IBE NDIM M & a and Strategic Alliance Lecture 20

8/13/2019 IBE NDIM M & a and Strategic Alliance Lecture 20

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INTERNATIONAL BUSINESS

MANAGEMENT

Prof Soumitra MookherjeeLecture 20

STRATEGIC ALLIANCES AND

MERGERS/ ACQUISITIONS


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International Strategic Alliances

Agreeing to cooperate with one or more firms overseas to carry

out a business activity, where each party would contribute itsstrengths, resources, and capabilities to the alliance

1. Develop a common long term and common strategy

2. Share the resources and relationship is reciprocal and

relationships are organized along horizontal lines

3. The efforts can be spread globally

e.g. Philips Multiple strategic alliance across all businesssegments for blunting the forces of Japanese, America, Taiwanese,

Korean playersin electronics sector. Not depending only in Europe

where their assets and workforce are located.


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Advantages of strategic alliances:

1. Sharing of investment cost and equity and capital contribution

2. Access to tangible and intangible resources

3. Promoting cooperation for mutual benefit

4. Managing local cultures better and more effectively

5. Risk reduction while operating overseas

6. Local partners know consumer behavior and align business

strategies accordingly


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Limitations of strategic alliances:

1. Objective incompatibility leads to conflicts and disputes

2. Cultural disparities leading to misunderstandings

3. Sharing resources may nurture others at your expense4. Who owns ownership structure how much ???

5. Profit sharing ratio --- ???


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International Strategic AlliancesExamples of strategic alliances:

1. STAR AIRLINES many partners like Air Canada, ANA, USA Airways,Lufthansa, Air New Zealand, Thai Airways, Singapore Airlines,

2. INFOSYS - Global strategic alliances with leading IT firms

Marketing Alliance to jointly deliver business solutions Technology alliance for building technical competency

The alliance partners include IBM, ORACLE, PINNACLE, Sun Microsystems, etc

3. RANBAXY Vs NIPPON CHEMIPHAR Joint marketing their products in Japan

4. NIKE: Global distribution network but production outsourced subject to

maintenance and acceptance of quality standards


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STRATEGIC ALLIANCES: SPECTRUM OF FITMENT

STRATEGIC FIT

ORGANIZATIONAL FIT

CULTURAL FITCAPABILITY FIT

Are the objectives compatible

Willingness to share resources,

Assets and competencies

Willing to succeed jointly

Can we understand

Can we communicate

Same business rationale?

Decision Making

Control Mechanism

Processes conducive for the JV


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STRATEGIC ALLIANCES: CAPABILITY FITMENT

What are the strengths and

contributions of Partner A

Resources

Assets

Competencies Complementary

Shareable Any Gaps

Co-investments needed?

What are the strengths and

contributions of Partner B

Resources

Assets

Competencies

Resources ----- Specialists, sales personnel, Capital access

Assets ----------- Factories, service centres, fixtures, labs

Competencies --- R&D, Quality, Skills, Expertise


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STRATEGIC ALLIANCES: CULTURAL FITMENT

1. Differences in Corporate Culture:

Differences arise due to ownership structure, entrepreneurial attitude,

management style and leadership traits.

2. Differences in Industry Culture:

Cultures and norms vary on the basis of the business they are engaged in e.g.

financial services, Chemical firms, FMCG firms.

3. Differences in National or ethnic culture:

Differences arise due to variations in education systems, religion and social

codes of nation, citizenship status, etc

Usually differences noticed in Corporate and national cultures

and they impact the alliances in different ways


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STRATEGIC ALLIANCES: ORGANIZATIONAL FITMENT

a) Organizational fit is strongly correlated with cultural fit.

b) Need to assess the partner firms organization structures and systems, and

processes.

c) The main dimensions include:

Degree of decentralization of decision making

Documentation of Policies and rules

Work ethics, work style rules and policies

Accounting and reporting systems

Incentive structure for motivation of employees

Alliance is not sustainable if there is significant divergent of cultures, systems

processes, so need to negotiate, communicate, participate in compromising,

striking a balance and developing mutual trust.


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GLOBAL MULTILATERAL ALLIANCES

This is a phenomenon when global entities engage in multiplicity of alliances

i.e. multi divisions engage in multiple alliances wit domestic and foreign firms

Generally three types of multiple alliances approach:

1. Alliance networks One alliance but multiple Partners contribute to

increase reach and adopt a common standard e.g. STAR Airlines, VISA,

SWIFT, etc

2. Alliance Portfolios: One partner but many alliances typically a situation

where one company enters into partnerships with multiple companies

with different products, technologies and markets. Credit Cards Vs Oil Cos

and Airlines.

3. Alliance webs: Several Partners and several alliances different business

divisions forging alliances with several partners for gaining competitive

edge.


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GLOBAL MULTILATERAL ALLIANCES

The big question?

1. How are these alliances managed Relationships with several

partners and parties???

2. How to make the alliance work and effective?

3. How to cope with multiple alliances?


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C0 - BRANDINGCo-brandingrefers to several different marketing arrangements:

Co-branding, also called brand partnership, is when two companies forman alliance to work together, creating marketing synergy.

the term 'co-branding' is relatively new to the business vocabulary and is

used to encompass a wide range of marketing activity involving the use oftwo (and sometimes more) brands.

Co-branding is an arrangement that associates a single product or servicewith more than one brand name, or otherwise associates a product withsomeone other than the principal producer.

The typical co-branding agreement involves two or more companies actingin cooperation to associate any of various logos, color schemes, or brandidentifiers to a specific product

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CO- BRANDINGThe objective for this is to combine the strength of two brands, inorder to increase the PREMIUM consumers are willing to pay, makethe product or service more resistant to copying, or to combine thedifferent perceived properties associated with these brands with asingle product.

Thus co-branding could be considered to include sponsorships:

MERU CABSVs Earth Infrastructure

CWG & World CUP 2011 CO Sponsors

Marlboro lends it name to Ferrari

FMCGProducts Vs HUL

JET AIRWAYS AND CITIBANK CROSS PROMOTIONS

NGOs: Collaboration with Private Sector Banks

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TYPES OF CO-BRANDING There are many different sub-sections of co-branding.

Companies can work with other companies to combine

resources and leverage individual core competencies, or theycan use current resources within one company to promote

multiple products at once.

The forms of co-branding include: ingredient co-branding,same-company co-branding, joint venture co-branding, and

multiple sponsor co-branding.

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TYPES OF CO-BRANDINGOne form of co-branding is ingredient co-branding. This involvescreating brand equity for materials, components or parts thatare contained within other products.

Examples:

Betty Crockers brownie mix includes Hersheys chocolatesyrup

Baskin Robbins Vanilla Ice Cream and Cadburys Hot

Chocolate Pillsbury Brownies with Nestle Chocolate

Dell Computers with Intel Processors

Kellogg Pop-tarts with Smuckersfruit

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TYPES OF CO-BRANDINGAnother form of co-branding is same-company co-branding. This is when acompany with more than one product promotes their own brands togethersimultaneously.

Examples

Kraft Lunchables and Oscar Mayer meats

Heinz Baked Beans and Tomato Sauce

EXPEDIAFlights, Hotels, Vacations can offer deals separately or as a

composite solution

Joint venture co-brandingis another form of co-branding defined as two or morecompanies going for a strategic alliance to present a product to the target audience.

Examples:

British Airways and Citibank formed a partnership offering a credit card wherethe card owner will automatically become a member of the British AirwaysExecutive club

PRIVATIZATION OF INSURANCE SECTOR

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Brand ExtensionFinally, there is multiple sponsor co-branding. This form of co-

branding involves two or more companies working together to

form a strategic alliance in technology, promotions, sales, etc.

Example:

Citibank/American Airlines/Visa credit card partnership

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Mergers and Acquisitions

Transfer and merging of existing assets of a domestic firm to

a foreign firm lead to mergers and acquisitions.

Cross-border mergers: a new legal entity emerges by way of

merging assets and operations of firms from more than one

country.

Cross-border acquisition: involves transferring management

control/ dilution of assets and operations of a domestic

company to a foreign firm. As a result the local firm becomes

an affiliate of the foreign company.


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Examples of Global Mergers and Acquisitions:

1. TATA CORUS

2. ARCELOR MITTAL acquisition based growth initiative

3. Standard Chartered Bank takeover of ANZ Grindlays worldwide

4. Kraft Vs Cadbury

5. P & G Vs Gillette global amalgamation

6. Vodafone and Hutch Merger Largest deal in India

7. Airtel Vs Zain Africa not fetching the best results

8. Global Airlines industry series of M & As like KLM and North West


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Short Term Value Creation:

1. Tax Shelter reducing tax bill following a merger

2. Financial Engineering Debt Leverage

3. Asset Disposals yielding returns for investments in future

4. Immediate cost savings due to low cot of capital


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Long Term Value Creation:

1. Pooling and sharing of resources

e.g. joint manufacturing,distribution and central IT networks

2. Promoting healthy and fair competition as capacity creation not due

to commencement of new project but throuh merger or a takeover

3. Economies of scale and scope

4. Enlarged market exposure in terms of product portfolios and

markets

5. Higher valuation of merged firm

6. Transfer of competencies and technologies

7. Best Practices and efficient business processes

8. Scope for innovation and Higher differentiation

Documents

IBE NDIM M & a and Strategic Alliance Lecture 20