INTERNATIONAL

BUSINESS STRATEGY
702056

Presented by
Mcomm. Nguyen Thi Hong Hanh
Department of International Business
 Learning Outcomes
1. Identify the key strategic motives for mergers and acquisitions and
strategic alliances
2. Distinguish the key issues in successful management of M&As and
strategic alliances
3. Understand how to make appropriate choices between organic
development, M&As and strategic alliances.
4. Define the restructuring strategy and distinguish among its common
forms.
5. Explain the short- and long-term outcomes of the different types of
restructuring strategies.
6. Identify key success factors of different growth options.

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 3 Strategy methods

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 Organic Development

“ Do it yourself”
Organic development is where a strategy is pursued by building on,
developing an organization’s own capabilities
5 principal advantages:
1. Knowledge and learning
2. Spreading investment over time
3. No availability constraint
4. Strategic independence
5. Culture management
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 Mergers, Acquisitions, and Takeovers:
What are the Differences?

• Merger
– Two firms agree to integrate their operations
on a relatively co-equal basis.
• Acquisition
– One firm buys a controlling, or 100%, interest in another firm
with the intent of making the acquired firm a subsidiary business
within its portfolio.
• Takeover
– An acquisition in which the target firm did not solicit the
acquiring firm’s bid for outright ownership.

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 Motives for M&As

Strategic Financial Managerial

Extension Financial Efficiency Personal ambition

Consolidation Tax efficiency Bandwagon effect

Capability Asset stripping

& bundling

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 M&A Processes

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 Reasons for Acquisitions and Problems in
Achieving Success

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 Reasons for Acquisitions

Increased
Learning and market power
Overcoming
developing
entry barriers
new capabilities

Cost of new
Reshaping firm’s Making an
product
competitive scope Acquisition
development

Increased Increase speed

diversification Lower risk than to market
developing new
products

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 Acquisitions: Increased Market Power

• Factors increase market power when:

– there is the ability to sell goods or services above competitive
levels.
– costs of primary or support activities are below those of
competitors.
– a firm’s size, resources and capabilities gives it a superior
ability to compete.
• Acquisitions intended to increase market power are subject to:
– regulatory review
– analysis by financial markets

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 Acquisitions: Increased Market Power

• Market power is increased by:

– horizontal acquisitions of other firms in the
same industry.
– vertical acquisitions of suppliers or
distributors of the acquiring firm.
– related acquisitions of firms in related
industries.

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 Market Power Acquisitions

Horizontal • Acquisition of a firm in the same

Acquisitions industry in which the acquiring firm
competes increases a firm’s market
power by exploiting:
– Cost-based synergies
– Revenue-based synergies
• Acquisitions with similar
characteristics result in higher
performance than those with
dissimilar characteristics.
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 Market Power Acquisitions

Horizontal • Acquisition of a supplier or

Acquisitions distributor of one or more
of the firm’s goods or
Vertical
Acquisitions services
– increases a firm’s market
power by controlling
additional parts of the
value chain.

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 Market Power Acquisitions

Horizontal
Acquisitions • Acquisition of a firm in a
highly related industry
Vertical
Acquisitions
– because of the difficulty
Related in attaining synergy,
Acquisitions related acquisitions are
often difficult to
implement.

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 Overcoming Entry Barriers
• Entry Barriers
– Factors associated with the market or with the firms operating in
it that increase the expense and difficulty for new firms in
gaining immediate market access.
• Economies of scale
• Differentiated products
• Cross-Border Acquisitions
– Acquisitions made between firms with headquarters in different
countries:
• are often made to overcome entry barriers.
• can be difficult to negotiate and operate because of the
differences in foreign cultures.
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 Cost of New-Product Development
and Increased Speed to Market

• Internal development of new products is often

perceived as a high-risk activity.
– Acquisitions allow a firm to gain access to new and
current products that are new to the firm.
– Returns are more predictable because of the
acquired firms’ past experience with its products.

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 Lower Risk Compared
to Developing New Products

• An acquisition’s outcomes can be estimated more easily

and accurately than the outcomes of an internal
product development process.
– Managers may view acquisitions as lowering risk
associated with internal ventures and R&D
investments.
– Acquisitions may discourage or suppress innovation.

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 Increased Diversification

• Using acquisitions to diversify a firm is the quickest and

easiest way to change its portfolio of businesses.
• Both related diversification and unrelated diversification
strategies can be implemented through acquisitions.
• The more related the acquired firm is to the acquiring
firm, the greater is the probability that the acquisition
will be successful.

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 Reshaping the Firm’s
Competitive Scope

• An acquisition can:
– reduce the negative effect of an intense rivalry on a
firm’s financial performance.
– reduce a firm’s dependence on one or more
products or markets.
• Reducing a firm’s dependence on specific markets
alters the firm’s competitive scope.

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 Learning and Developing
New Capabilities

• An acquiring firm can gain capabilities that

the firm does not currently possess:
– special technological capability
– a broader knowledge base
– reduced inertia
• Firms should acquire other firms with different but
related and complementary capabilities in order to
build their own knowledge base.

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 Problems in Achieving
Acquisition Success

Integration
difficulties
Inadequate
Too large
target evaluation

Problems
Managers with
overly focused on Acquisitions Extraordinary debt
acquisitions

Too much Inability to

diversification achieve synergy

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 Effective Acquisition Strategies

Complementary Assets Buying firms with assets that meet current

/Resources needs to build competitiveness.

Friendly Friendly deals make integration go more

Acquisitions smoothly.

Careful Selection Deliberate evaluation and negotiations are

Process more likely to lead to easy integration and
building synergies.

Maintain Financial Provide enough additional financial

Slack resources so that profitable projects would
not be foregone.

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 Attributes of Effective Acquisitions

Attributes Results
Low-to-Moderate Debt Merged firm maintains
financial flexibility

Sustained Emphasis on Continue to invest in R&D

Innovation as part of the firm’s overall
strategy

Flexibility Has experience at

managing change and is
flexible and adaptable

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 Attributes of Successful Acquisition

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 Strategic Alliance

• Strategic alliances are cooperative strategies

between firms whereby resources and
capabilities are combined to create a
competitive advantage
• All strategic alliances require firms to exchange
and share resources and capabilities to co-
develop or distribute goods or services.

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 Types of Strategic Alliance

1. Equity Alliance:
! Joint venture: 2 independent
organizations remain independent
but set up a new organization
jointly owned by the parents
!Consortium alliance: several
partners setting up a venture
together
2. Non-equity alliance: contract-based
!Franchising
!Licensing
!Long-term subcontracting
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 Motives for Alliances
• Scale alliances: Low cost, more bargaining power, sharing
risks
• Access alliances: partners provide needed capabilities
(distribution outlets or licenses to brands)
• Complementary alliances: bringing together strengths to
offset other partner’s weaknesses
• Collusive alliances : to increase market power

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 Strategic Alliance process

2 vital themes for successful strategic alliance:

1. Co-evaluation:
Underlines the way in which partners, strategies , and
capabilities need to evolve in harmony in order to reflect a
constantly changing environment.
2. Trust:
Partners need to behave in a trustworthy fashion throughout
the alliance
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 How to make strategic alliances work

1. Create a system to managing the alliance

2. Build trusting relationships with partners
3. Set up the safeguard to protect from the threat of
opportunism by partners
4. Make commitments to partners and require partners to
do the same
5. Make learning a routine part of management process

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 Buy, Ally or DIY?

1. Urgency: Acquisition-> Alliance -> Organic development

2. Uncertainty
3. Type of capabilities
4. Modularity capabilities

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 Buy, Ally or DIY? (cont)

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 Key success factors

1. Strategic fit
Does the target firm strengthen or
complement the acquiring firm? (It is easy
to over-estimate the potential of synergy)
2. Organizational fit
Is there a match between management,
cultural practices and staff characteristics?

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 Restructuring

• A strategy through which a firm changes its set of businesses

or financial structure.
– Failure of an acquisition strategy often precedes a
restructuring strategy.
– Restructuring may occur because of changes in the
external or internal environments.
• Restructuring strategies
– Downsizing
– Downscoping
– Leveraged buyouts
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 Types of Restructuring: Downsizing

• A reduction in the number of a firm’s employees and

sometimes in the number of its operating units.
– May or may not change the composition of businesses in
the firm’s portfolio.
• Typical reasons for downsizing:
– Expectation of improved profitability from cost
reductions
– Desire or necessity for more efficient operations

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 Types of Restructuring: Downscoping

• A divestiture, spin-off or other means of eliminating

businesses unrelated to a firm’s core businesses.
• A set of actions that causes a firm to strategically refocus on
its core businesses.
– May be accompanied by downsizing, but not the
elimination of key employees from its primary businesses.
– Results in a smaller firm that can be more effectively
managed by the top management team.

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 Restructuring: Leveraged Buyout (LBO)

• A restructuring strategy whereby a party buys all of a

firm’s assets in order to take the firm private.
– Significant amounts of debt may be incurred to finance
the buyout, followed by an immediate sale of non-core
assets to pare down debt.
• Can correct for managerial mistakes
– Managers making decisions that serve their own interests
rather than those of shareholders
• Can facilitate entrepreneurial efforts and strategic growth

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 Restructuring and Outcomes

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 Reading for next week

Exploring Strategy: Chapter 10 (Page 317-328)

Global Strategy: Chapter 12 (Page 360-383)

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 Homework

Individual research on Volkswagen emissions scandal:

• What is it about?
• The explanation
• Responses from Volkswagen

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