Lecture Session

4
Firm Structure

Dr K. Sankaran Director Justice KS Hegde Management Institute Nitte, Karnataka

Markets vs. Hierarchy

Markets

Internal Transaction
Internally Networked Market Transaction

Typology of Governance Structure

Risk of the Deal
Low Need to rely Low on trust Among parties High Markets Recurrent Contracts High Hierarchy Relational Contracts

Source: Ring Van de Ven, SMJ, 1992

Types of Embedded Arrangements

M & A Type Horizontal

Where do benefits come from? Larger production/ distribution base, sharing common facilities, Market dominance

Vertical

Greater direct control on inputs and outputs

Sharing of knowledge, Customer offered a more comprehensive range of products/ services Financial portfolio, corporate Parenting

Related

Unrelated

Types of Growth Strategies

Net Result Bigger company in the same ProductMarket

Growth Strategy
Greenfield Projects Horizontal M&A Vertical M&A Related M & A Unrelated M & A Long Term Contracts Advantage: Economies of scale, competitive position vis--vis other players Disadvantage: higher exit barriers

A company that is vertically integrated/ Corporate coupled to a greater degree Conglomerates.

?
Advantage through Corporate parenting

Advantage through tighter control on inputs / output

K. Sankaran

Thank you