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CHAPTER 11

GLOBAL2 PENG

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CHAPTER 11 LEARNING OBJECTIVES

After studying this chapter, you should be able to:

1. Define alliances and acquisitions.

2. Articulate how institutions and resources influence alliances and acquisitions.

3. Describe how alliances are formed.

4. Outline how alliances are dissolved.

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CHAPTER 11 LEARNING OBJECTIVES

After studying this chapter, you should be able to:

5. Discuss how alliances perform.6. Explain why firms undertake acquisitions

and what performance problems they tend to encounter.

7. Articulate what you can do to make global alliances and acquisitions successful.

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LO1: DEFINE ALLIANCES AND ACQUISITIONS

Strategic Alliances

Voluntary agreements of cooperation between firms involving exchange, sharing or co-developing products, technologies, or services.

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LO1: DEFINE ALLIANCES AND ACQUISITIONS

LO1: STRATEGIC ALLIANCES

Contractual alliances – associations between firms that are based on contract, with no sharing of ownership.

Co-marketing Research and development (R&D) Contracts Turnkey projects Strategic suppliers Strategic distributors Licensing/franchising

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LO1: STRATEGIC ALLIANCES

Equity-based alliances – based on ownership or financial interest between firms.

Strategic investment Cross-shareholding Joint ventures

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LO1: MERGERS AND ACQUISITIONS

Merger – combination of operations and management of two firms to establish a new legal entity;

accounts for only 3% of all M&As.

Acquisition – transfer of the control of operations and management from

one firm (target) to another (acquirer).

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LO1: MERGERS AND ACQUISITIONS

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LO2: INFLUENCE OF INSTITUTIONS

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LO2: FORMAL INSTITUTIONS

Antitrust concerns – antitrust authorities more likely to approve

alliances than acquisitions.

Entry requirements – many governments place limitations on foreign firm’s mode of entry.

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LO2: INFORMAL INSTITUTIONS

Normative pillar –firms copy other reputable organizations

to establish legitimacy.

Cognitive pillar – internalized, taken-for-granted values that

guide alliances and acquisitions.

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LO2: RESOURCES AND ALLIANCES

Alliances must create value.

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LO2: RESOURCES AND ALLIANCES

Alliances can decrease value.

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LO2: RESOURCES AND ALLIANCES

Rarity – relational (collaborative) capabilities, the ability to manage inter-firm

relationships, may be rare.

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LO2: RESOURCES AND ALLIANCES

Inimitability: Alliances may make it easier to observe

imitate firm-specific capabilities. Learning race – a race in which

partners aim to learn the other’s tricks.

Trust and understanding between allies is difficult to imitate.

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LO2: RESOURCES AND ALLIANCES

Organization – some successful alliances are organized in a way that is difficult to replicate.

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LO2: RESOURCES AND ACQUISITIONS

Value: Nearly 70% of acquisitions fail. Only identifiable group of winners is

shareholders of target firms. Rarity:

For acquisitions to add value, one or all of the firms involved must supply rarity to the acquisition.

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LO2: RESOURCES AND ACQUISITIONS

Inimitability: Firms that excel in post-acquisition

integration possess hard-to-imitate capabilities.

Organization: How are merged firms organized to take

advantage of benefits of acquisition while minimizing the costs?

Strategic fit Organizational fit

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LO3: FORMATION OF ALLIANCES

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LO3: FORMATION OF ALLIANCES – STAGE ONE

Can growth be achieved strictly through market transactions, acquisitions, or alliances?

To grow through market transactions, the firm must independently confront competitive challenges. Acquisitions have unique drawbacks.

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LO3: FORMATION OF ALLIANCES – STAGE TWO

Contract or equity approach?

Equity relationship allows firms to learn tacit capabilities. Equity relationships allow firms to have some control over joint activities. Contracts do not.

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LO3: FORMATION OF ALLIANCES – STAGE THREE

Specify a format that is either equity- or contract-based.

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LO4: DISSOLUTION OF ALLIANCES

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LO5: PERFORMANCE OF ALLIANCES

Four key factors:

Equity Greater equity stake may mean firm is more

committed, likely to result in higher performance.

Learning and experience Has a firm successfully learned

from its partners? Experience often used as a proxy.

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LO5: PERFORMANCE OF ALLIANCES

Four key factors:

Nationality Dissimilarities in national culture may create

strains in alliances.

Relational capabilities Alliance performance may

fundamentally boil down to soft, hard-to-measure relational capabilities.

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LO6: WHY MAKE ACQUISITIONS?

Reduce Value

Add Value

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LO6: WHY MAKE ACQUISITIONS?

Reduce Value

Add Value

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LO6: ACQUISITION FAILURES

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LO6: CROSS-BORDER ACQUISITION FAILURES

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LO7: MAKING GLOBAL ALLIANCES AND ACQUISITIONS SUCCEED

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DEBATE: ACQUISITIONS vs. ALLIANCES

Acquisitions: One-off deals. Must incorporate both the good and bad parts of the acquired firm.

Alliances: Cost less. Allow for learning opportunities from working together.

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