Session 15 Flashcards
What problems are associated with using an acquisition strategy?
- Difficult to integrate firms
- Incorrectly evaluating value
- Debt loads prevent long-term investment
- Overestimating synergy
- Too much diversification
- Managers spend too much time/energy analyzing acquisition
- Develop a firm that is too large which needs bureacratic rather than strategic controls
What is the integration process in M&A?
- considered to be strongest determinant of whether the M/A will be successfull
- difficult and challenging
- generates uncertainty and resistance due to culture clash and organizational politics.
What challenges are associated with the integration process?
need to:
- meld 2+ unique cultures
- Link financial and information controls
- Build effective working relationships (especially when management styles differ)
- determine leadership structure and those who will fill it for the integrated firm
What is a strategic alliance?
Primary cooperative strategy where firms combine some of their resources and capabilities to create a mutual competitive advantage.
What is a joint venture?
Major strategic alliance when two or more firms create a legally independent company to share some of their resources to create a competitive advantage.
- partners own equal percentages and contribute equally to operations
- formed to improve firm’s ability to compete
How are joint ventures effective?
- establish long-term relationships
- transfer tacit knowledge (cant be codified, but it is critical to firms’ effort in developing a competitive advantage)
What is an equity strategic alliance?
One company purchases equity in another business (partial acquisition) or each business purchases equity in eachother (cross-equity transaction)
They do this to ensure they have control over assets they commit to the alliance
What is a nonequity strategic alliance?
Two or more firms develop a contractual relationship to share some resources to create a competitive advantage.
- less formal
- Fewer commitments from partners
- doesnt foster intimate relationship
- unsuitable for complex projects where success depends on the transfer of tacit knowledge
- OUTSOURCING commonly occurs through non-equity strategic alliances
What are the motives behind strategic alliances?
- Accessing Complementary Assets
- Responding to Competitors’ Actions
- Reducing Uncertainty and Competition
What is accessing complementary assets?
Leveraging partner strengths to enhance capabilities and access resources that are not available internaly to facilitate innovation and expansion
What are the two dominant types of complementary strategic alliances?
- Vertical: firms share some resources from different stages of value chain
- Horizontal: firms share some of their resource sfrom the same stage(s) of the value chain
What is responding to competitior’s actions?
Forming alliances to countermeasure competitors’ moves, maintaining or improving market position
What is reducing uncertainty and competition?
Collaborating to minimize industry uncertainties and competitive pressures. Stabalize market presence and foster cooperation
What is collusion?
Used to reduce competition, differs from strategic alliances because they are an illegal cooperative strategy.
What are the two type sof collusion
- Explicit collusion: two+ firms negotiate directly about the amount to produce and for what price
- Tacit collusion: two+ firms indirectly coordinate production and pricing by observing each other’s competitive actions and responses
What are the competitive risks of cooperative strategies?
- inadequate contracts
- Misrepresentation of competencies
- opportunistic behavior (fail to commit resources and capabilities)
- Must use risk management!
