Q

Given the high rates of M&A failures, it seems imperative that firms seriously and thoroughly investigate alliances as an alternative before embarking on acquisitions.

What are the implications for action?

A
  • understand and master the rules of the game governing alliances and acquisitions around the world
  • when managing alliances, pay attention to the ‘soft’ relationship aspects
  • when managing acquisitions, do not overpay, focus on both strategic and organizational fit, and thoroughly address integration concerns

International Business Management (6 decks)

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