expansion through cooperation 2013
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EXPANSION THROUGH COOPERATION
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• MICHAEL PORTER’s assumption- companies compete in market for a limited market share.
• Win-Lose situation• Contrary view- competition could co-exist,
competition is possible with mutual cooperation and beneficial to all parties concerned i.e. “co-opetition”
• “co-opetition”- simultaneous cooperation and competition among rival firms.
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Types of Cooperative Strategies :-
• Objectives of buyers and sellers match to a large extent
MERGERS
• Acquisition-usually based on the strong motivation of the buyer firm to acquire
TAKEOVERS
• Independent firm is created by 2 or more firms• Invaluable strategy for utilizing global expansion opportunities
JOINT VENTURES
• Resources capabilities & core competencies are combined to pursue mutual interests to develop, manufacture or distribute goods or services.
STRATEGIC ALLIANCE
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1.MERGER STRATEGIESHORIZONTAL• In same business
VERTICAL• Create complementarity in terms of supply(inputs) or marketing
of goods & services (outputs)
CONCENTRIC• Related in terms of customer functions customer groups or
technology
CONGLOMERATE• 2 or more unrelated organizations
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REASONS FOR MERGERS( FOR BUYERS)
• To increase the value of the organization’s stock• To increase the growth rate and make a good
investment• To improve stability of earnings and sales• To balance,complete,or diversify product line• To reduce competition• To acquire needed resources quickly• To avail tax concessions and benefits• To take advantages of synergy
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REASONS FOR MERGERS(FOR SELLERS)
• To increase the value of the owner’s stock and investment
• To increase the growth rate• To acquire resources to stabilize operations• To benefit from tax legislation• To deal with top management succession
problem
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Important issues in mergers
• Strategic issues
• Financial issues
• Managerial issues
• Legal issues
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2. Takeovers
How takeovers take place :-• Spell out the objective• Indicate how the objective would be achieved• Assess managerial quality• Check the compatibilty of business styles• Anticipate and solve problems early• Treat people with dignity and concern
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Hostile Takeovers
• Where a takeover is resisted or expected to be opposed by the existing management or professionals.
• Shares are picked from open markets and controlling interests obtained.
• With help from majority shareholders a bid is made to enter the company’s board and to acquire control.
• Political support believed to be crucial in hostile takeovers.
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PROS AND CONS OF TAKEOVERS
PROS• Ensure management
accountability• Offer easy growth
opportunities• Create mobility of resources• Avoid gestation periods and
hurdles involved in new projects
• Offer a chance to sick units to survive
• Open up alternatives for selective divestment
CONS• Professionalism gets replaced by money-power• Do not create any real
assets for society and are detrimental to national economy
• Interests of minority shareholders is not protected
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3.Joint ventures
Mergers
Absorption Consolidation
JOINT VENTURES
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JOINT VENTURES cont..
• Joint ventures are a special case of consolidation where two or more companies form a temporary partnership (also called a consortium) for a specified purpose.
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Conditions for joint ventures• useful to gain access to a new business mainly
under four conditions.1. Activity is uneconomical2. For risk sharing3. to bring together distinctive competencies4. When setting up an organization requires
surmounting hurdles.
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Types of Joint Ventures
• Between two firms in one industry• Between two firms across different industries• Between an Indian firm and a foreign
company in India• Between an Indian firm and a foreign
company in that foreign country• Between an Indian firm and a foreign
company in a third country
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Benefits and drawbacks in Joint Ventures
Benefits• Minimizing risk• Reducing an individual
company’s investment• Having access to foreign
technology• Broad-based equity
participation• Access to governmental
support• Entering new fields of
business• Synergistic advantage
Drawbacks• Problems in equity
participation• Foreign exchange
regulations• Lack of proper coordination
among participating firms• Cultural and behavioural
differences• Possibility of conflict among
the partners
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Strategic Alliances
• Necessary and sufficient characteristics1. 2 or more firms unite to pursue a set of agreed
upon goals but remain independent subsequent to the formation of the alliance
2. The partner firms share the benefits of the alliance and control over the performance of assigned task
3. The partner firms contribute on a continuing basis in one or more key strategic areas for e.g. technology ,product etc
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Strategic Alliance is a cooperative arrangement between two or more
companies where :
• Win-Win attitude is adopted by all parties• Reciprocal relationship• Pooling of resources, investments, and
risks occurs for mutual gain
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Types of Strategic Alliances
High Non-Competitive Alliance
Competitive Alliance
Low Pro-Competitive Alliance
Pre-Competitive Alliance
Interaction
Conflict
Low High
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Reasons for Strategic Alliances
1.Entering new markets2.Reducing manufacturing
costs3.Developing and diffusing
technology
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Other reasons
• Accelerate product introduction
• Overcome legal and trade barriers expeditiously
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Managing strategic alliances
1. Clearly define a strategy and assign responsibilities
2. Phase in the relationship between the partners
3. Blend the cultures of the partners4. Provide for an exit strategy