MGMT 352 Ch. 9

Strengthen Competitive Position

-Change industry structure to the firm's favor -Influence industry standards -Decrease competition

non-equity alliance

-Partnerships based on contracts (supply agreements, distribution agreements, and licensing agreements) -Often used to share explicit knowledge (patents, user manuals, fact sheets) -Flexible, easy to initiate and terminate -weak ties between partners and lack of trust and commitment

how do firms undergo M&As

-Vertical integration: efficiency purpose -Horizontal integration -Process of merging with a competitor -reduction in competitive Industry -lower costs -increased differentiation

Learn new capabilities

-co-opetition: cooperation among competitors -learning races: the firm that learns more quickly is motivated to exit the alliance/reduce knowledge sharing

equity alliance

-partnership in which at least one partner takes partial ownership in the other -sharing of tacit knowledge (know-how, knowledge embedded in employees)

Why do firms enter strategic alliances?

-strengthen competitive position -enter new markets -hedge against uncertainty -access critical complementary assets -learn new capabilities

Merger

-the joining of two independent companies to form a combined entity -friendly -comparable size

Why do firms acquire other firms?

-to access new markets and distribution channels -to access new capabilities or competencies -to preempt rivals

Joint Ventures

-when two or more companies join forces - sharing resources, risks, and profits, but not actually merging companies - to pursue specific opportunities -long term commitment -exchange of explicit and tacit knowledge -used to enter foreign markets -strong ties, trust and commitment -long negotiation process and costs and investments

Alliance Management Capability

1. Partner selection and alliance formation 2. Alliance design and governance 3. Post-formation alliance management

build-borrow-or-buy framework

Conceptual model that aids firms in deciding whether to pursue internal development (build), enter a contractual arrangement or strategic alliance (borrow), or acquire new resources, capabilities, and competencies (buy).

M&A and Competitive Advantage

In most cases mergers and acquisitions: •Do not create competitive advantage. •Do not realize anticipated synergies. •Result in destroyed shareholder value. Why mergers take place: •Principal-agent problems. •The desire to overcome competitive disadvantage. •Superior acquisition and integration capability.

Principal-Agent Problems with M&A

Managers may have personal incentives to acquire: •To build a larger empire. •To receive prestige, power, and higher pay. Managerial hubris: •A form of self-delusion. •May lead to ill-fated business deals.

Hedge against uncertainty

Real-options perspective: -approach to strategic decision making -breaks down a larger investment decision into a set of smaller decisions -staged sequentially over time -allows firms to obtain information in stages

Build-borrow-or-buy framework main issues

Relevancy Tradability Closeness Integration

Strategic Alliance

a voluntary arrangement between firms that involves the sharing of knowledge, resources, and capabilities with the intent of developing processes, products, or services

Enter new markets

strategic alliance helps companies enter new or unfamiliar product/services markets or geographical markets

Complementary assets

the combination of numerous resources and assets that enable a firm to gain a competitive advantage

Acquisition

the purchase of a company by another company

Hostile takeover

the target company does not wish to be acquired