EXPANSION THROUGH COOPERATION

• MICHAEL PORTER’s assumption- companies compete in market for a limited market share.

• Win-Lose situation• Contrary view- competition could co-exist,

competition is possible with mutual cooperation and beneficial to all parties concerned i.e. “co-opetition”

• “co-opetition”- simultaneous cooperation and competition among rival firms.

Types of Cooperative Strategies :-

• Objectives of buyers and sellers match to a large extent

MERGERS

• Acquisition-usually based on the strong motivation of the buyer firm to acquire

TAKEOVERS

• Independent firm is created by 2 or more firms• Invaluable strategy for utilizing global expansion opportunities

JOINT VENTURES

• Resources capabilities & core competencies are combined to pursue mutual interests to develop, manufacture or distribute goods or services.

STRATEGIC ALLIANCE

1.MERGER STRATEGIESHORIZONTAL• In same business

VERTICAL• Create complementarity in terms of supply(inputs) or marketing

of goods & services (outputs)

CONCENTRIC• Related in terms of customer functions customer groups or

technology

CONGLOMERATE• 2 or more unrelated organizations

REASONS FOR MERGERS( FOR BUYERS)

• To increase the value of the organization’s stock• To increase the growth rate and make a good

investment• To improve stability of earnings and sales• To balance,complete,or diversify product line• To reduce competition• To acquire needed resources quickly• To avail tax concessions and benefits• To take advantages of synergy

REASONS FOR MERGERS(FOR SELLERS)

• To increase the value of the owner’s stock and investment

• To increase the growth rate• To acquire resources to stabilize operations• To benefit from tax legislation• To deal with top management succession

problem

Important issues in mergers

• Strategic issues

• Financial issues

• Managerial issues

• Legal issues

2. Takeovers

How takeovers take place :-• Spell out the objective• Indicate how the objective would be achieved• Assess managerial quality• Check the compatibilty of business styles• Anticipate and solve problems early• Treat people with dignity and concern

Hostile Takeovers

• Where a takeover is resisted or expected to be opposed by the existing management or professionals.

• Shares are picked from open markets and controlling interests obtained.

• With help from majority shareholders a bid is made to enter the company’s board and to acquire control.

• Political support believed to be crucial in hostile takeovers.

PROS AND CONS OF TAKEOVERS

PROS• Ensure management

accountability• Offer easy growth

opportunities• Create mobility of resources• Avoid gestation periods and

hurdles involved in new projects

• Offer a chance to sick units to survive

• Open up alternatives for selective divestment

CONS• Professionalism gets replaced by money-power• Do not create any real

assets for society and are detrimental to national economy

• Interests of minority shareholders is not protected

3.Joint ventures

Mergers

Absorption Consolidation

JOINT VENTURES

JOINT VENTURES cont..

• Joint ventures are a special case of consolidation where two or more companies form a temporary partnership (also called a consortium) for a specified purpose.

Conditions for joint ventures• useful to gain access to a new business mainly

under four conditions.1. Activity is uneconomical2. For risk sharing3. to bring together distinctive competencies4. When setting up an organization requires

surmounting hurdles.

Types of Joint Ventures

• Between two firms in one industry• Between two firms across different industries• Between an Indian firm and a foreign

company in India• Between an Indian firm and a foreign

company in that foreign country• Between an Indian firm and a foreign

company in a third country

Benefits and drawbacks in Joint Ventures

Benefits• Minimizing risk• Reducing an individual

company’s investment• Having access to foreign

technology• Broad-based equity

participation• Access to governmental

support• Entering new fields of

business• Synergistic advantage

Drawbacks• Problems in equity

participation• Foreign exchange

regulations• Lack of proper coordination

among participating firms• Cultural and behavioural

differences• Possibility of conflict among

the partners

Strategic Alliances

• Necessary and sufficient characteristics1. 2 or more firms unite to pursue a set of agreed

upon goals but remain independent subsequent to the formation of the alliance

2. The partner firms share the benefits of the alliance and control over the performance of assigned task

3. The partner firms contribute on a continuing basis in one or more key strategic areas for e.g. technology ,product etc

Strategic Alliance is a cooperative arrangement between two or more

companies where :

• Win-Win attitude is adopted by all parties• Reciprocal relationship• Pooling of resources, investments, and

risks occurs for mutual gain

Types of Strategic Alliances

High Non-Competitive Alliance

Competitive Alliance

Low Pro-Competitive Alliance

Pre-Competitive Alliance

Interaction

Conflict

Low High

Reasons for Strategic Alliances

1.Entering new markets2.Reducing manufacturing

costs3.Developing and diffusing

technology

Other reasons

• Accelerate product introduction

• Overcome legal and trade barriers expeditiously

Managing strategic alliances

1. Clearly define a strategy and assign responsibilities

2. Phase in the relationship between the partners

3. Blend the cultures of the partners4. Provide for an exit strategy