Expansion through cooperation 2013Presentation Transcript
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 :- MERGERS • Objectives of buyers and sellers match to a large extent TAKEOVERS • Acquisition-usually based on the strong motivation of the buyer firm to acquire JOINT VENTURES • Independent firm is created by 2 or more firms • Invaluable strategy for utilizing global expansion opportunities STRATEGIC ALLIANCE • Resources capabilities & core competencies are combined to pursue mutual interests to develop, manufacture or distribute goods or services.
1.MERGER STRATEGIESHORIZONTAL• In same businessVERTICAL• Create complementarity in terms of supply(inputs) or marketing of goods & services (outputs)CONCENTRIC• Related in terms of customer functions customer groups or technologyCONGLOMERATE• 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. TakeoversHow 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 TAKEOVERSPROS CONS• Ensure management • Professionalism gets accountability replaced by money-power• Offer easy growth • Do not create any real opportunities assets for society and are• Create mobility of resources detrimental to national• Avoid gestation periods and economy hurdles involved in new • Interests of minority projects shareholders is not• Offer a chance to sick units protected to survive• Open up alternatives for selective divestment
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 VenturesBenefits Drawbacks• Minimizing risk • Problems in equity• Reducing an individual participation company’s investment • Foreign exchange• Having access to foreign regulations technology • Lack of proper coordination• Broad-based equity among participating firms participation• Access to governmental • Cultural and behavioural support differences• Entering new fields of • Possibility of conflict among business the partners• Synergistic advantage
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 alliance2. The partner firms share the benefits of the alliance and control over the performance of assigned task3. 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 Non-Competitive Competitive High Alliance Alliance Pro-Competitive Pre-Competitive Low Alliance Alliance Interaction Low High Conflict
Reasons for Strategic Alliances1.Entering new markets2.Reducing manufacturing costs3.Developing and diffusing technology
Other reasons• Accelerate product introduction• Overcome legal and trade barriers expeditiously
Managing strategic alliances1. Clearly define a strategy and assign responsibilities2. Phase in the relationship between the partners3. Blend the cultures of the partners4. Provide for an exit strategy