Strategy_Session6

43 %
57 %
Information about Strategy_Session6
Entertainment

Published on February 27, 2009

Author: shengvn

Source: authorstream.com

SESSION 6 – PART 1Acquisition andRestructuring Strategies : SESSION 6 – PART 1Acquisition andRestructuring Strategies KNOWLEDGE OBJECTIVES : 2 KNOWLEDGE OBJECTIVES Explain the popularity of acquisition strategies in firms competing in the global economy. Discuss reasons why firms use an acquisition strategy to achieve strategic competitiveness. Describe seven problems that work against developing a competitive advantage using an acquisition strategy. Name and describe attributes of effective acquisitions. Define the restructuring strategy and distinguish among its common forms. Explain the short- and long-term outcomes of the different types of restructuring strategies. Studying this chapter should provide you with the strategic management knowledge needed to: Mergers, Acquisitions, and Takeovers: What are the Differences? : 3 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 A special type of acquisition when the target firm did not solicit the acquiring firm’s bid for outright ownership. FIGURE 6.1 Reasons for Acquisitions and Problems in Achieving Success : 4 FIGURE 6.1 Reasons for Acquisitions and Problems in Achieving Success Reasons for Acquisitions : 5 Reasons for Acquisitions Acquisitions: Increased Market Power : 6 Acquisitions: Increased Market Power Factors increasing 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 Acquisitions: Increased Market Power (cont’d) : 7 Acquisitions: Increased Market Power (cont’d) Market power is increased by: Horizontal acquisitions: other firms in the same industry Vertical acquisitions: suppliers or distributors of the acquiring firm Related acquisitions: firms in related industries Market Power Acquisitions : 8 Market Power Acquisitions Acquisition of a company in the same 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. Market Power Acquisitions (cont’d) : 9 Market Power Acquisitions (cont’d) Acquisition of a supplier or distributor of one or more of the firm’s goods or services Increases a firm’s market power by controlling additional parts of the value chain. Market Power Acquisitions (cont’d) : 10 Market Power Acquisitions (cont’d) Acquisition of a company in a highly related industry Because of the difficulty in implementing synergy, related acquisitions are often difficult to implement. Acquisitions: Overcoming Entry Barriers : 11 Acquisitions: Overcoming Entry Barriers Entry Barriers Factors associated with the market or with the firms operating in it that increase the expense and difficulty faced by new ventures trying to enter that market Economies of scale Differentiated products Cross-Border Acquisitions Acquisitions made between companies 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. Acquisitions: Cost of New-Product Development and Increased Speed to Market : 12 Acquisitions: Cost of New-Product Development and Increased Speed to Market Internal development of new products is often perceived as 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’ experience with the products. Acquisitions: Lower Risk Compared to Developing New Products : 13 Acquisitions: 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. Acquisitions: Increased Diversification : 14 Acquisitions: 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. Acquisitions: Reshaping the Firm’s Competitive Scope : 15 Acquisitions: 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 company’s dependence on specific markets alters the firm’s competitive scope. Acquisitions: Learning and Developing New Capabilities : 16 Acquisitions: 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. Problems in Achieving Acquisition Success : 17 Problems in Achieving Acquisition Success Problems in Achieving Acquisition Success: Integration Difficulties : 18 Problems in Achieving Acquisition Success: Integration Difficulties Integration challenges include: Melding two disparate corporate cultures Linking different financial and control systems Building effective working relationships (particularly when management styles differ) Resolving problems regarding the status of the newly acquired firm’s executives Loss of key personnel weakens the acquired firm’s capabilities and reduces its value Problems in Achieving Acquisition Success: Inadequate Evaluation of the Target : 19 Problems in Achieving Acquisition Success: Inadequate Evaluation of the Target Due Diligence The process of evaluating a target firm for acquisition Ineffective due diligence may result in paying an excessive premium for the target company. Evaluation requires examining: Financing of the intended transaction Differences in culture between the firms Tax consequences of the transaction Actions necessary to meld the two workforces Problems in Achieving Acquisition Success: Large or Extraordinary Debt : 20 Problems in Achieving Acquisition Success: Large or Extraordinary Debt High debt (e.g., junk bonds) can: Increase the likelihood of bankruptcy Lead to a downgrade of the firm’s credit rating Preclude investment in activities that contribute to the firm’s long-term success such as: Research and development Human resource training Marketing Problems in Achieving Acquisition Success: Inability to Achieve Synergy : 21 Problems in Achieving Acquisition Success: Inability to Achieve Synergy Synergy When assets are worth more when used in conjunction with each other than when they are used separately. Firms experience transaction costs when they use acquisition strategies to create synergy. Firms tend to underestimate indirect costs when evaluating a potential acquisition. Problems in Achieving Acquisition Success: Inability to Achieve Synergy (cont’d) : 22 Problems in Achieving Acquisition Success: Inability to Achieve Synergy (cont’d) Private synergy When the combination and integration of the acquiring and acquired firms’ assets yields capabilities and core competencies that could not be developed by combining and integrating either firm’s assets with another company. Advantage: It is difficult for competitors to understand and imitate. Disadvantage: It is also difficult to create. Problems in Achieving Acquisition Success: Too Much Diversification : 23 Problems in Achieving Acquisition Success: Too Much Diversification Diversified firms must process more information of greater diversity. Increased operational scope created by diversification may cause managers to rely too much on financial rather than strategic controls to evaluate business units’ performances. Strategic focus shifts to short-term performance. Acquisitions may become substitutes for innovation. Problems in Achieving Acquisition Success: Managers Overly Focused on Acquisitions : 24 Problems in Achieving Acquisition Success: Managers Overly Focused on Acquisitions Managers invest substantial time and energy in acquisition strategies in: Searching for viable acquisition candidates. Completing effective due-diligence processes. Preparing for negotiations. Managing the integration process after the acquisition is completed. Problems in Achieving Acquisition Success: Managers Overly Focused on Acquisitions : 25 Problems in Achieving Acquisition Success: Managers Overly Focused on Acquisitions Managers in target firms operate in a state of virtual suspended animation during an acquisition. Executives may become hesitant to make decisions with long-term consequences until negotiations have been completed. The acquisition process can create a short-term perspective and a greater aversion to risk among executives in the target firm. Problems in Achieving Acquisition Success: Too Large : 26 Problems in Achieving Acquisition Success: Too Large Additional costs of controls may exceed the benefits of the economies of scale and additional market power. Larger size may lead to more bureaucratic controls. Formalized controls often lead to relatively rigid and standardized managerial behavior. The firm may produce less innovation. Effective Acquisition Strategies : 27 Effective Acquisition Strategies Complementary Assets /Resources Buying firms with assets that meet current needs to build competitiveness. FriendlyAcquisitions Friendly deals make integration go more smoothly. Careful Selection Process Deliberate evaluation and negotiations are more likely to lead to easy integration and building synergies. Maintain Financial Slack Provide enough additional financial resources so that profitable projects would not be foregone. Attributes of Effective Acquisitions : 28 Attributes of Effective Acquisitions Attributes Results Low-to-Moderate Debt Merged firm maintains financial flexibility Flexibility Has experience at managing change and is flexible and adaptable SustainEmphasison Innovation Continue to invest in R&D as part of the firm’s overall strategy Restructuring : 29 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 Types of Restructuring: Downsizing : 30 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 company’s portfolio. Typical reasons for downsizing: Expectation of improved profitability from cost reductions Desire or necessity for more efficient operations Types of Restructuring: Downscoping : 31 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 eliminating key employees from its primary businesses. Smaller firm can be more effectively managed by the top management team. Restructuring: Leveraged Buyouts (LBO) : 32 Restructuring: Leveraged Buyouts (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. 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. FIGURE 6.2 Restructuring and Outcomes : 33 FIGURE 6.2 Restructuring and Outcomes SESSION 6 – PART 2International Strategy : SESSION 6 – PART 2International Strategy FIGURE 6.3 Opportunities and Outcomes of International Strategy : 35 FIGURE 6.3 Opportunities and Outcomes of International Strategy Identifying International Opportunities : 36 Identifying International Opportunities International Strategy A strategy through which the firm sells its goods or services outside its domestic market. Reasons to having an international strategy International markets yield potential new opportunities. New market expansion extends product life cycle. Needed resources can be secured. Greater potential product demand. Classic Rationale for International Diversification: Extend a Product’s Life Cycle : 37 Classic Rationale for International Diversification: Extend a Product’s Life Cycle International Strategy Benefits : 38 International Strategy Benefits Increased Market Size Domestic market may lack the size to support efficient scale manufacturing facilities. Return on Investment Large investment projects may require global markets to justify the capital outlays. Weak patent protection in some countries implies that firms should expand overseas rapidly in order to preempt imitators. International Strategy Benefits (cont’d) : 39 International Strategy Benefits (cont’d) Economies of Scale (or Learning) Expanding size or scope of markets helps to achieve economies of scale in manufacturing as well as marketing, R&D or distribution. Can spread costs over a larger sales base. Can increase profit per unit. International Strategy Benefits (cont’d) : 40 International Strategy Benefits (cont’d) Location Advantages Low cost markets aid in developing competitive advantage by providing access to: Raw materials Transportation Lower costs for labor Key customers Energy FIGURE 6.4 Determinants of National Advantage : 41 FIGURE 6.4 Determinants of National Advantage Source: Adapted with the permission of The Free Press, an imprint of Simon & Schuster Adult Publishing Group, from Competitive Advantage of Nations, by Michael E. Porter, p. 72. Copyright ©1990, 1998 by Michael E. Porter. Determinants of National Advantage : 42 Determinants of National Advantage Factors of production The inputs necessary to compete in any industry Labor ?Land ?Natural resources Capital ?Infrastructure Basic factors Natural and labor resources Advanced factors Digital communication systems and an educated workforce Determinants of National Advantage (cont’d) : 43 Determinants of National Advantage (cont’d) Demand Conditions Characterized by the nature and size of buyers’ needs in the home market for the industry’s goods or services. Size of the market segment can lead to scale-efficient facilities. Efficiency can lead to domination of the industry in other countries. Specialized demand may create opportunities beyond national boundaries. Determinants of National Advantage (cont’d) : 44 Determinants of National Advantage (cont’d) Related and Supporting Industries Supporting services, facilities, suppliers and so on. Support in design Support in distribution Related industries as suppliers and buyers Firm Strategy, Structure and Rivalry The pattern of strategy, structure, and rivalry among firms. Common technical training Methodological product and process improvement Cooperative and competitive systems Selecting an International Corporate-Level Strategy : 45 Selecting an International Corporate-Level Strategy The type of corporate strategy selected will have an impact on the selection and implementation of the business-level strategies. Some strategies provide individual country units with the flexibility to choose their own strategies. Other strategies dictate business-level strategies from the home office and coordinate resource sharing across units. International Corporate-Level Strategy : 46 International Corporate-Level Strategy Focuses on the scope of operations: Product diversification Geographic diversification Required when the firm operates in: Multiple industries, and Multiple countries or regions Headquarters unit guides the strategy But business or country-level managers can have substantial strategic input. FIGURE 6.5 International Corporate-Level Strategies : 47 FIGURE 6.5 International Corporate-Level Strategies Multidomestic Strategy : 48 Multidomestic Strategy Strategy and operating decisions are decentralized to strategic business units (SBU) in each country. Products and services are tailored to local markets. Business units in one country are independent of each other. Assumes markets differ by country or regions. Focus on competition in each market. Prominent strategy among European firms due to broad variety of cultures and markets in Europe. Global Strategy : 49 Global Strategy Products are standardized across national markets. Business-level strategic decisions are centralized in the home office. Strategic business units (SBU) are assumed to be interdependent. Emphasizes economies of scale. Often lacks responsiveness to local markets. Requires resource sharing and coordination across borders (hard to manage). Transnational Strategy : 50 Transnational Strategy Seeks to achieve both global efficiency and local responsiveness. Difficult to achieve because of simultaneous requirements: Strong central control and coordination to achieve efficiency Decentralization to achieve local market responsiveness Firm must pursue organizational learning to achieve competitive advantage. Environmental Trends : 51 Environmental Trends Liability of Foreignness Legitimate concerns about the relative attractiveness of global strategies Global strategies not as prevalent as once thought Difficulty in implementing global strategies Regionalization Focusing on particular region(s) rather than on global markets Better understanding of the cultures, legal and social norms TABLE 6.1 Global Market Entry: Choice of Entry : 52 TABLE 6.1 Global Market Entry: Choice of Entry Type of Entry Characteristics Exporting High cost, low control Licensing Low cost, low risk, little control, low returns Strategic alliances Shared costs, shared resources, shared risks, problems of integration (e.g., two corporate cultures) Acquisition Quick access to new market, high cost, complex negotiations, problems of merging with domestic operations New wholly owned subsidiary Complex, often costly, time consuming, high risk, maximum control, potential above-average returns Dynamics of Mode of Entry : 53 Dynamics of Mode of Entry The firm has no foreign manufacturing expertise and requires investment only in distribution. Export What’s the best solution? Dynamics of Mode of Entry (cont’d) : 54 Dynamics of Mode of Entry (cont’d) The firm needs to facilitate the product improvements necessary to enter foreign markets. Licensing What’s the best solution? Dynamics of Mode of Entry (cont’d) : 55 Dynamics of Mode of Entry (cont’d) The firm needs to connect with an experienced partner already in the targeted market. Strategic Alliance What’s the best solution? Dynamics of Mode of Entry (cont’d) : 56 Dynamics of Mode of Entry (cont’d) The firm needs to reduce its risk through the sharing of costs. Strategic Alliance What’s the best solution? Dynamics of Mode of Entry (cont’d) : 57 Dynamics of Mode of Entry (cont’d) The firm is facing uncertain situations such as an emerging economy in its targeted market. Strategic Alliance What’s the best solution? Dynamics of Mode of Entry (cont’d) : 58 Dynamics of Mode of Entry (cont’d) The firm’s intellectual property rights in an emerging economy are not well protected, the number of firms in the industry is growing fast, and the need for global integration is high. Wholly-owned Subsidiary What’s the best solution? International Diversification and Returns : 59 International Diversification and Returns Expanding sales of goods or services across global regions and countries and into different geographic locations or markets: May increase a firm’s returns (such firms usually achieve the most positive stock returns). May achieve economies of scale and experience, location advantages, increased market size and opportunity to stabilize returns. International Diversification and Innovation : 60 International Diversification and Innovation Expansion sales of goods or services across global regions and countries and into different geographic locations or markets: May yield potentially greater returns on innovations (a larger market). Can generate additional resources for investment in innovation. Provides exposure to new products and processes in international markets; generates additional knowledge leading to innovations. Complexity of Managing Multinational Firms : 61 Complexity of Managing Multinational Firms Expansion into global operations in different geographic locations or markets: Makes implementing international strategy increasingly complex. Can produce greater uncertainty and risk. May result in the firm becoming unmanageable May cause the cost of managing the firm to exceed the benefits of expansion. Exposes the firm to possible instability of some national governments. Risks in an International Environment : 62 Risks in an International Environment Political Risks Instability in national governments War, both civil and international Potential nationalization of a firm’s resources Economic Risks Differences and fluctuations in the value of different currencies Differences in prevailing wage rates Difficulties in enforcing property rights Unemployment ? ? ? ? FIGURE 6.6 Risk in the International Environment : 63 FIGURE 6.6 Risk in the International Environment Limits to International Expansion: Management Problems : 64 Limits to International Expansion: Management Problems Cost of coordination across diverse geographical business units Institutional and cultural barriers Understanding strategic intent of competitors The overall complexity of competition

Add a comment

Related presentations

Related pages

strategy session - YouTube

Standard YouTube License; Loading... ... Strategy Session 6: Fundamentals of contesting the shot - Duration: 4:27. Da_Czar 44,096 views. 4:27
Read more

Strategy Session - YouTube

Business Strategy Session with Diamond Ambassador Sara Marble - Duration: 26:47. sara marble 5,420 views. 26:47 ... Strategy Session 6: ...
Read more

Strategic Lesson Planning - TEI - Teacher Education ...

Lesson planning is taught in the Strategic Lesson Planning course at Teacher Education Institute (TEI) which is designed to assist teachers in public and ...
Read more

Complimentary Strategy Session - Cathy Taughinbaugh ...

Sign up for a complimentary strategy session so that you can have a deeper understanding about how your child's use is affecting you.
Read more

Session 5: Marketing Strategy — Start, Run and Grow Your ...

Marketing Strategy: Choose which groups of people you want to target within your market; ... Marketing Strategy; Session 6: Basic Numbers Part 1; Session 7
Read more

Session 4: Funding Strategy - Austin Small Business Answers

SESSION 4: DEVELOPING A FUNDING STRATEGY: AN INSIDER'S LOOK AT ANGEL INVESTING & VENTURE CAPITAL (JANUARY 2014) Timing is everything when securing seed, ...
Read more

Strategy Session - Mpact Wealth

Mpact Wealth. Have questions? Call us at (888) 888-3612. In Just 6 Easy Steps, Discover How We Can Help You Increase Your Passive Cash Flow - with a ...
Read more

BWC Strategy Session - Best Workplaces for Commuters

Boeing-Mesa, and Robin Snyder, a Best Workplaces for Commuters team member, EPA. Patrice Thornton Ms. Thornton opened the discussion by providing
Read more

6th ERNWACA STRATEGY SESSION Designing ERNWACA 2012-2016 ...

6th ERNWACA STRATEGY SESSION « Designing ERNWACA 2012-2016 Strategic Plan » Hotel Mande Bamako, Mali 26, 27 et 28 October 2011 DRAFT AGENDA
Read more