Corporate diversification and mergers and

acquisitions

Corporate diversificationA firm implements a corporate diversification strategy when it operates in multiple industries or markets simultaneously (P208). There are very types of corporate diversification like limited corporate diversification, related corporate diversification, and unrelated corporate diversification. According to MEIZU’s business strategies, it is the firm who has implemented a strategy of limited corporate diversification. More specific explanation, it is the “dominant-business” company (P209 Figure7.1 Levels and Types of Diversification). MEIZU was first established in 2003 by Mr. HuangZhang, who plays the leaded role of MEIZU for over 10 years. At that time, basic on its cost performance and effective tone quality, the “MX-MP3” series was more and more popular in Chinese market. To keep their advantage, they become the largest global customers for the upstream chip supply-Sigmatel. When “music card” and “miniplayer” was public in 2003, it became the leader of Chinese MP3. In order for diversification to be a source of sustained competitive advantage, it must be not only valuable but also rare and costly to imitate, and a firm must be organized to implement this strategy. Therefore, for per year, one product would be published from 2004 to 2006, called M3, M6, and E6, respectively. From then on, in next 3 years, basic on its unique products-the MX series, MEIZU had accumulated enough wealth, gained market experience.

Because of the great success in MP3 field, Huang Zhang determined

to challenge one of the most grand firms—APPLE in Smartphone field in 2006 which is a very early time for Chinese Smartphone market. As we know, the extent to which a valuable and rare corporate diversification strategy is immune from direct duplication depends on how costly it is for competing firms to realize this same economy of scope. Therefore, after two-year research and development, “M8” the first Smartphone released by MEIZU. After one year, in April 2009, MEIZU is one of the most successful Smartphone firms in China. To the beginning of 2012, the production value was over 1 billion RMB. Instead of obtaining cost or revenue advantages from exploiting economies of scope across business in a diversified firm, a firm may decide to simple grow and develop each of its businesses separately. In this sense, a firm that successfully implements a cost leadship strategy or a product differentiation strategy in a single business can obtain the same cost or revenue advantages it could have obtained by exploiting economies of scope but without having to develop cross-business relations (P233). MEIZU is a good example for this theory.

Many organizations re-create some corporate staff functions within each division of the organization. This is particularly true for internally oriented corporate staff functions such as accounting and human. However, MEIZU, in a sense, is a family business. For some fundamental departments, the leaders are all Huang Zhang’s relatives. It is easy for the decision-making level reach an agreement as divisional staff managers usually have a less formal relationship with their division general managers, it is a direct ”solid-line” reporting relationship to their respective corporate stall functional managers and a less formal “dotted-line” reporting

relationship to their division general manager. It may waste time because they spend most of their time interacting with their division general managers and also, the other functional managers. With relatives, it is easy to change their mind and has less interest dispute. More importantly, much safety for the confidential information of firm (P248). MEIZU need a more professional management team, to endow MEIZU a more sustainable future.

mergers and acquisitions

The terms mergers and acquisitions are often used interchangeably. A firm engages in an acquisition when it purchases a second firm called acquisition while when the assets of two similar-sized firms are combined, this transaction is called a merger. In MP3 times, MEIZU is the “Lone Ranger”, no mergers and acquisitions happened during the first five-year period.

Compared with APPLE’s acquisitions strategy, it is quite different between this two firms. For APPLE, it is easy to find that the “Mobile advertisement”, “Kernel software”, “Map service”, and “3D effects” are the four main popular technologies that APPLE interested. There are 15 firms were purchased by APPLE in 2013. The reason why APPLE is so interested in this field is because of a large amount of free cash flow. According to APPLE’s financial reports, there is over 150 billion dollars in bank. Free cash flow is simply the amount of cash a firm has to invest after all positive net present-value investments in its ongoing business have been funded. A firm that generates a great deal of free cash flow must decide what to do with this money (P305). Therefore, it is easy to understand the reason why APPLE is interested in purchasing small firms. More importantly,

the ability of these economies to generate profits and competitive advantages for bidding firms depends not only on their economic value, but also on the competitiveness of the market for corporate control through which these valuable economies are realized. For example, in 2008, a firm called P.A.Semi which is good at designing microprocessor was purchased by APPLE and later in 2009, the CPU called 5A got from P.A. Semi was first used in IPAD2 and 6A for IPHONE 5.

As for MEIZU, because of lack of free cash flow, no mergers and acquisitions happened during early age. However, in recent years, because of its success in MP3 and Smartphone, MEIZU has purchased a small company called Ubuntu which is focus on the mobile operating system. And a new operating system was published called Flyme for its new mobile phone MX3.

Mergers and acquisitions are not always mean success and money, it is a highly risky action in reality. Most of these problems reflect the fact that operational, functional, strategic, and cultural difference between bidding and target firms involved in a merger or acquisition are likely to be much greater than these same differences between the different parts of a diversified or vertically integrated business that was not created through acquisition. Regardless of the professional problems, the most significant challenge in integrating bidding and target firms has to do with cultural differences (22). MEIZU is a Chinese firm, so it is much more challenge for them to cooperation and purchase oversea firms because of the huge perceive gap.

Overall, MEIZU is a “dominant-business” company with the product changed from MP3 to Smartphone. It is still a growing firm with a limited free cash flow condition. MUYOULE BUHUIXIELE NIYAOWOA

(22) Cartwright,S, and C.Cooper (1993) “The role of culture compatibility in successful organizational marriage”