global strategy mike w. peng c h a p t e r 99 copyright © 2009 cengage.powerpoint presentation by...

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Copyright © 2009 Cengage. PowerPoint Presentation by John Bowen, Columbus State Community CollegeAll rights reserved. Copyright © 2009 Cengage. PowerPoint Presentation by John Bowen, Columbus State Community CollegeAll rights reserved.

Diversifying, Acquiring, and Restructuring

Diversifying, Acquiring, and Restructuring

Part III: Corporate-Level Strategies

Global StrategyGlobal StrategyMike W. PengMike W. Peng

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Copyright © 2009 Cengage. All rights reserved. 9–2

Outline

• Product diversification

• Geographic diversification

• Combining product and geographic diversification

• A comprehensive model of diversification

• Acquisitions

• Restructuring

• Debates and extensions

• The savvy strategist


Product Diversification

• Product-related diversificationEmphasis on operational synergy

• Product-unrelated diversificationConglomeration

• Product diversification and firm performance


Product Diversification and Firm Performance

Figure 9.1Source: Adapted from R. E. Hoskisson, M. A. Hitt, & R. D. Ireland, 2004, Competing for Advantage (p. 228), Cincinnati: Thomson South-Western.


Geographic (International) Diversification

Geographic Geographic DiversificationDiversification

Geographic Geographic DiversificationDiversification

Limited International ScopeLimited International Scope(geographically and culturally (geographically and culturally

adjacent countries)adjacent countries)

Limited International ScopeLimited International Scope(geographically and culturally (geographically and culturally

adjacent countries)adjacent countries)

Extensive International ScopeExtensive International Scope(beyond geographically and (beyond geographically and

culturally neighboring countries)culturally neighboring countries)

Extensive International ScopeExtensive International Scope(beyond geographically and (beyond geographically and

culturally neighboring countries)culturally neighboring countries)


Geographic Diversification

• International diversification

• Limited international scopeGeographically and culturally adjacent

countries

• Extensive international scopeBeyond geographically and culturally

neighboring countries

• Geographic diversification and firm performance


Geographic Diversification and Firm Performance: An S Curve

Figure 9.2

Source: Adapted from F. Contractor, S. K. Kundu, & C.-C. Hsu, 2003, A three stage theory of international expansion: The link between multinationality and performance in the service sector (p. 7), Journal of International Business Studies, 34: 5–18.


Combining Product and Geographic Diversification

• Entertain both dimensions of diversification simultaneously

• Four possible combinations

Anchored replicators

Multinational replicators

Far-flung conglomerates

Classic conglomerates

• Migrate from one cell to another strategically


Combining Product and Geographic Diversification

Figure 9.3


A Comprehensive Model of Diversification

• Industry-based considerationsGrowth opportunityStructural attractiveness of an industry

(Porter’s five forces)

• Resource-based considerations: VRIO

• Institution-based considerations: Formal, informal

• The evolution of the scope of the firm: Benefits and costs - economic, bureaucratic, marginal


A Comprehensive Model of Diversification

Figure 9.4


Product-Related and -Unrelated Diversification

Table 9.1

PRODUCT-RELATED DIVERSIFICATION PRODUCT-UNRELATED DIVERSIFICATION

Synergy Operational synergy Financial synergy

Economies Economies of scale Economies of scope

Control emphasis Strategic (behavior) control Financial (output) control

Organizational structure Centralization Decentralization

Organizational culture Cooperative Competitive

Information processing Intensive, rich communication Less intensive communication


Formal InstitutionsFormal InstitutionsFormal InstitutionsFormal Institutions

Promote product unrelated diversification by banning

intraindustry mergers

Promote product unrelated diversification by banning

intraindustry mergers

Enable or constrain geographic diversification by loosening or

tightening FDI policies

Enable or constrain geographic diversification by loosening or

tightening FDI policies

Internalized, cognitive beliefs guide managerial action (e.g.,

empire building)

Internalized, cognitive beliefs guide managerial action (e.g.,

empire building)

Normative pressures to jump on the diversification “bandwagon”

Normative pressures to jump on the diversification “bandwagon”

Informal InstitutionsInformal InstitutionsInformal InstitutionsInformal Institutions

Institution-Based Considerations


What Determines the Scope of the Firm?

Figure 9.5Source: Adapted from G. Jones & C. Hill, 1988, Transaction cost analysis of strategy-structure choices (p. 166), Strategic Management Journal, 9: 159–172.


The Evolution of the Scope of the Firm in the United States: 1950–1970 and 1970–1990

Figure 9.6Source: M. W. Peng, S. H. Lee, & D. Wang, 2005, What determines the scope of the firm over time? A focus on institutional relatedness, Academy of Management Review (in press).


The Optimal Scope of the Firm: Developed versus Emerging Economies at the Same Time

Figure 9.7Source: M. W. Peng, S.-H. Lee, & D. Wang, 2005, What determines the scope of the firm over time? A focus on institutional relatedness, Academy of Management Review (in press).


Acquisitions

• Setting the terms straightAcquisition

Merger

Cross-border M&A, three primary categories: merger, vertical, conglomerate

Friendly and hostile M&A

• Motives for M&A: Synergistic, hubris, managerial

• Performance: Pre- and post-acquisition


Understanding Cross-Border M&As

Figure 9.8Source: Adapted from United Nations, 2000, World Investment Report 2000 (p. 100), New York: UN


Motives Behind Mergers and Acquisitions

Table 9.2

INDUSTRY-BASED ISSUES RESOURCE-BASED ISSUES INSTITUTION-BASED ISSUES

Synergistic motives Enhance and consolidate market power

Leverage superior managerial capabilities

Respond to formal institutional constraints and transitions

Overcome entry barriers Access to complementary resources

Take advantage of market opening and globalization Reduce risk

Scope economies Learning and developing new skills

Hubris motives Managers’ over-confidence in their capabilities

Herd behavior-following norms and chasing fads of M&As

Managerial motives Self-interested actions such as empire-building guided by informal norms and cognitions


Symptoms of Merger and Acquisition Failures

Table 9.3

PARTICULAR PROBLEMS FOR

CROSS-BORDER M&AsPROBLEMS FOR ALL M&As

Pre-acquisition: Overpaymentfor targets

Managers overestimate their ability to create value

Lack of familiarity with foreign cultures, institutions, and business systems

Inadequate pre-acquisition screening Inadequate number of worthy targets

Poor strategic fit Nationalistic concerns against foreign takeovers (political and media levels)

Post-acquisition: Failure inintegration

Poor organizational fit Clashes of organizational cultures compounded by clashes of national cultures

Failure to address multiple stakeholder groups’ concerns

Nationalistic concerns against foreign takeovers (firm and employee levels)


Stakeholders’ Concerns During Mergers and Acquisitions

Figure 9.9


Restructuring

• Setting the terms straight (Restructuring)DownsizingDown scopingRefocusing

• Motives for restructuringPerspectives: Industry, resource, institution

• Increasing the odds for acquisition success


Product Relatedness Versus Product Relatedness Versus Other Forms of RelatednessOther Forms of Relatedness

Product Relatedness Versus Product Relatedness Versus Other Forms of RelatednessOther Forms of Relatedness

Acquisitions Versus AlliancesAcquisitions Versus AlliancesAcquisitions Versus AlliancesAcquisitions Versus Alliances

Debates and Extensions


The Savvy Strategist

• Understand the nature of your industry that may call for diversification, acquisitions, and restructuring.

• Develop capabilities that facilitate successful acquisitions and restructuring.

• Master the rules of the game governing acquisitions and restructuring around the world.

global strategy mike w. peng c h a p t e r 99 copyright © 2009 cengage.powerpoint presentation by...

Documents

dimensions of diversification

firm performance slide

marginal slide

firm performance figure

savvy strategist slide

s curve figure

industry porters

peng chapter