Strategic Management Exam 2

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Advantages and Disadvantages of Late Mover

-Earn only average returns. They can enter the market when the uncertainty of the industry is low.

Seven problems in achieving a successful acquisition

1) Integration difficulties 2) Inadequate evaluation of target 3) Large or extraordinary debt 4) Inability to achieve synergy 5) Too much diversification 6) Managers overly focused on acquisition 7) Too large

Seven reasons firms engage in an acquisition strategy

1) To increase market power 2) To overcome entry barrier 3) To increase speed to the product market and to reduce the cost of new product development 4) To lower risks compared to developing new products 5) To increase diversification 6) To avoid excessive competition 7) To learn and develop new capabilities

Strategic Action or Strategic Response

A market-based move that involves a significant commitment of organizational resources and is difficult to implement and reverse.

Tactical Action or Tactical Response

A market-based move that is taken to fine-tune a strategy: -Usually involves fewer resources -Is relatively easy to implement and reverse

How diversified firms use activity sharing to create value

Activity sharing (sharing tangible resources and value chain) can reduce costs for diversified firms. The firm can produce multiple products with shared value chains such as manufacturing, inbound logistics, outbound logistics, and others.

Earn only average returns. They can enter the market when the uncertainty of the industry is low.

Advantages and Disadvantages of Late Mover

Advantages: -Learn from the mistakes of first mover. Disadvantages: -Hast to tolerate the entry barrier the first mover created. -They should either provide product of same value at lower cost or provide product of same cost at greater value.

Advantages and Disadvantages of Second Mover

Advantages: -Economies of scale, learning curve, brand equity, and network externality. -Can create barriers of entry and protects high industry profitability. Disadvantages/Risks: -Should invest in product innovation and development, aggressive advertising, and R&D. -The cost of early adoption, changing technology, and changing consumer tasters are the risks.

Advantages and Disadvantages of being a First Mover

Advantages and Disadvantages of being a First Mover

Advantages: -Economies of scale, learning curve, brand equity, and network externality. -Can create barriers of entry and protects high industry profitability. Disadvantages/Risks: -Should invest in product innovation and development, aggressive advertising, and R&D. -The cost of early adoption, changing technology, and changing consumer tasters are the risks.

Advantages and Disadvantages of Second Mover

Advantages: -They have advantages of learning from the mistakes from the first mover. Disadvantages: -Hast to tolerate the entry barrier the first mover created. -They should either provide product of same value at lower cost or provide product of same cost at greater value.

Forward Integration

An entry to the current distributer's industry

Market Commonality

Concerned with: the number of markets with which a firm and a competitor are jointly involved and the degree of importance of the individual markets to each competitor.

Economies of Scope

Cost savings across functions or units.

How diversified firms transfer core competencies to create value

Diversified firms can transfer intangible resources (core competencies) to create value. Innovation, knowledge, and brand names can be applied in multiple businesses and benefit diversified firms.

Differences between downscoping and downsizing

Downsizing is reduction in workforce. Downsizing is refocusing its businesses. Downscoping is reducing the number of businesses an organization is managing in order to better focus on its core business.

How Market Commonality and Resource Similarity identify the level of competition between two firms

If a competitor shares high market commonality and high resource similarity, the competitor is the direct competitor.

Horizontal Integration

Indicates integrating a business which is either direct or indirect competitor.

LBO's and the results of such activities

Leveraged buyouts. In the short term, the LBO incurs high debt. If the managers of the firms with LBO emphasize the strategic controls, the long-term outcome tends to be positive.

How can a manager prevent a winners curse

Managers can prevent it by 1) observing due diligence and 2) seeking for multiple target firms.

Vertical Integration

Means starting a business which is supplier or distributer (buyer) of the current business.

Backward Integration

Means that the firm enters into its supplier's industry

Resource Similarity

Measures how comparable the firm's tangible and intangible resources are to a competitor's in terms of both types and amounts.

1) Integration difficulties 2) Inadequate evaluation of target 3) Large or extraordinary debt 4) Inability to achieve synergy 5) Too much diversification 6) Managers overly focused on acquisition 7) Too large

Seven problems in achieving a successful acquisition

1) To increase market power 2) To overcome entry barrier 3) To increase speed to the product market and to reduce the cost of new product development 4) To lower risks compared to developing new products 5) To increase diversification 6) To avoid excessive competition 7) To learn and develop new capabilities

Seven reasons firms engage in an acquisition strategy

Commitment

The difference between strategic action and tactical action.

Winners curse in the M&A bidding

This happens when the multiple bidders name their prices with incomplete information. A winner may win the bidding, but the winning firm will overpay. This creates the M&A premium and reduces the acquiring shareholders' value. As a results, the shareholders of the target firms gets the value from the M&A.

Managerial motives to diversify

To increase the managerial compensation and to diversify the unemployment risks

Corporate Restructuring and Efficient Internal Capital Allocation

Two ways that an unrelated diversification strategy can create value.


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